FoxMandal Little, a leading Indian law firm, has delayed salary payments as the firm is in the grip of a cash crunch. The firm has not paid the June salaries of a majority of lawyers in its Delhi office (located in Noida in the national capital region) as the firm itself is yet to be paid by some of its overseas clients. It employs around 130 lawyers in Noida office.
When contacted, Som Mandal, Managing Partner, FoxMandal Little, confirmed the development to VCCircle. LegallyIndia.com, a UK based website tracking Indian and international law firms, reported the instance first.
Around 70% of the firm's overseas clients have failed to pay bills on time. The firm said that many payments had been delayed from a minimum of around 90 days to up to six months, which has thrown the firm's financial management off gear. The dues are said to be in the range of $4-5 million.
It's not clear which clients haven't cleared their dues. The law firm’s client list includes names like Vornado Realty Trust, one of the largest owners and managers of real estate in the US, and Alcatel Lucent, the US-French telecom equipment supplier (Editor: this is just a sample of clients and by no means indicate that they are the defaulters).
FoxMandal Little is, however, looking at alternate funding options. “We have a liquidty crunch and we are in talks with a few PE players,” Mandal told VCCircle. But that is not going to be an easy option for law firms in India as regulations don’t permit both banks and PE funds to put money into them (at least directly).
“Since law firms don’t get finance from banks, we have to look at other options. Even private equity funds per se would not be able to invest in them, so we have to look at a structure where they can invest through our consulting arm or do a debt structuring through our consulting arms or the properties that we hold,” Mandal said.
But there can be a model of revenue sharing at the firm's level and a stake sale at the consulting arms. Internationally, there are law firms who have roped in private investors. “Law firms are generally profitable,” Mandal said.
Mandal, however, asserted that the liquidity crunch is short term and that the law firm is absolutely healthy. “We have seen a 45% jump in our gross revenues last year and for the last four years I can say that there has been a 40%-plus growth every year,” said Mandal.
Apparently many other law firms too are facing liquidity issue. “We have been candid enough to accept it. There are others who have arranged money through private means,” Mandal quipped.