An investigation into any suspected fraud at a Belfast law firm uncovered a £5.8m deficit in its client account, the High Court has heard.
The money allegedly owed to institutional lenders was revealed during forensic examination of records kept by Robert G Sinclair & Company Solicitors.
Police have also sent a file to the Public Prosecution Service (PPS) as part of a separate probe to establish if there was wrongdoing in the circumstances which led to the closure of the practice, a judge was told.
Details emerged as a judge refused an application by the profession’s regulatory body to approve settlements reached with insurers over the financial shortfall.
In 2020 The Law Society of Northern Ireland intervened in the running of the city centre firm whose specialist areas of practice included re-mortgaging work.
The move came after inspections found accounting records were in arrears and indicated client funds may be in jeopardy, the court heard.
Amid efforts to bring the books up to date, the Law Society was initially informed that £153,000 had been taken from the company’s client account to pay a VAT bill.
As investigations continued, accountants then identified that the shortfall exceeded £2m.
Records had allegedly been falsified to conceal the deficit and misappropriate funds through a form of bookkeeping fraud known as ‘teeming and lading’ where mortgage redemption money received from one client was used to cover another customer’s account, they reported.
At that stage the Law Society and insurers appointed forensic accountants to carry out further checks.
Mr Justice Simpson disclosed: “That investigation… has revealed that institutional clients of the company are owed £5,813,413 in respect of unredeemed mortgages and that the (alleged) dishonest misappropriation of client funds may have begun as early as 2016.”
Counsel representing some of the named defendants in the civil proceedings insisted there is no evidence they either knew about or were aware of any unlawful activity.
Under its regulatory powers the Law Society oversees and administers a compensation fund where grants can be made to private clients who have suffered a loss through any solicitor’s default.
The application was brought amid a dispute over granting any indemnities under a master policy of insurance available to all solicitors in Northern Ireland.
But due to the potential risk of prejudicing any future criminal trial, parts of the judgment were redacted and reporting restrictions imposed on identifying individuals.
The court heard that a police file was submitted to the PPS for consideration back in January 2025.
Applications were brought to approve two confidential settlements relating to the sale of specified assets.
Mr Justice Simpson was asked to adjudicate on terms agreed between the regulatory body, insurers and five institutional lenders following mediation.
He set out how the Law Society has recovered just over £2.4m through its powers of attorney but incurred more than £1m costs in winding up the practice, preparing the claim and realising assets to date.
Grants worth £410,000 have also been made to private clients from the solicitors’ compensation fund.
“With the shortfall in the client account of £5.8 million, the total exposure is in excess of £7 million,” the judge noted.
The Law Society argued it had negotiated a tripartite agreement where institutional lenders agreed to settle for less than the total deficit, a better outcome than using recovered money to fund litigation against insurers in a bid to obtain indemnities.
However, some of the defendants insisted the settlements cannot be approved.
Any acceptance by the Law Society that their clients are not entitled to be indemnified by insurers is untenable, it was contended.
Ruling in the case, Mr Justice Simpson described it as a binary decision on whether to authorise the agreed settlements in full.
Based on the contents of an investigation report which identified no evidence that one of the named defendants knew about any alleged misappropriation of client funds, he stated that no attorney would ever advise them to consent to the terms.
The judge confirmed: “As the decision for the court is ‘all or nothing’, I refuse the Law Society’s application for approval of the settlements.”
