While there are signs of recovery at larger law firms, fresh evidence of the pressure on smaller practices has emerged this week with the Solicitors Regulation Authority (SRA) confirming that 141 law firms unable to gain insurance cover are now entering a final period before they face an enforced wind-up.
The 141 firms have moved into the middle of a 60-day ‘cessation period’, which began on 1 November. 277 law firms initially failed to gain insurance cover by 1 October, as required, triggering SRA oversight. 153 firms still had no cover by 30 October, stopping them from taking on new instructions. The 1 October deadline triggers a 90-day extended policy period (EPP), a professional ‘last chance saloon, which this year replaced the old system of the assigned risk pool for struggling law firms that cannot gain professional indemnity cover.
The SRA said that a letter sent out on 25 November ‘reiterated the firms’ obligations and responsibilities, and that an SRA supervisor would work with them to draw up a plan for complying with guidance should they need to wind down their practice.’
Mike Haley, SRA director of supervision, commented in a statement: ‘We’ve written to all those firms that we believe have not secured insurance so that they know exactly what they will have to do between now and 29 December. We’re aware of the different plans some of them have, such as merging with another firm or selling their business, but all need to know that when the EPP ends, they will no longer have insurance and therefore will not be able to undertake any reserved legal activities.
‘Of course, it could be that these firms do secure a new policy between now and 29 December, and nearly half of those who entered the EPP have done just that. But there is a danger that firms do not plan for the worst, and that could put their clients’ interest at risk, meaning we would have to step in.’
The new regime for law firms struggling to gain cover was one of the final changes made as part of the SRA’s Financial Protection Policy – firms are unable to take on any new instructions and must look at closing at the end of the 60-day cessation period.
The grim news from the SRA comes as advisory group Baker Tilly this week published research claiming that around half of partners at law firms in England and Wales do not understand the implications of their firm becoming insolvent.