SDT: Cavalier approach to running firm
A law firm owner and his practice manager have both been fined for mismanaging legal aid funds, although a tribunal found they were “honourably motivated”.
The Solicitors Disciplinary Tribunal said Mladen Kesar and Elizabeth Hill’s “aspirations fell far short of what they delivered” and they had taken “a cavalier approach” to running a law firm.
Mr Kesar, who qualified in 2005, was the founder in 2010 and sole owner and compliance officer for legal practice at South-East London firm Kesar & Co, a predominantly legal aid practice now with around 30 staff.
Ms Hill, who is not a solicitor, joined in 2011 as company secretary, practice manager and compliance officer for finance and administration (COFA).
They admitted that, between 2013 and 2019, they received money from the Legal Aid Agency to meet the professional fees of interpreters and counsel instructed on cases but used it to meet other liabilities, such as historic professional fees, office overheads and wages.
There was a total of nearly £185,000 unpaid in relation to 440 client matters, with the firm’s financial difficulties attributed to the problems inherent in running a legal aid practice.
At the heart of the failure was that the pair – neither of whom had sought any training in the accounts rules – did not appreciate that bulk payments from the Legal Aid Agency were categorised as client money, because they were a mixture of the firm’s fees and disbursements which were due to third parties.
Mr Kesar said he had not reported to the Solicitors Regulation Authority (SRA) that the firm was facing serious financial difficulties because he believed it was still “doing considerably better” than other legal aid practices.
It was only in June 2019, after two translation businesses had complained to the regulator – one of them having obtained a county court judgment over unpaid invoices – that Mr Kesar and Ms Hill realised what they had done with the legal aid payments.
To manage the financial problems, Kesar & Co closed three offices, terminated its mental health legal aid contract, made staff redundant, and diversified into new areas of privately funded work, along with conditional fee agreements.
Further, Mr Kesar and Ms Hill invested “considerable sums of their own money” into the firm through interest-free loans, took salary cuts – Mr Kesar from £70,000 to £40,000 and Ms Hill from £40,000 to £30,000 – while Mr Kesar obtained two loans from external funders totalling £110,000, for which he provided a personal guarantee.
Bringing the accounts into order had been a “monumental” task, impacted by Covid, the SDT said, and it was only on 5 August 2020 that the amount of outstanding disbursements was known.
The SRA said the steps taken by the pair had worked, with the firm able to pay the disbursements by 1 September 2020 and all of its other debts within a year.
Further, Kesar & Co’s accounts for a 17-month period ending 31 March 2020 reported a 1,719% increase in pre-tax profits.
Mr Kesar and Ms Hill admitted failing to pay disbursements, misusing legal aid money and not keeping compliant accounts, save that they denied a lack of integrity.
The SDT agreed. It said Mr Kesar “appeared to the tribunal to be an honourable man who was doing his best to serve his local community”, while Ms Hill was “straightforward, honest and credible” and “did not attempt to evade responsibility for the admitted misconduct”.
They ought “without doubt” to have known how to treat the legal aid payments, “but the evidence before the tribunal did not substantiate that they did or substantiate the allegation that they lacked integrity”.
The tribunal also rejected an allegation that they did not remedy the shortfall in the accounts promptly.
It found that Mr Kesar should have reported to the SRA that the firm was in serious financial difficulty but at the time he did not appreciate that it was. So again he did not lack integrity in failing to do so.
Ms Hill was unaware of the duty to report and so she “could not be said to have lacked integrity by failing to report something that she was unaware of”.
In deciding sanction, the SDT said that Mr Kesar “should have ensured that he properly understood they regulatory requirements of running a firm, and the financial management of legal aid contracts before he set up the firm”.
While Ms Hill was “entitled” to follow Mr Kesar’s lead, she should have learned what was required of her as COFA. “It was rash of her to accept the role without any training. The inadequacy of the firm’s record keeping stemmed from her lack of expertise and training.”
The tribunal considered that they were nonetheless “honourably motivated, but their aspirations fell far short of what they delivered. They appeared to be motivated by expediency rather than regulatory compliance”.
Clients were not harmed by the misconduct, but experts and counsel were, as was the reputation of the profession.
It added: “Both Mr Kesar and Ms Hill went into the firm in a position of ignorance, which situation they allowed to persist for six years. They both took a cavalier approach to running the firm, and Mr Kesar to establishing it”.
The SDT said a fine a £12,000 was appropriate for Mr Kesar, which it halved taking into account factors including his means, and it also imposed an order preventing him from holding a compliance officer role. Ms Hill was fined £6,000.
They were also ordered to pay the SRA’s costs of £54,000, with Mr Kesar liable for two-thirds of it given that he was “more culpable” for the misconduct.
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