At Begbies Traynor Group we have gathered together an experienced team with a proven track record of working within the legal sector, helping law firms navigate challenging times.
Many of these issues are interrelated; some are obvious red flags, while others are subtle and go unnoticed by management until other failings prompt the appointment of independent external advisers, such as Begbies Traynor, and they come to light. The following are some of the most common issues:
|Professional indemnity insurance (PII) renewal|
October marks the traditional renewal season for PII. Insurance premiums continue to climb because of legacy strain on insurers due to Covid, fewer active insurers who will cherry-pick which firms to cover, as well as broader inflationary pressures and tighter financial conditions.
Specialist second-tier law firm financiers tend to back them in pursuit of highly speculative claims. If these cases reach the Supreme Court and are deemed not in the ‘public interest’, law firms face mounting costs that cannot be paid, resulting in financiers trying to recover their loans by enforcing personal guarantees.
|Personal injury (PI) claims|
The threshold for PI claims in the small claims court increased in April 2022 and the level of claims covered by insurers has gone up. These changes will lead to a run-off in PI work volume for these practices.
Work in progress (WIP) can be the business’s main asset. But, too often, the management of this book of unpaid work is unrealistic, overvalued and bears little relation to the revenue that is eventually recouped.
Catalysts range from lack of profitability, declining work volume, court failure for a significant legal claim, inability to secure a trade sale, valuation and apportioning blame.
|Key partners leaving|
When law firms fall into distress, people usually start looking to leave, significantly reducing the window in which a successful sale process can be secured. The more people leave, the harder it becomes to save what is left.
|Court case backlog|
Barristers’ industrial action in relation to legal aid fees started in early 2022, and has created a back log of cases.
The housing market activity is expected to suffer from rising interest rates, reduced mortgage liquidity, and the broader cost of living crisis squeeze which will see specialist law firms see a decline in activity.
The small to mid-market UK legal sector is a highly fragmented market ripe for consolidation and distress over the coming quarters as the economy battles tighter financial conditions and a recession which will reduce case volume and cash flows. This could result in law firms seeking independent advice – it cannot be stressed enough to approach advice early to maximise the range of options available to the business, avoiding intervention at all costs.
Begbies Traynor Group can work closely with law firms to offer professional advice, including:
Mergers and acquisitions
BTG Commercial Arbitration Forum
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