Law Society demands talks over potential Axiom Ince levy

The Law Society has made a public declaration of concern about solicitors having to pay for a multi-million black hole caused by the Axiom Ince collapse.

The Solicitors Regulation Authority has stated that the £18m in the compensation fund reserves is unlikely to cover the potential claims from clients of the national firm, which was shut down earlier this month.

Prior to the SRA’s intervention, former Axiom Ince managing partner Pragnesh Modhwadia was made subject to a £64m freezing order by the firm. He admitted in court the money had been spent on purchasing firms and properties.

The Law Society today said the SRA’s proposal for a one-off levy on the profession to cover the compensation fund shortfall should not be imposed without proper consultation.

Chief executive officer Ian Jeffery said: ‘As the representative body for the solicitor profession, we are of course greatly concerned that our members could be asked to plug a gap of many millions of pounds in the Compensation Fund arising from the collapse of just three law firms, which were set up under atypical business models and with their own clear and inherent risks.

'We would expect the solicitor profession to be consulted before any decision is made by the SRA on its approach to these exceptional compensation questions, given that our members would be required to pay for it and it is their collective reputation at stake.'

The profession is unlikely to be required to pay the full £64m, and money will be recouped in time through the sale of Axiom Ince assets and insurance payouts, but in the meantime there is an immediate cashflow issue.

Jeffery said the Law Society wanted assurances that the SRA is complying with its statutory duty regarding any response to the crisis and insisted that actions must be ‘transparent, accountable, proportionate, consistent and targeted’.

The options for dealing with the cost of the Axiom Ince shortfall were discussed at a private meeting of the SRA board this month. Following that meeting, SRA leaders briefed the media that a one-off levy was being considered, or alternatively a £5m limit on collective claims from Axiom Ince clients.

The intervention costs faced by the regulator are unprecedented, with the Axiom Ince closure expected to cost £15m alone. This is on the back of action to shut down similarly accumulative firms Metamorph and Kingly.

Writing in a blog last week, SRA chair Anna Bradley said the regulator had to manage immediate issues before looking at the wider future of the compensation fund.

‘This means thinking about the best way to compensate current claims while also ensuring the fund remains financially viable,’ she said. ‘It is likely that we will need to increase the levies on the profession after years of keeping them stable. But we will need to think carefully around the best approach to doing that – for instance, we usually collect a levy annually, but we may need to consider an interim collection. We recognise that would have a big impact on firms, particularly smaller, high-street solicitors.’

This article is now closed for comment.