A leading bank has hatched a loan scheme which it claims will make it easier for firms to pay off the Solicitors Indemnity Fund's massive £432m shortfall.
The bank whose identity is being kept a close secret approached the Solicitors' Indemnity Fund (SIF) with its alternative scheme for repaying the fund's shortfall just before last Thursday's Law Society meeting, when council members were given sketchy details of its offer.
Under the current plan to pay off the shortfall, firms will pay SIF one-seventh of their contribution every year for seven years, starting in September 1998.
The bank has suggested that SIF should invoice each firm for its full contribution to the shortfall this year.
It would then allow the firm to meet the invoice with an unsecured loan from the bank, with a “competitive” interest rate and a repayment period of anything up to seven years.
Details of the proposal are still being hammered out and the council is expected to decide whether or not to endorse it at its meeting in June.
Elizabeth Mullins, managing director of SIF, said the bank option was more flexible than the current plan, allowing firms to pay off their contribution according to their particular financial circumstances.
“We would simply be opening up an additional line of credit for firms,” she said.
“By going en bloc to the bank we would have greater ability to negotiate terms.
“It would also be fairer. By collecting the money in one year, more of the firms who ran up the debt will be around to contribute to paying it off.”
It is also suggested that the bank's scheme could reduce firms' tax burdens as they switch from a cash to accruals basis.
But some council members were sceptical about the plan. Tony Bogan said: “We need to know far more detail, including the identity of the bank.”
Law Society deputy vice-president Robert Sayer repeated his call for a recalculation of the shortfall and said paying it off in one year would only benefit SIF: “Why should we let them have the resulting £120m interest?”
A consultation paper on the way forward for SIF will go out within “three or four weeks”, despite objections from some council members that it still lacks detail. The paper was discussed by the council last week in private.
Law Society vice-president Michael Mathews said: “One or two points are going to be incorporated but I will be very disappointed if it doesn't go out by the end of the month.”