SDT: Admit to mistakes before they escalate
A solicitor who redacted witness statements to cover up the fact he had withdrawn a client’s insolvency application and agreed that she should pay costs, without her knowledge, has been struck off.
The Solicitors Disciplinary Tribunal (SDT) said this was a case where “the cover-up of a mistake had resulted in an escalation into serious and embedded professional misconduct”.
It went on: “When mistakes are made, solicitors must act with openness and full disclosure. As a general observation, the tribunal urged any solicitor who realises they have made a mistake to take steps to address it before matters escalate beyond their control.”
Paul Formby, admitted in 2004, was a salaried partner at SAS Daniels in Stockport, where he specialised in insolvency and corporate recovery.
The Solicitors Regulation Authority (SRA) said, in an agreed outcome with Mr Formby, that the solicitor was instructed by his insolvency practitioner client to make an application under section 366 of the Insolvency Act 1986 to obtain information about a bank account.
Mr Formby did so in February 2016 but, a year later, negotiated its withdrawal shortly before it was due to be heard and without telling the client. The SRA noted that he had done little to prepare for the hearing.
Mr Formby also agreed that his client would pay the costs of two respondents to the application, again without telling her.
He made a separate application under section 367 in September 2016. Section 367 gives courts powers to obtain a bankrupt’s property from, or debts owed by, a respondent.
In the application, Mr Formby’s client sought almost £3.6m from the respondents, which it was claimed related to funds held in the bank account that was the subject of the section 366 application.
The respondents served witness statements from which he then redacted paragraphs using a photocopier before sending them to the client and counsel.
These referred to the withdrawal of the section 366 application and his client’s agreement to pay costs, along with “general failures” on his part to engage with the parties and comply with directions.
Both the client and counsel queried gaps in the statements. Mr Formby made no admissions at the time and the client terminated her instructions in August 2017, still unaware of what he had done.
Later that month, without her consent and despite no longer acting for her, Mr Formby agreed that this client would pay £30,000 in costs for the section 366 application.
The client only discovered what had happened when her new solicitors collated a bundle for a preliminary hearing on the section 367 application and the opposing firm asked why they had included redacted statements.
The client did not have £30,000 to pay the costs and, with the receiving party threatening enforcement proceedings, it was paid by SAS Daniels.
Mr Formby admitted dishonesty over the witness statements and a lack of integrity in withdrawing the section 366 application and agreeing that his client would pay costs.
The solicitor said, in non-agreed mitigation, that he was under “significant pressure” to progress the section 367 application given both the quantum of the claim and £500,000 of contingent work in progress that had been racked up.
He had “failed to deal properly” with the hearing in relation to the section 366 application and “felt unable” to notify the client.
By redacting the documents, he was “seeking to give himself sufficient time to resolve the problem”. He intended that the costs relating to the section 366 application – which he had withdrawn so as to minimise them – would be offset against the costs he expected to recover through the section 367 proceedings.
In agreeing that Mr Formby be struck off, the SDT said: “Rather than admit to his client he had made mistakes and handled an application poorly, he took unilateral action and subsequently concealed that action from his client by redacting witness statements and sending those to her and counsel.
“His actions were planned and deliberate. His actions were motivated by a desire to keep his position at the firm and to retain his client. His actions involved a breach of trust that his client placed in him.”
Mr Formby was also ordered to pay costs of just over £5,000.
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