Solicitors Journal – Is there a better way than intervention?
Intervention, the death knell for a law firm, is the most draconian and irreversible measure in the SRA’s regulatory arsenal.
Usually treated as a single whole, in fact intervention describes a bundle of rights which the SRA may invoke to take control of client funds and files, suspend practising certificates, and vest in itself certain assets of the practice (whatever its form). Intervention also carries costs consequences for the intervened practice which may vary slightly depending on the source of the intervention power employed.
Intervention does not take the place of relevant insolvency processes and does not result in the winding up of a company or LLP. Accordingly, while intervention may have as its effect the destruction of the business of a corporate entity, it will still be necessary for a relevant insolvency practitioner to be appointed to deal with the winding up of the entity – usually with no assets to assist them in doing so. The brutal truth is that if the entity was not insolvent before the intervention, it will be afterwards.
Arguments about the compatibility of the intervention regime with the European Convention on Human Rights, common law principles, and principles of natural justice have invariably failed. It is accepted by the courts that a regime which is likely to be professionally and financially crippling for the intervened rm is justifiable as a measure to be used where necessary to protect the public.
Many of those arguments are now quite old; they predate the legal services revolution intended by the Legal Services Act 2007, and, of course, the intervention regime as set out in the Solicitors Act 1974 was created in a world where practising in unlimited partnerships or as sole practitioners were the only options. As things have moved on, the regime has been revised and tinkered with around the edges but has remained, in essence, the same. Looking at the changes made in the wider world, that may be considered surprising.
The rise of the corporate practice, the introduction of the authorisation regime, compliance officers, and the approval of managers are all factors in the regulatory matrix which feeds the intervention regime. Interventions should not happen unless they are necessary; they should be reserved as a measure of last resort. What that should mean is that, if it is possible for any genuine risk to be controlled or mitigated in a less intrusive way, the SRA should prefer that course over intervention.
By their nature, cases in which intervention has been considered by the courts have been brought against solicitors accused of misconduct. The balancing act the court has been asked to perform is between the public interest in protecting clients and the private interests of the very people who are alleged to present a risk to those clients. Thus the fight is rarely an equal one. But there is another dimension – one which should be of equal public importance and concern to the profession.
Intervention destroys a business. At best, it inconveniences clients who have to find a new solicitor in a hurry, renders employees redundant, removes most (if not all) of the value from the principal asset of the firm, and causes harm to creditors. It often results in insolvency. Costs of the intervention are usually significant and are initially paid out of the compensation fund. There will inevitably be costs which are irrecoverable given the nature of the regime and thus there is a financial cost to the profession. Add to that the publication of the intervention and you also get a reputational cost to the profession.
Nothing about an intervention is good news. For anyone involved.
Is it time to consider whether there is a better way? Would it, for example, be more proportionate to introduce a concept akin to administration into our regime: a half-way house where the rm is left intact under alternative management to ‘trade through’ regulatory difficulties if possible and properly closed if not? Would that not offer a better outcome to clients and creditors alike? Would that not be less harmful to the intervened solicitor who, while perhaps taken out of practice for a time or subjected to increased supervision, would at least not be asked to pay debts in circumstances where their assets have been annihilated?
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This article was first published by Solicitors Journal on 25 April 2017, and is reproduced by kind permission. You can read the original article by clicking here.
This briefing is for guidance purposes only. RadcliffesLeBrasseur accepts no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommends that appropriate legal advice be taken having regard to a client's own particular circumstances.