This is something that has not directly affected me up until now but something I am considering when it comes to issuing engagement letters/ Fee quotes for Limited Companies.
One of my clients is closing their business. They were tied up in a Franchise that hasn't really worked. I am about to do cessation accounts etc. I have therefore asked verbally for a personal guarantee for fees. I am positive about receiving payment (although have considered requesting it up front).
I seem to recall it either mentioned on here or at a meeting with some accountants recently that it is becoming the norm.
- Does anybody do this already?
- Has it been effective where required? i.e. if a client goes bust can you actually demand your cash from the director/ shareholder?
- Do you do it for all clients?
- Does anyone have a standard paragraph to include in the letters?
Replies (10)
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Is this what you mean?
If a client company, trust or other entity is unable or unwilling to settle our fees we reserve the right to seek payment from the individual (or parent company) giving us instructions on behalf of the client and you agree that we shall be entitled to enforce any sums due against the Group Company or individual nominated to act for you
This is what I include in my terms and conditions but I've never tried / needed to enforce it.
Our company engagement letter includes the following
"In the event that a limited company client is unable to meet its liability in respect of our outstanding fees as and when they fall due then the company’s directors would be personally, jointly and severally liable in respect of our outstanding fees."
Yep!
We use the same wording as Phil and never had any complaints. Have also used it effectively.
Also, in the case of cesssation we ALWAYS get fees up front. Always.
Interesting
In cessation cases I always agree the fee and bill the owner/managers personally however I have never thought of including a personal guarantee in T&Cs, but certainly worth considering with future new clients - thanks.
Legality?
I can vaguely remember reading something about personal guarantees in the letter of engagement not being able to be enforced? Tried searching on here but cant seem to find anything so may be wide of the mark?!
Yes
@Phil - and I would explain to the client (if it is questioned) that this clause reduces the risk to you and the price to them!
Remember, that you may advise clients to persue some form of settlement/insolvency process and you can point this out to clients saying that it ensures your advice is not compromised.
Bob Harper
More info
Asked around and 2 contacts said that if you want to use a guarantee it's best to make it a separate document. One also said that when it comes to enforcement, unless the guarantee is written properly and is 100% water-tight the courts will always give the benefit of any doubt to the person.
I've since found what I think is the case mentioned by mm01 it's Manches LLP v Carl Freer, in which a firm of solicitors sought to enforce a personal guarantee written into the business terms & conditions and the court found that the director signing had been signing as a director, with regard to the terms & conditions, and not in a personal capacity as guarantor.
It would seem therefore that to stand a chance you should add the guarantee bit after the main terms of engagement and get them to sign both, one as director and the other as a person. Given that I don't see much of a risk here I don't think I'll bother.