REG/33667-2007
REGULATORY SETTLEMENT AGREEMENT
1. Philip Michael Robinson and Anthony Ruane, ("the Directors") of Optima Legal Services Limited ("OLS") of Arndale House, Charles Street, Bradford, West Yorkshire, BD1 1UN, agree to the following outcome of the investigation into their professional conduct under reference REG/33667-2007.
Background
2. On 14 May 2007, the Solicitors Regulation Authority ("SRA") carried out an inspection of OLS and produced a Report dated 28 May 2007 ("the Report").
3. The Report and subsequent investigations identified that:
- (a) The Directors of OLS had compromised their independence as solicitors by entering into an Option Agreement dated 23 May 2006 with "X" a commercial non solicitor entity, by which X could acquire the entire shareholding of OLS for a nominal consideration of £1.00;
- (b) The Directors and OLS acquired "Y", another law firm for nominal consideration at the request of X;
- (c) At the date of the Agreement with X, five of the nine "managers" on the Operational Board of OLS were employees of X. The firm's "Chief Executive" was also an employee of X;
- (d) The firm outsourced its administrative, pay roll, HR and IT services to X under an outsourcing agreement;
- (e) The majority of the firm's income was paid to X to fund the Outsourcing Agreement and payment of a high interest rate on the capital loans provided by X;
- (f) Salaries for OLS staff were paid by X through their payroll system and then later reimbursed by OLS;
- (g) The loan facility between X and the firm contained default clauses which were unduly onerous to OLS;
- (h) X acted as financial guarantor to contracts entered into by OLS, to fund the acquisition of new businesses;
- (i) OLS had extensive reporting obligations to X which were in excess of a normal commercial lender arrangement;
- (j) The Directors of OLS issued a debenture which contained a charge over the firm's book debts and failed to adopt safeguards against putting client's confidential information at risk in the event that the charge was enforced.
4. Following extensive discussions between the directors of OLS and the SRA, it was agreed by the Directors that they would restructure this business model and their arrangements with X.
Undertaking
5. Mr Philip Michael Robinson and Mr Anthony Ruane undertake that they will:
- (a) Abide by the structure and contents of the new arrangements with X and will seek approval from the SRA as to any significant departure from those arrangements;
- (b) Refrain from any action which may amount to or which could lead to a regulatory breach of a kind similar to those described in this agreement;
Submission to findings
6. The Directors and OLS make, and the SRA accepts, the following admissions:
- (a) That, by entering into an Option Agreement for X to acquire that Director's entire shareholding for a nominal sum, the Directors Breached Rule 1 (a) of the Solicitors Practice Rules 1990, Rules 1.03 and 14.04(4) of the Solicitors' Code of Conduct 2007 and Part I I, paragraph 8 of the Solicitors' Incorporated Practice Rules 2004;
- (b) The Directors and OLS acquired Y, another law firm for nominal consideration at the request of X in breach of Rule 1 (a) of the Solicitors' Practice Rules 1990 and Rules 1.03, 14.01 and 14.04 of the Solicitors' Code of Conduct 2007;
- (c) That by having five of the nine managers on the Operational Board of OLS who were employees of X the Directors gave these persons the opportunity to unduly influence the control of the practice in breach Rules 1(a) and 7 of the Solicitors Practice Rules 1990 and Rule 1.03 and 8 of the Solicitors' Code of Conduct 2007, of Part I I, paragraph 7 of the Solicitors' Incorporated Practice Rule 2004 and/or Rule 14 of the Solicitors' Code of Conduct 2007 and the Solicitors' Recognised Bodies Regulations 2007;
- (d) That by the payment of service charges and high interest payments on capital loans, that exceeded the market rate, the arrangement was not indicative of an arms length transaction. That by the employment of a high number of X employees staffing key functions, including the firm's Chief Executive, and forming the majority of staff at the firm's business premises, the Directors have compromised their control and independence in breach of Rule 1(a) of the Solicitors Practice Rules 1990 and Rule 1.03 of the Solicitors' Code of Conduct 2007;
- (e) That by agreeing in a Facility Agreement that the loan facility from X was "immediately due and payable" on certain default events, the Directors have compromised the ability of the firm to function properly in breach of Rule 1(a) of the Solicitors Practice Rules 1990 and Rule 1.03 of the Solicitors' Code of Conduct 2007;
- (f) That by permitting X to act as a financial guarantor to contracts, including the acquisition of new business, the Directors have compromised their independence and have acted in breach of Rule 1(a) of the Solicitors Practice Rules 1990 and Rule 1.03 of the Solicitors' code of Conduct 2007;
- (g) That by agreeing to extensive reporting obligations to X as outlined in the Facility Agreement dated 23 May 2006, the Directors have acted in breach of Rule 1(a) of the Solicitors Practice Rules 1990 and Rule 1.03 of the Solicitors' Code of Conduct 2007;
- (h) That by the issuing of a Debenture which contained a charge over the firm's book debts, the Directors failed to adopt the safeguards against putting clients' confidential information at risk in the event that the charge was enforced, and have acted in breach of Rule 1(a) of the Solicitors Practice Rules 1990 and Rule 1.03 and/or 1.04 of the Solicitors' Code of Conduct 2007.
Mitigation
7. Philip Michael Robinson and Anthony Ruane have undertaken a substantial restructure of their business and their agreements with X in order to address the SRA's concerns, and to rectify the breaches which have occurred. The new structure and arrangements provide for the following:
- (a) The Option Agreement which allowed for the purchase of the shareholding in OLS for a nominal sum has been cancelled completely without any form of replacement:
- (b) A Deed of Arrangement which acts to determine all existing agreements that were of particular concern to the SRA has been introduced;
- (c) Y is to remain as a separate legal entity and will operate in accordance with these new arrangements;
- (d) The transfer of the employment of the Chief Executive Officer from X to OLS;
- (e) A revised Facility Agreement ensures that OLS has no obligation to provide any information to X which could result in a breach of the firm's obligations regarding client confidentiality;
- (f) A Transitional Services Arrangement provides for all 234 employees of X who are currently outsourced to OLS and Y to be TUPE transferred into OLS and Y with the exception of five IT infrastructure personnel;
- (g) A revised loan agreement has been entered into with X that does not compromise the independence of OLS;
- (h) The Directors have provided an express declaration that the structure is fully represented by the documents produced to the SRA and there are no other side arrangements or agreements.
8. The Directors entered into their arrangement with X when alternative business structures were being discussed generally, but acknowledge that their arrangements went further than was allowed by the rules.
9. The Directors have cooperated fully with the SRA in providing information about the arrangements, and most importantly have taken extensive steps at considerable expense to the business to rectify the position, by substantially renegotiating their agreements and commercial arrangement with X.
10. The SRA considers that the overall circumstances of the firm's relationship with X would justify a referral to the Solicitors Disciplinary Tribunal. The SRA considers that the substantial restructure of the agreements with X will restore the independence of the Directors free from direct influence of a non-legal entity.
Outcome
11. Mr Philip Michael Robinson and Mr Anthony Ruane being the Directors responsible for these breaches submit to a severe reprimand
12. Mr Philip Michael Robinson and Mr Anthony Ruane agree that they will pay the costs of the investigation in the sum of £7,236.00 within 14 days of the finalisation of this agreement.
13. Mr Philip Michael Robinson and Mr Anthony Ruane agree that they will not act in any way inconsistent with this agreement by, for example denying the misconduct admitted in paragraph 6 above.
14. Mr Philip Michael Robinson and Mr Anthony Ruane agree that this outcome may be published by the Solicitors Regulation Authority and that it may also be disclosed to any person upon request or otherwise.
15. The SRA considers that this sanction is proportionate to the circumstances of this matter, particularly having regard to the extensive steps taken to rectify the position and the Director's cooperation with the SRA throughout. Solicitors are reminded of the importance of retaining their independence, and not entering into alternative business structure arrangements in advance of permitted arrangements. Solicitors who ignore that advice, and do not seek to regularise their practice will be at risk of regulatory action including a referral to the SDT.
16. If the undertaking referred to in paragraph 5 above or any other terms of this agreement are not complied with or if Mr Philip Michael Robinson and Mr Anthony Ruane acts in any way inconsistently with this agreement, Mr Philip Michael Robinson and Mr Anthony Ruane accept that the Solicitors Regulation Authority may take the appropriate regulatory action , including referral to the Solicitors Disciplinary Tribunal on the original facts and allegations, and also on the basis that Mr Philip Michael Robinson and Mr Anthony Ruane's failure to comply with the RSA constitutes a breach of Rule 1 of the Solicitors' Code of Conduct 2007. Mr Phillip Michael Robinson and Mr Anthony Ruane agree that it is not open to them to challenge the validity of such a referral by reference to the facts agreed in this RSA.
17. The Solicitors Regulation Authority in entering this agreement accepts that Mr Robinson and Mr Ruane, when entering into the arrangements which have been the subject of the SRA's investigation, relied on legal advice and representations including those from leading Counsel which stated that the arrangements were valid. Despite this Mr Robinson and Mr Ruane now accept the Solicitors Regulation Authority's decision that the arrangements did in fact infringe the regulations as set out above.
Dated this day 3 August 2010
Mr Robinson Mr Ruane
David Middleton
Legal Director
(for the Solicitors Regulation Authority)