Chapter 13

The Business of Legal Practice

 

Introduction

13.01
This chapter deals with the business structures through which lawyers practise and with the issues which arise when a legal practice becomes insolvent.

13.02
The first part of the chapter outlines the business structures available to legal firms, and the key implications of conducting business through them. Historically, the legal structures through which professionals conducted the business of legal practice were relatively settled: solicitors operated through general partnerships, and barristers practised as individuals within a Chambers. But more recent regulatory developments, particularly those which allow regulated lawyers to practise through incorporated entities, have led to significant changes. These have, to date, mainly taken place within the solicitors’ profession, although entity regulation by the Bar Standards Board is likely to result in structural change at the Bar as well.

13.03
The second part of this chapter looks at insolvency in the legal profession. A legal practice becomes insolvent when it is unable to pay its debts as they fall due. For many practices this form of technical insolvency may become routine; for others it may herald impending collapse. Most businesses that fail do so because they run out of cash, rather than because they are losing money. Cash pressures are often a contributory factor in regulatory non-compliance. Attempts to save a practice under such pressures may lead not only to professional misconduct but also the risk of breaches of statutory duties in incorporated practices leading to individual liability. Pressure from lenders may lead to the introduction of more capital from personal assets or the giving of family assets as security. In order to mitigate these risks, a sound general knowledge of the legal framework of insolvency in relation to legal practice is essential.

13.04
The second part of the chapter, therefore, covers:

  • the insolvency processes applicable to legal practices and the impact on the practice, its members/partners and business;
  • other impacts of insolvency processes on legal practices, including antecedent transactions and claims against the members/partners; and
  • the continuation of the business of the insolvent legal practice.