Wigan solicitors rapped over 'hopelessly inadequate' accounting records

Distressed clients of Kathleen Wilson and Mark Smith claimed more than £350,000 in compensation after their firm was shut down, including one claim for almost £240k made by an elderly disabled couple in connection with the sale and purchase of properties.

Mr Smith and Mrs Wilson had been directors of GS Law Northwest Ltd, trading as Singleton Day Solicitors, on Ormskirk Road, Pemberton.

But the Solicitors Regulation Authority (SRA) intervened in 2016, closing down the firm and suspending the pair’s practising certificates.

It followed concerns about their accounting practises.

The SRA took the pair to a solicitors employment tribunal and while they can still practise as solicitors, they face restrictions including not being able to run their own firm or handle clients’ money for three years.

In an agreed outcome, they must also each pay a fine of £7,500 - reduced from £15,000 due to their “limited” means - as well as a total bill of £10,000 towards the SRA’s costs. Documents from the judgement state: “The tribunal noted that the respondents had become directors in a firm but had failed to carry out their own proper due diligence before becoming involved in that firm. They had acted naively and found themselves in a situation where there were a number of serious concerns with the accounts of the firm.

“Transactions of concern related to historic events which had taken place before the respondents had become involved with the firm. They had co-operated fully with the regulator.

“The accounting records at the firm had been hopelessly inadequate and, in the absence of any meaningful figures, the true financial position of the firm could not be ascertained.

"There had been losses in the sum of £353,974.96 which led to claims on the compensation fund.”

The two were previously directors of Goddard Smith, before joining DLC Solicitors in 2013. They later took it over and ran DLC and Goddard Smith separately.

GS Law Northwest Ltd, in Darwen, was authorised in July 2015, with Goddard Smith and DLC closing and going into liquidation. GS Law became the successor practice.

An investigation started into GS Law in September 2016, amid concerns about compliance with SRA Account Rules, and an adjudication panel decided to intervene that November.

The allegations were that they failed to comply with SRA Accounts Rules between July 2015 and November 2016, by failing to: establish and maintain proper accounting systems; keep proper accounting records of money held for each client; carry out client account reconciliations in accordance with rules; remedy breaches of the rules promptly; behave in a way that maintained the trust the public placed in them; and comply with legal and regulatory obligations.

They were also said to have breached SRA Principles 2011 by failing to act in the best interests of their clients and run their business effectively, as they “continued to operate a client account and continued to accept monies from clients, in circumstances where there was a shortfall on client account”.

Investigations raised concerns about the reliability of DLC’s account books in 2014, including unreconciled client account items of £421,375.90.

Goddard Smith had provided “substantial” loans to DLC in a bid to save the firm and managers considered entering DLC into liquidation, as its liabilities were estimated to be up to £100,000. However, it became apparent Goddard Smith would also have to go into liquidation.

GS Law’s accounts included unreconciled items inherited from DLC and Goddard Smith estimated to be £139,000.

No client account reconciliations were carried out at GS Law since its inception, no client account cashbook was kept and the firm could not provide appropriate accounting records to allow the investigator to calculate liabilities to clients.

The investigator reported that after acquiring DLC, Mrs Wilson said she realised the reconciled accounts provided were inaccurate and could not be proven - though this admission was disputed by Mrs Wilson.

Other issues included the VAT number for DLC being incorrect, problems with a former director and concerns about the IT software used.

Following the intervention, 82 claims had been made to the SRA’s compensation fund by March 31, 2017, totalling £353,9745.96.

The largest claim was for £232,853.51, made by a disabled couple in their late 80s in connection with the sale and purchase of properties.

While a file about the purchase was transferred to another solicitor before the SRA’s intervention, no funds were transferred and this led to a delay in completion. The SRA provided a grant to enable completion to take place.

The investigator said an email sent by Mr Smith said money in the client bank account at the time of the intervention included the couple’s money.

Mitigation put forward by Mr Smith and Mrs Wilson included that they reported issues to the SRA, employed accountants to attempt to resolve the issues and they disclosed all information requested by the SRA. The report states: “The respondents apologise for any hardship caused and for wrongdoing on their part which stemmed from the situation they found themselves in. They ascribe this to naivity and a failure of due diligence when attempting to expand their business.

“As a result of this poor judgement they lost their livelihood and suffered anxiety and depression. The respondents took their situation very seriously and tried at all times to resolve matters and protect clients.”

The report with the judgement states the levels of misconduct meant a reprimand was not sufficient, but the pair would not be suspended or struck off. Instead, the fine and restriction order were imposed.

The tribunal’s report states: “The respondents acted in breach of a position of trust as they failed to exercise proper stewardship in relation to client money. This led to a shortfall on client account.

“The respondents had direct control of the circumstances giving rise to the misconduct and their level of culpability is high.”

A client of Singleton Day contacted the Observer after the judgement made by the solicitors disciplinary tribunal.

Pensioner David Mottler, from Hawkley Hall, says he paid a “substantial” amount of money for an appeal in the civil court, which he claims they failed to do.

He said: “They had deprived me of my money which precluded me continuing the action with another solicitor.

“I complained to the SRA who ‘intervened’ (closed them down). I believed I was the only complainant.

“I was provided a pittance of compensation for the fee I had paid but nothing approaching my total losses associated with the ramifications of their negligence. It was emotionally devastating and absolutely life-changing to me.”

He is disappointed with the size of the fines imposed.

He said: “They were found guilty of various charges and were fined £7,500 - this equates to seven-and-a-half weeks’ income (average solicitors salary). A good deal by any standards!

“I have contacted all the major legal agencies to ascertain if any further (criminal) action is being taken and have been met with a deafening wall of silence.”