A balancing act

Solicitors can now pay, at their discretion, ten times the amount of a residual balance to charity without seeking authorisation from the SRA.

The increase from £50 to
£500 from 31 October 2014 is
an attempt by the regulator to simplify processes for solicitors who find themselves with a residual balance on completion of a matter. But will it actually work?

Rule 20.2 of the SRA Accounts Rules 2011 contains the provisions which cover situations when solicitors find themselves with a small balance left on a client account. This can occur for a multitude of reasons - from a simple casting error on a completion statement, to the receipt of a small balance of funds after practical completion has occurred. There is, however, a caveat under rule 20.2(b), which states a solicitor must 'make adequate attempts to ascertain the proper destination of the money, and to return it to the rightful owner, unless the reasonable costs of doing so are likely to be excessive in relation to the amount held'.

Judgement call

It is the last part of this paragraph which, following the increase of the amount that can be paid to a charity in such situations to £500, requires a little more thought by the solicitor as to whether the costs of trying to return the funds would be 'excessive in relation to the amount held'. While the balance limit was £50, unless the destination of the funds was easily ascertainable, it was a fairly straightforward thought process for the solicitor to calculate the likely time involved in sending out these funds to the rightful owner, given charge out rates and any disbursements that might be incurred. With the increase
to £500, the solicitor may find themselves facing something
of a dilemma.

Say, for example, a residual balance of £400 occurred on a matter. If the practice knows it is likely to take two hours of a fee earner's time to conduct a search for the individual at £100 per hour, and the search itself would incur a further £50 disbursement, would the total cost of £250 be deemed 'excessive' compared to the balance of £400 held? This is going to be, as it always has been, a judgement call for the solicitor, but with the limit so substantially increased it is likely to be one that takes more time for the fee earner to come to a conclusion about.

Less administration?

The increase may initially be met with some relief, and may be seen as a demonstration
that the SRA is listening to its members and, where possible, reducing the level of administration. The solicitor continues to be required to keep details of all rule 20.2 amounts withdrawn and paid to a charity in the form of a central register under rule 29.22. This central register must be made available to the reporting accountant, but they are not required to 'determine the adequacy of steps taken' in reaching the appropriate conclusion.

So where does this increase to £500 leave solicitors? There is no doubt that the systems and procedures put in place by a practice will have an effect on the number of instances of residual balances, but from time to time they will arise, and for
a multitude of reasons. It is always worth practices reviewing their central register to monitor the volume of rule 20.2 withdrawals, as it may be that this will trigger a review of the systems and procedures in place. In most cases, it is impossible for a firm to implement a standard approach, as the circumstances of each case will need to be reviewed before the fee earner makes the judgement call.

There was always the possibility for a firm which had
a residual balance of more than £50 to write to the SRA and obtain clearance to pay the funds to charity, and this will remain for balances that exceed the new limit of £500. SJ

Daniel Edwards is senior manager of business services at Reeves