The Law Society is issuing this Practice Note in the context of solicitors receiving client monies as part of a commercial transaction in compliance with S.I. No. 118/2023 - Solicitors Accounts Regulations 2023 (the Regulations).

Practitioners are reminded that where funds are received in connection with a business transaction those funds can only be paid into the client account if they fall within the definition of "client monies" as defined in the Regulations and are from a party with whom the solicitor has a client engagement and where all necessary AML requirements have been complied with.

When acting for clients in business transactions, solicitors are frequently asked to facilitate the transaction by receiving, holding, and disbursing moneys to be used in the transaction, the intention being that the funds will be paid into and out of the solicitor’s client account. In this regard, Regulation 4(1) of the Regulations provides that a solicitor who receives, holds, or controls clients’ moneys shall, without delay, pay such clients’ moneys into the client account. Clients’ moneys are defined as “moneys received, held or controlled by a solicitor arising from his or her practice as a solicitor for or on account of a client or clients, whether the moneys are received, held or controlled by him or her as agent, bailee, stakeholder, trustee or in any other capacity, including moneys received by the solicitor on account of outlays not yet discharged.”

Regulation 5(4) of the Regulations prohibits a solicitor, save in certain limited circumstances, from paying into or holding in his client account moneys other than (a) client moneys (b) controlled trust moneys and (c) non-controlled trust moneys. Categories (b) and (c) are generally not relevant in the present context and therefor the key issue here is whether or not the moneys are "client moneys" as defined for the purposes of the Regulations.

Practitioners will need to comply with the Regulations when transferring or holding funds in the context of an investment transaction and must only hold clients’ moneys as defined above in their client account. Practitioners should only accept or receive funds into the Client Account from investors who are clients of the practice in relation to the relevant transaction.

Practitioners may, with care, choose to arrange the receipt and transmission of funds in the capacity of a stakeholder in accordance with Regulation 5(4).

Practitioners considering implementing a stakeholder arrangement should ensure that such arrangements are agreed in advance with their counterparts and clients.

The Law Society notes that the stakeholder concept stems from the common law understanding of that term more commonly used in conveyancing transactions. In this context, the definition in Wylie is noteworthy “a stakeholder is a person whose duty it is to hold money in his hands not for one or other of the parties to a transaction, but for both, until some event occurs upon the happening of which it becomes his duty to hand over the money to one or other of the parties, [for example] to the vendor if the sale goes through or to the purchaser if it does not. Pending that event, he must hold onto the money and must not release it to one of the parties without the consent of the other.”

The Law Society recommends that solicitors, as part of agreeing the arrangement with their counterpart, include the following wording in the undertaking or confirmation given to regulate the holding of the relevant funds to confirm the solicitor’s stakeholder status in relation to the relevant funds:

“We confirm that we [will] hold the [relevant funds] in capacity as a stakeholder, provided that in doing so we shall incur no liability to you and neither we nor any client of this practice shall have any beneficial or other entitlement to the [relevant funds] save in each case as expressly set out [below]:”

Practitioners are reminded that whilst stakeholder arrangements may be applicable to a scenario where a solicitor acting for a purchaser is transferring purchase monies to a solicitor acting for a seller as part of the normal logistics of facilitating a transaction closing, the Law Society does not consider that such arrangements are suitable for (1) escrow arrangements or (2) where a solicitor acts for a client that wishes the solicitor to receive investment monies from other investor who are not clients of the solicitor for the purposes of providing consideration for a transaction.

See also the August 2024 Practice Note: Acting for multiple investors in commercial transactions

Queries and feedback

If you have any comments or queries in relation to this Practice Note, please contact the Business Law Committee Secretary.