Smaller firms will lose out in LDP race

New Law Journal 1st February 2008

Small and medium-sized firms will be "disadvantaged disproportionately" by the new legal disciplinary practice (LDP) provisions of the Legal Services Act, the Legal Services Policy Institute claims.

In its response to the Solicitors Regulation Authority's (SRA) consultation paper on new forms of practice and regulation, Professor Stephen Mayson, director of the institute, which is part of the College of Law, attacks the requirement for a minimum of 75% lawyer ownership and control.

He says: "This disproportionately disadvantages small and medium-sized firms currently with three or fewer partners who wish to take non-lawyers into co-ownership."

Even where firms can take advantage of the new LDP provisions, they will ace further disincentive with the costs, time and effort required to convert from an LDP to an alternative business structure (ABS) when the licensing provisions become fully operational in about four years' time, he says.

"We are urging the SRA to give an early indication of their likely approach to the conversion of LDPs into APSs.  Also, it does not seem to be clear what would happen to an LDP owned by, say, three lawyers and a non-lawyer where one or more of the three lawyers ceases to be an owner.  Such a situation could arise beyond the control of the firm, for example, because of the death of one of the lawyers."

The institute is also unhappy that it will take until 2009 to authorise LDPs.  It says: "It is three years since Sir David Clementi's final report...It is therefore disappointing that further anticipatory work was not carried out"

An SRA spokesman says: "It may be several years since Sir David Clementi reported, but there was potential for significant change to the Legal Services Bill until the closing days of the last Parliamentary session.  Detailed preparatory work may have turned out to be a waste of time.  In any case, we are obliged to consult on various aspects of the Act, including LDPs.  Implementation before 2009 is not practicable"

Jeff Zindani, solicitor and managing director of Forum Law, says it will be business decisions by commercial organisations abut whether to invest in law firms and no theoretical analysis that will shape parts of the future legal sector.

"Small and medium sized law firms will not be disadvantaged by the proposed changes.  Ironically, less partners and low gearing may provide the best environment to invest away from the large firms who have business vehicles rooted in the nineteenth century.  As and MD of a small incorporated law firm undertaking personal injury work, we have seen real interest in joint ventures with blue chip companies."