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Internal run off is obviously an option for any firm considering reducing or ending its involvement in PI claimant work, particularly where the caseload is very small.

However, it brings many challenges and expense that are often underestimated, requiring a much more involved management team throughout the process.

It is not difficult to recognise the factors that come into play.

On a practical level it is an unavoidable fact that efficiency levels will drop and performance will be required to be closely monitored to minimise the loss of efficiency.

Once in run off, everyone will be acutely aware they are working in a graveyard and motivating yourself and your staff will be hard.  How will you incentivise them to stay and not only stay but also be efficient as they work themselves out of a job as quickly as possible?

It is difficult to summarise the challenges, but for high level key points click here to view more information
Staff retention
Key staff must be retained and the level of financial incentive to stay must be addressed. Given the level of change taking place in the market, good staff will realise the benefit of moving earlier than everyone else because demand will reduce as the market consolidates.
Staff performance
Once everyone knows they’re working themselves out of a job performance must be micromanaged. Even the most self motivated individuals will struggle to apply themselves with the same drive as when they thought they had a future with the business.
Unfortunately the need for robust management increases, thus reducing the opportunity to focus on the future.
It is a challenging environment for all to work in. Depending on the size of the team, there will be regular redundancy consultations, with everyone repeatedly put on notice as caseloads reduce until it is eventually their turn to go.
Length of process
Given we all think of a specific average length of time for a given matter, it is easy to underestimate the length of process. Firstly, the key is not the average but what is the longest. Secondly, because of the inefficiencies created by a run off, it is going to be longer.
This must particularly be considered where PI is a department of a firm. The relationship between employees who are part of the future and those whose days are numbered must be considered.
In addition to the obvious cost of incentivising staff to remain, consideration must be given to the fact that, as turnover falls, management must deal with reduced absorption rates for infrastructure and overhead costs. Property cost is spread over an ever-reducing turnover, compliance costs become disproportionally higher and management becomes increasingly top heavy.
Balance sheet and cash flow
The business or department moves from a going concern to one that is being wound up and the cost of winding up becomes increasingly disproportionate over time. In addition to ensuring liabilities are reduced in line with the falling asset, management have the additional cashflow challenge of ensuring there are provisions to deal with the tail and also enhanced redundancy to retain staff. All of this is in conjunction with creating a provision for management to fund a period of change for themselves.
Benefit from an external run off and retain the full value incumbent in WIP

Delta Legal

When personal injury (PI) law firm, Delta Legal, realised it was facing insolvency issues following the huge changes to the legal landscape last year, its managing partner knew he had to act quickly to improve the situation both for creditors and clients.

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