5th May, 2020
Small law firms are playing a crucial role in providing advice to vulnerable people struggling with stressful legal issues during these difficult times – yet cash flow pressures and reduced fee income has put many at risk of collapse, the Law Society of England and Wales has warned.
New research shows that 71% of high-street firms believe they may have to close their doors in the next six months as result of the crisis.*
“The shock to the legal services sector has been sudden and severe,” said Law Society president Simon Davis. “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.
“Elsewhere, small firms have suffered from the decline in overall activity – particularly from service industries such as retail, leisure and hospitality. The fate of the high-street firm is thus intrinsically bound to that of other small businesses.
“Though the government support will provide some relief, there is a growing fear that many businesses will fall through the cracks. Firms are specifically excluded from some support for other small businesses. They are still expected to pay business rates through this period, whilst their buildings stand empty and their work has dropped off.
“The exclusion of many solicitors from support for the self-employed mean 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 also be a 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.”
Davis concludes: “Whether in relation to problems with housing, employment or wills – or advising small businesses – small firms are often at the heart of their communities. It is vital they survive the crisis to play a role in getting the economy back on its feet.”