Personal Undertaking

[Focused]

Eleven years ago I was a director of an IFA company. We were in a network who took the commissions we were due and paid us out after taking their cut. Many of the commissions were on indemnity terms whereby we were paid the first 4 years commission up front but there would be a clawback of commission if a policy ceased in the 4 year period. I was asked to sign a personal indemnity whereby I accepted personal liability (along with another director) for any clawback. I had no problem accepting this responsibility and such an indemnity was fair and reasonable.
I left the company 11 years ago after a dispute and forgot all about the indemnity. The endowment compensation culture came in and the way the system works is that a claim is made against the IFA and if found to be justified, the IFA or the PI company make restitution. If the claimant is refused compensation because the files show that all risks were clearly explained to the client at the time of sale, the claimant still has the right to go the the Financial Services Ombudsman. The IFA has to pay a fee to the FSO even if the claim is rejected. That fee is currently £540 I believe. The company had only two cases that went to the FSO and both were rejected but the company had to pay the fees. In actual fact the network paid the fees and sought to recover them from the company. However the company has ceased to trade although all the directors did was close down the company and start up again under a new name.
I am now being chased by the network for the FSO fees. I have argued that the indemnity that I signed was for commission clawback only but there is in the agreement the words "indemnify the Company against all costs, claims, demands and expenses".
I have written to the directors of the newly formed company (Most of them the same directors who were with me in the old company) but they just don't want to know.
The personal indemnity I signed was, to the best of my belief, just to cover clawback of commission but I am now being told they have a claim against me for these FSO costs. Do I have any argument against the claim at all please?


Regards

 

[Zeno]

I think you will need to get specific legal advice. I would be interested in the answer as it seems worrying.

Do you still have the paperwork after all this time?

 

[Focused]

The network sent me a copy of the undertaking that I signed when they sent me their claim.

I had some free legal advice and they said words to the effect of "just pay, it would cost more to challenge than can be justified and you might not win the case". That really sums up the situation - I could end paying more in legal fees than can be justified. One worry is that there is nothing to stop other claims being made against the company in future and I end up picking up the bill. Even if the claim isn't justified, the claimant only incurrs the cost of a postage stamp on his letter to the FSO and at that point there is a fee of £450 (figures mixed up in original post) to pay even if the claim is frivolous or malicious.

 

[Zeno]

Are you still a member of your institute? They may be able to help.

 

[Focused]

Yes, but they don't have any capacity for getting involved in this kind of issue. So far as the current directors of the new company are concerned, they don't want to know and don't even reply to letters or return phone calls, so some form of arbritration would not be a starter. My only hope is that the indemnity that I signed should not be being used now to recover fees that were never discussed or considered as a possibility when I signed the form.

 

[Zeno]

Sorry mate, one for the lawyers. There will no doubt be an ambigious paragraph in the agreement somewhere that gives the jackals an opening.

Good luck with it anyway.

 

[Lime One]

Can you confirm who you provided the indemnity to? It is not clear in the posting if the indemnity covered the network, or as seems on the words you provide above just the company? It seems the request is for around £1000 so a small claim and not one you need legal representation on. It may be capable of challenge and providing it is not going to cost you more than time possibly worth defending a claim, if indeed one is brought on the basis the indemnity covered the company which is no longer trading. The network should be pursuing all directors of the company not just one in my view.

 

[Focused]

The indemnity was from me to the network, There are actually two of us on the indemnity but the network can't trace the other director (now retired) and I don't know where he lives now.
I was concerned about the cost of going to court but the cost of defending in the small claims court isn't high and it looks like I wouldn't have to pay the claimants costs even if I lost. I'm going to have a word with the CAB to see if they have an opinion. Thanks for putting me on to this line of thought.