A renowned human rights lawyer has accepted a £2,000 penalty after failing to disclose to the regulator financial troubles partly caused by a delay in legal aid payments.   

Karen Todner (pictured), director of London firm Kaim Todner, failed to report to the Solicitors Regulation Authority indicators of serious difficulty arising during 2012. These included a ‘hardening attitude’ from tax authorities and delays from public bodies in paying legal aid, she said. 

A regulatory settlement agreement, published today, states that Todner’s submission to the SRA in November 2012, seeking renewal of authorisation, wrongly declared that the firm had complied with its reporting obligations.

The SRA also raised concerns about the circumstances in which loaned funds were paid to the firm on the instructions of an individual for whom Todner had previously acted.

The SRA agreement states that in January 2012 the firm sought but failed to make payments of more than £100,000 to HM Revenue & Customs, with a further direct debit payment of £80,000 defaulting that same month.

On each occasion there were insufficient funds in the firm’s office account to meet the payments due.

The following month, the firm agreed to stagger payments over February and March 2012 but it defaulted on the second of these payments.

Between January and May 2012, 21 cheques were returned unpaid, and 64 direct debits were unpaid due to insufficient sums, including payments to local councils and to indemnity insurers.

In April 2012, the firm owed but did not pay corporation tax of more than £23,000, and the year ended with Kaim Todner owing more than £92,000 in VAT.

It was not until April 2013 that notification was made to the SRA. HMRC had sent a letter requiring payment of £523,376 and indicating that winding up proceedings would be commenced if payment was not received within a week.

The firm, acquired almost a year ago by One Legal, then sought advice which resulted in it entering a company voluntary arrangement paying 100p in the pound.

The SRA agreement also states that an unnamed former client had agreed a loan of £25,000 in March 2013 to assist with the firm’s financial position on a temporary basis. Todner did not cause the lender to obtain any independent legal advice before making the loan.

Todner admitted breaching her obligations on reporting of serious financial difficulties. She agreed to a rebuke and £2,000 fine. She must also pay £7,800 SRA costs.

In mitigation, she said the matters had occurred three and a half years ago and that the firm remained profitable at all time, with the difficulties stemming entirely from cash-flow issues inherent in running a practice wholly dependent on legal aid and the willingness of public bodies to pay sums properly.

Debts were honoured and Todner said she had introduced ‘substantial’ funds of her own to bolster the firm’s finances and did not draw any profits.

The agreement adds: ‘At the time Ms Todner believed in good faith that these were issues forming a normal part of running a legal aid practice and cashflow was being actively and successfully managed.

‘What turned a manageable situation into one which was only manageable through an insolvency process was an unexpected announcement of a delay of many months in the payment of one very large bill representing 10 years’ work and a coincidental hardening of the attitude of HMRC.’

Todner said she felt the SRA had no need to take regulatory action and the firm’s bank remained supportive throughout.

With regard to the loan, the client expressly stated that he volunteered to make a loan personally to Todner, regarded the loan as a private transaction between friends, and did not require and would not have sought independent legal advice in respect of the loan. He has made clear that he opposed any action by the SRA, had no complaint, and was fully supportive of Todner

Four former directors of London practice Kaim Todner have already been fined for failing to report the firm’s financial difficulties to the regulator.