Law firms in Gibraltar could face draconian action if they are suspected of acting improperly, as the jurisdiction’s government plans to fill gaps revealed by the fraud investigation at Marrache & Co.
Gibraltar’s chief minister Peter Caruana reportedly presented a new Bill to Parliament this week to give the government the power to appoint administrators for law and financial services firms.
The new Act will codify emergency measures that were passed in the wake of the arrest and suspension of Marrache & Co founding partners Solomon and Benjamin (pictured) Marrache (11 February 2010) to allow administrators to handle client affairs.
Caruana is reported to have said: “The government will be bringing legislative proposals to plug some of the lacunae that have become apparent in our legislation, affecting not just financial services activity but indeed elements of the regulation of the legal profession as well.”
The gap in the country’s legislation was discovered when the Financial Services Commission suspended the licences of several Marrache-linked fiduciary companies, after the brothers were arrested on suspicion of false accounting.
It was discovered that there were no provisions to allow an administrator to look after client affairs in the period between the suspension and liquidation of the companies.
The new laws will, according to one partner at a Gibraltar law firm who asked not to be named, give the regulator the power to fast-track the appointment of an administrator, suspend directors – or partners, depending on the company – and run the business’s affairs, if there is a reasonable suspicion of wrongdoing.
“When it became apparent that there was an issue within [Marrache & Co] and its fiduciary companies, the government had to intervene but this was difficult because there was no legislation that allowed any administrators to be introduced,” said the partner.
“The regulator had certain powers [with regards fiduciary companies] but even then it wasn’t clear how far they could exercise these powers. But with respect to law firms, there was nothing at all that allowed an administrator to be appointed and look into the firm’s client accounts, so some of the potential creditors made an application to get provisional liquidators appointed.”
The partner continues: “Under the legislation, regulators will have the power, upon reasonable suspicion of wrong doing, to fast-track the appointment of an administrator and suspend director and take over a company, and the power to investigate and to run the affairs of the company until such time as appropriate.”
“It’s going to be very similar legislation brought in with regards law firms, I think. The Chief Justice will have the power to do things like appoint an administrator to go in and suspend partners and get an administrator to handle matters and seize client matters.
“It’s certainly draconian if that’s the way the legislation will pan out…[but] it’s good that the government’s acting so quickly and so tough. people now know that you can’t just do what you want in the jurisdiction.”
According to reports Caruana said it was likely that there would be a need for more legislation in the future, but that any further changes would not be rushed.
Benjamin and Soloman Marrache were arrested on suspicion of false accounting on 9 February (11 February 2010) and subsequently bailed. They were rearrested following further allegations on 18 February (22 February 2010) and were refused bail. The brothers’ appeal to the Supreme Court against the refusal of bail was also rejected and, at the time of writing, the pair remain in custody.
PricewaterhouseCoopers and Chantrey Vellacott have been appointed as joint liquidators for Marrache & Co. Grant Thornton has been appointed administrator.
Marrache & Co’s London office has since closed down.