Guest post by Martina Hogg, a compliance consultant at Legal Regulatory Risk & Research
Hogg: Client account questions
You may have thought that following the controversial £300,000 council grant, the closure of the firm in March 2017 by the Solicitors Regulation Authority, and Kamran Akram’s suspension from practice following a Solicitors Disciplinary Tribunal hearing, that the Asons saga was at an end.
According a report filed at Companies House by the joint liquidators of Asons Solicitors Limited, it is far from over.
The report states that the company entered into a tax avoidance scheme in 2014. The scheme involved the setting up of an employee beneficiary trust (EBT) and “the apparent purchase of gold bullion to the value of £2m through a convoluted chain of transactions”.
The scheme used by Asons is commonly known as a ‘gold bullion scheme’, the report says. In 2017, the General Anti-Abuse Rule Panel found that schemes involving gold bullion and EBTs were “abnormal and contrived”.
The joint liquidators report that, prior to the liquidation, HMRC had written to Asons to advise that it disputed the validity of the scheme. They say the “impact of the scheme being invalidated remains under review”.
According to the General Anti-Abuse Rule Panel and guidance issued by HMRC, these schemes can be used to disguise payments made to directors and/or employees of a business.
Though it is not known whether this is what happened in the case of Asons, the opinion published by the panel last year explained how a gold bullion scheme in a different case had worked:
“The company wished to reward and incentivise its key employees Mr X and Mrs Y. Advice was sought on how to structure this reward so it would not constitute remuneration for tax purposes,” it said.
“The reward was structured in the following way: a purchase of gold for the employees was funded by the company; that gold was immediately sold by the employees; the company’s liability to pay the third party gold supplier was settled by the employees in return for a director’s loan account credit in favour of the employees; in connection with the purchase of the gold a long-term obligation was created under which the employees were required in the future to pay to the trustees of the EBT an amount at least equal to the purchase price of the gold (plus indexation).”
HMRC maintained before the panel that there was no evidence to suggest the employees’ obligation to fund the EBT would be met.
The joint liquidators’ report into Asons does not give details of any payments that may have been made in gold or cash via the gold bullion scheme. However, it states that the liquidators are “discussing this matter separately with HMRC” – and that Asons “may have historically been involved in other tax avoidance/tax planning schemes”.
The joint liquidators also report that the business of Asons Solicitors Limited was sold to Coops Law Limited for the sum of £229,534 on 23 March 2017, the day before the company was placed into liquidation.
Coops Law Limited was run by Irfan Akram, the brother of Kamran Akram. The joint liquidators state that they “have reviewed these transactions and are investigating concerns raised by creditors that the transactions did not take place at arm’s length and for full value”.
The joint liquidators note that in the month prior to the sale to Coops Law Limited, the Asons’ work in progress had a value of circa £11m. Coops Law Limited was closed down by the SRA in June 2017.
The joint liquidators report that, following an initial review, they identified matters that “merited further investigation” but add that they do not wish to disclose further details as this might prejudice the ongoing investigation.
The report also states that the Insolvency Service is conducting its own investigations “with a view to disqualification action”.
Of most interest to the profession might be what became of client account. The company was placed in to creditors’ voluntary liquidation on 24 March 2017 and the SRA intervened in the firm six days later.
The report says that, as at 21 March 2017, the client account balance was £286,939 and the office account balance was £147,821.
The Solicitors Disciplinary Tribunal found that Kamran Akram had “expanded Asons at such a rate that he was unable to cope with it” and “not having someone in situ to monitor the expansion was a serious breach”.
Though he was found guilty of multiple rule breaches, the tribunal found they were “not indicative” of Mr Akram having lost his moral compass, and all allegations of dishonesty against him were also dismissed.
It is clear that there was a significant legal dispute between the joint liquidators and the Solicitors Regulation Authority (SRA): does the Solicitors Act 1974 trump the Insolvency Act 1986 or was it the other way around?
Whilst the sums at stake are substantial, the costs of litigating the issues could easily exceed the sums in dispute and it appears more likely than not that a pragmatic solution for this case was in the best interest of both creditors and the profession.
However, it is of concern to note that the deal negotiated involved both office money and client money. The SRA agreed that “any shortfall in the client account would be paid out of the compensation scheme and rank as a subrogated unsecured creditor”.
With the compensation fund already under pressure and the likelihood that we will see more insolvencies, is the SRA setting a dangerous and potentially costly precedent?
One last thought: the SRA has issued guidance about firms designing, promoting and setting up tax avoidance schemes; should it now be issuing guidance about participating in any such schemes?
Should the SRA being asking firms to confirm if they operate any such schemes or in the name of innovation, and opening up the legal market, is it content to leave firms to decide such matters for themselves?
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