MVL Deed of Indemnity - Covers accountant MVL Deed of Indemnity - Covers accountant
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  1. #1

    Nervous Newbie


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    Default MVL Deed of Indemnity - Covers accountant

    Hi all. Would really appreciate thoughts on a situation I’m in.

    Had the same accountant for 15 years but he sold his company to a large firm that has various services.

    I started an MVL with their liquidator and he sent a deed of indemnity which covers not only his service but the entire firm including the accountants.

    There are some clauses I’m not sure of and it seems badly written but the main concern is being asked by the liquidator to indemnify the accountant is ethically questionable.

    We are well in to the process and now there is considerable conflict between myself and the liquidator as he thinks it’s ok to send such a document in a Saturday night and expect it to be signed without advice by the Tuesday morning (I didn’t).

    So he’s saying my only other options are

    - for ME to pay his legal fees for a bespoke deed of indemnity - BUT he won’t agree to ensure my concerns are met so this could become an horrendously costly legal back and forth.

    Or
    - he won’t release any funds until HMRC give the all clear which could be months away. Not good for me as I will then need to take a loan.


    It seems this could have been avoided by choosing another liquidator as they would not ask to indemnify my existing accountant. I’m not sure if it’s possible to fire a liquidator and go to a new one (regulators involved?) also he says his full fees are already incurred despite being less than 2 weeks in to the process.

    The bank has not given him control of my account yet.

    Thanks for any help in advance.

  2. #2

    Contractor Among Contractors


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    Default

    I imagine every liquidator will have an indemnity of some kind in their paperwork they'll require you to sign before they press ahead. The liquidadator is taking over legal responsibility for your company. They will be doing so based on things you've told them (eg what assets and liabilities the company has). If it later transpires what you said was wrong, regardless of whether you deliberately lied or you were just mistaken, there are situations where this could put the liquidator in a very awkward situation.

    Eg a very real situation that MVL Online has sometimes...rarely, but it happens:
    - client says their company has £100k cash, no liabilities.
    - we're appointed as liquidators based on that,
    - we get the £100k, and distribute £75k to the shareholders immediately, temporarily retaining £25k,
    - a month later, HMRC flag that the client didn't pay its final £30k CT liability,
    - the client double checks, realises this is correct, they forgot to pay it,
    We only hold £25k so cannot afford to pay it from company funds. We would not have done the £75k distribution had we known about the £30k CT liability. The client had told us there was no CT liability. The indemnity gives us the legal right to pursue some of the £75k back from the client to settle the company's liability.

    In your specific situation you mention that they're trying to indemnify the accountant too? I'm unsure exactly what the situation is there. However, if you're refusing to sign the indemnity, I can understand why the liquidator will refuse to pay out any funds to you until they have HMRC clearance. It will be primarily to prevent the situation I give as an example above.

    Re your final couple of lines, I'm unsure if you've legally appointed this liquidator. I would have thought the indemnity would be a standard part of their appointment documents (ie if you didn't sign the indemnity, you won't have appointed them as liquidator), but possibly that isn't the case. If you have appointed them, then not much you can do. Legally they control your company now, not you. Theoretically you could seek to get a different liquidator to take over the case...however you'll likely just end up paying two liquidators that way, and still have to sign an indemnity with the new one.

    I would recommend against you doing anything drastic with the company bank account, eg taking out all the money. If you've legally appointed them, then I'm unsure exactly what the consequences would be of you taking all the money now without their blessing, but I think you'd be on very dangerous ground. If you haven't appointed them, then you're not in liquidation yet, so if you took all the funds now it would likely be taxed as a dividend.

  3. #3

    Nervous Newbie


    Join Date
    Nov 2020
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    2

    Default

    Quote Originally Posted by Maslins View Post
    I imagine every liquidator will have an indemnity of some kind in their paperwork they'll require you to sign before they press ahead. The liquidadator is taking over legal responsibility for your company. They will be doing so based on things you've told them (eg what assets and liabilities the company has). If it later transpires what you said was wrong, regardless of whether you deliberately lied or you were just mistaken, there are situations where this could put the liquidator in a very awkward situation.

    Eg a very real situation that MVL Online has sometimes...rarely, but it happens:
    - client says their company has £100k cash, no liabilities.
    - we're appointed as liquidators based on that,
    - we get the £100k, and distribute £75k to the shareholders immediately, temporarily retaining £25k,
    - a month later, HMRC flag that the client didn't pay its final £30k CT liability,
    - the client double checks, realises this is correct, they forgot to pay it,
    We only hold £25k so cannot afford to pay it from company funds. We would not have done the £75k distribution had we known about the £30k CT liability. The client had told us there was no CT liability. The indemnity gives us the legal right to pursue some of the £75k back from the client to settle the company's liability.

    In your specific situation you mention that they're trying to indemnify the accountant too? I'm unsure exactly what the situation is there. However, if you're refusing to sign the indemnity, I can understand why the liquidator will refuse to pay out any funds to you until they have HMRC clearance. It will be primarily to prevent the situation I give as an example above.

    Re your final couple of lines, I'm unsure if you've legally appointed this liquidator. I would have thought the indemnity would be a standard part of their appointment documents (ie if you didn't sign the indemnity, you won't have appointed them as liquidator), but possibly that isn't the case. If you have appointed them, then not much you can do. Legally they control your company now, not you. Theoretically you could seek to get a different liquidator to take over the case...however you'll likely just end up paying two liquidators that way, and still have to sign an indemnity with the new one.

    I would recommend against you doing anything drastic with the company bank account, eg taking out all the money. If you've legally appointed them, then I'm unsure exactly what the consequences would be of you taking all the money now without their blessing, but I think you'd be on very dangerous ground. If you haven't appointed them, then you're not in liquidation yet, so if you took all the funds now it would likely be taxed as a dividend.
    Hi thank you for taking the time to respond. Nothing drastic going on. It is purely the issue of indemnifying the accountant. I don’t think it’s necessary unless the accountant is directed by the liquidator (as per any other business entity) to do something as part of the liquidation.

    As far as I can see they are not doing anything under the liquidator’s direction - it is myself as Director that requested the final accounts to be drawn up plus P45 etc.

    So I wondered why should the accountant be indemnified?

    Just to reiterate - if I had appointed yourselves as liquidator, would you have asked me to indemnify my accountant? Or any accountant?

    It seems unethical to me but just wanted to gauge other’s opinions.

    Best regards
    Last edited by MurexSME; 30th November 2020 at 18:34.

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