Incapacity - 10 tips to keep your practice going
David Menzies, Director of Insolvency and Jeremy Clarke, Practice Support, share their top 10 tips to ensure your business continues in the event of unexpected illness or death.
While nobody likes thinking or talking about unexpected incapacity or even death, they are both a sad fact of life! The implications for your business, family and clients are significant and accordingly need to be considered and planned for.
ICAS regulations require sole practitioners and insolvency practitioners to have arrangements in place to ensure client’s funds can be processed and distributed and insolvency appointments can continue with minimal disruption should such unfortunate events occur.
So what are the considerations to ensure the continuity of your practice should the worst happen?*
Choose your alternate carefully
You should try and find a firm or practitioner that is compatible with your own procedures, and whose fee structures and type of work undertaken are similar to your own. Practical considerations such as location, staff availability and technical skills should also be taken into account.
If your practice carries on investment business or consumer credit activities, ensure that the firm which you enter into a continuity arrangement with is also registered with the Financial Conduct Authority or is covered by the Designated Professional Body licence scheme.
The ICAS Client’s Money Regulations require that any continuity arrangement is made with a firm or member who is a member of one of the professional bodies comprising the CCAB (Consultative Committee of Accountancy Bodies).
You should also ensure that any person with whom an arrangement is made holds a current practicing certificate.
If you are an Insolvency practitioner, ensure that the arrangement is with a firm which contains at least one insolvency practitioner or, if it is being made with an individual, that they are an insolvency practitioner. You should ensure that current insolvency licences and enabling bonds are held.
If you carry out registered audit work, obviously the firm or individual should also be authorised for audit work.
Ensure the arrangement is documented
It is essential that the arrangement is documented.
For a sole practitioner, this should be documented in a stand-alone continuity agreement.
For a practitioner in a partnership, it could be part of the partnership agreement or as a separate agreement with another firm or individual.
If you operate through a limited company or LLP, provision for continuity should be made in the articles of association or members’ agreement.
And if you are a licence holder and an employee or consultant, arrangements may be documented in the contract of employment/contract for services or as a separate agreement.
Appropriate legal advice should be sought in relation to any agreement to be entered into.
Ensure the agreement covers all necessary matters
The continuity agreement should include clauses that deal with the following matters as a minimum:
- The parties subject to the agreement;
- The nature of the legal relationship between the parties;
- The precise circumstances which will cause the management arrangement to come into effect. Consideration should be given to whether evidence of incapacity from a medical practitioner or other party should be provided for the agreement to be activated;
- The maximum duration that the management arrangement should be effective for and provide for arrangements should the maximum duration period need to be exceeded;
- The alternate’s obligations. This may include obligations including maintenance of books and records, payment of VAT and other taxes, professional membership and regulatory matters, confidentiality, restrictive covenants, etc;
- The alternate’s powers relating to the administration of the practice, engagement and dismissal of staff, operation of banks accounts, etc. For an insolvency practitioner the agreement should also set out the alternate’s powers in relation to insolvency appointments;
- The basis of the alternate’s remuneration;
- The level of any indemnity provided to each party in respect of actions taken during the operation of the management arrangement;
- The matters to be included in any communication to be sent to clients in the event of the practitioner’s incapacity or death;
- Provision relating to the termination of the agreement, including termination on retirement or the wish by either party to withdraw from the agreement. Provision for termination should also be considered where either party breaches the terms of the agreement, for example the alternate ceasing to hold the necessary regulatory authorisations, or where the alternate would be considered to be no longer be fit and proper to act as an alternate;
- Date of entering the agreement.
Consideration should also be given to provisions relating to the sale of the practice, or for insolvency appointments the transfer of appointments, in the case of your long term incapacity or death.
The practical arrangements to be put in place in the event that the agreement needs to be activated should be thought about and planned in advance. For example, you should agree how and when clients will be informed and what they will be told, and it may be necessary for the alternate to notify third parties of the circumstances such as, bankers, regulators (including ICAS),PII providers (both his own and the incapacitated practitioner’s) and, in the case of insolvency practitioners, bond providers. You may want to provide for a short period of notification before the management arrangement takes effect.
Document key contacts and information
It is essential that information on key contacts and other information to help the alternate is available as quickly as possible.
You should prepare a document similar to, or as part of, a business continuity plan and a copy should either be kept by each party to the arrangement or its location documented as part of the agreement. It is also a good idea to prepare a personal “My Documents” dossier as well to help your family locate important information. ICAS Practice Support can help with making and documenting both.
Ensure business systems can be accessed
You should ensure that passwords to key systems can be accessed. This may include servers, practice management and other business software, document management systems, electronic banking, etc.
You should also consider what plans may require to be put in place to divert phone calls and emails should the need arise.
Clients’ money must be available with minimal disruption. For insolvency practitioners, this applies to case funds. The alternate must be able to legally operate relevant bank accounts when necessary.
Banks should be made aware of the alternate arrangements. It is unclear if all banks will give effect to alternate mandates and in any case any agency arrangement would cease on death of a practitioner. Your alternate should therefore be a joint account holder, with the continuity agreement including provisions that they shall not provide instructions or request information in relation to the your bank accounts except in event of incapacity or death.
Any breach of the agreement by the alternate would not only give rise to civil remedies for breach of contract but would also be viewed by ICAS as a departure from acceptable standards of conduct and may result in disciplinary proceedings.
Review your arrangements regularly
Circumstances will change over time for both you and your alternate, so it is essential that arrangements are put in place to regularly review whether they remain appropriate. Any amendments to arrangements following a review should be documented or, better still, reflected in a new agreement.
Make a Will
Dying without a Will not only causes difficulties for your family, it could also lead to serious disruption to the business while the necessary administration is carried out to allow your estate to be dealt with. The resultant delay may lead to your own affairs, and those of your clients, not being properly controlled and managed.
It is therefore strongly recommended that you make a Will and appoint executors who can administer the estate. The Will should make reference to the existence of the continuity agreement and its purpose as well as to where the agreement is stored.
Grant a Power of Attorney
It may also be useful to grant a Power of Attorney to a trusted family member, friend or other professional to ensure that personal affairs can be dealt with in the event of incapacity. A Power of Attorney can be useful alongside an alternate arrangement to give effect to decisions that may be required under the alternate arrangement. For example, the Power of Attorney may provide for the ability to give notification of incapacity required under the alternate arrangement, or give the power to extend an alternate arrangement beyond the period provided for in the agreement.
Benjamin Disraeli, the former UK Prime Minister once said: “I am prepared for the worst, but hope for the best.” While we all like to think we are invincible and immortal, we are not. In the event of a tragedy, your family will have to cope with sorting your business as well as with the shock and emotional turmoil of seeing a loved one seriously ill or gone. Making a plan and taking the steps above can lessen the burden on them considerably. The ICAS Practice Support team can provide advice and support to help you do that. They can be contacted at firstname.lastname@example.org
* Our authors emphasised that while this article has been written within a UK context, many of the principles, if not the processes, will apply to members elsewhere.