Ethical Question

Startup client with VCT Funding

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Ive taken on a new client who has taken on a convertible loan from an investment fund.

The client received the money and per the agreement it is to be used for working capital (including reasonable director salaries) until an EIS round of funding is secured.  

The day after it was received the directors lent it to themselves under a "temporary loan".  To date it's not been fully repaid.   

They admit they haven't told the lender.  Im disengaging as I feel this is a PI claim waiting to happen later on, amongst other things.

Do I have an obligation to tell the loan company  as they have a convertible Loan agreement? Or is it just walk away, say nowt  and site breach of fiduciary duties as a reason? 

Replies (4)

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By Wanderer
25th Oct 2023 18:08

Telling the loan company without the client's authority would be a breach of your duty of confidentiality.

You should consider if any reports need to be made under AML.

Thanks (3)
By paul.benny
26th Oct 2023 10:45

Have you considered contacting the ethical helpline of your professional body?

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By Truthsayer
26th Oct 2023 12:16

'Do I have an obligation to tell the loan company'

You have an obligation NOT to tell the loan company under client confidentiality, regardless of what the client is up to. The circumstances suggest obtaining money by false pretences, which is a reason for making a SAR, but the NCA are the only people you should tell.

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By I'msorryIhaven'taclue
26th Oct 2023 17:37

If you were (as you have suggested) to cite breach of fiduciary duties as a reason for your disengaging then aren't you sailing a bit close to the wind on tipping off?

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