Background
You will be aware from recent media coverage and other SRA
communications that we are currently carrying out an exercise to help us
understand which firms may be experiencing, or are at risk of experiencing,
financial difficulties.
The prevailing economic conditions and government policy
changes, such as the ban on referral fees for personal injury work and the
proposed changes to legal aid, are creating financial pressures on firms,
particularly in certain sectors of the legal services market. Our experience to
date is that firms who are having difficulty managing these pressures pose an
increased risk to their clients. However, where such firms engage early with
the SRA there is a much greater chance of improving client protection and
significantly reducing the potential for intervention and the associated costs.
The fact that we have made contact with a firm does not
signal concern about the firm's particular financial position. At this point,
the focus of the exercise is on those firms reliant on income from PI or legal
aid; parts of the legal services sector which are known to be under particular
economic pressures; and firms classified by the SRA as having a potentially
high impact if they were to fail.
One of the biggest risks we are encountering is where a firm
fails to face up to its financial difficulties. The work we are already
carrying out with firms where we have concerns is already paying dividends with
action being taken by some senior partners to manage their immediate financial
difficulties. By supporting firms at the outset to help them take action to
return to a sound financial footing, to become more attractive to a buyer, or
to ensure an orderly wind-down, we are reducing the number of interventions we
have to undertake.
This email is to provide you with some detail relating to
this exercise so that you are able to reassure any members who express concern
or raise questions with you.
Information to be provided
The information we are seeking is confidential and/or
commercially sensitive. We have put in place a secure IT portal through which
the information can be provided in the strictest confidence.
We will be seeking the following information:
In relation to the most recent accounting year end:
In relation to a firm’s current position:
- Total borrowings
- Details of current
overdraft facilities
- Highest and lowest bank
balances on office accounts
- Whether or not a firm
has entered into any time-to-pay arrangements or deferral arrangements
with creditors
Timescale
We will be contacting around 1,350 firms at the end of July
by email with a request for this information, which will then be used to assess
whether or not we need to increase our understanding of a firm's financial
position and determine the level of future engagement with the firm.
Samantha Barrass
Executive Director
Solicitors Regulation Authority
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