£13m shortfall results in a combined 70 years' of director disqualifications

Seven former members of limited liability partnership Wolstenholmes have now been disqualified from being directors after they were found to have been involved in fraudulent trading and failed to keep proper books and records, following an investigation managed by the Insolvency Service.

Wolstenholmes had operated as a solicitors' practice, based in Heald Green, Cheshire but with a separate office in Birmingham. The practice had been run as a partnership since 1818 and under a company from 2005.

The disqualifications range from five to the maximum 15 years. Four members of the company had been banned as directors in 2012 and 2013. Two of the latest disqualifications followed court orders in the Manchester District Registry, however, in the other instances, the individuals concerned gave undertakings to the Secretary of State for Business, Innovation & Skills not to be involved in the management of a limited company for the duration of their bans.

Nasir Ilyas gave an undertaking accepted for 15 years from 6 June 2014; Waseem Saddique was disqualified by court order on 10 June 2014 for 15 years; Mario Cardinali is disqualified by court order on 10 June 2014 for 15 years; Imran Hussain gave an undertaking accepted for nine years on 4 June 2013; Bilal Khawaja gave an undertaking accepted for six years on 13 June 2013; Helen Murgatroyd gave an undertaking accepted for five years on 24 February 2012; and Bobby Shabbir gave an undertaking accepted for five years on 24 January 2013.

In sentencing Saddique and Cardinali, HHJ Bird at the Manchester District Registry, said: "The defendants involved themselves in a business in which members of the public are entitled to place absolute trust. That trust was abused at great cost to members of the public and at great cost to the Solicitors Regulation Authority and to the Solicitors Compensation Fund."

He continued: "Fraud of the kind which was rife under their management in my judgment justifies a disqualification period of the maximum that the law allows, that is the period of 15 years."

Commenting on the disqualifications, Joanne Covell, of the Insolvency Service's investigations team, said: "The actions of these individuals led to significant losses for clients as they misused money they had been entrusted with. These disqualifications show that we will not hesitate to investigate wrongdoing and sends a clear message that we will take appropriate enforcement action to maintain business confidence."

Accounting irregularities

Following clients' complaints about the practice's conveyancing department, the Solicitors Regulation Authority (SRA) conducted an investigation which found 'significant and serious' accounting irregularities at the firm.

The SRA also discovered that non-solicitor third parties had 'inappropriate control and influence' over the activities of the company. This led to an intervention and closure of the practice in December 2009. Wolstenholmes was formally put into administration in February 2010.

The SRA investigation found that Saddique and Cardinali, two unqualified individuals, acted as a member or in the management of the practice which was subject to strict regulatory control, and exercised an inappropriate degree of control and influence over its affairs to the ultimate detriment of the SRA and the practice's clients.

Furthermore, the practice traded fraudulently and with inadequate financial controls and procedures in place to stop fraud occurring, to the ultimate detriment of the SRA and the company's client base.

The practice also failed to maintain and/or preserve adequate accounting records. As a result of this it has not been possible for the SRA to verify how and exactly when the full amount of the shortfall of approximately £8m on the practice's client account accrued or the destination of a significant amount of the misappropriated funds.

As a result of the company's actions, and a shortfall in its clients account, the Solicitors Compensation Fund has been forced to pay out more than £13m to more than 2,500 of the firm's former clients.

In addition to the above, it was revealed that the Wolstenholmes filed false Stamp Duty Land Transfer returns with HM Land Registry.

The SRA brought proceedings before the Solicitors Disciplinary Tribunal, and in May 2013 orders were made against both Hussain and Asma Qayum who were both struck off the roll of solicitors. Khawaja and Murgatroyd were suspended for one and two years respectively.

Shabbir was suspended from practice for six months and subsequently can only be employed as a solicitor with the approval of the SRA. The case against Ilyas was adjourned and is due to be heard next month.

The SRA also made orders against Saddique, Cardinali, Kazi and Hussain that none of them can be employed or remunerated in connection with a solicitor's practice without the permission of the regulator.

David Middleton, executive director of the SRA, commented: "The tribunal recorded the fact that this was perhaps the most serious case it had ever dealt with and that there had been significant harm to the profession, to an extent mitigated by the prompt action of the SRA, the Compensation Fund and the intervention agents."

He continued: "The tribunal heard from clients who had suffered significant hurt by what had happened. It was to the credit of the Compensation Fund that the losses had been made good."

A disqualification order has the effect that without specific permission of a court, a person with a disqualification cannot act as a director of a company; take part, directly or indirectly, in the promotion, formation or management of a company or limited liability partnership; act as an insolvency practitioner; or be a receiver of a company's property.