High street firms face collapse due to pandemic pressures, Law Society research suggests
updated on 13 May 2020
Thousands of high street and sole practitioner firms are likely to close within six months due to the covid-19 crisis, according to new Law Society research.
More than half of all legal practices in England and Wales are at risk due to cash flow pressures and lower fee income – a finding revealed by a survey of nearly 8,000 small firms that took place in March and April, to which 10% of practices responded.
One in five confirmed that they were already feeling the pressures on cashflow and fee income, while 63% of sole practitioners and 71% of firms with four partners or fewer said that these pressures could lead to closures by the autumn, resulting in the potential collapse of more than 5,000 firms. This research assumes that the 774 survey respondents are a representative sample of the legal sector.
Law Society President Simon Davis said: “The shock to the legal services sector has been sudden and severe.” He added: “There are widespread concerns over liquidity as firms face a dramatic plunge in income with work falling away.
“Although a firm may be open for business, this does not mean it is business as usual. Residential property transactions have ground to a halt. Reduction in court hearings has massively impacted on the amount of work available - while social distancing and the lack of face-to-face meetings is causing difficulty delivering in other areas, such as the execution of wills.”
Meanwhile, as service industries such as retail, leisure and hospitality experienced a plunge in activity, small firms have subsequently suffered, and Chancery Lane continues to urge the government for additional support for law firms that are excluded from various support measures intended for other small businesses.
According to the Law Gazette, Davis said: “The exclusion of many solicitors from support for the self-employed means that many are struggling. Someone who has earned £51,000 profit in the preceding year is not guaranteed to do so again and is unlikely to have built up the savings to survive for a protracted period without income.
“Crucially, there must be also be support package in place for those legal practitioners who are paid via dividends. Under the current schemes such people will only be able to receive a minimal amount of support, possibly no more than £575 per month. This could be solved by extending support to sole practitioners operating via a professional service company."
