How Many Law Firms does it take to Make a Mess?

Posted 24th October 2023 by ctatax-admin

Cornerstone Tax is the UK’s leading property tax advisers, specialising in Stamp Duty Land Tax. We’ve reclaimed over £30 million in overpaid SDLT. Contact us for stamp duty advice, or to see if you are eligible to claim a refund from HMRC on overpaid Stamp Duty.

How Many Law Firms does it take to Make a Mess?

As it turns out, just the one. And it’s a mess which could have huge repercussions for the entire legal profession.
As of the 3rd October, the SRA finally intervened in the law firm Axiom Ince, preventing any further trading and ensuring that all ongoing matters handled by the firm were passed to other law firms operating as agents.

But how did it come to this?

Axiom Ince, under Managing Partner Pragesh Modhwadia, has not exactly been idle or ‘flying under the radar’ in recent times. In July, it acquired Plexus Law after that firm collapsed, ‘saving’ 540 jobs. Specialist Shipping Law firm Ince & Co had been acquired similarly in May. Both these top 200 firms were acquired by one firm in the space of 6 weeks, and yet it has taken until now for the truth behind this and other business conducted by the firm came to light.

The £64 Million Question

In an affidavit tendered by Modhwadia, it was admitted that most of the £64million taken directly from client accounts had been spent by the firm. Aside from the purchase of Ince and Plexus, the money had also been spent on the acquisition of six properties, and funding the construction of seven more properties.

How could this happen?

Rogue fee earners and even partners using client funds for other purposes is not unheard of. But how could such an enormous amount of client money have been spent so brazenly, acquiring high profile firms in the middle of collapse, without anything being noticed by the regulator?

Indeed, what sort of regulatory system is it where an undertaking of such magnitude is only caught after the event?

What Happens Next

It isn’t just the immediate impact of these events which is relevant – the loss of thousands of jobs (though not by some partners who are reportedly already landing on their feet at other firms), the innumerable clients whose matters were in progress and the additional workload inflicted upon those firms appointed as agents. There’s also the cost to the industry as a whole.

Read: How to tell if you’ve overpaid on stamp duty

First, there’s the erosion of trust in the legal profession which invariably follows on from instances such as this. Mirror-like, trust can be repaired, but only ever imperfectly, and things like this live long in the memory.
But in a more concrete sense, the costs to every firm in the UK may be too great to even calculate. As commented by Andrew Pavlovic, a regulatory lawyer and partner with London firm CM Murray:

‘‘Alongside the costs of the intervention, there is also the potential for significant claims on the SRA’s compensation fund, given the size of the client account shortfall. It is not yet clear how this will all play out, but clearly there is the potential for extremely high levels of costs being incurred, which will ultimately be met by the profession.’

Alarmingly, far from seeming ready to address any of the shortcomings which led to its overseeing this disaster, it appears that the SRA are now seriously considering getting all law firms to help foot the bill for it. News has reached solicitors that the SRA is currently mulling the idea of an ‘Extraordinary Levy’ on the compensation fund it maintains, the balance of which seems somewhat disputed with the Law Society Gazette first reporting that £50m was set aside and then later changing this figure to £18m. Quite the difference.

Read: 5 ways you can save thousands on stamp duty

How can the public have trust in a regulator who can not only allow such a catastrophic event occur on its watch but also seems intent on shifting responsibility for mending the results of its own errors onto its members? How can they trust a profession so clearly being mismanaged by that same regulator? One thing seems certain – the fallout from this may resonate throughout the legal profession for years to come.

Cornerstone Tax is the UK’s leading property tax advisers, specialising in Stamp Duty Land Tax. We’ve reclaimed over £30 million in overpaid SDLT. Contact us for stamp duty advice, or to see if you are eligible to claim a refund from HMRC on overpaid Stamp Duty.