Solicitor who used disbursement cash to prop up PI firm struck off

RTA claims: Solicitor’s firm was hit by PI reforms

A solicitor who did not pay outstanding disbursements for seven years, using them instead to prop up his personal injury firm, has been struck off.

David Johnson’s failure to maintain accurate accounting records meant the Solicitors Regulation Authority (SRA) could not be sure how much was owing to the likes of counsel, medical experts and after-the-event insurers.

It told the Solicitors Disciplinary Tribunal (SDT) that the figure could be anywhere from £46,000 to nearly £800,000 or even higher.

The lower figure was the amount owing on 10 sample files; the higher came from a schedule prepared by Johnson Law’s COFA.

The SDT approved a regulatory settlement agreement in which Mr Johnson admitted he had acted dishonestly and that he should be struck off.

He qualified in 2002 and in 2009 became the sole director of Johnson Law in Bolton, with a branch in Wigan. The firm, which had 12 staff, closed in January 2018 and went into administration a week later owing creditors £2m. It had specialised in particular in road traffic accident claims.

According to the report of the firm’s administrators, this was due to the impact of the personal injury reforms, despite Mr Johnson using his own money – including a loan secured on his matrimonial home – to try and alleviate cash flow problems.

Files were transferred to several firms by Recovery First. However, these did not deliver anything like the level of realisations that had been anticipated and at the time Johnson Law was dissolved last year, only funder VFS had received anything from the administration, half of the £224,000 it was owed.

Mr Johnson was made bankrupt on 30 April 2018, the day after the administrators reported their concerns about unpaid disbursements to the SRA.

For reasons not explained in the SDT ruling, the regulator did not begin a forensic investigation of the firm until January 2020. It reported in July 2020 and the SRA decided to intervene that September.

In addition to not paying disbursements, Mr Johnson admitted failing to keep accurate accounting records and breaching an undertaking to repay a business loan by 8 May 2018.

He pointed out that he was not able to do so as he had been made bankrupt by this time, “having underwritten a significant proportion of the firm’s debt”. Mr Johnson said that, when he entered into the loan agreement, “I did not foresee that the law firm would subsequently fall into administration”.

He went on: “I did make attempts to address the monies owed to the firm’s creditors… but unfortunately these attempts failed. It was clearly never my intention to permanently deprive the creditors payments of monies due to them by the law firm.”

Mr Johnson pointed to his previously unblemished record and co-operation with the SRA, but accepted he should be struck off.

The SDT said that “public confidence in the profession and the reputation of the profession required no lesser sanction” than that.

Mr Johnson also agreed to pay costs of £7,500, taking into account his financial situation.

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