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.
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.
Determine whether any subscriptions need to be cancelled. These might include newspapers, newsletters, magazines, lawyer listings, legal subscriptions, yellow pages, web and Internet services, office supply subscriptions, etc.
Check your credit cards for expenses that are automatically charged to the cards. Also check your bank statements for any automatic withdrawals from your accounts.
Undertakings and obligations
Take steps to relieve yourself from all ongoing obligations and undertakings. Be certain to document this in writing. If you are not able to complete your ongoing undertakings and obligations, advise your client and the successor lawyer and get the written commitment of the successor lawyer to honour the undertaking. If this is not possible, you will need to satisfy the undertaking yourself or seek relief from strict compliance from the person to whom you gave the undertaking.
Review your obligations respecting the retention of corporate records not transferred to new counsel. You may be legally obligated to retain the records even if the company has dissolved as there may be a time within which the company can be restored after dissolution.
Check your law society rules respecting the retention of trust and general account records.
Check into Canada Revenue Agency’s requirements for the keeping of accounting records.
Review your trust accounts. After rendering your final account, return balances to your clients or their new lawyer if you have the appropriate instructions.
Before disposing of trust funds be certain they are not being held pursuant to undertakings or court orders. If they are, seek necessary consent or court approval prior to transferring funds out of your trust account.
All trust funds must be accounted for. In the event you hold unclaimed trust funds, check with your law society to determine your obligations. Also check to see if you can apply to have your law society take over responsibility for these funds.
Notify the bank that the trust accounts can be closed once all trust monies have been disbursed.
Determine your obligations respecting trust accounting to your law society. Is a final trust report required? When must it be completed? What financial records are you required to maintain and for how long?
Pay all outstanding accounts, payroll, payroll remittances, disbursements, GST, PST, HST, WCB, etc.
Consider leaving a general account open with a reserve to cover outstanding obligations or the receipt of outstanding accounts receivable which come in after closing the practice.
Work in progress
The bane that provides us security may also bite us. Retiring, incorporating, and/or selling your practice may trigger taxable portions of your work in progress. Do not proceed down any of these paths without a good accountant holding your hand.
Thanks to whichever deity you prefer, the deferred tax year is a dinosaur and upon retirement, the deferral allowance is retired. This fact has kept many lawyers working and unable to retire or take appointments long past their healthy shelf life. A careful consideration of the tax consequences must be considered in your exit plan. Accordingly, you are strongly urged to discuss the tax issues with your accountant before deciding to make any practice change decision.
Tell your staff of your exit plan as soon as possible. You do not want them to hear the news from someone else.
Give your staff sufficient notice of termination or compensation in lieu of notice. The main issue here is severance pay — awards for unjust dismissal are often one month per year of service. Ideally a similar notice period will alleviate this cash burden.
Staff are unlikely to stick it out to the end as you wrap up your career while they must continue theirs. Therefore, you should make the effort to become as computer literate and staff non-dependent as possible. You should also budget for employing temp services. The alternative, of course, is to budget for severance payments and keep staff involved in your exit plan.
Make arrangements to cancel or otherwise deal with employee benefit plans.
Direct your accountant/bookkeeper to prepare records of employment, calculate all necessary holiday pay or other benefits accrued, prepare T4 slips, and make all necessary remittances.
If you have an articling student, make arrangements to assign the articles to another qualified lawyer.
Premises and office equipment
Check your lease. When does it expire? What are the notice requirements in the event of early termination? As you near your exit date, consider renewing your lease for a term that ends at the time of your planned departure. Notify your landlord as soon as possible once you are certain of your exit date. If necessary, make arrangements to sublet your premise or assign the lease.
Check your obligation for all leased equipment. What are the notice requirements in the event of early termination? Is the lease transferable? As you near towards retirement, consider opting for short-term leases.
If possible, try and arrange your equipment and vehicle leases so that they expire at least six months prior to your exit date. This will build a war chest to offset the expense of exiting. It will also help fund those severance payments.
Contact law schools, community colleges, and other firms to see if anyone will consider purchasing your firm library.
Used law office equipment can have relatively little value. Office furniture stores may take the furniture and equipment on consignment. Alternatively, consider donating the furniture or equipment to staff or charity who will haul it away.
Do not donate or sell your firm computers until you are absolutely certain their hard drives have been successfully wiped clean. Simply deleting your confidential data and client files is not enough.
Notify your suppliers and public utilities respecting the closure of your office and advise them of the address to which future correspondence can be directed.
Look into whether or not to cancel your practice insurance after you have completed the exit. Check with your law society to determine what coverage, if any, is available against future claims arising from services rendered while insured. If you purchased excess insurance, contact your broker to ensure your interests are protected into the future.
Contact your broker to discuss terminating your property and general liability insurance. Check with your broker to determine what coverage is available to cover your stored files and records.
Consider insuring your life to provide for those left behind. At the very least have coverage sufficient to retire all debts plus leave a net balance which, when properly invested, will replace your after-tax income thus leaving your family to continue their lives and grieve, not begrudge your passing.
Consult your law society and confirm your obligations
Consult with your law society before formulating an exit plan.
Review and understand your obligations to the law society. Make certain it is incorporated into your exit plan.
Have a timeline
Because of the complicated nature of closing a practice, the entire process can take in excess of a year to complete. In order to ensure your exit plan is successfully followed, it is essential the plan include a detailed timeline. It should include descriptions and completion dates for everything. Having a well-thought out timeline and following it will go a long ways to minimizing the burden and stress that can go along with closing a practice.
David A. Paul is a senior lawyer and mediator who practises at the boutique law firm Paul & Co. in downtown Kamloops, B.C. His firm’s web site is kamloopslaw.com and he can be reached at (250)828-9998.