Regulation report 2015

Guarantee Fund report 2015

0 Contents

Independent Auditors’ Report                  
Statement of Council’s responsibilities in respect of the accounts of the Scottish Solicitors’ Guarantee Fund         
Income and Expenditure Accounts                                                        
Balance Sheet                                                                                            
Notes to the Financial Statements                                                            

1 Overview

The Guarantee Fund reports a surplus of income over expenditure for the financial year ended 31 October 2015 of £194,000 (2014 – surplus £661,000). This is reflected in an increase in the reserves balances to £6.7 million.

Income and Expenditure

Income to the Fund has remained steady largely due to the decision not to change the subscription rate for 2015. Grant volumes have declined from those of the preceding years and individual payments have been relatively small, albeit at a slightly higher level than in 2014. The majority of the surplus in 2014 arose from unusually high receipts from previous Judicial Factories.

Balance Sheet

Guarantee Fund reserves have risen to £6.7m at 31 October 2015 as a result of the income & expenditure issues noted above.  The Guarantee Fund Sub-Committee believes given the unpredictability of the Guarantee Fund’s environment that it is essential that a healthy level of reserves is maintained. 

During 2015 a review into the operation of the Guarantee Fund was conducted which has resulted in a number of recommendations around the Funds approach to risk management including reserve levels.  Following the review the Guarantee Fund Sub-Committee has reviewed the current and projected reserves level and continues to believe that reserves are at appropriate level given the naturally volatile claims environment.

Looking ahead

Work will continue in the year ahead to complete implementation of a number of recommendations arising from the review of the Guarantee Fund during 2015.  However a number of strategic recommendations about the future of the Fund have recently been the subject of a consultation process, the results of which will be reviewed in 2015/2016.

Volumes of new claims have declined during 2015 as the wave of Judicial Factories which were necessary during the downturn wind down. However it should be noted that claim expenditure in the first two months of 2015/2016 has already exceeded the claims expenditure total for 2015.  More significant claim expenditure may arise in the year although some significant recoveries from Judicial Factors are expected. 

Finally from 1 November 2015 the fund has been renamed as the Client Protection Fund.  It is felt that this name better reflects the purpose of the Fund and should better manage claimant expectations.

2 Independent Auditors’ Report to the Council of the Law Society of Scotland

We have audited the accounts of the Scottish Solicitors’ Guarantee Fund (the fund) for the year ended 31 October 2015, which comprise the income and expenditure account, the balance sheet and the related notes.  The financial reporting framework that has been applied in their preparation is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice).

This report is made solely to the Council of the Law Society of Scotland, as a body, in accordance with relevant legal and regulatory requirements.  Our audit work has been undertaken so that we might state to the Council of the Law Society of Scotland those matters we are required to state to them in an auditors’ report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Council of the Law Society of Scotland as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Council and auditors

As explained more fully in the Statement of Council’s Responsibilities set out on page five, the Council is responsible for the preparation of accounts which give a true and fair view.

Our responsibility is to audit and express an opinion on the accounts in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s ethical standards for auditors.

Scope of the audit of the accounts

An audit involves obtaining evidence about the amounts and disclosures in the accounts sufficient to give reasonable assurance that the accounts are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Society’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Council; and the overall presentation of the accounts. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited accounts and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit.  If we become aware of any apparent material misstatements or inconsistencies, we consider the implications for our report.


In our opinion the accounts:

  • give a true and fair view of the state of the fund’s affairs as at 31 October 2015 and of its surplus for the year then ended;
  • have been properly prepared in accordance with UK Generally Accepted Accounting Practice.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where we are required to report to you if, in our opinion:

  • the information given in the annual report is inconsistent in any material respect with the accounts; or
  • proper accounting records have not been kept; or
  • the accounts are not in agreement with the accounting records and returns; or
  • we have not received all the information and explanations we require for our audit.


Henderson Loggie
Chartered Accountants and Statutory Auditors
Eligible to act as an auditor in terms of section 1212 of the Companies Act 2006
26 February 2016

3 Statement of the Council’s Responsibilities in Respect of the Accounts of the Scottish Solicitors’ Guarantee Fund

The Council of the Law Society of Scotland is responsible for preparing the accounts of the Scottish Solicitors’ Guarantee Fund in accordance with the constitution of the Society.

While the constitution of the Society does not contain any accounts requirements in respect of the fund, the Council has decided to prepare accounts for each financial year which give a true and fair view of the state of affairs of the fund and of the surplus or deficit of the fund for that period and to prepare the accounts in accordance with UK Accounting Standards (UK Generally Accepted Accounting Practice).

In preparing these accounts, the Council has undertaken to:

  • select suitable accounting policies and then apply them consistently
  • make judgments and estimates that are reasonable and prudent 
  • state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the accounts
  • prepare the accounts on the going concern basis unless it is inappropriate to presume that the fund will continue in business 

The Council has general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the fund and to prevent and detect fraud and other irregularities.

4 Income and Expenditure Account

for the year ended 31 October 2015

















Income from investments and deposits




Gain on disposal of investments




Dividends in respect of claims




Claims paid by Judicial Factor




Total income










Stop-loss insurance




Overheads and staff costs




Convener compensation




Auditors’ fees




Other professional fees




Corporation tax




Total expenditure






Surplus of running costs










Overall fund surplus/(deficit)








5 Balance Sheet

As at 31 October 2015


















Cash in bank




Sundry debtors








Less liabilities




Provision for taxation




Grants made by the Council unpaid at 31 October



Sundry creditors












Represented by:




Reserve available to meet claims




Balance brought forward from last account




Surplus for year








Christine McLintock
26 February 2015

6 Notes to the Financial Statements

for the year ended 31 October 2015

1. Accounting policies


The accounts are prepared on an accruals basis.


Investments are stated at cost. Investments are only stated at below cost where the committee believes their diminution in value is permanent

Income recognition

The Fund recognises all categories of income in the period to which they relate. Subscription income received that relates to future periods is held on the balance sheet as fees in advance.


The Fund is liable for corporation tax on investment income and chargeable investments gains. Full provision is made for corporation tax on assessable income.

2. Corporation tax







Current corporation tax charge







Surplus for the year before tax




Corporation taxation at 20%



Income not subject to corporation tax



Expenditure not allowable for corporation tax






3. Related party transactions

The Law Society of Scotland

The members of the Guarantee Fund Committee are also members of the Council of the Law Society of Scotland, with the exception of lay members and one solicitor. At the year-end, a balance of £465,933 was due from The Law Society of Scotland (2014 – £89,563), which included subscriptions received before the year-end for 2015/16.

4. Contingent liabilities

Claims intimated but not paid are subject to investigation and the sum claimed may or may not be admitted on the basis of whether the claim falls within the criteria of the fund and, if it is admitted, it may not be for the sum claimed. Many claims are straightforward and can be resolved quickly. However in more complex cases or where the records left by the former firm are very poor, a longer resolution timescale will be necessary. In the absence of reliable information to the contrary, outstanding claims are recorded at the sum intimated. As such, the total of claims intimated does not necessarily represent claims that will be paid.

The total of claims intimated but not admitted at 31 October 2015 was £4.1 million representing 35 claims made against 12 firms, (2014: £3.7million, 72 claims, 13 firms).

£3.68 million (90%) of the above total relates to two firms.  £2.43 million of this represents historic claims against a ceased firm, whilst there is one claim of £1.25 million (the maximum possible) against an existing firm.  This claim remains the subject of action and investigation by the claimant’s agent.