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March 28, 2012 3:42 PM

U.K. Retailer To Offer Legal Services After Receiving ABS License

Posted by Chris Johnson

A U.K. retailer is set to begin offering legal services to customers after being one the first three entities to receive Alternative Business Structure (ABS) licenses, the Solicitors Regulation Authority announced Wednesday.

The Co-operative Group—which already operates a diversified range of member-owned businesses that includes nationwide grocery and financial services chains—will now provide legal advice under the banner of Co-operative Legal Services (CLS). Joining CLS in being granted ABS licenses are two law firms: Oxford-based John Welch & Stammers and Lawbridge Solicitors of Kent.

The trio are taking advantage of radical new legislation that for the first time permits legal practices to be owned and managed by nonlawyers. SRA chief executive Antony Townsend said in a statement that the approvals mark a "significant milestone" and will "stimulate competition and encourage innovation" within the industry.

"The arrival of ABS should foster a more flexible and innovative market for legal services," he said. "Some people may be surprised that there are two high street practices with a handful of staff among the first wave of ABS organisations that we've authorized. But we've always said that ABS offers options for all firms, not just large organisations."

The Co-op Group prepared for its ABS application by carrying out a two-week trial last year of its plan to offer legal advice through its network of bank branches, and by recruiting a three-member team from London boutique law firm TV Edwards that includes managing partner Jenny Beck. CLS will offer customers advice on personal injury claims, estate planning and employment law. According to its ABS license, which is available on the SRA Web site, the firm is permitted to undertake litigation, reserved instrument activities, and probate work.

John Welch & Stammers, meanwhile, plans to exploit its new ABS status by promoting its nonlawyer practice manager Bernadette Summers to managing partner. Lawbridge, which has just one resident attorney, will see practice manager Alison Pope become a director of the firm with a "significant" shareholding.

The moves represent the latest wave in the planned reform and liberalization of the U.K.'s £25 billion ($39.5 billion) legal services market. After being delayed by Parliament, new legislation governing law firm ownership was finally passed in December. In addition to allowing corporations owned by nonlawyers to provide legal services, the legislation also lets law firms accept outside equity investment.

The new law is expected to result in a glut of transactions within the legal sector. Three U.K. law firm investment deals worth a combined $200 million were signed during a two-week period earlier this year.

Technology and outsourcing company Quindell Portfolio got the ball rolling in late January by paying £19.3 million ($30.7 million) for Liverpool-based personal injury law firm Silverbeck Rymer. Just a few days later, Australia's Slater & Gordon bought another U.K. personal injury firm, Russell Jones & Walker, for £53.8 million ($85 million).

The latest deal, announced in early February, saw Duke Street become the first private equity house to control a U.K. law firm when it agreed to pay a reported £50 million ($79 million) for a majority stake in Parabis Group—the parent company of two insurance litigation firms, Plexus Law and Cogent Law. (Parabis is believed to be the world's first private equity–owned law firm.)

The flurry of activity has generated adviser roles for a host of other law firms. Russell Jones & Walker was represented in its sale by London-based corporate firm Macfarlanes, with U.K. firm LG acting for Slater & Gordon. Duke Street turned to long-standing adviser SJ Berwin, Paribas tapped Squire Sanders, and Hogan Lovells advised the banks involved in the deal.

The transactions have spurred debate on how to value law firms. London-based corporate finance advisory firm Europa Partners recently released the first independent study looking at valuation within the sector. Allen & Overy was named as the country's most valuable law firm—ahead of Magic Circle rivals Freshfields Bruckhaus Deringer and Linklaters—with an estimated worth of £2.6 billion ($4.12 billion). The stakes held by Slaughter and May's 122 equity partners, meanwhile, were each valued at an average £8.09 million ($12.8 million). (Click here for full details of the United Kingdom’s ten most valuable firms.)

The three new ABS firms are expected to be the first of many. The SRA has received more than 90 license applications, but the approval process has been plagued by delays.

"We've had to create a system of authorisation flexible enough to deal with a range of companies with hugely varying corporate structures, but that's also robust enough to apply the same stringent suitability criteria by which traditional firms are judged," Townsend added. "We make no apology for ensuring that the systems we have in place are thorough and in some cases, time-consuming."

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What a pitty. UK legislation has managed to turn, what was a distinguished profession (priding itself on putting client first, duty of loyalty and independent judgement to your client); into this commercial machine where corporations put shareholders and profit first. Clearly, this has opened up the Pandora box of conflicts of interest (fiduciary duties) and was not properly thought through. I'm looking forward to the first malpractice case. Laughable.

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