City solicitors are increasing their hourly rates despite the onset of recession, with top insolvency lawyers charging as much as £900 an hour. While the crisis ripping through the City has left the world's biggest banks nursing multi-billion pound losses, lawyers are cashing in as demand for their services soars.

The so-called Magic Circle Clifford Chance, Linklaters, Freshfields Bruckhaus Deringer, Allen & Overy and Slaughter and May are benefiting most in what appears a "flight to quality". Insolvency and restructuring work is the biggest boom area.

This is borne out by the Legal Budgets survey in this week's issue of The Lawyer magazine, which showed that while the rest of the legal market has seen fees level off, average rates at the UK's elite firms have continued to climb. Partners are now charging an average of £600-£750 per hour, up 6% on last year.

At the same time, legal experts say business looks tougher for some of the less prestigious London law firms and those in the provinces. There is talk that one middle-ranking solicitors' firm is facing the threat of collapse.

There is no doubt that the economic downturn is good news for Mark Hyde, head of restructuring and insolvency at Clifford Chance. He is one of the lawyers whose phones have not stopped ringing and he sees no let-up in the coming months.

"Business is cranking up at the moment and the sector's going to do very well far into next year. With the economy now generally regarded as being in recession, there's going to be a lot of wholesale financial restructuring of the businesses which are suffering," he says.

"In the old days, they would have been able to refinance their debt, but now with banks having more limited resources, businesses will need restructuring to avoid insolvency."

Adam Plainer, head of the London restructuring team for US legal giant Jones Day, agrees: "Lawyers are being thrown document after document by clients and potential clients. But we are not yet talking about the restructuring of major companies. That won't really start until next year."

Hyde explains the pick-up in his work began late last year with the collapse of two structured investment vehicles, Cheyne Finance and Whistlejacket, whose demise was one of the triggers of the US subprime mortgage meltdown.

More recently, he says, the turmoil in the financial sector has left top billers' inboxes overflowing, particularly with work relating to the collapse of Lehman Brothers and the Icelandic banks. Linklaters, the Magic Circle firm advising Lehman's administrators, is the main beneficiary from the investment bank's demise. But because of the large number of businesses that held contracts with Lehman ranging from big banks to small hedge funds Linklaters' main rivals are also winning related work.

The biggest firms are benefiting most from the boom in insolvencies, says Hyde: "This type of work tends to centre around the Magic Circle firms because the amount of specialist resources needed, covering so many disciplines, is so big."

Roger Parker, managing partner for Europe and the Middle East at ReedSmith, believes the credit crunch has given a fillip to the big-name firms. "There will always be a flight to brand in these situations so the Magic Circle and major US firms tend to attract the big-ticket jobs," he says.

The rise in company failures is feeding through to other departments of the law firms including real estate, banking, tax and pensions as solicitors switch their specialisms in the new economic climate.

But it is not only insolvency work that is flooding in. As more and more companies run into trouble, arbitration experts are tipped to see business pick up sharply.

Andy Moody, a senior associate at McDermott Will & Emery, explains: "Huge opportunities exist in dispute resolution because of the credit crunch. Any number of companies are running short of cash, which means they are more likely to litigate. We're seeing more queries from clients and they are not the people you normally expected to be calling a litigator but they are worried about how everything is unfolding. Potentially we could be fighting in courts for years to come".

Fraud litigators are also benefiting from the crunch. Jones Day's Plainer says: "Fraud always rears its head in any downturn. Economic boom makes it easier to hide fraud as there's lots of cash splashing around but when that stops, things come to light."

Wannabe Ally McBeals dreaming of bumper pay packets should beware, however. Plainer warns things look gloomy outside London: "There are small and medium-sized law firms in the regions which are in real trouble. There's no property work and they've mostly given up doing legal aid so they are really struggling."

For the first time in years, his advice has been sought on partnership voluntary arrangements, whereby firms agree a deal with creditors enabling their lawyers to continue to practice.

Yet while the party may be over further down the food chain, law's top dogs still have much to celebrate.