King & Wood Mallesons (KWM) has changed the partnership deed for its European arm to ensure that any tax losses are split fairly between current and former partners in the event of collapse.

The firm's Europe, UK and Middle East (EUME) arm has updated the deed to clarify the way in which tax allocations are dealt with, should the partnership cease to exist.

The partnership is understood to have voted in the change earlier this month.

Previously, the EUME LLP deed did not include a specific provision for what would happen to partners' tax allocations in the event of the business ceasing to exist.

Terminal losses are normally allocated to current and former partners to offset as a deduction in calculating net income for the partnership's final tax year and the three years preceding it.

Knights dispute resolution partner John Lord, who represented Halliwells partners following the firm's 2010 collapse, commented: "It is clear that the members consider that the business will cease to trade and are therefore agreeing the allocation of terminal loss relief in advance of that happening. Changing the deed in that way may be indicative of an intention to put the business into administration at a later date."

Sources at the firm have said that the European arm of the verein is rapidly 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 KWM's own Asian arm. DLA Piper and Greenberg Traurig are also understood to have been interested in certain partners and teams. It remains possible that KWM Europe could find a merger partner without going into pre-pack administration, potentially with Dentons.

Earlier this week (7 December), it emerged that the firm's main lender, Barclays, has taken extra security over its assets under a new debenture agreement.

New documents filed with Companies House reveal that KWM's EUME arm was delivered a second debenture by Barclays earlier this week, following the first agreement, which was signed in July.

The document states that Barclays will continue to lend to KWM's stricken EUME business under the terms and conditions set out in the documents, which go into greater detail about how the latest agreement gives Barclays security over KWM's assets.

The details of charge form, created on 5 December and certified by Pinsent Masons, provides information about the different parts of KWM Europe's business to be secured, as well as the circumstances in which the deed would become enforceable and Barclays would take control of the business. This would include a request by the firm to appoint a receiver or administrator.