Solicitor banned as director after firm shut down owing £1m

Shut: Firm went into administration

A solicitor whose conduct fell “significantly below the standards of probity expected of a company director”, particularly given his legal experience, has been banned from acting as a director for eight years.

Raymond St John Murphy was the sole director of London litigation firm St John Law, which started trading in May 2012 but went into administration in October 2014 owing nearly £1m: £582,000 to HM Revenue & Customs (HMRC), and £404,000 to other creditors, including staff and the Redundancy Payment Service, funded by HMRC.

Despite recording turnover of £3.1m while it was trading, only £50,000 was paid to HMRC. Mr Murphy received repayments of £241,000 against his director’s loan.

Insolvency and Companies Court Judge Mullen said an eight-year ban was justified because “the company deliberately operated a policy of discrimination against the Crown from the outset of its trading”, while Mr Murphy misled HMRC in suggesting that the firm had a debt due to it from HM Treasury that could be set off against tax.

This related to a costs order from a previous and unrelated criminal case against him that was dropped.

The judge continued: “Mr Murphy is a solicitor of long standing. There is no basis on which he can have believed that to be true. It is quite clear that he knew that the payment was due to him personally and he has set out no proper basis on which he thought it could operate as a set off in favour of the company.

“That representation can only have been made in order to try and stay HMRC’s hand and allow the company to continue to trade at its expense.

“He continued to cause payments to be made for the benefit of himself even after the presentation of a winding-up petition. Those payments were substantial.”

Another factor was that, in 2005, Mr Murphy and his then partner at former London law firm Merriman White were adjudged bankrupt on the petition of HMRC.

This showed that that Mr Murphy “was well aware of the potential consequences of trading to the detriment of the Crown”.

Judge Mullen said Mr Murphy had shown “no recognition of his misconduct”, concluding: “While Mr Murphy’s age may well mean that he is unlikely to wish to be a company director during the full period that I have imposed in any event, it is important that the court mark the seriousness of his conduct.”

The solicitor was accused of trading to the detriment of HMRC and making payments out of St John’s account after HMRC had presented a winding-up petition.

Though the High Court had allowed the firm to make payments of £145,000 until the date of judgment on the petition in a validation order, a total of £370,000 was actually paid out, including £24,400 to Mr Murphy that had been expressly prohibited.

The judge said he was not satisfied that all of the payments out of the company’s office account after presentation of the petition were its monies, but in any case this was the lesser of the two allegations.

Mr Murphy qualified in 1972 and the ultimately withdrawn prosecution concerned the disposal of his interest in Merriman White.

The judge found that his representations to HMRC, both that costs order that followed was imminently due and could be set off against tax, did not have “any foundation in fact”.

“Nor has he provided any details to show that the costs, once assessed and paid, would have been be sufficient to enable the tax to be paid, as represented to HMRC.”

Mr Murphy had also argued that St John Law’s work in progress totalled more than £2m and that as a result it was not in fact insolvent.

Judge Mullen said that, as tax was not being paid in order that the firm could continue to operate, this provided mitigation at best.

In any case, the work in progress was conducted on a conditional fee basis. “The fact is that, whatever the value of work in progress under conditional fee agreements might have been, it was speculative.

“It depended, first, on success and, secondly, on the ability to recover the monies then due from the losing party and/or the solicitor’s own client under the agreement. At best, Mr Murphy was gambling that these cases would come good and enable him to pay some or all of St John’s liabilities to HMRC.”

Finally, the judge did not accept that payments shown as credits in his director’s loan account and also made to members of his family were proper and represented “modest” remuneration.

“There is no evidence to show that Mr Murphy was entitled to a salary, nor was he entitled to a dividend.”

Mr Murphy has twice appeared before the Solicitors Disciplinary Tribunal, receiving a fine of £25,000 in 2007 for various offences, and £12,500 last year for an accounts rule breach and failing to provide ledgers to the regulator. He was also made subject to conditions that prohibit him from running or being a partner in a firm.

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