Law Firms Mull Canceling Partner Payments to Boost Liquidity Amid COVID-19 Concerns

Law Firms Mull Canceling Partner Payments to Boost Liquidity Amid COVID-19 Concerns

As the COVID-19 pandemic has already caused one U.K. law firm to cancel partner payments, a U.S. legal consultant is advocating a similar move for other firms.

Leaders at Gateley, one of six publicly listed law firms in the U.K., announced via the London Stock Exchange that shareholders would not receive their March 31 dividend of 2.9 pence per share, The American Lawyer reported. The move is designed to “maximize the group’s short-term liquidity,” the firm said. Gateley’s share price dropped from 222 pence per share to 122 pence per share in two weeks.

The statement continues that activity has reduced since March 1 as a result of the disruption “caused by the COVID-19 pandemic to our clients and to our staff.”

In the same publication, a legal consultant encouraged law firm leaders to consider deferring payments to partners to ensure financial solvency.

Hugh Simons writes that the move will instill confidence in partners that management’s top priority is the financial viability of the firm. “How am I so confident about this? Because I was directly involved in deferring partner payments in the wake of the dotcom crash; we never regretted the move.” Simons formerly served as a senior partner at The Boston Consulting Group and COO and policy committee member at Ropes & Gray.

His suggestion: “If, thanks to the timing of your financial year, you’ve not paid partners their most recent profit share, then it behooves you to withhold it.” He also suggests telling partners through a series of conference calls rather than in a group email since the intention is to assure partners and answer all questions thoroughly.

“On balance, mid-July, with appropriate wording about flexibility to possibly defer further in a mechanism yet to be determined, is probably the way to go,” Simons explains, noting that payments deferred until July 15 will coincide with the new tax filing deadline. “Disasters only happen when you run out of options; preserving cash preserves options.”

Let us know what you think about this.   What are your plans?

Send us your thoughts.