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News - 27 July 2012

Barclays Bank is refusing to consider a group attempt by former partners of Dewey & LeBoeuf to strike a settlement with the UK lender over debt from loans used to fund capital contributions.

Approximately 100 ex-partners of the defunct US firm who received the loans from Barclays are to negotiate with the bank after it demanded up to 7 per cent interest on their dues.

The purpose of the talks was to ensure Barclays secures a reasonable share of its dues, which is considered inevitable, while partners are not hit with a raw deal.

However, Barclays, which has been contacted by various groups of partners about the debt, is refusing to consider a combined settlement attempt because each partner’s circumstances are different.

The bank has issued partners with letters claiming that their debt is currently due in light of the firm’s bankruptcy, with the rate of up to 7 per cent on outstanding debt representing a significant increase on the 1.5 per cent interest agreed with a number of partners when they took out the loans.

Neither parties are thought to have formally instructed outside counsel to advise on the matter, with the partners preferring to use their combined weight as a group of lawyers with diverse expertise to see the talks through.

Although the group represents a wide range of partners, it is understood that those inside the senior band of Dewey figures, such as top management figures in the collapsed firm, are less vocal, with lower-ranking partners taking the lead.

Around 100 of Dewey’s 300 partners on the eve of the 2012 partner exodus took Barclays professional practice loans, with the remainder clients of Citibank and, in fewer cases, Coutts. However, Barclays’ demands are said to be the strictest.

The amounts were used to fund partners’ capital contributions, with Dewey requiring them to input 36 per cent of their target compensation into the firm as capital on joining or being promoted to partner.

Citi has also been attempting renegotiate partners’ debt, with former Dewey Houston energy partner Steven Otillar telling other ex-partners on a conference call last month that he had been pursued by the lender for his loans.

Meanwhile, former Dewey partners were set to find out last night UK time whether the firm’s bankruptcy chiefs had made any amendments to the controversial settlement deal absolving partners of their liability from the estate.

A conference call was due to be held at 3pm New York time yesterday in which heads of the US wind-down team were set to update partners on the arrangements, with a likely option being a reduction on the minimum amount those at the bottom end of the income scale are asked to pay in.

To participate in the settlement, former partners have been asked to contribute to the estate between 10 and 30 per cent of their 2011 and 2012 income from the firm, depending on how much they received in those years in drawings and distributions, return of capital and debt payments.

The deal was met with significant opposition, with a number of UK partners declaring themselves unlikely to take part It is thought that UK partners who are US-qualified and were members of both the US and UK LLPs are more likely to participate as they are not thought to be safeguarded against clawbacks, while there is still uncertainty over whether full UK LLP members are liable.

The deadline for opting in to the arrangement was put back from 24 July to 7 August following the backlash.