Corporate Services Blog

Business owners and potential acquirers are currently finding better prospects for growth in the Thames Valley where recent surveys show greater confidence. With bank lending still difficult though, Rupert Wright, a corporate services lawyer with Charles Lucas & Marshall, says buyers and sellers need to consider creative and pro-active methods to reach a suitable deal.

Rupert Wright

The general rule is that buyers tend to favour an asset sale while sellers prefer a share sale.  The main advantage for the buyer of an asset sale is flexibility since the buyer can specify the assets it wishes to purchase and also lower the risk since the buyer does not acquire any liabilities it does not specifically agree to.

For sellers, the main advantage is that the buyer acquires the whole company and therefore they are able to dispose of all potential liability. A recent case involving Dragon’s Den star, Theo Paphitis, emphasised how important it is to minute all matters as he was able to show that he had the interests of the seller company in mind when he had to defend an action for fraudulent breach of his fiduciary duties.

With the current difficulty in obtaining bank finance, deferred consideration will be an important element for disposals.  Acting for the seller, one of the key factors is security, since the buyer will resist personal guarantees.  However, debentures can be considered both for the company being acquired and also for the buyer company.

Another element that must be considered in the current climate is earn-outs.  This can be particularly important when a major part of the revenue is dependent upon one or two major corporate clients or where there is concern from the buyer that the departure of a key member of staff may have a detrimental effect on future trading performance.

Earn-outs should also be considered where there are declining sales, perhaps caused by an owner being unwell or absent from the business due to family or personal reasons. Earn-outs can be a factor where a high price is being sought by the seller and the earn-out protects buyers in order to ensure that they only pay for real tangible profits rather than potential profits that fail to materialise.

A management buyout is often a suitable way of a seller disposing of a subsidiary or certain key assets to its management.  One unusual way of dealing with the management buyout is for the seller to make a payment to its management team to assist it with the purchase.  This will assist the seller with closure and other possible redundancy costs and might well be a suitable way of disposing of its assets.

In summary, in the current economic climate where business prospects are improving, creative and proactive solutions are available which can work to the interests of both buyer and seller.  However, legal advice should be sought at all times at an early stage.

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

I confess that I am not a pensions expert.  The pension world in general is difficult but with the proposals in respect of the NHS pension scheme for dentists, it is anything but in the words of a meerkat, “simples”.   We have recently posted

Hugh Ellins

a blog by Peter Dunn of Heritage Financial Advisors Limited who has kindly supplied me some more information which deals with various scenarios.  The principal issues appear to arise where there is an element of incorporation or where the dentist being a principal or an associate is working for a corporate.  Even that is not simple on the basis that the situation alters as to whether you are working for a large corporate for example, IDH, or any corporate other than a large corporate.

The purpose of this blog is not to give you a breakdown of the position, as this would suggest an expertise, which I do not possess.  However, I am in the admirable position of being able to refer any questions on these matters to people who know.

You can contact Hugh Ellins on 01793 511055 or hugh.ellins@clmlaw.co.uk

Charles Lucas & Marshall – Legal Services for Dentists.

Thames Valley law firm, Charles Lucas & Marshall’s corporate services team has advised on the UK management buy-out of US business consultancy, RWD Technologies.

Rupert Wright - Corporate Services Specialist

The MBO team has acquired the UK business and set up a new company, CLM Performance Solutions Limited.

The business will provide services related to enterprise learning, organisational strategy and sales force enablement.

Rupert Wright, of Charles Lucas & Marshall, advised on the MBO which involved the transfer of various assets, goodwill, intellectual property and assumed contracts to the new UK business.

RWD is based in Baltimore, Maryland and has offices in Europe and North and South America.

For further information contact Rupert Wright on 01635 521212 or e-mail rwright@clmlaw.co.uk

Thames Valley firm, Charles Lucas & Marshall’s corporate services team recently completed the sale by JMR Ventures Limited of Newbury bar and nightclub, Monty’s to two leisure industry entrepreneurs.

Peter Billyard

Rupert Wright - Corporate Services Specialist

The undisclosed buyers are believed to run a number of other bars and nightclubs in Berkshire and the London area. Plans are in place to update and rename the Newbury venue shortly which will continue to trade in the meantime.

The sale, which was completed in only a little over a week, was led by Charles Lucas & Marshall’s Rupert Wright who was assisted by Peter Billyard.

Rupert Wright said: ‘We were delighted to complete the company sale for our clients on time and within such a short space of time’.

Rupert Wright, a corporate services lawyer with Charles Lucas & Marshall explains why it is important to check out a few house rules before selling or buying a business.

Selling a Business

As the economy emerges from recession, owners of businesses should be giving more thought to possible exit routes for their business and, in the case of buyers, seeing whether they can enhance their existing business by finding suitable opportunities to expand their operations or diversify into new businesses.

For sellers it is imperative they ensure that all key documentation is in place prior to a sale.  Now is a very good time for existing businesses to review all commercial contracts with key customers and suppliers.  Business owners should ensure that all its logos are protected by trade mark.  In particular, protection of brand names and other intellectual property rights should be reviewed.  In the case of incorporated companies, statutory books should be updated and accounts reviewed so that clean accounts can be shown to potential buyers.  Employment contracts should also be updated.

Once a seller has identified a suitable potential buyer, non-disclosure agreements should be considered to ensure that buyers are not embarking on a ‘fishing expedition’ with potential competitors to obtain confidential information.  Heads of agreement will need to be considered with binding provisions relating to exclusivity and confidential information.  The heads of agreement will also set out the key terms agreed.

In the case of a limited company, one fundamental issue to assess from the start is whether the proposed sale is to be a sale of shares or a sale of assets.  If the shares constituting the company are transferred, then the buyer acquires the company and all the underlying assets and liabilities go with it.  By contrast, in an assets acquisition, the individual assets and liabilities to be transferred will need to be identified and agreed.

As a general rule, a seller of a limited company would favour a sale of shares since the buyer would take over all liabilities, hidden or otherwise.  However, a buyer would favour a purchase of assets since there would be a clean break from the business and only identifiable assets will be purchased and the potential historical baggage of the company would not be taken over.  This is not always the case.  Commercial or tax issues are often an important deciding factor, whether the purchase is to be by way of sale of shares or assets.

In summary, at this stage in the business cycle, owners of businesses and potential acquirers should be contacting their corporate legal advisers to ensure, in the case of sellers, that all key contracts are in place and that intellectual property rights are fully protected.  In the case of buyers, specialist corporate lawyers will be required to advise on all aspects of the acquisition and, in particular, to advise whether the purchase should be by way of shares or assets where a limited company is involved.

For further information contact Rupert Wright on 01635 521212 or e-mail rwright@clmlaw.co.uk

Don’t Let Restrictive Covenants Stifle Your Business Start-Up

For further information, please call 01635 521212 or andrew.egan@clmlaw.co.uk

Rupert Wright, a corporate services specialist with law firm, Charles Lucas & Marshall, says company directors need to be aware of their responsibilities and liabilities – should their business get into financial difficulty.

As the economy emerges out of recession, many companies are facing difficult trading conditions. It is therefore important that all directors are aware of their liabilities and take regular legal advice, particularly if a company is on the margin of trading solvently.

While a company is trading solvently, the duties of the directors are owed to the company for the benefit of present and future shareholders.  The directors will be operating on the basis that in making profits for the benefit of the company and its shareholders, there will be sufficient funds generated or available to the company to meet all liabilities to creditors as they fall due.

However, once a company becomes insolvent or there is doubtful solvency, the directors must act in the interests of the company’s creditors in order to minimise the potential loss to them.

The duties of the directors can be divided into common law, statutory and regulatory.

A breach of these duties can lead to personal liability and possible disqualification from being able to act as a director or being involved in the management of the company.  The duties will normally arise when the company is in financial difficulties based on a cashflow or balance sheet test.

Cashflow problems can arise if there are insufficient funds being received by the company to meet its liabilities as they fall due.  The balance sheet test arises if at any time the directors are aware that on a book or market valuation basis, the accounts of the company show that its liabilities exceed its assets.

As soon as the directors become aware of any of these difficulties, they should seek professional advice principally from the company’s lawyers and also possibly from a licensed insolvency practitioner.

The common law duty of directors when a company is on the margin of trading insolvently is to act in the interests of the creditors.

There are also various statutory and regulatory duties.  Fraudulent trading can arise when directors of a company allow it to incur debt when they know there is no good reason for thinking that funds will be available to repay the amount owed.

Apart from the risk of incurring personal liability where a director engages in fraudulent or wrongful trading or has been found guilty of other misconduct, he may also be disqualified by court order.

Various vulnerable transactions also need to be considered, particularly where preference is given to a creditor or a guarantor or surety of the company’s debts.  Any such transaction may be set aside.

In summary, in these testing times, directors should keep in regular contact with their legal advisers in order to avoid personal liability or possible disqualification.

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

Rupert Wright, a corporate services lawyer at Charles Lucas & Marshall, explains the merits of shareholders’ agreements.

Rupert Wright - Corporate Services Specialist

A shareholders’ agreement is a legally binding arrangement entered into between each of the shareholders in a company – setting out how their relationship as shareholders will be governed.

There are two very good reasons why shareholders should consider making such an agreement.

First, the process of negotiating may be a useful way of bringing out into the open many of the contentious issues which can become real problems in the future for a company.

Secondly, the agreement will provide a mechanism for resolving any disputes which might arise in the future.  The real difficulty is that the control of the day to day activities of the company rests in the hands of the board of directors and not the shareholders.  The minority protection legislation provides a poor remedy because of its cost and uncertainty.

A well drafted agreement should normally cover the following key areas to protect minority shareholders:

1. Management.  The agreement will contain provisions setting out the rights of shareholders allowing minority shareholders to be involved in the management of the company.
2. Dividend policy.  This is a very common area of dispute.  There will always be conflicting interests to retain money within the company for working capital and further investment or take it out for the profit of a shareholder.
3. Dispute resolution. The shareholders’ agreement should contain a formal dispute resolution procedure, namely mediation or other methods designed to avoid complete deadlock.  This is usually cheaper than going to court and has the further advantage of being conducted in private.  As a last resort there should be a provision which enables any shareholder to wind up the deadlocked company and so realise some of its value.
4. Funding.  The agreement should set out what the requirements are for further funding, and in particular whether or not existing shareholders can be required to provide further share capital or lend money to the company.
5. Exit route. The agreement should specify what is to happen if one or more shareholders wish to sell their shares or if a third party offer is received to acquire the whole of the company.  In particular they should include pre-emption provisions allowing existing shareholders to acquire the shares of a shareholder who wants to leave at a fair price.  There should be drag along provisions which allow a sufficient majority of shareholders to force a minority shareholder to sell his shares in order to facilitate the sale of the entire company.

In summary, all companies with significant shareholders should consider a  shareholders’ agreement which will anticipate problems and help to resolve any disputes with a minimum of disruption and cost.

All existing shareholders’ agreements should also be regularly reviewed.

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