Trends & Insights

Accountants as mediators

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Generally, dealing with clients’ concerns usually entails providing business guidance and consultation. Unfortunately though, matters can take the more unpleasant form of internal disputes amongst company directors or owners, and there are some of you that will definitely be familiar with the notion of being caught in the middle.

This can be when your best diplomatic talents need to be called on, as it is vital to remain neutral. The best course of action is to try and help clients resolve their disputes amicably, but there are other scenarios whereby the only course of action is to redistribute ownership of the company and let the proprietors go their separate ways. This is particularly common if a business is run by a husband and wife team that are going through divorce proceedings, or a couple of people that have known each for a long time before going into business together.

Why mediation is becoming more sought after

Mediation is a service that is becoming more popular. Often, it isn’t in the interest of the company as a whole to lose one of their directors, so bringing in a third party to settle any issues is the most sensible thing to do. If disputes end up in court, companies can be penalised for not attempting to try mediation first as a solution.

Avoiding court action will save a lot of money in legal costs, and you would be circumventing the risk of negative publicity – anything discussed as part of the mediation process has to remain confidential. So how can you as an accountant help steer these conflicts to the best outcome? Often, an accountant on their own isn’t enough to bring about a satisfactory solution – for bigger companies, or circumstances where a lot of money or shares are involved, it helps to have a legal specialist or HR consultant as part of a team to give more rounded consul.

The main purpose of this kind of arbitration is for the parties to find their own result; it’s not about the mediator imposing their findings and verdict.A good mediator can also bring a quick resolution to any lingering resentments that have been festering for a long time, and there is usually a high success rate if all parties are willing to iron out their differences. You also have to take into account that it isn’t just about the people at the centre of the disagreement – other people involved with the company will also be adversely affected.

Jonathan Hargraves is a company director at Donnelly Bentley Chartered Accountants in Bolton. He has personal experience of mediation – both formal and informal – and he says it can benefit more than just the people at the centre of the conflict: “In a sense you’re also trying to protect the business because usually there’s quite a good business at the heart of it, and you’ve got employees and suppliers who have families dependent on that business. If you get two co-owners who are warring, they are so preoccupied with fighting with each other, they’ve totally taken their eye off the ball and it’s the business that suffers. With the mediation there’s a chance you can get things sorted out before things are damaged beyond repair.”

Jonathan also agrees that as an accountant, you want to try and help the company sort out their differences, otherwise you risk losing them as a client if the business collapses: “When you can see problems arising, you will put a tremendous amount of effort very quickly into those relationships and businesses to make sure you head it off. Sometimes it’s not all about dispute resolution, it’s not always necessarily at that stage, it can just be a misunderstanding about not being on the same wavelength and this is before you are at the full-blown dispute stage. If you are talking to your clients and sense tension between them – that’s the best time to step in and prevent a bigger conflict developing.”

“Impartiality is absolutely paramount. It can be harder when you are dealing with informal mediation and you have known the clients for many years; that’s probably slightly more difficult because you are treading a very fine line between two people that you have known for many years. So in that sense it can be harder, but it is still perfectly doable.”

Why the ICAEW is championing mediation

ICAEW has recognised the benefits of mediation for many years. It has used such techniques as part of its complaints handling process within the Professional Conduct Department, as well as offering a commercial mediation service which is available to anyone. Paul Turner heads up ICAEW’s mediation service and has extensive dispute resolution experience. ICAEW’s service is unusual as it offers mediation on a co-mediation basis; the mediation team often consists of a lawyer mediator and another professional such as a chartered accountant.

This brings more experience, skills and knowledge to the process. For example, Paul has recently co-mediated with Sir Alan Ward (a former Lord Justice). ICAEW has also been working with HMRC to develop a training scheme to facilitate collaborative working between tax practitioners and HMRC.

Paul also chairs a working group – including the CBI, FSB and the Civil Mediation Council – which was set up by the Ministry of Justice to encourage companies to use mediation within their dispute resolution processes. Paul highlights the benefits:

  • Mediations are usually concluded within one day (often a very long day!)
  • Mediation is very cost-effective compared to litigation
  • Mediation is confidential
  • The parties retain the right to make a final decision. Nothing is imposed on the parties until they have signed a written agreement, at which point the agreement is binding and legally enforceable.
  • Mediation is a very flexible process as it can create a range of business-driven solutions rather than just a monetary judgment through Court which may then need to be enforced.

As an example of flexibility, we dealt with a very large (20+) partnership dispute which had a number of offices. The dispute was resolved by creating another practice while the original one remained. We helped the partners to agree a transfer of clients and work in progress as well as deal with retirement terms.We have also helped to resolve very small practice disputes. One case had been in litigation for over five years without a resolution and we resolved it by the middle of the afternoon!

Accountants may find themselves caught up in the middle of a client’s dispute. For example, a directors’ dispute was referred to us which concerned the running of a chain of care homes and had already incurred legal costs of quarter of a million pounds. Again, we resolved that within a day which allowed one of the care homes to be run independently of the chain.

The courts now expect parties to at least have considered mediation before commencing litigation. If a party rejects mediation without good reason, they could be penalised with their legal costs even if they win. The increase in the small claims court’s jurisdiction to £10,000 means more cases will be referred to HMCTS’s small claims mediation service. The European Directive on ADR which is likely to come into force in early 2015 will require all businesses that provide a service or supply goods will be required to provide to their customers details of a mediation process to resolve any contractual dispute.

Reject mediation at your peril!