The practice where solicitors could hold on to title deeds as security for payment of fees from firms in liquidation must end following a recent High Court judgment, writes Carol Coulter, Legal Affairs Correspondent.
The former president of the Law Society, Mr Pat O'Connor, lost a case taken against him by the liquidator of a Co Mayo firm, Mack's Bakeries, which had been a client of Mr O'Connor's.
Following the sale of the business, Mr O'Connor had kept the title documents, and the liquidator had asked for them.
Mr O'Connor cited the common law right of "solicitor's lien", where a solicitor was traditionally entitled to hold title deeds or other documents as security.
The liquidator, Mr James Luby, had sought an interpretation of the Companies Act in relation to the right of the solicitor to keep a company's title deeds as security for fees payable to him, given that the company was in liquidation.
Under the Companies Acts, when a company is liquidated creditors are assigned preference according to their relationship with the company.
Solicitors who have done work for the company are normal commercial creditors, and are not preferential creditors.
As reported in today's Law Report, Mr Justice Kelly said in the High Court that the intention of the 1990 Companies Act was clear and unambiguous, and the holder of a lien was not entitled to keep the documents. He ordered them to be handed over to the liquidator.
Mr O'Connor told The Irish Times that, as well as holding the deeds as security for fees for work done for the company up to the time of the liquidation, he had given undertakings to a third party on behalf of the company, and could not comply with these undertakings if the documents were taken.
He accepted that, if a "solicitor's lien" could be exercised, it had the effect of making a solicitor a preferential creditor.
He said that ending this practice would mean that a financial institution, for example, could not rely on a solicitor's undertaking. "This will have consequences for conveyancing, etc," he said.
Asked if he was considering appealing the decision to the Supreme Court, he said he was thinking about it.
He was referring the judgment to the Registrar's Committee of the Law Society as it concerned the profession as a whole.
He said there were grounds to consider a change in the law, pointing to the UK Insolvency Act which protects the common law right of lien where liquidation is concerned.