Analysis

Another ABS fails: AA joins Co-op, Parabis, Slater & Gordon and Stobart Barristers on the list of legal innovator disappointments

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Big names were meant to be the future of law

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The AA has joined an ever increasing list of alternative business structures (ABS) and other new legal businesses that have failed to live up to expectations in the legal market.

Acquiring its ABS license in December 2013, the breakdown and recovery specialist boldly stepped into the legal sector, teaming up with national law firm Lyons Davidson to handle personal injury and car accident-related litigation on behalf of its members and customers.

Now two years on, it would appear that AA Law is a write-off.

The Bristol-based outfit — which only employed three solicitors across two offices, according to the Law Society’s database — has revealed that new claimants have not been accepted since 6 November 2015. Solicitors at Lyons Davidson will continue to manage live claims.

Citing a “strategic review”, Britain’s most popular breakdown service claimed in a statement released this week that “the level of customers did not justify the maintenance of a standalone business”.

However, recent financial reports available for AA Law appear to show a relatively healthy business. Dated May 2014, accounts show a turnover of £1.94 million and profit after tax of almost £500,000.

With this in mind, questions have been raised as to the genuine motivation for AA Law exiting the legal market. Some more sceptical legal commentators have suggested the real reason behind AA Law’s shutdown is George Osborne’s recently-announced plan to clamp down on personal injury claims.

Back 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 the move could lay waste to firms that rely heavily on road traffic accident and personal injury work, it’s easy to see why AA Law might want to duck out before it gets messy.

However, AA Law isn’t the only ABS to succumb to the Chancellor’s drastic proposals.

Aussie outfit Slater & Gordon’s share price tanked shortly after Osborne’s damages announcement. The firm — that first floated on the Australian stock exchange back in 2007 — acquired its ABS license in 2012. Hailed as the future of legal services, amid headlines such as “The rise and rise of Slater & Gordon” courtesy of website Legal Futures, the listed firm simply hasn’t lived up to press hype.

Fellow ABSs Co-op and Parabis Group have also had harsh introductions into the legal world.

Granted ABS status back in 2012, Co-op trumpeted plans to offer 100 training contracts annually by 2017. With magic circle-levels of graduate recruitment squarely in the sights of the retail giant, the firm posted losses of £5 million for the 2013-14 financial year, laying waste to their daring training contract plans.

Parabis Group — which was granted ABS status in the same year — was hailed as pioneers of the post-liberalisation legal market services market. But this optimism proved groundless as the private equity-backed personal injury-focused outfit failed to thrive. It is now being broken up and sold in a seven-part pre-pack administration process.

Finally, who can forget Stobart Barristers? The haulier was granted ABS status in 2013 and quickly positioned itself as an alternative to the traditional chambers set-up. Offering access to barristers directly on a pay-as-you go basis, the group’s legal director, Trevor Howarth, trumpeted it as the future while describing criminal practices as “very wounded animals ready to die”. One year on, Stobart Barrister bowed out of the legal market.