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Summer could be sentencing time for many solicitors

Over 2,000 law firms at risk of failure in the next 12 months

By the end of this month, partners in law firms will have to make their second tax payment for the year. Unlike many other businesses, Limited Liability Partnership (LLPs), Partnerships and Sole Practitioners are not directly assessed for tax on the business’ profits but will commonly arrange to settle individual Partners’ liabilities. Ideally, a tax reserve fund will have been maintained for this purpose but this is not always the case.

Lee Manning, R3 President, comments: “This requires very careful planning and steps should be taken to apply for a reduction of payments on account if earnings are expected to reduce over the coming year. This time of year is known to put real cash flow pressure on firms and more often than not we see a spike in banks being asked to fund taxation liabilities.

“The legal services sector is a very crowded market and so firms that are not competitive are unlikely to thrive. Careful planning and management of taxes can help give businesses an edge and make this time of year less daunting.”

Furthermore, research by R3 using data from Bureau van Dijk’s ‘Fame’ database, finds that over 2,000 law firms are at risk of failure in the next 12 months – this equates to 29.1% of firms in the UK and Ireland, higher than the cross sector average of 21.8%. One of the main challenges they are being faced with is The Legal Services Act – which has earned the moniker ‘Tesco Law’. It legislates for Alternative Business Structures (ABS), the point of which is to make legal services easier to access by allowing non-lawyers to invest in and own legal businesses. However it poses a threat to the legal services market as we know it, particularly for small high street firms.

Lee Manning continues: “Traditionally a firm would practice a range of different areas of law. With the introduction of ‘Tesco law’, new specialist firms will begin to emerge and they will be difficult for the high street to compete with, partly because small practices cannot afford the level of branding and marketing that these new firms will be able to take advantage of. It is also unlikely that they will have the resources or the technology to compete with these Alternative Business Structures.

“Law firms are operating in a challenging environment and the marketplace seems to be getting tougher and tougher. We would urge any firms that are worried about their financial future, to seek professional restructuring advice before it is too late.”

For further information please contact:

Antoinette Huka, Communications Officer
t: 020 7566 4217 m: 07825 679 462 e:

Will Black, R3 Communications Manager
t: 020 7566 4215 m: 07917 422 485 e:

*‘At risk of failure’ is defined as a company that has a QuiScore below the normal band. The QuiScore is a measure of the likelihood of company failure in the twelve months following the date of calculation.
The QuiScore is given as a number in the range 0 to 100. For ease of interpretation, that range may be considered as comprising five distinct bands:
82-99 The Secure Band:
57-81 The Stable Band:
37-56 The Normal Band:
19-36 The Caution Band:
01-18 The High Risk Band:

Legal activities
This class includes:
legal representation of one party’s interest against another party, whether or not before courts or o –– ther judicial bodies by, or
under supervision of, persons who are members of the bar:

  • advice and representation in civil cases
  • advice and representation in criminal cases
  • advice and representation in connection with labour disputes

- general counselling and advising, preparation of legal documents:

  • articles of incorporation, partnership agreements or similar documents in connection with company formation
  • patents and copyrights
  • preparation of deeds, wills, trusts etc.

–– other activities of notaries public, civil law notaries, bailiffs, arbitrators, examiners and referees
This class excludes:
–– law court activities, see 84.23
69.10/1 Barristers at law
This subclass includes:
–– members of the legal profession who have been called to the bar
–– Advocates of the Scottish Bar
This subclass excludes:
–– law court activities, see 84.23
69.10/2 Solicitors
This subclass includes:
–– members of the legal profession qualified to deal with:

  • conveyancing
  • drawing up of wills
  • advising clients on legal matters
  • instructing barristers, etc.

69.10/9 Activities of patent and copyright agents; other legal activities (other than those of barristers and solicitors) n.e.c.
This subclass includes:
–– preparation, drawing up and certification activities
–– the provision of advice regarding patents and copyrights
–– other legal activities not elsewhere classified
–– activities of notaries, bailiffs, arbitrators, examiners and referees etc.
This subclass excludes:
–– law court activities, see 84.23

R3 Press Office

Notes to editors:

  • R3 is the trade body for Insolvency Professionals and represents the UK’s Insolvency Practitioners.

  • R3 comments on a wide variety of personal and corporate insolvency issues. Contact the press office, or see for further information.

  • R3 promotes best practice for professionals working with financially troubled individuals and businesses; all R3 members are regulated by recognised professional bodies
  • R3 stands for 'Rescue, Recovery, and Renewal' and is also known as the Association of Business Recovery Professionals.