Top lawyer warns that many law firms on brink of collapse

The study found that the UK’s 100 largest law firms billed their clients £19.1bn in the financial year 2012 to 2013, and made profits of £5.8bn.

The research published today by Legal Business shows that the UK legal market grew by eight per cent in the last financial year, compared with 17 per cent the year before. The profits figure also increased by eight per cent, year-on-year.

The findings mirror results for the Yorkshire legal sector contained in figures compiled by the Solicitors Regulation Authority (SRA) which show that the number of practising solicitors based in our region rose over the last year.

In a period that was dominated by the collapse of Cobbetts, the SRA figures also revealed a significant drop in the number of firms that merged or closed in Yorkshire over the last 12 months.

However, a leading Yorkshire lawyer has warned that many firms could collapse this autumn, as they face a variety of pressures, including the prospect of not being able to renew their professional indemnity insurance.

Richard Marshall, the managing director of Lupton Fawcett Lee & Priestley, said: “Many firms that can’t be consolidated are going to go bust.

“I don’t think it’s scaremongering to say that 25 per cent of firms, from top to bottom, could go bust. There will still be plenty of choice, and some firms, frankly need to be sorted out.”

According to the SRA, there are 5,985 practising solicitors based in Yorkshire, which includes practising certificate holders, registered European lawyers (RELs), registered foreign lawyers (RFLs) and Exempt European Lawyers (EELs). This time last year there were 5,905 practising solicitors based in Yorkshire.

Over the last year, nine Yorkshire firms have closed due to merger or amalgamation into another firm, and a further 16 firms have closed.

In the previous year, 18 firms closed due to merger or amalgamated, and a further 30 firms closed down altogether. A new study by Sundeep Aulakh, from the University of Leeds Law Society, which collates information from a number of sources, concluded that “there is no unambiguous downward trend in solicitor numbers”.

Ms Aulakh said: “Small firms are generally less profitable than large firms, and their profitability has fallen over the past three years.”

The University of Leeds Law Society researchers found “no causative link” between law firms’ failures and the emergence of Alternative Business Structures – the so-called Tesco law, which allows non-lawyers to invest in law firms.

Professor Joan Loughrey, a Professor of Law at Leeds University School of Law, added: “There are more immediate pressures on law firms, such as the economy and legal aid cutbacks.”

So far, 12 ABS licences, out of 171 nationally, have been granted in Yorkshire. The number of training contracts issued in 2012 were eight per cent lower than in 2000.

Legal Business editor-in-chief Alex Novarese said: “The UK legal market has consistently managed to out-perform many sectors of the UK economy and, taken at face value, revenue growth feeds the tentative hope that the country is on its way out of post-recession doldrums.

“Yet the past 12 months have been a turbulent time for UK law firms, marked most notably by the collapse of Cobbetts – ranked in 62nd place in our tables last year – and frenzied merger activity. Headline growth hides increased competition from global giants and a sector that is overstaffed.”

The research by Legal Business found that the highest-earning UK lawyers are at City firm Slaughter and May, whose star partners took home £2.55m this year.

The UK legal profession continues to struggle with gender equality, with women making up just 13 per cent of equity partners, and 18 per cent of all partners at the UK’s top 100 law firms.

At the more junior levels the numbers are more evenly balanced, with female lawyers accounting for 42 per cent of lawyer numbers, according to the Legal Business research.

Responding to Mr Marshall’s comments, a Law Society spokesman said: “Firms in the Yorkshire region have always been adaptable and flexible in the face of a challenging legal landscape.”

Legal matters: Page 6