A client of Birmingham-based Wragge & Co and US firm Bingham Dana & Gould has publicly criticised the level of fees charged by the two firms for work done on its recent £10m rights issue.
Philip Chellingsworth, fin-ance director at sticking plaster manufacturer Innovative Technologies, told The Lawyer he had warned the two law firms that they would have to cut their £400,000 fees – which included payment for work carried out by accountancy giant Pricewaterhouse Coopers – if they wanted to continue acting for his company.
Chellingsworth said that the situation was unfortunate as the £10m funds were partly being raised to pay for an aborted asset acquisition, which had required an extensive amount of legal and acc-ounting due diligence work.
But he added “I shall be going round and asking them for a haircut. I am trying to make sure they see common sense.”
Of the £10m raised by Innovative, £1.9m will be needed to pay for the rights issue and the costs incurred before the company pulled out of the asset acquisition. Innovative backed out of the acquisition because of the drastic downturn in stock market conditions.
The first broadside against the advisers' fees came in the pages of a regional newspaper whose editorial described the amount – 4 per cent of the total funds raised – as “excessive”.
It also attacked the practice of including a large number of risk factors in rights issue documentation, which reduce the advisers' potential liability.
The “risk factors” inc-luded loss if key personnel, lack of appropriate currency hedging, patent infringement, disagreements with third parties, changes in environmental laws and the impact of the Year 2000.
Wragge & Co corporate partner Simon Graham, who led the team advising Innovative, defended his firm's fees.
“There are always issues on costs in an abortive acquisition,” he said. “The acquisition had been going on for four to six months.”
On the inclusion of risk factors, Graham said: “The criticism was a lot of tosh, frankly. They are there for the benefit of investors and directors.”
Jerry Kehoe, the Bingham Dana lawyer who advised Innovations on the overseas matters relating to the acquisition, was unavailable for comment.