Preventive Litigation | CA SANJAY

Preventive Litigation : A New Opportunity for Chartered Accountants

 

 

Vivaan came into his father’s practice of Income Tax and Project financing after completing his Chartered Accountancy and Masters in Business Administration. He worked on few large client accounts for first 6 month and interacted with CFO and CEO who were managing large turnover, plants and huge manpower to cater domestic and export demand.

One very large client of Vivaan was dragged into NCLT by bank and Resolution professional was appointed thereafter. Vivaan asked his father with curiosity that “was it possible for him to save this company going into this severe financial hardship and now on the brink of bankruptcy ?

His father cautiously replied that we being an advisor of this company for long time, he did not see any sign or symptom of Bankruptcy, so this sudden development is surprising him as well.  It look like competition or someone interested to acquire the running business might have planned it in such a manner that he can get entry into this company at significantly low valuation with fully settled Debt.

Vivaan went to his client office and checked that whether Tax Compliance is happening or not and he found that company was actually sitting on huge contingent liabilities because of plethora of litigation opened against the company by Vendors, Tax Authorities and service providers.

It took no time for Vivaan to realize the the company management was not having any preventive litigation plan in place and no legal counsel was there to support them. Because promoter was having certain fears from lawyer community, he always kept them away from his business to the extent possible.

Friends, there are thousands of such companies and hundreds of Vivaan who are advising aggressively to clients but have no back-up litigation strategy or preventive litigation plan in place.

Mostly Chartered Accountants do not give enough weightage to litigation contingencies reported by management. They agreed on the ex-parte legal opinions given by lawyers to the client. A proactive and robust impact study in terms of numbers and impact on valuation and brand of the company is required to safeguard promoter’s interest in the event of hostile takeovers or aggressive NCLT actions targeted against them by competition or smart incumbent.

Vivaan as young chartered accountant with degree in Business management took this learning seriously and called his technology friend to design a Financial Tool for him which can showcase impact of ongoing litigation on the financial and business health of the company in longer run.

This gave a big boost in Vivaan’s practice and today he could generate new avenue of helping his clients by setting up preventive litigation policy and plan in place.

He prevented many litigation by doing settlement with Vendors and by advising last mile in the Client’s Organization as to what need to be done in ticklish situation when dispute arises.

Friends today no company want to get dragged into litigation because it consumes both time, resources and uninsured financial burden on the company. Thus preventive litigation is an emerging area for young chartered accountants to develop as practice and look at the internal and external factors which may cause threat to your client’s business.

Mostly large companies have their in house counsel whose role is to ensure preventive litigation, but they rely on large legal firms to work on preventive litigation. Aggressive positions when taken at the cost of compliance, always increase the risk of litigation and cost involved.

In my view Chartered Accountants are best placed to advise their clients on how to balance the risk but they need to develop the habit of reading law more often and corroborate their understanding by reading expert legal opinions with business numbers.

Today in most competitive market , Client can pay decent professional fees if the services offered are innovative and can be measured in financial success to client. Money saved is money earned and Business saved is thousands of Jobs saved for the Nation as a whole.

In Today’s environment we are heading towards jobless growth and we need to help entrepreneurs and business owners who are creating jobs in society. This role of letting them traverse to the safest and most compliant path is a challenge Chartered Accountants must take with their deep knowledge of law, Taxation, Accounting principles and overall understanding of Business Scenario.

Log on to www.casanjay.me to track our previous articles and MCQ series to know how you can build a successful career as Chartered Accountant and contribute in the growth of Nation as true professional.

Author CA Sanjay Kumar Agrawal can be reached at fcasanjay2018@gmail.com

 

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