Are you a Partner in a Practice looking to merge with or sell to another firm, or a Sole Practitioner considering retirement?  More often than not, you are probably still too caught up in fee-earning and the requirements of managing your practice, to truly think through all the implications and properly pre-plan.

Yet many firms find themselves caught out by precisely that – the small details that can make all the difference between a smooth and profitable  wind-down or transfer, and a costly and difficult one.

You need to be able to answer the following questions:

1. What are you seeking to achieve, and in what timeframe?

Retirement / Merger / Sale / Other [please specify]

Within 1 year/ 1-2 years/ 2-5 years

2. What is your strategy to achieve this? [eg:  sell practice as going concern within 2 years and become a Consultant for a transitional period OR bring in new partner to take on the business]
3. What obstacles are there to achieving this? [eg:  poor claims history; reducing client base, terms of partnership agreement]
4. What alternatives are there, and what are their implications? [eg.  firm closure without a successor practice - including merger where ongoing liabilities not taken on]


Many Sole Practioners, and Partners in smaller firms are finding that it is more difficult to sell or otherwise transfer their practice as a going concern than they had expected.   New partners may not be easy to find to carry on the business, leaving you with few alternatives to selling or winding up the business. 


Responsibility for ongoing liabilities

Depending on the strength of your bargaining position, you may find that potential merger partners are unwilling to take on liability for future claims arising from your business.  You may have no option but for your firm to go into run-off.

Yet, how many of you, when considering your Professional Indemnity renewal, consider the terms and cost of run-off cover?


Run-Off considerations

Solicitors' PII is highly regulated and policies are largely standardised, following the SRA's Minimum Terms & Conditions wording (MTC).  The provisions for Run-Off Cover (the cover in place when your firm closes without a successor practice taking on future PII liabilitities) do vary from insurer to insurer – and can have a significant impact for your as a Partner in a former practice.

You should be aware of the following key facts:

  • You do not have a choice of Run-Off insurer.  Your Run-Off Insurer is the Primary Layer PII insurer in place at the time your practice ceases.
  • The terms of your Run-Off Cover are set out in your existing PII policy
  • The cost of Run-Off Cover can vary.  It is normally between 225% & 400% of your last annual premium
  • Partners in the former Practice will normally continue to be liable for the payment of excesses due for any claims made in the Run-Off period.  The specific terms will vary from insurer to insurer.
  • If your insurer becomes insolvent (most likely if you have not insured with a reputable A-rated insurer) they are unlikely to honour any claim payments.  You could incur greater personal liability in consequence.


Ensure you speak to your broker about the terms of your Run-Off cover – and that this is addressed as part of any decision concerning your choice of insurer.

We have an ever-increasing range of useful guidance in our Resource Centre, including our latest  Guidance Note on Run-Off, which you can download - see the downloads panel on the right hand side.

Alternatively speak to your Lockton broker.