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The Changing Face of the Legal Sector
Since 2012 the number of law firms in England and Wales has fallen by more than 20%. So, what challenges and opportunities are shaping the modern legal sector?
Leonard Curtis experts Andrew Gregory, Andrew Poxon and Rik Heap were joined by David Johnstone of Recovery First to explore practical, commercial insights as seen on the ground.
The legal sector is changing faster than ever. Andrew Gregory, Chairman of Leonard Curtis Legal and Solicitor Manager, notes that in the last 10 years there has been a lot of movement, not just in the composition of firms, but also the kind of work that law firms do. The advisers who understand these changes and trends will be best placed to support their clients through it.
The evolving landscape is surfacing new opportunities.
There are continuously new areas of work developing in what the Solicitors Regulation Authority (SRA) call the "consumer market", where the major focus is access to justice. Examples include claims by veterans for hearing loss, diesel gate, talcum powder claims and protected award claims for employees. Clinical negligence also remains a strong growth area for firms with genuine expertise, and new legislation such as the Employment Rights Act 2025 is likely to drive a further increase in employment-related claims. Meanwhile, AI is helping firms streamline processes and deliver more cost-effective services, and private equity continues to play a significant role in driving consolidation across the sector.
The same forces creating opportunity are also creating pressure.
Legislative change has made it far harder to profit from lower-value work: the traditional tripartite personal injury model has shrunk considerably, and a new fixed costs regime for claims up to £100,000 is squeezing profitability further. Firms with deep pockets to invest in search engine marketing are drawing volume work away from smaller regional practices. Domestic conveyancing margins remain thin, interest earned on client account balances is under regulatory scrutiny as a revenue source, and rising National Insurance costs, talent shortages and salary inflation are adding to cost bases already under strain. In addition, the SRA is more active than ever with Anti-Money Laundering audits and an increased willingness to issue fines. Overall, it is little surprise that legal practices are currently closing at a faster rate than English pubs.
Succession is proving to be one of the sector's defining challenges.
Many smaller firms remain lifestyle businesses run by ageing partners. The next generation do not always wish to take on the risk involved in raising capital, managing uncertainty and exposing themselves to personal liability. As previously mentioned, since 2012 the number of law firms in England and Wales has fallen by more than 20%, and the trend is expected to continue as scale economics increasingly favour larger, better-capitalised players. Encouragingly, only a fifth of firms closing in the last year did so through M&A activity; the majority simply ceased trading or changed status, often as sole practitioners moved under someone else's regulatory umbrella.
Firms do have options.
Recovery First specialise in maximising value when law firms are looking to exit, and so David Johnstone was able to bring his own experience of the options that are available to firms in these situations. He offered invaluable practical insights around options such as sale, succession from within, Employee Ownership Trusts, internal or external run-off and, as a worst-case scenario, insolvency. He also highlighted the importance of good management information; real time quality information is pivotal to getting the best outcome possible.
The clearest theme to emerge was timing.
Taking the distress theme on, Andrew Poxon gave some sound practical advice on how law firms and their advisers can best manage challenging situations. His message, and that from the other panel members, was clear. The earlier a firm takes advice, the greater the range of options available and the better the eventual outcome, whether that means restructuring a department, securing a redundancy payments loan, negotiating a Time to Pay arrangement with HMRC, or agreeing debt forgiveness with a lender. Left too late, options narrow quickly, and outcomes become significantly harder to influence.
Leonard Curtis has advised on over 100 distressed or stressed law firms in the last three years, giving us a strong understanding of the pressures firms face and the practical routes available to address them. This could be planning, WIP management, engagement with the SRA, or introductions to funders and purchasers.
If you are advising a law firm client facing any of these challenges, please get in touch to see how we can support.
Thank you to David Johnstone from Recovery First for sharing his valuable insights and expertise. For more information about Recovery First, please click the link: https://www.recoveryfirst.co.uk/
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