Law Firm Restructuring: How to ensure a successful process

Like any other business, law firms are not immune to the need for change and adaptation. Increasingly, firms face challenges such as heightened competition, changing client demands, and financial difficulties. Law firms must regularly evaluate their operations and effectiveness in order to remain successful in a rapidly evolving legal landscape.

One way that law firms can achieve this is through corporate restructuring. Restructuring involves making changes to a firm’s organisational structure or business model with the aim of improving efficiency or positioning the firm for future growth.

Why do law firms restructure?

Law firms may restructure for a wide range of reasons, including:

• Cost-cutting: Law firms may restructure to reduce costs by merging departments or offices or streamlining operations.
• Expansion: Law firms may restructure to expand their business by adding new practice areas, merging with, or acquiring other firms. This is also done by opening new offices in different locations.
• Adapt to a changing legal market: Law firms may restructure in response to changes in the legal market. Increased competition, changes in client needs, or the introduction of fixed costs in certain types of cases can all affect business.
• Improved efficiency: Law firms may restructure to improve their efficiency by reorganising their operations or adopting new technologies.
• Succession planning: Law firms may restructure to plan for succession and ensure the continuity of their business by transitioning leadership and ownership to a successor.
• Financial recovery: Addressing the needs of financially distressed law firms through a structured financial restructuring plan.

Increasingly, boards of directors, particularly within public and private law firms backed by private equity, are turning to restructuring lawyers and specialist partners like Recovery First to navigate complex financial landscapes.

Types of law firm restructuring

There are several types of law firm restructuring routes that can be taken depending on the specific goals and needs of the firm. Listed below are some of the most common types:

• Mergers and acquisitions: Law firms may merge with or acquire other firms in order to expand their client base, geographic reach, or service offerings.
• Practice area changes: Law firms may restructure by expanding or contracting their practice areas based on various changes. For example, a firm may choose to focus more on intellectual property law and less on personal injury due to market changes, such as costs reforms.
• Office merging: Law firms may consolidate offices in order to reduce real estate costs and improve efficiency. This may involve closing offices in certain locations or combining multiple offices into one larger location.
• Partner retirement or departure: Law firms may restructure as a result of partner retirements or departures. This may involve transitioning client relationships to other partners, restructuring the firm’s ownership structure, or hiring new partners to replace those who have left.
• Organisational restructuring: Law firms may restructure their organisation in order to improve efficiency or streamline operations. This may involve reorganising departments, creating new roles or positions, or adopting new technologies.

In cross-border restructuring scenarios, legal and regulatory complexities increase, requiring expertise in international restructuring and insolvency law.

What should law firms consider when restructuring?

To ensure a successful restructuring process, firms must carefully evaluate several critical factors:

• Goals and objectives: The law firm must determine its goals and objectives for restructuring. This may involve identifying the areas of the business that need improvement. Reducing costs, improving efficiency, or ceasing to operate in certain practice areas are common.
• Financial impact: The law firm must evaluate the financial impact of the proposed restructuring. The costs of any changes, the potential benefits, and the potential risks should all be considered. This may involve conducting a financial analysis of the firm’s current operations, as well as projections for the future.
• Staffing and personnel: The law firm must consider the impact of the restructuring on its staff and personnel. This may involve assessing the skills and expertise of current employees, identifying redundancies, and determining the need for new hires.
• Legal and regulatory considerations: The law firm must take into account any legal and regulatory requirements related to the proposed restructuring. This typically includes informing the SRA of their plans to restructure. Where applicable, structures such as schemes of arrangement or court sanctioned restructuring plans may be required.
• Communication and Engagement: The law firm must communicate the restructuring plans to its employees, clients, and other stakeholders in a clear and transparent manner. Law firms should engage with staff and clients to address any concerns or questions they may have about the restructuring.
• Client files: If the law firm restructuring involves exiting a specific market, firms must consider what will happen to their existing client files when the restructuring takes place.

Law firms need to carefully consider the impact of restructuring on all aspects of their business. Personnel, legal and regulatory requirements, and communication with stakeholders should all be taken into account. Examining these factors can help law firms ensure a successful restructuring process that achieves its goals and objectives.

How can Recovery First assist in law firm restructuring?

Recovery First helps law firms withdraw from specific sectors of the legal market in corporate restructurings and insolvency matters whilst ensuring maximum value is retained by the law firm. We work alongside restructuring and insolvency lawyers, accountants, and corporate recovery specialists to ensure the most profitable outcome is achieved on any file transfer agreement.

We provide a flexible approach and can facilitate a phased approach of transferring work to our panel of solicitors.

We recently assisted a law firm that made the strategic decision to exit the claimant personal injury market. This firm wished to exit the market so that they could restructure and focus on more profitable areas of law. Recovery First assisted the firm by allowing them to exit the market on a phased basis before the agreed upon final date. This helped them to recover more than 100% of the expected WIP value.

Using a phased approach allowed the staff in the personal injury department to focus heavily on the files which were capable of settlement before the final exit date. Files which were identified as being unlikely to settle within the required timescales were transferred to our panel of solicitors early using our usual file run-off method. A further review at a later date saw a further tranche of cases transferred to panel solicitors. Any cases that remained ongoing the month before the final deadline were transferred at that point.

This was a very successful project as we were able to recover over £500,000 of the work in progress value. This was more than our client had expected.

As well as assisting retiring solicitors and firms who are going through restructuring, we also assist many firms who are going through formal insolvency proedures. We work alongside insolvency teams representing clients in insolvency proceedings to come up with the right plan tailored to meet the needs of each specific firm.

We guarantee 100% privacy for all clients. If you would like to find out more about Recovery First’s process, feel free to get in touch today. You can contact via email at david.johnstone@recoveryfirst.co.uk, or 07887796989, or contact Sally Dunscombe at sally.dunscombe@recoveryfirst.co.uk or 07774205870.