Difficult conditions set to continue for some law firms

Year Published: 2013

The extent to which law firms are experiencing difficult trading conditions has been highlighted by the Solicitors Regulation Authority (SRA) for some time now, something the industry as a whole recognises.

The fact that firms in financial difficulties are ‘increasingly turning to non-mainstream lenders’, according to the SRA’s recent announcement, serves to highlight this trend.

The SRA has also stated that it is alive to the potential risk of a non-mainstream lender exercising significant influence in these firms, which could be considered as alternative business structure (ABS) arrangements.

It follows the SRA’s ‘Risk Outlook 2013’ in which the SRA revealed that it was engaging with 51 firms which had an high likelihood of intervention and had identified a further 2,000 firms with an increased susceptibility to intervention.

The financial pressure faced by law firms is unlikely to ease in the short-term following the:

  • Implementation of the Jackson reforms with effect from 1 April 2013;
  • Changes to the professional indemnity insurance market including the replacement of the Assigned Risk Pool and the failure of Latvian insurer Balva; and
  • Continued pressure on costs from clients generally.

The announcement from the SRA about the number of law firms in financial difficulty has come at a sensitive time given the impending renewal dates from professional indemnity insurers.

ABS arrangements are a particular issue for firms when renewing their professional indemnity insurance; the majority of insurers refuse to provide cover if the business combines legal services with other offerings, such as debt management companies and claims management companies.

If you are facing any of these issues or financial pressure is causing other issues our professional practice team is able to assist. If you require further information or assistance please contact Paul Formby on 0844 391 5858.

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