What happens when a factoring business shuts down and owners are transferred to another firm?
Are your funds protected if the factor goes out of business?
We’ve never known a factor to go bankrupt but there is protection for owners.
The factor is required to keep any advance payments from you in a separate client account. This clearly identifies that the money does not belong to the factor and should provide you with protection. This is what the Code of Conduct says:
- 3.2 and 3.11: Homeowners’ floating funds must be held in a separate account from your own funds. This can either be one account for all your homeowner clients or separate accounts for each homeowner or group of homeowners.
- 3.2: Unless the titles specify otherwise, you must return any funds due to homeowners (less any outstanding debts) automatically at the point of settlement of final bill following change of ownership or property factor.
What’s involved in the transfer process?
Firstly, if there is a procedure set out in your titles, then the factor must abide by these. You should also check if there is anything covering such situations in the Written Statement of Services or any other documentation you may have from your factor.
The current Code of Conduct for Factors only covers the situation where owners decide to change factor (Sections 3.5, 3.6, and 7.5). The Code of Conduct provides that where the current factor initiates a transfer of its management duties to a new factor, both factors must co-operate to exchange the necessary information. This can include information on outstanding repairs, and will most likely include information on current repair works being considered, and any outstanding debts.
