We often see practitioners selling blocks of fees to other accountants. This can be as a way to exit an area of work they no longer wish to be involved in, or perhaps simply to reduce the size of the practice. It may also be a way to slowly start winding down towards eventual retirement.

In these circumstances, the business selling the fees continues to trade albeit with a smaller client base, rather than ceasing altogether. The need for ongoing professional indemnity cover therefore remains, not only to comply with ACCA regulations, but also to adequately protect the remaining business. Whilst cover is maintained, the policy should continue to pick up the past liabilities of the block of fees that has been sold. It is important, however, to consider the following points:

• Ensure that if your policy features a retroactive date, this is appropriate to cover the full period you have been trading. This is particularly important if at any stage you look to move insurers as new quotes can often include retroactive dates which limit the cover to work completed after the inception of the policy.
• If you had used any additional trading names to carry out the work in question, ensure that these names continue to be included on the policy schedule, or by endorsement.
• When considering a change of insurer, be sure to make them aware of the history of the business and that you require cover for the block of fees that has been sold. This will avoid potential gaps in cover that leave you exposed.
• When you do decide to fully cease trading, ensure that the run-off cover arrangements also appropriately cover the block of fees you have sold.

The purchaser will be responsible for the exposure from the ongoing work from the point they acquire the block of fees from you, and they should ensure that their own professional indemnity insurers are aware of this. This is particularly important if the fees acquired include new areas of work or change the profile of their business moving forwards.

In some circumstances, the agreement may be for the purchaser to take on the past liabilities of the block of fees. If this is the case, insurers for both parties must be made aware to ensure that there is clarity over which policy will pick up a claim. The insurers for the purchasing firms will need to agree and provide cover, most likely via an endorsement, and similarly the seller’s insurers will probably need to look at adding an exclusion in respect of claims arising from the fees in question. Often this will require full details of the fees being transferred, to include any claims history applicable to the fees in question and the work carried out.

As with any change to your business, be sure to discuss with your broker to get specific advice tailored to your circumstances.

Catherine Davis, ACCA Relationship Manager, Lockton

Hannah Brewin, Account Executive, Lockton

Lockton is ACCA’s recommended broker for PII. For more information, visit Lockton’s Accountants page or contact Hannah Brewin at hannah.brewin@lockton.com.