Corporate Services Blog

The Court of Appeal ruled earlier this week that a new law which obliges internet service providers (ISPs) to help tackle online infringement of copyright was legal.

A key part of the new law, the Digital Economy Act 2010 (the Act) – which is already in force – is that internet users should receive three warning letters from their ISP if they were suspected of online copyright infringement. If after this a user continued within his alleged actions that user would be added to a ‘blacklist’ to which copyright holders would have access.

Under the Act the Government has the right also to implement laws which would block access to sites which host pirated material. However, currently the Government is seeking to build a voluntary framework in order to avoid the need to legislate further.

BT and Talk Talk had claimed that part of the Act was not compatible with EU law. Last year the two companies lost a High Court judicial review case on the same point but had been allowed to make an appeal.

The decision to appeal had attracted 10 ‘interested parties’ who became part of the appeal process. These included various organisations that were concerned with protecting of copyrights belonging to their members such as the BPI, the music trade body and the Football Association Premier League Limited.

Immediately after the appeal court’s ruling it was reported that Talk Talk had said that it would ‘continue fighting’ while BT’s reaction was more considered saying it would ‘…look at the judgment carefully… and consider our next steps’.

Whether an appeal to the Supreme Court will be made is not currently known.

The UK ISP market is a highly price competitive market in which the main players devote large chunks of their marketing spend to acquiring (and retaining) new customers. It is therefore not surprising that BT and Talk Talk were not keen on the prospect of having to write ‘threatening’ letters to their customers who are alleged to have infringed copyright online – regardless of the merits of the strict legal position. This is especially so since the letters are effectively on behalf of third party copyright owners whose material has been infringed and will be the ones which will potentially take legal action against such infringement.

Similar recent attempts by the US Government to address online infringement of copyright also attracted much opposition from various quarters notably, in the UK, from Wikipedia which suspended its website for a day in protest at the planned US legislation.

Here in the UK, even if the appeal process against the Act by ISPs is over there is likely to be, in the near future, a significant number of appeals made by individuals who have received an infringement letter from their ISP and also from those whose names have been entered on the blacklist.

For further information contact Peter Billyard on 01635 521212 or peter.billyard@clmlaw.co.uk

All operators of websites – and also website developers – which use cookies should be aware of a significant change in the law which comes into effect on the 26th May this year.

The new law, in fact, came into force last year on the 26th May and originated from an EC directive.  However, the government decided to allow the website industry a grace period of a year to allow all those affected to prepare to comply with the new law.

Cookies
First some background information.
For the uninitiated, a cookie is a small text file downloaded on to a device when a website is used. They are very commonly used – variously to store passwords, track users’ browsing patterns and to tailor relevant content to frequent users of a site. Cookies are of benefit to users of websites but they are also highly valued by marketers.
Research carried out last year by PricewaterhouseCoopers, a professional services firm, showed a low level of awareness of cookies by internet users.

Cookie law
In summary the new law states that websites which use cookies must:
•    Tell users that cookies are there;
•    Explain what the cookies are doing; and
•    Obtain their consent to store a cookie on their device.

The key point is that website operators must now obtain from its users valid and well informed consent to use cookies. Previously website operators had only been required to provide information on cookies and to provide users a way of opting out.

The law potentially has a wide application. It will apply to mobile devices including telephones, internet TVs and games consoles. In addition, websites that are hosted outside the EU but which target European will also be caught.

The new law also means that companies which either design and develop websites or write software for websites must also take account of the changes made by the law so that its clients are able to comply with the law.

Enforcing the law
The Information Commissioners Office (ICO) is responsible for ensuring that organisations comply with the law.

The ICO has produced two sets of useful guidance notes on how to comply with the law. The first was released in May last year when the law came into force; the second was published in December 2011.

Its most recent guidance note reminded all concerned that the law ‘will not go away’. It advises website operators that they cannot simply ignore its requirements regardless of how impractical or unnecessary they might feel these are.

At the very least the ICO will expect operators to have conducted a ‘cookie audit’ of their site(s) and to have taken initial steps to ensure that they comply with the new law.
However, the ICO has said that it will take a ‘practical and proportionate’ approach to enforcement – at least where companies are making or have made efforts to comply.

It has a range of enforcement options. These include:
•    Information Notices (ie specific requests for information from website operators);
•    Enforcement Notices; and
•    Financial penalties (up to a maximum of £500,000).

Practical effects
Although it’s difficult to predict the actual effect the law will have on the website industry, it seems likely that the bulk of interventions made by the ICO will be taken mainly in response to complaints made either by users, or perhaps more likely, by consumer interest groups.

Also, it might seem of limited comfort to companies which are the subject of a complaint but the ICO has said that financial penalties are likely to be reserved for only the most serious breaches of the new law.

Whatever happens, website operators will still need to have made, or at least be in the process of making, the changes necessary to show that they are able to comply with the new law.

For further information contact Peter Billyard on 01635 521212 or peter.billyard@clmlaw.co.uk

If you are either a shareholder or a director of a company there’s a good chance you might at some point become involved in a director’s exit from a company. It pays to be prepared, says Peter Billyard, a corporate services lawyer with Charles Lucas & Marshall.

Peter Billyard

The removal of a director is invariably carried out in a less than harmonious atmosphere.

The way in which this may be done is set out in the Companies Act 2006 (‘the Act’).  All that is necessary is for a shareholder to propose an ordinary resolution to remove a director at the next general meeting of the company. This will require a simple majority of votes (ie more than 50%) cast at the meeting for it to be passed. However, should the directors refuse to call a general meeting, shareholders who own more than 10% of the company’s shares have the power to require the directors to call a general meeting.

If a company receives such a resolution, the Act states that the company should send a copy to the director concerned ‘forthwith’. The Act also requires that ‘special notice’ must be given in relation to the resolution to remove a director. This means that the shareholders’ meeting at which the resolution will be considered must take place more than 28 days after notice of the meeting has been given.

The director concerned has a right, under the Act, to be heard at the meeting at which the resolution is considered. He can also present his case in writing to the company.

The removal of a director under the Act is simple in principle. However, in practice it is a rather a cumbersome process.

Employee vs Director

It is important to be aware of the distinction between an executive director’s office and their employment. The termination of the employment role does not automatically affect that individual’s position as a director. In contrast it is not uncommon to find that a director’s service contract provides for his employment to end immediately after he resigns as a director.

The negotiation of an agreement between a departing employee and the company can be a difficult process. For instance, the director might wish to remain a director during these negotiations as in order to strengthen his bargaining position. Companies should remember that a director will continue to be entitled to attend board meetings and have access to board papers including accounting information. Any attempt to sideline a director by failing to give notice of meetings may affect the validity of any board decisions taken in that director’s absence.

Departing directors who also own shares in the company

There are further potential complications where a departing director is also a shareholder. In this case it is necessary to check the terms of any shareholders’ agreement that might exist. These frequently contain provisions in relation to the removal of a shareholder/director which make the process of removal more difficult. One simple example of this could be by increasing the percentage of votes required to pass a resolution to remove a director.

The subject of the buyback of shares from a departing director is another issue to be considered. One common sticking point is  the price of the shares. Many shareholders’ agreements provide for different prices of shares according to the reason for their sale. Typically, a higher price is paid if the sale is for reason of redundancy or ill health (called a ‘good’ leaver); a lower price is paid if the director is dismissed or simply resigns (called a ‘bad’ leaver).

For further information contact Peter Billyard on 01635 521212 or peter.billyard@clmlaw.co.uk

New Law on Privacy and Cookies

According to a leading legal information provider, in 2010 there were 806 new laws published by the EU which had an impact in the UK.  Peter Billyard, a corporate services lawyer with Charles Lucas & Marshall predicts we can expect a further increase this year.

Several months ago one such EU-derived law came into force which applied to how cookies and other similar technologies are used to store information on computers and mobile devices.

For the uninitiated, cookies are small files used by websites that send information to the browser used by the website visitor which in turn return information to that website. They are typically used to store passwords, to show more relevant content for site users and for tracking browsing habits. Cookies are of benefit to users but are also highly valued by marketers.

The main change introduced by the EC Directive is that a website which uses cookies is now required to:
•    Provide clear and comprehensive information about the purposes of the storage of or access to the data collected; and
•    Obtain a user’s consent if they want to store a cookie on a user’s device.

This change marks a shift in the law to an ‘opt-in’ system.

The law does include an exception to the need to gain a user’s consent. This is when a cookie is ‘strictly necessary’ for a service explicitly requested by a user. An example of this is when a cookie is used to ensure that when a user clicks the ‘proceed to checkout’ button the website has a record of what item the user selected to purchase.

However, such exceptions will be very limited in number and will be, in legal-speak, ‘interpreted narrowly’. In other words it’s not an easy option to avoid complying with the new law.

Currently, many website owners (and users) are already familiar with requesting consent from users to their site’s terms and conditions of business. Indeed some sites have previously referred to the use of cookies in the terms and conditions. It will no longer be possible to do this. To comply with the new rules you will have to refer specifically to the use of cookies and then gain a positive indication that users understand what they are agreeing to and give them a way to show their acceptance.

The Information Commissioners Office, which is responsible for policing the new law, has given website owners until May 2012 to comply. In the meantime it expects website owners to be aware of the change in the law and to be able to show what steps it is taking to conform with the new law.

Website owners should therefore ideally check what cookies are used by their site, how they are used and decide the best way in which they plan to obtain consent from users.

For further information contact Peter Billyard on 01635 521212 or peter.billyard@clmlaw.co.uk

An agreement between two companies to work together can take a number of different forms. One could be a stand-alone joint venture as a partnership of equals in a newly set-up, limited company.

Another could be a company taking a minority shareholding in an existing company. Alternatively two companies could remain separate and use a simple contractual co-operation agreement.

This month, I want to highlight the main issues to be considered when two companies come together in a limited liability company in which one party has a minority shareholding.

In such cases the legal relationship between the participants and also between them and the company – which in law is a separate legal entity – is typically governed by two documents: the articles of association of the company (‘the articles’) and, usually, a separate shareholders’ agreement (‘an agreement’).
A minority shareholder will be concerned to reduce the risk of possible abuse by its majority partner shareholder of its power, especially when it has no presence on the company’s board of directors. It will therefore seek to agree
a set of rights and protections to address this risk. This might include the right to veto major decisions and an exit route from the partnership.

Having agreed these areas it is then necessary to find the best way to protect them using the articles and an agreement.

Simply put, the articles are the company’s official rulebook. They regulate the rights of the shareholder in relation to the company and are subject to company law and statute.

In contrast, agreements regulate the personal aspects of the relationship between individual shareholders and are governed by the ordinary rules of contract. In addition the articles are a public document; an agreement generally is not.

A typical way in which minority shareholders may be protected in the articles is if the company’s shares are divided into different classes with special rights attaching to those held by the minority shareholder. These rights can be recognised in the articles, be used to block particular resolutions and can only be changed with the consent of the holders of that class of shares.  Another way is the weighting of voting rights for minority shareholders on particular matters.

An agreement can also be used to set out matters which seek to protect minority shareholders.

It is common to specify in the agreement that in the event of conflict between it and the articles the agreement is to prevail.

Importantly, an agreement must not seek to limit a company’s statutory right to change its articles or, for example, increase its share capital. Such limits
are likely to be held to be unenforceable against the company and/or its directors.  Whether or not the decision is made to include the protections in either one or the other only or in a combination of both, the key aim is to ensure that each of their provisions are compatible.

For further information contact Peter Billyard on (01635) 521212, or peter.billyard@clmlaw.co.uk

Peter Billyard, a corporate services lawyer with Charles Lucas & Marshall, reports on new legislation which will make business backhanders a thing of the past.

The Bribery Bill is a major piece of new legislation that is currently in the final stages of its passage through Parliament. Its aim is to modernise and consolidate the law on bribery and corruption in the UK which currently consists of common law offences and legislation which dates back to between 1889 and 1916.

The Bill is designed to raise the awareness of bribery by all types of businesses although it is expected to have greatest impact on large companies in ‘high risk’ areas such as defence and construction. It will, however, cover not only payments made in multi-billion international defence contracts but also smaller companies where informal ‘backhanders’ or gifts might be offered by existing or potential suppliers.

The current law on bribery is commonly considered to be unsatisfactory. This is illustrated by the fact that the UK has so far failed successfully to prosecute any bribery case against a company.

The respected international think-tank, the Organisation of Economic Co-operation and Development (OECD), has been a particular critic. It heavily criticised the judicial handling of the recent investigation into bribery allegations against BAE Systems.

For some years the Law Commission has been working on proposals for reforming the existing law on bribery. Its first report in 1998 was eventually followed by a full report and draft bill in November 2008. This has formed the basis for the Bribery Bill which received its first reading in the House of Lords in November 2009.

The Bill creates two general offences of bribing and being bribed, together with a specific offence of bribing a foreign public official.

Significantly for companies (and partnerships), the Bill also introduces a new, corporate-only offence of failing to prevent bribery.

However there is a defence for a company if it can show that it had implemented adequate procedures to prevent such conduct taking place. The government has said that it intends to publish non-statutory guidance on ‘adequate procedures’, which are not defined in the Bill. It is expected that the majority of cases brought before the courts will be under the corporate-only offence.

The Bill covers offences which take place in the UK or by British individuals or corporates abroad. Maximum penalties for individuals are 10 years’ imprisonment and an unlimited fine. Companies will be liable for unlimited fines. The practical implications of the Bill, when passed, for all commercial and public sector organisations is that they should specifically prohibit bribery in any form within the organisation.

Larger companies will be advised to additionally implement systems to counter bribery, to include codes of conduct, training and guidance together with risk management and auditing of compliance and also consider introducing such clauses into their commercial contracts.

For smaller companies and owner-managed businesses in ‘low risk’ sectors it is to be hoped a correspondingly low key, proportionate response to the Bill will suffice.

For more information contact Peter Billyard on 01635 521212 or peter.billyard@clmlaw.co.uk

Peter Billyard, corporate services lawyer at Charles Lucas & Marshall, reviews the Companies Act and explains the final wave of changes which take effect from I October.

A frequent lament of smaller, private companies is the seemingly never ending increase in red tape they face in the form of new and more onerous laws.

The 2006 Act became law on 8 November 2006 but its sheer size and complexity has meant that it has been phased in over a three year period. The last tranche of changes take effect on 1 October.

Companies Acts are designed to set the framework in which companies with limited liability must work and have been around for some 150 years. The 2006 version aims to make it easier to set up and run a company both now and in the future – especially for smaller private companies.

One of the main changes on 1 October 2009 is that of so-called ‘Model Articles’ for newly incorporated companies.

These will replace ‘Table A’ articles.

A newly set up company can choose to adopt the model articles on their own, adopt them with adaptations or have a tailor-made set of articles.

The articles of association, are, in effect, a company’s internal rule book.

Most companies are, understandably, focussed mainly on running the business in hand and their articles tend to be of little more than academic interest to them.

They usually only assume importance when a company turns its mind to certain corporate housekeeping issues, or more commonly, when a shareholder dispute has developed.

But it is surprising how frequently these events occur.

The 2006 Act has made a number of other changes which affect the articles of companies. While none of these changes require an existing company actively to amend its articles, many companies are doing so in order to take advantage of more favourable provisions that have been introduced.

Indeed the Department for Business Enterprise and Regulatory Reform (still known by many under its previous moniker as the DTI) specifically advise that companies should carry out periodic reviews of their articles to ensure they are up to date with company law.

For more information contact Peter Billyard on 01635 521212 or peter.billyard@clmlaw.co.uk