Claire Ruckin legalweek

Interest builds in much-touted reforms to next year usher in ‘Tesco law’, with three out of four partners forecasting the ABS model will have a significant impact on the profession. Claire Ruckin reports

City partners believe alternative business structures (ABSs) will have a significant impact on the profession, according to new research which shows nearly one in two firms are considering taking advantage of the reforms.

The latest Big Question survey found partners at the UK’s top law firms thought ABSs would impact on the profession ’significantly’ (33%) or to an extent (43%). No one surveyed expected the changes brought in by the Legal Services Act to have no impact.

Moreover, almost a quarter of respondents (22%) thought all UK corporate law firms should consider an ABS, with a further portion citing it as ‘very relevant’ (33%) or ‘fairly relevant’ (29%) to the corporate legal sector.

The survey follows an announcement by the Legal Services Board last month (23 February) stating that the first ABSs will be up and running from next October.

The ABS model – often dubbed ‘Tesco law’ – will allow outside investment in law firms and will allow for legal services to be provided outside of the traditional partnership model.

Of those questioned, 4% said they had ‘definite plans’ to take advantage of the introduction of ABSs, while 25% admitted it was something their firm was considering. Twenty-three percent of respondents thought their firm was ‘very likely’ (10%) or ‘fairly likely’ (13%) to take advantage of the much-touted reforms.

Clifford Chance (CC) litigation partner Simon Davis commented: “It is definitely interesting and a brave step to take investment and give ownership to non-lawyers.”

Taylor Wessing finance partner Peter Shepherd said: “ABSs and the way that law firms will respond is a very interesting, detailed and complex topic. I am sure it is something that all firms are discussing.”

He added: “Looking at the legal profession as a whole, it will undoubtedly have a tremendous impact over time. That is not to say that the majority of law firms will go down the ABS route.”

Thirty-eight percent of those questioned thought national law firms were most likely to make use of ABSs followed by companies (25%) and City law firms (17%).

Halliwells is one law firm to already have signalled its interest in the opportunities afforded under an ABS. Executive chairman Ian Austin told Legal Week: “On a general level, the extent of the impact will depend on which area a firm is in. It will have a significant impact on firms that do a lot of volume work, where investment can make processes more efficient with better technology and investment.”

He added: “Middle-tier and regional law firms could use outside investment to develop internal infrastructure. [But] it would be hard to see a case for the magic circle going down this route initially.”

However, Taylor Wessing’s Shepherd argued that all firms in the City will be affected in some way. “If certain law firms do reconfigure themselves and take advantage of external investment it will mean that, despite being among a traditional legal community, they will have a different profile in the market and operate differently from a traditional partnership.”

He added: “Control, influence and financial considerations will all be different for an ABS. Even if law firms do not change they will still be affected, as the legal community will be a different place.”

Taylor Wessing head of financial institutions and markets Tim Stocks is part of a five-person working party set up by the firm last year to examine opportunities emerging from the Legal Services Act, including ABSs.

Stocks commented: “The profession is already going through great change as a result of the economic environment and ABSs will provide tools for law firms in developing strategies to deal with and take advantage of the change.”

With a number of financial institutions, such as private equity house Lyceum Capital, looking to invest in law firms, the legal community will be watching closely to see which is the first to take advantage of the new structures.

CC’s Davis added: “From an international perspective, it is pretty rare to be able to say firms of lawyers can have ownership from the outside. The eyes of the legal world are watching very closely on what is happening with ABSs so it is very important that they are implemented correctly.”

Full Article: http://www.legalweek.com/legal-week/analysis/1594575/one-firms-size-abs-reform-plans

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