Solicitor used disbursements cash to prop up ailing PI firm

SDT: Conduct was out of character

A solicitor whose firm was badly hit by turbulence in the personal injury market – as well as a failed attempt to diversify into cavity wall litigation – used cash meant for disbursements to keep his firm afloat, the Solicitors Disciplinary Tribunal (SDT) has found.

Michael William Pilkington also failed to inform the Solicitors Regulation Authority (SRA) that the firm was in financial trouble, the SDT ruled in deciding to strike him off.

It accepted that his misconduct was out of character and occurred during “extremely trying circumstances, many of which were beyond his control”, and that he had not directly benefited from it – indeed, he had stopped taking any money for himself so that he could pay staff.

But the tribunal rejected Mr Pilkington’s plea for a lesser sanction, saying “public confidence in the profession would be damaged by the knowledge that a solicitor who had been found to be dishonest and had conducted himself the way that Mr Pilkington had, had been allowed to remain on the roll”.

Admitted to the roll in 1998, he set up Pilkingtons Solicitors in Liverpool a decade later, latterly trading as Pilkington Shaw. He had around 16 members of staff, including three solicitors and a trainee.

Mr Pilkington explained how, from around 2015, the Jackson reforms hit the firm’s finances, while two litigation funders/after-the-event insurers owing it about £450,000 went bust.

He tried to diversify by moving into cavity wall disputes, but many of the cases turned out to lack merits. “The firm had to cover much of the costs of this litigation from its own resources,” the SDT recorded.

The firm also bought a retiring solicitor’s caseload over a six-month period “but it transpired that the caseload contained a higher than expected proportion of long-running and complex cases that would not conclude for some time, and some were not worth pursuing at all despite the firm having paid to acquire them”.

Buying the caseload also increased the firm’s indemnity insurance premium tenfold.

Other problems were its that the disbursement-funder upon which the firm relied for cash flow withdrew from the market, and Covid slowed down the resolution of cases, hitting cash flow further.

The SRA conducted an inspection after concerns were raised in respect of the firm’s approach to PI cases; though this did not identify any areas of concern, a review of the firm’s accounts did.

During the investigation Mr Pilkington decided to close the firm and it went into administration in December 2021.

The SDT heard that, in March 2020, the firm’s finance manager told Mr Pilkington that it did not have sufficient funds to cover its outgoings. He suggested posting the sums due as disbursements and setting up the payments, but that Mr Pilkington should not authorise the final payment.

Mr Pilkington agreed but said it was only meant to be a short-term fix – but by 30 September 2020, there were 310 unpresented items, ranging from £2.50 to £6,417, and totalling £172,037.

About half of this was due to medical agencies, with counsel, costs draftsmen, legal expenses insurers and others also affected.

At the same date, the firm’s business bank account was £415,000 overdrawn, £165,000 more than its overdraft facility. By March 2021, it was £700,000 in debt.

Mr Pilkington said he “never intended to deprive anyone of money that was rightfully theirs on any kind of long-term basis, as my hope was always to be able to pay the sums out of receipts, and to catch up on the payments, preferably after ownership of the firm had been transferred”.

But Mr Pilkington’s efforts to find a new owner failed or just sell the caseload failed.

His counsel suggested to the SDT that Mr Pilkington was “perhaps” a better lawyer than businessman.

The SDT found that Mr Pilkington “had subordinated the interests of others to the financial interests of the firm”.

While it accepted he believed that his conduct was not in breach of the accounts rules – as some of the disbursement payments were not contractually due – the tribunal said he knew the monies received for them “were not his to use as he chose”.

He did not need to have intended permanently to deprive others in order for his conduct to be dishonest.

He also failed to comply with his duty to notify the SRA of his firm’s serious financial difficulties.

The SRA sought costs of £33,500 but, though it was entitled to costs, the tribunal made no order.

It explained that, given Mr Pilkington’s personal financial situation – including potential legal action over £875,000 in personal guarantees he had given – there was no reasonable prospect that he could currently or in the future meet any costs order.

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