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Law firms warned on insolvency 7 August 2013

Cash flow issues could put law firms in serious danger of insolvency, according to the restructuring and recovery practice of professional services firm Baker Tilly.

Following recent high-profile collapses including Challinors, Carney Solicitors and Rohrer & Co, Baker Tilly has raised concerns about the level of awareness among law firms regarding their options – and their implications – when they don’t have sufficient cash to meet their running costs.

Recent research from insolvency trade body R3 showed that just over 30% of UK law firms are at risk of failing within the next twelve months.

Rowan Williams, head of Baker Tilly’s London and south professional practices group, fears the issue is “more widespread within the legal sector than people would imagine”.

He explained: “Many partners assume that, as their practice has come through the recession and profits are stable or improving, they are safe.

“But if a practice doesn’t have sufficient cash to meet its running costs, then there is a real risk of firms failing.”

Baker Tilly is conducting a survey amongst UK law firms to assess awareness of financial stability within partnerships, LLPs and corporate practices.

Williams said: “I firmly believe that too many partners are unaware of whether there are any serious financial issues within their practice, and don’t understand the personal consequences if their business goes under.

“In my experience, law firms ask for help too late, after things have seriously taken a turn for the worse, which is usually about six months before failure.

“It’s going to get tougher for law firms, and if they don’t identify the red flags early, then the legal sector will indeed face the predicted ‘perfect storm’ with many becoming insolvent this autumn.”

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