A Solicitors Regulation Authority (SRA) committee has approved a range of alternatives to the “sledgehammer” of intervention in troubled law firms, even though they pose a greater risk of default or increased loss.
The SRA’s compliance committee backed approaches such as targeted practising certificate conditions and giving firms limited time to correct breaches, transfer or close altogether. In some circumstances, pre-packaged administration might be appropriate.
Guidance on closure will also be updated to ensure clients are protected and solicitors are able to transfer their firms as efficiently as possible. The committee advised that “early engagement with firms in financial difficulty is desirable, as is the development of staff with skills to provide high-quality guidance directly to firms about closure, insolvency options and proper client protection.”
Pressure has been building to reduce the number of interventions, which cost on average £65,000. In 2009 there were 97 interventions, up from 48 in 2007. The committee said the number of interventions appears to rise at a time of economic pressure and in the wake of house price slump, suggesting that it expects the number of interventions to remain high for some time.
Agreeing a policy paper recently, the committee admitted that “most, if not all, alternatives to intervention carry the risk of default or increased loss during the period in which the SRA works with the firm to facilitate the correction of breaches, orderly closure, etc”. It acknowledged that intervention can be necessary and effective but that the issue is how firms can be assisted to close or transfer without the need for intervention.
The measures follow a report on interventions in July by the Law Society’s regulatory processes committee. At the time, the society’s chief executive, Des Hudson, said the Society had lobbied the SRA to seek alternatives to the “sledgehammer” of intervention a year earlier.
But the SRA committee rejected a controversial suggestion by the society of probationary visits for firms with a majority of partners who qualified abroad or were registered European or foreign lawyers. It said the measures it is adopting will benefit black and minority ethnic (BME) practitioners because interventions impact more on smaller firms, in which BME lawyers are over-represented.