Directors reprimanded for not disclosing their firm’s financial problems
We came across an article recently in the Law Society Gazette where the regulator of the solicitors’ profession, the Solicitors Regulation Authority (SRA), reprimanded three directors of a limited company solicitors firm who had failed to disclose that their practice was in financial trouble.
Aside from the usual directors’ fiduciary and other duties to that company, the Solicitors’ Code of Conduct imparts additional obligations. Under Outcome 10.3 of the Solicitors Code of Conduct a solicitors’ practice is obliged to notify the SRA as its external Regulator promptly of any material changes to relevant information about the practice including serious financial difficulty. Click here for details.
The directors did not (it appears) do so despite the fact that H M Revenue and Customs (“HMRC”) had served a winding up petition on the their practice. The SRA therefore took regulatory action and ultimately rebuked the directors’.
Financial instability is still of major concern to the SRA for law firms. Helen Herniman, Director of Client Protection is quoted on the SRA website to have said: “The legal services market is facing a tough economic environment and other firms may find they are in a similar position. We’d urge all those who may be struggling financially to get in touch as soon as possible with either ourselves at the SRA, or other organisations that can offer advice…” Click here for an example of the type of case Helen is talking about.
In our experience what the SRA want to see is that the financial difficulties are being addressed and that clients of solicitors are not being put at risk.
The key to a situation such as this is to seek and obtain early advice and engage with the SRA. That will then begin to mitigate whatever the outcome may be. Aside from regulatory action the liquidator of a failed law firm could bring claims against the Solicitor directors personally, or the Insolvency Service could bring director disqualification proceedings.
What can we learn from this case? How can we help?
This case demonstrates that directors of law firms who are qualified solicitors are no exception to the general obligations and duties on directors to properly run the finances of their Company. At NDP we specialise in advising in these types of stressful, high stakes situations. We understand the potential outcomes. So, if you have a director disqualification or related problem, would like to talk to us about your responsibilities as a director, a regulatory issue or you are facing claims by a liquidator or HMRC contact us or call us on 0121 200 7040 straight away for a free initial discussion.
The sooner you get in touch, the more we can help.