Law firms risk disciplinary hearings if they fail to close down properly
22 July, 2015
Prompted by a series of recent disciplinary hearings, the Solicitors Regulation Authority (SRA) has reminded law firms that they must have an exit strategy in place, in order to close down their businesses properly should the need arise.
The Solicitors Disciplinary Tribunal (SDT) fined five solicitors’ firms between 14th April and 23rd April 2015 because they failed to follow the correct process for closure. The affected solicitors were served with fines ranging from £1,000 to £5,000, but the solicitors were ordered to pay much higher costs, up to £13,000.
The SRA’s Director of Legal and Enforcement, Gordon Ramsay, said: “Firms have professional responsibilities, and those responsibilities remain when a firm is closing down. The need to think about the impact on clients becomes more important when the firm faces closure, voluntary or otherwise. This is not an issue about affording run-off cover or finding a successor practice, which we know can often be a problem for those looking to close down. It is about ensuring the interests of clients and others are fully protected.”
In the SRA’s guidance for firms that are closing down, it states that clients must be given “as much notice of the intended closure date as possible”, to enable them to instruct another firm.
“Remember that it is for the client to decide which firm they want to take over their matter. In particular, bear in mind that you hold clients’ money in trust for them and you need their (properly informed) consent to transfer it to someone else.”
The SRA guidance on the process for closing down also includes what needs to be done with your accountants. Included among the directions is the continuing requirement to obtain yearly accountant’s reports until client money is no longer held. When that stage is reached, the closing firm must deliver an accountant’s report to the SRA within six months.
You should notify your accountants and the SRA of the date on which you cease to hold all client money. For more information about how we can help you with the process of closing down, please contact us.