Small-frying tonight

Single-partner law firms are suffering as lenders withdraw support

Even the most populous City law firms can seem like lonely places sometimes, but institutionalised loneliness seems to be on the downturn.

Research by finance provider Syscap, based on data from the SRA, shows that the number of single-partner firms in the UK fell by 3 per cent in the past year, from 3,692 to 3,574. Indeed, 118 sole-practitioner businesses were wiped off the map as a net figure across the year measured to 31 March.

In the past five years, meanwhile, the number of sole practitioners has fallen by 17 per cent, from 4,286 in 2007. This despite an upturn in the number of firms operating in the UK, with the total figure rising from 10,927 last March to 11,231 this year. The five-year period has seen the number of legal practices rise by 7 per cent from 10,544 in 2007.

The rise in the number of firms in the past year – by 687 – comes despite the net loss of 118 sole practitioners, meaning at least 805 firms have been created to account for dissolutions. This may be down to demergers, perhaps countering claims that the trend is for tie-ups.

The biggest drop was between 2010 and 2011, when a net 364 solitary shops were booted out of the market – the same period in which the total number of firms fell by 48 (the only 12-month period in the past five years in which this figure did not rise). By contrast, 2011-12 saw quite an upturn for firms with two or more partners.

Syscap says the drop in the number of one-man shows is down to banks’ decisions to withdraw support for microfirms.

“Small law firms are being told by banks that they need to merge if they want continuing support,” Syscap CEO Philip White said. “It seems some lenders are predicting a pessimistic future for high street law firms as a result of the entry of competitors like the Co-op.”

Syscap said it saw a 17 per cent rise on 2011 in the number of funding requests from firms for paying their tax bills – a further sign the minnows are suffering.
The market has already seen 300-partner Dewey & LeBoeuf defeated by debt, but the smallest practices appear to be declining under pressure from banks.