Law firm failures to leap this year

THE number of North West law firms falling into insolvency is predicted to reach record levels this year.

Manchester firm Pannone believes there could be a 20% hike in the number of smaller practices going under this year.

The firm says the failures will be caused by a lack of funding, poor financial management, soaring insurance premiums, increased competition from new entrants into the legal market including supermarkets and banks, and changes to the Legal Aid system.

Last year saw the high profile collapse of Birkenhead practice Lees Lloyd Whitley.

Richard Glithero, head of insolvency at Pannone, says the outlook is particularly bleak for sole practitioners, firms with one or two partners, or those that have relied heavily on personal injury or conveyancing work.

He says that in the past smaller firms have been responsible for a disproportionate amount of fraud and negligence which has resulted in many financial institutions proving reluctant to deal with them.

Mr Glithero said: “The collapse of the property market has revealed a degree of mortgage fraud where solicitors have colluded with surveyors and dodgy buyers to induce lenders to advance loans against property at inflated values, which have then been refinanced to get cash out. Such fraud is easier to perpetrate in smaller firms where proper controls are often non existent.

“As a result, many banks and building societies believe smaller practices can’t be relied upon to protect their interests and therefore do not want them on  believetheir panels for conveyancing work which has traditionally provided a large share of their income.”

He believes a lack of insurance cover for small firms and new entrants to the market place will be critical factors this year.

“Law firms are not allowed to operate without insurance cover against negligence claims and if they can’t afford to pay for it, then they’ll be forced out of business.

“The majority of premium renewals are due in October, and this will prove to be a critical month for the future survival of many firms.”