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UK Legal Recruitment Consultants

Questions to ask yourself when preparing for the Sale of a Law Firm

This is a non-exhaustive list of questions we think a potential seller of a law firm should ask themselves when preparing for sale. It is very lengthy, but this is the sort of detail a buyer is going to ask for at the due diligence stage of the process. If you are thinking of selling your law firm and would like advice or assistance please contact us.

Enquiries

Who is the current PI insurer?

What is the current PI premium?

What is the PI claims record for the last 6 years?

Has any indication been given from the PI insurer that cover is not likely to be renewed?

Has any indication been given from the PI insurer of an increase of premium at next renewal?

What is the PI renewal date?

Please confirm after making reasonable enquiry of all staff, consultants and Directors, that the firm is not aware of any matters within the last 3 years, that are likely to result in a complaint and or a claim against the firm’s PI cover.

Can the existing PI cover be transferred to an acquirer?

Please provide a copy of the current PI insurance certificate.

Please provide a copy of the last 3 years PI cover renewal application forms.

What provision (if any) has been made by the firm in respect of any potential claims (if any)?

Complaints

What is the firm’s complaint history over the last 6 years (please provide a copy of the firm’s complaints register)?

How many complaints (if any) have been referred to the SRA/CLC over the last 6 years?

If any complaints to the SRA/CLC, please provide full details and the outcomes/findings made.

How many complaints (if any) have been referred to the Legal Ombudsman over the last 6 years?

If any complaints to the Legal Ombudsman, please provide full details and confirm outcomes/findings made.

Have there been any complaints by Lenders or other parties/suppliers against the firm or any individuals employed or consulting in the firm?

Work Sources

Please confirm the lender panels the firm is appointed to.

Please confirm after making due enquiry, if you or anyone else in the firm is aware of any issues arising that may affect the appointment of the firm to any lender panels?

What is the current split of work types within the firm?

What has been the ratio of the work split over the last 3 years?

How does the firm, presently obtain work and repeat business (if any)?

What referral arrangements are in place at the firm (if any) and how much work is generated from such sources.

What commission/referral fees are paid in respect of any such referral arrangements (if any)?

What arrangements does the firm have in place (if any) in respect of receiving work from estate agents or any other third party, that may not be subject to referral fees?

Are any referral arrangements under or anticipated to be under review if not at present, but within the next 18 months?

Please provide copies of any current referral agreements or other arrangements in place for work providers.

Please provide copies of any terminated referral arrangements or other arrangements previously in place over the last 2 years and confirm reasons for termination.

In respect of the firm’s Will bank (if any), how many wills are held and how often is this reviewed, and are clients charged any storage fees?

In respect of the firms Deeds storage (if any), how many parties deeds or other documents are stored by the firm.

Regulatory Matters

Please confirm whether the firm has been subject to any regulatory inspections by its regulator (either physical or by a request for information over the phone or electronically) over the last 3 years and if so, please provide full details of the same and any findings or recommendations made by the regulator to the firm?

Has anyone working or consulting in the firm (including any Directors), been subject to any regulatory complaints and if so, please provide full details and confirm details of any sanctions and any practising restrictions (including any staff or directors also regulated by other regulators than the SRA)?

Has the firm or any of its employees, consultants or Directors been advised of any upcoming inspections by the regulator?

Are the firm’s Directors, shareholders, employees or consultants aware of any impending intervention at the firm by the regulator or aware of any issues that may give rise to an intervention by the firm’s regulator?

Are there any breaches of the rules/handbook (including accounts rules), that the firm, any of its employees, consultants or Directors are aware of after making reasonable inquiry?

Has the firm met and maintained all its regulatory obligations including the annual accountants report to the regulator?

Please provide a copy of the Office Manual, including provision of any stand-alone policies and the AML risk assessment for the firm?

Please provide details of how the firm manages risk and achieves compliance with its regulatory obligations?

Please supply a copy of the firm’s current business plan (if any)? If no business plan in place, please confirm why this is not available?

Suppliers/Office Details

Please provide details of all suppliers to the firm, together with copies of any agreements/contracts in place and confirmation of monthly or annual costs?

Please confirm the details of all case management systems used by the firm, including accounts packages and provide copies of any agreements in place and confirm the monthly/annual costs of the same.

In respect of the firm’s office(s), please confirm the running costs of the same on a monthly basis, including details of any business rates and utilities and any other overheads?

In respect of the office(s), please confirm the present occupation arrangements and whether or not it is intended that these can continue after acquisition and if so, what would the cost or proposed arrangements of the same may be including details of any rental commitments to landlords if the offices are held on a lease or licence basis?

Staff TUPE

Please confirm details of all staff that would be subject to TUPE and provide a copy of their contract(s) and details of annual salary and any bonus arrangements?

In respect of any consultants in the firm (if any), please provide details of their workloads/work types and the payment arrangements in place in respect of remuneration?

In respect of any consultants in the firm (if any), would they be willing to stay on after any transfer of the firm, as far as the firm is aware?

Please provide copies of any agreements in place with those that are consulting within the firm.

Has the firm yet consulted with staff in respect of the potential disposal of the firm?

Please confirm the preferable arrangements in respect of the outgoing Director(s) i.e. would they stay as a salaried partner for a transition period or would the preference be, to work on a consultancy basis or clean break? This question will be subject to subsequent direct discussions and as such, is only asked for an indication of preference at this stage and we understand the need to be flexible on such arrangements.

Has the firm had any claims made against it, in the last 6 years from employees/consultants and if so, please provide full details, including outcomes and any financial settlements made?

What are the firm’s pension arrangements in respect of any employees?

Is Directors liability insurance in place? If so, does this include any runoff, and please provide a copy of the policy if available.

Financial Matters

Please provide copies of the last 6 years accounts that have been prepared and or signed off by the firm’s accountant? These should include historic accounts if the firm has changed trading names or legal structure during that period.

Please provide the firms profit and loss accounts for the last 6 years.

Please provide full details of any work in progress by way of breakdown of work types and estimated/anticipated fees to be generated.

If there has been an increase or decrease in turnover/profits in the last 3 years, please (as best as you are able), provide an explanation as to the reasons for this.

Please supply copies of the firm’s management accounts for the last 3 years of the business.

Please provide copies of the firm’s reconciliations of client and office accounts for the last 12 months.

Please provide copies of the firm’s office and client account bank statements for the last 24 months. Further statements may be requested by the accountants should they deem this necessary.

Please supply copies of the accountant’s report submitted to the regulator for the last 3 years.

Please provide full details of all debtors to the firm.

Please provide full details of all financial liabilities of the firm.

What is the firm’s indicative value for the goodwill in the business (if applicable to the disposal)? This is just for indication purposes at this stage and will be discussed further at any meeting so that expectations are understood.

What is the outgoing Director(s) expectations in respect of any payment for disposal of their shares in the firm?

Please confirm the estimated turnover for the current financial year.

Please confirm the firm’s actual turnover for the last 3 years and if there have been extraordinary expenses during this period, please provide details.

Please confirm that the firm is up to date with all payments in respect of liabilities to HMRC including VAT, all employees tax and national insurance liabilities for all parties and also any pension payments.

Has the firm entered any arrangements with creditors in respect of liabilities or provision of services to the firm? If so please provide full details.

If no arrangements have been made with creditors of the firm, is the firm aware of any impending issues or arrangements that may be made or need to be made within the next 12 months?

What credit facilities or borrowing does the firm have at present (if any)?

Who are the firms present bankers and has any change in provider been made within the last 3 years?

What are the current fees payable to the regulator in respect of practicing fees and contribution to the compensation fund?

What are the current total practising certificate fees payable for the firm?

In respect of fees payable to the regulator, when are these next due for payment and has provision been made for the same in the current financial year?

Please provide full details of any financial undertakings given by the firm.

Miscellaneous

Please provide a copy of any shareholder agreement(s) in respect of the firm.

Please provide a copy of any articles or memorandums in place in respect of the firm.

Please provide a copy of the firm’s incorporation documents.

Are there any health and safety issues in respect of the firm or any claims in respect of the same?

What is the firms accounting reference date?

When are the next set of accounts due at Companies House?

Are there any disclosures in respect of the disposal of the firm that the Directors and or shareholders think are relevant to the disposal?

Please confirm the motivation/reasons behind the disposal of the firm and specifically confirm that the disposal is not a distressed sale (If that is the case) and that the Directors and any Shareholders are not aware of any pending or incoming claims or regulator action to be made against the firm having made due enquiry?

What does the firm consider to be their market share of the services provided in their local area? This question is for an indication only at this stage and will be subject to an analysis by the acquirer’s accountants.

Has the firm been subject to any data breaches, and if so, please provide full details of the same?

What arrangements are in place at the firm in respect of the risk of cyber-crime?

Please provide a copy of the firm’s risk registers, including any undertakings register.

Please provide full details of all client files held with a retention balance and the steps taken/arrangements in place to distribute the same within a timely fashion and in accordance with the regulator’s requirements. Please note that client information is not required to be disclosed and as such any information provided can be redacted to prevent a breach of client confidentiality.

Please provide full details/nature of any performance undertakings given by the firm (again identifying the individual clients is not required and as such where requires such information can be redacted to prevent a breach of client confidentiality)?

Please confirm if any SARS reports have been submitted in the last 6 years and the outcome of such reports i.e. consent to proceed or a defence to continue.

Please confirm that as far as the firm is aware and upon making reasonable enquiry, that there have been no breaches of Anti Money Laundering and Terrorist Finance regulations. If there have been or there is a potential for breach, then please provide full details.