Whilst many of the issues the legal sector faces during the Covid-19 pandemic are common to businesses of all types, some are unique. Andy Poole, legal sector partner at Law Society endorsed accountants Armstrong Watson, explains how the situation is affecting particular law firms and the legal sector in general (15 April 2020)
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 on the various practical issues regarding conveyancing transactions here.
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 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.
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 upturn 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.
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 your tax adviser for advice on your circumstances, particularly around the impact of overlap profits.
Other financial considerations which are relevant to all businesses can be found here:
- Job Retention Scheme https://www.armstrongwatson.co.uk/news/2020/04/job-retention-scheme-update-6th-april-2020
- VAT deferral https://www.armstrongwatson.co.uk/services/covid-19-and-your-business/vat-deferral-tax
- CBILS loans https://www.armstrongwatson.co.uk/services/covid-19-and-your-business/cbils-loans
The government has asked that everyone who can work from home does work from home. You have a responsibility to ensure that staff are not at risk and should not be demanding they attend the office when it is not advisable to do so.
The Law Society has advised that it is highly likely that there will be periods over the next two years where the government requires parts of the workforce to stay at home, so it is vital that you consider how a home working default policy can be implemented as standard now.
The government has also confirmed that “those essential to the running of the justice system” are classed as key workers. These include advocates required to appear before a court, including prosecutors; other legal practitioners required to support the administration of justice, including duty solicitors and those working on imminent or ongoing court or tribunal hearings; solicitors acting on the execution of wills; and solicitors advising people living in institutions or deprived of their liberty. You should be aware that some staff may fall in and out of the above categories intermittently and it is for the individual to decide if they fall within the above categories. The above groupings would qualify for their children to still attend school if there are no other options.
As part of your finances and workflow review, you may consider that you have too many people in certain areas of your firm and you may choose to take advantage of the government’s Coronavirus Job Retention Scheme (announced 20 March).
Your management team should be reviewing staff timesheets on a daily basis, as accurate time recording is more vital now than ever. Monitoring productivity will be essential to make the correct decisions on which staff to furlough, to ensure your practice is cutting costs wherever possible if there is not enough work for everyone.
Salaried members of Limited Liability Partnerships (LLPs)
It has been confirmed that members of LLPs who are designated as employees for tax purposes (‘salaried members’) are eligible to be furloughed and receive support through this scheme.
The rights and duties of the members of the LLP are set out in the LLP agreement. To furlough a member, the terms of the LLP agreement may need to be varied by a formal decision of the LLP, for example to reflect the fact that the member will perform no work in the LLP for the period of furlough, and the effect of this on their remuneration from the LLP. For an LLP member who is treated as being employed by the LLP, the reference salary for this scheme is the LLP member’s profit allocation, excluding any amounts which are determined by the LLP member’s performance, or the overall performance of the LLP.
Armstrong Watson's FAQs on the scheme can be found here.
Attendance at court
158 priority court and tribunal buildings remain open for essential face-to-face hearings. In addition, another 124 buildings will remain open to HMCTS staff and the judiciary to support video and phone hearings, progress cases without hearings and ensure continued access to justice.
Guidance from HMCTS about which cases will go ahead has been requested.
The starting position for court attendance is not to attend unless told otherwise. Only urgent cases are set to proceed. If in-person attendance is require, those solicitors will be contacted directly.
Governance and compliance
With the current ‘lockdown’ and the likelihood of restrictions of movement being in place for a period of time, law firms will need to change the way they work and how they are governed. Decisions about how you can continue to operate during this time will need to be taken collectively.
You should already have absence planning in place for the key roles in your firm such as the COLP and COFA, MLRO and MLCO, and we must hope that any cases of coronavirus are relatively mild and subsequently any absences are no longer than usual holiday periods. However, you should also consider informal deputies for these roles, and if any absence does become prolonged then you should apply to the SRA to replace these roles.
For the COLP and COFA roles you can apply to the SRA for temporary, emergency authorisation, and for the MLRO and MLCO then you need to inform the SRA of their replacement through the completion of a FA10b, for which a DBS check would also be required.
Sole practitioners may want to consider an agreement with another solicitor to be available for any absences.
The SRA expect firms to continue to do everything they reasonably can to comply with the Accounts Rules and to keep client monies safe and this includes obtaining the independent accountant’s report. However, the SRA have said they would be pragmatic regarding the six-month deadline given the exceptional circumstance, but there must still be a good reason and those reasons should be clearly documented.
The safety of client money remains a key focus for the profession, and the SRA has stated that it is vital the five-week reconciliation statements should not be delayed if at all possible, and that you should already have contingency plans in place to prevent his from happening. If those contingency plans fail for any reason, you should take whatever steps you can to assure yourself that client money is being dealt with correctly.
Inability to comply with your professional obligations
You must notify your client as soon as possible that you cannot provide any services they require. You should also provide the name (or ideally three names) of another solicitor to try to take over from you.
There are various firms that can provide services to your clients if you cannot meet your obligations. These tend to be on an agency fee-share basis and may be suitable for you where certain fee-earners have been furloughed. Please do not hesitate to get in touch if you would like us to put you in touch with one of these.
You also must ensure that any out-of-office email has all relevant information on – it is vital that any client does not suffer because they are expecting you to respond.
Virtual meetings and document approval
You should follow the government guidance on meeting face-to-face, including social distancing and hygiene. If you judge that a physical visit is imperative, choose personnel who are not a risk to the client and who are not at high risk themselves. Both the client and the employee will need to agree to the meeting despite any risk.
Ideally, holding virtual meetings is considered to be a good option, particularly as many clients requiring legal services now may be classed as particularly high risk to coronavirus.
Further guidance has been sought on this area, but at the time of writing, it is not permitted to witness a will via video messaging – this may be something for you to keep an eye on for further developments via the Law Society. The witness must currently be physically present. It is possible to supervise the signing of a will using electronic means where you are not acting as a witness to the will. The Law Society has suggested to members that they ask clients to video record the signing of the will if possible and keep good file notes on how instructions came in and how the will was signed. You may also want to think about discussing re-signing the will with clients once social distancing requirements are lifted, where this is appropriate.
None of us know 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’ 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 better 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 start 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.
(Note: This article was first published on the Armstrong Watson website, here.)
- Cash flow management during Covid-19
- Covid-19 and operational risk
- 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/