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Case Study - Professional Negligence – Alleged Deficient Corporate Finance Advice
This case related to the allegedly negligent advice given by a firm of Chartered Accountants, when advising on the corporate reconstruction of a number of companies, one of which was Company A, and all of which were wholly or partly owned by the Claimants.
The Claimants asserted that, as a consequence of receiving allegedly negligent advice, assets were transferred out of Company A but the liabilities were not, resulting in Company A suffering several years loss on an onerous lease arrangement, not being able to service its debt. As a consequence Company A was placed into liquidation.
The liquidators commenced proceedings against the Claimants, for the sum of the £1.2m debt, for failing to comply with their duties as Directors and wrongly causing Company A to divest itself of its principal asset, leaving itself insolvent.
Our experts reported to the Claimants their professional opinion as to whether the accountants had provided specialist corporate finance advice to the required standard expected of them.
The report commented on the firm’s ethical and professional responsibilities and whether they had been deficient in those responsibilities.
The report considered whether the accounting advice provided was that of a reasonably competent professional adviser, whether the firm had a duty to advise the Claimants and the Board of Company A on the impact of leaving liabilities in Company A and whether the firm should have advised the Claimants of the potential personal liability they would face as Directors, should the liabilities of Company A fail to be satisfied.
Birchfields Forensic Accountants: Professional Negligence
The 4Forensics team has assisted in many cases involving alleged professional negligence, for example, where losses have arisen from the provision of incomplete advice or the failure to take action.
Case Study - Professional Negligence - Failure to Register a Lease Termination Notice
In this case, the professional advisers to the Claimant, a retailer, had failed to register a lease termination notice within the prescribed period. Due to the admitted negligence of the professional advisers, the Claimant was obliged to continue trading at a loss-making store due to a ‘keep-trading’ clause in the lease.
The Claimant was contractually obliged to continue to employ staff to keep the store open and incur trading costs. They could not simply close down the store to minimise their losses. Compensation was therefore requested from their professional advisors.
Graham Garbett was appointed as an Expert Forensic Accountant, to undertake a detailed review of trading, prepare a report quantifying the historical costs and anticipated future costs of running the store. Many of the costs were specific to the store and therefore easily identifiable. However, Graham was additionally able to identify a number of costs incurred at Head Office which would have been eliminated in the event of a closure of the store.
Graham’s report, with additional advice, enabled the Claimant’s legal team to pursue their claim of approximately £100,000. A satisfactory compensatory amount was agreed out of Court.
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