Covid-19 and The Legal Sector – Part 1

Whilst many of the issues the legal sector faces during the Covid-19 pandemic are common to businesses of all types, some are unique. Here we focus on a few specific to legal professionals:

Impacts by work type

Conveyancing and Property

On 25 March the government announced that anyone considering moving house should delay this whilst the emergency measures regarding coronavirus are in place. The announcement from the government is expected to cause a ‘short sharp shock’ in the UK housing market, which was already being evidenced by the reduction in searches between 24 – 27 March by a drop of over 32% on the previous week. The purchase market is going to be heavily reliant on existing valuations, vacant properties and new builds, but even these moves will be difficult with the ongoing movement restrictions, so many conveyancing firms are seeing their work out on hold and new enquiries contract very quickly.

The Law Society has a dedicated section to the various practical issues on conveyancing transactions here. 

Family

Family law is one area where work can continue from the instructions currently in hand, albeit potentially slower and with fewer options/solutions – given the impact on housing/house prices/pensions/the stock market.  Other than that work, it is likely to remain relatively quiet until the lockdown ends. Beyond then, work is likely to start flowing again and may even have a surge, as the strain of spending weeks together, along with financial pressures, become too much. Some reports are suggesting that this is the case in China, and that they have seen record divorce cases following the ending of lockdown.

Employment

Employment lawyers have seen a surge in enquiries from both employers and employees over the last few weeks. It will remain to be seen how much of that work is chargeable or recoverable in fee income terms.  We would suggest that where it is chargeable, full invoices should be raised in advance and payment secured before commencing.

Commercial and Corporate

Initially, in early March, there was increased activity as clients pushed to complete transactions before matters worsened and this continued as clients sought to use the ‘force majeure’ clause in contracts. However, since the lockdown measures were introduced, many firms are reporting a significant drop in new enquiries and pausing of instructions on the majority of matters. The issue is both current transactions not completing, and a lack of new instructions jeopardising the pipeline of work with so much future uncertainty.

Private Client

Understandably this is one area that is thriving, with some firms reporting a four-fold increase in enquiries and instructions in recent weeks, especially around wills, power of attorney, trusts and tax planning.  This may be a short-lived up turn and again, payments in advance, not just payments on account, should be obtained.  The likelihood is that sadly, in the coming weeks and months, probate instructions are also likely to follow.

Litigation, Personal Injury, Clinical Negligence and Court of Protection

These cases tend to be long running and are therefore largely unaffected for now, although matters have slowed as response times from the other side, insurance companies etc slow down as everyone adapts to home working and Court redress is potentially removed/delayed.

Encouragingly, APIL (Association of Personal Injury Lawyers) and FOIL (Forum of Insurance Lawyers) have joined forces and agreed new guidance to create a new set of standard practices during the disruption to ensure that cases run as smoothly as possible.

Although these matters are expected to continue in the near future, there is a worry as to where the pipeline of future cases might come from as there will be fewer new cases, accidents etc due to the restrictions on people’s movements.

Finances

Solicitors and law firms continue to be obliged to act in compliance with the SRA Standards and Regulations regarding financial difficulties, therefore you must tell the SRA personally if you think the firm may be in serious financial difficulty.

In order to assess the financial stability of your firm, you should prepare a 13 week short-term cash flow forecast to identify the position of your firm’s cash on an ongoing basis.  This should be a rolling document that is used as a management tool, not only to assess what payments can/should be made, but also to identify the timing of any funding being received. The use of this document will also assist with a regular review of staffing needs to assist with furlough decisions, and conversely, the need to bring people back into the business from furlough.

We have developed a template for you that you can use for this, which can be found here

If you would like any support with preparing an initial version for your practice, for you then to use on an ongoing basis, please do let us know. Please note: we are aware of various grant funding packages that may even pay towards the costs.

In our opinion, this will be the most important management tool you will have. It can help you to manage your fee earners remotely; with team leaders asking each fee earner on a weekly basis for the work they are doing, when it will be done by and what cash will be received and when.  This information can then be inputted into the 13 week cash flow template and, notably, once fee earners have put their names to an expected cash receipt, they are then more likely to do the things that are needed to generate that cash commitment.

Steps you should take to assist with cash flow continuity

  • You should ensure that your debt management is strong and that you are in regular contact with your clients about any monies owed to the practice.
  • You should ensure that fee earners are regularly reviewing WIP and billing on a regular basis to ensure cash collections continue.
  • Your finance function should review the outstanding invoices due for payment and pay essential and business critical suppliers first and, where possible, negotiate alternative credit terms for non-essential spend.
  • You should consider negotiating a time to pay arrangement for your PAYE, NIC and Corporation Tax liabilities – HMRC have set up a dedicated helpline for queries such as these 0800 024 1222.
  • You may be able to change your year end, which could result in lower/deferred tax payments.  This is not a straightforward area and you should contact us for advice for your circumstances, particularly around the impact of overlap profits.

Other financial considerations which are relevant to all businesses can be found here:

The Future

None of us know for how long the coronavirus pandemic will last but it is clear that the effects on business and the way we work and operate will have changed forever. Looking to the future, the hope is that as people settle into their ‘new normal’ that life begins to re-start and as such, so does business and legal services.

For law firms, some of the practices and decisions that have been forced upon them through this crisis are decisions that should have potentially been made in any case. The law firms that still remain when this is over will be leaner, more efficient and well equipped to deal with clients from any location in a profitable way.

We’d expect certain work types to see a return to normal levels more quickly than others – family (divorces), litigation (potentially if there have been breaches of contract throughout this crisis) and employment (if redundancies rather than furloughing starts to occur).  Although conveyancing may be slower to pick up, interest rates have been reduced to an all-time low, which may encourage some market stimulation (and some reports from China suggest that the property market has returned to 50% of its pre virus level already).

As a sector, we must hope for the best and that we can return in full health to some semblance of normality as soon as possible, but unfortunately we all must monitor, measure and plan for the worst case scenario.

The author of this article is Tom Blandford (and collegaues) of Armstrong Watson. Tom can be contacted at Tom.Blandford@armstrongwatson.co.uk or 07793 621 951. Other members of ALFMA can be contacted here.

Useful links:

The Law Society – https://www.lawsociety.org.uk/support-services/coronavirus/

The SRA – https://www.sra.org.uk/sra/news/coronavirus-update/

The CLC – https://www.clc-uk.org/lawyers/coronavirus/

The Law Society of Scotland – https://www.lawscot.org.uk/news-and-events/law-society-news/coronavirus-updates/

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