This website uses cookies

This website uses cookies to ensure you get the best experience. By using our website, you agree to our Privacy Policy

Tony Guise


The cooperative approach

The cooperative approach


Firms at risk of intervention must cooperate fully and promptly with the regulator to avoid potentially disastrous consequences, warns Tony Guise

Recent statistics from the SRA confirm that rapidly rising numbers of interventions and the mounting costs of archiving files would cost the profession an extra £3.6m next year. In the year to June 2009, the number of interventions increased by 20 per cent, with an expected 100 in the year to June 2010.

The power to intervene was introduced to protect the Solicitors Compensation Fund from becoming exposed to dishonesty on the part of solicitors so that the Law Society could close down firms with no notice (if necessary). The Solicitors Act 1941 granted power to intervene for breaches of the Accounts Rules but since then the power has expanded to include cases where the code has been broken and where the Indemnity Insurance Rules are breached. A recent change (introduced via the Legal Services Act 2007) has extended the consequences of intervention to former principals as well as principals at the time of the intervention and so the power has become all encompassing.

Section 35 of the 1974 Act simply refers to the powers in part II of schedule 1 to the 1974 Act becoming exercisable in the circumstances described in part I of schedule 1. This rather convoluted approach does not assist in understanding what can happen. Among many others, the grounds include: dishonesty, breach of the code, Accounts Rules or Indemnity Insurance Rules, entering into bankruptcy or an IVA (although the SRA frequently grants a waiver to enable that solicitor affected to continue practising subject to conditions), abandonment of a practice, imprisonment, mental illness, senility, and acting as a solicitor without a practising certificate.

Once a resolution to intervene has been passed by an adjudication panel (comprising three solicitors) the SRA have vested in them client and office money (usually bank accounts are frozen) together with all documents in the possession of the intervened firm, primarily the client files. Post is redirected to the Society's Intervention Agents (a firm of solicitors on the SRA panel for these purposes) and the vesting and possession of files takes place irrespective of any issues about lien.

The consequences for the partners are usually devastating, since the firm is all but destroyed leaving principals with practising certificates (usually) suspended, facing the SDT months down the line and a huge bill (joint and several) for the SRA's costs of the intervention, which is typically at least £100,000 but can be much more.

Avoiding intervention

Can these dire consequences be avoided? If a firm has engaged in serious fraud or dishonesty, then probably not. However, some interventions are avoidable and arise only because the pre-intervention exchanges with the SRA are not managed as well as they might be. If correspondence is received from the SRA or a visit takes place, it is vital that expert advice is taken at an early stage to ensure the firm responds in an appropriate manner.

Firms that ignore correspondence, respond in an unnecessarily defensive or aggressive manner or promise cooperation but fail to deliver are the firms which are more likely than not to be intervened upon. It may be necessary to reconstruct the firm by introducing new compliance systems with appropriate support in the form of legal cashiers, compliance specialists and even partners to satisfy the authority that the firm is being rehabilitated in the management of its business. Solicitors have a duty to cooperate with the regulator (rule 20.05 code) and the quality of that cooperation must be full and prompt to avoid intervention (see also guidance note 27).

Usually the first a firm will know of the decision to intervene is the arrival of a fax or a telephone call from the SRA, or its agent, serving notice of the intervention and seeking to meet to take possession of the client files. The firm's bank will be informed at the same time and office and client accounts will then be controlled by the SRA. An interview will be held with the principals of the firm to determine where client files are held, where archived files are stored and to gain access to the firm's electronic records, among other issues.

The responsibility for the firm's overheads remains with the principals including staff salaries and rent for the premises.

An intervened-upon firm remains entitled to recover its outstanding bills but this effort is hampered by the removal of the files. Such files are usually then sent to clients free of any lien making fee recovery problematic.

A challenge can be mounted to the decision to intervene. Application has to be made to the High Court within eight days of the service of the notice of the intervention. The period of eight days cannot be extended. There has only been one successful challenge to an intervention (Yogarajah [1982] 126 Sol Jo 430) which led to the withdrawal of the intervention, but in a recent case, the SRA was persuaded that withdrawal of the intervention was appropriate on certain terms as to the management of the practice and costs.