Arrangements to cover the incapacity or death of a sole practitioner
Guidance for sole practitioners on finding solutions to the problems that might arise in the event of their incapacity or death.
Revised 1 January 2009.
ICAEW is regularly made aware of problems which have arisen where a sole practitioner has become physically or mentally incapacitated and consequently unable to continue to manage their practice, or has died without making adequate arrangements for the carrying on of their practice by his personal representatives. The following guidance is intended to be of assistance to sole practitioners in identifying the solutions to the problems which will inevitably arise in the event of their incapacity or death. These may affect clients, other members and firms who may be involved in the continuation of the practice, and the member's personal representatives, their advisors and any other persons who may be concerned.
All practitioners have a duty to ensure that their practices are at all times properly supervised and conducted, including implementing arrangements to cover holidays and sickness of the practitioner. The problems which will inevitably arise where a sole practitioner ceases to be able to conduct his practice because of continuing incapacity or death are much more serious. The interruption of services resulting in particular from mental incapacity or death will cause considerable difficulty and inconvenience to the practitioner's clients, additional anxiety for their family and reduction in the value of the practice or even its disintegration.
It is therefore vital for a sole practitioner to confront these problems and difficulties, preferably when he or she first enters into practice, and to make arrangements appropriate to each of the following circumstances to enable the practice to be carried on with a minimum of dislocation:
short-term absence due to holiday or sickness;
continuing physical incapacity;
The arrangements in respect of (b), (c) and (d) should provide, as far as is possible, for the practice to be continued as a going concern by the member's alternate until such time as the sole practitioner recovers or a decision is made to dispose of the practice. Where the office has been authorised under the Learning and Professional Development Regulations as an Authorised Training Employer these arrangements should include provision for notification of death or anticipated prolonged absence of the sole practitioner to the Learning and Professional Development Department of the Institute so that provision can be made to ensure that Approved Training is not placed in jeopardy.
The arrangements may be made with another sole practitioner or with a firm, or through support arrangements set up by the member's district society. Any effective arrangements will require very specific legal measures, such as those described in paragraph 7 below. It is, however, first necessary to consider the specific legal problems associated with the provision of services in the reserved areas of practice, if incapacity or death of a sole practitioner should occur.
Legal considerations arising in reserved areas
An audit appointment is of a firm (in the case of a sole practitioner an individual) by the audited company. As such it would be contrary to the company's intention if some other party whom it had not appointed were to sign an audit report. Also, the Companies Act 2006 requires the senior statutory auditor, which will be the sole practitioner, to sign the audit report for a company, and certain other entities, in his or her own name. It would not be possible for an alternate to sign the audit report in place of the sole practitioner. Temporary incapacity, mental or physical, of itself would not necessarily terminate the appointment, however the practical matters outlined above may cause the appointment to cease. You may find it helpful to consult the APB Bulletin, '"The Senior Statutory Auditor" under the United Kingdom Companies Act 2006'.
Where a sole practitioner auditor dies, a casual vacancy arises and there is no facility for an alternate, even if properly appointed as a special executor under the practitioner's will (see paragraph 7b), to sign the audit report.
Insolvency is a personal appointment. Although during the course of an insolvency appointment a practitioner frequently employs managers and other staff to carry out certain work on his behalf, it would not be possible for an alternate to be appointed to act, save by the court or other relevant entity empowered under the Insolvency Act 1986. An alternate could however be appointed to deal with the purely administrative matters arising from a sole practitioner's resignation or vacation of office, if the latter became incapacitated, physically or mentally. If an insolvency appointee dies, the appointment is automatically vacated.
(iii) Investment business
A designated professional body licence is of a firm. An alternate could undertake work that requires a licence on behalf of a licensed firm provided they were competent to do so. In the event of the death of the sole practitioner the firm no longer meets the eligibility requirements of a licence. There are provisions for a temporary dispensation and the firm should contact Professional Standards at the ICAEW immediately.
Legal measures are available to assist firms in making appropriate arrangements. Implementation of these legal arrangements can provide effective legal continuity of a sole practitioner's practice in the case of their incapacity, mental or physical, or death. These measures consist of the following:
a valid Power of Attorney (to deal with incapacity), plus
a 'Special Executor' clause, for inclusion in the sole-practitioner's will to cover the possibility of the practitioner's death.
Members may, given the complexity and variety of testamentary situations, require assistance from their own solicitors.
For further assistance please contact the Ethics Advisory Services on +44 (0)1908 248 250.