A business turnaround expert at award-winning South West-based chartered accountancy firm Milsted Langdon is advising legal practices struggling as a result of changes to legal aid and so-called ‘no win, no fee’ arrangements to seek professional help as soon as possible.
Roger Isaacs, a partner at the firm’s Bristol office, says an increasing number of law firms are facing the threat of insolvency because changes to the way in which legal fees are recovered have resulted in a significant drop in income.
Until recently, solicitors could enter into Conditional Fee Agreements, better known as ‘no win, no fee’ agreements, with their clients. This meant that if a claim was successful, the solicitor could claim their legal fees and a bonus ‘success fee’ from the opposing party, with the client being able to keep 100% of any compensation.
However, as of 1 April 2013, ‘no win, no fee’ agreements have been scrapped in favour of Damages Based Agreements, where the solicitors’ success fees will now come out of the damages recovered for their client. This is based on a percentage agreed between the solicitor and client, although the success fee must be no more than 100% of the damages won and in the case of personal injury claims, not exceed 25%. The solicitor’s normal fee, based on their hourly rate, can still be claimed from the other party.
Roger said: “This means that claimants will no longer receive the maximum amount of damages, as a percentage will be taken for their solicitor’s success fee. While this percentage will have to be agreed between the client and their lawyer, it nevertheless means that clients will be a lot more conscious of the cost of their claim; something which was less of a consideration under the previous ‘no win, no fee’ system.
“This has led to a more competitive legal marketplace where law firms are starting to undercut each other in order to win business. While this is obviously good news for the client, it means that many smaller law firms are now struggling as a result of a key source of income being reduced.
“We have already seen a slew of insolvencies in all areas of law, including solicitors’ firms and barristers. In some cases an Intervention by the Law Society means that there is little that an insolvency practitioner can do but in many other cases we have successfully put in place turnaround or rescue packages that have avoided intervention and maximised the chances of protecting the assets of solicitors that are held outside the law firm.
“If your legal firm is struggling then it is important to seek professional advice from a business turnaround expert at the earliest opportunity. At Milsted Langdon, we have already helped a number of law firms avoid going under so have considerable experience in this area. The sooner you seek advice, the more we can do to help you.”