According to R3, dozens of law firm based in the North East could become insolvent following the introduction of the so called "Tesco Law" whereby non lawyers can set up legal practices. The new law is enshrined in the Legal Services Act. Ironically, Tesco have shown no interest in setting up legal practices in their stores! The act was brought in in the hope that the legal services could be more accessible to the public and allow more competition. It is that very competition that is getting the lawyers worried. Inefficiencies are being ironed out and economies of scale are in the mind of lawyers with a recent flurry of mergers.
R3, using the somewhat crude instrument of the Fame Database, have found that five North-East law firms – about three per cent – are at high risk of failure while a further one in four – 50 businesses – face significant risk of insolvency.
R3 president Lee Manning said: “The North-East is home to some of the best legal practices in the country, but none of them are immune to the challenging environment in which everyone is operating.
“The legal services sector is a very crowded market – firms that are not competitive will clearly have problems in thriving in such an environment.
“Unlike many other businesses, limited liability partnership, partnerships and sole practitioners are not directly assessed for tax on the business’ profits, but will commonly arrange to settle individual partners’ liabilities.
“While ideally, a tax reserve fund will have been maintained for this purpose, it is not always the case that it will have been, particular when the economic climate is as it is today.
“Careful planning and management of taxes can help to give businesses an edge and make this time of year less daunting, and we would urge any firms that are worried about their financial future to seek professional restructuring advice before it’s too late.”
So well said Lee. Indeed given the potential significant personal impact that partnership insolvency can have it is essential that lawyers do seek advice early. Most importantly though there is no need to fear talking to a professional turnaround advisor or insolvency practitioners. If liabilities have built up then there is always the possibility of doing a time to pay or informal arrangement with creditors.
Talk to our Director of Turnaround Eric Walls who is based in our Gateshead Office. He can tell you all the options. Perhaps first take a look at our Plan A for Lawyers pages