Intervention – should be a last resort
An intervention into a solicitors’ practice is a process which the Solicitors Regulation Authority should only ever undertake as a last resort and is designed to protect the interest, property and money of clients. It is a drastic step and one which will invariably result in the closure of the practice and often result in the bankruptcy of the solicitor who is intervened in.
However, figures produced by the SRA in March have shown that the number of interventions being undertaken by the SRA is increasing – with a 31% rise in the number of interventions up to March 2010 over the previous year. More worryingly, perhaps, are the reasons behind those interventions and the apparently growing number of interventions which are occurring not because there has been dishonesty or abandonment of a practice – where clearly decisive steps need to be taken if the public interest is to be protected – but for reasons such as accounts rule and code of conduct breaches.
The March figures indicate, for example, that 54 interventions (59% of the total) were for accounts rule breaches and 30 (33%) for code breaches. This is compared with 30 where reasons of dishonesty were suspected and 12 where a practice had been abandoned.
One has to ask, given the high cost of an intervention and given the profound effect which it will have upon the livelihood and future of those intervened in, is this really an effective way to manage these situations and should not more be done to prevent intervention from being necessary?
Even taking the SRA’s own analysis of the figures, it has revealed that only 75 (82%) of the interventions were in order to protect the interests of clients and beneficiaries. That is at least 28% which could, potentially, have been handled differently.
An intervention can cost an average of between £50,000 and £150,000. Those costs are borne by the intervened in firm or solicitor. Most firms and solicitors that are intervened in are already in a perilous financial position. The intervention costs – combined with other financial pressures that will arise including paying other liabilities for rent and salaries – are likely to bankrupt many of those who are intervened in.
Little wonder, therefore, that there has been a call for alternatives to intervention to be found – see
the article in Legal Futures Pressure grows on SRA to find alternatives to “sledgehammer” of intervention (www.legalfutures.co.uk/latest-news/pressure-grows-for-the-sra-to-find-alternatives-to-sledgehammer-of-intervention) – which states that a report has been made by the Law Society’s regulatory processes committee putting forward “a series of measures aimed at reducing interventions to the absolute minimum consistent with the public and professional interest, and at keeping the cost of intervention more effectively controlled.”
Firms in the Lawyers Defence Group have been involved in intervention avoidance for some time and have successfully assisted many firms to avoid an expensive and damaging intervention – either by putting right the deficiencies so that an intervention was not needed or by assisting the firm in closing down gracefully and thus avoiding the added costs of an intervention agent. These have always been undertaken with the full agreement of the SRA.
An intervention is rarely in the interests of anyone. Clients have to find new solicitors at a moment’s notice. The firm itself incurs huge liabilities. The profession and the solicitors involve undergo reputational problems. Even the staff who have not been directly involved can find themselves tarred with the intervention brush.
Far better, therefore, that alternative methods are found.
Other jurisdictions do not, it would appear, rely so heavily on the intervention. In Scotland, for example, an intervention is seen more as an arrangement for client files where a sole solicitor has ceased trading without making arrangements; the aim being to protect the interests of clients and, where possible, put them in touch with other solicitors.
The Legal Futures article reveals that the Law Society’s regulatory processes committee put forward a number of strategies designed to improve the position with regard to interventions including:
- identifying in advance firms that might be in financial difficulty;
- introducing probationary visits for firms with a majority of managers who had qualified via the Qualified Lawyers Transfer Test (QLTT) route, or were registered European or foreign lawyers;
- developing a process for the orderly winding down of practices in difficulties;
- handling routine intervention work in-house at the Solicitors Regulation Authority, rather than using outside agents;
- reviewing the fees paid to intervening agents and the tendering process; and
- the SRA providing advice to the profession on the destruction of archive files.
None of this is rocket science and should be able to be undertaken without there needing to be a large investment either in money or time.
Indeed, the SRA have openly stated in their outcomes-focused regulation consultations that they wish to engage more closely with the profession and concentrate on those firms that present a risk as opposed to trying to regulate all firms equally.
Looking at the strategies put forward by the regulatory processes committee:
- the first two should be addressed by the new methods for monitoring firms at renewal and the new priorities for the SRA in terms of enforcement,
- the third – developing processes for orderly winding down – will merely put into writing what Lawyers Defence Group, and other, firms have been doing for some time,
- having the SRA handle routine intervention work in-house rather than using outside agents may not save much in terms of costs and, unless the SRA uses staff with a specific understanding of legal practice, may not be effective. There should be no underestimation of the difficulty of closing down a firm – especially one with a number of a badly managed files where clients interests can very easily be prejudiced,
- there should certainly be a review of the fees paid to intervention agents and the need to large, often expensive, provincial and London practices in all cases questioned,
- guidance on the destruction of files ? some definitive guidance on when files can be destroyed is long overdue – there is a Law Society practice note but it is unclear and many practitioners are not aware of its existence.
So what should firms who feel that they may be at risk of intervention be doing to protect their position?
Assuming that the firm wants to do something about it the answer is to an extent quite simple – don’t ignore it because it is unlikely to go away.
Intervention can in many cases be avoided. Yes, the firm might have to close. Yes there will be a cost implication in having someone assist with that closure. Yes there will be a lot of work involved in closing down the firm. Yes there is likely to be a financial implication in terms of issues such as professional indemnity run-off cover. But most of those costs would have been there anyway and at least the cost of the intervening agent is being avoided as is the damage to reputation.
If you think that you are at risk of intervention talk to the Lawyers Defence Group before your worst fears are realised.