Can You Get Compensation If A Firm Of Solicitors Goes Bankrupt?

Navigating the world of legal matters can be challenging, but what happens when the solicitor you'™ve entrusted with your case goes bankrupt? Will you be left out in the cold, or do you have options to protect your interests and seek compensation for any losses incurred? This comprehensive guide aims to shed light on this often-overlooked aspect of the legal profession and provide you with valuable insights into your rights and the safeguards in place to ensure you're not left empty-handed. One key question we will address is, can you get compensation if a solicitors goes bankrupt?

We delve into the reasons behind solicitor bankruptcy, the steps you can take if your solicitor goes bust, the various client protection measures available, and the compensation fund options at your disposal. By the end of this article, you’ll be equipped with the knowledge to confidently navigate the insolvency process and secure the compensation you deserve, even in situations where a firm of solicitors goes bust.

Key Takeaways

  • Understand your rights and options in the event of solicitor bankruptcy, including accessing the Compensation Fund.

  • Take swift action to transfer legal matters and contact relevant authorities for assistance with recovering money or compensation.

  • Seek advice and further information to understand client protection measures such as PII, Run-Off Cover and successor practices. Also use complaint mechanisms if necessary.

Understanding Solicitor Bankruptcy

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Solicitor firms, including limited liability partnerships and sole practitioners, may close due to various reasons such as mismanagement, retirement, or difficult trading conditions. In these situations, clients should be well-informed about their rights and options to safeguard their interests by consulting the law society.

When a firm closes, it may leave behind a trail of financial liabilities, owed money to clients, and other creditors. To protect clients during the insolvency process, the Solicitors Regulation Authority (SRA) has established the Compensation Fund, which can provide compensation to clients of solicitors who have been declared bankrupt, helping them recover from financial loss. Additionally, the solicitors indemnity fund serves as another layer of protection for clients in such situations.

Being aware of the available options for recovering funds and claiming compensation for professional negligence can prevent clients from being stranded when their solicitor’s firm shuts down.

What to do if a solicitor goes bust

In the event of a solicitor’s bankruptcy, swift action is key to protect your interests. Clients should take the following steps:

  1. Transfer their ongoing legal matters to another firm.

  2. Keep the new firm’s contact details for future correspondence.

  3. In some cases, transfer an existing legal expenses policy to the new firm to help recover any owed money from the bankrupt solicitor’s firm.

If your legal matter had been concluded before the firm’s closure, you may be advised to contact the SRA’s Intervention Archives department to locate your file. The Intervention Archives Unit can assist clients whose solicitor’s firm has ceased trading due to the insolvency process.

In situations where a firm is abandoned, clients should contact the Solicitors Regulation Authority without delay, as the SRA may be able to pay compensation through the Compensation Fund. Being proactive and obtaining legal advice from qualified professionals will help safeguard your rights and ensure you receive the compensation due to you.

Client Protection Measures

Clients are protected through various measures to ensure the security of their money and assets. These include separate client accounts, professional indemnity insurance, and successor practices.

The SRA Code of Conduct for Solicitors and the SRA Accounts Rules mandate that solicitors safeguard client money and assets, maintaining a high standard of accountability in the profession.

Professional Indemnity Insurance

Most regulated professionals are required to obtain and maintain professional indemnity insurance (PII) cover, also known as an insurance policy, to protect clients against negligence claims, including personal injury cases. PII policies operate on a ‘claims made’ basis, meaning that the applicable policy is the one in force at the time when a claim is lodged against the professional, rather than when any negligence occurs.

This kind of insurance protects both solicitors and their clients by covering the cost of defending allegations of professional negligence. Clients thus have a method to claim compensation for any financial losses due to a solicitor’s professional negligence, offering a safety net in the event of a claim.

Run-Off Cover

Regulated professionals must purchase ‘runoff’ cover when their firm or practice is closed, which ensures they have Professional Indemnity Insurance (PII) cover for a set period of time. This type of cover is quite common. The purpose of run off cover is to safeguard claimants from situations where no PII cover is available to satisfy the claim after a firm or practice has ceased operations.

For solicitors, the required run off period is a minimum of six years after the cessation of a firm or practice. In the absence of run off cover, there might not be any Professional Indemnity Insurance cover in place to meet a claim, leaving clients without recourse.

Successor Practices

Liability for negligence claims can be transferred to a successor practice if the closed professional firm is a solicitor. A successor practice is a firm or company that assumes the obligation for handling grievances and providing remedies when a professional adviser legal business or service provider ceases operations.

In the absence of run off cover or other insurance, clients may still pursue a claim against and recover compensation from a negligent employee. Knowing the options available and the potential successors to a closed firm ensures clients can confidently pursue compensation even after a firm has ceased operations.

Compensation Fund Options

Clients can seek compensation through various channels, such as the Financial Services Compensation Scheme (FSCS) and the Solicitors Regulation Authority (SRA) Compensation Fund. The FSCS is an avenue of recourse for private individuals and small businesses who are unable to obtain the money paid as compensation from their advisers or the PII providers to their advisers.

The SRA Compensation Fund, managed by the SRA, serves to reimburse customers for any money not returned by a solicitor’s firm. Grasping the various compensation fund options helps clients navigate the insolvency process more effectively and increases their chances of recouping their losses.

Claiming Compensation: The Process

To claim compensation, clients must complete the following steps:

  1. Fill out a proof of debt template.

  2. Submit the completed template to the relevant authority, such as the Legal Ombudsman or the SRA.

  3. The authority will evaluate the particulars of the occurrence, recognise any accountable parties, and ascertain the degree of their liability.

Accumulating necessary evidence for filing a claim is pivotal in creating a robust case. Here are some key documents to gather:

  • Witness statements

  • Photographs

  • Other relevant documents

  • More detail where necessary

With the appropriate documentation and a well-prepared claim, clients can confidently pursue compensation and ensure that their rights are protected throughout the process.

Legal Ombudsman and Complaints

Clients can file complaints with the Legal Ombudsman if they are unsatisfied with the handling of their case or if they believe they are entitled to compensation. The Legal Ombudsman is an independent body that investigates complaints about lawyers, solicitors and the legal services they provide and can assist clients in resolving disputes with their legal service provider.

In addition to the Legal Ombudsman, clients can also file complaints with other authorities, such as the Costs Lawyer Standards Board (CSLB) for costs lawyers or CILEx Regulation for Chartered Legal Executives. Knowing the options available for lodging complaints and pursuing compensation allows clients to actively hold negligent professionals responsible.

Tips for Dealing with Bankrupt Solicitors

When dealing with a firm of bankrupt solicitors, being proactive in compiling all pertinent documentation and seeking legal counsel is vital. Obtaining all documents pertinent to the case, including contracts, invoices, and any other related communication, is essential to pursuing a claim for compensation.

In addition to gathering documentation, legal advice should be sought from a legal advice service. This can provide valuable insights into the insolvency process and help clients better understand their rights and options.

Finally, clients should take a proactive approach to pursuing compensation claims. This may include contacting the relevant professional indemnity insurer or the Solicitors Regulation Authority, as well as staying informed about the progress of their claim and any developments in the insolvency process

Summary

In this comprehensive guide, we’ve explored the reasons behind solicitor bankruptcy, the steps clients can take when their solicitor goes bust and the firm closes, the various client protection measures in place, and the compensation fund options available to them. Armed with this knowledge, clients can confidently navigate the insolvency process and ensure their rights are protected.

Remember, even in the face of a solicitor’s bankruptcy, you have options and protections available to help you recover compensation for any losses incurred. By staying informed, seeking legal advice, and taking a proactive approach, you can overcome the challenges posed by a bankrupt solicitor's firm and secure the compensation you rightfully deserve.

Frequently Asked Questions

What happens if a solicitor goes bankrupt?

If a solicitor goes bankrupt, their clients will need to appoint a new solicitor and the latter will request the documents held in safe custody from the former.

Can you sue a closed law firm?

It is possible to sue a closed law firm, as there are mechanisms available to claimants to increase the chances of their claim being satisfied.

Can you claim compensation from a solicitor?

You have the right to seek damages if your solicitor fails in their duty of care. You can claim compensation and depending upon the circumstances and the debts involved, you are likely to be successful.

Can you sue a solicitor for incompetence?

Yes, a solicitor can be sued for incompetence if they have failed to meet the expected standard of care they owe their client. This is considered professional negligence and the client may seek damages to compensate them for any losses incurred.

What protection measures are in place for clients of solicitors that go into administration?

Clients of insolvent or bankrupt solicitors are protected through separate client accounts, professional indemnity insurance and successor practices, ensuring their legal matters remain unaffected by the bankruptcy.

Conclusion

Despite the challenges associated with solicitor bankruptcy, clients have various options and protections in place to help them recover compensation for any losses incurred.

Comprehension of the causes of solicitor insolvency, the protection measures available to clients, and the options for compensation funds empowers people to navigate the insolvency process with confidence and secure the deserved compensation.

When dealing with a firm that has let you down, do bear in mind that whether they are a sole practitioner, individual partners, limited liability partnership, limited company or a traditional partnership, there will be enough money set aside to deal with and settle any claim as insurance will normally be in place and the insurers will pay out.