A bankruptcy judge has set aside statutory demands worth nearly £800,000 issued by the Solicitors Regulation Authority (SRA) against the founder of collapsed firm Blavo & Co, which were to cover the cost of shutting down what was the UK’s leading mental health practice.
John Blavo was the sole director of 18-office Blavo & Co, which the SRA closed in October 2015 on the grounds of suspected dishonesty. It employed 200 staff and had contracts with 150 consultants.
The intervention into both the firm and his individual practice followed the withdrawal of the firm’s legal aid contracts, and soon after the company went into liquidation. The Legal Aid Agency also referred the firm to the Metropolitan Police.
The SRA used seven different firms of solicitors to undertake the intervention because of the number of offices. The Solicitors Act 1974 allows the regulator to recover its costs of intervention from those at the receiving end.
However, His Honour Judge Klein, sitting as a judge of the High Court in the Bankruptcy Court, ruled that a statutory demand under the 1986 Insolvency Act needed to be for a liquidated sum, and that the costs of intervention were unliquidated.
Finding that a debt for a liquidated sum “must be a pre-ascertained liability under the agreement which gives rise to it”, he said – at least in the case where the intervening agent was a solicitor – “it is difficult to see how, generally and in principle, the costs liable to be paid… could be a pre-ascertained liability”.
Judge Klein explained: “The Law Society, as client, would, generally, have the right to a detailed assessment of the intervening agent’s costs and… a solicitor the subject of an intervention has the right, under section 71 of the 1974 Act, to a detailed assessment of the costs of a solicitor intervening agent.
“That such a right exists is inconsistent with the proposition that, as a generality, the liability… is a pre-ascertained one.”
It followed, he concluded, that the statutory demands should be set aside.
The judge had earlier rejected Mr Blavo’s argument that the power to intervene into firms had extinguished the power to intervene in solicitor’s individual practices, that the intervention in his individual practice had been illegitimate, or that because he had no client practice, intervention should not cost any money.
“To my mind it is unreal to suppose that, even if Mr Blavo had no client practice, there existed no documents at all which, on an intervention into his practice, were required to be delivered up,” the judge ruled.
An SRA spokesman said: “We are still considering the judgment to see if we should appeal the decision on the statutory demand and the nature of the debt. However, we are pleased that the judge supported our view on the majority of points raised in the hearing. These issues are important parts of our regulatory powers, affecting our ability to protect the public and to recover the costs of action we need to take.
“We welcome the judge’s confirmation that an individual has a practice inside an incorporated firm. We also welcome the judge’s finding that that we can intervene into that individual practice in parallel with intervening into the firm, and that the individual is liable for the costs of the intervention into their practice.”
Last year, a High Court judge said there was a “strongly arguable case” that Blavo & Co had made “many thousands” of false legal aid claims.