Over 300 legal firms have gone into insolvency since 2020
Analysis by Witan Solicitors, based on Insolvency Service data, shows that 329 firms dealing with legal activities have entered insolvency since 2020.
Both Bell Lax Limited, a £2–£3m practice, and Wright Hassall LLP, worth around £18m, entered into administration this month, highlighting how far these pressures have spread. Not to mention, Irwin Mitchell recently announced redundancies for junior staff, citing the growing role of AI in early-stage legal work.
Similarly, Clifford Chance recently informed staff that greater use of AI and automation will result in a reduction of around 10% of its business services roles in London from next January. While these changes may not directly affect lawyers, they highlight how even large firms are under increasing pressure to streamline operations and improve efficiency.
In response to findings, Qarrar Somji, director of Witan Solicitors, said: “While top-line earnings may show growth, the number of insolvencies points to a more fragile picture. For smaller firms, in particular, cash flow has become a serious issue, with increases in employer National Insurance contributions, professional indemnity insurance and other unavoidable costs eating away at what were already pretty thin margins.
“Of course, this issue isn’t just impacting law firms. Insolvencies are on the rise across the board. But with more businesses facing their own cashflow issues, this is having a knock-on effect, leading to delayed client payments. Late payment isn’t just an administrative nuisance. When firms are forced to bankroll client billing cycles, this can stifle investment in the firm and drain liquidity. For firms already battling rising costs and tighter margins, it’s clear that new business is no longer enough to offset this.
“In most cases, firms that delay taking action will find that their options narrow quickly. By the time creditors are applying pressure or urgent liabilities mount, the scope for meaningful restructuring is limited. Early intervention through cashflow planning, renegotiating obligations, or seeking specialist restructuring advice, gives a firm the best possible chance of stabilising, protecting jobs and ultimately avoiding insolvency.
“The wider legal market is also undergoing structural change as firms adapt to advances in AI. For firms that fail to innovate or adopt more efficient processes, the gap between revenue and operating costs will inevitably widen.
“It’s worth noting that while technology can help firms work more efficiently, it should not replace the next generation of lawyers. If firms rely too heavily on AI and remove junior staff, they risk weakening the talent pool and creating long-term problems for the profession.
“We need a balanced approach. AI can help improve processes, but we also need to invest in training, support and real opportunities for junior talent. If we fail to do that, the sector may save money now but lose the skilled lawyers it needs for the future.”