- 13% or 44 law firms closed due to financial stress
- 327 law firms in total closed last year shows SRA data
The Solicitors Regulation Authority (SRA) intervened to close down 43 law firms – 13% of all law firms that closed – in 2022/23 (year-end October 31). The number of law firms closed by the SRA is up 87% from the 23 law firms it closed in the previous year*.
The SRA has intervened in many cases where law firms have mishandled client money, some more high profile than others. The SRA closed down Axiom Ince in October 2023 after £64m was withdrawn from the client account and subsequently disappeared. In July 2024 the SRA issued a warning notice to all law firms concerning the mishandling of client money, suggesting that the regulator is cracking down on the issue.
Ian Johnson, Partner, says: “The SRA has really stepped up its interventions. Law firms should be conscious of the extra regulatory scrutiny they’re under.”
“Because of the obvious high profile nature of the Axiom Ince case, the SRA is on high alert for any instances of law firms mishandling client money. The SRA will want to be seen to be taking decisive action and has made it clear that they will shut firms down for this.”
Law firms face a swathe of financial challenges – leading to a surge in closures
Of the 327 law firms that closed down last year, 44 closed due to financial stress. Law firms have faced a litany of financial challenges, including high interest rates as well as rising staff costs. Ian Johnson explains that rapid salary inflation has rippled out from City law firms to regional and high street law firms – pushing up their overheads.
Says Ian Johnson: “Many firms have closed down as a direct result of this financial stress, and with financial stress comes a greater risk of firms looking to client money to cover their bills. This creates an environment that invites a higher degree of regulatory intervention.”
“In particular, firms that haven’t able to raise their charge out rates are struggling – they’re faced with rising costs they cannot pass onto their clients.”
Another 81 law firms (25% of the total) closed down as a result of senior lawyers retiring, either because the owner cannot find an internal candidate to take over the firm or because they cannot exit through a sale. Ian Johnson explains that the ‘default’ approach for firms is to arrange internal succession where possible – with an external sale of the firm being the final option.
Says Ian Johnson: “In many cases internal succession is the preferred outcome for a retiring owner. Clients tend to prefer continuity with law firms they’ve built a relationship with. Often, the prospect of a long and complex sale process is a further incentive to organise a relatively seamless internal transition.”
Says Ian Johnson: “Senior partners retiring has been the single biggest reason for closures – most of these will be small firms. Succession planning is still a struggle for smaller law firms.”
Increasingly active SRA closed down 43 law firms last year – number of law firm closures broken by cause
* Source: SRA.
