Cost of closing down law firms spiralled to £20m last year

Interventions: SRA recovers money from frozen client accounts

The Solicitors Regulation Authority (SRA) spent £20m closing down a record number of law firms last year, according to new figures.

The money is recouped from the Compensation Fund and contributed to last month’s announcement that the levy on the profession to pay for the fund is set to treble for 2024/5.

The regulator carried out 65 interventions during 2022/23, the highest number for many years and more than double the number in the previous 12 months, with two in particular – Metamorph and Axiom Ince – generating significant costs and payments to former clients.

This turned a surplus of £3.6m in 2022 to a deficit of £29m in 2023. As a result, the fund’s reserves have fallen to £25m and the levy increase represents the start of a two or three-year process to rebuild them.

The regulator has this week published the fund’s annual report and financial statements for the year to 31 October 2023, which showed that, with grants to claimants and £20m in intervention and legal costs, the fund paid out £62m, the highest figure on recent record and three times what was paid out in the previous year.

At the same time, the fund recovered a “material portion” of the grants made to Metamorph clients from statutory trust accounts which contain the former client account monies held by the Metamorph firms.

In all, £24m of grant recoveries were made and a further “significant proportion” of grants has been recovered in the early part of the current financial year.

In total, the fund received 2,739 new claims in 2023 – compared to 1,285 in 2022 – and closed 2,140 (1,483 in 2022). At the end of the year, there were 938 open claims, an increase of 177%, with a value of £60m.

The Compensation Fund is a discretionary fund of last resort that can pay out up to £2m where a solicitor has stolen or not accounted for client money – and it is not covered by the firm’s professional indemnity insurance – or did not have insurance in place.

The report said the fund remained a going concern, with an analysis of open claims and expected recoveries enabling the board “to be confident that the fund’s reserves are sufficient to meet future obligations”.

More than £83m was held in statutory trust accounts as at 31 October 2023.

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