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SRA push ahead with Alternative Business Structures [ABS]

Whilst the Bar Standards Board proposals for ABS receive a lukewarm response from practitioners, the SRA push ahead with their supervision of the new market for legal services.  As reports of adverse market conditions from legal aid solicitors and barristers continue, many new forms of practice association are emerging.√جª¬ø


The Bar Standards Board [BSB] open consultation on the Handbook and Entity Regultion closes on 29th March 2012. The proposals have been received with widespread disappointment from many members of the bar who felt that this was the opportunity for the Bar to respond to the advances being made by the SRA regulation of Alternative Business Structures. The lukewarm response surrounds the business model that underpins the proposals, which seems to limit the Bar’s future to continued provision of advocacy services alone, in a model that is based on the current chambers system.

The main advantages of the ABS model, is that practitioners can form together with other professionals and investors, to provide a  wide ranging service, and fund business development, following the lead of the Accountancy profession that has spawned the growth of a number of major international consultancies such as KMPG, Ernst Young, PWC and Delloite.

The BSB seem to favour a minimum of 75% Barrister representation in their model, thus making it impossible to provide sufficient equity for staff, other professionals and outside investors within the model.Criticism of the proposal has come from various sources within the profession. In the current edition of ‘The Barrister’ [12th June – 31st July 2012 edition], Ian Dodd of the Bar Consultancy Network points out that the current structure and financial management of traditional chambers doesnt allow for the retention of profit or the ability to build up enough working capital to fund major expansions and business initiatives.

Ian Dodd points to the difficulties of Barristers attracting private equiy  whereas a suprising number of ABS applications have been made to the SRA. The SRA maintain a register of licenced bodies [ABS] on their website click here for the link.. This shows that 7 applications have already been granted including Russel Jones & Walker, now part of Slater & Gordon following the recent acquistion in a deal worth £53.8 m.

At a recent conference, Mr Neil Kinsella, the chief executive of the new group, said

 “This is an exciting new chapter in our history and is an important step towards us achieving our ambition of becoming the largest and most trusted brand for personal legal services in the UK.”

 In an article on ABS development on 9th June 2012, click here, Robert Heslett  argues that the emergence of ABS will prove challenging for existing firms as there will be more competition for solicitors who are well established in what is an already competitive market place.  

But where does the Bar fit into this brave new world? As Ian Dodd points out, Venture Capital is looking for larger, merged vehicles and the trend is therefore clear, there will be a rush for solicitors firms to merge to attract the vast pool of capital that is waiting for the market to consolidate.

At present, the Bar has no viable alternative to offer, despite the appearance of new schemes such as Riverview Law and Artesian Law, where a small number of barristers broke away from their chambers and have set up a partnership to explore novel ways of working in crime. Artesian are a barrister led LDP that is regulated by the SRA – enough said!

The maket for Legal Services is clearly entering into a period of disruption. Even the United States is facing similar difficulties. Legal Week reported on 28th May 2012 that Dewey & LeBoeuf has filed for bankruptcy, with the firm’s UK operations simultaneously placed into administration, confirming the world’s largest ever legal failure click here for the full article

‘In raw terms, the firm’s Chapter 11 filing lists assets of roughly $193.2m (£123m) against liabilities of $245.4m (£156m) – a deficit of more than $52m (£33m), as of 30 April. Dewey’s secured debt obligations total approximately $225m (£143m), with JP Morgan Chase – which Dewey says is owed roughly $76m (£48m) – identified as the firm’s primary secured creditor.

The Am Law Daily reported last week that three other banks that combined with JP Morgan Chase to extend Dewey a $100m (£64m) line of credit – Citi Private Bank, Bank of America, and HSBC – had sold off their portions of that debt. JP Morgan Chase is listed on the bankruptcy filing as “as administrative agent and collateral agent for banks party to the credit agreement.”Other secured creditors include the holders of some $150m (£96m) in bonds Dewey sold in 2010 as the gap between its revenue and its compensation-driven expenses widened. Monday’s filing states that JP Morgan Chase is acting as collateral agent for the holders of those bonds as well

Reports of administrations of UK firms of solicitors continue with recent announcements in respect of Friday’s Property Lawyers, Jewels,  Donns as well as numerous other small practices. These following earlier high profile administrations of Fox Hays, Haliwells and others.

Failure often results in applications to the ARP – [Assigned Risks Pool] , the safey net for firms that cannot get cover from qualifiying insurers or cannont reasonably afford the terms available to them.Currently, firms may apply to be insured through the ARP for a maximum of six months.

If a firm is unable to obtain cover with a qualifying insurer in the open market by the end of the six month period, it will have to cease to practice. The hidden danger here is that the premium for the ARP is turnover based, so many entrants into the scheme are finding unexpected demands for unpaid premiums, far higher than anticipated. It is a disciplinary offence to fail to pay premiums. It is recommended to consult a specialist disciplinary lawyer in such circumstances, in view of the policy considerations that are presently being adopted by the SDT in such cases.

Changes to the scheme can be found on the SRA website by clicking here. It is anticipated that a new EPP scheme will be introduced for the 2013/14 indemnity period. There will be a consulation in respect of the new scheme which is expected to be for 90 days only, with the first 30 days being used by the firm to find alternative qualifying insurance.

Originally posted 2012-06-11 00:00:00.

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