Directors at a regional firm have been sanctioned by the Solicitors Disciplinary Tribunal for ‘holding back’ legal aid disbursements during a period of financial difficulty.

The firm’s position was made worse ‘to a considerable degree’ by payment delays on the part of the former Legal Services Commission, the tribunal said.

Nowell Meller Solicitors Ltd and its directors Stephen Paul Kirwan, Jane Alison Matthewman, Deborah Faye Hackney and former director Andrew Hall breached the Solicitors Accounts Rules 1998 and the SRA Accounts Rules 2011 when payments from the commission ‘were neither utilised for the payment of such disbursements nor transferred to client account within 14 days of receipt’, the Solicitors Regulation Authority alleged.

Nowell Meller Solicitors Ltd, Kirwan, Matthewman and Hackney admitted the rules were breached.

They denied any intention to breach the rules. Hall, who left the firm in September 2012, admitted that breaches of the rules had occurred, but denied there had been any deliberate conduct on his part in relation to the breaches.

The matter came to light in December 2012 when Kirwan reported to the SRA that the accounts rules had been breached.

Kirwan described a process by which the firm ‘held back’ the making of payments of disbursements ‘until it could afford to do so without exceeding its overdraft facility’, the judgment states. The money received by the LSC - now the Legal Aid Agency (LAA) - was used to pay general office expenses and overheads.

The practice of ‘holding back’ occurred ‘from at least 2010 until early 2013’, the tribunal said.

In November and December 2010, the sums held back were £5,389 and £6,200 respectively. Over March and April 2011, the amount held back increased to £22,000 and £35,000. By summer 2011, this had risen to more than £80,000.

By November 2011, the figure had reduced to £40,000. By December 2012, unpaid disbursements had reached £123,000.

The judgment states that the firm experienced financial difficulties as a result of the firm’s acquisition of another firm, Arthur Bolton and Son, in the summer of 2007 and as a result of trading difficulties in the period following.

The tribunal said it ‘noted and accepted’ that ‘to a considerable degree the position in which the firm had operated had been made worse by delays by the LSC in paying monies properly due to the firm’.

The judgment states: ‘Had the LSC paid costs promptly, the firm’s overdraft could well have been reduced substantially. This was particularly so from 2011; [Kirwan] had given evidence that as at December 2012, the LSC owed the firm about £170,000 in bills submitted but not yet paid. That figure was greater than the firm’s overdraft limit.’

However, the tribunal said: ‘Whilst the default could not be blamed entirely on the LSC, a combination of late payments, the firm’s bank’s hardening attitude to lending and the firm’s indebtedness due to taking over another practice created extremely difficult conditions for the firm.’

An LAA spokesperson told the Gazette its standard payment times ‘are within two weeks’ of receiving a claim for payment from a firm.

‘We have an established practice process in place for firms in financial difficulty to request for their payments to be expedited. We did not receive such a request from Nowell Meller,’ the spokesperson said.

The tribunal said that instead of closing the firm, with consequent difficulties for clients, creditors and staff, as well as the directors, the respondents chose ’to try to trade out of their financial problems’, a course of action ’which appeared to be bearing fruit as the amount owed to creditors was being reduced’.

‘The tribunal found that the motivation of the second to fourth respondents [Kirwan, Matthewman and Hackney] was genuine and included a desire to protect clients and staff. These were admirable aims.

‘The tribunal also noted that no money had been taken outside the firm by the respondents, even if the LSC payments had not been used as intended.

‘In all of these circumstances, the tribunal did not find that the second to fourth respondents [Kirwan, Matthewman and Hackney] had lacked integrity; indeed, it may be said they had displayed integrity in acting as they did, with an honest intention.

'With regard to the fifth respondent [Hall], the tribunal had found he lacked knowledge of the accounts rules and did not appreciate that the firm was in breach of those rules.'

The tribunal did not find a lack of integrity proved against any of the respondents.

The tribunal determined that no more than a financial penalty was required. ‘The breaches were not so serious as to warrant interference with the ability of any of the respondents to practise,’ it said.

The tribunal made no order against Nowell Meller Solicitors Ltd, as it could act only through its directors, and the current directors were parties to the proceedings.

Kirwan was ordered to pay a fine of £5,000 and costs in the sum of £15,000.

Matthewman was ordered to pay a fine of £2,000 and costs in the sum of £7,500.

Hackney and Hall were reprimanded.

Kirwan, Matthewman, Hackney and Hall were ordered to undertake a course on the Solicitors Accounts Rules, approved by the SRA, by 31 October 2016.

Kirwan told the Gazette: ‘We were pleased that the SDT showed a degree of understanding and sympathy with our position. Their judgment included a positive finding that we were people of integrity.

‘We had always accepted that it was a breach of the accounts rules but it was simply unavoidable given the financial position we were in at the time. The only reason that it came to light at all was that we made a self-report to the SRA in December 2012.’