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SRA repeats advice to firms in financial difficulty

Firms facing financial difficulties have once again been urged to seek outside help and advice at the earliest opportunity by the Solicitors Regulation Authority (SRA).

The call comes after the SRA has already been forced to ensure the protection of clients by intervening into eight firms this year because of financial issues. Based on emerging trends from previous years, the SRA had estimated the total number of interventions for 2013 would be around 30, with an associated estimated budget of around £1.3 million.

SRA Chief Executive Antony Townsend has warned that the cost of dealing with increasing financial instability by firms was putting a strain on the SRA‘s budget.

SRA Executive Director Samantha Barrass said: ”Intervention is always a last resort where financial instability issues arise. We will try to work with a firm where we can to look at ways in which a business can get back on track. If this is not possible we will try to achieve an orderly wind-down.

“In many instances, an orderly wind-down can be achieved without the need for us to intervene, for example where there is a willing buyer for the business, either wholly or in its constituent parts. However, our first priority is to protect the public interest, so we have no choice but to intervene into a business when we believe these interests are threatened; for example, when there is otherwise no prospect of orderly continuance of client business.

“It would be better for all concerned if we could avoid these situations in the first place. For that we rely on firms to look for help as soon as possible, such as talking to us through our Supervision function or seeking other forms of assistance, such as professional advice or contacting their Law Society Regional Manager.

“The current economic climate and a rapidly changing legal services market means that some firms are finding themselves facing difficulties. The SRA has dedicated expertise for the situation and we are working proactively to identify those firms most at risk.

“However, firms must come forward and ask for help as soon as possible. They should already be talking to us via Supervision and, if not, should contact us immediately. Sadly, some firms refuse to acknowledge that they are in financial trouble until it is too late."

A financial stability presentation was made to the SRA Board earlier this month to highlight the emerging issues. It reported that eight firms were in intensive supervision where intervention was highly probable, and a further 48 where intervention was possible

 It also outlined a range of behaviours which were typical of a firm in trouble. These include payments made to partners irrespective of “cash at the bank”, all net profits drawn and no “reserve capital pot” retained, drawings exceeding net profits, high borrowing/net asset ratios, firms controlled by an “inner circle” of senior management and key financial information not shared with “rank and file” partners/members.

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