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Quarter of law firms at risk of going bust

24 per cent of UK law firms are in danger of going out of business as a result of the Legal Services Act, a trade body for insolvency professionals has found.

3 September 2012

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The Association of Business Recovery Professionals (R3) has warned that smaller law firms are most at risk of the prospect of closure as a result of the introduction of alternative business structures (ABS) and from the current recession, which will see increased competition in an already overcrowded legal sector.

Firms in the south west and east of England are at significant risk, with figures suggesting 27.7 per cent (140 firms) and 36 per cent (180 firms) of law firms in these regions respectively could cease operating in the next 12 months, the Association found.

Ross Connock, R3’s vice chairman for the south west and Wales, said: “Traditionally a firm would practise a range of different areas of law. With the introduction of Tesco law, new specialist firms will begin to emerge and they will be difficult for high street firms to compete with, partly because small practices cannot afford the level of branding and marketing that these new firms will be able to take advantage of.

“It is also unlikely that they will have the resources or the technology to compete with these alternative business structures.”

Conveyancing firms are likely to bear the brunt of the changes caused by ABS, as are firms that do not have a particular niche or specialist experience. “ABS could either sound the death-knell of the conveyancing community as we know it, or a rebirth of the sector providing services fit for the 21st century,” says Eddie Goldsmith, senior partner at Goldsmith Williams.

“The conveyancing industry has changed little for many years and there hasn’t really been any incentive to do so. Without competition, innovation stagnates and it has needed the government pushing through a ‘big bang’ in legal services to open up the market to see real changes in the way services could be offered in the future,” he continued.

The real issue, says Goldsmith, is that there are too many lawyers chasing too little work. “Add to that a mix of increasing regulatory requirements, lenders reducing their panels, increasing professional indemnity premiums, and the emergence of strong brands coming into the market grabbing a share of an already depleted market, and we have either a ‘perfect storm’ for ostrich-type conveyancers who may as well retire now or an opportunity for the best of breed to take an increased share of the market.”

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