Is your firm at risk of extinction? Francis Dingwall of Legal Risk highlighted four warning signs at the Law Society Risk and Compliancw conference session ‘Messages to COLPs and COFAs’:

  • Long-term debt exceeds the depreciated value of fixed assets and cash. This is ‘stealing from future earnings to pay drawings and salaries now’.
  • Expiring leases. On a new lease, in the current climate, a landlord is likely to ask for personal guarantees that partners approaching retirement in particular may be reluctant to provide.
  • Unfunded obligations to former partners paid for out of current earnings – ‘stealing from the present to pay off the past’.
  • Guarantees of income to partners – common in the case of lateral hires – which Dingwall recalled triggered the collapse of Dewey & LeBoeuf.

‘The received wisdom now is that if you have more than one of those issues, you are under threat of extinction as a firm,’ said Dingwall.