Gibson: Risk of significant downturn

Insolvencies in the legal sector are set to double this year if trends seen in the first quarter of 2018 continue, indicating a possible downturn in the fortunes of law firms, it has been claimed.

A review of the latest data from the Insolvency Service by business recovery and insolvency firm Gibson Hewitt showed 20 firms offering legal services were declared insolvent in the first quarter of 2018; it was nine in the same quarter last year.

The analysis showed that, in the whole of 2015, only 44 firms offering legal activities became insolvent, while in each of the last two years, the number of failed practices totalled 46.

This indicates that 2018 may see a drastic increase in law firm insolvencies.

The number of insolvencies in the sector has also been increasing quarter on quarter, with the final two quarters of 2017 recording 13 and 15 insolvencies respectively.

Gibson Hewitt director Lynn Gibson said: “The three months from January through to March 2018 saw the highest number of insolvencies in the legal sector for some time.

“When comparing this figure to previous years and quarters it quickly becomes clear how significant this recent downturn in the sector is.”

Looking at the types of insolvency experienced by in the first quarter, half were creditors’ voluntary liquidations, with administration accounting for 25%. The rest were compulsory liquidations (15%) and company voluntary arrangements (10%).

“The breakdown in types of insolvency is very telling, with a large number of the options recorded leading to the firms ceasing to exist anymore,” Ms Gibson said.

“The fact that only 10% opted for the flexibility and control of a company voluntary arrangement is surprising, considering their current popularity in other sectors. It may suggest that some firms are waiting too long to act before seeking help.”


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