Picking up the pieces

Most solicitors will never be involved with the Judicial Factor or the Society's Interventions Department, but there are benefits from knowing how they operate

The Journal, February 2008, page 28

The consequences of a solicitors’ firm ceasing to trade can be profound: the loss of one or more livelihoods; the disappearance of a provider of valuable local services; and, perhaps, damage to the profession’s reputation. Of course, there are circumstances where it may be in the best interests of the solicitor and his or her clients to shut up shop. The opportunities presented by such closures are less obvious – but do exist, as a number of practitioners can testify.

The vast majority of solicitors will never come into contact with the Judicial Factor or the Society’s Interventions Department. However, they carry out valuable functions for the public and the profession alike.

Clients’ interests

The independent Judicial Factor may only deal with two or three cases a year, but they are invariably complex and time-consuming. She may become involved after a compliance team inspection has identified irregularities in the accounts, or following a tip-off from a client. The Society’s Council applies to the Court of Session to have the Judicial Factor appointed, principally to look after the interests of the firm’s clients and establish the current trading position. In carrying out this task, she will reassure clients that business is ongoing and, where possible, put them in touch with other solicitors.

Within 21 days, she will report back to the court and, if money is missing from client accounts with no prospect of recovery, will ask for a permanent appointment. If criminal activity is suspected, Crown Office will be advised. Potential disciplinary matters will be reported to the Society. The next priority will be to sell the practice.

Gordon Cairns, head of residential conveyancing at Gillespie Macandrew, was first involved in the Judicial Factor process when his former firm, Garden Haig, was buying Burnett Walker in 1988. He explains that the system has improved with the establishment of a dedicated department and can offer commercial opportunities.

He says: “You have to reassure the firm’s clients – while still looking after those of your own firm – to retain as much goodwill as possible. It has to be work of a similar nature to that of your own firm and it should not be expected to make an immediate profit. There is a lot of non-fee-charging time spent in the short term, but with hard work it is possible to retain a lot of the goodwill and build up the client bank for the future. It can be very difficult but also very rewarding to resolve issues for concerned clients of the relevant practice, and at the same time is important in preserving the reputation of the profession and the Society.

“The support given by the Judicial Factor is invaluable and the solicitor involved becomes part of their team in the resolution of the financial and practical issues which inevitably arise.”

Acquisition value

Morna Grandison, the current Judicial Factor, agrees that some firms can benefit from closure of others. “I’m of the view that there’s always a degree of value in a practice, which is an opportunity for another firm to take on a ready list of new clients. The buying solicitor doesn’t take on any of the liabilities or carry out the investigation – they are only buying the right to contact the other firm’s clients and offer to take them on.

“Most of the firms that have been involved in the process would say it was a productive business opportunity, particularly considering what they paid for the other firm. A solicitor could take out an advert in the Yellow Pages and never know what business it has brought in, whereas this provides a ready list of available clients.”

She adds that the Judicial Factor can advise on how to make a claim on the Guarantee Fund, working with the new firm to put together the documentation when a client has lost money.

Avoidable outcome

But she adds that in many cases, such an outcome is avoidable. “We will come across some solicitors who have been deliberately dishonest, but in most cases the solicitor has not set out to be dishonest. More likely, a series of events – a tax bill, a downturn in business or even family and personal issues – have triggered problems that continue to snowball. I have even seen instances of solicitors taking money to pay a client because they couldn’t bear to explain that a case had been lost.

“But there is usually a point at which they can take action and change direction. If a solicitor is experiencing difficulties, they should seek advice and assistance as early as possible. That could involve speaking to their accountant or bank manager. The Society can offer advice on certain issues, and a number of organisations provide personal as well as professional support to solicitors in difficulty. What solicitors should not do is bury their heads in the sand. If there has been negligence, it is better to admit that and make a professional indemnity insurance claim than turn to dishonesty and all that entails.

“Better still, if they can react to changing circumstances – making sure they are aware of their profitability, monitoring their finances, assessing their requirements – and prevent the problems escalating in the first place. Practitioners are also businessmen and women. I often ask solicitors if they know how much it costs to turn the key in the door to their office in the morning. If they do not realise how much they have to earn that day to make it worthwhile to turn up, then they aren’t close enough to their business to ensure it’s on a sound financial footing.”

Interventions – try to plan

In her other, separate role as the Society’s Director of Interventions, Morna Grandison offers similar advice to solicitors considering the possibility of giving up their practice. She says: “The Interventions team has a similar role, though it is part of the Society rather than independent of it. Council requests us to become involved where a solicitor ceases to practise – perhaps they have died or been suspended or struck off – without having made proper arrangements to dispose of the firm. Often, some arrangements have been made but they are unsatisfactory or informal, leaving clients getting pushed from pillar to post.

“If a solicitor is going to give up his or her practice, or amalgamate with another firm, they should plan ahead as early as possible and consider all aspects of the process. They should seek advice – the notes and guidance section of the Society’s website is invaluable – and get everything properly documented.”

She concludes: “There’s a good news story in what we do. We try to resolve problems for as many people as possible – the client and the practitioner. In doing so, we provide a valuable public protection.”