A legal service provider’s perspective

Now we turn to the legal sector. Recent data tells us that in the final quarter of the last financial year when the economy tanked, the demand for legal services rose by 7%. Why was that? I think partly because when people in business face crisis, legal advice and guidance becomes a non-discretionary spend.

Companies need to know how to deal with their employment issues. They need to know how to deal with the structure of their business. They need to know how to prepare for refinancing.

That has played out in the way that particular parts of the legal market responded to the crisis. The data shows that workplace relations practices became extremely busy. Dispute resolution rose significantly. I think included in that was the insurance market and that certainly became very busy.

Banking and finance had a 3% to 4% uptick. That might be attributed to restructuring, but also to the volume of money that is running around at the moment.

These trends continue, although in some areas the workflow appears to be levelling out. Employment law, which saw an enormous rise in work in mid-2020, has remained busy but the initial urgency from some clients appears to have subsided, for now. We are still very busy in the dispute resolution, litigation and insurance areas, and the availability of capital in the market continues to keep our banking and finance team working on some major matters for clients in our commercial and property areas particularly.

Those things spiked. Interestingly, some things, counter intuitively, did not spike. Construction went backwards - this wasn't the experience in our practice but it did occur in the wider legal market as construction demand for legal services dropped by 4%.

Real estate went flat or potentially dropped about 1%. Corporate and commercial work stayed flat as well.

In fact, both construction and real estate appear to have healthy surges in the past few months, thanks to government commitments to spend on infrastructure, the ongoing demise of interest rates in the lending process, and Australians' ongoing appetite for property investment. We expect this will continue at healthy levels over 2021, in spite of the wind-down of JobKeeper, JobSeeker and similar government support schemes.

Insolvency was anticipated to be incredibly busy in the early part of the crisis. But, in fact, the moratoria on liquidations led to a drop in 1,000 insolvencies per month. Insolvency practitioners were expecting a great number of business failures, but this has yet to materialise.

However, they anticipate that as those regulatory moratoria are taken away, there will be a tsunami of liquidations. There has been commentary that there aren't enough insolvency practitioners in Australia to be able to deal with the likely insolvencies. There's also been significant regulatory reform in the area and, of course, when there is regulatory reform, there's more work for lawyers.

Looking to the future, I think it's fair to say that we will see an increase in business distress. As I've mentioned, that will drive insolvency. It will drive insurance claims; disputes; financial and corporate restructuring; workplace relations issues, and it will drive property activity as distressed assets are dealt with.

There is still a chance of this occurring, but perhaps not as acutely or as dramatically as I envisioned above. Various sectors that were badly affected by the pandemic appear to be recovering slowly, albeit in unexpected ways: the tourism and hospitality trade has been badly battered (particularly in Victoria) and is one area to monitor carefully. The impact on 'bricks and mortar' retail has been offset somewhat by the enormous upsurge in online orders and buying behaviours. Many businesses that laid off or furloughed staff last year are hiring again, suggesting that the recession is abating faster than expected. Still a case of 'watch this space' but the prolonged economic slump that seemed on the cards last year, seems less certain this year.  

As a legal services provider, we have to be client-focused at all times. We must be lean, and we have to be nimble. When we’re in the trenches with our clients, we (arguably) do our best work.

This still remains absolutely true. Although our own business remains healthy, we are absolutely committed to delivering the best for our clients, and our investment in more client service, delivery and feedback initiatives will help us remain agile in what is still a very challenging, competitive domestic legal industry.

But what do you think? I would be very keen to hear your thoughts and views of the current state of our economy, government stimulus and broader impacts.