Closing down your practice

Issued on 10 May 2013 (updated 2 November 2015)

(The content below replaces guidance issued in May 2010, which has now been archived. See archived guidance)

Terminology

Reference to:

  • words in italics have the meaning set out in the SRA Handbook Glossary;
  • 'you' means:
    • a recognised sole practitioner,
    • a manager of an authorised body, or
    • an authorised body
     

Introduction

There are a number of issues you need to consider when closing down your practice to ensure that the interests of clients and others are fully protected.

You need to plan closure well in advance where possible. Larger firms may need to prepare a detailed plan and should have a contingency plan for closure, merger or sale in the event of serious difficulties arising.

The interests of clients are critical but disorderly closure of law firms can also cause adverse impact on the courts, others dealing with the firm (such as those on the other side of a case or transaction) and other law firms particularly if there is a need for intervention, the cost of which is carried by those firms.

Experience suggests that archiving closed files is one of the highest costs of closure and you need to manage your firm actively and prudently to fund archiving services and to ensure that closed files are archived and destroyed promptly where appropriate.

The importance of closing your practice properly

Firms merge and close all the time and if clients and others are fully informed, and the process is planned and implemented properly, no problems arise.

A key legal and regulatory requirement is to ensure that clients' confidentiality is protected. That duty continues after the client's matter has been concluded. Files and papers must be stored securely and an appropriate and rigorous destruction policy applied. If there is time, it may be worth writing to clients inviting them to take their files because of the firm's closure. Failure to deal properly with archiving or destruction could be in breach of Principle 8.

If you do not obtain proper consent from clients about where they want their money and papers to go, you could act in breach of trust, breach confidentiality, and might also be subject to a complaint by the client to the Legal Ombudsman Service. There could also be disciplinary consequences.

Ultimately, if clients' interests are at risk, we might have to intervene (for example, if you are insolvent, abandon your practice or do not secure client files). We would seek to recoup the cost of doing so from you. These costs are generally quite high.

Who to inform

Your clients

You must inform all clients for whom you are currently acting. You should give them as much notice of your intended closure date as possible to enable them to instruct another firm. Remember that it is for the client to decide which firm they want to take over their matter. In particular, bear in mind that you hold clients' money in trust for them and you need their (properly informed) consent to transfer it to someone else.

An urgent need to transfer files to another firm because of, for example, imminent insolvency, is generally evidence of failure to plan since such problems usually develop over time. Transferring files and money to another firm before clients have given proper consent carries significant risks, including breach of trust, breach of confidentiality, and possibly causing a serious complaint if the new firm has a conflict or the client would not want to instruct them.

If there is no alternative because there is a risk, for example, that an office will be repossessed and files removed by a landlord, having a new firm take the files may be the only option. The new firm will need to contact clients urgently and seek consent properly while taking steps, perhaps working with people from the closing firm, to identify and manage conflicts.

These principles also apply if you are selling your practice as a going concern.

As a matter of good practice, you should also notify any former clients who may be affected, e.g. those who have appointed you executor in a professional capacity and those clients for whom you hold documents such as wills or title deeds. That may be an opportunity for them to collect such documents and reduce your future archiving cost.

The SRA

You must notify us of your intention to close the practice before the firm ceases to practise (Outcome (10.13) in the SRA Code of Conduct 2011). Your notification needs to be marked for the attention of the regulatory notifications team and can be emailed to notifications@sra.org.uk, but if your firm has a supervisor, you could instead contact him or her. The notification should include:

  • The date on which the firm will cease to practice (all the managers/owners should agree on the date);
  • The reason for closing (e.g. retirement, financial difficulties etc); this will enable us to assess the risk to the public interest; and
  • a request to revoke your firm's authorisation or your recognition as a sole practitioner from the date of closure. Failure to request this will result in a delay and the details of your firm will continue to appear on the 'Find a solicitor' database.

If the date of the intended closure changes, you must let us know.

Even though the firm has ceased to practise, there are likely to be a number of matters remaining to be dealt with in accordance with this guidance. You should therefore notify us when all such matters have been dealt with and the firm is fully closed.

Others

Your firm's professional indemnity insurers.

You will need to consider who else should be notified: see the checklist of other bodies to notify.

Client account

Prior to closing

You should endeavour to deal with all client money by, for instance, sending money to clients or others, paying counsel, and billing for your outstanding costs. Any withdrawals must be in accordance with the SRA Accounts Rules.

Client money held or received after closure

Following the closure of the practice, you must deal promptly with any monies still remaining in the client account, or received after your practice closes, in accordance with the Accounts Rules.

Clients who cannot be traced

If the amount held for each client matter is £500 or less, rule 20.1(j) of the Accounts Rules allows you to withdraw these balances without first obtaining authorisation from us, provided the monies are paid to a charity and you comply with the safeguards in rule 20.2.

In all other cases (e.g. where the amount held is more than £500 or you have out-of-pocket expenses), you will need to make an application to us for authorisation under rule 20.1(k) of the Accounts Rules to withdraw the monies. See the application form and notes, together with general advice for applicants.

Accountant's report

Unless you are exempt from the requirement to obtain an accountant’s report under rule 32.1A of the Accounts Rules, you must continue to obtain (and, if required under rule 32.1(b), to deliver) yearly accountant’s reports until such time as you cease to hold client money.

You should notify both your accountants and the SRA of the date on which you cease to hold all client money and deliver a final accountant’s report to us within 6 months of ceasing to hold all client money.

Please note that all firms are required to deliver a final accountant’s report.

Acquisition of the practice

If another firm will be taking over the practice from you, the new owners will have to set up a client account in the name of the practice. If the name of the practice is to remain the same, and the client account will be at the same bank, there will have to be some method of distinguishing it from your own client account as long as this is still in operation.

Indemnity

Your closed firm has to have run-off cover to ensure that cover is in place to meet claims that may be made in the future and arising from your time in practice.

Successor practice

The position in respect of any claims made following the closure of your practice during run-off depends on whether there is a successor practice (as defined in the SRA Handbook Glossary).

If your firm ceases without a successor practice, then your participating insurer on cover at the date your firm ceases is contractually obliged to provide (currently) 6 years run-off cover. Your policy will have set out the premium to be charged for run-off cover. Any excess under the policy will apply to the run-off cover unless otherwise agreed and you will be liable for that excess in the event of a claim.

If there is a successor practice, then run-off cover for your ceased firm may be provided through the mechanism of the successor practice's insurance, meaning that you will not need to go into run-off with your own insurer. Whether you will be liable for any excess depends on the contractual agreement between you and the successor practice. If you will be liable, then you should ensure that your successor practice is required to provide you with details of their future insurance and any excess. Bear in mind that you will have no control over the level of the excess that they fix.

The definition of ‘successor practice' is a complex area which is ultimately a matter for interpretation on the facts surrounding closure and, possibly, the law. It is therefore a matter on which the SRA cannot give a determination. However, you may seek guidance from Professional Ethics.

If there is a successor practice, you may nevertheless elect to have run-off cover with your own insurer provided that you notify your insurer of your election and pay the run-off premium before your firm closes. If you do not elect to have run-off cover or you do not comply with the conditions, then any claims made after the closure of your practice will be dealt with by the participating insurer providing cover for the successor practice at the time the claim is notified (or when the insurer is notified of circumstances that may give rise to a claim).

After run-off with your own, or your successor practice's, insurer, has expired, post 6 year run-off will start. The terms of this cover will be the same as that provided by your participating insurer, but there will be no extra premium.

Extended policy period

If, before you closed your practice, you had to enter the Extended Policy Period (EPP) (because you were unable to take out a new policy), your last insurer had to provide you with an extra 90 days cover from the end of your policy. Your insurer can charge an additional premium for this cover if there is provision for such a charge in your policy.

During the first 30 days (called the Extended Indemnity Period) you may practice as normal. However during the last 60 day (called the Cessation Period), you are not permitted to take on any new instructions but are allowed to deal with existing matters. You can continue to search for professional indemnity insurance (PII) cover. However, you must put in place plans for the orderly closure of your practice should you be unable to secure compulsory PII at the end of the Cessation Period.

If you close on or during the expiry of the EPP, your insurer must provide run-off cover for six years with effect from the start of the EPP.

No successor practice

Your insurer on cover at the date you close your practice is obliged to provide run-off cover for a period of 6 years from the date of expiry of your policy.

Run-off cover is necessary because of the way professional indemnity operates. This is on a ‘claims made' basis rather than 'losses occurring' basis – i.e. the responsibility for paying the claim lies with the insurer on cover when the claim is made (or the insurer is notified of circumstances that may give rise to a claim), which will not necessarily be the insurer on cover when the alleged negligence took place.

Your insurer can charge an additional premium for this cover if there is provision for such a charge in your policy.

If you close on or during the expiry of the extended policy period, your insurer must provide run-off cover for six years with effect on and from the start of the extended indemnity period. Any excess under the policy will apply to the run-off cover unless otherwise agreed and you will be liable for that excess in the event of a claim.

Any excess under the policy will apply to the run-off cover unless otherwise agreed and you will be liable for that excess in the event of a claim.

In respect of the period following expiry of the run-off cover (i.e. post 6 year run-off), the Board of the Solicitors Indemnity Fund Ltd, with the endorsement of the Law Society, has put in place an insurance programme which provides post run-off cover for the period up to 30 September 2020. The terms of this cover will be the same as that provided by your qualifying insurer, but there will be no extra premium. Arrangements with regard to the provision of cover beyond 2020 will be discussed at a future date.

Practising post closure

Following the closure of your practice, you must take care not to practise or be held out as practising when tying up loose ends. For example, you will not be practising if you submit bills of costs, account to clients for monies held on their behalf, deal with outstanding balances under the SRA Accounts Rules or make arrangements for the disposal or safekeeping of old files and documents. However, if you were to respond to a query from the Land Registry or submit an application for registration in respect of a client's matter, you would be practising.

The court has accepted that solicitors who do not have a practising certificate may sign a bill of costs for work done when they did have such a certificate: but this must be made clear on the bill (Connolly v Liverpool City Council; SRA intervening Liverpool County Court, HH Judge Stewart QC Claim No: 7LV11622 (Appeal No. 185/08) 20 August 2009).

If you continue to practise (inadvertently or otherwise), this may lead to disciplinary action as well as having possible indemnity insurance implications, particularly if you practise into a new indemnity period for which you should have obtained a new policy of insurance. If you require more information, email Professional Ethics.

Whilst you can continue to use your firm's notepaper in dealing with outstanding administrative tasks, you will need to adapt the notepaper to make it clear that the firm has closed and to ensure that you (if you are a sole practitioner) or the managers are not held out as practising. When taking telephone calls after the firm has closed, you should ensure where necessary that it is made clear to the caller that the firm has closed.

Undertakings

If you are a sole practitioner or a manager in an authorised body, then you are responsible, (in addition to the authorised body), for ensuring that undertakings given by you or anyone within the firm in connection with the provision of legal services are complied with (rule 8.1 of the SRA Authorisation Rules 2011).

This responsibility does not cease with the closure of your practice. If you are a manager in an authorised body, you will continue to be liable in respect of such undertakings even if the authorised body ceases to exist.

Bear in mind that you cannot unilaterally withdraw from an undertaking, nor can you vary its terms unless the recipient agrees. You will therefore need to review all outstanding undertakings and so far as possible, take any necessary action to discharge them.

For example, where you are under a continuing obligation to hold monies, it may be possible to arrange for another firm to take over responsibility for complying with the undertaking, but remember that you will continue to be liable unless the recipient specifically agrees to release you from the undertaking.

For further guidance, contact Professional Ethics.

Where it is not possible to discharge the undertaking, you should ensure that you keep it under periodic review.

Retention of records

Bear in mind that you have obligations both at law and in conduct to retain certain documents for specified periods.

In the Handbook, for example, there are obligations under:

  • the SRA Financial Services (Conduct of Business) Rules 2001, to retain records for a period of 6 years;
  • the SRA Accounts Rules, to retain various records for various periods (see rule 29.17, rule 30 and rule 35.2);

An example of the legal requirements to retain documents includes records for VAT purposes and the requirements under the Money Laundering Regulations.

Where your firm has retained commission with the client's consent in accordance with IB(1.20) of the Code, it may be prudent to retain evidence of the clients' consent to enable you to demonstrate that you have achieved Outcome (1.15)

Files and documents

Most firms hold old files and other documents for former clients. If this is the case with your firm, you will need to consider what to do with these. They should not be held indefinitely and you should have a proper and rigorously implemented destruction plan.

There are a number of options open to you, including:

  • handing them back to the former client where possible;
  • arranging for another firm to take over storage of the files;
  • destroying old files;
  • scanning and storing the documents in electronic form.

The Handbook does not deal in detail with the storage of files, but you need to bear in mind the following points:

  • In accordance with Principle 10, you must protect any client money and assets that you continue to hold.
  • To achieve Outcome (4.1), you must continue to keep your clients' affairs confidential.
  • Whatever arrangements you make, you must ensure that you continue to be in compliance with the above requirements.
  • As a matter of law, some of the papers on the file may belong to you, but many will belong to the client. Some firms reserve the right to destroy the file after a specified time in their terms of business or agree this with the client at the end of the retainer. If your firm did not do this, you will need to assess the risk involved if you destroy files without the client's consent, both in terms of a potential claim on your indemnity policy and a complaint to LeO.
  • If you continue to store the files, you will need to consider the data protection requirements; the files should be in a secure storage facility.
  • Original documents such as Wills should not be destroyed.

You must inform the SRA of where the papers are stored and give contact details which can be passed on to clients wishing to access their papers.

Continuing trusteeships

If you are a solicitor or REL and you have been acting as a personal representative or trustee, then following the closure of your practice, you will need to consider whether to continue to act in a professional capacity. If you do, then you will either need to do the work through your new firm (if you are joining one) or set up a new practice.

If you intend to continue acting in a private capacity, i.e. not as a solicitor, you will need to:

  • stop charging for work done;
  • stop referring to yourself as a 'solicitor' or 'registered European lawyer' in connection with the estate or trust;
  • notify all parties with whom you are dealing in connection with the estate or trust (not only co-trustees and beneficiaries, but also accountants, banks, etc.) that you will no longer be undertaking the work as a solicitor/REL; and
  • explain to any co-trustees and beneficiaries the principal effects of your ceasing to be a practising solicitor/REL—particularly the position regarding professional indemnity, and charging as a professional trustee or executor.

Your conduct as trustee or executor should be to the standard of a practising solicitor, even if you are not acting in your professional capacity.

Financial difficulties: regulatory implications

You must act in compliance with the Principles in the Handbook at all times.

In particular, you must ensure that you act with integrity in the context of an actual or potential insolvency, including avoiding any misleading of creditors or others and avoiding wrongful or other forms of improper trading – see further below.

Notifying the SRA

You must tell us if you personally or your firm are in serious financial difficulties.  

The Handbook contains various obligations in this respect which arise at different points. They require you to tell us:

Bear in mind the risks of trading when in financial difficulty. Some of the grounds for disqualifying directors may be analogous to

  • (1) failure to keep adequate accounting records or file returns;
  • (2) trading with 'phoenix' companies;
  • (3) continuing to draw remuneration whilst insolvent and drawing excessive remuneration;
  • (4) inadequate capitalisation of a company;
  • (5) preferences and other breaches of duty;
  • (6) trading with no reasonable prospect of paying creditors;
  • (7) trading at the expense of the Crown (Halsbury's Laws of England, Companies (2009) para 1595).

Bankruptcy orders

If you are declared bankrupt, your practising certificate or registration will automatically be suspended by virtue of section 15(1) of the Solicitors Act 1974.

You can apply to us for the suspension to be lifted. Although we cannot consider your application until the bankruptcy has occurred, it is advisable to contact us as soon as a bankruptcy becomes likely. If the suspension is lifted, we will usually impose a condition restricting you to practise in employment approved by us.

To apply for the suspension to be lifted, please contact us.

Once you become bankrupt, you will not be able to continue practising or operate your client account until the suspension is lifted (you may however ask another solicitor or REL to authorise withdrawals or transfers on your behalf).

We can intervene into a practice as a result of bankruptcy. If this happens, the costs of the intervention will be payable by you. To avoid this, if bankruptcy is a possibility, you should try to arrange an orderly wind-down or disposal of the firm.

If you are a manager in a recognised body, you will need to step down as a manager until the suspension is lifted.

Individual voluntary arrangements and partnership voluntary arrangements

An individual voluntary arrangement ('IVA') or a partnership voluntary arrangement ('PVA') does not suspend your practising certificate. However, the position is otherwise similar to bankruptcy, in that:

  • You must inform us.
  • We may impose conditions on your practising certificate or registration. These commonly limit you to practising in approved employment or partnership, or require you to deliver more frequent accountants' reports. If the IVA or PVA is likely to involve the disclosure of confidential information to the supervisor, you should ensure that the supervisor is a practising solicitor.
  • Entering into an IVA or a PVA is a ground for intervention. However, this is unlikely if there is no evidence of any risk to clients' money or the interests of the public.

Appointment of administrator, administrative receiver or liquidator

To ensure that your duties to your clients continue to be met, (for example, in respect of confidentiality and independence), it is important to ensure that any appointment of an insolvency practitioner, whether as administrative receiver, administrator or liquidator, is a solicitor. This may not be necessary in the case of a pre-pack administration sale to another law firm, which is unlikely to involve the disclosure of confidential information. You will need to continue to hold a practising certificate.

In addition to ensuring that we are kept informed of financial difficulties, you must inform us of any intention to appoint an administrator, administrative receiver or liquidator; and you must inform us of any such appointment. You should also inform your insurers.

The SRA does not "approve" pre-pack administration sales and nor does it actively encourage them. The SRA's concern is the protection of clients and confidence in the delivery of legal services. You must act with integrity and comply with all Principles in the Handbook at all times, including when dealing with disposal of your business.

Closure due to striking off or suspension

If you are a sole practitioner and you are facing a possible striking off or suspension, you should make arrangements in advance either to:

  • close the practice down from the date of the striking off or suspension, or
  • to dispose of the practice as described above.

Since you would no longer be entitled to be a recognised sole practitioner, it would not be sufficient to arrange for a locum to take over the day-to-day management; you would have to dispose of the practice.

If you are struck off or suspended, you must tell your clients and explain how their matters will be affected. You must also inform us, as well as your insurers and your bank. Bear in mind that you could not be employed or remunerated by your former practice (or any other practice) unless you have our written permission (see sections 41 and section 42 of the Solicitors Act 1974).

Selling your practice

Your clients

If you are selling your practice as a going concern, you must inform all of your clients of the change in ownership and gain their consent to transfer of their files and money in advance.

You will therefore need to consider:

  • the information which you should give to your clients to enable them to make a decision on an informed basis as to whether to instruct the 'new' firm, or to instruct a different firm; and
  • how to deal with the issue of confidentiality.

In addition, you should take basic steps to safeguard the clients' interests. We are aware of at least one instance where monies were stolen from a firm's client account following a sale of the practice to an individual who stole the identity of a solicitor for that purpose; in another case, a practice was sold to an overseas lawyer who absconded overseas with client money.

To protect your clients against possible fraud, as well as to enable you to give the appropriate information to your clients, you should:

  • check the identity of the proposed buyer;
  • obtain confirmation in writing from the professional body of the buyer that the buyer is entitled to practise and is not subject to any condition or other restriction which would preclude that person running a practice;
  • obtain confirmation from the buyer in writing as to the basis on which the buyer intends to run the practice – for example, as a firm regulated by the SRA or by one of the other approved regulators under the Legal Services Act 2007;
  • inform us (before completion of the sale) of the name, status and contact details of the buyer, together with an indication as to how they intend to run the practice – for example, as a firm regulated by the SRA or by one of the other approved regulators.

New firm not regulated by SRA

If the new owners will not be running the firm as a practice regulated by the SRA, then the client should be made to understand that the rules governing the practice, and the scope of work which the practice can undertake, will be different from an SRA regulated firm. In particular, you should give your clients the following information:

  • the status of the new firm and the regulator responsible for it;
  • that the statutory protections available to clients of an SRA regulated firm (i.e. the indemnity arrangements, the Compensation Fund and the protection afforded to client monies under section 85 of the Solicitors Act 1974) will not necessarily be available to them should they instruct the new firm; and
  • that the rules governing the new firm are different and that the duties the new firm owe to their clients will not necessarily be the same.

You are not expected to explain the differences in any detail, but to flag them up to the client so the clients can make further enquiries or seek their own advice if they wish to do so.

You will also need to seek the clients' consent to passing their files and any client monies to the new firm as set out above.

Your position following closure

If you are a solicitor, REL or RFL and following the closure of your firm, you will be retiring or taking a break from practice, you must tell us within 7 days and provide us with a contact address (regulation 15.2 of the Practising Regulations).

If you are RFL, bear in mind that there are restrictions on how you may be held out if you are not practising in one of the ways permitted (see rules 3.1 and 3.4(a) of the Practice Framework Rules).

Checklist of other bodies to notify

You may need to contact some or all of the organisations listed below to inform them of the closure of your practice. This list is meant as a guide only, and is not exhaustive:

  • Your accountants
  • Your bank / building society
  • Companies or LLPs using your office as a registered address
  • Counsel's chambers
  • Court offices / court records
  • Crown Prosecution Service / police
  • Directories – professional / telephone
  • Information Commissioner (data protection)
  • Introducers with whom you have an arrangement
  • Land Charges Registry (key number)
  • Landlord
  • Land Registry (re current matters)
  • Legal Aid Agency
  • Local authority (business rate)
  • London Gazette and one other newspaper (not necessary for mergers)
  • Mortgage lenders where you are on the panel
  • HMRC

Closing down checklist

  • Plan your closure
  • Agree with fellow managers/owners the closure date
  • Inform clients of the firm and seek instructions;
  • inform the SRA of:
    • The date of closure of your practice in advance of ceasing to practise, giving reasons for closure;
    • The date on which you cease to hold client money;
    • The whereabouts of client files and documents;
    • Any change in your practice details (e.g. if you will be joining a new firm);
    • If you join another practice as a manager or have an interest in another practice;
     
  • Request revocation of your authorisation or your recognition as a sole practitioner from the date of closure of your practice
  • Immediately on ceasing to practise, ensure:
    • Staff are informed
    • notice of closure is posted on the door to your offices
    • a message is put on your telephone
    • the closure is notified on your website
    • your notepaper is amended to make it clear that the firm is no longer practising
     
  • notify your insurers;
  • deal with monies outstanding in your client account in accordance with the Solicitors' Accounts Rules;
    • continue to obtain and, where required to do so under rule 32.1 of the Accounts Rules. deliver yearly accountant's reports whilst you continue to hold client money;
    • submit a final accountant's report within 6 months of ceasing to hold client or trust money;
     
  • make arrangements in respect of old files and any deeds and documents you are holding;
    • notify former clients for whom you are holding deeds and documents or other items
     
  • identify records which you are required to retain by law or under the provisions in the Handbook and ensure their safekeeping;
  • in relation to any matters in which you are a trustee or personal representative, take steps to notify clients and other interested parties;
  • consider what other persons or bodies should be notified of the closure of your practice;
  • identify any undertakings given which remain outstanding and take any necessary action to comply with them;
  • ensure when vacating your offices that no confidential information remains
    • arrange for post to be redirected (Royal Mail and DX)
     

Sources of help

Depending on the reasons, closing down your practice can be very stressful and there is a lot to think about. Help and support is available from the following sources:

Ethics Guidance – for advice on the Handbook

Solicitors Assistance Scheme – for confidential advice on a range of issues, including financial problems (www.thesas.org.uk)

Lawcare – for pastoral support on matters such as stress, depression or health issues, employment options (www.lawcare.org.uk )

Pastoral Care helpline – for information on personal, financial, professional or employment problems (www.lawsociety.org.uk/advice/helplines/)

Solicitors Benevolent Association – for personal financial assistance (www.sba.org.uk)

If your reasons for closing down are financial, or you are facing the possibility of being struck off or suspended, your local law society may be able to assist in providing you with details of firms interested in a merger or buying your practice.


Please use www.sra.org.uk/closingdown to link to this page.