Voluntary closure - retirement without a successor

It is key to protect the interests of the clients, their ongoing work and their assets, such as Wills, deeds, powers of attorney, trust documents, and files both live and dead. The onus is on the retiring solicitor(s) to protect confidentiality and privilege and to ensure that consent is obtained for the transfer of any documents or their return.

The obligation to notify clients can prove expensive, particularly if email is not an option and hard copy letters have to be sent through the post.

The cost of the continued storage of closed files can be significant but unless alternative arrangements are made that ongoing cost remains the responsibility of the outgoing principal(s). Hopefully a destruction policy following the closure of the file will be in place and agreed by the clients. If so destruction of files in accordance with this policy can take place.

If the accounts are up-to-date and the reconciliations show that there is no shortfall on client account a distribution of the funds to the individuals entitled must be undertaken. In the event that there is a shortfall it is very important that advice is taken from a regulatory lawyer who specialises in SRA regulation before any money is paid out. A shortage in a general client account results in a shortage in respect of each client and so no client can receive their full entitlement.

Eventually following the closure of the practice and the reduction of the client account to zero, evidence must be sent to the SRA that no client funds are held.

All relevant parties will need to be notified of the closure of the firm. These parties include the firms acting on the other side of cases, the courts, and any others with whom the firm has current dealings including the LAA, the bank, HMRC, accountants, et cetera.

The practice may have ongoing liabilities in respect of maintenance contracts, loans, hire purchase, or other debts. These will have to be considered and may be continuing liabilities of the individual principal depending on the contract terms.

Consideration will need to be given to the premises occupied by the practice. The ongoing liabilities under a lease including dilapidation charges need to be addressed.

A major issue is that of PII. Run-off cover to ensure that claims arising in the six year period following closure are covered on the same terms as for the last year of the practice, must be provided by the insurer and this is at a cost to the principals who were in post at any time during the last period of insurance.

Check your policies because many contracts specify that individuals who were principals or shareholders during the period of insurance are personally liable for unpaid premiums, excess payments due, and the cost of run-off cover, and thereby the insurer goes behind the veil of incorporation or limited liability.

What will happen about claims that come to your attention following the six year run off period is still unclear. The SRA have announced their decision to close the Solicitors Indemnity Fund which currently offers insurance cover for the period beyond run off, but there is no clear option as yet for further cover.

Advice should be sought on the issue of insurance payments and the cost of run-off cover is often negotiable.

A principal retiring from practice should exit altogether. It is important to note that (subject to the solicitor being covered under another contract of insurance-See below) once run-off cover has been taken the provision of any legal services will invalidate that cover.

Destroy marketing literature. A message should be placed on any answerphone explaining to callers that legal work is not being undertaken and explaining where queries about administrative issues including payment of outstanding bills should be directed.

The firm’s website should be taken down subject to a notice explaining that the firm is no longer in existence and explaining how clients can access deeds or documents and where administrative questions should be directed.

The firm’s letterheaded stationery should preferably not be used but if it is used it should contain a clear statement that the firm is no longer in practice.

Any advice lines should be withdrawn and any other vehicle for the provision of advice to potential clients should also be withdrawn.