The predicted demise of so many small firms affects the morale of the whole profession

With so much change and uncertainty, how can the legal sector regain self-confidence and believe it can thrive, asks Susanna Heley

It seems to have been a pretty bad year for solicitors. The demise of insurance company Balva was far more dramatic with potentially 
much more wide-ranging consequences than the demise of Quinn (more of a whimper than a bang).

Compounded by an 
about-face on the part of Berliner, many firms must have felt as if they were players in a never-ending farce. For those not in the know, Berliner was due to take on much of the indemnity business previously serviced by Balva but decided to revoke all of its offers, leaving many firms who thought that indemnity renewal had been painless to a last-minute scrabble for cover.

As it stands, some 130 firms seem to have entered the 60 day ‘cessation period’ during which they basically have to shut up shop. All that is currently known of these firms is that a good number (the SRA’s best guess seems to be about 50) have failed to update the SRA as to their insurance position.

Mixed response

The SRA rattled through its intervention budget for the year in just a couple of months with some reasonably big names on the books, and its financial stability exercise is expected to result in the demise of many more firms. The SRA’s focus on ‘FinStab’ has attracted a mixed response. Despite approval of the exercise from senior members of the Law Society, many have concerns that the SRA’s involvement could cause the demise of firms which might otherwise trade through temporary difficulty. Having seen the SRA’s approach, it is easy to see why firms which are the subject of FinStab investigations are frustrated.

The economy has picked up a little but the devastating effect of legal aid reform, the Jackson reforms and the LASPO ban on personal injury referral fees has decimated large swathes of the legal services market. Add to that ever-increasing overheads and an increasing regulatory burden, and the future is not looking exceptionally bright, particularly for those firms with already low margins.

Then we have the news that only around 85 per cent of practising certificate renewals were submitted on time. The SRA is apparently commencing its revocation procedures. It seems likely that a number of those non-renewals (which, after all, is an estimate based on last year) are people who for one reason or another can’t or don’t want to renew for reasons of death or retirement or simply getting a job that does not require a practising certificate.

A number may be accounted for by the 130-odd firms that are forced to close anyway. And the figures are slightly skewed by the fact that the SRA were expecting around 29,000 applications in respect of around 130,000 individual practising solicitors because most would be part of a group renewal. So 
15 per cent equates to around 4,000 applications but we don’t know if they are firm or individual solicitor applications.

Unfortunate but inevitable

With all of this going on, there 
is little wonder that most predictions are of a significant reduction in the overall number of solicitors firms in the short to medium term. Lord Falconer, for example, has said that the demise of the generalist high street practice is unfortunate but inevitable. The longer-term picture is muddied by the uncertainty as to whether the Legal Services Board will get its wish (as expressed in its response to the Ministry of Justice’s call for evidence) that all existing regulators be abolished and a new regime is established, starting from scratch.

Maybe it’s an oversimplification that economic success is based on confidence, but confidence is essential to a healthy economy. People spend when they are confident of a reliable source of income. Lenders lend when confident they’ll get their money back with interest. Confidence 
is a fragile thing and when it falters, the consequences can 
be dramatic.

So, my question is: how 
is the profession supposed 
to have confidence in itself 
and inspire confidence in consumers in the face of continuous uncertainty?

Susanna Heley

RadcliffesLeBrasseur

This article was first published by Solicitors Journal and is reproduced by kind permission.


Disclaimer

This briefing is for guidance purposes only. RadcliffesLeBrasseur accepts no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommends that appropriate legal advice be taken having regard to a client's own particular circumstances.