19 December 2011

Ombudsman tells “phoenix” firms: you can run, but you cannot hide

The Legal Ombudsman (LeO) has warned “phoenix” law firms that seek to avoid the consequences of their actions by closing down and reopening – and even changing regulators – that it can still pursue them for past complaints.

Chief ombudsman Adam Sampson, writing on LeO’s website today, reveals that it has recently had to deal with a series of very similar complaints over several months centring on “three very similar firms which had opened and closed in very quick succession”.

However, according to the firms in question, each of these manifestations – “which seemed also to involve many of the same personnel” – was entirely new fresh, without connection or responsibility for what went before, he recounted.

He explained that between the second and the third manifestation, the firm had changed regulators, “and neither regulator was able to tell us whether or not they were intending to treat them as the same or different businesses”.

However, the Legal Services Act 2007 allows LeO to determine whether a firm is a successor practice, although the firm involved then challenged LeO’s decision that it was. LeO started proceedings against the firm, which “rather suddenly” changed its position and agreed it was responsible for service issues provided under its old name.

Mr Sampson said: “This is the first (and I am sure not the last) time this new dimension of being able to choose between regulators – and their slightly different consumer protection mechanics – played a significant part in complaints that come to us.

“That firms will look for loopholes in the legislation and the newness of the implementation of this fresh regulatory sphere is not surprising; another, less positive, form of the innovation we so often see in legal services at present. But perhaps it does vindicate the decision to place an independent ombudsman in the middle of this changing regulatory framework and market forces.”

Tags: Legal Ombudsman, LeO