Retirement: winding up a practice
5 April 2019
What do surveyors need to do when winding up their practices? In the 2nd in our series of articles on retirement, Alexandra Anderson and Jonathan Angell look at the issues
In the last article in this series, we looked at some issues that might arise if, on deciding to retire, you chose to sell your practice. In this piece, we look at the procedures for winding it up instead, and identify some of the matters you will need to address before you can do so. While these considerations are definitely relevant if you have decided to close your practice, they may also apply if you sell, depending on whether you retain ownership of the vehicle through which you carried on the practice or whether you have sold it.
You will usually carry on practice as a sole trader, through a partnership, or through a corporate entity, either a limited liability company or limited liability partnership (LLP). If you are the first, there is no legal entity you need to bring to an end when closing down your practice because you own all the business’s assets and are personally responsible for discharging its liabilities. If you practise through a partnership, however, your course of action will depend on whether you are simply retiring from the partnership or whether all partners are ceasing to practice at the same time.
The procedures to be followed in either case will be governed by the terms of the partnership deed and the provisions of the Partnership Act 1890. If you are retiring from the partnership but your partners intend to continue with the business, they will generally do so in the same name, whereas if all partners are retiring you will need to take steps to wind up the partnership as a whole.
Where you have carried on business through a corporate structure you will eventually want to bring its existence to an end, whether or not you have sold its business in the meantime. The Companies Act 2006 allows for the voluntary striking off and dissolution of companies and LLPs that are no longer trading, which may be the easiest option if certain criteria are met. Alternatively, a solvent liquidation may be more suitable. Your legal and accountancy advisers can help you identify the best option.
Another consideration is ensuring you have reviewed how any of the practice’s outstanding liabilities will be satisfied, and that you have taken all steps necessary to bring it to an orderly closure. If you are unable to satisfy any such liabilities you may need to seek insolvent liquidation. Either route will require significant planning.
Where you have employees working in the business, you will need to work out how to bring their contracts to an end. The procedures to follow, including how much notice you must give, will be set out in their contracts, although you may also need to have regard to the general principles of employment law regarding termination. You should have valid grounds for terminating the contracts, but this is unlikely to be an issue as cessation of your business will generally be sufficient. You will also have to work out what pay and benefits you must provide before your employees leave, and consider what to do about providing references.
Bear in mind that there may be tension between your own needs and those of your employees
Bear in mind that there may be tension between your own needs – in particular, ensuring that you have sufficient staff to keep the business running until it closes – and your employees’ – wanting to move jobs sooner rather than later. You may thus have to be flexible in dealing with their requests. If you have set up a company pension scheme, you will likewise need to make arrangements to ensure your employees’ rights in this respect are properly protected.
At some stage, you will need to tell your clients that you are closing down your practice too, and have proper arrangements in place either to conclude matters for them or transfer ongoing work to another practice if they would prefer this. Failure to make adequate arrangements for handling client matters could have financial and regulatory consequences.
In order to carry on business, you will have entered into numerous contracts, some of which may have some time still to run at the date when you are hoping to cease practising; for example, any lease for the premises you use. You will need to review these contracts to see what they say about how they can be brought to an end. In particular, you will need to understand the consequences of early termination, and how much notice you need to give before the end of the contractual period.
Furthermore, there are a number of regulatory aspects you must consider, including notifying RICS of your intention to cease practising, ensuring that you deal properly with any client monies you hold, and arranging for the safe keeping of your records after you have closed the business. However, you do not have to leave RICS as you can become a retired member.
Best practice would be to retain your records for 15 years
You should retain your records for at least 6 years and in some cases will need to keep them longer, for example where you were appointed under a deed. Best practice would be to retain your records for 15 years. This will involve you in ongoing responsibilities under data protection legislation, especially the Data Protection Act 2018 and the General Data Protection Regulation, which require you to keep data securely and review it regularly to consider whether you still need to hold it.
You will need also to consider what insurances you must maintain after your practice ceases. Although you should not need to maintain employer’s liability or property insurance, you will need to renew policies such as your professional indemnity insurance because this needs to be in force at the time any claim is made rather than at the time the work giving rise to a claim was carried out. It is also a regulatory requirement that you maintain run-off professional indemnity insurance for a minimum of 6 years after you cease business.
Many of the above areas are complex, and you should consider seeking professional advice to ensure you comply with your obligations. Some of the steps require you to give notice well in advance of the date on which you want to cease practising, and it may be helpful to prepare a timeline. The better you plan, the less likely you are to overlook your obligations and the greater the chance that you will be able to close down your practice in an orderly fashion and with the minimum of stress.
In the next article, we will look at some of the issues that may arise and some of the obligations which may continue to apply post-termination.
Alexandra Anderson is a partner and Jonathan Angell is a consultant at Reynolds Porter Chamberlain