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Accountant must pay for enticing away former clients

Posted: 31st August 2011   In: Dispute Resolution, Corporate Commercial

When buying a business it’s important to ensure that the seller doesn’t try to entice away clients or customers once the sale goes through.

For this reason, most firms will insist on a covenant preventing the seller from setting up a rival business or soliciting his former customers for a specified period.

The value of this approach was illustrated in a recent case before the High Court.

It involved an accountant who decided to sell his business. The buyer insisted on a clause in the sale agreement preventing the accountant from "canvassing, soliciting or endeavouring to entice away" his former clients for three years.

This was honoured for the first two years but then the seller got a job with another accountancy firm which offered him commission if he introduced new clients.

This encouraged the accountant to approach his former clients. The firm that bought his business found out about it and took legal action to enforce the covenant.

The accountant denied that he had solicited his former clients but the High Court was unconvinced. The judge held him to be a dishonest and unreliable witness.

It found that he had enticed five of his former clients to switch to his new employers.

This meant that the buyers had lost fees totalling £31,875. The accountant was ordered to repay this amount to the buyer as compensation.

Please contact us if you would like more information about the issues raised in this article.