Partners who withheld cheques for a total of over £530,000, intended to pay the fees of barristers and experts, have been sanctioned by the Solicitors Disciplinary Tribunal (SDT).
The architect of the scheme admitted that certain counsel were targeted as they would not kick up a fuss about payment being delayed.
Kevin Downes, former managing partner of Stafford law firm Frisby Solicitors, was suspended for a year, while Andrew Broome, former senior partner, was fined £20,000.
Their practising certificates were also made subject to conditions for a year (in Mr Downes’ case, after his suspension is up) that prevent them from being owners or partners in law firms or having access to client money.
The two accepted their sanctions as part of an agreed outcome with the Solicitors Regulation Authority (SRA), approved by the SDT.
Three more members of staff went before a separate tribunal. Non-lawyer Judith Read, the firm’s practice manager, was banned from working for law firms after admitting the allegations against her.
However, the tribunal dismissed all the allegations against two other former directors of the firm, Simon Belfield and Mark Robert Davies.
The tribunal said Frisby’s work included matters for the Health and Safety Executive (HSE) and the Legal Services Commission (LSC), now the Legal Aid Agency, where the firm incurred the costs of disbursements, including counsels’ and experts’ fees.
A report by a forensic investigation officer from the SRA in 2015 revealed that, between March 2009 and July 2012, a number of cheques were withheld in HSE and LSC matters, with a total value of £530,700.
The SDT said the practice of withholding cheques was instigated by Mr Downes and instructed Ms Read, also the firm’s head of accounts, to withhold the cheques.
Mr Broome was aware of the practice and would provide instructions to Ms Read in Mr Downes’ absence.
As a result, the SDT said the firm’s annual accountants’ reports from August 2008 to July 2013 were qualified, with the accountants notifying that money for unpaid professional disbursements was being retained in the firm’s office account in breach of the accounts rules.
The SDT said Mr Downes had admitted to withholding cheques “in response to pressure on the bank overdraft” and the failure of the LSC to pay contracted and other legal aid payments.
When Mr Downes decided to withhold a cheque, it was kept in a locked drawer in the cashier’s office. The longest period any stayed there for was nine months.
“[He] decided on the order of the re-issue of the held-back cheques and that certain counsel were targeted as ‘they would not cause an issue’,” the agreed facts said.
When it was realised that it would look very odd to send a cheque dated several months previously, Mr Downes decided to treat it as lost in the post and a fresh cheque was sent out.
During the period where the payments were being withheld, the firm’s directors continued to take money out of the business.
The tribunal heard that by 2011 the firm’s bank threatened to withdraw its overdraft unless Mr Downes and Mr Broome left the firm, which they did in July 2012.
Mr Belfield and Mr Davies then took over. The SDT found that they had known nothing of what was going on up to that point, but they then acted quickly to pay the withheld money, although it took a few months.
The SDT said the SRA “did not provide any evidence” as to why the systems in place at Frisby for preventing breaches of the accounts rules were inadequate.
The tribunal found that breaches occurred “not due to the lack of adequate systems, but because those systems had been subverted” by Mr Downes and Mr Broome, “with the assistance of the accounts department”.
The tribunal also criticised the lack of notice given by the SRA to Mr Belfield, Mr Davies and Ms Read about the agreement the other two had struck – they only became aware of it when it was approved a few days before their hearing.
The tribunal said that although the SRA should have served notice of the application for an agreed outcome on all the parties, the failure did not render the SDT hearing unfair.
Costs do not follow the event in the SDT. It made no order for costs in relation to either Mr Belfield and Mr Davies, finding that the proceedings had been “properly brought”.
However, as a result of the procedural failure around the agreed outcome, the SDT ruled that it was not appropriate to order the men to pay the SRA’s costs either.
Frisby Solicitors has recently gone into administration. The floating charge creditor, Svenska Handelsbanken, faces recovering only a quarter of its £442,000 loan, while unsecured creditors are set to receive only a tiny fraction of the £1.2m owed to them.