Exercising liens

This helpsheet has been issued by ICAEW’s Technical Advisory Service to help ICAEW members to identify circumstances when it may be appropriate to exercise a lien in respect of a client’s documents.

Members may also wish to refer to the following related helpsheets and guidance:

• Withholding signature or service
• Change of professional appointment - outgoing accountant
• Documents and records: ownership, lien and rights of access
• ICAEW Code of Ethics

There are two types of lien - a general lien and a particular lien. Case law has determined that accountants are only entitled to exercise a ‘particular lien’. In the context of this helpsheet, ‘lien’ is referring to a particular lien which is the right of the accountant to hold onto the client’s property until the client pays the fees owed to the accountant for the work carried out in respect of that property.

Property which can be the subject of a lien

Only property of the client can be the subject of a lien. Such property will normally take the form of records and papers (whether stored in hard copy or digitally).

Items such as bank notes and passports are not the client’s property and therefore should not be subject to a lien.

Property owned by you

You may be asked to provide documents owned by you (rather than the client) when there is a change in professional appointment (see the helpsheet Change of professional appointment - outgoing accountant). If you withhold such documents or other information until your fees have been paid, you are not exercising a lien, but should still consider and apply the same principles as set out in this helpsheet.

A right of particular lien will exist only where all four of the following circumstances are met:

1. The documents must be the property of the client

It is important to differentiate between work carried out for different parties in order to be sure which client has fees outstanding.

If you undertake personal tax work for Mr A and prepare the accounts of his owner managed limited company, Company B, you have two separate clients – Mr A and Company B.

If fees are outstanding in respect of Mr A’s personal tax work and the property you hold is that of Company B, it would be inappropriate to attempt to exercise a lien over the company’s property.

2. The documents must have been received by proper means

You must have come into possession of the documents legitimately (e.g. by delivery from the client). If a third party sends you documents in error instead of sending them direct to the client you would not be able to exercise a lien over them.

3. Work must have been done and a fee note issued

Sometimes the first indication you may have that a client no longer wishes you to act for them comes in the form of a letter of professional enquiry. In such circumstances you may have time charges which have yet to be billed to the client. Provided that a fee note is issued within a reasonable period of time you would be compliant with this condition.

Indicators that a lien may be inappropriate include:

• An unreasonable lapse of time between the professional enquiry and the invoice being issued;
• Appearing to penalise the client for leaving (such as charging for time previously written off); or
• Fees which appear out of step with previous years’ bills.

4. The fees must be in respect of such work

The fees must relate to the relevant period. So if fees are outstanding in respect of year end 2019 it may not be justifiable to seek to retain documents and records relating to years ending 2018 or 2017.

The fees must also relate to the subject matter. If fees are outstanding in respect of audit work, for example, it would not be acceptable to seek to retain documents or records relating to tax and accounting work.

Even if you comply with the four conditions for exercising a particular lien, there may be circumstances where the normal position set out above does not apply or is varied.

Limited company and LLP clients

Members seeking to exercise a lien in respect of any document of a registered company or LLP (save for the actual accounts) should be aware that such a lien is rarely straightforward. Therefore, it is always advisable to seek legal and/or ethical advice and be prepared to provide a copy of the advice obtained.

It will be difficult to withhold your own documents containing information which links the underlying company documents to the accounts you have produced. You might decide that information such as breakdowns of debtors and creditors, fixed asset information or lead schedules form part of your working papers. However whether they belong to you or the client, withholding such information is likely to frustrate the client’s ability to comply with obligations under company law and thus can be difficult to support.

• Statutory books
  An established line of authority exists in which the courts have held that no lien can be exercised over the books or documents of a registered company which, either by statute or by the articles of association of the company, have to be available for public inspection or be kept at the registered office (or other specified place) or dealt with in any special way. For example, the register of members, the directors’ minute books and articles of association, could not be the subject of a lien.

• Accounting records
  Similar requirements apply to accounting records as they are required to be open to inspection in accordance with the provisions of the Companies Act 2006. The term ‘accounting records’ is wide and may cover a large number of documents. The following are in general suggested as being accounting records, but the list is by no means exhaustive:
  
  - PAYE records;
  - Cash book;
  - Sales day book;
  - Bank statements;
  - Purchase day book;
  - Sales, purchase and nominal ledgers;
  - Cheque stubs;
  - Petty cash vouchers;
  - Journals;
  - Sales and purchase invoices; and
  - Trial balances.
  
  Whilst it is generally accepted that the accounts themselves are not ‘accounting records’, any information which links the accounts to the prime books of entry/invoices etc. may be viewed as linking information and therefore fall within the term ‘accounting records’.

Insolvency

You may find difficulty in exercising a lien over the documents of clients who are the subject of formal insolvency appointments. You should consider the guidance Documents and records: ownership, lien and rights of access.

Fee disputes and other inappropriate circumstances

The purpose of exercising a lien is to assist prompt settlement from a slow client and not to exact payment from a client who has a dispute over the fees – paragraph R330.11 of the ICAEW Code of Ethics requires you to take reasonable steps to attempt to resolve any fee dispute. The use of a lien may be viewed as inappropriate:

• When a writ/summons has been issued;
• When money has been lodged with the court or a third party stakeholder;
• When an arbitrator has been appointed (and their decision will be binding on the parties); or
• When an agreement has been reached and confirmed in writing.

It may also be deemed as inappropriate to exercise a lien when third parties will be disadvantaged e.g. where payroll records are withheld and without them the client’s employees would not get paid.

Written records

It is always prudent to keep a fully reasoned written record of reasons for any decision concluding that a lien may be exercised. This is particularly important where written legal advice is not sought.

In all but the most straightforward of situations it is recommended that you seek legal advice. You may need to demonstrate that you have done so if your lien is challenged and might find it helpful to get that advice in writing. Always ensure that your legal advisors are aware of the ICAEW guidance in this area. ICAEW members based in England and Wales have access to a free legal signposting service provided by CABA. The 24 hour helpline can be contacted on +44 (0)1788 556 366.

In all but the most straightforward of situations it is recommended that you seek legal advice. You may need to demonstrate that you have done so if your lien is challenged and might find it helpful to get that advice in writing. Always ensure that your legal advisors are aware of the ICAEW guidance in this area. ICAEW members based in England and Wales have access to a free legal signposting service provided by CABA. The 24 hour helpline can be contacted on +44 (0)1788 556 366.

ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access can discuss their specific situation with the Ethics Advisory Service on +44 (0)1908 248 250 or via webchat.