SRA Handbook

Unforeseen temporary breach of certain conditions and eligibility criteria

Version 19 of the Handbook was published on 1 October 2017. For more information, please click "History" above.

Rule 23: Unforeseen temporary breach of certain conditions and eligibility criteria

23.1

Unforeseen breach of eligibility criteria

(a)

If due to an event which could not reasonably have been foreseen, a licensed body is no longer a licensable body:

(i)

because the body no longer has at least one manager who is an individual and who is an authorised person (other than an RFL or an EEL who is not registered with the BSB under Regulation 17 of the European Communities (Lawyer's Practice) Regulations 2000 (SI 2000/1119)) in relation to a licensed activity; or

(ii)

because:

(A)

the body no longer has a manager or interest holder who is a non-authorised person; and

(B)

non-authorised persons are no longer entitled to exercise, or control the exercise of, at least 10% of the voting rights in any body which is a manager or interest holder of the licensed body;

but the SRA is informed of that fact within seven days of the event first occurring and the body becomes a licensable body again within 28 days of the event first occurring, then the licensable body will be deemed to have remained a licensable body and to that extent will not be liable to have its authorisation revoked or suspended under Rule 22.

(b)

If due to an event which could not reasonably have been foreseen, a recognised body is no longer a legal services body because the body no longer has at least one manager who is:

(i)

a solicitor;

(ii)

an REL; or

(iii)

a legally qualified body with at least one manager who is a solicitor or an REL;

but the SRA is informed of the fact within seven days of the event first occurring and the body becomes a legal services body again within 28 days of the event first occurring, then the recognised body will be deemed to have remained a legal services body and to that extent will not be liable to have its authorisation revoked or suspended under Rule 22.

23.2

An LLP having fewer than two members

(a)

If an event which could not reasonably have been foreseen results in an LLP having fewer than two members, and therefore being in breach of Rule 16.3 (requirement to have at least two members) of the SRA Practice Framework Rules, but within six months the situation is remedied, and provided the LLP has remained in a position to comply with the remainder of the SRA's regulatory arrangements including these rules and any conditions imposed on its authorisation, the LLP will be deemed to have remained in compliance with Rule 16.3 of the SRA Practice Framework Rules and to that extent will not be liable to have its authorisation revoked under Rule 22.

23.3

Death of member or shareowner of a company

(a)

If an authorised body is a company with shares and a member or shareowner dies who had been approved under Part 4 to be a member or shareowner of the body at the date of death, then, whether or not the personal representatives have been approved under Part 4, the personal representatives may replace the deceased member or shareowner in their capacity as personal representatives, provided that:

(i)

no vote may be exercised by or on behalf of a personal representative (and no such vote may be accepted) unless all the personal representatives have been approved under Part 4 to be members or shareowners;

(ii)

no personal representative may hold or own a share in that capacity for longer than 12 months from the date of death;

(iii)

within 12 months of the death the authorised body must cancel or acquire the shares or ensure that they are held and owned by persons who can hold the interest in the body in compliance with Rule 8.6 (management and control), but without this resulting in RFLs being the only shareowners of a recognised body; and

(iv)

no vote may be exercised by or on behalf of any personal representative (and no such vote may be accepted) after the 12 month period has expired.

(b)

If, following the death of a member or shareowner, a company meets the requirements of (a) above, the company will be deemed to have remained in compliance with Rule 8.6 (management and control), and to that extent will not be liable to have its authorisation revoked under Rule 22.

23.4

Member or shareowner ceasing to be approved

(a)

If an authorised body is a company with shares and a member or shareowner ceases to be approved under Part 4 to be a member or shareowner of the body, or ceases to exist as a body corporate, then provided that:

(i)

no vote is exercised or accepted on the shares held by or on behalf of that member or shareowner;

(ii)

a trustee in bankruptcy or liquidator (whether approved under Part 4 or not) replaces that member or shareowner in the capacity of trustee or liquidator for a period not exceeding six months from the date the member or shareowner ceased to be approved; and

(iii)

the company cancels or acquires the shares within six months, or within that time ensures that the shares are held and owned by persons in compliance with Rule 8.6, but without this resulting in the body ceasing to be a licensable body (in the case of a licensed body), or ceasing to be a legal services body (in the case of a recognised body);

the company will be deemed to have remained in compliance with Rule 8.6 (management and control), and to that extent will not be liable to have its authorisation revoked under Rule 22.

23.5

Member or shareowner becoming insolvent but remaining compliant

(a)

If an authorised body is a company with shares and a member or shareowner becomes insolvent but continues to hold an interest in the body in compliance with Rule 8.6, then the trustee in bankruptcy or liquidator (whether approved under Part 4 or not) may replace the insolvent member or shareowner in the capacity of trustee in bankruptcy or liquidator, provided that:

(i)

no vote may be exercised by or on behalf of a trustee in bankruptcy or liquidator (and no such vote may be accepted) unless the trustee or liquidator can hold the interest in the company in compliance with Rule 8.6;

(ii)

no trustee in bankruptcy or liquidator may hold or own a share in that capacity for longer than six months from the date of the insolvency;

(iii)

within six months of the insolvency the company must cancel or acquire the shares or ensure that they are held and owned by persons who can hold an interest in the company in compliance with Rule 8.6, but without this resulting in the body ceasing to be a licensable body (in the case of a licensed body), or ceasing to be a legal services body (in the case of a recognised body); and

(iv)

no vote may be exercised by or on behalf of any trustee in bankruptcy or liquidator (and no such vote may be accepted) after the six month period has expired.

(b)

If (a) above applies and a company meets its requirements, the company will be deemed to have remained in compliance with Rule 8.6 (management and control), and to that extent will not be liable to have its authorisation revoked under Rule 22.

23.6

Court of Protection deputy

(a)

A Court of Protection deputy appointed under section 19 of the Mental Capacity Act 2005 may be a member or shareowner in that capacity of an authorised body, without breaching Rule 8.6 (management and control), provided that:

(i)

the person in respect of whom the deputy has been appointed holds the interest in compliance with Rule 8.6; and

(ii)

if the deputy is not a member or shareowner in compliance with Rule 8.6, no vote is exercised or accepted on the shares.

(b)

If (a) above applies and a company meets its requirements, the company will be deemed to have remained in compliance with Rule 8.6, and to that extent will not be liable to have its authorisation revoked under Rule 22.

Guidance notes

(i)

The provisions in Rule 23 allow firms time to rectify the position where unexpected changes occur. The effect of the provisions is to allow firms a period to avoid being in breach of SRA rules. Recognised bodies need also to consider the time limit of 90 days to obtain a licence which is imposed by section 18(3) of the LSA on such existing bodies that become licensable. Likewise, licensed bodies need to consider the time limit of 90 days to obtain a certificate of recognition which is imposed by section 18(6) of the LSA on existing licensed bodies that cease to be licensable.

(ii)

If the changes in 23.2, 23.3, 23.4, 23.5 and 23.6 occur, firms will need to notify the SRA under Rule 8.7 and under Rule 18.2 of the SRA Practice Framework Rules.

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