Law firm collapses make banks wary

July 1, 2013 Banks will be much more wary about lending to law firms, according to restructuring expert Steve Cottee of Pinsent Masons. In times gone by banks saw law firms as a sound and stable investment, and often offered loans unsecured by debenture or by personal guarantees from partners.

But the collapse of highly-respected law firm Cobbetts in February 2013 has changed the perception by banks that law firms don't fail.

"The feeling amongst many lenders now is that if a firm like Cobbetts can collapse, then there is a large number of similar firms that will be facing the same problems. This has been combined with a sharp increase in the number of SRA [Solicitors Regulation Authority] interventions into firms already this year," said Cottee. "In addition to this, the UK legal market is going through the greatest upheaval that it has ever experienced. It may be that the legal profession is set to experience its own financial crisis similar to the banking one in 2008."

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