Accountants - thinking of selling?

How to reduce your personal exposure after the sale

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Unless you have a succession plan in place for the next generation to take over, exit planning will inevitably need to consider the option of a trade sale.

Aim for an "all inclusive" sale

There are many aspects to consider when selling your business, but a key element is addressing who will accept liability for future claims arising from work undertaken while you were in charge.

When clients ask us for guidance on this we typically advise them to press the buyer to take responsibility for the run-off exposure, but this is not always possible. The past claims record or exposure from historic work may mean that the buyer would rather keep the risk at arm’s-length from their own policy just in case things go wrong.

If you can persuade the buyer to insure your run-off exposure, as a well-known chef from Essex would say, "happy days", although you should still check that the new owner arranges professional indemnity and obtain details every year to be confident that your interests are protected.

Arranging run-off cover

Increasingly buyers want to leave responsibility for insuring past work with you. We are often asked if it is possible to buy a single policy, say for six years, for a lump sum premium. Products like this have periodically been available in the insurance market but currently the longest period any insurer is likely to be comfortable to provide is 18 months.

Bear in mind that arranging run-off insurance by annual (or 18 month) policies exposes you to increased cost as the policy is bought each year within the wider market context. If PI premiums are volatile with rates doubling, your costs could well rise in this way. Any significant claims that occur during the run-off period also raise the risk of increasing the premium further.

How long do you need run-off cover?

First thing to consider is your professional body regulations. ICAEW require cover for two years after a business has closed, with partners obliged to use best endeavours to maintain cover for a further four years. ACCA require run-off cover to be in place for six years.

Professional body rules are one thing, but this does not mean that legal liability is not possible after these periods have elapsed and this is a question for legal limitation periods which can extend the time exposure quite significantly.

If you are thinking of selling your practice, we have clients who are seeking acquisitions and we will be delighted to connect you.
Gary Horswell
Managing Director, Ntegrity

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