This practice note gives guidance on how a solicitor can prepare for ceasing to practice in an emergency situation such as death or other eventualities that might inhibit or restrict their ability to manage their firm.
Guidelines for solicitors retiring or planning to cease practice as a sole practitioner/principal and for solicitors purchasing practices from them can be found on the Law Society website.
A sole practitioner/principal who is planning for the future of their firm should consider executing the following documents:
- Will to appoint a “special executor”,
- Agreement for management,
- Power of attorney,
- Enduring power of attorney.
The will should make provision for the solicitor dying in practice. The other documents cover eventualities during the solicitor’s life that might inhibit or restrict their ability to manage their firm.
Practitioners are reminded to notify their Professional Indemnity Insurers when there are any changes to their firm.
Objectives
The objective of having a succession plan for emergencies is to minimise any disruption to clients’ affairs, secure the position of staff, and ensure that the practice can continue, if this is what the solicitor wishes. If the wish is that the practice be sold, then the powers are in place to do so.
In the event that there is a vacuum, then it is likely that the Law Society will have to become involved, and the only option may be for the Society to require that the firm cease trading. The firm would then be closed and the client files and monies taken into the possession of the Practice Closure Section of the Law Society. The clients will be asked to nominate new solicitors. This might not be in accordance with what the solicitor would have wished, particularly if the likelihood is that they will return to practice. In addition, it is likely that all expenses incurred by the Society in the exercise of its statutory duty, including the salaries of personnel involved in carrying out the function, will be charged to the solicitor or their estate.
Will
Sole practitioners/principals should consider making a will appointing a solicitor as one of their executors to deal with the firm after their death.
Solicitors should be aware that during the period between the sole practitioner’s death and the windup of the solicitor’s practice, the Solicitors Acts provide a mechanism whereby a practice manager may be appointed to the practice with the consent of the Law Society for a period of six months.
Section 61 of the Solicitors Act 1954 as substituted by Section 31 of the Solicitors (Amendment) Act 1994 provides “Where a solicitor who was a sole practitioner has died, his personal representative may appoint another solicitor to carry on his practice for such period and on such terms as the Society may think fit.”
This is to enable the firm to continue to provide legal services if the firm’s PII cover is in place. Only an administrative windup can be carried out by the firm if PII Cover is not in place. No services may be provided by the firm until such time as the practice manager is appointed. In addition, firms should note that the Professional Indemnity Insurance Regulations prohibit a firm from practising without a practice manager or principal in place.
Suggested clauses for a solicitor’s will are available here. When considering these clauses, solicitors should be mindful that non-legal family members might not have the experience or expertise to recruit a suitable solicitor without the assistance of a solicitor executor.
Agreement for management – this can be used if the solicitor is likely, or intends to return to practice
In this scenario, the practitioner/principal continues to hold a current practising certificate and continues to be responsible for all matters relating to the firm.
A precedent is available here. This precedent should be amended to suit the particular circumstances. It can also operate as a useful checklist for matters that may need attention. It is suggested that this agreement is agreed between the parties in advance.
The agreement is for management services. Under the agreement, there is no question of the manager having the power to sell or wind up the practice. The agreement covers temporary absences from the office, where the solicitor is likely or intends to return to the practice and resume practice as a sole practitioner/principal.
The agreement covers illnesses, both physical and mental – for instance, long stays in a general hospital. It would not cover a situation where the solicitor permanently loses capacity to manage the practice.
It also covers unexplained absences or abandonment. However, solicitors are reminded that reckless abandonment may have serious repercussions in terms of regulatory action being taken by the Law Society against the solicitor or negligence actions being taken by clients who suffer a loss.
In most circumstances, it will not be difficult to trigger the commencement of the agreement. However, it is recognised that there are some situations where it would be difficult to do so.
The Solicitors Acts provide that the High Court may appoint another solicitor to carry on a practice in the event of the incapacity or bankruptcy of a sole practitioner or the abandonment by a sole practitioner of their practice. This can be an expensive and cumbersome alternative to having a detailed management agreement in place. In addition, the principal of that firm may be liable to the Society for any costs incurred by the Society.
Key considerations when preparing an agreement for management include:
- identification of the manager
- a complete description of the services to be provided
- the extent of the recipient’s ability to control how the manager provides their services
- the managers ancillary obligations, including any obligations of exclusivity
- the managers remuneration
- professional indemnity insurance
- dispute resolution, and
- termination
Power of attorney – this can be used if the solicitor will not, or is unlikely to, return to practice in their former role
The power of attorney can be used only if the practice is to be sold, to give the attorney the necessary powers to do this. A standard deed of appointment of a power of attorney may be used.
It is recommended that the powers given are limited to matters relating to the sale of the practice. While the named attorney might also be the named manager in an agreement for management, the management arrangement is best dealt with separately in the agreement for management.
Without a power of attorney, the practice cannot be sold by another solicitor. Information on the sale of a practice can be found in the Law Society’s Guidelines for Solicitors Ceasing Practice.
Enduring power of attorney – this can be used if the solicitor does not have capacity and will not, or is unlikely to, return to practice
In this scenario, the presumption is that the solicitor is no longer in practice and no longer has capacity to make decisions. The enduring power of attorney can be used to sell the practice and to do any acts necessary to facilitate this.
The standard Law Society precedent can be used which can be accessed on the members’ area of the Law Society website.
Who should be selected to be the executor/manager/attorney?
It is possible to have a reciprocal arrangement with another practitioner, and this might be appropriate for some practitioners. As the duties being undertaken can be onerous, in some situations, an alternative could be to make an arrangement with a medium-to-large firm to give professional services should the need arise. The cost of doing this should be taken into account.
The solicitor selected should have sufficient experience and time to manage the practice, as well as continuing with their existing commitments.
Budgeting for the new situation
It is clear that if a sole practitioner cannot continue in practice, there may be additional expenses incurred. Solicitors should be aware that not only do they need to have a succession plan in place for an emergency but they also need to budget for them. For instance, if there is a decision to wind up the practice, rather than sell it, this can be an expensive exercise. It can be labour intensive, and significant costs may have to be paid. Files that can be destroyed may have to be destroyed professionally. Another solicitor’s firm may have to be paid to take all the files not distributed to clients. In situations where a locum solicitor will be employed, this too is an additional cost.
Authority to operate bank account
Practitioners are advised to make provision with their bank to enable the practice manager access the firm’s bank account.
Insurance policies
Solicitors should enquire with their brokers to see whether an income protection insurance or other policy should be put in place as part of the emergency plan.
Inform the Law Society, a member of staff and a family member
It is important that the Law Society, a member of staff and a member of the solicitor’s family is informed of the succession arrangements that a solicitor has made for emergencies and the location of the relevant documentation.