Drawing a long-running saga to its inevitable conclusion, the Solicitors Regulation Authority (SRA) announced on 3 October that it had closed down Axiom Ince with immediate effect following its intervention to protect the interest of clients and former clients of the firm.
Regarding the intervention, the SRA said: ‘We will stop the firm from operating, take possession of all documents and papers held by the firm, and take possession of all money held by the firm (including clients’ money). We are not responsible towards employees or trade creditors of firms that we have intervened in.’
The SRA has appointed intervening agents to deal with all live matters held by Axiom Ince across its network and to deal with the closure of its offices.
Gordons has been appointed as intervening agent for all former Axiom DWFM offices, including Edgware, London, Birmingham, Bristol, Swindon, Walthamstow, and Wanstead. Meanwhile, Shakespeare Martineau has been appointed as intervening agent for all former Ince & Co offices, including Bristol, Cardiff and London.
The intervening agent for former Plexus Legal offices in the North, including Leeds, Liverpool, and Manchester, is Stephensons. Lester Aldridge has been appointed as intervening agent for Plexus Legal offices in the South, with locations including London, Chelmsford, and Evesham.
Clients will have the choice of following former Axiom Ince teams to their new firms or choosing to send their matters elsewhere. Intervening agents will prioritise active matters, such as ongoing litigation, with these files moving first.
‘It is relatively rare for the SRA to intervene in a firm as it is quite a costly and time-intensive process for them,’ explained Jonathan Cheney, a partner in Addleshaw Goddard’s professional practice group and a Legal 500 Leading Individual for partnership law. ‘For example, in 2021 the SRA intervened in 25 firms and a lot of them would have been very small practices – for them to intervene in a firm of this size is relatively rare,’ he added.
‘As well as intervening into the practices of individuals at Axiom Ince, we have been liaising with relevant law enforcement authorities in relation to this case.’ SRA spokesperson
‘While the SRA would have been hoping for an orderly closure, ultimately, it’s about making sure clients’ interests are protected. The SRA would have tried as much as possible to avoid intervening because of the costs of the intervention and the level of disruption to clients,’ commented Legal 500 Next Generation partner in professional discipline, CM Murray’s Andrew Pavlovic.
Under its referral agreement with the Association of Police Chief Officers, the SRA has also referred Axiom Ince to the Metropolitan police. An SRA spokesperson said: ‘As well as intervening into the practices of individuals at Axiom Ince, we have been liaising with relevant law enforcement authorities in relation to this case.’
Additionally, Axiom Ince filed a notice of intention to appoint an administrator at the High Court on 2 October. The firm’s representative is Devonshires.
Series of unfortunate events
News of the wind-down comes after a tumultuous period for Axiom following its acquisitions of former shipping leader Ince and insurance firm Plexus out of administration.
Discussing the acquisition process, one former Ince employee told Legal Business: ‘Initially everything was very positive, but it became apparent in the first month that things were not as rosy as were made out. There was a lot of talk and not a huge amount of action.’
Just weeks after the Plexus acquisition in July, the SRA intervened into the practices of three Axiom solicitors – including founder and managing partner Pragnesh Modhwadia – on the grounds of suspected dishonesty.
After the firm filed a claim for alleged breach of fiduciary duty, a High Court judge imposed a freezing order of £64m against Modhwadia, who admitted that client money had been used to buy Ince and Plexus – as well as a number of properties – and that the money was not accounted for. Ince had been sold to Axiom for just £2.2m, with an initial payment of £1m and the remaining £1.2m in instalments.
‘What is particularly interesting in this case is that, until April this year, Axiom was made up of less than 200 people but by July, once it had acquired Plexus, this number increased to around 1,500. The firm grew very rapidly through two pre-pack administration acquisitions and increased headcount significantly within a three-month period,’ Cheney noted.
Many will be wondering how it is possible that Modhwadia’s actions were not picked up by internal compliance processes, but the firm’s rapid expansion may be partly to blame. ‘A function of Axiom Ince growing so rapidly, and doing so by acquiring firms that were in distress, is that robust compliance processes may not have been in place to provide the necessary checks and balances, as there would have been insufficient time to properly integrate the three firms. They would have been running quite separate systems,’ Cheney explained.
Jumping ship
One factor leading to the SRA’s intervention was likely the mounting number of partner exits in recent months, causing further instability for the firm. Prior to the intervention, most former Plexus lawyers had already left, while many of Ince’s partners and associates have been finding new homes in recent weeks.
Ince managing partner Jennette Newman, who joined from Clyde & Co in late 2021, is now at Horwich Farrelly, where she is head of its London markets team.
A team of 17 Ince lawyers have joined Wikborg Rein, including senior hires Michael Volikas, Ian Chetwood, Beatrice Russ, Gillie Belsham, Ben Ogden, and Chris Crane. Irwin Mitchell has hired seven regulatory lawyers from Ince, with partners Philip Somarakis and Colette Kelly leading the team.
Meanwhile, Birketts has bolstered its shipping and international trade team with the addition of seven former Ince staff. Collyer Bristow has also added six real estate and construction lawyers to its practice, including four partners.
RPC recently recruited Ince’s head of corporate, partner James Channo, as well as general liability partner Thom Lumley, formerly of Plexus, while a number of other former Ince lawyers have joined Child & Child, which is now led by Adrian Biles, the former head of Gordon Dadds – the firm which led the initial pre-pack administration of Ince in 2019.
Ince’s head of travel, Anna Anatolitou, has taken a team to DAC Beachcroft, and the firm has also recruited a raft of former Plexus partners, including Nicola Skeldon and Louise Shaw in Manchester and Anthony Baker, Gavin McClenaghan, Ciaran Garnett, Carl McGuire and Stephen Johnson in Leeds.
DWF has also snapped up a large contingent of former Plexus lawyers, including Damon Burt and Anthony Bushell in Birmingham, while Kennedys acquired a nine-strong liability team led by Mark Dyson in July.
Left in the lurch
During this period, as partner departures stacked up and increasingly lurid stories appeared in the press, communication from senior management to remaining staff was limited.
One ex-Ince employee said: ‘General communication from senior management has been very poor. When this first broke there was very irregular but relatively frequent correspondence from senior management with factual updates. More often than not that was stuff we knew from the press. All that dried up very quickly.’
‘A function of Axiom Ince growing so rapidly, and doing so by acquiring firms that were in distress, is that robust compliance processes may not have been in place to provide the necessary checks and balances.’ Jonathan Cheney, Addleshaw Goddard
They explained: ‘The last message of substance was that the firm wasn’t viable, but with no further details or timeline in which the firm may be wound down. I understand staff were told shortly after that to send messages to clients to say the firm was closing.’
While the majority of lawyers affected by the collapse have been able to find new homes, it is understood that hundreds of business services staff across Axiom, Ince and Plexus have been left in the lurch as lawyers jump ship, taking clients and ongoing matters with them. Limited support has been made available to business support staff, and a spokesperson for the group has appealed to the wider legal profession to help those left behind where possible.
A business services professional at Axiom Ince told Legal Business: ‘It’s unsatisfactory. Non fee-earning staff are being left in the lurch while the lawyers are being encouraged to sort themselves out. We have colleagues who have worked for the firm for over 30 years with no communication about redundancy or whether we will be paid.’
Under SRA guidance when a firm is acquired, it must provide the SRA with details of each of the authorised bodies which have taken over its practice and a manager who the SRA can contact. The SRA is not required to rubber stamp the transaction.
However, given the events which have led to the collapse of Axiom Ince, the SRA’s involvement now faces increased scrutiny.
‘A question mark in this case relates to the due diligence undertaken into Axiom’s capacity to acquire and run these firms. Many people are asking whether it will lead to a change in process and whether SRA approval should be required to acquire distressed firms,’ Cheney explained. However, he is quick to point out that the SRA has operated within its current regulatory remit.
Russell-Cooke partner and Legal 500 Next Generation partner for professional discipline, Michael Stacey, takes a similar view: ‘There are two points that jump out to me. One is the regulatory scrutiny of the acquisitions. I would expect some scrutiny from the SRA of the acquisitions and how they were funded. If the true picture had been known, the SRA would have acted. Clearly there wasn’t sufficient scrutiny to uncover the source of funding.’
He added: ‘The second point is whether the SRA should have realised that a surgical intervention into the practice of the three individuals would not be effective, given it appears from Companies House that Mr Modhwadia was the sole shareholder of Axiom Ince. It would be different in an LLP, where you might have one bad apple who has stolen from the client account. They can be removed, and the other partners can continue. If the bad apple is the sole shareholder, it’s hard to see how the firm could have ever continued. I can only assume the SRA thought the other directors would be able to manage an orderly closure of the firm or the appointment of administrators.’
A spokesperson for the SRA said: ‘If one firm takes an existing firm into its structure (an acquisition), we take a risk-based approach. We will seek notification of any material changes and assess whether this increases risk to clients and the public. There were no material changes for the Axiom Ince acquisition – roles were all filled by existing posts. If there had been, we would have carried out further enquiries. If we then had concerns, we have the power to refuse, withdraw or restrict the approval of role holders within the firm, and to impose condition or terms on the approval of the firms.’
State of chaos
Given the £64m client account deficit, Axiom Ince clients will be understandably worried about recouping their money held by the firm. In such circumstances, as there appears to be limited financial assets left at Axiom Ince, former clients will have to apply to the SRA’s discretionary compensation fund.
According to the SRA Compensation Fund Annual Report, accumulated funds on 31 October 2021 were only £50.6m.
‘£64m is a huge amount of money. The concern is that the compensation fund will be the only place for that money to come from. Ultimately, it will be other law firms that will end up picking up the costs of this issue through solicitor practising certificate fees and the other regulatory fees that firms pay,’ explained Cheney.
‘The knock-on effect financially for the profession could be significant. In addition, I assume there will also be some soul searching at the SRA about whether their current level of oversight of acquisitions, which they are not required to approve, are adequate or fit for purpose,’ Pavlovic noted.
However, he added: ‘The downside of a greater regulatory burden is adding time and expense to the process because the SRA typically requires three or four months to approve things. Obviously, the firm (Ince) was in quite a distressed situation when it was acquired, so you are always trying to balance the need to be able to move quickly with the need to have proper oversight.’
Indeed, managing partners at peer firms have looked on aghast as the events have unfolded. ‘Tragedy is the right word,’ one managing partner told Legal Business. Another described it as: ‘A salutary lesson that an established legal brand could find itself in such a state of chaos.’
‘It worries me enormously, if what is being suggested has happened, that it wasn’t picked up by robust internal controls or indeed by auditors or regulators or bankers who didn’t see warning signs,’ concluded a third. LB