2,550 law firms 'at risk' of failure

As many as 2,550 or 31 per cent of law firms across the UK are 'at risk' of failure in the next 12 months, research by the Association of Business Recovery Professionals or R3 has suggested.

London firms fare worst, with almost 36 per cent of firms at risk, followed by the east of England and south-east England, both with 32 per cent.

The west midlands and north-west recorded figures of around 30 per cent and Scotland 29 per cent, with the north-east and south-west following on 28 per cent and east midlands with 27 per cent.

Wales did best of all, with under 23 per cent of firms at risk, followed by Yorkshire and Humberside with slightly over 23 per cent.

"By opening up the legal market, the Legal Services Act has increased competition at a time when there is already pressure on client budgets and over-supply in the sector, and this combination of factors poses a real threat particularly for small high street firms," Robert Adamson, chair of R3 in Yorkshire, said.

Adamson, partner at Mazars in Leeds, said there had been a "great deal of consolidation in the regional legal market" with mergers such as Dickinson Dees with Bond Pearce, and DWF's acquisition of Cobbetts.

"This is a trend that we expect to see continuing with small practices unable to afford the level of branding and marketing or the technology to compete with alternative business structures," he said.

"Next month, partners in law firms will once again have to make their second tax payment of the year, which can be a real squeeze on cash flow if it hasn't been carefully planned for.

"While law firms in Yorkshire and the Humber are faring relatively well, they are continuing to face a challenging environment and we urge any firms that are worried about their financial future to seek professional restructuring advice before it is too late - the complexities of dealing with the Law Society make it particularly important that advice is sought early to allow sufficient planning time."

The percentage recorded by R3 for firms at risk last year was 29 per cent, though this survey covered the UK and Ireland.

Researchers used data from company information and business intelligence service Bureau van Djik.