For Clifford Chance 2005-06 was all about a change in fortune. Three years ago the world's biggest law firm was in crisis. Profit was falling, its US associates were in revolt and its partnership was in turmoil.

But 2005-06 confirmed that the magic circle firm has turned the corner. Clifford Chance finished the financial year with record results. Top of equity was up from £710,000 to £920,000, while average profit per equity partner (PEP) increased by 24 per cent to £810,000, up from £615,000 the previous year. This performance came on the back of a 13 per cent rise in revenue from £914m to break through the £1bn mark. All this was achieved with a smaller partnership.

The resurrection began in January 2005. Managing partner Peter Cornell (who stood down at the start of 2006-07) relocated to New York to increase both morale and profitability. At the time, the US practice was recording profit margins of around 29 per cent, compared with a New York market average of 40 per cent and the firm's London profit margin of 36 per cent.

But in 2005-06 Clifford Chance showed signs of turning its New York operations around. The office increased turnover by a marginal 2.5 per cent to £142m, although the average profit per point of £7,000 was still far shy of the £9,100 global average. But Cornell did manage to stem the flow of departures, and the firm in fact began attracting lateral hires, such as former Merrill Lynch vice-chairman Stephen Hammerman and partner Howard Peskoe from Winston & Strawn as co-chair of the US real estate practice.

Meanwhile, on this side of the Atlantic, things really began to motor with former chief operating officer (COO) and now global managing partner David Childs at the helm.

A ferocious examination of costs, where all internal business services were streamlined, centralised and professionalised, resulted in the saving of nearly £40m, or some £100,000 per equity partner. Around 300 business support jobs were axed in the year to May 2006, with the trend set to continue into 2006-07. The firm's decision to let out two floors at its Canary Wharf headquarters is also expected to save another £2m a year.

But Clifford Chance's renaissance was not just about cost-cutting. There was also firmwide innovation, not least in community affairs and pro bono, which resulted in tie-ups with Barclays (the first of its kind) and Permira to offer free legal advice.

Practice groups across the board also pulled in heavyweight jobs. For example, the construction team scooped the mandate to advise the Olympic Delivery Authority on the £250m construction of the main London 2012 stadium, while the litigation group assisted Multiplex to win its battle with steel contractor Cleveland Bridge over work at the new Wembley Stadium.

The banking department - the traditional engine of the firm, generating an impressive 40 per cent profit margin - is now also dominating sponsor finance with mandates from the likes of Permira and CVC Capital Partners, where Clifford Chance drafted the private equity houses' term sheets. The firm also acted on undoubtedly the most sophisticated borrower-led financing of the year when it advised DP World on its politically charged acquisition of P&O.

Clifford Chance is also now in the enviable position of being able to offer a truly global corporate practice, which nestles regularly at the top of the league tables. In the UK the corporate practice is on the verge of breaking out of its private equity stronghold into big-ticket M&A. For example, it is advising longstanding client Aviva on the insurance company's £17bn offer for rival Prudential and Punch Taverns on the £2.7bn acquisition of Spirit Group.

As usual, London was Clifford Chance's most successful office, turning over £456m, up by 13.4 per cent from £402m the previous year, and averaging £12,600 profit per point. Continental Europe also improved across the board, turning over £345m, with Germany (£117m) and Spain (£28m) putting in strong performances. But the Netherlands reported the most impressive growth, increasing turnover by a staggering 167 per cent to £56.78m. The firm also capitalised on the strong Asian markets, increasing turnover by 10 per cent to £70.4m, driven largely by 25 per cent growth in China.

The past financial year also saw a radical review of Clifford Chance's lockstep. The partnership voted in a three-tier system that reduces the points allocation for economically weaker jurisdictions, includes annual reviews and apportions extra profit units to particular offices, such as the US. However, Clifford Chance backed away from plans to create an all-equity partnership model in favour of a structure designed to give junior partners a stronger voice in the running of the firm, with equal participation in all partner votes and pay aligned with the financial performance of the firm.

A global strategy review ahead of the lockstep overhaul, meanwhile, saw Clifford Chance shift away from practice area groups to a more geographical focus, reaffirming its commitment to the US and China. A paper distributed to the partnership by the review team also posited the firm's response to three 10-year geopolitical scenarios: that China invades Taiwan; the US adopts an isolationist policy; and a continuation of the status quo.

Ambitious strategic planning, but with cost-cutter Childs at its head, Clifford Chance genuinely is poised to take on the world.