SRA says more firms may go under
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The SRA has warned that more large law firms may fail over the next few years as a result of gloomy economic conditions, as it confirms that talks are ongoing with over 50 firms (of varying sizes) where intervention may be necessary in 2013.
The Law Gazette details the fact that the regulator is supervising 51 firms that are at imminent risk of financial collapse. Earlier in the month, Legal Futures reported that the SRA had confirmed that conditions such as legal aid reforms, greater competition and the ban on referral fees in personal injury cases could cause a number of large firms to go under. It also predicted an extended period of "market correction", possibly until 2016.
Such predictions are part of a consultation with the profession on using the Compensation Fund (rather than the SRA's operational budget) to pay for the high cost of interventions in 2013 - already estimated to be around £7 million (and possibly rising to £15 million by the end of the year), set against a budget of just £1.3 million.
An intervention by the SRA takes place in the public interest, when the SRA suspects fraudulent activity, including misuse of client funds. It will then close down the firm, seize the firm's documents and funds, and return the clients' money if possible. If it is not possible to return the money, the client can apply to the Compensation Fund for a grant.
The SRA emphasised that failures resulting in interventions in 2013 (eg, Blakemores) differed from Cobbetts' situation, which was not subject to an intervention because its business was bought by other firms.