“(ix) In the case of Wood and Burdett (case number 8669/2002 filed on13 January 2004 ), the Solicitors Disciplinary Tribunal said that it is not a proper part of a solicitor’s everyday business or practice to operate a banking facility for third parties, whether they are clients of the firm or not. Solicitors should not, therefore, provide banking facilities through a client account. Further, solicitors are likely to lose the exemption under theFinancial Services and Markets Act 2000 if a deposit is taken in circumstances which do not form part of a solicitor’s practice. It should also be borne in mind that there are criminal sanctions against assisting money launderers.”
“(1) The business of a recognised body may consist only of the provision of: (a) professional services of the sort provided by individuals practising as solicitors and/or lawyers of other jurisdictions;…….” (a) professional services of the sort provided by individuals practising as solicitors and/or lawyers of other jurisdictions;…….”
“In a winding up by the court, any disposition of the company’s property… made after the commencement of the winding up is, unless the court otherwise orders, void.”
“1. These proceedings concern the so called “football creditor rule” operated by The Football League Limited (the FL). Its purpose and effect is to ensure that in the event of a member club becoming insolvent particular classes of creditors, such as other clubs in the FL, the club’s players, managers and other employees and the FL itself, are paid in full in priority to any other creditors. These preferred creditors are called “football creditors” by the FL. It means, the FL acknowledges in its evidence, that football creditors will be paid in full before, for example, the St John Ambulance which provides first aid at many clubs’ grounds during matches. 2. The football creditor rule has been subject to a good deal of criticism, in Parliament and in the courts as well as from commentators. It was heavily criticised in a report of the Culture, Media and Sport Committee of the House of Commons dated29 July 2011 which recommended that it should be abolished, by legislation if necessary. In his recent judgment on an application for an administration order in relation to Portsmouth Football Club (2010) Ltd (17 February 2012 ), Norris J said: “I understand the disquiet from the creditors. The general body of taxpayers, and the ordinary consumers who do pay their energy bills, and the ordinary traders and professionals who provide services such as, from the creditor list, coach hire, catering, medical services, ground care and maintenance, must wonder why they should subsidise the club’s wage bill, why it is that they are involuntarily lenders to the club of their outstanding bills and why they will only get back pence in the pound for the services they have provided.” 3. These proceedings are not concerned with whether giving priority to football creditors is socially or morally justified. The issue is one purely of law, whether the provisions which together accord this priority are void and of no effect on the grounds that they are contrary to insolvency law. The challenge is brought by The Commissioners for Her Majesty’s Revenue and Customs (HMRC) who submit that the relevant provisions conflict with two fundamental principles of insolvency law.” “I understand the disquiet from the creditors. The general body of taxpayers, and the ordinary consumers who do pay their energy bills, and the ordinary traders and professionals who provide services such as, from the creditor list, coach hire, catering, medical services, ground care and maintenance, must wonder why they should subsidise the club’s wage bill, why it is that they are involuntarily lenders to the club of their outstanding bills and why they will only get back pence in the pound for the services they have provided.”
“21.12. Ms Foster QC submitted the exemption [section 327(2) & (4) of theFinancial Services and Markets Act 2000 ] allowed solicitors to do some acts if they were incidental to the work carried out. In this case the First, Second and Third Respondents had been engaged in order to effect the successful transfer of PCFC, assist it to survive if possible and discharge its debts. She submitted Rule 15 note (ix) did not define a banking facility and that in this case the transactions carried out by Fuglers were ancillary work. There was a distinction between acting as a mere bank and acting where knowledge and expertise was required. Mr Berens had given advice on who should be paid and when, and Fuglers’ client account had not been used for a nefarious purpose.”
“21.17. The Tribunal did not accept that the Football Creditors Rules were in the minds of the Respondents at the time these transactions had taken place, and rejected the assertion that allowing Fuglers’ client account to be used in this way was ancillary to the work being carried out. It was particularly pertinent that throughout the SRA’s interviews, there was no reference at all to the Football Creditors Rules. It was also relevant that, although submissions had been made that this work was ancillary to the firm’s retainer, no evidence of the actual terms of that retainer had been produced. It appeared from the evidence that Fugler’s work was to ensure the salvation and survival of PCFC; however, the Tribunal had been provided with no documents to confirm or to demonstrate the nature and extent of the legal transaction that Fuglers had been instructed to deal with. It was clear to the Tribunal that the Respondents’ main concern, in allowing their client account to be operated as they did, was to try and keep PCFC afloat. 21.18. The Tribunal then considered the nature of the payments that had passed through Fuglers’ client account. Mr Berens on cross examination had accepted that not every financial movement was in relation to an underlying legal transaction. During his interview with Mr Grehan, Mr Berens had stated in response to a question asking “…did the firm operate a banking facility for [PCFC]?”: “The answer to that question is regrettably the firm did operate a bank facility for the club and with the benefit of hindsight that was a breach of Rule 15. Unfortunately the firm did not appreciate at the time that it was in breach of Rule 15.”
“…In relation to the specifics it is accepted that in respect of some of those payments there was no underlying legal transaction as regards which the firm had been engaged to act on behalf of the club.”
“22.1. In this case, HMRC had started proceedings in the High Court of Justice and were clearly aggrieved by the manner in which PCFC’s company voluntary arrangement had been dealt with in contravention of the insolvency principles as they saw them. The Tribunal had already found the Respondents had allowed their client account to be improperly used as a banking facility and that there had been competing demands on the money in that account. The Tribunal was satisfied that members of the public, who were aware that a solicitor’s account had been used as a technical device to deprive creditors of their funds, and to favour certain creditors over other creditors in particular circumstances, would take a dim view of such conduct and that this behaviour did, or was likely to diminish the trust and confidence placed in the profession. Accordingly, the Tribunal was satisfied that allegation 1.4 was proved against the First, Second and Third Respondents, Fuglers, Mr Berens and Mr Fugler.”
“27. Ms Foster QC referred to the Tribunal’s Guidance Note on Sanctions and submitted that the public had not been harmed, public confidence in the profession had been maintained and that proportionality must be considered. It was accepted Mr Berens had got it wrong but there were no aggravating features. The motivation behind the conduct had been entirely proper and the mitigating factors set out in the Guidance Note did not appear to be directed to a case of this sort. Mr Berens and Mr Fugler had an unblemished career that they were proud of and, at the hint of criticism from their regulator, they had accepted that there had been a rule breach if that was what they were told. They had co-operated with the regulator throughout and their appearance before the Tribunal was a matter of extreme discomfort, regret and sorrow. There was no risk of such conduct occurring again and the Tribunal was reminded that the case involved a particularly difficult rule where the exact obligation was not set out clearly in the correct context. The Tribunal was referred to a number of character references in relation to Mr Berens and invited to make no order in this case. …….. 31. The Tribunal had considered carefully the submissions made on behalf of all the Respondents, the documents it had been referred to, the character references provided and evidence given. The Tribunal referred to its Guidance Note on Sanctions when considering sanction. The Tribunal also had due regard to the Respondents’ rights to a fair trial and to respect for their private and family life under Articles 6 and 8 of the European Convention for the Protection of Human Rights and Fundamental Freedoms. 32. Although the Respondents appeared to have underestimated the significance and adverse consequences of using their solicitors’ client account as a banking facility, the Tribunal took the view that this was a very serious case. Solicitors’ client accounts were the bedrock of the profession. These Respondents, and particularly the First and Second Respondents, Fuglers LLP and Mr Berens, the latter of which had made the decision to allow the use of the client account in this manner, had exposed the Respondents to a number of potential dangers that solicitors should avoid. Sums in excess of£10 million had passed through their client account and payments had been made to third parties, which had ultimately led to Mr Berens writing to Fuglers’ insurers on2 November 2010 and notifying them of a potential claim. 33. Mr Berens had accepted that he had taken the decision to allow PCFC to utilise Fuglers’ client account. This placed him in a different position from both Mr Fugler and Mr Jacob. Mr Berens had allowed the client account to be used knowing full well that PCFC’s own bank had frozen PCFC’s account. In freezing the account the bank was fully aware of the consequences of a winding up petition and the risks the bank could be exposed to if transactions were allowed to take place through that account in the event that insolvency proceedings ensued. As events developed there were indeed competing claims on the funds held in Fuglers’ client account from HMRC, other investors and various other creditors. In addition to these issues, there were the additional risks associated with the complications of two winding up petitions,section 127 of the Insolvency Act 1986 and disputes between investors of PCFC which eventually led to the matter being transferred to another firm of solicitors. Although Mr Berens had taken the view that any dispositions would subsequently be validated by the court should any application be made under theInsolvency Act 1986 , he had still exposed Fuglers and their insurers to the risk that they may not be validated. Huge sums of money had been involved and there was a potential that a large number of claims could have been made as a result. 34. In the case of HMRC v Portsmouth City Football Club Ltd (in administration), Andronikou, Kubik and Keily, Mr Justice Mann had stated: “16…. It is alleged that this device was adopted to avoid the inconvenience of the club’s bank account being frozen on the presentation of the petition (because of the operation ofsection 127 of the 1986 Act ); and it is said that Fuglers did not feel themselves to be under the same constraints as banks….”
“it is required of lawyers practising in this country that they should discharge their professional duties with integrity, probity and complete trustworthiness…. Any solicitor who is shown to have discharged his professional duties with anything less than complete integrity, probity and trustworthiness must expect severe sanctions to be imposed upon him by the Solicitors Disciplinary Tribunal. Lapses from the required high standard may, of course, take different forms and be of varying degrees. The most serious involves proven dishonesty, whether or not leading to criminal proceedings and criminal penalties. In such cases the tribunal has almost invariably, no matter how strong the mitigation advanced for the solicitor, ordered that he be struck off the Roll of Solicitors. Only infrequently, particularly in recent years, has it been willing to order the restoration to the Roll of a solicitor against whom serious dishonesty had been established, even after a passage of years, and even where the solicitor had made every effort to re-establish himself and redeem his reputation. If a solicitor is not shown to have acted dishonestly, but is shown to have fallen below the required standards of integrity, probity and trustworthiness, his lapse is less serious but it remains very serious indeed in a member of a profession whose reputation depends upon trust. A striking-off order will not necessarily follow in such a case, but it may well. The decision whether to strike off or to suspend will often involve a fine and difficult exercise of judgment, to be made by the tribunal as an informed and expert body on all the facts of the case. Only in a very unusual and venial case of this kind would the tribunal be likely to regard as appropriate any order less severe than one of suspension. It is important that there should be full understanding of the reasons why the tribunal makes orders which might otherwise seem harsh. There is, in some of these orders, a punitive element: a penalty may be visited on a solicitor who has fallen below the standards required of his profession in order to punish him for what he has done and to deter any other solicitor tempted to behave in the same way. Those are traditional objects of punishment. But often the order is not punitive in intention. Particularly is this so where a criminal penalty has been imposed and satisfied. The solicitor has paid his debt to society. There is no need, and it would be unjust, to punish him again. In most cases the order of the tribunal will be primarily directed to one or other or both of two other purposes. One is to be sure that the offender does not have the opportunity to repeat the offence. This purpose is achieved for a limited period by an order of suspension; plainly it is hoped that experience of suspension will make the offender meticulous in his future compliance with the required standards. The purpose is achieved for a longer period, and quite possibly indefinitely, by an order of striking off. The second purpose is the most fundamental of all: to maintain the reputation of the solicitors’ profession as one in which every member, of whatever standing, may be trusted to the ends of the earth. To maintain this reputation and sustain public confidence in the integrity of the profession it is often necessary that those guilty of serious lapses are not only expelled but denied readmission. If a member of the public sells his house, very often his largest asset, and entrusts the proceeds to his solicitor, pending reinvestment in another house, he is ordinarily entitled to expect that the solicitor will be a person whose trustworthiness is not, and never has been, seriously in question. Otherwise, the whole profession, and the public as a whole, is injured. A profession’s most valuable asset is its collective reputation and the confidence which that inspires. Because orders made by the tribunal are not primarily punitive, it follows that considerations which would ordinarily weigh in mitigation of punishment have less effect on the exercise of this jurisdiction than on the ordinary run of sentences imposed in criminal cases. It often happens that a solicitor appearing before the tribunal can adduce a wealth of glowing tributes from his professional brethren. He can often show that for him and his family the consequences of striking off or suspension would be little short of tragic. Often he will say, convincingly, that he has learned his lesson and will not offend again. On applying for restoration after striking off, all these points may be made, and the former solicitor may also be able to point to real efforts made to re-establish himself and redeem his reputation. All these matters are relevant and should be considered. But none of them touches the essential issue, which is the need to maintain among members of the public a well founded confidence that any solicitor whom they instruct will be a person of unquestionable integrity, probity and trustworthiness. Thus it can never be an objection to an order of suspension in an appropriate case that the solicitor may be unable to re-establish his practice when the period of suspension is past. If that proves, or appears likely, to be so the consequence for the individual and his family may be deeply unfortunate and unintended. But it does not make suspension the wrong order if it is otherwise right. The reputation of the profession is more important than the fortunes of any individual member. Membership of a profession brings many benefits, but that is part of the price.”
“You must not provide banking facilities through a client account. Payments into, and transfers or withdrawals from, a client account must be in respect of instructions relating to an underlying transaction (and the funds arising therefrom) or to a service forming part of your normal regulated activities.”
“The Tribunal may make such order as to costs as the Tribunal shall think fit…”