Legal firms ‘at risk of failure’

Jeremy Oddie, the regional chairman for insolvency industry body, R3.

Jeremy Oddie, the regional chairman for insolvency industry body, R3.

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Nearly 300 legal firms in the North West and seven in the Blackpool area at risk of failure in the next 12 months, according to research by R3, the insolvency trade body.

The figures, compiled using data from Bureau van Dijk’s Fame database, show that the North West has now overtaken the South East to become the main legal centre outside London.

The number of legal businesses has risen from 862 to over 992 in the past year – almost twice the number in Yorkshire. However as the number has grown so has the pressure on businesses, with 30 per cent now considered at risk – up one percentage point since the previous year and four points higher than the cross-sector average.

The North West has seen a number of recent mergers in additional to high-profile casualties such as Cobbetts, and Halliwells before it.

Jeremy Oddie, who is North West chair of R3 said: “The North West is now established as the most important regional centre for legal services but there are signs that it is a crowded marketplace and law firms are under pressure from all sides.

“In the wake of the recession, clients are demanding better value. Meanwhile the Legal Services Act has opened up the market to greater competition from non-law firms, while the Jackson reforms, which came into force in April, are having an impact on the personal injury sector. Law is one of the most traditional business sectors but firms are being forced to innovate in order to survive.”

Jeremy continues: “Next month, partners in law firms will have to make their second tax payment of the year, which can be a real squeeze on cash flow if it hasn’t been carefully planned for. Ideally, a tax reserve fund will have been maintained for this purpose.

This should be monitored and steps taken to apply for a reduction of payments on account if earnings are expected to reduce over the coming year.”

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