All is not lost for firms unable to secure PII and facing a 60-day period for winding up their businesses.
For those unable to secure professional indemnity insurance (PII), the 60-day period for winding up their businesses has been triggered.
Hopefully the majority that were without new cover on 1 October have since been able to secure it, although we know a number have already admitted defeat and entered into an insolvency process.
The human disaster element of this debacle cannot be ignored. Lawyers who have gone through many years of hard work and stress to build a business face being left with nothing to show for it come 2014.
Much has been said and could be said about the policy decisions and structure that have led to the position lawyers find themselves in, the actions firms could have taken to avoid exposure and the blame being attributed. But all of that is of no use to those whose lives are being devastated by irreversible events.
With little assistance from either the Law Society or the SRA regarding the direction those impacted by a lack of cover must take, those involved must take control of the outcome themselves. Of course, it will be difficult when their world is crumbling around them, but there are solutions that will help lessen the impact on their bottom line.
If closure is unavoidable, they must look at damage limitation and the preservation of value built by the stakeholders in the business to allow them to underwrite a period of change. While solicitors have knowledge of the law, but not of how to broker a deal when selling a business, the same is true of much of the accountancy profession, where the majority are general practitioners servicing the SME community with straightforward bookkeeping services or annual tax advice.
As with many professionals, there is a high degree of professional pride in accountancy and a possible reluctance to pull in expertise in these matters.
Against a highly stressful background, the affected firms must attempt to enter into a ‘cold analytical bubble’ and operate as rationally as possible in what is a surreal situation. Simply by investing the time and effort in identifying the right person or firm to help, the outcome can be radically improved.
In addition, there will be a huge release of pressure if the burden is shared with an expert who will project managing the situation and wind up affairs in a compliant manner that protects the practising certificate.
So first and foremost, firms affected should engage with the right specialism and do it now, as their options are diminishing with time.
- Do not be afraid of cost, any reputable firm will provide initial consultation on a free of charge basis.
- Seek an expert referral; the majority of banks now have sector specific knowledge. Ask your bank manager to seek a referral from the bank’s specialist teams.
- Regardless of your size, approach a national restructuring firm, they will have an online presence. Research who is responsible for the legal sector in your area or nationally. You will be surprised at the spread of size of business they service, but if it were to transpire that they couldn’t help, ask them for a referral.
- Ask your peers or your own network for a referral to an accountancy or restructuring firm specialising in legal practices.
Many affected firms have a significant exposure to personal injury and should engage with a restructuring specialist who is aware of all the tools at their disposal to preserve the value locked in their work in progress. All too often books of PI cases are being heavily discounted in a knee-jerk reaction to find a new home for the claimants.
By writing off such a high proportion of the asset that existed while a going concern, a solvent business can be tipped into insolvency with the loss of all value to stakeholders and creditors, who are left facing derisory returns. If they are to receive anything at the end of the process, those considering or facing closure should ensure a sale at undervalue is not allowed to proceed.
Engage with specialist expertise as early as possible; the options available close down rapidly over time and early engagement is key to achieving the best possible outcome. Particularly where PI caseloads are concerned, systems have been developed whereby incumbent value can be preserved whatever the timing. However, the earlier advice is sought the greater the value available to the vendor.
At the end of day, as with legal advice, if you don’t like it you don’t have to take it.
David Johnstone is managing director of PI-Solutions