High-profile law firm failures have saddled unsecured creditors with losses totalling over £800m since the legal services market was liberalised more than a decade ago. That is according to the Gazette’s analysis of law firms which have collapsed into insolvency since the profession’s very own ‘Big Bang’.
In the past five years alone (see table), the sector’s most prominent casualties have left behind a debt mountain of around £400m. Only a tiny fraction of that sum has been repaid, or is ever likely to be repaid. A few pennies in the pound is the best unsecured creditors can typically hope for. Usually, they get nothing.
New Labour implemented the Legal Services Act 2007 to boost competition and benefit consumers by reforming how law firms were allowed to operate. External ownership in the form of alternative business structures (ABSs) followed in 2012.
Some of the standard-bearers for what was then called ‘Tesco Law’ have since faded away or reined in their ambitions. They included big brands such as the Co-op, BT, the AA and Saga. A handful of law firms also took up the opportunity to list on the stock market, with distinctly mixed results.
But what is also notable about the post-liberalisation era is the scale of the carnage that can now ensue when law firms get into financial trouble. This is partly a consequence of pre-pack administrations, which enable the quick sale of a distressed business but disadvantage creditors. In the case of law firms, the average return to unsecured creditors following a pre-pack administration is well below 2%, compared with an average of 5% across all industries.
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https://www.lawgazette.co.uk/news/special-report-trade-creditors-pay-800-million-price-of-law-firm-failures/5120617.article?utm_source=gazette_newsletter&utm_medium=email&utm_campaign=Creditors+lose+%c2%a3800m+from+law+firm+collapses+%7c+Media+lawyer+to+face+SDT+hearing+%7c+Should+I+quit+Twitter%3f_08%2f16%2f2024
