Substantial numbers of law firm closures will put public at 'significant risk'

The expected wide-spread closures of small firms will put both the public and the profession at significant risk, a partner has warned

The expected wide-spread closures of small firms will put both the public and the profession at significant risk, a partner has warned.

It came in response to a Law Society warning that many small law firms are “falling through the cracks” and will not survive the covid-19 crisis.

A Law Society survey of firms with four partners or less, including sole practitioners, revealed that a majority are at risk as a direct result of cash flow pressures and reduced fee income.

Law Society president Simon Davis said: “Small firms are often at the heart of their communities.

“It is vital they survive the crisis to play a role in getting the economy back on its feet.”

However, although the survey was sent to almost 8,000 small firms just 774 responses were received.

Of those, 71 per cent think they could close up shop within six months because of the pandemic.

Davis said: “The shock to the legal services sector has been sudden and severe.

“There are widespread concerns over liquidity as firms face a dramatic plunge in income with work falling away.”

It is not “business as usual” even though firms are open for business because of, for example, the impact of court closures, the halt to residential conveyancing transactions and the logistical challenges presented by social distancing requirements.

There has also been the general decline in overall commercial activity, particularly from service industries such as retail, leisure and hospitality and, as Davis said, the “fate of the high-street firm is... intrinsically bound to that of other small businesses”.

Ryan Bickham, a partner at five-partner Shropshire firm PCB Solicitors warned of a “significant risk” to the public and the profession as a whole from the potential closure of a large swathe of law firms.

He said: “As we have already seen, cuts to legal aid have resulted in advice deserts and some of the most vulnerable in society being unable to access the support and assistance that they need.”

His view is that housing and criminal solicitors are particularly likely to be significantly affected by covid-19 and its impact on their cash flow.

“After the crisis, if there are fewer law firms there will likely be an impact on access to justice; some clients may struggle to find representation locally due to conflicts of interest”, he added.

Fewer firms may also result in the court being further strained.

“It may, although I would hope it doesn’t, lead to some firms significantly increasing fees as competition is reduced.”

He said it could also lead to recruitment issues – and students may no longer see law as a viable option.

Sarah Dwight, a sole practitioner in the West Midlands who received and responded to the Society’s survey, confirmed that it is “a really difficult time” for firms.

“For sole practitioners, it could be said that we are used to running businesses on a much smaller budget than the larger firms”, she said.

“It would also depend on the areas of work that the firms practice so for me, other than the few completions I have this week which are empty properties, I then have no completions which will be possible until the restrictions on movement are lifted as they are all transactions which are in chains.”

But she added that there is very little, if any new work coming in as agents cannot market properties at the moment. 

“And my fear is”, she added, “that even when the restrictions are lifted, will the public want to view houses without clear guidance in place?”

Dwight also highlighted a discrepancy between “estate agents being able to claim business rates relief but not solicitors, and the £50,000 limit for self-employed people”.

Many partners in small firms may earn just over £50,000 but don’t have money in the bank to tide them over, she said.

Lack of support

Beckwith has been sharing resources with other law firm owners and vice versa, and commented: “I would hope that firms come together to try and support each other.”

Simon Davis said that though the government support will provide some relief, many businesses specifically excluded from some support for other small businesses.

But they must still pay business rates while their buildings stand empty and their work has dropped off.

“The exclusion of many solicitors from support for the self-employed mean that many are struggling”, he adds.

“Someone who has earned £51,000 profit in the preceding year is not guaranteed to do so again and is unlikely to have built up the savings to survive for a protracted period without income.”

He called for a support package for lawyers who are paid via dividends, pointing out that under the current schemes they will “only be able to receive a minimal amount of support, possibly no more than £575 per month”.

“This could be solved”, said Davis, “by extending support to sole practitioners operating via a professional service company.”