Alternative business structures: Should the legal profession be opened to other parties?

The report, published in 2023, examined whether ABS, such as external capital investments in law firms or currently prohibited multidisciplinary partnerships, can help improve access to legal services. De Roo states that this remains the core of the discussion two years later: "The main question is: How can we improve access to justice?"

What are ABS?

The term 'ABS' originated in England and has acquired a specific meaning there. In England, ABS refers to non-lawyers acquiring capital interests (ownership of shares or another type of ownership in a company) or, management positions in a law firm, or working multidisciplinary with lawyers within a firm. In the latter form, professionals from various disciplines jointly practice within the same company, of which they are partners or shareholders. In the Netherlands, lawyers are currently allowed to form such multidisciplinary collaborations with notaries, tax advisers, and patent attorneys. Other forms of ABS are currently almost entirely prohibited in the Netherlands.

A Dutch experiment with ABS

As an exception to the Dutch ABS ban, in-house lawyers from a legal expenses insurer have been allowed to act as lawyers for the insured clients of that insurer for quite some time. Currently, an experiment in the Netherlands goes a step further. Thanks to this experiment, lawyers from firms in which a legal expenses insurer participates are also allowed to assist non-insured clients. The firms BrandMR and VvAA are participating in this experiment. Stokkermans says: "When this experiment ends in late 2025, the question will be whether those firms can continue or whether the arrangement needs to be terminated. Moreover, if such structures are allowed to continue, should we not also allow certain other forms of ABS under various good conditions?" He continues: "The experiment involves a specific type of insurance company that is allowed to invest financially in a law firm, while other investors are not permitted to do so." Stokkermans emphasises that this is an unusual situation that raises the question: Why is such an insurance company allowed to do this while other investors are not?

The advantages of ABS

The Dutch Bar Association remains cautious about ABS. Stokkermans explains that this is understandable: "A significant portion of the resistance to ABS among lawyers stems from the belief that lawyers must remain independent." ABS are thus seen as a potential threat. So, what are the reasons for allowing more ABS structures or at least experimenting with them? The WODC report by Stokkermans and De Roo shows several arguments in favour of expanding the possibilities. One important argument is that more forms of multidisciplinary collaborations and external capital investments could offer more freedom of choice for both lawyers and consumers. This could lead to a more diverse range of services, more innovative working methods, and ultimately more accessible legal assistance, especially for middle-income legal consumers. Naturally, the professional independence of lawyers must be safeguarded. The WODC report outlines ways to achieve this.

Liberalisation: A lesson from the accounting sector

In certain sectors, such as healthcare and accounting, stock market listings and private equity investments are permitted. Stokkermans notes that services often become more expensive in these sectors, and quality sometimes declines. He explains that this happens because private equity firms and other players primarily focus on profit maximisation. These entities generally do not have a mission to support individuals with limited financial resources. For consumers with fewer means, this is bad news.

Stokkermans states: "The experiences with largely unregulated liberalisation have not been overwhelmingly positive. This is widely reported in the media. With unregulated liberalisation in the legal profession, you can expect similar outcomes. That is one reason why many people oppose extensive liberalisation. The question, however, is: what if strict requirements are imposed on a business's mission and ways to safeguard it firmly? What if liberalisation is not allowed unregulated but is instead selectively permitted to achieve specific policy objectives? Could more room for ABS then bring benefits?"

Regulation is essential

The key takeaway is that ABS firms must be well-regulated and monitored. Stokkermans and De Roo describe various ways to achieve this in their report. One possible approach is for an independent regulator to establish specific selection criteria and additional requirements for granting licenses. These licensing requirements must be well-reasoned and aligned with legally established regulatory objectives. According to Stokkermans and De Roo, creating a clear regulatory framework is crucial. De Roo notes that besides a licensing system, there are other regulatory options and adds: "When determining regulatory goals, I see a role for legislators and policymakers."

Sustainable Development Goal 16.3

Stokkermans and De Roo's report indicates that well-regulated ABS can help improve access to justice. Beyond the general desirability of access to justice, De Roo highlights a broader framework: "2030 is the target year for Sustainable Development Goal 16 (particularly 16.3) of the United Nations. This goal is focused on improving access to justice. All United Nations member states are expected to have plans by 2030 to enhance access to justice. This means that all governments must develop policies. Professional groups such as lawyers are also expected to contribute."

With 2030 in sight and the global effort to improve access to justice, time will tell whether and how ABS can play a role in achieving this goal.

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On 26 February 2025, Christiaan Stokkermans will speak on ABS at the University of Cologne, Germany, in response to the European Court of Justice ruling. Click this link for more information about the conference.

The EU Court of Justice ruling:

The German law firm Halmer Rechtsanwaltsgesellschaft was removed from the bar by the Munich Bar Association because an Austrian private limited company, with purely financial purposes, had acquired shares in the firm. Under existing German laws and regulations, only lawyers and members of certain liberal professions were allowed to be partners in a law firm. The law firm did not agree with this decision and went to the disciplinary court. The law firm disagreed with this decision and appealed to the disciplinary court. The disciplinary court referred the question to the EU Court of Justice. The court was asked whether the national regulation, which prohibits law firm shares from being transferred to purely financial investors, aligns with European law. The EU Court of Justice ruled that Union law does not preclude a national rule prohibiting such acquisitions.