More than 1,000 firms potentially in financial difficulty

More than 1,000 firms have been identified by the Solicitors Regulation Authority as potentially facing financial difficulty, it emerged in an interim statement by the regulator on its engagement programme.

Earlier this summer the SRA wrote to 2,000 firms as part of its financial stability programme, asking them to provide financial information within 14 days.

The letter asked for details about levels of borrowing, current overdraft facility, the highest and lowest bank balances for each of the past three months, and whether the firm has entered into any deferral arrangements with creditors.

Around 700 of the firms contacted were already "actively supervised" by the SRA. Of the remaining 1,300, around 500 are regarded as "high impact" - firms whose failure "would have a significant impact on the regulatory objectives".

"Of the 1,300 emailed, around 1,000 (77 per cent) supplied the requested information or applied for an extension by the 3 September deadline," said SRA supervision director Mark Haley. "Of the firms that responded, around 50 per cent did not score at all on any of the financial indicators, suggesting there is no evidence of financial difficulty requiring engagement at this stage."

Asked whether it was possible to identify with certainty the number of firms likely to be at risk, a spokesperson said the exercise was not scientific. He said it was possible that some firms that did not score could in fact be facing financial difficulty, and vice versa.

At this stage, he added, the programme was intended to help the SRA get a clearer understanding of the possible extent of financial difficulties.

Firms canvased in the survey included practices working in areas experiencing particular economic pressure, such as personal injury or legal aid - although the SRA said it did not have any specific data on the proportion of firms falling within this category.

"We contacted these firms not because we know they are experiencing financial difficulties, but to build our understanding of the current position so that we can target resources at those who most need our help," Haley said.

"By surveying firms in this way we are able to make our approach even more risk-based, and hopefully avoid the disruption caused by intervention."

Firms demonstrating indicators of financial difficulty will be contacted as part of supervisory engagement and according to the level of risk they pose.

Firms that have not yet provided the requested information or applied for an extension will be contacted, but the SRA said it was not working to a strict timetable.

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