LEGAL FRAMEWORK GOVERNING CURATORSHIP OF LAW FIRMS

1. LEGAL FRAMEWORK GOVERNING CURATORSHIP OF LAW FIRMS THE INTERFACE BETWEEN THE LEGAL PRACTITIONERS ACT AND THE LEGAL PRACTITIONERS (GENERAL) REGULATIONS Prepared by Reuben Mukavhi- Additional Master Insolvency and Guardian’s Fund.

2. THE MAJOR LEGAL PROVISIONS • Section 16 LPA (control of operation of trust account) • Section 25A LPA (prohibition of operation of trust accounts) • Section 26A (3)(c) LPA (suspension from practice) • Section 5 LP (General) Regulations

3. Section 16(2) LPA (control of operation of trust account) • Application is by the Council of the Society or any person having an interest in the trust account ( trust creditors, etc.) • Application is to the Master • Determination of the application is “on good cause shown”, elaborated as: (i). Death of legal practitioner (ii). Insolvency of or assignment of his estate by a legal practitioner (iii). Declaration that the legal practitioner is incapable of managing his own affairs (iv). Abandonment of his practice by a legal practitioner

4. Section 16(2) LPA (control of operation of trust account) Cont. • This curatorship is in respect of the trust account only

5. Section 25A LPA (prohibition of operation of trust accounts) • The application is by the Council of the Society • Application is to the Disciplinary Tribunal • Determination is “on good cause shown”. Though not specified, this should be in connection with disciplinary issues • This curatorship can be in respect of the trust account or the business account or both

6. Section 26A (3)(c) LPA (suspension from practice) • The application is by the Council of the Society • Application is to the Disciplinary Tribunal • It is on the basis of the suspension of the legal practitioner pending investigation into misconduct. • The curatorship can be in respect of the trust account or business account or both • The curatorship will be for the period when the practitioner is suspended, and that period does not exceed six weeks (unless extended by the DT)

7. Section 5 LP (General) Regulations • This provision deals with the duties, rights and powers of a curator bonis appointed to control and administer a trust account under section 16 LPA. • Note that the duties, rights and powers of curators appointed in terms of sections 25A and 26A LPA will be specified by the DT in the relevant order, but the wording in these provisions seems to suggest that those duties, rights and powers are the same as those in section 5 LP (General) Regulations.

8. APPOINTMENT OF CURATORS • For appointments under section 16 LPA, the appointment is by the Master. • For those under sections 25A and 26A LPA, the appointments are by the DT. Though the LPA does not say so in so many words, the formal certificate of appointment (letters of confirmation) will be issued by the Master. • In regards both appointments, the practice of the Master is to require every curator bonis to file a bond of security. The bond is simply an undertaking by the curator for the due and faithful administration of the account(s). Insurance is not demanded. • Ideally, the certificate (or order) of appointment should specify the duties, rights and powers of the appointee. This is important for purposes of supervision of the curator.

9. EMPHASIS ON SCOPE OF WORK OF CURATOR • Curators are strictly appointed for the accounts of the law firm, the trust account and/or the business account. Their mandate does not extend to any other affairs of the concerned legal practitioner. • If the curator has been appointed in respect of the trust account, their mandate is limited to the trust account. The same applies for appointment in respect of the business account. • Deceased estates have executors appointed for them, and sequestrations/liquidations have trustees/liquidators appointed for them. Curators’ powers and duties do not extend to those affairs.

10. DUTIES, RIGHTS AND POWERS OF CURATORS • Unless otherwise specified in an order of the DT, the duties, rights and powers of curators are as provided in section 5 of the LP (General) Regulations. Where the curatorship is in respect of a business account, the provisions of section 5 aforementioned will be read with the necessary changes. They are as follows: • To take effective charge of the account(s) concerned. This entails taking possession of all the books, records and documents (whether physical or electronic) relating to the account(s). It also entails changing the signatories and/or signing instructions with the bank in respect of the account(s) immediately upon appointment. • To advertise for the lodging of claims against the account(s) as may be directed by the Master. Generally, the adverts are in the Gazette and one daily newspaper circulating in the town or district in which the legal practitioner in question has offices. The advert should specify where and when the claims must be lodged. The time specified should generally be not less than 14 days, which is the minimum notice period for meetings in insolvency cases.

11. DUTIES, RIGHTS AND POWERS OF CURATORS 3. To record all claims lodged, and to examine all of them. Where the curator is not satisfied with any claim, he may require the claimant to provide further proof. If still not satisfied, the curator does a report to the Master recommending the rejection of the said claim. The Master’s power to decide on claims is rather indirect, stemming from his power to approve the distribution plan. 4. To bring or defend proceedings in any court in regards the account(s). The proceedings could be in respect of any of the claims or assets of the account(s). 5. To draw up and lodge with the Master an account showing the assets and liabilities of the account(s), and a plan of distribution of the assets of the account(s) to creditors and to the remuneration of the curator and other costs of the curatorship. This account has to be approved by the Master before any distributions can be done. The process of the Master generally involves having the account advertised as lying for inspection, receiving objections and determining them, and then authorizing distributions.

12. DUTIES, RIGHTS AND POWERS OF CURATORS cont. 6. To pay any excess in the account, after all claims have been paid, to such person as the Master may direct. 7. To do any such other things as the Master may direct to ensure proper distribution of the assets of the account(s). Where the appointment is for the period of suspension of a legal practitioner as contemplated in section 26A LPA, then the curator’s duty will be basically to preserve the account(s) pending the outcome of the investigations. Regardless of the regime of appointment, the curator shall have power in urgent matters to deal with the account(s) for the benefit of a client. This power must be exercised with great caution, because it might result in one creditor being unduly preferred over others. Generally, all creditors of a trust account are concurrent; none are preferred or secured. So they should be treated equally.

13. CURATOR’S REPORTS • The only report specified in the law, that is in section 5 LP (General) Regulations, is the account of assets and liabilities of the account in question and the plan of distribution of the assets to persons who have lodged claims with the curator. This report is in the mould of the one we do for a deceased estate. The report may have a narrative portion with explanatory notes, as necessary, on any of the figures in the main report. • Where the account in question is the business account, then there will be need to produce a income and expenditure account for the period being reported on. This is where you deal with such things as salaries, rates and any other expenses of the business. • The other report, which is not specifically mentioned in the law but which the Master would require in appropriate circumstances, is the report on the curator’s recommendation to reject a particular claim.

14. DEFICIT IN THE TRUST ACCOUNT • The curator must investigate why the assets of the trust account can not fully cover the liabilities. If the deficit can be attributed to the legal practitioner, then they must reimburse the trust account. In this regard, they become a debtor (an asset) of the trust account and can be pursued under section 5(2)(e) LP (General) Regulations by the curator. • The account of assets and liabilities and plan of distribution could contain an explanatory note on the deficit. • If the deficit could not be covered after all available civil remedies have been exhausted, then the curator (as a representative of all the trust creditors) could apply for a grant from the Compensation Fund (CF). But before approaching the CF, the curator must ensure that the creditors have consented thereto, because there are implications on their ability to individually pursue the legal practitioner thereafter.

15. REMUNERATION OF CURATOR BONIS and MASTER’S FEES • The remuneration of the curator bonis is provided for in section 5(3) LP (General) Regulations as being “such remuneration as the Master of the High Court may fix.” The practice of the Master in determining the remuneration of the curator is to first allow the curator to propose and justify a level of remuneration (which proposal will be contained in the plan of distribution), and to then adjust it if the proposed level is felt to be unreasonable. The guideline is the level of remuneration of liquidators. Where the remuneration proposed by the curator is felt to be unreasonable, the views of the Law Society thereon may be sought. • There is no provision for the levying of Master’s fees on curatorship of law firm accounts. It might be that the law maker wanted to ensure that people are confident in using lawyers’ trust accounts without the fear that their funds will be subjected to a tax if the account is put under curatorship.

16. RECOMMENDED REFORMS OF THE LAW • The general recommendation is for the laws on curatorship to be aligned to the laws of insolvency, with the necessary changes, especially in regards to: • Involvement of creditors in decision making. Currently, no creditors’ meetings are provided for. Creditors have no participation in decisions on the accounts under curatorship. • Timelines. There is need for specific timelines within which curators must carry out the duties imposed on them, with provision for their extensions by the Master on good cause shown. Currently, there are no such specifications, everything being left to the discretion of the curator and the Master. • Levels of remuneration of curators. There should be a specified formula for determining the remuneration of the curator, so that there is less room for arbitrariness both on the part of the curator and the Master. • The exercise of the powers of the curator should be explicitly provided for, especially in circumstances of non-co-orperation by the legal practitioner or any other person who might have custody of assets or documents of the concerned account.