Purpose and status of this guidance
This document provides guidance for those making decisions on how to recover money due to us as a result of our regulatory action, and litigation arising from our regulatory functions. These debts can arise in a number of ways, for example:
- When we take cases to the Solicitors Disciplinary Tribunal (SDT), the SDT may order the regulated individual or firm to pay our costs if we win. We can also recover our costs in cases that have resulted in us issuing or agreeing a finding or sanction.
- When we use our powers to intervene into we can recover our costs from the individual or firm.
- When the Compensation Fund makes a payment to a claimant, we take over any rights that person had to recover their money from the individual or firm. We will therefore try to recover the sums which the Fund has paid.
- Where the court awards us costs in litigation arising from our regulatory functions – for instance, where we have successfully defended a challenge in the courts to a decision we have made.
This guidance should be read in the context of decision making at the SRA and other guidance documents. It is a living document and will be reviewed and updated as appropriate. It reflects our approach to our regulatory role and any departure must be capable of justification on the individual facts of the case.
Most of the cost recovery work relates to individuals. However, similar considerations to those set out in this guidance will apply to recovery against firms where the firm has been the subject of action or litigation.
This guidance does not cover the collection of fines imposed either by the SDT or by ourselves on regulated individuals and firms. We do not deal with collection of SDT fines at all and this is done by the Treasury. We do deal with collection of fines we impose, but again, we account to the Treasury for these and different procedures apply.
The decision to recover costs
We need to decide how best to recover the money that is due to us. We are funded through fees paid by the individuals and firms that we regulate. We recognise that it is important to maximise recoveries to help minimise our costs and therefore the cost of regulation for individuals and firms which is ultimately passed on to consumers.
Our key principle is that we will act quickly, fairly and proportionately.
To begin with, we will contact the person as soon as possible to request payment. If they cannot pay in full, we ask for details of their financial circumstances so that we can assess their ability to pay. We expect prompt payment in full, unless we see clear evidence that they cannot do so.
If the person has cooperated promptly and openly, we may be able to agree a payment plan. For example:
- payment by instalments
- a voluntary charge over property
- waiving of interest
- a reduced lump sum in full settlement.
Unless urgent action is needed (for instance, because a person is actively dissipating assets which we might be able to take action against), we will, where possible, try to reach an agreement for repayment.
However, if it would not be appropriate to do so, or an individual or firm will not agree an acceptable repayment plan, or does not comply with an agreed payment plan, then we will consider enforcement action to recover the money. The decision will be based on the factors listed below. While it is usual for us to take enforcement action, we do not always do so. For instance, if someone is seriously ill, or does clearly not have enough money, then we may decide that action is not appropriate. However, in most cases we will take enforcement action which may include:
- an order requiring attendance at court for questioning
- attachment of earnings
- a third party debt order
- a charging order
- instruction of bailiffs
- issuing of a statutory demand in bankruptcy followed by a petition for bankruptcy
- winding up petition against a company.
We may use enquiry or tracing agents to find people who owe us money.
If the person passes away, leaving an outstanding debt to us, we will consider whether to make a claim on the estate.
Factors taken into account
When deciding whether, and how best to recover money due, we take into account financial, personal and all other relevant circumstances. Each case is specific to its individual facts and will be considered on that basis, although we seek to take act proportionately and to achieve consistency in our approach.
We will look at the person's financial circumstances to assess what amount they are able to pay. A number of factors might be relevant here. For example, we look at the person's current income and their earning potential. We also take into account any savings and assets they have, as well as their regular liabilities and any other debts. We will consider all of the person's financial circumstances in making our decision, always bearing in mind whether our action to recover money due will be proportionate in the circumstances. These factors will also help us to decide what action to take if we are going to pursue the debt. Relevant financial factors may include:
- current Income and likelihood of income in the future (such as when a solicitor's suspension from practice comes to an end)
- existence and nature of assets
- involvement with, or ownership of other businesses
- amount of debt and any other liabilities, or likely future liabilities
- amount and reasonableness of stated outgoings
- insolvency (actual or pending)
- recent disposals of assets (particularly apparent transactions at undervalue). If there is evidence of this, then a trustee in bankruptcy may be able to set aside such transactions so the asset can be used towards settling the debts due.
For example, a person may have a low monthly income and so cannot afford monthly payments to settle the debt, but they own a property with a small mortgage. As a result, a charge over the property to secure our debt may be the best solution. Alternatively, a person may not own their house, but have a high monthly income. In such a case, we may look to agree monthly instalments.
In a case where a person has no current income and no assets, then we may place our file on hold for a period of time and review the position in the future when their circumstances may have changed.
We intervened into ABC Ltd on the grounds of suspected dishonesty of its directors. The intervention costs came to £100,000.
The company quickly went into liquidation as a result of another creditor. We contacted the liquidator to inform him of our claim. It became clear that a large number of client files had been transferred to another firm and were generating significant levels of costs arising from the work in progress of ABC Ltd. The liquidator accepted that under the intervention powers, the costs recovered for ABC Ltd vested in us and could be used to settle the intervention debt.
As well as financial factors, we will also consider the individual's personal circumstances. We will look at their current health, family situation, ability to earn, whether they have any dependants and what, if any, impact our decision to recover money due will have on them.
We will also take into account the person's behaviour towards us. For instance, did they engage openly with us? Have they been transparent and honest in providing us with information? If the person has refused to engage with us at all, we have little option but to take enforcement action against them. Where a person has provided inaccurate information regarding their assets to us in the cost recovery process, we will be more likely to pursue action as there will be questions over the validity and reliability of the other financial information provided to us. Our experience also shows that someone who has not engaged with us in a transparent and honest manner, is not likely to comply with any payment plan.
While none of these factors are necessarily decisive, they collectively help us to arrive at a decision appropriate and proportionate to the facts of the case.
Mr X was suspended by the SDT after persistent failures of service to clients. He also allowed his firm to fail in a disorderly way, resulting in an intervention which cost £60,000. The SDT ordered him to pay costs of £20,000.
Mr X cooperated fully with the Cost Recovery Team and gave full financial disclosure. He produced evidence of medical difficulties arising at the time of the failure of his firm which were continuing and likely to be long-term.
Mr X was a single parent with three children under 10. He had found employment outside the profession with reasonable pay which supported his health and childcare position. He was sole owner of a 4 bedroom detached house with equity of about £10,000.
Mr X offered to settle all costs for £45,000 by way of a charge on his house on the basis that there would be no application for sale until his children were over 18. We settled on that basis.
In addition to the above, we will also look at any other factors that may touch on the case generally and whether there are any other avenues from which we could recover the money due. For example, the police may be involved in confiscation proceedings. In this case, the person's assets may be frozen and so will not be susceptible to recovery action. Therefore, we may make a claim within the confiscation proceedings. Alternatively, there may be others involved in the matter who are jointly liable for the debt, or there may be an indemnity insurance policy that might cover payment of the debt.
We made an intervention into Mrs Y's practice for suspected dishonesty involving significant overcharging when administering estates. Following intervention, the Compensation Fund paid out £300,000. Only £40,000 was in the client account at the date of intervention. The intervention costs were £100,000.
Mrs Y was subsequently found by the SDT to have dishonestly misused client money to fund her lifestyle and firm. She was struck off and ordered to pay SDT costs of £30,000.
Mrs Y refused to provide a statement of means on the basis that she said she was independently wealthy. She offered to pay a lump sum of £100,000 plus a balance of a further £100,000 to be charged against her home. She said her position was non-negotiable.
The Cost Recovery Team discovered that just prior to the intervention Mrs Y had gifted a valuable property to a third party.We petitioned for Mrs Y's bankruptcy and invited the Official Receiver to consider seeking a bankruptcy restriction order. We also provided details of the gifted property.
Mrs Y was bankrupted and subject to a Bankruptcy Restriction Order for 12 years. The gifted property was recovered, leading to a full recovery for the SRA (and other creditors).