The Legal Aid Agency’s refusal to allow the transfer of a legal aid contract led to the loss of 55 jobs at a collapsed Hertfordshire firm, the Gazette has been told.

Meldrum Solicitors, primarily a criminal legal aid practice, went into liquidation this month with liabilities of over £780,000.

It owed around £200,000 to HM Revenue & Customs, £206,000 to banks, £200,000 in respect of staff loans, more than £100,000 in unpaid salaries, redundancy and notice period payments, and £70,000 to other creditors.

The two-partner firm, which achieved a category two peer review in 2014, employed 55 staff, including 11 solicitors.

Practice manager Sylvia Sheikh said Meldrum, which was incorporated in 2008, had seen turnover halve between 2010 and 2014. She attributed the decline to falling police charges, the impact of ‘ghost’ duty solicitors, amalgamated duty solicitor contracts following court closures and the firm conducting more cases pro bono after legal aid refusals.

But, said Sheikh, the problems were exacerbated in 2011 by late payments from the Legal Aid Agency, which left the firm with £360,000 outstanding for more than three months and WIP (work in progress) of £700,000. The firm therefore accrued penalty charges for late payment of VAT.

To cut its costs, Meldrum closed two of its four offices, made redundancies and reduced wages by 10%.

After contacting insolvency practitioners and the SRA in February – and in a bid to save jobs – Meldrum approached national firm Tuckers, which was interested in buying the LAA contract and all ongoing cases from the administrator.

Novating the contract would have enabled all staff jobs to transfer under TUPE, monies to be realised for some creditors and clients to retain continuity of representation.

However, LAA refused to allow the transfer, stating that it is not appropriate to ‘assist in the avoidance of debts’ to another public body, in this case HMRC.

Sheikh said: ‘This will affect all legal aid firms who are looking to be taken over – all have financial liabilities and difficulties, and judging from our case, the LAA will refuse to transfer contracts.’

Tuckers practice manager Adam Makepeace (pictured) described the LAA’s decision as ‘baffling’.

‘If the cuts in legal aid fees are to meet the government’s fiscal objectives, it is hard to understand a decision that will increase the cost to the public purse through the statutory redundancy scheme and the cost to the legal aid budget of duplicating fixed fees payable for work that will have to be undertaken by alternative providers,’ said Makepeace.

Head of contract management at the LAA, John Sirodcar, said he was not aware that the firm had chased the LAA for outstanding payments and certainly not at a senior level. In addition, he said the firm had left it too late before seeking a novation.

He advised others in a similar position to contact the agency for assistance at the earliest opportunity.

He added: ‘Our policy is that, unless all debts and liabilities are taken over by the firm taking over the contract, our starting point is to refuse the transfer.’

Sirodcar said the agency has shared a draft document stating its policy on contract novations with the Law Society and that he intends to publish it.