Directors of a Liverpool firm that did not pay almost £40,000 in legal aid disbursements have been fined by the Solicitors Disciplinary Tribunal. Simon Heaney, Ruth Kearns and Tracy Winstanley, joint owners of family practice Heaney Watson, took the ‘conscious decision’ to mismanage payments and used the money to fund the office as the firm edged towards financial collapse. 

All three agreed they were aware that not all disbursements were being paid when monies were received from the Legal Aid Agency and that monies were instead held in the office account. 

Cash shortages in the client account began in 2013, and in 2016 alone the firm’s documents showed a shortage of more than £21,000. 

The SDT also heard that the firm had been struggling financially from March 2016, but the Solicitors Regulation Authority was not informed until a year later. In May 2017 the firm closed with debts of more than £1m, and the three solicitors were declared bankrupt. 

In an interview with investigators, Heaney said the firm faced ‘competing pressures’ as to what was being paid out to different creditors. He said the firm had made changes to reduce overheads, but the firm had a lot of short term borrowing and it was clear from 2016 that the financial position of the business was not sustainable. 

In an agreed outcome with the Solicitors Regulation Authority, the trio admitted misconduct. In mitigation, which was not endorsed by the SRA by noted by the tribunal, Heaney said the firm had to pay £550,000 to a former shareholder in 2012 - the same year as major funding cuts affected the business, which took 80% of its work from legal aid.

Heaney, now a barrister with an established chambers, said he lost his family home as a result of his bankruptcy. Outstanding payments due from the Legal Aid Agency should cover the client account shortage and enable the indemnity fund to be reimbursed, he said. He pointed out that admissions were made to the SRA at an early stafe and he was fully co-operative.

Kearns, who now works for another firm, said efforts were made to rectify unpaid disbursements, and the SRA was informed immediately when it became apparent a creditors’ voluntary arrangement was going to fail, with liaison continuing until the point of closure. Winstanley advanced that she had little control over the finances of the firm, but as a director she realised she had responsibilities. The SRA was informed about financial issues as soon as possible and the firm fully co-operated with the regulator, she said.

Kearns and Winstanley were fined £10,000 while Heaney, as compliance officer, was fined £20,000. All three are restricted from acting as manager or owner of a law firm.