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Archive for the ‘Business Law’ Category

Misleading Statements From Directors – Actions Available to Shareholders

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When directors have made misleading statements there are a number of potential penalties and remedies available to minority shareholders. Rupert Wright, a corporate lawyer with Charles Lucas & Marshall explains.

Rupert Wright

Rupert Wright

Misleading statements by directors mainly relate to information and projections which are presented to investors which are false or misleading and which never had any hope of ever being fulfilled.

There are a number of options for redress by shareholders – whether under criminal law, common law or under the Companies Act 2006.

The first consideration in any potential criminal prosecution is the Code for Crown Prosecutors.  Any prosecution must comply with the evidential stage and the public interest stage.  A person is only charged with allegations of crime where both tests are met.  Potential criminal offences might include misleading statements in relation to investments, fraud by false representation, fraud by abuse of position and conspiracy to defraud.

Under Section 397 of the Financial Services and Markets Act 2000, there are three elements which the prosecution must prove to make out an offence: namely that a misleading statement was made, that there was a requisite state of mind and also that the defendant must have acted with the purpose of inducing any person to act or refrain from acting in a way specified or was reckless.  The maximum sentence for an offence contrary to Section 397 is seven years in prison although this would be reserved for the worst cases of its kind.

As well as a criminal claim, there are potential civil remedies for making a misleading statement.  In the case of a civil claim, the following matters need consideration: deceit, conspiracy, dishonest assistance, breach of fiduciary duties, unjust enrichment and knowing receipt.

The Companies Act lays down the various fiduciary duties for directors.  In particular, a director must act within its powers, promote the success of the company, exercise reasonable skill, care and diligence and avoid conflicts of interest.

It is also open to minority shareholders to make a derivative claim which applies where shareholders have suffered or may suffer damage to their shareholding as a result of the conduct of a director.  A derivative claim is an action commenced by a shareholder seeking relief on behalf of the company in respect of wrong done to the company.  It is also open to members to make an unfair prejudice claim under Sections 994 to 999 of the Companies Act 2006.  A claim under this section can be made where the company’s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members.

In summary, there are a number of avenues open to shareholders to make a claim where misleading statements have been made by directors.  Directors can potentially face a wide ambit of potential criminal and civil claims and should consult their lawyers on a regular basis before making statements which could be potentially misleading.

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

Written by Rupert Wright

August 25th, 2014 at 3:31 pm

Corporate Hospitality – Making Clients Offers They Might Refuse

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The usual summer season of corporate hospitality sporting events is in full swing. Rupert Wright, a corporate services lawyer with Charles Lucas & Marshall, explains why legislation may be prompting some companies to think twice about accepting an invitation.

Rupert Wright

Rupert Wright

As well as Ascot, Wimbledon and Henley, the season of corporate entertainment has a major addition this year with the London Olympics. For companies looking to build relations with clients and suppliers in an effort to retain or secure new business, these events can present useful opportunities.

However, the introduction of the Bribery Act 2010 (the ‘Act’) in July last year has meant that companies which offer corporate entertainment to their clients now have additional factors to consider.

The Act contains an offence which is relevant to provision of corporate hospitality by companies, namely that of offering a bribe to an individual in the private sector, or to a UK public official.

The bribery offence applies in two cases: first, where a person intends the advantage to bring about improper performance by another or to reward such improper performance. Second, where a person knows or believes that the acceptance of the advantage offered or promised, itself, constitutes the improper performance of a relevant function or activity.

The law refers to the provision of a ‘financial or other advantage’; a gift or an invitation to a sporting event could, potentially, be caught by both of these categories.

The Ministry of Justice has provided a guidance note on the Act. It recognises the important role that hospitality plays in business and states that there is no wish to criminalise such behaviour.

The difference between legitimate corporate hospitality which is lawful and an unlawful attempt to bribe someone lies in the intention of the provider/giver to influence and secure a business advantage. The intention of a person is judged by what a reasonable person in the UK thought.

The guidance note states that the ‘more lavish the hospitality or the higher the expenditure…the greater the inference that is intended to influence a business advantage in return’. In its view, an invitation to foreign clients to attend a Six Nations fixture at Twickenham as part of a company’s PR programme and targeting its clients would be extremely unlikely to constitute an offence under the Act. This is because there is unlikely to be the required evidence of an intention to induce ‘improper performance’.

So, hospitality which is reasonable and proportionate to what is generally accepted as normal by an industry sector and achieves a ‘legitimate business purpose’ is therefore unlikely to fall foul of the Act.

New laws often bring uncertainty for those affected by them – notwithstanding the comforting words of the Ministry’s guidance note. It might therefore not surprise you to hear that some companies have erred on the side of caution by trimming hospitality packages – and have found some clients who are now reluctant to accept offers of hospitality they would previously have taken up without further thought.

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

Written by Rupert Wright

June 26th, 2012 at 10:16 am