CorporateFILE May 2009

Brethertons Expands in Pursuit of Regional Growth

Regional Law firm Brethertons is bucking the national trend for Law firms having completed a series of new strategic appointments to accelerate its growth in the region.

The Private Client, Insolvency and Litigation teams at Brethertons have all recruited new talent.  In total, five new specialists have joined the firm as Brethertons positions itself for continued profitable growth in 2009.  While other Law firms are shedding staff, Brethertons is developing new areas of Law by attracting new senior staff from City Law Firms despite the challenging market and current economic conditions.

Edward Bible is a dual qualified Lawyer and licensed insolvency practitioner and joins Brethertons from Darby's Solicitors in Oxford to head up Brethertons new Insolvency team.  He advises insolvency practitioners, banks and other clients on both contentious and non-contentious matters and has been rated in Chambers & Partners’ guide to the legal profession as “bright and practical”.  He has particular expertise in dealing with technical problems in administrations, liquidations and bankruptcy.

Ignacio Morillas-Paredes is a dual qualified Spanish and English Lawyer and joins Brethertons from a London Law firm as part of the Litigation team.  Ignacio’s niche specialist area of practice will focus on cases relating to Spanish property development disputes, ongoing Civil Litigation and Travel Litigation/Cross Borders Litigation cases, Expert Witness and Spanish Commercial Litigation work.  He is currently working on a potential ‘Class Action’ representing 40 people on the Ocean View Properties case.  Ana Mitri joins Brethertons in a paralegal role to bolster the International law offering.  Ana is from Argentina and speaks fluent Spanish and English.

Tristram Van Lawick, who is himself a farmer, specialises in Agricultural Law and joins from Lodders Solicitors in Stratford Upon Avon.  Tristram will head up the firm's Agricultural law sector.  His team will be responsible for advising on tax and succession planning for families, farm and bare land sales and purchase tenancies agreements, grants and change of land use and diversification issues.

Paramjeet Kaur, an experienced property litigation Solicitor joins Brethertons from Pinsent Masons having previously worked at Eversheds and headed up the legal team at Stratford on Avon District Council.  Pam’s areas of expertise include landlord and tenant disputes incorporating rent/service charge arrears, dilapidations, lease terminations, insolvency related disputes as well as freehold issues.

Last year, Brethertons moved up the Legal 500 table of UK law firms from 331 to 221 place and is set to continue its growth expansion plans with more lateral hires expected.  The firm has experienced successful expansion in a recession year yielding 10% growth and has been shortlisted for The Lawyer Awards in the best regional/national law firm category and has also been shortlisted for the Enfranchisement Awards for regional Solicitor.

Richard Pell, Senior Partner explains: “These appointments, together with our ongoing strategy for developing our service lines and the quality of advice we offer our clients, will take us another significant step forward.  Our new additions are the first of the new financial year with more new senior staff members to join in the next month.”

Last month Brethertons hit the legal headlines with the promotion of Trevor Dyer, a non-practising lawyer and Finance Director to Partner status.  Trevor was one of only 14 such appointments approved by The Law Society in the new framework of legal structure open to UK Law firms

Be Careful What You Talk About In Taxis (or in an Email)

It is often thought that for a binding contract to be created, you have to ‘sign on the dotted line’, but most contracts do not need to be in writing to be valid.

In a recent case, the claimant argued that he had made a contract with the defendant for the latter to purchase the whole of his shareholding in a company called Premier Resorts Limited. The sum claimed was £346,760. The narrow point at issue was whether a legally enforceable contract had been created by the exchange of unsigned emails and ancillary correspondence and as the result of a conversation in a taxi – but without a formal contract having been created.

The judge found that the contract was validly created and enforceable. So be careful what you agree ‘informally’.

Failure to Pay Instalments on Time Means Contract Void

When times are hard, there is always the temptation to delay payments to those owed money and, in many cases, the main disadvantages of this will be a cooling of one’s relationship with the supplier and possibly some deterioration in service received.

However, there are some payments for which ‘time is of the essence’ and, in such cases, failing to make the payment on time may have unfortunate results.

In a recent case, a buyer of a company agreed to purchase the shares in instalments and was taken to court by the vendor after failing to make the agreed payments. The contract did not have a clause which made the date of payment of the essence of the contract. The vendor alleged that the failure to pay the instalments as agreed breached the contract and entitled him to terminate it.

The vendor had the choice of either serving a notice making time ‘of the essence’ and requiring the purchaser to comply with the contract terms within a stated time, in which case failure to comply would terminate the contract, or, alternatively, if he was satisfied that the buyer’s actions demonstrated an intention not to perform its obligations under the contract, the vendor would be entitled to terminate the contract.

In this case, the vendor treated the contract as terminated once the second instalment in payment for the shares was not received. He took possession of the company and managed it for his own benefit.

This action led to a predictable claim by the purchaser and counterclaim by the vendor.

The case originated in the Bahamas but went as far as the Privy Council, where the vendor’s claim was upheld.

Brethertons says, “The case itself is unremarkable, but is important for two reasons. Firstly, it highlights the importance of careful drafting of contracts, especially those dealing with payments to be made in instalments. Secondly, it illustrates the fact that the courts will prefer to protect the right of the ‘wronged’ party to terminate a contract where payment terms are not met. This is particularly important in contracts of insurance – so make sure your premiums are paid on time. If you are late, you may find that the insurer terminates your cover, especially if you make a claim under the policy.”

HMRC Guidance on Goodwill Valuation

HM Revenue and Customs (HMRC) have traditionally taken the view that where the nature of a business is such that it must trade from a property (for example, a pub or a care home), where the use of specially adapted premises is concerned, the amount of goodwill in the business which is ‘extra’ is likely to be small. The argument in essence is that much of any ‘super profit’ earned by the organisation (on which a payment of goodwill could be justified) is likely to be due to its position or some other physical factor.

This is important because the apportionment of the proceeds of sale between different assets can potentially have implications for Income Tax, Corporation Tax, Capital Gains Tax, Value Added Tax and Stamp Duty Land Tax.

However, a change in approach by HMRC means that they may now consider there to be more ‘free’ goodwill than previously recognised. A new Practice Note acknowledges problems with the apportionment of sales proceeds of ‘trade related property’… (e.g. public houses, hotels, petrol filling stations, cinemas, restaurants, care homes etc.). It advises that in these cases there can be particular difficulties in identifying the sum attributable to goodwill, which in these cases is normally fundamental to the apportionment.

This view is backed up by the sometimes large difference in value between a business sold as a going concern and the disposal of the various assets piecemeal – in which case the goodwill value normally ‘goes with’ the property.

Brethertons says “In any purchase or sale of a business, the goodwill valuation affects the price and, even if not considered specifically, the apportionment between assets of different classes can have profound implications.”

Insolvency and TUPE

Whilst the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) operate to protect the employment law rights of employees when there is a relevant transfer of a business or part of a business, Regulation 8(7) provides that where insolvency proceedings are analogous to bankruptcy proceedings and have been instituted with a view to liquidation of the assets of the business, the transfer provisions of TUPE do not apply. In such circumstances, employees do not automatically transfer to the new owner and any dismissals are not automatically unfair.

In a case concerning a ‘pre-pack’ administration (Oakland v Wellswood (Yorkshire) Ltd.), whereby a business goes into administration with a prospective purchaser already in place, the Employment Appeal Tribunal (EAT) considered Mr Oakland’s appeal against the Employment Tribunal’s finding that he could not bring a claim of unfair dismissal because the transfer provisions of TUPE did not apply in his case and he did not have sufficient service with his new employer to bring a claim.
Mr Oakland was a director of Wellswood (Yorkshire) Ltd. (Oldco), which traded as a wholesaler in fruit and vegetables. By mid-2006, the company was in financial difficulties. It approached a major creditor, Gilbert Thompson (Leeds) Ltd. (GTL), as a potential buyer and sought the advice of an insolvency practitioner. It was agreed that administration was the most appropriate course of action. GTL was not willing to purchase Oldco as a going concern but decided to incorporate Newco as a wholly owned subsidiary of GTL. Newco would acquire the assets of Oldco and five of its seven employees, including Mr Oakland.

On 6 December 2006, the sale of the assets to Newco was completed and administrators were appointed to Oldco.

There are three statutory objectives of administration, contained in the Insolvency Act 1986. These are:

1. Rescuing the company as a going concern; or
2. Achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration); or
3. Realising any property in order to make a distribution to one or more secured preferential creditors.

In the view of the administrators, the first objective had not been achievable in Oldco’s case. Any further period of trading, whilst a buyer was sought, would most likely have resulted in further losses, thereby further reducing the funds available to creditors.

Newco subsequently dismissed Mr Oakland, who brought a claim of unfair dismissal. In considering his appeal, the EAT held that the administration had been instituted with a view to the eventual liquidation of Oldco’s assets and Regulation 8(7) of TUPE therefore applied. As a result, Mr Oakland did not transfer to Newco and his continuity of employment was not preserved under TUPE.

Brethertons says, “In the EAT’s view, its decision was in accordance with Regulation 8(7), which seeks to bring about the rescue of a failing business when the alternative would be any prospective purchaser being deterred because of the effects of the protection afforded by TUPE. Each case will be determined on the individual facts and, if the EAT’s view is the correct one, will depend on the intention of the administrator regarding the transfer of an insolvent business. However, we would urge caution. This decision conflicts with guidance produced by the Department for Business, Enterprise and Regulatory Reform and may well be challenged.”
 
Late Filing Fees Hike for Companies

Companies filing their accounts after the due date will pay a bigger late filing penalty from 1 February 2009. The increases in the charges are substantial and are intended to reflect the increase in inflation between 1992 and 2007.

Private companies are required to file their accounts within 10 months of the end of the accounting period. Those that file late, but within a month of the due date, will be fined £150. There is an ascending scale of charges if the filing is further delayed. Missing the deadline by more than 6 months will lead to a fine of £1,500.

Public companies must file their accounts within 7 months of the end of the accounting period (6 months for accounting periods starting on or after 6 April 2008). Failure to file by the due date will lead to a fine of £750. Again, an ascending scale applies. Missing the deadline by more than 6 months will lead to a fine of £7,500.

Similar Company Names – New Rules and Decision

On 1 October 2008, new rules relating to the registration of company names came into force. These allow companies to object more easily to the registration of a company name which could be confused with theirs. The new rules can be found on the website of the UK Intellectual Property Office at
http://www.ipo.gov.uk/cna/cna-factsheet.htm.

Recently, a company called Coke-Cola was required to change its name following an objection from Coca-Cola. Coke-Cola was also ordered to make a contribution towards Coca-Cola’s costs and to reimburse the company for the fee for filing its objection.

Who Can See Your Register?

Under the 1985 Companies Act, the register of shareholders of a company was open to the public, although a small fee could be charged to non-shareholders wishing to inspect it. Instances of ‘direct action’ against shareholders by militants opposed to activities of a company and the misuse of information in shareholders’ registers generally have led to a change in the law under the Companies Act 2006.

The information contained in annual returns made up to any date after 30 September 2008 is no longer generally available. Specifically:

• public companies whose shares are traded on an EU regulated market only have to file the names, addresses and holdings of shareholders who have held 5 per cent or more of any class of shares at any time during the year in question; and
• all other public companies and private companies only have to supply shareholder names and holdings, not addresses, in respect of all shareholders.

Good Boardroom Practice

The Institute of Chartered Secretaries and Administrators has published a practical, short guide (3 pages) on boardroom good practice, which will be of great interest to company secretaries and directors, especially non-executive directors.

The guide can be downloaded here
http://www.icsa.org.uk/assets/files/pdfs/guidance/080616.pdf.

Contracts of Employment Webinar

As an employer, you don’t need to be reminded that there have been numerous changes in Employment Law in the last few years – over 70 pieces of primary legislation in the last 10 years alone.

Therefore, why not join us for an hour to go through the latest changes in Employment Law and in particular - what your contracts MUST contain, but also what we advise they SHOULD contain.

To participate in this webinar and to find out more information, click on the link below, which will take you through to the booking form.

 Contracts of Employment Webinar Booking Form