I was delighted to see in a recent LawTalk article about Wellington sole practitioner John Swan’s proactive approach to “very carefully and meticulously shutting up shop”. John was described as being “acutely aware of the duty he has to his clients.”
Let’s contrast this proactive Wellingtonian* with a hypothetical Cantabrian who leaves things until the last minute. That Cantabrian is confronted with issues including having to store his/her records, relocate deeds, withdraw from trusteeships, and resolve all the balances held for clients in the firm’s trust account.
Quite simply client monies cannot be transferred to another firm without client authority or acquiescence. Nor can monies be dumped into the IRD as ‘unclaimed’ without the lawyer completing reasonable efforts to locate the client. Efforts will be needed to trace any clients with whom contact has been lost, especially if the lawyer has failed to report to them over several years that he/she has been holding those monies in the firm’s trust account.
These tasks will all take time and the golf course, grandchildren, fishing etc will have to await until those clients’ interests have been protected. There will be no temptation of overseas travel in the current climate of course.
In the Inspectorate’s experience few sole practitioners are aware of the range of duties and tasks that fall upon them on closure, or the lead times that are required to meet those duties.
The end of the practising year often brings a flurry of practitioners wanting to retire, merge or otherwise withdraw from practice. Those practitioners with trust accounts must of course close their trust accounts before they can close their doors, so to speak.
The Law Society’s Practice Briefing Closing down or selling a law firm includes discussion on closing a trust account and trust bank account.
The Inspectorate will usually complete an ‘exit review’ before any trust account is closed. In essence the purpose of an ‘exit review’ is to ensure all loose ends have been tidied up appropriately and that the firm has made arrangements to meet the continuing duty to retain files and trust account records.
As noted above, all ledger balances will need to be suitably resolved. As all solicitors should be aware, any transaction involving client monies must be able to be referenced back to instructions (or statutory authority). The only exception to that paramount rule is where payment is made back to the client, ie refunding; Lawyers and Conveyancers Act 2006 section 110 (1) (b) refers. Fees cannot be deducted unless you can show both authority and having rendered an invoice. Fees that remain in the client’s ledger (that were ‘going to be deducted at some stage’) cannot be deducted unless both authority and the rendering of the invoice can be proven.
The contact details of owners of inactive balances (often misdescribed as dormant balances) should usually be known if the firm has met their duty; that all balances must be reported on (at least annually) as required by the Lawyers and Conveyancers Act (Trust Account) Regulations 2008, regulation 12(7). Sending a copy of the ledger is usually an easy and economical way of meeting that duty in most instances.
There will also be a duty to make reasonable efforts to trace clients and that burden will be greater if the loss of contact has been caused or exacerbated by the lawyer’s failings; eg to report to the client in previous years. Costs of such tracing cannot be deducted without client authority of course.
If contact has been lost with clients, enquiries with a credit agency (eg Veda, Dun & Bradstreet etc) is likely to be very cost effective and will usually discharge this duty to make reasonable efforts.
If you are thinking of closing your trust account, you are encouraged to consider these issues sooner rather than later and as always, the Inspectorate welcomes liaison.
For help with Trust account closures and administration, you can contact the Law Society Inspectorate: email@example.com
* Of course recent waste-water calamities suggests that Wellingtonians are not universally proactive.
Despite the examples given above, Philip holds the typical Canterbury practitioner in high regard.