Two directors of collapsed Devon law firm Eastleys have admitted allowing its client account to be used as a banking facility following agreements with the Solicitors Regulation Authority (SRA).
Matthew Roddan, a third director of the firm, which entered administration in May 2013, is on his way to the Solicitors Disciplinary Tribunal (SDT).
A report from Begbies Traynor, administrators of Recompense Limited – which used Eastleys as its trading name – showed that on its collapse the firm owed nearly £14m to creditors, the vast majority to LawFinance Group Limited (now Law Recovery Group plc).
The 2013 report described how Recompense bought Eastleys in a pre-pack deal in 2012. Recompense added PPI claims to the firm’s existing strengths in personal injury, and wills and probate.
Five years earlier, in 2007, Eastleys entered into a “cost financing agreement” with Law Finance, which advanced funds “against a portion of the costs of each individual case”, in return for fixed and floating charges.
The report stated that, at its collapse, Recompense owed £13.9m to Law Finance, a sum likely to be reduced by around £1.1m following payments by Bollin Legal Associates, which took over the firm’s PPI work, and by Underwoods, which took over its personal injury cases.
However, the most recent update report, from 6 October 2015, showed that just £168,000 had been paid so far, with preferential and unsecured creditors set to receive nothing.
In her settlement agreement with the SRA, published last week, director Carolyn Anne Hales admitted allowing the client account of Recompense “to be used as a banking facility by allowing payments into and withdrawals from the firm’s client account when there were no underlying legal transactions” in breach of the rules.
Ms Hales also admitted that she had “failed to carry out bank reconciliations in relation to the firm’s US dollar account” in breach of the rules.
In mitigation, Ms Hales said that the “matters in question were dealt with entirely one of her fellow directors” and she “received assurances from the director concerned that the matters were in order”.
The SRA rebuked Ms Hales and she agreed to pay £500 in costs.
In a settlement agreement  published last month another director of Recompense, Irene Jean Webb, was rebuked and agreed to pay £500 in costs after admitting similar allegations.
In mitigation, Ms Webb said she had “no knowledge of the matters giving rise to the payments in and out of the client account as this was dealt with by another director”, and she “believed all the firm’s financial transactions were compliant with the SRA Accounts Rules”.
A decision notice  referring the third director of Recompense, Matthew Garnett John Roddan, to the SDT was also published last month, even though the decision to refer him to the SDT was made exactly a year earlier.
The allegations made by the SRA, for which the tribunal certified there was a case to answer, included failing to act with integrity, allowing his independence to be compromised, taking unfair advantage of third parties, providing banking facilities through his firm’s client and failing to carry out bank reconciliations.
The notice said all the allegations were unproven and subject to the hearing before the tribunal.