It's the tax you love to pay.
Pragnesh Modhwadia may cost every solicitor in England and Wales hundreds of pounds each after the SRA admitted it would struggle to plug the huge hole in Axiom Ince’s accounts.
Axiom ballooned in size after purchasing Ince and Plexus before it emerged that £64 million was missing from its client account.
When the shortfall came to light, the SRA intervened into managing partner Modhwadia’s practice* and the firm obtained a freezing order over his assets.
He claimed that almost all the money had been spent on buying up other firms and purchasing and renovating properties.
The firm collapsed and the SRA intervened, leaving it to deal with potential client claims worth millions of pounds.
“We are trying to work out how many people are affected and how much they have lost”, SRA chief executive Paul Philip said in a briefing this week: “we are going to have to collect a lot more money”.
The SRA confirmed that its Compensation Fund contained £18m, which would not suffice given the size of the Axiom Ince disaster. Normally the fund pays out £13m a year, reported the Law Gazette.
Axiom’s insurance policies mean the SRA is unlikely to have to find the full £64m missing from Ince, but in the short term it will need a cash injection prior to the next round of Practising Certificate renewals.
One of the options the SRA board is considering is a requirement for all solicitors to make a one-off payment to fill the gap.
With around 155,000 solicitors on the Roll, ROF estimates that the emergency Pragtising Certificate could cost each lawyer as much as £500.
It could be less. According to the SRA, many clients of Axiom Ince were corporate entities. They do not qualify for the fund and will be covered by their own insurance, while individual claims are capped at £2m.
Modhwadia also amassed an extensive portfolio of properties for a total of approximately £22.4m, which could go towards the shortfall.
However, unwinding their ownership structures and completing disposals may not be a speedy process, while some sites, such as struggling shopping centres, may not recoup their purchase price.
Philip has also said that just the costs of administering the intervention into a firm as large as Axiom Ince were likely to reach £15m.
The SRA must also contend with the substantial costs of intervening into Metamorph, another firm which blew to pieces after its management was permitted to expand by accumulating more and more firms despite hollowed-out financials.
Asked at the briefing if the SRA had been "asleep at the wheel", Philip said, “We are very clear we have done everything we should have done. In the last 15 months we have seen much larger firms [being intervened into]”.
“We could go and visit all these firms that are growing but we are not an external auditor. If we were to do that it would need a significant expansion in the skills base and staff which would ultimately be added to the PC fee.”**
A spokesperson for the SRA said that it first became aware of the issues that led to the interventions into Modhwadia's practice and that of the other two directors at the end of July.
A spokesperson for the police told ROF this week that no arrests had been made in relation to its investigation into potential crimes at Axiom Ince.
*please would the source with ‘the video to share’ email it to [email protected].
**ROF’s Matthew is so incensed by the latest example of “catastrophic incompetence by this hopeless joke of a regulator” that he’s looking at ways to shut it down and replace it with something that is fit for purpose. Apparently there are mechanisms so to do. Watch this space.