Welcome to the second edition of Upload Professional Practices – MAB Intelligence Tracker.
In this edition, we consider the recent announcement by HRMC that it hopes to recover £3m in unpaid tax by launching an investigation targeting London’s solicitors and barristers. We will also review the recent decision of Ariel Zeckler v Assigned Risk Pool Manager Capita Commercial Services Ltd (2012).
Recent developments
Keoghs is to launch as an alternative business structure… with an external investment deal in the pipeline
Defendant insurance law firm Keoghs is to accept external investment from a private equity house once it receives its alternative business structure (ABS) licence.
The firm, which has offices in Bolton and Coventry, is expected to become an ABS in 2013 and it has been reported that LDC, which is part of Lloyds Banking Group, has been chosen ahead of Bowmark Capital as an investor. However, neither Keoghs or LDC have confirmed that a deal has been agreed. A spokesperson for Keoghs only confirmed that the firm had “reached a provisional agreement with an external investor who shares our ambition and appetite for growth…”
Other law firms have already agreed outside investment deals, including (1) the Parabis Group, the parent company of insurance litigation law firms Plexus Law and Cogent Law, which has allowed private equity house Duke Street to acquire a majority stake in the firm, and (2) Midlands-based commercial law firm Knights Solicitors, which has secured external investment from the private equity house Hamilton Bradshaw, owned by the ex-Dragons’ Den television star James Caan.
Legal Services Board reveals how it will monitor the impact of alternative business structures on access to justice
The Legal Services Board (LSB) has published a discussion paper which outlines how it will monitor the impact of alternative business structures and other reforms on access to justice.
The LSB’s attempt to “baseline” access to justice and to evaluate change over time proposes 18 measures, such as why and how consumers use legal services, trends in costs and funding, geography of services, breadth of services on offer, and the number of lawyers and others providing them.
The LSB is accepting feedback on its proposed measures.
Legal Services Consumer Panel criticises proposed cap on claims made against Intellectual Property alternative business structures
The Legal Services Consumer Panel (LSCP) has said that the proposed £50,000 cap on compensation claims made against alternative business structures (ABSs) licensed by the Intellectual Property Regulation Board (IPReg) is too restrictive.
The IPReg, which regulates trade mark and patent attorneys, is expected to launch an application to become an ABS licensing authority in October 2012 and hopes, subject to approval, to accept ABS applications from the beginning of 2014.
However, in its response to a consultation paper published by the IPReg on its regulatory approach, the LSCP raised several concerns, including that the financial cap was “unduly restrictive” and that the IPReg had provided no explanation regarding how it had been decided upon or what time limits would be applied. It also raised concerns regarding the lack of detail on proposed consumer protections, the definition of a “lay client”, compliance, and whistleblowing. However, despite these concerns, the LSCP has broadly welcomed the IPReg’s proposals.
Law firm closures may be on the rise… or are they?
Data published by the Solicitors Regulation Authority (SRA) have revealed that more than 250 law firms have ceased operating since the start of summer 2012.
SRA statistics show that there was 11,115 registered law firms on 1 September 2012, down from 11,369 laws firms at the end of May 2012. During this three month period, sole practitioner numbers fell by 126 and partnerships by 165.
However, the Law Society has queried the significance of the decline, stating that there were more registered law firms in August 2012 than August 2011 or August 2010, and only a decrease of 0.5 per cent on July 2012.
SRA offers to help struggling law firms
The Solicitors Regulation Authority (SRA) has urged law firms that are facing financial problems to contact it for support and advice.
SRA supervisors are already making contact with legal practices that may need help, as part of the regulator’s new approach under outcomes-focused regulation. This follows a pilot study in 2011, where the SRA identified financial stability as one of six key risk areas for law firms, with one quarter of the 100 firms that took part in the study showing evidence of having financial problems.
SRA interventions are down this year on an annualised basis at just 22 so far, compared with full-year totals of 62, (2008) 64 (2009), 97 (2010) and 7 (2011).
Who else became an ABS in September?
1. Two conveyancing practices – Enact and Total Conveyancing Services, the trading name of LMS Direct Conveyancing Ltd, – became ABSs and will both be licensed by the Council for Licensed Conveyancers.
2. Nicola Phillips, a conveyancing sole practitioner, has become an ABS in a bid to get on to lenders’ conveyancing panels. Ms Phillip complained that her status as a sole practitioner had excluded her from many lender panels.
3. Specialist public sector law firm TTPP Law Ltd has become an ABS.
4. Cheshire-based personal injury firm Accident Advice Solutions has become an ABS.
5. Northampton-based Strata Solicitors – the only UK law firm focusing exclusively on handling liability claims for self-insured companies – has become an ABS.
Mergers
DMH Stallard has completed its merger with Surrey-based firm Callaghans, which has offices in Guildford and Farnham and specialises in property, litigation and private client work. The new firm will be called DMH Stallard.
Administrations
Kaslers Solicitors, a two-partner law firm with thirty staff across offices in London and Kent, has entered administration after losing a large personal injury claim services contract.
Following a managed wind-down, in consultation with key stake holders including the SRA, agreements were entered into with fee earners and a number of firms as a result of which all clients were transferred and the value of the available assest maximised for the benefit of creditors. The proposed administrators, Charles Turner and Gareth Morris from FRP Advisory worked with Christina Fitzgerald of MAB LLP to acheive the best possible outcome in the circumstances.
Future developments
1. Salans and SNR Denton have delayed a vote on a merger, with partners now expected to be polled in October 2012 at the earliest.
2. Field Fisher Waterhouse is reportedly in early stage merger talks with three top 40 law firms, including Osborne Clarke. The names of the two other firms have not been disclosed.
3. Dickinson Dees and Bond Pearce are discussing a potential merger, which, if approved, would put the combined firm into the UK’s top 40 law firms.
4. Yorkshire firms Lee & Priestley and Lupton Fawcett are in merger talks, which would create a major regional law firm with offices in Leeds and Sheffield.
5. Care Matters – a firm of independent financial advisers in St Albans specialising in the over-55s – is working on plans to form a multi-disciplinary alternative business structure with St Albans law firm, Labrums.
HMRC announces new taskforces to “tackle tax dodgers”
HMRC announced on 18 September that they are launching several new taskforces to “tackle tax dodgers” – including one targeting the legal profession in London.
Taskforces are specialist teams that undertake intensive bursts of activity in specific high risk trade sectors and locations in the UK. The teams will visit traders to examine their records and carry out other investigations. The fact that HMRC have launched a taskforce as opposed to a fact seeking/self disclosure facility (for example, as was done for those holding their wealth in Lichtenstein) indicates that HMRC have an idea already of what to look for and the extent of the non-compliance.
HMRC’s Mike Eland, Director General Enforcement and Compliance, said: “These taskforces bring together specialists from across HMRC to find people who are not paying what they should. If you have paid all your taxes you have nothing to worry about. But for those deliberately evading tax, be warned that HMRC is coming after you.
Iain Donaldson head of Matthew Arnold & Baldwin’s tax department said: “Law firms will be treated by HMRC as businesses like any other. Indeed as professionals we are held up to higher standards. There are a number of key areas which HMRC are likely to be looking into including spouses being employed by firms (income shifting), corporate partners, VAT compliance and the tax treatment of expenses. If you are concerned that you, your firm or you clients might be affected by this campaign then it is worth carrying out a review before HMRC come knocking on the door. It’s always preferable to know where you stand before they tell you!”
Lawyers who are used to the protection of professional privilege may also find themselves in for a culture shock since if they have engaged accountants to review their tax position their records may potentially be subject to disclosure.
If you would like to speak to someone for a confidential conversation about how this may affect you, your firm, or your clients please contact either Iain Donaldson or James Odds on 01923 20 20 20.
High Court Judge rules that an LLP Member is not responsible for Indemnity Insurance Premiums
It is the final year of the Assigned Risk Pool (“ARP”) which is to be abolished from the October 2013 renewal date. The scheme promoted by the SRA means that firms which cannot obtain professional indemnity insurance on normal terms can, for a maximum period of two years, obtain cover. The move to abolish the ARP was intended to attract more insurers to the market and bring down premiums. Last year the SRA promised a tougher crackdown on members of LLPs not paying their premiums. However, a recent High Court ruling over who can be held liable for a firm’s indemnity insurance premiums, once the LLP is in the ARP, has come to many as a surprise.
Re: Ariel Zeckler v Assigned Risk Pool Manager Capita Commercial Services Ltd (2012)
The Appellant (Z) appealed against the decision dismissing his application to set aside a Statutory Demand served on him by the Respondent (R). Z had been a partner in a solicitors’ practice which operated as a limited liability partnership. Z and his brother were the only two partners. The Respondent was the APR manager. The Statutory Demand was based on unpaid premiums due from Z’s law firm in respect of the insurance arranged by R. There was no dispute as to the existence of the amount of the debt but Z’s case was that as a limited partner he was not personally liable for the debt of the practice. The Registrar upheld the Statutory Demand holding that the Solicitors’ Indemnity Insurance Rules 2009 (Rule 10.3) was sufficient as a matter of professional conduct to create an obligation on Z himself to pay the premiums.
Z submitted that he was not liable because he personally had never had a contract with R and he did not give a personal guarantee to R on behalf of his firm. He further submitted that Rule 10.3 might have found a disciplinary complaint against him but was not a contract between him and R and could not be relied upon by R to found a claim against him for the unpaid premiums. The Judge, Nicholas Strauss QC, held that professional rules would not normally be incorporated into a contract unless the contract expressly said so. In this instance there was no evidence of any such contractual provision. He therefore held that there was a general dispute as to the existence of the debt and the Statutory Demand was set aside.
Comment: The SRA are currently considering an appeal against the decision.