Bankruptcy / Insolvency guidelines

Transcription

1 Bankruptcy / Insolvency guidelines relating to practicing certificates and ancillary matters Version Practice support

2 Table of Contents Introduction...3 Background...3 Policy...3 Procedure...5 Partner in a firm... 5 Sole practitioner continuing as a sole practitioner... 6 Sole practitioner becoming a partner in a firm... 6 Employed solicitor... 7 Locum tenens... 7 Locum Solicitors List...8 Referral List...8 Membership of the Society...8 Accredited Specialists...8 Attachments...8 Bankruptcy/Insolvency Guidelines Version page 2

3 Introduction This document sets out guidelines to be observed by the Society s Council in exercising its discretionary powers pursuant to the Legal Profession Act 2007 ( the Act ) in relation to insolvent practitioners. They are guidelines only and need not be religiously adopted. Practitioners should be aware of their obligations upon becoming an insolvent under administration as set out in sections 67 and 68 of the Act. Background The Legal Profession Act 2007 gives the Council the power to exercise discretions, as follows, in relation to practitioners who are undischarged bankrupts or have taken advantage of the law relating to bankruptcy (hereinafter referred to as insolvent practitioner/s ): Pursuant to section 63 of the Act, the Council may immediately amend or suspend a local practising certificate. Pursuant to section 69 of the Act, the Council may refuse to grant or renew a practising certificate or cancel, suspend or amend a practising certificate. Pursuant to section 498 of the Act the Council can appoint an external intervener to a law practice. Such intervention can comprise the appointment of a supervisor of trust money of a law practice or the appointment of a manager or a receiver for a law practice. Policy Insolvency is not necessarily the result of dishonest or improper behaviour or incompetence. One of the objectives of the insolvency laws is to assist the insolvent person to start afresh. The Council should exercise its discretions with that in mind, and subject to its statutory obligations, to its duties to ensure that the public is protected and confidence in the profession is maintained. The same considerations are to be applied, irrespective of whether the practitioner is an undischarged bankrupt, or has taken the benefit of any law relating to bankruptcy or insolvent debtors. The Council recognises that the insolvency of a practitioner should only, in exceptional circumstances, result in the Council stopping the practitioner from holding an employee practising certificate. There is a potential benefit in that the holding of the certificate may better enable the practitioner to contribute to his/her unpaid debts. If there is any morally reprehensible behaviour or other improper conduct involved in the transactions leading to the insolvency, the practitioner s certificate should be cancelled. Insolvency caused by circumstances other than the conduct of a legal practice should not prevent a practitioner from holding a principal s certificate. An insolvent practitioner is not to operate a trust account, or be approved as a signatory to a trust account unless: 1. he/she lodges, or causes to be lodged, with the Society a $100,000 bank guarantee, or insurance bond, or other form of security, for the purpose of paying any claims admitted against the Fidelity Guarantee Fund in respect of his/her actions; or Bankruptcy/Insolvency Guidelines Version page 3

4 2. he/she gives an undertaking to only operate the trust account in conjunction with another person such that he/she cannot disburse money from the trust account unless the disbursement is also approved by one of his/her partners or a person approved by the Council; and in the case of a sole practitioner he/she also gives an undertaking to arrange for: 3. timely verification by his/her auditor of the monthly reconciliation of the trust accounting records; and 4. his/her auditor to give an undertaking to check the monthly reconciliations and immediately notify the Society of any trust accounting irregularity, or failure to comply with the requirements of the Trust Accounts Act and Regulations. An insolvent sole practitioner is not to be issued with a principal s certificate unless: i. he/she has lodged a $100,000 security deposit for claims against the Fidelity Guarantee Fund; or ii. he/she appoints another practitioner, or practitioners, or person or persons employed by the, approved by the Council, as a cosignatory, or cosignatories, to his/her trust account, such that he/she cannot disburse money from the trust account unless the disbursement is approved by one of the approved cosignatories; and iii. the financial institution with which the trust account is maintained confirms that it will not allow the trust account s operating instructions to be varied unless the Society has consented to such variation and iv. the issue of such a certificate complies with section 68 of the Act and related provisions. Insolvent practitioners are to forthwith notify all beneficiaries of any existing trust (created either by will or inter vivos) and if possible, take steps to have themselves immediately replaced as a trustee. Insolvent practitioners are not to accept any position of trust (created either by will or inter vivos). Pursuant to section 269 of the Bankruptcy Act, undischarged bankrupts who practise under a business name are required to disclose: v. their name; and vi. the fact that they are an undischarged bankrupt, to every person, with whom he/she, or, if they are a partner in a firm, the firm, has any business dealings. Consideration should be given to the extent of the involvement of the insolvency trustee and whether this will in any way inhibit the independence of the legal practice. For example, if the insolvency trustee is likely to become involved in the management of the practice and privy to its clients business the insolvent practitioner should not be issued with a principal s certificate. The type of practice should also be considered. For example, the Council should be less inclined to issue a principal s certificate to a sole practitioner handling numerous estates than to a practitioner handling none, or few estates. An insolvent sole practitioner refused a principal certificate but issued with an employee certificate cannot be employed in the practice as the managing solicitor of the office in which he previously practised unless the name of the practice has been changed to include the name of the purchaser of the practice. For example, if Fred Brown practised as Fred Brown & Associates and the practice was sold to John Smith, the name of the practice must be Bankruptcy/Insolvency Guidelines Version page 4

5 changed to exclude the name, Fred Brown, or to include the name, Smith). In addition, the practice letterhead must clearly record the name of the principal/s and the capacity in which the insolvent practitioner is employed or engaged. The issue of the practising certificate should be on the basis of the available evidence so that the Society can cancel the practising certificate if new information comes to light or a problem is discovered or appreciated that was not known or fully understood before. Procedure The practitioner must comply with the requirements of sections 67 and 68 of the Act and provide to the Society the required notice within seven (7) days of the insolvency and a written statement within twenty-eight (28) days of the insolvency to enable the Society to make a decision in respect of the practitioner continuing to be a fit and proper person to hold a local practising certificate and to provide copies of the notice and statement to the Legal Services Commission. The Council will cause inquiry to be made into the conduct of the practitioner leading to the insolvency and the reasons for the insolvency. The onus is on the practitioner to show why he/she should be allowed to practise as a principal or employee. The facts should be sworn by the practitioner (and not contained simply in correspondence written on his behalf). Specific action is to be taken as follows in the following scenarios:- Partner in a firm A partner in a firm can remain as a partner if he/she can establish:- c. the reasons for the bankruptcy do not involve the legal practice; and gives undertakings:- and if possible, take steps to have himself immediately replaced as a trustee; and ii. not to accept appointment as a trustee (created either by will or inter vivos); and iii. not to personally use, or operate, or be a signatory, on the Trust Account (money entrusted to a firm is entrusted to all partners, and Section 4 of the Trust Accounts Act 1973 seems to require the bankrupt partner to remain a trustee); or iv. to only operate on the trust account in a co-signatory capacity such that he/she cannot disburse money from the trust account unless the disbursement is also approved by one of his/her partner; or alternatively v. lodges or causes to be lodged a $100,000 security deposit; and If he/she is an undischarged bankrupt, gives an undertaking to ensure that every person with whom the firm has any business dealings is notified of his/her name and that he/she is a partner in the firm and an undischarged bankruptcy. If as the result of the exercise of the discretion pursuant to Section 69 the practitioner cannot hold a Principal s Practising Certificate, the practitioner may be issued with an Employee s Practising Certificate against undertakings (i), and (ii) above. Bankruptcy/Insolvency Guidelines Version page 5

6 Sole practitioner continuing as a sole practitioner A sole practitioner can remain a sole practitioner if he/she can establish:- c. the reasons for the bankruptcy do not involve the legal practice; and gives undertakings:- and if possible, take steps to have himself immediately replaced as a trustee; and ii. not to accept appointment as a trustee (created either by will or inter vivos); and iii. to arrange for timely verification by his/her auditor of the monthly reconciliation of the trust accounting records; and iv. to arrange for his/her auditor to give an undertaking to check the monthly reconciliations and immediately notify the Society of any trust accounting irregularity, or failure to comply with the requirements of the Trust Accounts Act and Regulations; and v. to appoint to his trust account, a co-signatory, or co-signatories, approved by the Council, such that he/she cannot disburse money from his/her trust account unless the disbursement is also approved by one of the approved co-signatories and produces to the SOciety a letter from the financial institution with which the trust account is maintained that it will not vary the operating instructions for the trust account less the Society has consented, in writing to the varied manner of operation; or vi. in lieu of (v), lodges, or causes to be lodged, a $100,000 security deposit; and vii. to practise under his/her name, or if practising under a firm name, to disclose his/her name to every person with whom he/she has any business dealings and that he/she is an undischarged bankrupt. If as the result of the exercise of the discretion pursuant to Section 69 the practitioner cannot hold a Principal s Practising Certificate, the practitioner may be issued an Employee s Practising Certificate against undertakings (i) and (ii) above provided: a. he/she cannot manage an office that he/she previously operated as a sole practitioner unless the name of the firm has changed to include the name of the new principal; b. the practice letterhead clearly discloses the name of the principal/s of the practice; and c. the practice letterhead clearly discloses the capacity in which he/she is employed or engaged. Sole practitioner becoming a partner in a firm A sole practitioner can become a partner in a legal practice, if he/she can establish:- c. the reasons for the bankruptcy do not involve the legal practice; and give undertakings: and if possible, take steps to have himself immediately replaced as a trustee; and ii. not accept appointment as a trustee (created either by will or inter vivos); and iii. not to personally use, or operate, or be a signatory, on the Trust Account. iv. to only operate on the trust account in a co-signatory capacity such that he/she cannot disburse money from the trust account unless the disbursement is also approved by one of his/her partners: or alternatively Bankruptcy/Insolvency Guidelines Version page 6

7 v. lodges, or cause to be lodged, a $100,000 security deposit; and vi. to ensure that every person with whom the firm has any business dealings is notified his/ her name and that he/she is a partner in the firm and an undischarged bankrupt; Employed solicitor An employed solicitor can remain an employed solicitor if he/she can establish:- c. the reasons for the bankruptcy do not involve legal practice; and gives undertakings:- and if possible, take steps to have himself immediately replaced as an trustee; and ii. not to accept appointment as a trustee (created either by will or inter vivos); and iii. not to personally use, or operate, or be a signatory, on a Trust Account; or iv. to only operate on a trust account in a co-signatory capacity such that he/she cannot disburse money from a trust account unless the disbursement is also approved by one of the principals of the firm or another authorised signatory to the trust account; or alternatively v. lodges, or causes to be lodged, a $100,000 security deposit. Locum tenens A practitioner can be a locum tenens if he/she can establish:- c. the reasons for the bankruptcy do not involve legal practice; and gives undertakings:- and if possible, take steps to have himself immediately replaced as a trustee; and ii. not to accept appointment as a trustee (created either by will or inter vivos); and iii. not to personally use, or operate, or be a signatory, on a Trust Account; or iv. to only operate on a trust account in a co-signatory capacity such that he/she cannot disburse money from a trust account unless the disbursement is also approved by one of the principals of the firm or another authorised signatory to the trust account; or alternatively v. lodges, or cause to be lodged, a $100,000 security deposit. Bankruptcy/Insolvency Guidelines Version page 7

8 Locum Solicitors List BankrupUlnsolvent solicitors are not to be included on the Society s locum solicitors list. Referral List Bankrupt/lnsolvent solicitors are not to be included on the Society s referral list. Membership of the Society Rule 20( 1)( d) of the Legal Profession (Society) Rules 2007 sets out as follows: subject to subrule (2), a member ceases to be a member if he or she becomes an insolvent under administration. Rule 20(2) of the Legal Profession (Society) Rules 2007 sets out as follows: The council may, if it thinks fit, decide that a member does not cease to be a member on the grounds set out in subrules (1)(c), (d) or (e). Accredited Specialists A solicitor is not be allowed to retain or apply for accredited specialisation during the term of their bankruptcy, because a solicitor ceases to be a member of the Society if he/she becomes an insolvent under administration pursuant to r.20(1 )(d) of the Legal Profession (Society) Rules 2007, unless Council decides otherwise, and a solicitor must be a member of the SOciety to be eligible to be an accredited specialist. Attachments Copies of sections 67, 68 and 69 of the Legal Profession Act 2007 A copy of a blank Notice by Practitioner of a Show Cause Event Bankruptcy/Insolvency Guidelines Version page 8

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