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Unfortunately, if she takes you to court for failing to protect the deposit, you are going to be on the hook for to 3 times the deposit as compensation for failing to protect.
She will not necessarily get three times the deposit but she will get a substantial amount of money and the legal costs because although these amounts being claimed under £10,000, they are not dealt with in the Small Claims Court.
You have no defence to failing to protect the deposit and the best thing you can do is try to negotiate a payment before the legal costs grow exponentially. The relevant statutory provisions are sections 213-214 of the Housing Act 2004 as later amended.
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