How to resolve your residual client account balance issues

Rule 14.3 – Prompt return of client monies:

R14.3 imposes a specific obligation to return client monies promptly as soon as there is no proper reason to retain the funds. This is usually, but not necessarily, at the substantial conclusion or completion of a matter.

To avoid being caught with a breach of this rule, a list of inactive matter balances should be generated and issued each month end, with the responsibility for review and action being assigned to an individual, whether they are a fee earner or cashier.

When fee earners prepare their bill on a matter, they should reconcile the funds held, checking the amount HMLR has charged the firm where it is a conveyancing matter, and clear any balances then.

Obtaining the bank account details of the client will eliminate the problem when cheques reimbursing small balances are not cashed.

Good file management will eliminate or at least reduce the number of residual balances, and a file closure procedure should be in place. Any matters belonging to a fee earner who has left the firm should be reallocated as soon as possible, and close down dealt with where necessary.

Old residual balances:

Old residual balances are still being held by some firms, often because they ‘inherited’ them following a practice merger; or the fee earner has left the firm and no one has taken over the file; or they have lost track of the rightful owner of those funds.

The firm will have to maintain a system controlling what work has been done to locate a client, the conclusion that they are untraceable, the amounts paid to which charity, and the dates paid out. This register should contain a copy of the client matter ledger and correspondence regarding the steps taken to identify and locate the rightful owner.

Old balances under £500:

If the value of the client account balance is less than £500, and the firm has made reasonable steps to identify and locate the rightful owner, the firm is permitted to pay the monies to a charity. The charity is preferably one that will indemnify the firm should the client subsequently be found. No permission is required from the SRA.

The ‘reasonable steps to locate’ need to be in proportion to the monies held and may include checking all contacts noted on the client file; telephone directory; Electoral Roll; family or friends; internet search; DWP & their letter forwarding service; local newspaper advertising; enquiry agent, normally where the value of the balance held is significant.

Very low balances under £10, say, may only justify a brief file check, phone call, letter and internet search; whereas balances over £10,000 may require an agent to be instructed to search.

The firm may recharge out of pocket expenses in searching for the rightful owner of the client monies but this should not include fee earner’s chargeable time or the firm’s overheads; and the firm remains responsible for refunding the client, should they eventually be traced.

Old balances over £500:

For balances greater than £500, the firm will have to apply to the SRA for permission to pay the balances to charity, after it has done sufficient investigation to identify and locate the rightful owner. The SRA may request the firm completes additional investigation or pay the monies to someone other than the nominated charity.

The firm may conclude that the monies rightfully belong to them but have been unable to deliver their bill of costs due to their untraceable client. In these circumstances the SRA should still be asked for authority.

If you would like to discuss this blog in further detail please email Karen Hain or call 01772 821 021.

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