Denton Wilde Sapte (DWS) is set to shell out more than £1m this year to a number of former equity partners 11 years after a change in accounting practices created an ‘unexpected’ profit.
Former Denton Hall equity partners have been receiving payments of up to £250,000 each since May 2003 from a surplus account that was generated in 1994 after the firm switched its accounting procedures from a cash basis to work in progress.
At the time, most firms compelled by the Inland Revenue to change their accounting policy opted to pay the surplus to equity partners or convert it into capital.
Instead, Denton Hall decided it would distribute the money to equity partners who remained after 10 years as an incentive for partners to stay at the firm. Partners involved in the arrangement collect their cash in three six-monthly installments following their resignation.
The unallocated special reserve account (USRA) was agreed to by Denton Hall partners prior to its merger with Wilde Sapte in 2000, with many sources claiming Wilde Sapte partners were kept out of the loop regarding the arrangement during the merger.
DWS managing partner Howard Morris insisted the payments had “no effect on the firm’s profit”.
He added: “[USRA] is money that has accrued on the balance sheet and is allowed for in the budget. At the time, it was an unexpected windfall and we decided it would be a nice way to get partners to commit to the firm.”