How to Close a Law Firm
There are several reasons why a law firm may close down. Generally, the decision is made voluntarily but there are instances when the law firm must close down involuntarily. Regardless of the reason why there are several steps that a law firm must take in order to ensure that the firm is closed efficiently and legally.
At its core, the closure must provide for the files under the law firm’s care. They must be transferred on to another firm, or storage provisions must be made for them. This is particularly important for cases that are a work in progress to ensure clients receive the satisfying conclusion they are looking for.
In this blog post, we will outline the reasons that a law firm may take the decision to close and provide the three key steps that will need to be taken in this eventuality.
Why would a law firm close?
The first reason is financial. Like many companies across the sectors, if the business is simply no longer viable then it will become necessary to close the firm down in order to sever the financial losses.
Secondly, if the managing partner or senior partner becomes seriously ill, then the decision may be taken to close the firm. Similarly, the decision can be taken out of a firm’s hands in the event of the principal’s death. A prudent law firm should have an emergency plan in place for both of these eventualities.
Other major life events can also lead to a law firm closing. The relocation, retirement, imprisonment, and so on of the managing partner will undoubtedly affect the firm’s ability to continue, particularly among smaller practices.
Finally, regulatory action can have a significant impact on a law firm’s ability to continue operating. The regulatory action in itself may not force the firm’s closure but could result in a loss of confidence from clients and staff and so, ultimately, make the business unviable.
What are the steps to close a law firm?
Once the decision has been made that the law firm must close, there are three key steps that must take place before the date of cessation.
1. Make a list of outstanding undertakings
Firms should draw up a list of any and all outstanding undertakings and seek to ensure compliance with these. Even after the firm has closed, the partners or principal actors within a law firm will remain liable in conduct for undertakings so it is important to get these in good order before the deadline passes.
2. Finalise files
As many files as possible should be finalised before the firm closes. After the date of closure, no work can be carried out on any file and so a firm must divest itself of all its files before this deadline. Many law firms choose to sell their legal files, a service that Gibson & Associates offers, and would be happy to assist you.
Alternatively, clients can be informed of the impending closure and asked to choose a new firm to take delivery of their files and documents. In the instance that there are no undertakings on the file, the client can be given their files directly.
By six months after the closure of the firm, arrangements must be made for all remaining files – manual or electronic, current or closed. These can be transferred to another firm on a ‘storage only’ basis.
In all instances, a record must be kept of the destination of all files either sold, transferred, or distributed to clients.
3. Closing client accounts
Firms are advised by the Law Society that they should cease to hold, control, receive, or pay client monies within two months of the date of cessation. As such, work on closing client bank accounts should be initiated before the closure deadline.
If the law firm is sold to another firm, any remaining balance on a client’s account should be transferred to the new firm prior to the date of cessation.
For a detailed list of all steps that should be taken when closing a law firm, please refer to the Law Society here.
How Gibson & Associates can help
If you are preparing to close your law firm, Gibson & Associates offer an unrivaled file-acquisition service for those looking for a clean break with no lingering legacy issues. Contact us today and we will structure a deal that gives you a financial reward for the work you’ve done along with something for the unbilled potential of the files all within a timescale that suits you.
To have a no-obligation, confidential discussion with us about selling your work-in-progress files, contact Gibson & Associates by calling+353 (0)1 872 3143, or by filling in our online enquiry form to request a callback.