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Personal Liability Risk for Directors


Rupert Wright - Corporate Services Specialist

Rupert Wright – Corporate Services Specialist

With pressure on politicians and regulators to be seen to be in charge of events and punishing wrongdoing, directors need to be aware of their duties and personal liability, says Rupert Wright, a corporate lawyer at Charles Lucas & Marshall.

The main duties of directors are to comply with their obligations, exercise reasonable care and skill in carrying out their duties and act in good faith.

However, directors are becoming increasingly concerned about the risk of being personally liable for acts undertaken for them – whether they are corporate acts, a major pollution incident or a corruption scandal.

The personal liabilities which can be imposed on individual directors are extremely wide.  They can arise both under the criminal and civil law.

The risks considered to be of greatest significance remain anti-corruption legislation and criminal and regulatory fines and penalties.

There are numerous sections of the Companies Act which render a director liable to a fine or in some cases to imprisonment and there is a trend towards making directors or other individuals in senior managerial positions personally liable under criminal law.

A director may be found guilty of fraudulent trading if he allows the company to trade with intent to defraud creditors.  In addition, a liquidator can apply to the court to make a director personally liable for company debts and to contribute towards the assets available to pay creditors.

Also, under the Insolvency Act 1986, the courts can impose personal liability for the company’s debts if it is shown that the director knew or ought to have realised that there was no reasonable hope of avoiding the company going into insolvent liquidation.

Directors should therefore consider the following protective measures:-

  1. Directors need to be aware of the exact nature of their responsibilities within their own company.
  1. Directors should be fully aware of the obligations and responsibilities imposed on directors. Professional advisers such as lawyers or accountants should be consulted on specific problems.
  1. Directors should always be satisfied that the duties delegated to others are being properly and competently carried out.
  1. Directors should ensure that they are kept fully informed of company affairs and are kept up-to-date. Directors’ meetings should be attended and directors should make sure decisions are properly recorded.
  1. Directors should take full and professional advice before giving any personal guarantees for business purposes. A guarantee may, for example, involve a charge being made on a private residence.
  1. Directors should ensure that full and regular accounting and management records are provided to them in a form that they fully understand. In this way they can identify problems at an early stage.
  1. Directors should take out personal liability insurance. This will provide an indemnity against costs incurred in successfully defending an action brought against them as a director.

For further information contact Rupert Wright on 01635 521212 or rupert.wright@clmlaw.co.uk

Recovering Business Debts -The Use Of Charging Orders


Paul Trincas

Paul Trincas

In a previous article in the Newbury Business News, Paul Trincas, a corporate lawyer with Charles Lucas & Marshall wrote about how businesses could secure payment of debts and the types of enforcement mechanisms available. Here, he turns his attention to what is probably the most effective and secure method of ensuring debts are paid – charging orders.

What is a ‘Charging Order’?

A Charging Order is an Order of the Court charging a person’s interest in a property or properties, for the amount of the debt owed. It is therefore a type of security, like a mortgage, for the sum owed.

Voluntary Charge

If a debtor ‘agrees’ to a charge over their interest in any property or properties they own, in respect of debts owed, then this can be achieved by lodging the relevant form with the Land Registry. However, this procedure is dependent upon the debtor agreeing to this being undertaken and in almost 99 per cent of cases, such agreement will not be forthcoming. In which event, a Charging Order will need to be applied for through the courts.

Who can apply for a Charging Order?

Anyone owed money can apply to the court for a Charging Order. However, a Charging Order cannot be applied for unless a judgment for the sum owed is first obtained against the debtor. Further the debt owed must be £1,000 or more.

Therefore, the person owed money must first go through the court system and obtain a judgment, and then, on the back of the judgment being obtained, a Charging Order can be applied for.

What is charged?

Only the debtor’s ‘interest’ in the property or properties can be charged. So, for example, if a husband and wife jointly own property in equal shares, then it is only the debtor’s 50 per cent interest in the property that can be charged.

When is payment made under a Charging Order?

Although a Charging Order on a property secures the amount owed, this does not mean that the monies owed will be paid immediately.

Generally, there are three trigger points when the sum secured by way of Charging Order, will be paid. They are:

  • If the debtor dies, provided he/she is the sole owner.
  • When the property is sold.
  • If the person who has the benefit of a Charging Order applies to the court for an Order for Sale of the property.

Under the first two, it may be years before these trigger points are reached. However, the person owed money will be entitled to interest on the initial sum charged, currently, at 8 per cent per annum, from the date the Charging Order is made.

Under the final trigger point, the courts will generally only order a sale of the property if the amount of the debt is large.

For more information please contact Paul Trincas on 01635 521212 or paul.trincas@clmlaw.co.uk.

Written by Paul Trincas

February 17th, 2016 at 12:12 pm

Clarity for Commercial Contracts


Disputes relating to commercial contracts can be expensive and time consuming for both parties. Rupert Wright, a commercial lawyer at Charles Lucas & Marshall, explains why lawyers should be involved at each stage to resolve ambiguities and ensure the contract contains all the main terms.

Rupert Wright

Rupert Wright

A recent Supreme Court decision has made it all the more important that commercial contracts should be unambiguous and be set out in clear terms.

Under the recent Supreme Court decision, a term would only be implied into a detailed commercial contract if it was necessary to give business efficacy to the contract or was so obvious that its implications went without saying.

The decision related to a commercial lease but has wide implications for other commercial contracts.

In most, possibly all, disputes about whether a term should be implied into a contract, it was only after the process of construing the express words was complete that the issue of an implied term fell to be considered.

In the Marks & Spencer plc case there was a powerful case for contending that it was necessary for business efficacy that the term contended for by the tenant should be implied into the contract.

In general, all contracts should be clear and unambiguous and should contain all the necessary terms including sums payable, term of contract, interest provisions, obligations of either party and confidentiality provisions.

An entire agreement provision should also be considered to prevent the matter or documents being included in the contract. In long term contracts, it is often vitally important to have a break provision allowing one or both parties to terminate the contract upon giving notice.

It is also very important that prior to a contract being negotiated, a non-disclosure agreement should be entered into which can ensure that confidential information cannot be leaked to other parties, particularly competitors who might use this information for their own purposes and undermine the current business.

Also, when negotiating a contract, an exclusivity provision should be agreed ensuring that the seller cannot deal with other third parties in connection with the contract being negotiated during the exclusivity period.

In summary, it has become all the more important that commercial contracts should have clarity and certainty to avoid disputes in the future. The Marks & Spencer case makes it all the more important that a contract should contain all the main terms and should not be ambiguous since importing clauses into an agreement can cause difficulties since it is wrong, save in very clear cases, to attribute a particular clause into a commercial agreement.

For further information contact Rupert Wright on 01635 521212 or rupert.wright@clmlaw.co.uk

Update on Consumer Rights Law


  • Sale of Goods Act 1979
  • Unfair Terms in Consumer Regulations 1999
  • Supply of Goods and Services Act 1982

The aim of the new Act is to update all the previous legal rulings into one Act for customers to refer to if they run into trouble. These are the key changes:

  1. Terms and conditions have to be in clear English and in a form easily understood by consumers. Therefore, microscopic small print is banned. If certain conditions are hidden away or couched in impenetrable language, the business cannot rely on it if the product fails.
  2. Any attempt to limit liability needs to be carefully considered. Therefore traders cannot generally aim to exclude liability for unforeseeable losses such as indirect and consequential loss.
  3. Any rate used to calculate interest payable on late payments cannot be excessive. The rate to be used should be ideally set at base rate.
  4. Rules dealing with the provision of digital content have been introduced. Paper or digital content have not been addressed in the past. Paper or digital content must now be of satisfactory quality, fit for purpose and as described.
  5. Consumers’ rights for any late deliveries have changed significantly as have the legal rights available for defective goods. Therefore if consumers buy an item which turns out to be faulty, the consumers generally get an automatic refund if it is returned within 30 days.

This is a brief overview of some of the key changes. Generally, companies who deal with consumers do now need to check their terms and conditions to ensure they are fully compliant.

For further information contact Rupert Wright on 01635 521212 or rupert.wright@clmlaw.co.uk

 

Written by Rupert Wright

December 1st, 2015 at 12:10 pm

New Procedures to End Assured Shorthold Tenancy


“From 1 October 2015, Landlords, and indeed, their agents, will need to comply with new procedures for ending an Assured Shorthold Tenancy. If Landlords fail to comply with the new procedures, then this will prevent them from obtaining a possession order for possession of such premises. Changes are introduced, via the Deregulation Act 2015, to the “requirements” necessary before a Section 21 Notice to end such tenancies is valid,  the introduction of a new “prescribed” Form of Section 21 Notice, as well as to time limits within which possession proceedings must be commenced.

Paul Trincas

Paul Trincas

From 1 October 2015, Landlords will be unable to serve a Section 21 Notice within the first 4 months of the grant of such tenancy. Further, any claim for possession must be started within 6 months of service of the section 21 Notice. If possession proceedings are not started within this period, then a fresh Section 21 Notice will be required to be served before a possession order can be made.

A Section 21 Notice will now be invalid unless, when granting an Assured Shorthold Tenancy, in addition to complying with the existing requirements relating to registering deposits under the Tenancy Deposit Scheme and serving detailed information about such scheme, the tenant is now also provided with an Energy Performance Ceritificate and a Gas Safety Certificate. In addition, the tenant must also be served with “prescribed information”, in the form of a document entitled “How to rent: a checklist for renting in England” which is published by the Department for Communities and Local Government, and which must be the edition current at the time. It would be best practice to ensure that such “prescribed information”, energy performance certificate and gas certificate are all provided at the start of such tenancy.

Landlords will be relieved to know that the changes will only apply to Assured Shorthold Tenancies granted on or after 1 October 2015. They will not apply to such existing fixed term tenancies  granted before 1 October 2015, even if, after that date, the fixed term becomes a statutory periodic tenancy.However, Landlords need to be aware that from 1 October 2018, the new rules and changes will apply to any Assured Shorthold Tenancy, irrespective of when tenancy was created.

These new changes will certainly be food for thought by Landlords and their agents, as failure to comply will be fatal to obtaining a “no-fault” Possession Order at the end of the term. Equally, tenants faced with possible eviction, will undoubtedly take advantage of the new requirements imposed upon Landlords, in finding ways to invalidate a Section 21 Notice.

For further information please contact Paul Trincas on 01635 521212 or paul.trincas@clmlaw.co.uk.

Written by Paul Trincas

October 1st, 2015 at 1:32 pm

Commercial Contracts – Try to Keep It Simple


In many legal jurisdictions there is an overriding duty of good faith between contracting parties. However, the English Courts have consistently refused to adopt such a vague and subjective concept: there is no implied duty of good faith between contracting parties. The starting point is that each is free to take advantage of the other unless, for instance, there is a fiduciary duty.

Rupert Wright

Rupert Wright

The general rule when drafting contracts is to keep it simple if possible and conventional. Over- elaborate deal structures are fraught with difficulty. It is important to agree the main elements of the contract before drafting a written contract and to involve lawyers at an early stage.

Lawyers should also be managed and should be discouraged from agreeing the points in too fine a detail since commercial decisions are best left to the client not the lawyer. It is also important to plan ahead and allow time and space to negotiate the final contract.

As regards fiduciary duty in commercial contracts, an exception seems to exist for ‘relational contracts’ which can exist where the parties have a long term relationship and in such a situation, good faith, co-operation and loyalty are more likely to be implied.

This is probably easiest to prove in an employment context where the Supreme Court has recently confirmed that employers should be subject to a more objective stand of reasonableness when making decisions that affect their workers. In essence, employers must avoid capriciousness, perversity or irrationality. As was stated recently in the Supreme Court, the existence of an employment relationship may justify a more intense scrutiny of the employer’s decision-making process than would be appropriate in some commercial contracts.

This approach can be implied into more straightforward commercial contracts. A recent High Court decision has caused some comment by deciding that a commercial contract involved a ‘relational contract’ and that there was therefore an implied term to act with integrity and honesty although that seems to be a narrower concept than good faith.

The case involved a contract between a Police Authority and a vehicle recovery company and the important factor was the number of transactions between the parties and the length of their contractual relationship which led the Judge to describe it as a relational contract par excellence.   This High Court decision has raised concerns in the legal community because it does potentially open up a wider duty of care where there is a long established relationship between the contracting parties even if integrity and honesty is not as wide as good faith. This could well lead to judgements by the English Courts towards a more generalised duty of good faith between contracting parties.

For further information contact Rupert Wright on 01635 521212 or rupert.wright@clmlaw.co.uk

 

IR35 CONSULTATION


HMRC are looking at new ways to improve the efficiency of the IR35 legislation and to reduce the tax advantage for individuals hired through a personal service company (PSC) rather than as hired directly as employees. Current suggestions are for administrative changes and increasing the involvement of engagers to ensuring the correct amount of tax is paid. 

For further information please visit:

http://www.gov.uk/government/consultations/intermediaries-legislation-ir35-discussion-document

COMPANY PENSIONS REMINDER

Auto-enrolment. From the 1st June 2015 we have now reached the staging dates for automatic pension enrolment for employers with fewer than 50 employees. The overall staging period for this group runs until the 1st April 2017. If you have not already checked the staging date for your business and have a staff pension plan in place for implementation, you need to do so now.

You can check your date on the on the Pensions Regulator’s website:

http://www.thepensionsregulator.gov.uk/employers/staging-date.aspx

TAX TREATMENT OF TERMINATION PAYMENTS

The government has announced a consultation to review the income tax and National Insurance contributions on Termination Payments with the intention of making this easier and fairer. The consultation is seeking views on such matters as whether to remove the different treatment for contractual and non-contractual payments, which exemptions should remain, and whether any new exemptions should be introduced.

You can find out more here:

https://www.gov.uk/government/consultations/simplification-of-the-tax-and-national-insurance-treatment-of-termination-payments

GUIDANCE: ACAS has issued a new guide for small employers covering the basics of employment law regarding pay and wages. It includes summaries of different types of pay systems, wage slips, dealing with absences, overpayments and managing deductions.

You can see the guidance here:

http://www.acas.org.uk/index.aspx?articleid=1366

For further information please contact Andrew Egan on 01635 521212 or andrew.egan@clmlaw.co.uk

Written by Andrew Egan

August 11th, 2015 at 9:06 pm

Charles Lucas & Marshall – Business Team Newsletter – Summer 2015


Business Team - Summer Newsletter

Business Team – Summer Newsletter

 

 

 

 

 

 

 

 

 

 

 

 

Written by Rupert Wright

July 10th, 2015 at 10:55 am

Tips for Small Businesses Sales


 

 

Rupert Wright

Rupert Wright

Small businesses are generally defined as family businesses or businesses which are owned and managed by a single individual or by a small group of people. Rupert Wright, corporate services lawyer with Charles Lucas & Marshall, provides some pointers for buyers and sellers.

Due Diligence.  The small business may not have the time or resources to do a detailed due diligence exercise into the business it is buying.  In practice, an accountant often needs to be involved to check accounting issues.  However, the due diligence process includes checking supply contracts, the existence of litigation or disputes and employee issues.

Tax issues.  Stamp Duty and VAT will need to be checked.  In particular, VAT is not charged on assets sold as part of the transfer of a going concern.  However, both the seller and the buyer must be registered for VAT purposes.

Stock and work-in-progress.  Both parties must agree the value of the stock.  The simplest course of action is for the parties to agree on an expert valuer to carry out the stock valuation.  The most usual formula is for the valuation to be at the lower of cost and net realisable value.

Business Contracts.  The parties need to consider what action needs to be taken to transfer business contracts to the buyer.  To the extent that the buyer wants to have the benefit of a contract, this can be assigned to him by the seller.  The ideal solution for the seller is to seek to have contracts novated.

Computer Contracts.  Most small businesses are dependent on computers for their day to day operation.  Computer hardware is frequently leased rather than acquired outright.  Software can also pose contractual issues which need to be dealt with.  Also, the transfer of the rights in a website to the buyer need to be considered.

Restrictive covenants.  The buyer normally needs to have a restrictive covenant to prevent the seller opening a competing business or poaching valuable customers or staff.  The timescales for such restrictive covenants would need to be considered and generally two years is a sensible time period.

Employee rights.  The rights of employees are governed by the TUPE rules which provide that Contracts of Employment of employees are automatically transferred to the buyer.

Warranties and Vendor protection.  The buyer should seek reasonable warranties from the seller.  Sellers should ensure that they have protection from potential claims, particularly as to the amount that can be claimed.  Also, buyers should seek specific indemnities on key matters.

In summary, it is essential for both sellers and buyers of small businesses to involve a specialist business lawyer to assist with the asset purchase agreement required.

For further information contact Rupert Wright on 01635 521212 or rupert.wright@clmlaw.co.uk

Can Tenants Withhold Rent?


Paul Trincas, litigation specialist with law firm, Charles Lucas & Marshall, asks if tenants in residential property can withhold rent if their landlord is in breach of repair obligations? 

Paul Trincas

Paul Trincas

This is an area of some complexity and both tenants and landlords should take advice as to firstly, whether the landlord is in breach of its repair obligations and secondly, remedies which might available to the tenant.

Much will depend on the facts of each case, including the terms of the tenancy agreement and the nature of disrepair.

If the landlord is in breach of its repair obligation (which in itself might be in dispute) the tenant will have an action in breach of covenant. As in any claim for damages, thought will need to be given to the proper value of the tenant’s claim. In the first instance, the tenant should expect re-dress for the fact that – whilst the property is in disrepair – he is not getting proper value for the rent he is paying.

The tenant has two options: to continue to pay rent in full and pursue the landlord separately for damages or exercise a right of set-off, by withholding rent against the tenant’s disrepair claim.

The second option might appear the more attractive, as it puts the landlord under pressure to complete the repairs sooner rather than later.

Scenario One: Landlord agrees to accept reduced amount of rent whilst repairs remain outstanding – this is the ideal outcom, but the agreement should be properly recorded.

Scenario Two: Landlord insists, that despite the disrepair, rent still be paid in full – the tenant’s only option here is to withhold rent regardless and rely upon a right of set-off when responding to the landlord’s claim for rent arrears / possession.

Many tenancy agreements will attempt to exclude the tenant’s right of set-off, by requiring the tenant to pay rent ‘without deductions’. That form of wording in itself might be too imprecise to prevent the tenant exercising a right of set-off.

Further, a provision which requires the tenant to pay rent free of deductions might fall foul of consumer protection laws.

The tenant will of course need to decide how much rent it should withhold. This involves the tenant effectively attempting a valuation exercise. There is no guarantee that the Court will agree with the tenant’s assessment.

The first option suggested above (continuing to pay rent in full and pursuing a damages claim separately) involves the tenant bringing the action, rather than wilfully defaulting on rent and then responding to the landlord’s claim. The tenant avoids the two issues identified above: establishing a right of set-off and calculating how much rent to withhold.

For further information please contact Paul Trincas on 01635 521212 or paul.trincas@clmlaw.co.uk.

Written by Paul Trincas

December 3rd, 2014 at 1:49 pm