The Solicitors Regulation Authority has denied it has ‘serious concerns’ about the financial stability of 2,000 firms, as new figures show the number of firms declining to the lowest level since it began collecting data.
Chris Smyth, former head of legal services for bank Cheltenham and Gloucester, this week told the Gazette price pressures have forced hundreds of firms into crisis talks with the regulator.
Speaking at a roundtable event on conveyancing, he said: ‘The SRA is concerned about the financial stability of a very, very large number of firms – I have heard 2,000. Firms have been chasing work [without pricing it realistically].’
New figures from the SRA show the number of law firms has dropped to the lowest level since figures were first collated in 2009. The difficult commercial environment was highlighted last month when top-100 firm Cobbetts was placed into administration before an acquisition by DWF.
The SRA said talks were ongoing with ‘some firms’ about contingency measures in the event of insolvency but stressed the figure was not as high as 2,000.
SRA executive director Samantha Barrass said: ‘There are probably a number of firms who could do with paying attention to making sure their financial and management controls are working well – for example making sensible decisions on such things as the affordability of partner drawings, putting aside money to pay tax bills and assuring themselves they have a viable, long-term stress-tested business plan before taking on expensive leases.’
Barrass said the SRA would intervene if a firm did not ‘face reality’ and take appropriate steps at the point when the chances of an orderly wind-down are still good.
The latest SRA-regulated community statistics show there were 10,819 firms in England and Wales at the end of January. The number of firms peaked at 11,369 in May 2012 but has been falling steadily since.
While attention has focused on firms closing, the number of firms opening has also dipped sharply: just 19 new practices opened in December, compared with 64 in December 2011.
Law Society president Lucy Scott-Moncrieff said solicitor firms had been ‘remarkably resilient’ over recent years.
She added: ‘It is unclear whether the reduction is part of a sustained trend or is a temporary effect, linked to the state of the economy or other changes in the market.’