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Which firm will fail first?

Am I the only one scared shitless? Seems clear that all the big firms will run out of work in a week or two. Then how long will they last? Which firm will fail first? A national chain or silver circle firm with thin profit margins? Or one of the big boys (K&E?) with too many junior partners on guaranteed payouts.

Am I wrong? 

Surely those who are particularly top heavy are in trouble?

Firms will expect to get by bullying all support staff and plenty of fee-earners into statutory furlough, whereas partnership will no way take the same sort of hit at pretty much any shop. 

Any particular reason for that tecco? Which structures/businesses do you think are most vulnerable?

When I think of law firm failures it seems to usually be fairly decent ‘quality’ firms with dysfunctional partners/partnerships - like SJB Dewey. Id have thought plodding nationals will just cut back on support staff and carry on as before slightly less profitably.

As law firms lag behind the "real" market, I suspect it will be a while before we see "failures". But I think 2021-2023 will be tough years for many areas.

I was interviewing for training contracts in October 2008. People were still "positive" about the market. "Yes it will be a recession but we will manage!". It's only in 2009 that things went really dire - there was hardly any vacancies at all for paralegal work etc. I don't know what the market was like for qualified lawyers tho.  

There's a lot of potential insolvency/restructuring work ijust around the corner, so they just need to tough it out for a while before the gravy train starts again!

There's a lot of potential insolvency/restructuring work ijust around the corner, so they just need to tough it out for a while before the gravy train starts again!

2009-2011 were tough markets for NQs. Law firms do lag behind the market. Lots of my mates at the time moved out of law and set up own businesses outside law. Few moved in-house within a few years. 

Look out for the ones that have been in a hiring frenzy. The ones that hired lots of new ones at the senior levels will be the ones to struggle. 

 

Which firm will fail first?  

I'm going for one of the big process-driven PI shops.  They rely on high volume low value claims like accidents on the roads and at work. The margins are wafer thin.

If no-one is driving anywhere and no-one is at work where will they get their new claims from?

A lot of Drs have stopped doing medical legal work until this blows over so they will have no way of getting medical reports and settling existing claims.

  

The arse fell out of the PI market a few years back when they cut legal fees by 50% for low value claims.  I think a few months of no new work will finish a few people off.  

DWF pop , despite what it says it is a commodity insurance claim churn shop . DLA will be more than fine as will MC/SC firms , they will have to tighten their belts but fundamentally they are good businesses .

please let it be ince - other than the ince bods who I don’t know anything about and they must have been desperate to jump in with gordon dadds - what a collection of slimy shits. anyone dealt with a human being there? 
Ince was a pukka firm and presumably the rapacious gouging uglies decided they’d try and cloak themselves in the remnants of that brand. 

Escaping Puppy02 Apr 20 23:14

If no-one is driving anywhere and no-one is at work where will they get their new claims from?

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"Shit... they're laying me off. OK, might as well say that I got that football injury when I was lifting something at work".

It is not just you. One particular new account has been spamming 'who gon fail?' and 'which practice areas gon fail?' for days.

Could be press, could be clueless management or marketing numpties.

yeah you're right, there's a poster named Islington that just appears now and then to repeat bad news from the market. Presumably hoping soneone reveals a little more about their own shop. 

DWF and other insurance based firms and litigation heavy firms will be fine. There is going to be a lot of litigation over insurance for Covid-19, employment litigation, commercial litigation disputes. Even PI claimant firms will be fine. There will be a lot of PI claims associated with Covid-19.

 

Surely those backed heavily by PE will be in the biggest trouble as they then seek to fook the staff to keep the profits coming in, followed by a revolving door/mass exodus.

 

The wont go under but if I was at a firm like CMS I'd be sweating.. three into 1 with a very plush office?

I'm more pessimistic than all of you. Only the magic circle has a profit margin over 30%. Few firms have any significant cash reserves. That means a 30% drop in fees kills lots of firms - and if the economy is going to essentially stand still for six months then 30% would be a good result.

So I an see a wave of failures, right up to silver circle.

Not sure what to do about that other than panic

I remember reading a report, albeit 10 years ago, that 50% of firm are reliant on over-draft at some point during every month.  This is law so I don't imagine the position has changed much since.

 

 

 

 

 

James, lots of firms are around the 30% margin mark and there are a number of steps they can take to reduce their cost base. Lots of firms will also have access to a committed RCF to deal with working capital. As an aside, a 30% drop in fees does not equate to insolvency.

Law firms are generally on the risk adverse side of the spectrum and also have a number of counter-cyclical departments in order to hedge (as discussed earlier in the thread).

Carry on panicking though, it sounds productive.  

 

Those Liverpool, Manchester and Belfast offices are suddenly going to find they have a bigger headcount.

And perhaps more homeworking and hotdesking, allowing floors to be sublet or handed back.. costs can be cut quite easily.

"Old Man of Hoy02 Apr 20 22:10

Also third tier public schools such as Wellington, Charterhouse and Beadales [sic]"

If these are "third tier", what precisely do you class as second tier?

Committed RCFs can't be cancelled at will by banks, that's the point of having committed facilities. If they are reducing  optional overdrafts one would think that would be in the press but that is not the same as a committed facility. Sounds like nonsense. 

The real trouble will come on the high street for small firms that do lots of conveyancing and a bit of commercial and general litigation.  We've been told some of the firm are going to be furloughed and will be told individually so just waiting for the phone to ring.

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