SRA Handbook

SRA Intervention Powers (Statutory Trust) Rules 2011

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SRA Intervention Powers (Statutory Trust) Rules 2011

Rules dated 17 June 2011 made by the Solicitors Regulation Authority Board under sections 79 and 80 of and paragraph 6B of Schedule 1 to the Solicitors Act 1974, paragraphs 32 to 34 of Schedule 2 to the Administration of Justice Act 1985, and paragraph 6 of Schedule 14 to the Legal Services Act 2007, with the approval of the Legal Services Board under paragraph 19 of Schedule 4 to the Legal Services Act 2007, governing the treatment of sums vested in the Law Society under paragraphs 6 or 6A of Schedule 1 to the Solicitors Act 1974, and under paragraphs 3 or 4 of Schedule 14 to the Legal Services Act 2007.

Part 1: General

Rule 1: Interpretation

1.1

In these rules, the words listed below and italicised thereafter are to be interpreted as follows:

AJA

means the Administration of Justice Act 1985;

approved regulator

means any body listed as an approved regulator in paragraph 1 of Schedule 4 to the LSA or designated as an approved regulator by an order under paragraph 17 of that Schedule;

authorised body

means a body that has been authorised by the SRA to practise as a licensed body or a recognised body;

authorised non-SRA firm

means a firm which is authorised to carry on legal activities by an approved regulator other than the SRA;

beneficiary

means a person with a beneficial entitlement to funds held by the Society on statutory trust;

barrister

means a person called to the Bar by one of the Inns of Court and who has completed pupillage and is authorised by the General Council of the Bar to practise as a barrister;

best list

means a list of potential beneficial entitlements to statutory trust monies which, in cases where it is not possible to create a reconciled list, is, in the view of the SRA, the most reliable that can be achieved with a reasonable and proportionate level of work, taking into account the circumstances of the intervention and the nature of the evidence available;

BSB

means the Bar Standards Board;

claimant

means a person making a claim to statutory trust monies;

Companies Acts

means the Companies Act 1985 and the Companies Act 2006.

company

means a company registered under the Companies Acts, an overseas company incorporated in an Establishment Directive state and registered under the Companies Act 1985 and/or the Companies Act 2006 or a societas Europaea;

director

means a director of a company; and in relation to a societas Europaea includes:

(i)

in a two-tier system, a member of the management organ and a member of the supervisory organ; and

(ii)

in a one-tier system, a member of the administrative organ;

employee

includes an individual who is:

(i)

employed as a director of a company;

(ii)

engaged under a contract of service (for example, as an assistant solicitor) by a firm or its wholly owned service company; or

(iii)

engaged under a contract for services (for example, as a consultant or a locum), made between a firm or organisation and:

(A)

that individual;

(B)

an employment agency; or

(C)

a company which is not held out to the public as providing legal services and is wholly owned and directed by that individual, under which the firm or organisation has exclusive control over the individual's time for all or part of the individual's working week; or in relation to which the firm or organisation has designated the individual as a fee earner in accordance with arrangements between the firm or organisation and the Legal Services Commission pursuant to the Access to Justice Act 1999;

and "employer" is to be construed accordingly;

Establishment Directive

means the Establishment of Lawyers Directive 98/5/EC;

Establishment Directive profession

means any profession listed in Article 1.2(a) of the Establishment Directive, including a solicitor, barrister or advocate of the UK;

Establishment Directive state

means a state to which the Establishment Directive applies;

firm

means an authorised body, a recognised sole practitioner or a body or individual which should be authorised by the SRA as a recognised body or recognised sole practitioner (but which could not be authorised by another approved regulator);

intervened practitioner

means the solicitor, recognised body, licensed body, REL or RFL whose practice or practices are the subject of an intervention;

intervention

means the exercise of the powers specified in section 35 and Schedule 1 of the SA, or section 9 and paragraphs 32 to 35 of Schedule 2 to the AJA, or section 89 and paragraph 5 of Schedule 14 to the Courts and Legal Services Act 1990, or section 102 and Schedule 14 of the LSA;

lawyer of England and Wales

means:

(i)

a solicitor; or

(ii)

an individual who is authorised to carry on legal activities in England and Wales by an approved regulator other than the SRA, but excludes a member of an Establishment Directive profession registered with the BSB under the Establishment Directive;

legal activity

has the meaning given in section 12 of the LSA and includes any reserved legal activity and any other activity which consists of the provision of legal advice or assistance, or representation in connection with the application of the law or resolution of legal disputes;

licensed body

means a body licensed by the SRA under Part 5 of the LSA;

licensing authority

means an approved regulator which is designated as a licensing authority under Part 1 of Schedule 10 to the LSA, and whose licensing rules have been approved for the purposes of the LSA;

LLP

means a limited liability partnership incorporated under the Limited Liability Partnerships Act 2000;

LSA

means the Legal Services Act 2007;

manager

means:

(i)

a member of an LLP;

(ii)

a director of a company;

(iii)

a partner in a partnership; or

(iv)

in relation to any other body, a member of its governing body;

material interest

has the meaning given to it in Schedule 13 to the LSA; and a person holds a material interest in a body ("B"), if that person:

(i)

holds at least 10% of the shares in B;

(ii)

is able to exercise significant influence over the management of B by virtue of the person's shareholding in B;

(iii)

holds at least 10% of the shares in a parent undertaking ("P") of B;

(iv)

is able to exercise significant influence over the management of P by virtue of the person's shareholding in P;

(v)

is entitled to exercise, or control the exercise of, voting power in B which, if it consists of voting rights, constitutes at least 10% of the voting rights in B;

(vi)

is able to exercise significant influence over the management of B by virtue of the person's entitlement to exercise, or control the exercise of, voting rights in B;

(vii)

is entitled to exercise, or control the exercise of, voting power in P which, if it consists of voting rights, constitutes at least 10% of the voting rights in P; or

(viii)

is able to exercise significant influence over the management of P by virtue of the person's entitlement to exercise, or control the exercise of, voting rights in P;

and for the purpose of this definition, "person" means (i) the person, (ii) any of the person's associates, or (iii) the person and any of the person's associates taken together, and "parent undertaking" and "voting power" are to be construed in accordance with paragraphs 3 and 5 of Schedule 13 to the LSA;

overseas

means outside England and Wales;

owner

in relation to a body, means a person with any ownership interest in the body, save that (a) in the SRA Authorisation Rules owner means any person who holds a material interest in an authorised body, and in the case of a partnership, any partner regardless of whether they hold a material interest in the partnership; and (b) for the purposes of Chapter 12 of the SRA Code of Conduct means a person having a substantial ownership interest in a separate business and "own" and "owned by" shall be construed accordingly;

partner

means a person who is or is held out as a partner in a partnership;

partnership

means an unincorporated body in which persons are or are held out as partners and does not include a body incorporated as an LLP;

person

means an individual or a body of persons (corporate or unincorporated);

practice

means the activities, in that capacity, of:

(i)

a solicitor;

(ii)

an REL, from an office or offices within the UK;

(iii)

a member of an Establishment Directive profession registered with the BSB under the Establishment Directive, carried out from an office or offices in England and Wales;

(iv)

an RFL, from an office or offices in England and Wales as:

(A)

an employee of a recognised sole practitioner;

(B)

a manager, employee or owner of an authorised body or of an authorised non-SRA firm; or

(C)

a manager, employee or owner of a body which is a manager or owner of an authorised body or of an authorised non-SRA firm;

(v)

an authorised body;

(vi)

a manager of an authorised body;

(vii)

a person employed in England and Wales by an authorised body or recognised sole practitioner;

(viii)

a lawyer of England and Wales; or

(ix)

an authorised non-SRA firm;

and "practise" and "practising" should be construed accordingly;

recognised body

means a body recognised by the SRA under section 9 of the AJA;

reconciled accounts

means that all elements of the accounting records of an intervened practitioner's practice are consistent with each other;

reconciled list

means a list of beneficial entitlements to statutory trust monies created from a set of reconciled accounts;

recognised sole practitioner

means a solicitor or REL authorised by the SRA under section 1B of the SA to practise as a sole practitioner;

REL

means registered European lawyer, namely, an individual registered with the SRA under regulation 17 of the European Communities (Lawyer's Practice) Regulations 2000 (SI 2000 no. 1119);

reserved legal activity

has the meaning given in section 12 of the LSA, and includes the exercise of a right of audience, the conduct of litigation, reserved instrument activities, probate activities, notarial activities and the administration of oaths, as defined in Schedule 2 to the LSA;

RFL

means registered foreign lawyer, namely, an individual registered with the SRA under section 89 of the Courts and Legal Services Act 1990;

SA

means the Solicitors Act 1974;

SIIR

means the Solicitors' Indemnity Insurance Rules 2000 to 2010 or SRA Indemnity Insurance Rules or any rules subsequent thereto;

societas Europaea

means a European public limited liability company within the meaning of article 1 of Council Regulation 2157/2001/EC;

Society

means the Law Society, in accordance with section 87 of the SA;

sole practitioner

means a solicitor or REL practising as a sole principal, and does not include a solicitor or an REL practising in-house;

solicitor

means a person who has been admitted as a solicitor of the Senior Courts of England and Wales and whose name is on the roll kept by the Society under section 6 of the SA, save that in the SIIR includes a person who practises as a solicitor whether or not he or she has in force a practising certificate and also includes practice under home title of a former REL who has become a solicitor;

SRA

means the Solicitors Regulation Authority, and reference to the SRA as an approved regulator or licensing authority means the SRA carrying out regulatory functions assigned to the Society as an approved regulator or licensing authority.

SRA Indemnity Insurance Rules

means the SRA Indemnity Insurance Rules 2011;

statutory trust

means the trust created by Schedule 1 of the SA, or Schedule 14 of the LSA, over monies vesting in the Society following an intervention;

statutory trust account

means an account in which statutory trust monies are held by the Society;

statutory trust monies

means the monies vested in the Society under the statutory trust.

UK

means United Kingdom.

1.2

The Interpretation Act 1978 applies to these rules as it applies to an Act of Parliament.

Rule 2: Holding statutory trust monies

2.1

The SRA will place all statutory trust monies in identifiable statutory trust accounts.

2.2

All interest earned on any statutory trust account will be added to that account.

Rule 3: Proportionality

3.1

Nothing in these rules shall require the SRA to take any action which it considers unreasonable or disproportionate in the context of any statutory trust account.

3.2

The SRA may apply a level to beneficial entitlements within a statutory trust account below which it will not attempt to identify and/or locate potential beneficiaries where in the opinion of the SRA it would be unreasonable or disproportionate to do so. The level applies to the principal sum identified as relating to a particular beneficiary, after the application of any pro-rata adjustment which may be made under rule 7.2 and ignoring the addition of any interest as set out in rule 8.1.

Rule 4: Identifying beneficial entitlements

4.1

In respect of the statutory trust monies held following an intervention, the SRA will create a reconciled list or a best list from the evidence which it has available, including documents and other evidence provided by or on behalf of claimants.

4.2

In creating a reconciled list or a best list, any sums of money which are identified within a statutory trust account as being payments on account of costs, or which are equivalent to the costs incurred in the matter to which the funds relate, will be treated as due to the client rather than the intervened practitioner, unless there is sufficient evidence of a bill or other written notification of costs having been sent to the client.

4.3

The SRA will attempt to contact all persons identified as having a potential beneficial interest in the statutory trust monies inviting them to submit a claim in accordance with rule 5.

Part 2: Claims

Rule 5: Claimants to money

5.1

Every claimant must deliver to the SRA a completed and signed claim form. The claim form shall require such information as may be prescribed by the SRA from time to time.

5.2

A claimant must provide such documentation and other evidence as may be requested by the SRA in order to support the claim including a statement of truth and proof of identity. Failure to provide such documentation or evidence will be taken into account by the SRA when deciding whether to make a payment in respect of a claim.

5.3

The SRA may, in its discretion, waive the requirements of rules 5.1 and/or 5.2.

Rule 6: Verification of claims

6.1

Subject to rule 6.2, the SRA will verify the individual potential beneficial entitlements claimed under rule 5 by examining all available evidence.

6.2

The extent of verification work will be determined by the SRA by considering, but not limited to, the circumstances of the intervention, the reliability of the accounts of the intervened practitioner and the perceived integrity of the list of beneficial entitlements prepared.

Rule 7: Shortfall in statutory trust account

7.1

In cases where a shortfall is revealed between the statutory trust monies held and the beneficial entitlements shown in a reconciled list or best list, the SRA may rectify the position, in whole or in part, by the use of other monies taken into its possession following the intervention to which that account relates.

7.2

Where a shortfall still exists on a statutory trust account after the application of the additional funds set out in rule 7.1, the SRA will decide on the method for distribution of the deficient account.

Rule 8: Distribution of beneficial entitlements

8.1

Any interest which has accrued on the statutory trust account under rule 2.2 will be distributed to beneficiaries on a pro-rata basis in proportion to the payments made to them or on such other basis as the SRA may decide.

8.2

In a case where the accounting records of the intervened practitioner are reconciled accounts, payments to beneficiaries will be made on the basis of the reconciled list.

8.3

In a case where the accounting records of the intervened practitioner are not reconciled accounts, payments to beneficiaries will be made on the basis of the best list.

Rule 9: Residual balances

9.1

The SRA may use any funds which remain in a statutory trust account following the distribution to beneficiaries under rule 8 to offset any costs, charges or other expenses which it has incurred in establishing the beneficial entitlements to the statutory trust monies and in distributing the monies accordingly.

9.2

If funds remain in a statutory trust account after payment to beneficiaries and the deduction of costs, charges and expenses in accordance with rule 9.1, the SRA may transfer such remaining funds into the compensation fund held by the SRA in respect of the activities carried on by the intervened practitioner and thereupon any claim to such funds shall be extinguished.

Rule 10: Miscellaneous

10.1

The SRA may make an interim payment to a beneficiary before the full distribution on a statutory trust account takes place. This will be done only where the SRA is satisfied that the circumstances are such that the payment can be made without prejudicing other claims on the statutory trust account.

10.2

The SRA may issue guidance notes to claimants to assist in the making of a claim and to explain the steps and processes which the SRA takes in dealing with a statutory trust account.

Rule 11: Commencement and application

11.1

These rules shall apply to all statutory trust accounts, whether such accounts were created before or after the 6 October 2011.

Rule 12: Transitional provisions

12.1

These rules shall not apply to licensed bodies until such time as the Society is designated as a licensing authority under Part 1 of Schedule 10 to the LSA and all definitions shall be construed accordingly.

12.2

In these rules references in the preamble to the rules being made under paragraph 6 of Schedule 14 to the Legal Services Act 2007 shall have no effect until the Society is designated as a licensing authority under Part 1 of Schedule 10 to the LSA.