Closing down a business for financial reasons is a dark day for all concerned. While it’s understandable to feel sorry for yourself and wallow a little, it’s also vital that you consider others that may have been affected by your company’s insolvency. This is true across all industries and sectors and no less true for solicitors practices.
If you have decided that there is no other option but to liquidate your practice and close it down entirely, you need to be aware that you are obliged to ensure that your former clients’ interests are protected as fully as possible. An ill-thought-out closure can cause interruptions and delay for the court system as well as inconvenience and financial outlay for your ex-clients. There are a number of rules that the Solicitors Regulation Authority (the SRA) demand that folding practices abide by. In this blog we will talk through some of them, giving special emphasis and explanation to the idea of ‘run-off cover’...
Why you need to take a responsible closure seriously
We’ll start by pointing out that the SRA are not an organisation to meddle with lightly. They take their responsibilities seriously and are known for following up on their ‘threats’. When they tell you that you’ve put your clients’ interests at risk with a sloppy and badly-planned closure and that they’ll be recouping their costs (and then some), you’d best believe them. The SRA’s bite is often worse than their bark.
Also, it’s just plain unfair to allow your business problems to negatively impact others. The people you represented showed faith in you, the moral thing to do is to ensure they are not left out of pocket or troubled by your actions.
What you need to do
The SRA will check that a number of rules have been adhered to when you tell them that you’re closing your practice. These include, but are not limited to:
You must ensure that you keep information and data private
No matter what is happening to you and your firm, your client’s confidentiality must be paramount in your thoughts. Keep your security - on and offline - tight throughout the process and abide by the SRA’s rigourous document destruction policy.
Tell your clients as soon as possible
Don’t put off the bad news. As soon as a decision is reached, you need to inform your clients immediately, giving them as much chance and time as possible to make alternative arrangements. When asked, you must transfer your former clients’ documents to their new solicitor.
Inform the SRA
You are required to alert the SRA as to your intention to cease trading as a business. You have to get in touch with them before you begin the process. There are lots of other bodies and organisations to let know too. The SRA will give you the full list.
You have to deal with all loose money
Any funds floating around unaccounted for or unearned must be credited back to the relevant party.
You have to keep certain documents
After the liquidation of your business, certain documentation must be retained. If the SRA later calls you to present your VAT records or your Money Laundering Regulations paperwork and you've destroyed it, you could land yourself in a whole heap of trouble.
Cease to be a solicitor
This one may sound obvious, but once you’ve no practice, you’re out of the game. You may no longer refer to yourself as a practicing solicitor or charge for legal work.
This run-down is absolutely non-exhaustive. Before making a final decision, speak to the Solicitors Regulation Association.
Run-off cover: What is it and why you need it
Run-off cover is a non-negotiable regulatory requirement which was imposed by the SRA some time ago. Its purpose is to ensure that any and all former clients of a closed legal practice receive fair and adequate compensation for any claims that may well arise after a law firm closes down. Run-off also affords reassurance and financial security to retired partners.
It's basically a professional indemnity insurance policy which gets taken out when a business - in this case a solicitors practice - stops trading as a business. Any claims that are made under the policy must relate to work which was carried out before the business folded.
You’ve stop practicing, so why do you need more insurance? It’s vital for protecting your former clients and you. Financial claims against practices are often made well after the event, with the majority of claims being made some three years afterwards. Clients are allowed to claim up to six years after an incident, so make sure your run-off covers up to six years after your final case.
Whether it’s because of negligence or misconduct on yours or a colleague’s part, it’s a spurious allegation or it’s a misunderstanding, run-off gives you serious piece of mind in the future. And you have to have it, of course...
If you’re in a tricky situation with your practice - or any form of business - at the moment and don’t know what to do next for the best, don’t fret. Just pick up the telephone and call us. We’re insolvency experts and we’re here to help you navigate your tricky journey.