What to do with work in progress?
Before closing your practice, you may choose to complete your retainer and finish off all work in progress however in many instances this may not be possible and at the time of sale/cessation you may continue to hold unfinished files (WIP).
What should you do with this WIP?
You may wish to consider:
- Finalising as many matters as you can and invoice your clients for work completed before you leave. This will ensure the client’s matter does not need to be transferred to another solicitor and you can secure payment of your invoices before you cease practice.
- For matters that cannot be finalised, consider seeking client instructions to transfer the file to another solicitor in accordance with rule 6 of the Legal Profession Uniform Legal Practice (Solicitors) Rules 2015 (‘the Practice Rules’) (see below for more on this) and raising an interim invoice (where possible) for any work you’ve done so far.
- If you can’t raise an interim invoice, make provision to secure your costs incurred to date by entering into a tripartite agreement.
Suggest consideration is given to the Law Society’s Tripartite Deed as a possible way of providing security for unpaid costs.
Find out more about our Tripartite Deed precedent.
Client documents/Trust property
Let your clients know
What do you need to do before you deliver possession of client documents to another law practice?
Before you deliver possession of client documents to the law practice acquiring your practice you must provide each client with at least 14 days prior notice in writing of your intention to transfer their documents, files and safe custody documents (known as trust property) to another law practice unless a contrary direction is received from them.
You must also advise your client of their right to give you a contrary direction in relation to the conduct of their affairs and the delivery of their documents (see rule 6 of the Practice Rules – ‘Transfer of a Solicitor’s Practice’).
How to deal with Trust monies?
Where you hold trust monies on behalf of a client, you must advise your client of the balance of money held on your client’s behalf and your intention to transfer the relevant account (trust monies) to the practitioner or law practice acquiring your practice, unless advised by your client to the contrary.
You must also advise your client of their right to give you a contrary direction as to the manner in which you should deal with the account (trust monies) on their behalf.
Read more in our Transfer of a Practitioner’s Practice Checklist
How to determine what documents on the client file belong to you and what documents belong to your client?
Where you are transferring a client file, you should consider what documents belong to the client and what documents belong to the law practice. A useful case to help you in making this determination is Wentworth v De Montfort (1988) 15 NSWLR 348.
Where you are delivering client documents to the client or transferring to another law practice/person authorised by the client it is advisable to keep a copy of the documents being transferred.
To assist with the transfer of files, consider preparing detailed file notes on each file to be transferred, paying particular attention to mention and hearing dates as well as limitation periods.
What happens to completed matters (archived files) when a law practice ceases to provide legal services?
Rule 14.2 of the Australian Solicitors’ Conduct Rules 2015 (‘Conduct Rules’) provides that a solicitor or law practice may destroy client documents after a period of 7 years has elapsed since the completion or termination of the engagement, except where there are client instructions or legislation to the contrary.
When a law practice ceases, it is the former principal/s of the former law practice who are responsible for the storage of archived files/completed matters as they are by definition, the solicitor with designated responsibility for a client’s matter. Refer to the Glossary of Terms in the Conduct Rules.
Rule 14.2 applies to client documents but does not apply to safe custody documents which the principal/s are holding on behalf of clients. Safe custody documents must be:
- Returned to the client; or
- Transferred to another law practice (in accordance with rule 6 of the Practice Rules); or
- Continue to be held in safe custody by the former principal/s of the former law practice.
Incorporated legal practices (ILP) (in liquidation)
If an ILP has given notice to the Law Society of NSW that it will no longer engage in legal practice because managers/ liquidators have been appointed to the company then the company ceases to be an ILP for the purposes of the Legal Profession Uniform Law (NSW) (‘Uniform Law’).The ILP is however, a former law practice for the purpose of s132 of the Uniform Law and in these circumstances, it is not the appointed managers or liquidators who have designated responsibility for the storage of archived files of a former ILP it is the former principal/s of the former ILP.
Have any undertakings been given in relation to the matter?
- Check your undertakings register;
- Audit the file for evidence of undertakings provided in connection with the matter;
- Consider carefully any outstanding undertakings you may have given and seek to be released in writing before the matter is transferred.
Let the Law Society know
Practitioners are required to notify the Law Society in writing of any change in their practising particulars (as disclosed in the practitioner’s last application for or for renewal of a local practising certificate) within 7 days after the change occurs. You can use this form to notify of the change in your practising particulars. This notification requirement also applies to any solicitors employed by the law practice.
In addition to updating your particulars, you will also need to let the Law Society know about the closure of your law practice. If your law practice is a sole practitioner or a law firm (partnership) you can notify the Law Society via email to: firstname.lastname@example.org
If you operate an incorporated legal practice (ILP) or an unincorporated legal practice (ULP) the ILP or ULP will need to provide the Law Society with notice of ceasing to engage in legal practice in NSW in the approved form within 14 days of it ceasing to engage in legal practice. You can access the relevant forms here.
It is also recommended that you advise the Law Society Registry of details of the law practice to whom you have transferred client files/safe custody documents. Following the closure of a law practice, it is not uncommon for clients to call the Law Society enquiring as to the whereabouts of their files/safe custody documents.
Trust Account obligations
Rule 51(1) of the Legal Profession Uniform General Rules 2015 (‘the General Rules’) provides that a law practice must give written notice to the Law Society Council within 14 days of the law practice ceasing to hold trust money because it ceases to exist as a law practice, to engage in legal practice or to practise in such a way as to receive trust money.
You can use this form to give the required notice.
Professional indemnity insurance
Prior to ceasing practice, it is advisable to speak with your professional indemnity insurance provider to discuss cover for run-off liabilities.
Rule 78 (6) of the General Rules requires that professional indemnity insurance must provide indemnity for run-off liabilities for a minimum of 7 years from—
(a) the date (during the period of insurance) that the law practice ceases to practise, or
(b) the date of expiry of the period of insurance,
if the law practice is not covered from the relevant date by a further policy that complies with these minimum standards, including the requirement for run-off cover under this subrule.
If you hold your professional indemnity insurance with Lawcover, you can contact Lawcover via 02 9264 8855 or email@example.com.
Financial and taxation advice
If you are selling your law practice and as with any significant commercial decision, it is recommended that you obtain independent financial and taxation advice on the consequences of selling your law practice prior to selling it.
Becoming an Associate Member of the Law Society of NSW
If you do not intend to renew your practising certificate, consider becoming an Associate Member of the Law Society.
Read more about the benefits of associate membership here.