Cooper Rollason LLB came into financial difficulty after changes to legal aid funding and used money that should have been put into clients' accounts to keep the firm running.
According to the Solicitors Regulation Authority, law firms have to keep their own money received from fees separate to money meant or belonging to clients.
The SRA's accounts rules prohibit the use of money meant for the clients account being used for office purposes.
Three former managers of the firm say it all relates to pressures put onto them when changes to legal aid came in around 2013.
Simon Rollason, Sarah Cooper and Shaun Davies, now leader of Telford & Wrekin Council, were all managers at the firm based in Stafford Park before it closed on March 3, 2014.
Lee Shrimpton, a spokesman for the SRA, said: "The firm partners have received a rebuke from us for doing this, and ordered to pay our costs of £200. A rebuke is a sanction that stays on a solicitor's record and which they would have to declare to the public or employers.
"We regulate in the public interest, making sure solicitors uphold the highest professional standards as laid out in our SRA Handbook to ensure clients get the best possible service. If we find evidence solicitors have failed to uphold these standards, we take action, either by issuing a sanction ourselves, or in more serious cases we refer to the Solicitors Disciplinary Tribunal, which can issue unlimited fines or remove solicitors."
A rebuke is one of the lowest-level outcomes that the regulator can take, and it can also issue fines of up to £2,000 for non-compliance with regulations. It is not believed to have had any effect on clients. Simon Rollason, who still works as a solicitor out of the county, said he got the SRA involved and asked them to intervene. But this led to him and the two other managers receiving rebukes and being ordered to pay £200 in cost.
Mr Rollason was also found to have failed to provide the SRA with the ledger for two clients as he had not kept the accounts records for six years in breach of its accounts rules. He said: "It was a product of the dramatic cuts to legal aid several years ago."
Significant changes to civil legal aid in England and Wales came into effect on April 1 2013, as part of a plan to reform the system and save £350m a year. The changes meant some types of case were no longer eligible for public funds, including divorce, child contact, welfare benefits, employment, clinical negligence, and housing law except in very limited circumstances.
Mr Davies was a junior partner at the firm at the time, having qualified in 2010. He was also its compliance officer responsible for adherence with the SRA handbook. He still works as a part-time solicitor in Telford.
He said: "This relates back many years when the legal aid system was under pressure and many firms were disbanded. I co-operated with the investigation and I now work as a solicitor locally, but not as a manager."
Mr Davies said the money was barrister fees not client money. The firm was 95 per cent contracted to the legal aid agency.
Attempts were made to contact Sarah Cooper for a comment.
The ruling by the SRA was made in October and published in November.