Industry News

No Passport Control on the ABS Flight

11 April 2012

This is not another letter criticising the protracted ABS application process; rather it is intended to question the ‘passporting’ process from a Legal Disciplinary Practice (LDP) to an Alternative Business Structure (ABS). Having spoken to the SRA last week on behalf of a current non-lawyer manager (NLM) LDP, I was left bewildered as to why any LDP would wish to convert to ABS before the automatic passporting process (which the SRA had just announced will be delayed).

When the plans for the introduction of ABSs were laid out, it was also announced that – following the inception of ABS – LDPs would cease to exist, and all firms with non-lawyer ownership would thereafter have to be licensed as an ABS. In addition, it was explained that current LDPs would have two options: either wait to be automatically ‘passported’ to ABS status at a date to be announced; or passport early i.e. complete the initial ABS application as soon as it becomes available. Given that an ABS also allows external ownership, this all seemed fair and reasonable.

But here’s the catch. Whilst LDPs who wait to be automatically passported will not have to pay anything, those who choose to passport early must pay the hefty initial application fee of £2000, plus a further £150 for every Owner/Manager/Compliance Officer seeking to be authorised. Now this would be potentially acceptable if the ‘passporting’ option allowed LDPs intending to retain the same or similar structure to bypass at least some elements of the approval process. Instead, LDPs must join the queue of ABS applicants and wait up to six months for a licence to be granted.

So why would anybody want to passport early anyway? The benefits of an ABS are just as pertinent to LDPs as to any other law firm seeking to set up or convert to an ABS. Whereas only 25% of an LDP may be owned by non-lawyers, there is no upper limit in the case of an ABS. The unyielding ratio can be restricting for LDPs because, in some cases, lawyer managers may be unable to step down or retire without offending it. Strategically, an ABS is more likely to attract high calibre individuals from outside the legal sphere and also invites equity finance from sources that were previously unavailable. Overall, an ABS is a much more fluid and flexible vehicle than the restricting LDP.

So the question remains: at a time when many firms are struggling to survive and to formulate a suitable business plan (or even exit strategy), why does the ABS application process not offer any allowances to LDPs? Whilst the passporting process has been endorsed by the SRA, such promotion is unfair and misleading. In actual fact, forward-thinking LDPs have no option but to pay (at least) the best part of £3000 for unnecessary due diligence allowing the SRA to confirm – six months later – that the firm is (still) authorised.

Ian Braithwaite
Client Relationship Manager

T: 0845 056 3949
M: 0743 727 4046

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