Closing a law practice: strategies for an effective exit
- Subtitle: David Paul’s Field Notes
Succession planning is a topic rarely discussed by many of us in small practices. In fact, many lawyers don’t even think about an exit strategy until they have made the decision to leave the practice. By that time, while the lawyer may be keen to leave the practice, the many ethical and practical responsibilities associated with closing or transferring it make the departure particularly burdensome and can significantly delay the member’s desire to move on.
The complexity and organizational requirements of closing a law practice require considerable thought, advance planning, and co-ordination. The purpose of this article is to highlight some of the things you may wish to consider before closing your practice, whether it be to retire, move to another firm, take an appointment to the bench, or become a golf pro.
Things to do now
As lawyers, we are bound by rules that obligate us to retain our clients’ files in safekeeping well after we have completed our retainer. Over the years this can add up to thousands of files and end up occupying hundreds of square feet of expensive storage space. For those in active practice, storage costs can be hundreds or thousands of dollars a month. While it is a cost of doing business, it is not a cost or responsibility we necessarily want to be carrying forward once we have left the practice.
Some things you can do to minimize those costs:
• Know and understand your law society file retention/destruction rules, and put them into practice. Annually review your firm’s closed files and destroy those that you are not obligated to retain. Shredding is the safest way to dispose of them.
• Notify your clients, preferably in your retainer agreement, of your firm’s file retention/destruction policy. Remind clients of it in writing when closing the file.
• Purge your files before closing them. This will save you storage space. It will also save you time when you get to file destruction day. Prior to closing your file, remove all original client documents and pleadings and return them to your client. Have your client acknowledge receipt in writing.
• Consider going paperless (if acceptable by your law society). By converting files into electronic format, you have virtually eliminated the need for storage space. One DVD can hold the equivalent of hundreds of files.
• Have a plan in place that deals with unexpected illness, disability, incapacity or death. This is particularly important for the sole practitioner who does not have a partner or associate to step in and take charge in the event of an emergency.
Your plan might include: a formal arrangement with a peer lawyer, possibly a reciprocal agreement that allows for the lawyers to take over the running of the other’s practice in the event of an emergency; and a limited power of attorney that allows for the continued operation of your law practice, or if necessary, the winding up of your practice.
Among other things, the agreement and limited power of attorney should include provisions that provide for:
• access and management of your firm trust accounts;
• the safeguarding, transfer, and /or closing of files, wills, and other important documents;
• the safeguarding and/or disposition of valuable assets being held on behalf of clients; and
• the safeguarding and/or disposition of firm assets.
Things to do in the year preceding the exit
Limit the type and length of cases you take on during the last year of practice. Consider taking only those files you know can be resolved prior to your departure from the practice.
Stay away from lengthy litigation cases. You will not have time to complete these cases and you run the risk of unhappy clients, negligence claims, and law society complaints.
Along the same lines, if you can help it, do not set trials or hearings around the time of your planned exit.
Consider who you would like to see your clients referred to and make arrangements with that lawyer. If you are not comfortable referring prospective clients to other counsel, consider referring your clients to the Canadian Bar Association’s lawyer referral service.
Write to your current clients to advise them you are closing your practice. Your letter should:
• Advise your clients they should retain new counsel.
• Refer your clients to other qualified practitioners and/or your local bar association’s lawyer
• Explain you will provide their files to their new lawyer.
• Remind them of limitation periods, significant dates, and time frames important to their cases.
• Advise them you will close out their trust accounts after full payment of your account.
• Remind them of your retention/destruction policy.
• Notify your clients where their closed files will be stored, and for how long prior to their
• Tell them whom they should contact in the event they wish to obtain their files.
If the client retains new counsel, be sure to get your client’s written authorization to transfer the file to their new lawyer. Give the new lawyer a detailed memo about the file and work still needed to be done. Also tell the lawyer all significant dates including limitation periods, examination for discovery dates, chamber and trial dates.
If there are imminent dates discuss these with your client and their new counsel. If necessary, get instructions to seek adjournments in order to accommodate their new counsel and allow sufficient time to prepare.
For insurance/malpractice protection purposes, copy or scan the file prior to sending it off to the client’s new lawyer. Obtain a receipt for the file.
In the case of litigation files where the client refuses to change counsel or sign a notice of intention to act in person, serve your client, opposing counsel, and the courts with your notice of intention to withdraw as counsel. Do this as early as possible and well in advance of any trials or hearing dates.
Legal aid referrals are not transferable to another lawyer (in B.C. at least). You should therefore contact the referring legal aid office and request a change of counsel on behalf of the client.
In the case of criminal files, send a letter to the criminal court registry to advise that you will no longer be representing your client. Be sure to also notify the Crown.
In the case of corporate clients, seek their instructions respecting new addresses for their registered and records offices, prepare the necessary resolutions and notices, and ensure the notices are filed with the registrar of companies. Seek instructions on changing the attorney and head office for extra-provincial companies and file the appropriate forms. Return the corporate books, seals, and records to the principal of the corporation.
File a change of address notice if your firm address is indicated as the address for service or notice requirements in any builders’ liens, trademark registrations, or corporate record books.
Old wills can present a huge problem for lawyers choosing to close their practice as many firms are reluctant to take over responsibility for the storage of these wills.
Reconsider your firm’s policy of storing these wills. Consider leaving the original with the client at the time of execution. If you are transferring the wills to another firm, be sure to file a new wills notice with the appropriate agency, including, if required, your law society. There may be a bulk fee when numerous wills are being transferred.
Before transferring wills to another firm, review them to determine whether you or any other lawyer from your firm has been named as executor or trustee. Consider asking the testator to revise the will or add a codicil to appoint someone else. If you can’t locate the testator or get their co-operation, consider attaching a renunciation to the will. This may or may not be effective.
Notify your law society respecting the disposition of the wills.
Review your files and locate all certificates of title and other important documents held in safekeeping by your firm. Determine if these are being held on undertakings, conditions of trust or agreement which continue to apply. If necessary, seek written instructions from the necessary parties to alter the arrangements and transfer the documents to a new location. Again, your law society may need to be advised as to the disposition of these documents.
If your firm is in possession of property belonging to your clients, return it to your client or, if instructed, to the client’s new lawyer. Confirm the delivery in writing.
Prior to transferring files to your clients’ new counsel, review the files for any outstanding requests that could result in a disbursement for which your firm is responsible.
Send out final billings as soon as possible. Consider a collection agency for old, overdue accounts.
Arrange with your telephone provider to have all calls to your firm forwarded to another number, perhaps another firm, for at least a year.
Place an ad in your local paper noting your practice will be closing as of a particular date, who will be continuing the practice, who may be contacted after closing date about files, wills, etc. Keep copies of these ads.
If your firm has a web site, post a notice of your firm closure along with other relevant information including contact persons.
Send an e-mail notification to your clients. Consider setting up your e-mail so that you are notified when the e-mail has been read. Keep hard copies of the e-mails and replies received.
Determine where you will be storing closed files. Remember your fiduciary duty to safeguard these files extends after you have closed your practice. Don’t store them in a wet garage or shed at the back of your garden. In the event closed files are being stored electronically, consider making backups that are kept at a different location. Keep in mind that you may be required to advise your law society as to where closed files are being stored and what arrangements have been made for former clients to access them.
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