Small businesses are increasingly taking up legal cases amid economic downturn

More firms follow up contract disputes to claw back funds when times get tough, they say, while others will more quickly resort to litigation

Firms are more likely to take legal action in an economic downturn, lawyers say (Photo: Xsandra/Getty Images)

February 14, 2023 4:05 pm(Updated 5:15 pm)

Lawyers have reported an increase in legal cases by small businesses, something they say is a common sign of a downturn in the economy.

More firms follow up contract disputes to claw back funds when times get tough, they say, while others will more quickly resort to litigation.

Tahina Akther, a barrister at London-based Wildcat Law, said: “As economic problems grow, so too do legal cases. We have seen an increase in enquiries across a number of areas of law but the correlating factor is economic pressure and worries.

“This has driven an increase in relationship failings, resulting in more divorce enquiries, and business contract disputes among companies. The bad news for the wider economy is that, while December was busy, January was manic for legal enquiries.”

Nick Jervis, a former solicitor and business consultant at Bristol-based firm Nick Jervis, agreed.

“Whenever there is a downturn in the economy, disputes rise and that likely explains the busy December for lawyers. It’s a worrying signal. As businesses feel the pinch and cash flow slows down, they are quicker to resort to litigation to recover monies owed to them.

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“Other businesses are then unable to pay their bills so liquidation or administration looms. All of this means more work for commercial lawyers.”

It comes as official data by the Office for National Statistics (ONS) published last week found the UK narrowly avoided falling into recession in 2022, although the economy contracted by a hefty 0.5 per cent in December.

Growth between October and December came in flat, while in 2022 as a whole, GDP increased by an estimated 4.0 per cent in 2022, following a 7.6 per cent increase in 2021.

Darren Morgan, director of economic statistics at the ONS, said: “In December, public services were hit by fewer operations and GP visits, partly due to the impact of strikes, as well as notably lower school attendance.

“Meanwhile, the break in Premier League football for the World Cup and postal strikes also caused a slowdown. However, these falls were partially offset by a strong month for lawyers, growth in car sales and the cold snap increasing energy generation.”