10 things to consider when closing your law firm
If you are involved in the management of a legal practice, and you have taken the decision to cease practising law, you will need to carefully consider how best to achieve the closure of your law firm in an orderly and effective manner.
It is extremely important that you close a practice in an orderly fashion. A failure to do so can lead to disciplinary action being taken by the SRA against the managers of the Firm as well in certain circumstances the SRA intervening into a practice. It is therefore essential to put in place a considered and structured plan as to how you are going to close the business.
We have set out below the following 10 issues to enable you to start to think about what sort of things you need to include in any planned closure.
- Notify SRA
You are under a duty to notify the SRA. Outcome 10.13 of the Code of Conduct states as follows: “once you are aware that your firm will cease to practise, you effect the orderly and transparent wind-down of activities, including informing the SRA before the firm closes”.If the reason for the closure is financial difficulty, you will also have an additional duty to notify the SRA Outcome 10.3 of the Code states as follows: “you notify the SRA promptly of any material changes to relevant information about you including serious financial difficulty”.
- Dealing with Client Account
Client accounts should be cleared by:- paying any outstanding disbursements;- billing any outstanding profit costs;
– accounting to clients;
– transferring client monies to new solicitors where authorised.
Residual client balances must be dealt with in accordance with the Solicitors Accounts Rules. Rule 20.1(j) enables you to pay unclaimed residual balances of less than £500 to charity with an indemnity. Amounts over £500 require authorisation of the SRA under rule 20.1(k).You will need to continue to file accountant’s reports until you cease to hold client monies. After ceasing to hold client monies, you will have to file a final accountants report within 6 months.
- Professional Indemnity Insurance
The closed firm will need to ensure that some form of PII cover is in place. In the event that your firm has a successor practice then your firm may be covered through the successor practice’s insurance. Where there is no successor practice, your insurer is contractually obliged to provide 6 years run-off cover. Run-off cover is of course at a paid premium but you may be able to negotiate the cost.
- Notifying clients
You will need to inform your existing clients by giving them as much notice as possible in order to enable them to seek alternative representation. If you are planning to transfer files to a new firm, this will need to be done through the informed consent of the client. A failure to obtain informed consent from clients could lead a number of serious issues including breaches of client confidentiality and trust.You will also need to inform previous clients of the firm for whom you continue to hold papers if you intend to arrange the transfer of those papers to another organisation (again you will need consent). Alternatively, you may wish to continue to store the files in a secure location at your own expense. Whatever option you pursue, you will need to notify the SRA of your plans.
- Inform Staff
You will have to choose the right time to tell your staff about the planned closure and you will need to consider issues such as redundancy. You will also need to ensure that you are not left in a position where you do not have sufficient staff to carry out an orderly closure. You may wish to speak with one of our specialist employment lawyers for advice and assistance with this aspect of any closure to ensure you comply with any relevant employment legislation.
- Inform other parties
There are other organisations who you will need to contact for example:- HMRC;
– Your accountant;
– Counsels Chambers;
– Court offices;
– Crown Prosecution Service;
– Your bank or building society;
– Information Commissioner’s Office;
– Land Registry;
– Legal Aid Agency;
– Local Authority;
– Mortgage Lenders;
– Your various insurance providers;
– Your IT and Phone providers;
– Companies House.
You remain liable for any undertakings given by you or anyone on behalf of your firm. Your liability will remain post closure unless you can arrange to discharge the undertaking or arrange for another firm to take over responsibility for complying with the undertaking (although you will remain liable unless the recipient releases you from the undertaking).
- Retention of records
You are required to retain certain information for specified periods see for example;- The SRA Financial Services (Conduct of Business) Rules 2001 require the retention of certain records for a period of six years;- Rules 29.17, 30 and 35.2 of the Solicitors Accounts Rules 2011 require the retention of other records for a period of six years.
You may also need to keep a number of other records in relation to VAT and in compliance with Money Laundering Regulations.
- Practising post closure
Once you have closed your practice, you must ensure that you do not practise or be held out as practising whilst you tidy up loose ends. For example, you are entitled to submit bills of cost, account to clients for monies held on their behalf, deal with residual balances and deal with the storage and retention of old files and documents. If you intend to use the firms notepaper or emails, these will need to be adapted to show that the firm is no longer practising and to ensure that the named principals or managers are not held out as practising.
- Your plans for future
Do you intend to retire from practise entirely or will you be looking to continue to work as an employee or consultant of a different firm (perhaps the firm which has purchased your practice)? Consultancy can be an excellent way for solicitors closing their practice to earn an income on their own terms following a firm closure – read more about our remote working legal consultancy model. If you intend to retire or take a break from practise, you will need to notify the SRA of this within 7 days and supply the SRA with a contact address (see regulation 15.2 of the Practising Regulations 2011).
Obviously, this is just a brief overview of some of the key issues to consider when you take a decision to close your firm and they are designed to get you thinking about some of the steps you will need to plan for in the coming weeks and months. If you would like more detailed advice or assistance with any of the aspects of closing your legal practice to ensure it is done in an orderly manner, you should arrange to contact one of specialist SRA solicitors to discuss what assistance we may be able to offer.