The situation at King & Wood Mallesons' (KWM) beleaguered European arm is coming to a head.

Sources at the firm have said that the Europe, UK and Middle East (EUME) business is heading for a pre-pack administration, with negotiations already at an advanced stage. Should the pre-pack happen, an announcement is likely in the second half of next week.

The ultimate buyer is unclear at this point, but talks have been held with Dentons and even with KWM's own Asian arm. DLA Piper and Greenberg Traurig are also understood to have been interested in certain partners and teams. It is still possible that KWM Europe could find a merger partner without going into pre-pack administration; however, sources suggest this is less likely.

A KWM source with knowledge of the situation says that the discussions have been "positive".

Meanwhile, it has emerged that Barclays has amended its debenture agreement to take extra security over the firm's European assets.

KWM Europe was initially forced to grant the bank, its key lender, a debenture over the firm's assets in July. That debenture covered all of the firm's securities, goodwill and uncalled share capital, intellectual property and current or future trade debts. Barclays imposed several restrictions on the firm, with documents revealing that KWM was required to gain the bank's prior written consent before it could "sell, assign, lease, license or sub-license, or grant any interest in, [the firm's] intellectual property rights".

The new agreement is even more restrictive and covers additional parts of KWM's EUME business. Interestingly, the range of circumstances under which the deed would become enforceable and Barclays would take control of the business was expanded to include any request by the firm to appoint an administrator.

The EUME business's future was cast into doubt by the collapse of its planned £14m recapitalisation. The firm's European partners recently comprehensively rejected a financial rescue deal from the firm's Asia arm.

Only 21 of KWM's European partners agreed to commit in full to the plan, which would have required European partners to pay in just under £14m in capital.

Partners are continuing to head for the exit door, with the latest departures including former EUME managing partner William Boss, who is joining Addleshaw Goddard with real estate partners Simon Tager and Michael Scott.