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Quick guide: Mitigating the potential risks of being in a federation

1. Make sure the federation has appropriate insurance policies, for example to cover employer liability, public liability, professional negligence and vicarious liability. Also establish whether CQC compliance is required.

2. Take steps to make sure you understand how the federation is performing by ascertaining that contracts are being managed in line with budgeted performance. If you are a director, make sure you are attending regular board meetings; if you are a regular member, request copies of board minutes.

3. Be alert to the signs of risk, such as a small bank account buffer, any notifications of contract terminations and no new sources of income on the horizon. In such situations, action needs to be taken to review where costs can be cut, whether further investment is needed to secure income or whether it is better to look at bringing the federation affairs to a close without incurring too many further costs.

4. If that happens, your ability to recover any initial investment depends on how the federation was structured and is being closed down. If you invested ordinary share capital and the company is wound up with no remaining funds, the investment is lost. If there are remaining funds, you will receive your share. If the initial investment was an unsecured loan, you will only receive money back if there are any funds remaining after the secured creditors have been paid off.

Deborah Wood is a partner at Moore and Smalley and vice-chair of the Association of Independent Specialist Medical Accountants


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