What is an intervention procedure when professional firms are insolvent?

In England and Wales, the Solicitors Regulation Authority (SRA) has the power to close down professional firms under certain circumstances. They independently appoint another firm of solicitors as their agent in a process called intervention, whereby files, documents, financial records and client monies are placed under their control.

Intervention can take place under a number of different circumstances, including malpractice and breach of SRA codes of conduct. Clients are informed of the situation by the appointed agent, practice bank accounts are frozen, and the firm closed down immediately.

Begbies Traynor is the largest professional services consultancy in the UK, and can offer guidance on the process to firms threatened by intervention.

What are the main grounds for intervention?

Intervention is clearly a drastic step to take, so why might the SRA need to protect client interests so urgently?

•  Abandonment of a practice by the solicitor
• A serious breach of the Solicitors’ Accounts Rules or SRA Code of Conduct
• The sole solicitor’s practising certificate has been revoked, they have been made bankrupt, or are imprisoned
• Dishonesty by a member of the firm

Although solicitors can request a High Court review of the decision to intervene, it is an expensive and complex process, and does not necessarily stop the intervention taking place.

What happens after the initial intervention?

The acting agent will either pass on live files to another practice, or return them to clients along with the associated papers and documents. The identification and return of client monies can be a long process, however, and in cases where misappropriation has taken place, this may not be possible.

In instances where fraud or financial malpractice has occurred, clients can apply for compensation from the SRA Compensation Fund. Professional firms pay a fixed sum into this fund every year, but some the costs of intervention can also be claimed by the SRA in certain instances.

Additionally, the fund is available to progress urgent client matters if necessary. Issues such as conveyancing which may require immediate action to be taken, can be funded in this way.

Intervention and creditor returns

The SRA’s statutory powers do not cover realisation of assets during an intervention process, but two statutory trusts are set up in connection with practice monies. The first is intended to enable recovery of some or all of the intervention costs by the Solicitors Regulation Authority. The second trust is for reimbursement of client funds in relation to live cases.

The intervened practice is also allowed access to certain files so that money for work-in-progress can be invoiced and recovered in order to boost creditor returns. But the financial ramifications of intervention are clearly very serious for anyone connected with the firm, both on a personal and a professional level.

Redundancies and financial loss

Generally viewed as a last resort by the SRA, intervention brings a sudden and dramatic end to a professional practice. Employees are made redundant immediately, but may be able to claim from the National Insurance Fund using their statutory employment rights.

The agent acting on behalf of the Solicitors Regulation Authority is not an administrator or liquidator. They carry out a specific duty on behalf of the SRA, and hold no direct responsibility to trade creditors.

If you are concerned about the possibility of intervention in your practice, we can help. Begbies Traynor has vast experience in this area, and are able to advise you on your options. Call one of the team for a same-day consultation in complete confidence.