Matthew & Matthew Limited
194 Seabourne Road, Southbourne, Bournemouth
, BH5 2JD
Decision - Agreement
Outcome: Regulatory settlement agreement
Outcome date: 31 August 2021
Published date: 14 September 2021
No detail provided:
This outcome was reached by agreement.
1. Agreed outcome
1.1 Matthew & Matthew Limited (the Firm), a recognised body agrees to the following outcome to the investigation of its conduct by the Solicitors Regulation Authority (SRA):
- it is rebuked
- to the publication of this agreement
- it will pay the costs of the investigation of £1,350.
2. Summary of Facts
2.1 On 6 April 2017 the Firm accepted instructions from Mr M, who owned and ran a group of property development companies (“C Group”). The lead fee earner for all work that the Firm conducted for the companies within C Group (as detailed further below) was Miss Stephanie Adams, a director of the Firm.
2.2 At the material time (April 2017 to April 2018), C Group was made up of CLS Ltd (a holding company) and a series of special purpose vehicle (SPV) companies. Companies House records show that CLS Ltd was a director of and wholly owned each of the SPVs. Mr M was the sole director and held significant control of CLS Ltd. Mr M was also a director of each of the applicable SPVs.
2.3 Each SPV company was formed as a distinct legal entity to act as the developer and seller of a particular building project. The SPV would purchase a disused property for the purpose of renovating it into a care home. The Firm represented the SPVs in respect of eight property purchases. The client in each purchase was the specific SPV buying that property, and not the wider C Group.
2.4 The Firm also represented the SPVs in the sale of individual studios within the care homes, which took place before the renovation work was completed.
2.5 Matthew & Matthew represented 10 SPVs in the sale of 239 care home studios across their 10 developments. Again, the client for each sale was the specific SPV that owned the property and was selling the studio, not the wider C Group. Miss Adams had conduct or oversight of each of the studio sales and the Firm received a total of £22,867,661.43 in proceeds of sale into its client account from the buyers.
2.6 The Firm and Miss Adams adopted the following approach as regards the treatment of the proceeds of sale on the abovementioned studio sales:
- The Firm’s client for the sale of each studio was the specific SPV that owned the relevant development.
- The proceeds of sale for each studio sale were paid into the firm’s client account and recorded in the client account ledger set up for the matter and that particular SPV.
- Some of the proceeds of sale were used to repay mortgages on each of the relevant developments.
- However, none of the remaining completion monies were paid to the SPV that was selling the unit. Instead, and acting on Mr M’s instructions, the funds were sent either to the parent company CLS Ltd or transferred to the ledger of another SPV to be used for the purchase of that SPV’s development site. That other SPV was also a wholly-owned subsidiary of the same parent company, CLS Ltd.
- Neither the parent company nor the other SPV was a party to the underlying legal transaction (ie the studio sale) for which the Firm had received the client money. The purchase of the other SPV’s development site created a new legal transaction that was unrelated to the earlier development’s studio sales.
2.7 On 9 April 2018, Miss Adams left Matthew & Matthew Limited to become a member at Lester Aldridge LLP. She brought the C Group clients with her to the new firm at Mr M’s request.
2.8 The Firm understands from the SRA that: Lester Aldridge LLP stopped acting for C Group in April 2019, several of the developments were not completed, and only some of them were ever operated as a care home.
2.9 Each of the companies in C Group (including the SPVs, the holding company and other companies in the group such as sales agents) has now gone into either administration or liquidation.
3.1 Matthew & Matthew Limited makes the following admissions which the SRA accepts:
3.2 Having received client money representing the proceeds of sale from property sales (the underlying legal transactions), Matthew & Matthew Limited acted in breach of Rule 14.5 of the SRA Accounts Rules 2011 by transferring part of those funds to:
- the client’s parent company, CLS Ltd
- the client account ledgers of other SPVs, which were also wholly-owned subsidiaries of the parent company, CLS Ltd
- in circumstances where the recipient did not have sufficient connection with the underlying legal transaction for the purposes of that Rule.
4. Why a written rebuke is an appropriate outcome
4.1 The SRA’s Enforcement Strategy sets out its approach to the use of its enforcement powers where there has been a failure to meet its standards or requirements.
4.2 When considering the appropriate sanctions and controls in this matter, the SRA has taken into account the admissions made by Matthew & Matthew Limited and the following mitigation which it has put forward:
- The Firm was acting on the instructions of Mr M, a director of the applicable SPV, and a director of CLS Ltd, the parent company of the SPVs.
- The funds were released to, or transferred to the ledgers of, other companies within the same corporate group as the client SPV companies.
- The Firm’s personnel considered Rule 14.5 at the relevant time and concluded (incorrectly) that it did not prohibit the transfers described above.
4.3 The SRA considers that a written rebuke is the appropriate outcome because:
- A significant amount was transferred from the Firm’s client account to third party recipients in breach of Rule 14.5 of the SRA Accounts Rules.
- The Firm relied on Miss Adams’ experience and as such did not take sufficient steps to ensure that her work was compliant with Rule 14.5 of the Accounts Rules.
- The SRA is satisfied that the Firm now has a better understanding of its obligations with respect to Rule 14.5 as a result of this investigation and that the risk of repetition is therefore low.
- Given the amount of money involved in these transactions, some public sanction is necessary to uphold public confidence in the delivery of legal services.
5.1 The SRA considers it appropriate that this agreement is published in the interests of transparency in the regulatory and disciplinary process. Matthew & Matthew Limited agrees to the publication of this agreement.
6. Acting in a way which is inconsistent with this agreement
6.1 Matthew & Matthew Limited agrees that it will not deny the admissions made in this agreement or act in any way which is inconsistent with those admissions.
6.2 If Matthew & Matthew Limited denies the admissions or acts in a way which is inconsistent with this agreement, the conduct which is subject to this agreement may be considered further by the SRA. That may result in a disciplinary outcome or a referral to the Solicitors Disciplinary Tribunal on the original facts and allegations.
6.3 Acting in a way which is inconsistent with this agreement may also constitute a separate breach of Principles 2 and 5 of the Principles and paragraph 3.2 of the Code of Conduct for Firms.
7.1 Matthew & Matthew Limited agrees to pay the costs of the SRA's investigation in the sum of £1,350. Such costs are due within 28 days of a statement of costs due being issued by the SRA.