Delays by the Legal Services Commission in paying solicitors could lead to some firms becoming insolvent, lawyers warned this week.

The LSC wrote to firms in March informing them that it would not be making payments on time that month, and payment delays have continued since, with one firm contacting the Gazette last week to say it was owed £130,000.

Law Society chief executive Desmond Hudson has written to the major clearing banks warning them of the cashflow problems caused by LSC payment delays, which are believed to have been caused by staff cuts and closer scrutiny of bills.

Richard Miller, head of legal aid policy at the Law Society, said: ‘We’ve been getting reports that payments have been delayed over the last three months, and some firms are at the point were they are unable to pay their staff. It’s no exaggeration to say there’s a significant risk of some firms becoming insolvent.’

Keith Lomax, partner at Leeds firm Davies Gore Lomax, told the Gazette the LSC had not paid his firm fully for March or April.

‘At the end of last week we were owed over £130,000 and put in the appalling position of having to tell our staff that we may not be able to pay their salaries on pay day,’ he said.

Lomax said the LSC had given no reason for the delay, but had claimed a large number of the firm’s bills had not been received and requested the firm resubmit them. The firm did manage to pay salaries on time by making arrangements with its bank.

Hudson said: ‘The LSC has confirmed that the payments could take up to eight weeks to process, when they usually take four weeks. We have expressed to the LSC that this is unacceptable and are looking at whether some firms have legal remedies available to them.’

LSC national relationship director John Sirodcar said any payments that were ‘held back’ in March were paid in early April. He said the vast majority of bills are paid within the LSC’s target time of six weeks, with crime litigator graduated fees taking eight weeks.

‘We are the guardians of public funds and therefore have to scrutinise all bills submitted to us to ensure accurate payment,’ said Sirodcar.

Meanwhile, the LSC has announced it will not pay compensation to firms for police station cases they lost due to the problems that followed the handover of the defence solicitor call centre to a new contractor. However, if firms can provide independent evidence from the police station of cases that should have been deployed to their duty solicitors, the LSC will ‘consider’ allocating a number of backup cases.