Napier property law firm McKay Hill was all-but shut down in less than a week as the Law Society moved to protect the firm's client funds, the Napier District Court was told yesterday.

Society inspector John Hicks arrived on a late-May Wednesday in 2010 and the next Monday the district Lawyers Standards Committee acted on his interim report and secured the funds.

The investigator was giving evidence on the fourth day of the trial of lawyer Gerald George McKay who denies 11 charges, including five of dishonestly using invoices with intent to obtain pecuniary advantage, five of theft by intentionally and wrongfully dealing with client funds, and one representative charge of criminal breach of trust.

Among discoveries made by Mr Hicks was that monthly Ledger Control Summary Reports filed by the firm with the society regularly misrepresented its position, reporting its Interest in Trust as being in credit when it was regularly in six-figure deficit.


It also discovered the removal of $336,900 from one estate, in 15 separate transactions without any authority from the estate executor, as would have been required under trust fund regulations in the Lawyers and Conveyancers Act. In one case a shortfall from a client's interest had been met by a payment from its own principle, Mr Hicks said.

The investigation also discovered five invoices created just a day earlier, and backdated almost a year, which Mr McKay was to explain would be registered as securities over funds to balance the shortfall. But Mr Hicks said he "smelt a rat" because the invoices were all produced at the same time, were all for large rounded sums, and McKay could provide no evidence of disbursements or other costs against them.

Amounts allegedly stolen from clients total $556,900, while the value of the allegedly false invoices are over $1 million.

The trial enters a fifth day today before Judge Colin Doherty and a jury of eight women and three men who have been told prosecution evidence may be completed on Monday.