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A moral dilemma

Pretty simple question though ethical minefiled.

I have 2 clients who deal with each other in a business sense.

I know that 1, the receiver of services is about to go into administration with no real possibility of the business being saved nor any creditors getting their money.

So do I inform my other client who is currently owed a relatively modest but not insignificant sum. They are not currently doing any work together.

I am mindful that I have this information in my professional capacity and therefore in confidence, but also that the surviving client is likely to be annoyed that I did not warn them. It is also the case the client is resaonably new to our firm and we were recommended by the business which is about to fail.

D Shield

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29th Aug 2007 14:45

ethics is the only solution
I find it interesting here that the completely unethical response is by someone who wishes to remain anonymous. Whover 'Anon' is really needs to examine his own professional behaviour. Unfortunately, as professionals we don't really have any choice. We can't divulge information about one client to another. As accountant to any client with debtor problems, best advice would be to implement some form of debt management strategy so the problem shouldn't get any worse.

Suppose the client in trouble manages to work his way out of it? You would be in danger of being sued (and rightly so) if you had told one of his customers that he was about to go under. Truly a nightmare scenario with a horrible conflict of interest.

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By max.lee
30th Aug 2007 09:15

other ethical issues
If as you say the there is no real possibility of the business being saved nor any creditors getting their money then what are the ethics behind obtaining an administration order? Time to take the moral high ground and advise your client that paying professional fees for an administration that is bound to fail does not benefit the company's creditors it only serves to muddy the waters and reduce the chances of successful actions for wrongful or fraudulent trading.

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By robert newman
29th Aug 2007 12:22

What ever you do will be wrong...
because someone is going to blame you.

If you tell, you could be in deep do do with your professional association (they take breaking confidentiality very seriously)

If you don't the client will probably leave you.

Which of the two do you think will be the lesser of the two evils - that is then what you should do.

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By birdman
29th Aug 2007 13:35

Who would gain?
If you did tell your client about the impending administration, how would this help them, bearing in mind that there is no current trading between the parties? Whatever is owed is likely to be lost, and if they were to instruct a solicitor now they may well just be adding to the loss with irrecoverable legal fees.

I'd suggest you leave well alone, but reinforce the need for debtor and cash flow management.

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29th Aug 2007 14:46

Keep quiet
If I were the surviving client I would not be happy your confidentiality if you told him. I would agree that you could talk to all your clients warning them that increasing interest rates etc mean that they should expend more time on chasing debts.

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29th Aug 2007 15:06

Be Professional
The professional institute that I am a member of (CIOT) issues a book covering ethics and can also answer specific questions, last time I checked.

From a professional point of view, I would therefore suggest that you could contact them to cover your professional integrity.

Also, on a more pragmatic level, if one client was recommended by the other, I would perhaps mention to the client that is in trouble that they might like to contact the particular client and talk through the situation.

This will surely help you and them.

Whatever you do though, breaking confidence won't make you any friends with the struggling client, your insurers, your professional institute and probably even the client who may lose some money. They make thank you in the short term, but if they think it through, they may come to the logical conclusion that if you tell them about a client struggling, the tables may one day be turned and they cannot rely on you.

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28th Aug 2007 12:02

ethics
"I am mindful that I have this information in my professional capacity and therefore in confidence, but also that the surviving client is likely to be annoyed that I did not warn them."

I think you have answered your own question in the first phrase.
The surviving client may well be annoyed, but that would be their problem caused by their reaction to the situation. It is not your place to warn them, and if they are a half-decent client they should realise that. If they were having cash-flow issues for example, would they be happy with you telling a mutual client "Don't expect any money from them any time soon!"?

It's awkward, but don't dwell on the relationship between the two, and the fact that one referred the other. You have sensitive information about the first company which you have a duty to keep confidential.

It would be more awkward if the two were currently doing business and thus creating a potentially greater loss for the surviving company but, as this is not the case, I would just try and forget about it.

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By Anonymous
28th Aug 2007 14:50

ethical yes, but
if you are pragmatic you will let the ongoing client know that there is a problem so that he doesn't blame you afterwards.

if you tell the ongoing client what will/can they do? probably not much at this stage....

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31st Aug 2007 23:39

The big picture
In this situation you can do the right thing by everyone. The key is how to approach it:

Do not betray confidence as you will lose trust and respect.

Remember that people don't disappear when businesses fail. They still give references and go on to new ventures or roles etc. A new business may be formed or the existing one could be rescued or phoenixed. Accordingly, stand by the people involved and they will thank you.

It is possible to warn people indirectly without transgressing "ethics" rules. For example: recommend to the management of the business that provided the services that they review their controls over receivables to:
- actively chase any slow paying debtors
- take action to recover ageing debt eg agree payment plans
- stop work for non payers (use new work as leverage)
- only extend credit to credit worthy customers
- consider obtaining guarantees
This is all standard advice and clients need reminding of best practice from time to time. This will help them to identify the problem (and possibly others) without you having to point it out. Once the full facts are known they will realise that you did what you could in the circumstances and they will thank you.

Also, bear in mind that the failing business needs to beware of giving preferential treatment to creditors.

Good luck.

Ralph Ambrose
http://www.executive-e.co.uk

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