The Law Society has voiced fears that increasingly centralised decision-making at Britain’s embattled retail banks could damage the finances of law firms as the recession deepens. Chancery Lane fears that local branch discretion will be reduced and that this will result in banks walking away from more deals and terms.

The Society raised the issue at meetings with four of the five major retail banks – Lloyds TSB, HSBC, Barclays and RBS – and the British Bankers Association. Abbey Santander declined a meeting, the Society said.

The Society said all four banks accepted that solicitors’ firms constitute a lower lending risk than other areas of the economy. The banks pledged they would not reprice existing terms in spite of the increased ‘cost’ of risk in the downturn. This does not apply if a change to terms is sought by the customer or if an agreement is due for renewal.

The banks indicated that all legal business models, whether traditional partnerships or LLPs, hold similar risk profiles, though this is being ‘kept under review’. They also confirmed that they would reject proposals containing ‘entrepreneurial risk’.Foreclosure, meanwhile, will be considered ‘only as a last resort’.

Chancery Lane is drawing up new guidance for the protection of client accounts.President Paul Marsh has written to HM Revenue & Customs asking it to suspend the UITF 40 tax regime for the duration of the credit crisis for firms with a turnover of less than £2m, or give firms the option to ‘opt out’ and return to cash-based accounting. UITF 40 taxes businesses on work in progress which may not have been paid for when the tax is due.

  • As the Gazette went to press, the Society warned that taxing law firms before they have received payment for services could result in small firms, and legal aid firms in particular, getting into financial difficulties.