SRA Handbook

Firms in default

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Part 4: Firms in default

Rule 13: Eligibility of firms in default

13.1

At any time during the period of default a firm in default is entitled to be admitted to the ARP and to be issued with an ARP policy in accordance with Rule 13.2, subject to the provisions of this Rule 13.

13.2

A firm in default is entitled to be admitted to the ARP if:

(a)

it was an eligible firm at the start of the period of default;

(b)

had it been admitted to the ARP at the start of the period of default, its admission at that time would not have rendered it ineligible to be admitted to the ARP for any part of any subsequent indemnity period in which it was in fact admitted to the ARP;

(c)

it has applied to join the ARP in accordance with Rule 10;

(d)

the firm discharges in full the ARP default premium calculated for the whole of the indemnity period or indemnity periods for which cover is sought within 30 days of such premium being notified to it by the ARP manager or such longer period as the Council may allow;

(e)

the firm will be subject to and comply with Rules 10.3 (other than Rule 10.3(a)) and 11.2.

13.3

An ARP policy issued under this Rule may afford cover retrospectively from the start of the period of default until the earlier of:

(a)

the end of the then current indemnity period; or

(b)

the date on which the firm in default would have ceased to be an eligible firm, ignoring for these purposes any failure to pay the ARP premium or the ARP default premium; or

(c)

the date on which, had the firm in default been admitted to the ARP at the start of the period of default, its being covered by the ARP from that time would have first caused it to have been ineligible to be admitted to the ARP for any part of any subsequent indemnity period in which it was in fact admitted to the ARP.

13.4

A run-off firm shall be entitled at any time following the date on which it first becomes a run-off firm to be admitted to the ARP and to be issued with an ARP run-off policy, subject to the following conditions:

(a)

the run-off firm has made an application to join the ARP in manner provided by Rule 10.5 stating on the proposal form that it is a run-off firm and giving the date from which cover under an ARP run-off policy is sought;

(b)

the ARP run-off premium is discharged in full within thirty days of such premium being notified by the ARP manager to the firm or such longer period as the Council may allow; and

(c)

the firm, and any person who is a principal of that firm, will be subject to and comply with Rule 10.3(c).

13.5

An ARP run-off policy shall provide run-off cover to a run-off firm retrospectively from the date on which it became a run-off firm until the end of the day immediately prior to the sixth anniversary of:

(a)

the start of the indemnity period in which it became a run-off firm; or

(b)

if applicable, the start of the last indemnity period, prior to it becoming a run-off firm, in which it both ceased to be an eligible firm and was a firm in default and continued as such until the date on which it became a run-off firm,

whichever is the earlier.

13.6

Rule 12.6 shall apply so as to enable the Council to extend the period in Rule 13.3(b) for which a firm in default may be issued with an ARP policy.

13.7

Any firm that has been admitted to the ARP under Rule 13.1 shall for the purposes of computing its continuing eligibility to remain in the ARP be deemed to have been admitted to the ARP at start of the period of default and to have remained continuously in the ARP until the end of the indemnity period current at the date of its application.

13.8

Rule 15.2 shall not apply to a firm which has under Rule 13 been admitted to the ARP and which has been issued with an ARP policy or an ARP run-off policy, the liability of the firm and of any person who is a principal of that firm being limited in those circumstances to the excess payable under the terms of the policy.

Rule 14: Firms which fail to apply to the ARP

14.1

A firm in default which is entitled to be admitted to the ARP and to be issued with an ARP policy in accordance with Rule 13.1 but which does not make an application to join the ARP shall, notwithstanding, be liable, together with any person who is a principal of that firm, to pay to the Society an amount equivalent to the ARP default premium calculated for the whole of the period of default.

14.2

A firm in default which is entitled to be admitted to the ARP and to be issued with an ARP run-off policy in accordance with Rules 13.4 and 13.5 but which does not make an application to join the ARP shall, notwithstanding, be liable, together with any person who is a principal of that firm, to pay to the Society an amount equivalent to the ARP run-off premium calculated for the whole of the period equivalent to that which would be provided by an ARP run-off policy in accordance with Rule 13.5, or, if shorter and if it can be ascertained, the period of default.

14.3

Any amount payable in accordance with Rules 14.1 or 14.2 shall be determined by the ARP manager on the basis of such assumption as to the firm's gross fees and other matters as the ARP manager shall in its absolute discretion determine, and may be reviewed from time to time by the ARP manager in its absolute discretion on the basis of any further information provided to it. Any such amount paid under Rule 14.1 or 14.2 shall be deducted from any amount payable pursuant to Rule 15.2. The ARP manager may and is hereby authorised to recover all sums due under Rules 14.1 or 14.2 on behalf of the Society.

Rule 15: Arrangements in relation to uninsured firms

15.1

The ARP manager on behalf of the Society shall make arrangements with qualifying insurers to cover any claim against:

(a)

a firm in default; and

(b)

a run-off firm

including any defence costs relating to a claim, in like manner and to the like extent as the claim and the defence costs would have been covered had that firm during the period of default been in the ARP and been issued with an ARP policy and/or, as the case may require, an ARP run-off policy.

15.2

Subject to Rule 13.8, Rule 14.1 and Rule 14.2, the Society on behalf of qualifying insurers shall be entitled to recover from each and every principal in the firm in default during the period of default all amounts paid in or towards the discharge of a claim and defence costs pursuant to Rule 15 together with interest thereon at Barclays Bank Plc base rate plus three per cent from the date when such amounts were respectively paid. The ARP manager may and is hereby authorised to recover all sums due under this Rule on behalf of the Society.

15.3

A firm shall not be deemed to have been admitted to the ARP or to be covered in accordance with Rule 15 solely by virtue of the fact that the ARP manager may conduct or settle any claim made against that firm under the terms of any agreement between the Society and any qualifying insurer.