Finance

Misleading funders, inflating work-in-progress valuations and shortages in client account are among the common features of financially unstable firms that are currently under investigation by the Solicitors Regulation Authority, it has emerged.

The Solicitors Regulation Authority now has 1,200 law firms on its financial stability watchlist, with more likely to join it shortly, it has emerged. It follows the recent request for financial data from 2,000 practices.

Service companies that law firms and others use to employ their staff and shift profit could be the next target of the government tax avoidance crackdown, the Chief Secretary to the Treasury Danny Alexander has indicated.

A third of law firms are under financial pressure and may require refinancing or an injection of capital, new research has found. Financial health specialist Company Watch said that 898 of the 2,600 firms it investigated were in trouble.

Too many partners are unaware of their firm’s financial situation and the personal implications of the business going under, it has been claimed. Firms are in serious danger of going out of business because they do not have sufficient cash to meet their running costs.

A lack of growth is one of the factors behind the increasing trend towards mergers and acquisitions amongst small and medium-sized law firms, new research has suggested. Firms are also continuing to ignore the importance of lock-up to their cash flow, it said.

The government’s proposed tax reforms for limited liability partnerships (LLPs) are “haphazard”, “incoherent”, backward looking, and would introduce a “bizarre distinction” between business entities, according to the Law Society.

The use of fixed fees in family, probate and housing cases has risen significantly, leading to far higher rates of client satisfaction than when they pay by the hour, according to a major consumer survey.

More large law firms are expected to fail over next few years and the risk of theft of client funds is rising, the Solicitors Regulation Authority has warned. It has also speculated that in future indemnity insurance or even policies purchased by clients may need to cover the cost of intervening in firms.

There is a widespread desire to move away from the hourly rate model, according to a survey of in-house lawyers that found them wanting their external law firms to share risk. Senior counsel at 80 international companies believe that law firms should provide ‘budget certainty’.