Insolvency and the legal sector in 2024

insolvency and the legal sector

The legal sector is not necessarily the first sector you might think of in terms of insolvency. It is possibly a surprise then to find out that this time last year, The Law Society reported that a legal business was failing or going through a process for every business day.

What, then, does 2024 hold for legal businesses? Like most business sectors, it offers opportunity for the fit and agile. For many, though, the continuing legislative change impacting their economic models means consolidation in the sector is only starting to gather pace.

The law firm insolvency process in England and Wales is incredibly complex due to the heavy regulation of the legal profession and the need to protect clients.

 

The Solicitors Regulation Authority (SRA) plays a crucial role in the insolvency process. They ensure compliance with their code of conduct and the protection of client funds.

The process often requires the expertise of corporate restructuring and insolvency professionals with significant experience in dealing with law firm insolvency.

For first-time appointments in the sector, it is always worth considering a joint appointment with one of your peers who has chosen to specialise in the restructuring of legal professional service businesses.

 

High-level look at key methodology

First and foremost, it is stating the obvious that to provide “legally prescribed services”, you must be an entity authorised by the SRA.

Therefore, it is important to note that pre-pack sales to a single purchaser are not the only route when it comes to law firm insolvency.

Indeed, given the risks associated with being deemed a successor practice and TUPE, it could result in significantly lower recoveries or value being achieved for creditors.

When IPs handle law firm insolvencies, one of the major assets to consider is the Work in Progress (WIP). WIP is the unbilled work that, once completed and billed, can offer significant returns for creditors.

Realising the value of WIP is often a complex task. It is not just about selling off assets; it involves understanding the value of ongoing legal work, its potential for completion, and the ability to bill and collect for that work.

It Is also essential to preserve the goodwill and support of ‘live’ clients to ensure that they do not move their matter elsewhere and diminish the WIP value.

Excellent client care and communication are therefore essential.

There are often matters where costs issues are not fully resolved and require negotiation and collections to maximise and realise full value.

Selling to a single entity significantly diminishes the value that can be achieved for the process.

The lack of time for due diligence, combined with the additional risks the buyer is taking on, justifies the heavy discounts applied.

Since the government introduced LASPO in 2013 and changed the economic reality within the civil litigation arena, new methodology has developed that now allows Insolvency Practitioners to outsource the realisation of WIP across multiple firms covering all legal disciplines.

Spreading the work across many firms negates the need for the incoming firms to discount existing WIP and completed projects have seen as much as a tenfold increase in value flowing into the process.

Recovery First has tailored its services specifically for this scenario.

It focuses on assisting law firms in their strategic withdrawal from specific legal market sectors.

 

How Recovery First ensures fairness in costs recovery

The Recovery First model is structured to ensure that all parties’ interests are aligned with the collection of costs.

No upfront fees – We handle transfer structuring, legal agreements, data transfer, and physical file movement at no initial cost.
Ongoing monitoring & management – Our panel firms manage files to completion (often for many years).
Cost negotiation & collection – We expertly handle the negotiation and collection of costs, ensuring maximum recovery.
Fair cost allocation – We manage the allocation of costs to ensure they are allocated fairly between the exiting firm and the panel firms, including managing the payment of disbursements.
Transparent accounting – We report to all parties openly and only charge fees as a percentage of costs recovered for the original firm.
Success-based fees – Fees are only charged when costs are successfully recovered. If no costs are collected, we don’t charge.

We believe that this is a fair and equitable solution and ensures that everyone’s interests are aligned – we all get paid, or none of us.

What Insolvency Practitioners have said about us

“We have worked alongside Recovery First on a number of successful projects over a number of years and have been really pleased with the outcomes achieved. The monitoring of all matters by Recovery First and the associated accounting and reporting are of an exceptional standard, resulting in very smooth administration with maximum recoveries being created for the creditors. We plan on working with Recovery First for future projects and would have no hesitation in recommending their model to others”

– Andrew Poxon, Administrator, Leonard Curtis

Contact Recovery First

If you would like to find out more about Recovery First’s process, feel free to get in touch with our team today using the details below and we will contact you to discuss the process.

It's never too late to speak to Recovery First. Contact us now in the strictest confidence

Sally Dunscombe:

sally.dunscombe@recoveryfirst.co.uk

David Johnstone:

david.johnstone@recoveryfirst.co.uk

Telephone:

01357 440140

Manchester Address

106 Kennedy Building

Murray Street

Manchester

M4 6HS

Registered Address: 

North Torfoot

Drumclog

Strathaven

ML10 6QG