Law firms ‘learned lessons’ from the economic meltdown that followed the collapse of Lehman Brothers in 2008 and have tightened financial controls to maintain their solvency and liquidity.
That is the view of Andrea Delay (pictured), head of professional services at Barclays, which counts half of the top 200 among its clients. No firm in the top 100 has collapsed since Cobbetts in January 2013 and Delay, whose bank lends to or has relationships with 80% of the top 20, said this is largely due to firms adjusting their priorities.
‘No sector is immune from failure and we can’t be complacent,’ Delay told the Gazette. ‘But lessons have been learned in terms of why firms have failed. I definitely think before the recession that growth was not a challenge for them and there was little margin pressure. Firms have had to focus more on being innovative and managing costs.’
Delay, who was appointed last November, said increasing numbers of law firms are adopting a ‘carrot and stick’ approach to motivating partners when it comes to managing fee collection. Profit distribution is now more closely linked to bringing in fees, reducing lock-up periods.
‘Pre-recession, firms weren’t so focused on lock-up as they didn’t need to be. Since 2008 it has been more of a focus, although some firms would still benefit from keeping a tighter handle on it.’
Last year Barclays supported mergers involving Blake Lapthorn and Morgan Cole, and Wragge & Co and Lawrence Graham. The bank expects more consolidation among the top 200 this year.
Delay said Barclays plans to increase lending to the legal sector this year, having increased its investment by 10% in 2014 – particularly to fund partner capital loans to cope with changes in the tax treatment of LLPs.
Delay added: ‘We’re having a lot of conversations with existing and new clients in terms of providing more debt.’