Commercial Awareness Update- September 2019

[Sara Moon]

Hi everyone

It's a new month again, time really flies!

Hope you enjoy this week's updates!

Commercial News Update – Wednesday, 4th September 2019

Topics covered this week:

1. Deal Agreed for British Steel Subsidiary TSP Projects (@ELA)
2. Labour’s Plans for Share Seizures @LJ
3. Argentine Debt Crisis @Moni
4. The Future of HS2 and Brexit Update @Alice G
5. UK High Street Reform @Sara Moon

1. Deal Agreed for British Steel Subsidiary TSP Projects (@ELA)

The Story

Last week, French engineering firm Systra agreed a rescue deal for TSP Projects, an infrastructure design consultancy owned by British Steel.

Control of British Steel passed to the official receiver in May, as the high court ordered the company’s compulsory liquidation.

Impact on Businesses and Law Firms

The acquisition will make TSP a fully-owned subsidiary of Systra, which means Systra will now own 100% of TSP’s shares. The official receiver was able to make the decision to sell TSP because one of British Steel’s creditors, White Oak Asset Finance, agreed to release the security it held over the subsidiary, removing a claim over the business. Corporate and finance legal departments will have been needed to coordinate this structural change and update contracts linking TSP with British Steel and its creditors.

Moreover, it was reported that the acquisition will save 400 jobs and that the agreement includes TSP’s £70m of pension liabilities. During due diligence, Systra’s legal team would have had to examine employment contracts and advise their clients on the legal and commercial feasibility of the acquisition.

Finally, the transaction is a good example of how businesses can use an acquisition to achieve strategic aims. Indeed, the acquisition will double Systra’s size in the UK and strengthen its position in the engineering and consultancy market for mass transit, mobility and infrastructure. Its CEO, Pascal Mercier, said that “this acquisition [was] a game-changer for [Systra’s] UK and Ireland business, placing [it] among the leading UK consulting engineering firms”. He also recognised the importance of firms sharing a similar culture to realise synergies post-acquisition, noting his feeling that the acquisition was “a good fit between two like-minded companies with a shared commitment to excellence, safety and innovation.”

Some commentators noted TSP was always the most “attractive” part of British Steel because it is a service business and therefore, unlike its manufacturing parent company, it is unlikely to suffer as much from Brexit uncertainty – one factor which was cited as a reason for British Steel’s struggles.

2. Labour’s Plans for Share Seizures @LJ

The Story

Analysis by Clifford Chance and the FT claims that a Labour government would confiscate roughly £300bn of shares in the 7,000 largest companies and transfer them to workers. The FT claims that this would be one of the biggest raids on the private sector to take place in a western democracy, representing a shift in power away from bosses to workers.

Specifically, McDonnell’s plan is to gradually hand 10% of equity to workers in any company which has more than 250 staff. Workers can earn up to £500 a year in dividends, with anything above this, significantly, going to the state through a ‘stealth tax’.

Impact on Businesses and Law Firms

It is difficult to pinpoint the exact impact this will have on both businesses and law firms. As Dan Neidle (partner at Clifford Chance) explained, “there is no historic precedent” and we would be in “completely uncharted territory”.

Though, while it’s hard to determine practical implications, it is possible to discuss the more theoretical arguments presented. McDonnell argues that shares establish a stronger vested interest for workers in the success of their company; therefore, potentially enhancing productivity (this model is famously seen in John Lewis’ partnership model). Likewise, the long-term impacts are also important to consider. Companies are likely to invest more in human resources, with employees more incentivised to stay longer, helping reduce overall turnover.

Nevertheless, companies may restrict investment into the UK if this does indeed pass as legislation, as it takes both profit and power away from owners. Furthermore, wages could be lowered in order to counteract these higher costs facing the company. Overall, it establishes further limitations generally on the flexibility of a more free market based economy.

Commercial lawyers may already be discussing how to anticipate this. Employment lawyers will be researching how this can change the relationship between ownership and staff. Additionally, restructuring lawyers will perhaps consider more substantial changes to corporate structure to minimise impact for clients.

3. Argentine Debt Crisis @Moni

The Story

Last week, Argentina entered a “technical default” on about $101bn in outstanding debt, including IMF loans and global bonds. The government previously announced that it was seeking to postpone payments on its local bonds and IMF loans, while it worked to adjust the maturity profile on $50bn of foreign-owned debt. Economic uncertainty, since the President’s unexpected defeat in the primary elections, has made it difficult for the government to place short term debt which it would use to cover repayments.

Since the announcement, Argentine bond prices have reached all-time lows, and the peso has rapidly devalued. Over the weekend, President Macri imposed capital controls to support the weakening currency and prevent the debt crisis from worsening. The official peso rate has improved; however, the full impact of the restrictions is yet to be seen.

Impact on Businesses and Law Firms

Argentina has now defaulted nine times and investors will worry that last week's events are only the beginning of yet another prolonged debt crisis. The default is especially concerning given that Argentina is currently going through a political transition. As such, there is concern that noone has sufficient authority to negotiate with the IMF and current bondholders. President Macri, who won over markets with his free-market economic agenda, suffered a surprising defeat to Alberto Fernandez in last month's primary election. Investors do not have a clear sense of Mr Fernandez' planned economic agenda and fear a return to populist policies that have previously resulted in economic stagnation.

Investors will be watching IMF and bondholder discussions closely with the hopes that President Macri can stem the crisis. The negotiations will also provide a significant opportunity for law firms with expertise in sovereign debt restructuring. Both the government and bondholders will look to legal counsel on how best to secure a working compromise in the coming months.

 

[Sara Moon]

4. The Future of HS2 and Brexit Update @Alice G

1. The Future of HS2

The Story

A review of HS2, the high-speed rail project, has been ordered and the project shall be given the go ahead to continue or it will be terminated by the end of this year. Boris Johnson wants to be sure that the benefits of the project will be worthwhile for the money the project is costing, which is set to far exceed the initial £56 billion budget. It has been reported that the project will also likely be delayed by 7 years even if it was to continue.

Impact on Businesses and Law Firms

Projects that are in the pipeline are very much dependent on the HS2 rail infrastructure being built, especially in Manchester, Crewe and Leeds. Should the plans be cancelled then these projects and the businesses set to benefit from them will be in jeopardy. It is possible that litigious claims might be brought forwards if these businesses incur any financial losses or damage from the plans being seized. Developers who had planned to build commercial office spaces near the HS2 rail links would be an example.

The project hopes to reduce the congestion on the rail links and to rebalance the economy by making cities like Leeds and Manchester more accessible with the hopes of developing them into increasingly thriving business metropolises. Should the project not go ahead, London will remain the ‘land of opportunity’ in the UK and businesses which have already made the move into the North might decide to scale back again.

2. Brexit Update

The Story

Following a tumultuous week after announcing his intention to prorogue parliament, Boris Johnson is fending off rebels within his own ranks. Tuesday afternoon saw one MP, Dr Phillip Lee, defect to the Liberal Democrats which lost the Prime minister his parliamentary majority. MPs are now seeking to pass a bill which would delay Brexit until the end of January unless MPs approve a new deal or vote for a no-deal Brexit. Boris Johnson has also threatened to call an election in mid-October in order to secure a mandate to progress with a no-deal Brexit.

Impact on Businesses and Law Firms

Sterling has hit another slump amid the chaos in parliament and we still do not seem to be any closer to a degree of certainty with regards to Brexit. An election would almost certainly damage the value of sterling even further.

Law firms had a hand in trying to argue against the legality of Johnson’s decision to prorogue parliament, namely Mishcon de Reya, although the legality of this move was reinforced in the Courts.

If an election is called and the Liberal Democrats were to gain a majority and mandate in parliament, it is possible that we could still have a second referendum on Brexit which would have a seismic impact. The next month will be defining and we should be attentive to the daily and weekly updates surrounding Brexit and the process in action.

5. UK High Street Reform @Sara Moon

The story

Struggles of the high street has been on the news in the recent years as more and more people prefer online shopping, rents soar and minimum wages rise. One in 10 shops in UK town centres are vacant and many well-known retailers like Debenhams, Office and Boots have been carrying out restructurings.

In order to re-energise the high street, the High Street Fund was created in December 2018. Last Monday, the Ministry for Housing, Communities and Local Government announced that it will add further £325m to the fund. The fund will be used to support various projects, such as improving transportations and converting empty shops into homes, that will help revitalise 50 selected town centres.

Impact on businesses and law firms

Due to declining customers and increase in business costs, most retailers have been restructuring their businesses and closing a large number of their shops. Although unfortunate for the companies, restructuring and insolvency involve various legal issues for law firms to advise on. Other than advising on the restructuring process itself, law firms may also have to advise on any unexpected legal issues that may arise during the process. For example, Debenhams restructuring scheme is currently facing a legal challenge brought by Combined Property Control (CPC), which represents some of the Debenhams stores’ landlords. CPC is arguing that the company’s rescue deal that agreed to shut 50 stores and secure rent cuts was not run properly, and if it wins the case, Debenhams restructuring plan may fail.

 

[Syafiqkay92]

3. Argentine Debt Crisis @Moni

The Story

Last week, Argentina entered a “technical default” on about $101bn in outstanding debt, including IMF loans and global bonds. The government previously announced that it was seeking to postpone payments on its local bonds and IMF loans, while it worked to adjust the maturity profile on $50bn of foreign-owned debt. Economic uncertainty, since the President’s unexpected defeat in the primary elections, has made it difficult for the government to place short term debt which it would use to cover repayments.

Since the announcement, Argentine bond prices have reached all-time lows, and the peso has rapidly devalued. Over the weekend, President Macri imposed capital controls to support the weakening currency and prevent the debt crisis from worsening. The official peso rate has improved; however, the full impact of the restrictions is yet to be seen.

Impact on Businesses and Law Firms

Argentina has now defaulted nine times and investors will worry that last week's events are only the beginning of yet another prolonged debt crisis. The default is especially concerning given that Argentina is currently going through a political transition. As such, there is concern that noone has sufficient authority to negotiate with the IMF and current bondholders. President Macri, who won over markets with his free-market economic agenda, suffered a surprising defeat to Alberto Fernandez in last month's primary election. Investors do not have a clear sense of Mr Fernandez' planned economic agenda and fear a return to populist policies that have previously resulted in economic stagnation.

Investors will be watching IMF and bondholder discussions closely with the hopes that President Macri can stem the crisis. The negotiations will also provide a significant opportunity for law firms with expertise in sovereign debt restructuring. Both the government and bondholders will look to legal counsel on how best to secure a working compromise in the coming months.

Hi

I was just wondering. What are the recourse available to lenders and bondholders of Argentina debt such as IMF if Argentina defaulted on its repayment obligation again? Can the IMF or bondholders take control of a country? If so, how exactly?

I know that there has not been any case where this has happened. These countries are often able to negotiate something at the last minute, facilitated by organisations like the IMF. I was just wondering from a legal standpoint.

Regards,
Syafiq.

 

[ELA]

18th September 2019 - Welcome to this week’s Commercial News Update!


Topics covered this week are:

1. Saudi Arabia Oil Attacks (@Sairah)
2. Back to Basics: The Swiss Verein (@Jaysen)
3. WeWork Shelves IPO (@AliceG)
4. The HKEX’s Unsolicited Bid to Acquire the LSEG (@Moni)
5. The European Central Bank’s Latest Stimulus Package (@ELA)



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1. Saudi Arabia Oil Attacks (@Sairah)

The Story:

On Monday, stocks of oil companies across the USA and Asia-Pacific increased. This led to oil prices rising by nearly 20% at some point, following two drone attacks over the weekend that hit Saudi Aramco’s oil production facilities in Abqaiq (the world’s largest oil plant) and Khurais. The attacks led to Saudi Arabia suspending 5.7 million barrels of daily crude production, equating to 50% of Saudi’s oil output and more than 5% of the world’s oil supply. The attack on Saudi’s oil is the biggest one-day disruption since 2003, that led to the loss of 2.3 million oil barrels.

According to the Wall Street Journal, the oil company Saudi Aramco operating the Abqaiq plant has begun to restore production, and expects to resume a third of its crude output by Monday. But, analysts predict it could take weeks for the facilities to reach its full capacity. Despite this, Saudi officials have said they will use other facilities and existing stock to replace the plant’s production. This means it is likely the disruption will not affect crude supplies in the near-term, as there is enough capacity in storage to meet the shortfall in the short-term.

President Trump on Sunday stated he would release supplies from the America’s Strategic Petroleum Reserve if required, an attempt to calm the oil markets. Having said this, the world’s richest countries have oil reserves of more than 2 billion barrels, but a possible issue is releasing those to relieve supply concerns could potentially backfire and result in higher prices on the market. This is due to investors worrying about tight supply.

Impact on Businesses and Law Firms:

Saudi Aramco’s planned initial public offering could be at risk if international investors doubt Saudi Arabia’s ability to defend its important energy infrastructure. According to Al Dhabi Capital, a delay of Aramco’s IPO could be on the cards even on the local exchange.

Investors saw a live demonstration of the risk levels of the future revenues of Saudi Aramco this weekend. This has led to investors being forced to re-evaluate their risk models on Aramco. Law firms with a strong presence in the Middle East, such as White & Case, will be needed to help investors conduct a full diligence check on Saudi Aramco before considering any investment deal. Investors may also instruct their own finance lawyers to assess the valuation of Aramco (currently valued at $2 trillion). This is because the international component of Aramco’s IPO will be more sensitive to geopolitical risks, which has in the past been an important factor for valuations across the Middle East.

Aramco will have to demonstrate its financial resilience towards such events to gain investors’ confidence. One way this could be achieved is by Aramco’s lawyers drafting future contracts with investors, including force-majeure clauses, which void agreed-upon terms in extreme unforeseen circumstances, like this drone attack.



2. Back to Basics: The Swiss Verein (@Jaysen)

The Story

Over the past decade, many of the major cross-border mergers have adopted a structure called a Swiss verein. It’s a structure that has made many firms – including DLA Piper, Dentons, Hogan Lovells, KWM, Norton Rose Fulbright – who they are today.

A Swiss verein allows for rapid international expansion. Firms ‘merge’ in the sense that they combine under the same brand, however they keep the finances and liabilities separate within each office or region.

Importantly, they may adopt the same strategy and IT systems, but they don’t share profit pools.

Impact on Businesses and Law Firms

But what does this really mean for you?

Firms that use the Swiss verein often have a substantial international presence. The structure allows for flexible and quick international mergers. If firms don’t have to share profits, they can worry less about diluting the overall profit pool when merging with less profitable firms. They can also keep the cultures of the firms independent.

It’s those benefits that have helped Dentons pursue aggressive international expansion (around 40 combinations between 2013 and 2018). And, as a lawyer, this likely means plenty of international work, as well as potential opportunities for secondments in a broader range of jurisdictions.

But you might want to consider the wider impact of ringfencing a firm. A Swiss verein means if partners refer work to the other entities within their network, that work won’t contribute to their profit pool. Now, this doesn’t mean partners won’t still refer work, but the disincentive leads to the question: how does a verein impact law firm culture? If offices are financially and legally separate, are the offices genuinely integrated? Do international offices work together as ‘one firm’?

Now, vereins aren’t all the same. You just may not know whether you’re speaking to a Hogan Lovells (a widely successful use of the verein) or a SJ Berwin/King & Wood Mallesons (a disaster).



3. WeWork Shelves IPO (@AliceG)

The Story:

Late on Monday, it was decided that WeWork would not pursue its seemingly imminent IPO until potentially later this year, despite there having been plans to price and list its shares as early as next week. It has been reported that the postponement is due to investors’ fears about the co-founder, CEO Adam Neumann, having too much control over the business, as well as the business’s operating losses. This also means that the company is unable to access a $6bn loan that had been raised by a consortium of banks and which had been contingent upon the successful listing of WeWork.

Impact on Businesses and Law Firms:

Law firms are instrumental in assisting businesses to list on the stock market and they are the ones who ensure that all the relevant documentation has been processed and arranged for the listing to occur. Although law firms are likely to be paid for all the work they have done so far towards the IPO, its shelving could potentially mean a loss of work involved in finalising the process, should WeWork decide not to list altogether further down the line.

Many CEOs are increasingly prominent as key figures, think Elon Musk for example, and their reputation and influence are closely watched by investors. Neumann is considered a controversial figure, and this serves as a brilliant example of how important character, ethics and the strategy of the individual are in the business world.

 

[ELA]

4. The HKEX’s Unsolicited Bid to Acquire the LSEG (@Moni)

The Story

Last week, the Hong Kong Exchanges and Clearing (HKEX) made a £32bn offer to acquire the London Stock Exchange Group. HKEX hopes to use a potential acquisition to connect Chinese capital markets with the rest of the global financial system. A successful acquisition of the LSE would make HKEX the largest exchanges operator in the world by revenues.

The London Stock Exchange, which was taken unawares by the HKEX’s bid, has since rejected the offer and cited issues with the proposed deal structure as well as concerns over political stability in Hong Kong. Currently, the Hong Kong government appoints more than half of the HKEX’s board, and as such, political risk will be a key concern for the LSE. However, HKEX still has three weeks left to make a formal bid under UK Takeover rules, and plans to directly approach LSE investors and stakeholders to preside the board to accept their offer.

Impact on Businesses and Law Firms

In addition to the LSE board, HKEX is also having discussions with regulators and politicians in the UK, including the Financial Conduct Authority, the Takeover Panel and the Bank of England. Moreover, the HKEX will need to receive approval from Consob, the regulator of LSE’s Italian business.

The HKEX bid, if successful, would result in the breakup of the LSE’s agreed deal to buy Refinitiv, a data and trading group. The LSE has agreed to buy Refinitiv for £27bn as part of a strategic plan to pivot towards financial data and away from its traditional trading business. In its offer, HKEX tries to highlight the weaknesses of the Refinitiv deal. However, the deal was well received by the market and LSE shares soared nearly 30% after it announced that it would pivot into data and away from its traditional trading business.

Finally, the HKEX’s bid is yet another illustration of the consolidation trend in the exchange industry which will be of particular concern for regulators and antitrust lawyers, who will be looking to ensure that consolidation does not result in any market unfairness. The long review process of the LSE/Refinitiv deal is illustrative of the close scrutiny that regulators will give any large consolidation proposals.



5. The European Central Bank’s Latest Stimulus Package (@ELA)

The Story

Last Thursday, the European Central Bank (ECB) cut its baseline interest rate to -0.5% and announced that it will resume its quantitative easing programme (QE), buying European government and company bonds every month from November 2019 until inflation expectations come “sufficiently close to, but below, 2%”.

Impact on Businesses and Law Firms

The ECB’s stimulus package comes amid concerns that the Eurozone economy is headed towards a recession: Eurozone production fell more than expected for consecutive months this summer, and consumer prices had risen by only 1% in the year to August 2019, well below the ECB’s target.

The ECB aims to encourage borrowing and spending: QE is meant to inject money directly into the economy, and lower interest rates mean borrowing is cheaper for businesses and saving discouraged, as the return on money deposited in savings accounts is low. If successful, the measures could lead to more activity for law firms’ corporate and project finance departments, for example.

Yet, the stimulus package has raised concerns and attracted criticisms. First, some argue that interest rates have been low for so long that businesses have taken advantage of them already. Second, there is a risk that lowering interest rates could slow the economy further, as businesses start expecting future cuts and wait to borrow and invest. Third, QE has been criticised for fuelling asset bubbles by inflating prices.

In addition, lower interest rates lead to lower lending revenue for banks, and negative rates mean they have to pay the ECB to hold their money. Volker Hoffman, of the Association of German Banks, said that Eurozone lenders already pay about €7.5bn a year in negative rates on the excess deposits they hold at the ECB. There are therefore fears that banks’ margins will be eroded further because of the ECB’s actions. However, the ECB did announce measures to counter this, such as a tiering system to exclude some excess deposits from negative rates and offering cheap loans for banks.

 

[Alice G]

25th September 2019 - Welcome to this week’s Commercial News Update!


Topics covered this week are:

1. Thomas Cook's Collapse (@Moni)
2. AirBnb Plans to Go Public (@Alice G )
3. The Government’s Intervention in Cobham’s Takeover and National Security Review Regimes (@ELA)
4. Back to Basics: Law Firm Partnerships (@Jaysen)

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Thomas Cook’s Collapse @Moni

The Story:

On Monday, Thomas Cook, the UK’s oldest travel company went into compulsory liquidation after it failed to agree a rescue deal with lenders, shareholders and the UK government. The travel company’s shares had tumbled in recent years, as it failed to adapt to massive shifts in the travel industry and ran into huge profitability and cash flow issues.

When it realised that it was on the brink of corporate collapse, Thomas Cook approached the UK government for a bailout of about £150m. However, the government chose not to intervene and stated that the company had systemic issues and, as such, any cash injection would only keep the company afloat for a short period of time.

The company’s collapse has left 150,000 holidaymakers stranded and 21,000 jobs at risk. The government is currently putting together a massive repatriation effort to bring back British travelers stuck in various corners of the globe. Although most of Thomas Cook’s subsidiaries have been affected, some of its foreign entities have been able to continue activities.

Impact on Businesses and Law Firms:

Officially, only Thomas Cook’s British legal entities have entered compulsory liquidation, however many of its European entities have been affected. The company’s German airline, Condor, was forced to request a bridge loan of 200 million euros from the German government in order to avoid a shortfall in liquidity. In addition, many connected businesses in the travel industry are likely to experience weeks to months of turbulence. For example, travel insurers will likely see a surge in insurance claims as customers seek to be reimbursed for cancelled trips.

From a legal perspective, restructuring lawyers for all the relevant parties will have a lot of work on their hands. Thomas Cook’s shareholders and lenders will look to salvage what they can of their investments, potentially through asset sales and takeovers. Thomas Cook’s management on the other hand, may be looking to preserve the value of their brand and the control of their non-British subsidiaries. Alix Partners, a restructuring specialist, has been appointed to oversee the liquidation process and Latham & Watkins have also been involved in the negotiations.

The collapse has also resulted in a significant political discussion about whether or not the government should step in and bail out businesses whose collapse could cause significant disruption in large industries and, potentially, the economy.


Airbnb Plans to Go Public @Alice G

The Story:

Last week, Airbnb announced its plans to go public ‘during 2020’ just a day after it reported more than $1bn in revenue for the second quarter of 2019. The company had already raised speculation that it intended to list back in March 2019, but the recent announcement has given the market a more clearly defined intention. There has been little information beyond this; it is still unclear how the company plans to list its shares but there had been consideration of a direct listing back in June. A direct listing is one in which no new shares are offered but existing investors are allowed to sell their current shares, as opposed to an initial public offering (IPO) where new shares are underwritten and sold.

Impact on Businesses and Law Firms:

Airbnb may be keeping its cards close to its chest because of the mixed results yielded by some of the major IPOs of 2019. Uber and Lyft each had relatively poor performing IPOs because of concerns surrounding profitability and increased regulatory pressure and WeWork’s recent woes have also demonstrated the difficulties companies are confronted with when trying to list. Airbnb has recently muscled in on the hotel industry and the experiences market whilst also facing regulatory challenges itself - one such challenge has meant that lets in London can be for no longer than a 90-day period. Despite decent valuations, the company will no doubt be cautious and sensitive to the problems it may face but the potential capital which could be raised would no doubt be worth the trouble!

Law firms are pivotal when drafting the documentation for IPOs. One of the most important documents that would be compiled is the prospectus, a very lengthy document which details everything and anything about the company being listed for the review of potential purchasers of shares.

 

[Alice G]

The Government’s Intervention in Cobham’s Takeover and National Security Review Regimes @ELA

The Story:

Last week, the British government intervened in the takeover of aerospace and defence group Cobham by US private equity firm Advent International, to assess whether there are national security concerns.

Impact on Businesses and Law Firms:

It is possible to see this intervention as an example of the trend towards increasing regulatory scrutiny in M&A, particularly with regards to foreign investments (i.e. when a domestic company is being acquired by a foreign company) and their national security implications.

In 2018, new rules were introduced in the UK, which broadened the scope of government regulatory intervention on grounds of national security: the intervention threshold was cut from £70m to £1m for transactions in advanced technology and in the military sector. Additionally, a white paper published last summer mentioned the UK government’s intention to introduce a ‘voluntary notification regime’, which would push dealmakers to notify the government of any transaction with a potential national security risk.

Changes in foreign investment screening regimes directly affect corporate lawyers and their clients, who face increasing complexity, uncertainty, and risk. Firstly, though I have focused on the UK here, a range of countries are updating their control regimes. If more regulatory bodies follow different review procedures, have different requirements and operate according to different benchmarks, compliance will be complicated for parties to multi-jurisdictional transactions. Secondly, increased regulatory scrutiny and changes in regimes are likely to lead to more uncertainty for dealmakers, who will wonder how the new rules will operate in practice and how strictly they will be applied. Ultimately, enhanced regulatory scrutiny increases the risk that a transaction will fall through or that remedies will be required. Given the potential impact on deal timetables, deal value and deal completion, even more importance will be placed on transactions’ planning stage, on due diligence and on the negotiation of risk allocation provisions.


Back to Basics: Law Firm Partnerships @Jaysen

The Story:

UK commercial law firms have long been run as partnerships. Partners band together, sharing the benefits and risks of running a law firm.

These partnerships resemble a pyramid. At the bottom, you have a large number of juniors. As you move up the structure, the number of lawyers decreases, while the pay and seniority increases. The incentive is that you work your way up to become one of few limited equity partners who participate in the profits of a law firm.

However, recent trends have been challenging what it means to be a true partnership, which leads to the question: are partnerships a suitable structure for the law firms of the future?

Impact on Businesses and Law Firms:

The business of law firms has changed over the last decade. Clients have pushed back on excessive legal fees and taken more work in-house.

Some law firms now transfer high-volume process work to alternative legal service providers and use technology to deliver more cost-effective legal services. Others have opted to change their structure entirely, becoming an Alternative Business Structure to access outside investment.

As profitable US law firms swooped into London, some top UK law firms have adjusted the way they pay partners. Instead of the pure lockstep model (where pay increases according to partner seniority), merit-based pay is increasingly a consideration.

The employee market is also different. Partners move around firms far more than they used to, and a shot at the equity partnership isn’t enough to attracts juniors. Attracting and retaining talent is one of the biggest challenges right now.

All these changes have disrupted the traditional pyramid structure of a law firm. While the partnership isn’t going anywhere yet, law firms must consider how to adapt their structure to cope with the modern world.

 

[Abstruser]

Hi

I was just wondering. What are the recourse available to lenders and bondholders of Argentina debt such as IMF if Argentina defaulted on its repayment obligation again? Can the IMF or bondholders take control of a country? If so, how exactly?

I know that there has not been any case where this has happened. These countries are often able to negotiate something at the last minute, facilitated by organisations like the IMF. I was just wondering from a legal standpoint.

Regards,
Syafiq.

The ECB published an interesting paper on this topic: https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2135.en.pdf

Unlikely that bondholders could 'take control' of the country, as that is quite broad and drastic. Recourse is usually just to litigate for the defaulted sum. Sovereigns are usually keen to avoid litigation as it has broader economic repercussions, as the paper discusses.

 

[Syafiqkay92]

The ECB published an interesting paper on this topic: https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2135.en.pdf

Unlikely that bondholders could 'take control' of the country, as that is quite broad and drastic. Recourse is usually just to litigate for the defaulted sum. Sovereigns are usually keen to avoid litigation as it has broader economic repercussions, as the paper discusses.

Thank you. This is really useful.