Firms in financial trouble have the best chance of survival if they engage early with the SRA, the regulator insisted this week as it revealed that more than one firm in 10 is showing signs of financial difficulty.
The authority said 500 firms out of the 1,000 that replied to a survey over the summer showed indicators of problems. This is in addition to 700 firms already being ‘actively supervised’ by the SRA. Together, this makes up for 11% of the 10,950 firms regulated by the authority.
Mike Haley, SRA director of supervision, said the questionnaire, which asked for data on net year-end profit, borrowings, and highest and lowest bank balances for each of the last three months, was aimed at building an understanding of the market.
‘Engaging with firms at the earliest opportunity is the best thing to do, and this will allow us to know where we need to do this,’ said Haley. The SRA has already seen ’numerous examples of better outcomes for firms and clients’ when firms in financial difficulty contact it early.
‘By surveying firms in this way, we are able to make our approach even more risk-based, and hopefully avoid the disruption caused by intervention.’
A further 300 firms failed to respond to the survey before the 3 September deadline and they will be encouraged to provide information before potential enforcement action is taken.
Despite ongoing problems at many firms, a leading bank this week confirmed it is still ‘comfortable’ with lending to the legal sector.
Tom Wood, head of professional services at Barclays, said: ‘We don’t want to be dragged down by doom and gloom as there a lot of successful businesses.
‘There is a lot of change happening but with that comes great opportunity - those firms embracing change and finding new ways to service clients are still attractive to lenders.’
Last week Barclays confirmed a £2.5m finance package with Manchester firm JMW Solicitors, replacing similar facilities with the firm’s previous bank, state-owned RBS.