Law centre submits ABS application as not-for-profit sector gears up for legal aid cuts

Rochdale Law Centre: using the community interest company model

A north London law centre is on course to become the first owner of a not-for-profit alternative business structure (ABS), subject to receiving Solicitors Regulation Authority (SRA) approval.

The venture is an example of government-approved efforts by law centres to mitigate the effects of legal aid cuts enshrined in the Legal Aid, Sentencing and Punishment of Offenders Act 2012, by introducing paid-for services alongside the traditional free services.

If granted, the ABS will pre-empt the SRA’s licensing regime for so-called special bodies/non-commercial organisations – which will not be in place until April 2014.

Islington Law Centre submitted its detailed stage two application to the SRA in September and hopes its subsidiary community interest company (CIC) will be granted an ABS licence in time for legal aid scope changes from next April 2013 – in particular in immigration and employment.

Ruth Hayes, the centre’s director, told Legal Futures that the ABS application process has been complicated by the fact that its proposed ownership structure departs from the norm of a law firm or commercial business. “Because the law centre is itself a charity and thus doesn’t have owners, we’ve found the process slightly complex. In the end all our trustees were treated as owners, even though they have no beneficial interest in either of the companies.”

She said the purpose of the ABS would be fourfold: to provide legal services in key areas of law to people who can afford to pay something when those areas go out of scope; to use any surplus generated to cross-subsidise the law centre’s work; to help keep legal expertise available to the centre; and to maintain the centre’s fee-charging business at arm’s length from the centre’s free service.

Law centres are currently prohibited under SRA rules from charging fees for legal services, although in July the authority indicated – in its response to a Legal Services Board opinion that the ban should be lifted – that it will consider requests from individual centres for a waiver from this rule. However, at the same time the SRA also raised concerns about possible regulatory risk in allowing charging that it said would be addressed in the licensing regime for special/non-commercial bodies.

Ms Hayes said Islington applied more than three months ago for waivers for both the centre and the CIC but had not heard from the SRA. A spokesman for the authority said the SRA would not comment on individual applications.

An ABS is the centre’s preferred option. “As well as not wanting to have the same organisation providing both free and paid-for services… operationally the law centre is not set up to deal with high volumes of financial transactions from clients. We think it would be better to have one agency which is geared up to do that and one agency which can continue to operate as it currently does.”

She added: “We also want to be clear that we are not using charitable funding to cross-subsidise the paid-for work, so having a separate company structure for that preserves our independence.”

Ms Hayes said the centre had not yet received any indication of whether the SRA would approve the application, but she commented: “We’ve worked very hard to ensure that we’ve provided all the information requested. What we will be providing essentially – apart from the ownership model – is activities not dissimilar to a number of other organisations, so we would hope that means we will get approval.”

Ms Hayes acknowledged it was unlikely much ‘profit’ would be generated, although the centre’s projections are for a small surplus at the end of year three. “Our aim is to meet the needs of people who would otherwise go without access to justice and so we would not be looking to charge the level of fees that would generate a significant surplus.”

Any profits would be “gifted across to the law centre” and put towards, for instance, “disbursement costs for welfare benefit clients who will no longer get that through legal aid”. Even if the venture was cost neutral, in addition to “helping meet a social need in its own right”, it would “perhaps enable us to retain areas of expertise in some areas of law where we have very little project funding, so that we can still offer a free service through the law centre with some of the staffing costs being met by time being charged for through the CIC”, she said.

Two hundred miles north, Rochdale Law Centre has gone down the CIC route to enable arm’s-length charging. Gillian Quine, senior solicitor and housing specialist, said the CIC, which operates from nearby premises, appeared to be the “simplest route” and faster than applying for an ABS, although she said an ABS application in future was not ruled out.

The CIC is up and running but a “very small venture” and the prospect of raising significant sums for the law centre is remote, she said. “If there is any surplus, it’s tied back into the law centre but in all honesty it’s not likely to be a substantial income stream. It’s just a case of keeping that service going, if possible.”

The notion of using paid-for legal services to cross-subsidise free legal advice was last week given the seal of approval by the Cabinet Office, in a paper Not-for-profit advice services in England. Published simultaneously with the launch of a £65m advice service transition fund designated for partnership ventures, it lauded the Islington centre’s funding model as an example of “innovation and entrepreneurship”.

But research undertaken by the Law Centres Federation (LCF) suggests that while individual law centres are exploring various defensive options – including in the London borough of Tower Hamlets the linking of a number of advice providers in a co-operative – the potential for fees generating sufficient surpluses is limited.

While initially hopeful for the model, the LCF has since “discovered that… the amounts we would have to charge to make a big enough profit to cross subsidise really aren’t appropriate to the communities that we work in”, Julie Bishop, its director said.

She added: “Our main aim is to continue as a service not to make a profit, obviously, and therefore clearly we want to charge the least we can in order to be able to provide the service, and in order for some people to be able to afford it – we’re going for those people who can afford a modest fee.

“We will continue to seek funding to provide free services, particularly in the areas that are going out of scope like immigration and employment, but it will be charitable funding so it will be a much-reduced offering.”



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