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Liens and insolvency

Hi,

I am hoping for some advice. I have been doing the bookkeeping for a company which is now in the process of insolvency. I am owed around £4000 for which my charge out time was £20 per hour, so clearly I have put a lot of hours in and was always promised payment but it never arrived. A large firm of accountants (top 6) have been appointed as Insolvency Practioners and have requested all books and records including my Sage back ups. I suggested that maybe we could work together since I know the business well and could help in an efficient way to get a statement of assets and creditors together and of course I was very eager to recoup some of my unpaid fees, however they have cited Section 246 of the Insolvency Act and have told me there are no further funds to employ me in any capacity.  I have said they can come and collect the records but I do not see why I should send them out my Sage back up for which I have not been paid. I am happy to send them a back up from December when my last bill was cleared. They have waved a very small incentive in front of me and suggested they might ask me to complete the P45's (they only have around ten staff) but I have no idea if they would really throw me those crumbs from the rich man's table and I also don't know how much I could suggest charging as my usual charge for running the payroll was £25 per month/free as it turns out. I would love to say I will sort the P45's out at £50 per person but no doubt they will say I have to send them the sage back up and at a flick of a switch do this themselves and squeeze the last drop out of the assets.

Am I able to stand firm and tell them that the Sage back up does not belong to the company and then they can re-invent the wheel at whatever their chargeout rate is or am I running any kind of risk to my professional integrity.

Any advice would be gratefully accepted.

Thanks,

Rob

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By twj4789
01st Aug 2012 18:10

Do you have a letter of engagement

If you have a letter of engagement you may have some clauses to recoup your money from the directors.

Otherwise at the moment I would stand your ground and state the paper records are available for collection from you at a pre-arranged time. Any records you have produced such as VAT Returns, SAGE work and payroll records that you have not been paid for will be held until the outstanding bill is paid.

It might not be the 100% the right approach however without the records you have no leverage to recoup your fees. If they start reading the riot act and making threats you may decide just to "take the hit" and give them up or take legal advice.

 

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01st Aug 2012 19:13

Hate to say this

..but legally you haven't a leg to stand on. 

The IP has a legal right to the books and records of the company and can sue you (under whatever piece of legislation it now is, I am a bit rusty on the technicalities of insolvency law) to get them.

By all means hold out for a while and charge them an extortionate rate to do whatever work they do give you (try X 6 times your normal rate) but you have been done and are going to have to hand it over eventually.

As the previous respondent suggested, if your LOE has a PG from the directors, go after them through MoneyClaim Online.

 

Steve

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Agreed, under insolvency law there cannot be a right of lien over:-

a  the books or documents of a registered company that, either by
statute or by the articles of association of the company, have to
be available for public inspection or to be kept at the registered
office or some other specified place or be dealt with in any
special way;
b  accounting records within section 386 of the Companies Act
2006; or
c  the VAT returns of any business (excluding photocopies).

 

Also the ACCA guidance says this:-

 

Where a company is the subject of an administration order, or is
in liquidation or has a provisional liquidator appointed to it, then a
member cannot exercise a lien or other right to retain possession
of any of the books, papers or other records of the company to
the extent that the enforcement of the lien would deny possession
of those items to the administrator or liquidator (section 246 of
the Insolvency Act 1986). Therefore, if a member is requested by
either an administrator or liquidator to hand over such records as
the member may hold, the member is obliged to do so.

 

So, in short, I think that you should hand over the items!

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01st Aug 2012 21:38

Way outside my area, but ...

It seems to me that the insolvency practicioner expects to get paid for his work.

Ergo, there must be some funds available somewhere to pay his fees.  I would expect the IP to have the discretion to divert some of those funds elsewhere, if in so doing the interests of the remaining creditors are afforded better protection or return.  He may not relish doing so, and he may not be required to do so, but that is not the same as not being empowered to do so, and to say that the funds are "not available" strikes me as being economical with the actualite.

If not a legal requirement I personally think that there ought to be some legal obligation on the insolvency practicioner to act in a manner that protects the other creditors.  That would, I should have thought, include provision to divert some of those funds formerly earmarked for his fees, if that brought about a more eficient closure to the benefit of creditors.  Not an outcome which the IP would relish, that I can appreciate.

As I say, way outside my comfort zone.

With kind regards

Clint Westwood

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02nd Aug 2012 00:39

Hang on

When did the unpaid for Sage records become the property of the company?

As I see it the work done is yours (not the company's) until paid for.

I would argue that it is not a lien to retain your own work - here by all means have all the books and records back (exactly as supplied to me) and a December backup. If you want the paperwork processed since then the fee will be er, about £4,000. It will take me about ...

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I would argue that the Sage records contain the and form the accouting records of the company.

 

The Act states that the accounting records must be sufficient to show and explain the company’s transactions and be able, at any time, to show the financial position of the company with reasonable accuracy. The records should contain details of sales and expenses together with a record of the assets and liabilities of the company. These records must have sufficient information to compile the profit and loss account and the balance sheet that comply with the Companies Act.

 

The books required can be recorded in any manner as long as they are capable of being reproduced in a legible form, which includes a company using computerised accounting records. The computer storage media  being the prime source of the stored information from which the financial position of the business should be readily ascertained, comprises the accounting records..

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02nd Aug 2012 08:04

position if records were in the cloud ?

 

interesting thread - but what would the position then be if the OP had been providing the sage via cloud/Saas [ and paying the monthly fee +/or recharging it onto the end client],

once the business went under they would stop subscribing/ paying the ongoing client fee for the service.  there would be no way to get backups downloads etc may just a few paper print outs made before cancelling.

so where would that leave the IP ?

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02nd Aug 2012 09:08

Nobody has stated the obvious

@rehtg: Why, oh why, did you keep on providing services for which you were not getting paid, especially when you are doing their bookkeeping and can see the financial difficulties they are experiencing.

If you don't get paid for work already done, then please STOP doing more. It is better to lose a couple of hundred than a few £K .... and I hate to see someones good nature taken advantage of.

If the directors can afford a top 6 insolvency practitioner then I guess they could afford to pay you, too.

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By rehtg
02nd Aug 2012 11:52

Thanks for all responses

It does look like I'm in a no win situation unless I argue that any information on my copy of sage belongs to me but it rather depends if the interpretation Arthurphillips has is correct. It would be a shame if the data got corrupted!

 

In answer to Shirley, the company made excellent profits but the directors diverted all funds into a pipe dream, There is a huge directors loan account so it will be interesting to see if the appointed IP look to persue the directors (I have no idea what personal assets they may have though).

 

Again many thanks for responses and if anyone has any other ideas or know of any precedents I would be grateful to hear them.

 

Rob

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02nd Aug 2012 12:01

Insolvancy

Why can't the liquidator be charged for providing the backup? Is there a rule that states that this cannot be done?

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By mrme89
02nd Aug 2012 12:13

@ Opporchancity - I agree. Surely you wouldn't be refusing to hand it over, you just want to be paid for doing so.

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02nd Aug 2012 12:26

Fire extinguisher

The law states that I have to have fire extinguishers - so when I go bust without them can the liquidator claim some off the local fire extinguisher shop?

The definition of what records the company must keep is correct, but if the company has not created nor paid for these records to be made then it has simply not complied with the law. Where does the law impose an obligation on a third party?

You have to return what belongs to the company, not that which does not. That is you can not exercise a lien over the company’s records, but as I said before the Sage records are yours.

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02nd Aug 2012 14:08

Guys...

I am sorry if I offend, but what you all think should be the case, what you all think is fair and what you all think is the right thing, is incorrect.

We all know the law is stupid and we all know of many many ocasions when we have screemed at some ruling either directed at us or read about in the newspapers.

To continue the thread, the fire extinguisher example is not complete.

If the IP found no extinguishers and was so minded, he would not bring a claim against local shops, he would bring a claim against the directors of the company for not having them.

The same is true for the accounting records. If they didn't exist, the IP would (if minded) seek disqualification for failing to undertake the duties of a company director, but the directors HAVE undertaken their duties and have engaged the OP who does have the records.

The simple fact is, the records DO exist, the OP has invoiced for them, therefore the IP has a right to get them. The fact that payment has not been received by the OP is not relevant in law. No Court will support the OP and the OP will suffer greatly if they do not hand over the records they hold.

For the OP, it's a rubbish place to be, but it is what it is.

Steve 

 

PS: for what its worth I support the chap above who asks "why did you continue working beyond the point where they owed you £X". Then again, if you're an ICAEW memeber you have to keep working if it would "inconvenience the client" ... and before you all stamp on me, that is a direct quote from the ICAEW rule book and the professional standards department who treated me very very harshly when I refused to do more work for a client who owed me £12,000

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02nd Aug 2012 14:14

"the records DO exist"

So do the fire extinguishers, but that does not answer who they belong to.

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02nd Aug 2012 15:32

To end this...

From Enterprise Act 2002:

"The official receiver, liquidator or trustee has the right to obtain possession of any of the books, papers or other records (‘’records’’) of a company subject to winding-up proceedings or the bankrupt. A lien or other right to retain possession of any such document (as normally claimed by unpaid accountants, solicitors, auditors, etc.) is unenforceable to the extent that its enforcement would deny possession of the document to the official receiver, liquidator or trustee . The provisions do not apply to liens on documents which are held as title to property (i.e. in connection with a registered charge)."

As I said, it is not fair. It sucks. But it is.

Thank you and goodnight

Steve

 

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By rehtg
02nd Aug 2012 15:56

So, no chance of a ....

...great escape then Steve?

Thanks to everyone and to Mouse007 for giving me hope.

Rob

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02nd Aug 2012 17:02

That's NOT what the Enterprise Act 2002 says

It's a copy and paste from the Insolvency Services's technical manual.

The notes to which only refer to the Insolvency Act 1986.

S234 (2) of which states ....records "to which the company appears to be entitled"

I'm not suggest it is a lien - cos I know you can't have that. (S246 (2) IA 1986)

I questioned ownership.

 

The answer to that is found in agency law

"if an agent brings into existence certain documents whilst in the employment of his principal, they are the principal's documents"

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02nd Aug 2012 17:17

I am going to a darkened room to lie down...

... as you are "twisting my melon man!"

Mouse007, good luck with trying this, I am sure there are many lawyers very willing to take the case and argue your approach for a huge fee for the OP.

It won't work and if I am as bored tomorrow at my desk as I am today, I'll dig up even more to demonstrate that the 10 yrs I did as an IP were not to waste.

Have a great evening.

Steve

 

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A late one

I learned the lesson the OP is about to learn very early on, in the mid 80s, when I kept a solicitor's books on a pc (with 51/4 inch floppy discs!).

He demanded his books back so I gave him the data disc.  Of course this was useless without the software disc (that's how it worked pre hard drives) but I wasn't going to give him that because the software was licenced to me.

As he and my solicitor quite rightly pointed out:

a. my letter of engagement had not made it clear that the software was under licence and not in his name and

b. It was my choice to keep his books on my software, it didn't change the fact that they were his books and I had a duty of care to keep them safe for him.

As my solicitor said to me, "if you'd come to me and said I'll keep your books on my software but you won't be able to access them because the means of access is under my control, I'd have found another accountant"

The similarity here is that, as Arthur set out, and as Mouse acknowledges, the company's books can not be owned by the accountant, and so by maintaining them, whether on paper, electronically or on marked matchsticks they are held as agent.  

This is determined by Company & Insolvency law and, as accountants we should know this when we agree to keep a client's books and if we are concerned at the risk then, as others have said, you get paid up front or get a personal guarantee.

Dat's business.

 

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02nd Aug 2012 23:16

Yes and No

Paul Scholes wrote:
the company's books can not be owned by the accountant, and so by maintaining them, whether on paper, electronically or on marked matchsticks they are held as agent.

Agree

Paul Scholes wrote:
This is determined by Company & Insolvency law and

Disagree - it is Agency alone which leaves ownership with the company. Company & Insolvency law determine other matters once ownership has been established.

Ownership is the nub of the problem here, one which I now accept is determined by agency.

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02nd Aug 2012 22:54

You missed the twist Steve

twas not a melon but an admission

 

Mouse007 wrote:

When did the unpaid for Sage records become the property of the company?

Answer: they always belonged to the company

Mouse007 wrote:

The answer to that is found in agency law

"if an agent brings into existence certain documents whilst in the employment of his principal, they are the principal's documents"

Nothing to do with the “Enterprise Act 2002" nor indeed the Insolvency Act 1986. Whilst I now accept you are correct in the final analysis, may I humbly suggest your explanation as to why would not stand up very well under cross examination?

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14th Nov 2012 17:24

Section 236 Insolvency act 1986 - See below

We rely on this section often.

I think the lien does not balance the interests of the creditors as a whole.  See "Re Atlantic Guidlines on ROT" for clarity on a similar concept,  if you retain the books and records you could prejudice ALL creditors.  And you ALL simply get nothing.

A lien is not usually seen as a valid security and unless resgistered is invalid and as it is not valid(registered) it is unenforceable. S248 Insolvenct Act 1986 (I think)

Hope this helps

The court may, on the application of the office-holder, summon to appear before it—

(a) any officer of the company,(b) any person known or suspected to have in his possession any property of the company or supposed to be indebted to the company, or(c) any person whom the court thinks capable of giving information concerning the promotion, formation, business, dealings, affairs or property of the company.(3) The court may require any such person as is mentioned in subsection (2)(a) to (c) to submit an affidavit to the court containing an account of his dealings with the company or to produce any books, papers or other records in his possession or under his control relating to the company or the matters mentioned in paragraph (c) of the subsection." 

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