Use of client account for loans to solicitors or between clients
In recent years, the Law Society has noted an increase in the use of client accounts to conduct transactions involving loans by clients of the solicitor either to the solicitor or to other clients of the solicitor. The Solicitors Accounts Regulations 2023 (S.I. 118 of 2023) prohibit the use of the client account for such loans.
The Solicitors Accounts Regulations provide that moneys held in the client account on behalf of a client should not be used for purposes of a solicitor borrowing money from a client. Furthermore, no sum in respect of a private loan from one client to another should be paid out of the client funds held in the client account for the client lender either by means of a client ledger transaction between the clients or to the client borrower directly.
If a solicitor is borrowing moneys from a client, the client must be independently legally advised and the funds held in the client account in respect of that client should not be used for the purpose of the loan.
Where a client agrees to lend money to another client of the solicitor, the solicitor must advise the lending client to obtain independent legal advice, and the solicitor shall not use the client account in respect of any loan arrangement between clients.
The relevant provisions of the Solicitors Accounts Regulations are as set out below.
Borrowing from clients
35 (1) A solicitor shall not borrow money from a client unless the client is in the business of lending money or his client has been independently legally advised in regard to the making of the loan. Any such advice must be given in advance of the transaction and not by another solicitor within the same firm.
(2) Moneys held in the client account on behalf of the client shall not be used for or as part of any loan arranged in accordance with Regulation 35(1).
Loans to clients
36 (1) A solicitor shall not, either directly or indirectly, lend moneys to clients or to any person for the purpose of obtaining that person's instructions to act.
(2) The discharging of outlays by a solicitor for or on behalf of a client in the course of providing legal services until the matter is completed shall not be considered to be a loan for the purposes of these Regulations.
(3) A solicitor shall not use the client account or any moneys contained therein in respect of any loan arrangement to or between clients.
(4) No sum in respect of a private loan from one client to another client should be paid out of client funds held in the client account for the client lender either by means of a client ledger transaction between the clients or to the client borrower directly.
(5) Where a client of a solicitor agrees to provide a loan to another client of the solicitor, the solicitor must advise the lending client to take independent legal advice in respect of any such transaction.
Documentation for loan transactions
37 Where a loan transaction occurs in accordance with Regulation 35 or 36, supporting documentation shall be maintained on the client file, including evidence in writing of the loan agreement, the amount of the loan, the date of agreement of the loan, the terms of repayment and evidence of any independent legal advice provided to the client in respect of the loan.
Niall Connors
Registrar of Solicitors and Director of Regulation