A group of members have successfully introduced an incorporated vehicle to become the enabler of continuity of practice cover.
ACCA’s rules require practitioners to have a continuity of practice agreement in place – either on a practitioner to practitioner basis or within a partnership agreement – to ensure that the service offered to clients is maintained in the event of death or incapacity.
In 1975 my father, who was a sole practitioner, died suddenly and as a result his former partner was approached to help with running the practice (See foot note). However, the former partner, did not have the time or resources to be able to run the practice so – via an agency – he introduced an accountant (P) holding an audit qualification under the 1948 Companies Act (Qualified by experience). P integrated well into the practice and was found to be good with the clients and eventually made an offer to purchase the practice on an instalment basis.
Shortly after the agreement was formalised and initial payments made by P, the instalments started to be late and shortly thereafter stopped. The payments had to be funded from fee income of P but he appeared to have used this to fund his lifestyle. The solicitor who drafted the agreement had as part of his due diligence done a bankruptcy search on P which had been negative.
However, when steps were taken to enforce the agreement a further bankruptcy check revealed that there was an order in place but it was not on the register and as a result the contract became void. Advice was sought from a City firm of chartered accountants, who provided assistance in the sale of what was left of the practice as these problems had resulted in an erosion of the client base and goodwill, although a large number of clients remained with the practice out of loyalty to the family.
The eventual sale of the practice yielded considerably less than the price in the original agreement and resulted in significant additional legal and professional fees.
As a result of other similar experiences a small number of members started to discuss the practicalities of the ACCA model and felt that on a practical basis the idea of continuity of practice was sound but needed to be workable in practice. It was felt that the one to one arrangement was problematic because it would be very difficult, if not impossible, for the provider to devote the time to running another practice whilst maintaining the correct level of service to his own clients.
As a result, four members got together and entered into a multi-party agreement, which over time more practitioners joined. However, each time a whole new agreement had to be drawn up and signed by all parties. This became cumbersome and impractical so discussions took place with ACCA about the use of an incorporated vehicle to become the enabler of continuity of practice cover and thus was born the Continuity Cooperative Limited (the Cooperative).
The company was incorporated under the limited by guarantee model as it is not intended that it will ever show a surplus or a deficit. The basis on which the Cooperative operates is to match resources with demand and thus spread the workload across a number of member providers. There are a number conditions that a member signs up to:
will not take on or approach clients of another member without prior consent
will offer continuity cover up to limit of authorisation
completes a form with basic information on the practice in addition to those required by the agreement such as:
solicitors name and address
name and address of commercial and professional indemnity insurers and brokers.
name and address of bankers.
The company holds an AGM at which wives/husbands/partners are encouraged to attend so that they can meet potential providers, so that in the event of a demand being made it will not be a strange face walking through the door at what could be a very traumatic time for the practitioner’s family. Because of the way in which the cooperative operates we have a geographical area limited to the distance members are from Brentwood, the place selected as the original base, to ensure that travelling distances are practical and that travelling costs can be minimised.
The Cooperative acts a forum for members to seek opinions, comments and guidance on various matters encountered by members in practice. In fact one member on retirement continued to be active until his death by offering to answer questions especially useful due to his 60 plus years of practical experience in the profession.
The Cooperative is funded by members making loans and each year once the accounts have been prepared, a subscription call is made to cover the costs resulting in neither a surplus or deficit. On retirement the member’s loan is repaid either to the member or in some cases they donate to ACCA’s Benevolent Fund.
About the author Anthony G Thorne is a second generation Chartered Certified Accountant who was admitted to membership in 1975. His father qualified just after the Second World War and went into partnership with an unqualified accountant who had taken over his father’s practice in Chingford. This practice had been established in 1912. In the late ’60s the partnership was dissolved and the writer’s father became a sole practitioner until his death in February 1975.
Anthony has previously held the positions of secretary, president and treasurer of ACCA’s East London and South Essex District Society, as well as being a member of the Practice Society Committee, the Investigations Committee, Financial Reporting Committee and is currently a member of ACCA Audit and Assurance Forum. He is also a Trustee of the Chartered Certified Accountants Benevolent Fund.