Call for ‘intervention lite’ to turn around distressed firms and halt asset-stripping

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5 August 2013

Graves: special measures needed

The Solicitors Regulation Authority (SRA) needs to establish a new expert panel that would be called in to help avoid formal intervention into failing law firms – dubbed ‘intervention lite’ – a specialist solicitor has claimed.

Lesley Graves, managing director of consultant law firm Citadel Law, said her blueprint would reduce the costs of intervention, potentially turn legal practices around, increase client protection and call a halt to asset-stripping by other firms once a practice is in financial difficulty.

“Interventions are due to the reactive approach taken by law firms, the SRA and banks when financial failure is imminent,” she said. “Earlier monitoring and compliance along with proper financial diagnostics in a collegiate approach would reduce and hopefully prevent interventions altogether.”

Ms Graves, who specialises in working with personal injury practices (PI), said an ‘intervention lite’ system of support would control a situation that has led to the costs of intervention spiralling.

The new panel would consist of a multi-disciplinary group of people, such as solicitors who understand regulation and compliance for law firms; solicitors specialising in law firm turnaround/sale/purchase; and expert accountancy and insolvency practitioners who work within a remit set by the regulatory law firm specialists.

The panel would be called into action when the SRA became aware that a firm was in financial distress. This would be the ‘intervention lite’ stage. They would devise a strategy of special measures, turnaround or sale that was compliant with outcomes-focused regulation and report to the SRA in a bid to avoid full intervention.

Further, if sale is the result, the panel would ensure that best value is achieved for clients and the firm itself. Ms Graves said: “To date what we have tended to see is an asset-stripping approach that takes the most valuable and lucrative work at low cost and leaves the closed and unattractive files with the SRA.

“Instead, I propose that purchasing firms should take the rough with the smooth. Not only would they have to prove their ability to take on these clients in terms of expertise, compliance and their own financial stability, but they would also have to take a representative proportion of closed files to ease the burden on the intervention budget.

“If there are businesses with deep pockets able to buy cases at distressed value to turn a profit, surely they should also take some of the ‘pain’ in the closed cases?”

She added that even if full intervention is still eventually required, by working with firms earlier to solve their problems or at least organise an orderly disposal of the business, these can be kept to a minimum.

The solicitor, a one-time partner at Irwin Mitchell, said her experience of working in PI means she can see further law firm failures as likely for reasons other than those regularly cited in the legal press.

“Many claimant PI firms do not have the skills to risk assess cases, leading to under-settlement and the risk of negligence claims. Then there is simply the cash-hungry nature of PI work with WIP lock-up issues where firms do not have the ability to risk assess their cases and provide sound cash flow forecasts, and then stage billing accordingly,” she said.

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