The Jackson reforms to no-win no-fee agreements and the UK government's proposal to ban general damages for minor personal injuries have sent many UK firms into a tailspin.

First Stop Legal Services, trading as GT Law Solicitors, from a base in Liverpool, entered administration in October after income nose-dived in 2014/15.  At its 2013 peak, GT Law employed more than 100 people and had 20 offices nationwide.  The firm posted turnover of £7.9m for the 2013/14 financial year.  However, in 2012 the firm became involved in a large group action following the Sonae chipboard-plant fire in Kirkby, Merseyside.  While it secured 5,000 clients, making it the second-largest client base arising out of the action, the presiding judge dismissed the test cases.  GT Law had invested "significant working capital" in funding the action.  In addition to this financial pressure, the firm was also referred to the Solicitors Regulation Authority over its alleged conduct during the litigation process.

The firm's administrators also cited the introduction of the Jackson reforms on no-win no-fee agreements as being a direct contributing factor to the company's demise.  Three firms were found to buy different portions of GT Law's files.  Pre-administration costs come to around £43,000, of which £18,000 are due to law firm Mishcon de Reya for legal costs.  Mishcon de Reya and Ashford Solicitors are also owed more than £73,000 in total for pre-administration expenses.

The reforms relate to no-win no-fee agreements in April 2013. It was therefore surprising timing that AA teamed up with national law firm Lyons Davidson to handle personal-injury and car-accident-related litigation on behalf of its members and customers.  Two years later, AA Law had been declared a write-off. 

However, AA Law's exit was surprising for some.  Its books for 2014 showed a turnover of £1.94 million and profit after tax of almost £500,000.  In November 2015 the Chancellor of the Exchequer proposed a ban on general damages for minor injuries - such as whiplash - and suggested a new small claims limit of £5,000 on all personal injury matters.  Given that this move, if implemented, could be the nail in the coffin for firms that rely on road-traffic-accident and personal-injury work, some consider AA Law's departure a sensible strategic move.

Australian-listed Slater & Gordon's profit forecasts and share price took a hit late last year for this same reason.  In March of 2015 Slater & Gordon announced the “transformational” $1.3 billion acquisition of the claims management business of UK company Quindell Plc.  Slater & Gordon were hailed as the future of legal services; website Legal Futures graced it with headlines such as “The rise and rise of Slater & Gordon".  The Quindell deal was certainly “transformational” but, unfortunately, for all the wrong reasons.  Slater & Gordon lost around 90% of its value over the course of 2015, including a write-off of the entire purchase price for Quindell. 

Group managing director Andrew Grech alluded indirectly to the chancellor's proposed reforms and the fact that the firm is already anticipating the effect they could have on the value of the UK business: "Having regard for recent events, including the impact of those events on the company’s share price, the company will test its goodwill values for impairment of the UK business at the half year ending 31 December 2015."  He further noted that the impairment review will assess matters including the risks associated with the proposed changes to UK law (which may or may not be enacted). Mr Grech said that if the company considers that "it is appropriate to impair goodwill related to the UK business, any impairment will not impact cash flow from operations but will impact statutory profit".

Since then, things have gone from bad to worse for the market darling, Slater & Gordon.  In late February, the firm unveiled huge losses and suspended its shares from trading.  Office closures and redundancies lie waiting in the wings. 

All of which leaves the firm open to a shareholder class action, of the type on which the firm's reputation was built.

However, the most recent PI firm casualty is that of Raleys, which went into administration on 11 March 2016. While there is no comment yet on what caused the 130-year-old firm's demise, it was known as a miners' firm that specialised in personal injury.  Raleys also lost a key client, the National Union of Mineworkers, in 2014 after firm documents were leaked which called miners "as thick as two short planks".  The Union had been Raleys' client for 90 years.  Raleys had also suffered some high-profile court defeats in recent years relating to the negligent way it had handled some miners’ claims.

As if these financial woes were not enough to deal with, these firms are also trying to dodge the additional cost and administrative headache of dealing with investigations by market watchdogs. The Australian Securities and Investment Commission has been investigating Slater & Gordon since June, when it revealed its first surprise downgrade.  Administrators of GT Law did not consider selling the company whole as it would have created bad publicity that could have led to intervention by the SRA.

And all of this is yet to hit the UK insolvency market. The Jackson reforms relating to no-win no-fee agreements came into effect generally in April 2013, but were delayed in respect of insolvency proceedings.  Provisions relating to insolvency cases are due to come into force in April this year.