Corporate recovery specialists Begbies Traynor have reported an unprecedented rise in the number of law firms in “critical distress” in England, and warned that in the climate of ABS, “many will struggle to survive.”

The number of professional services businesses which it categorises in its quarterly red flag alert as “critical” rose by 24%.

It said that the Legal Services Act presented opportunities for non-legal companies, but added that the pre-existing legal profession was “floundering.”

“Most of the legal industry itself is floundering as a result of the knock-on effect on advisers as clients have sought to curb spending on legal services with pressure on fees strangling cash flow and putting firms under financial pressure,” it said.

Ric Traynor, executive chairman of the Begbies Traynor Group, said: “The prolonged downturn in the legal sector and the change in ownership rules will change the face of the traditional partnership law firm for good and many will struggle to survive.

He added that smaller high firms which did not consolidate or merge “simply can’t compete with the economies of scale of the big household brands if they aggressively commoditise legal services at much lower prices.”

Jonathan Russell of Rees Russell told Legal Futures magazine that the revenue model of law firms has changed as a result of competitive pressures.

“The days of high hourly charge out rates and hourly billing have long since gone,” he said.

“Now we are in a competitive market place where everything is based on pre-negotiated or fixed fees.

“Those firms which have been run on commercial grounds and amended their trading model will have an opportunity to succeed; those that have not will undoubtedly in the medium term fail.”

The Legal Services (Scotland) Act 2010 is scheduled to introduce the provision of legal services by non lawyer entities later this year.