CorporateFILE September 2008
In-House News
Brethertons Announce Record Number of New Recruits
As part of it’s planned expansion, Brethertons has announced the appointment of 7 new dedicated professionals who have joined the Property Management, Marketing and IT Departments.
Debbie White, Nikki Beckinsale, Lyndsay Peters, Joanne Lawson and Edward Carlton all join as Property Managament Assistants. Claire Thompson joins as Senior Marketing Executive and Shahed Miah joins as IT Assistant.
Whilst many businesses are looking to cut costs and reduce expenditure, Brethertons recognise that getting through economic downturns includes investing in people and business where appropriate.
Auditors Seeking Limitation of Liability
It is when times get tough that problems which might have been easy to gloss over in better times start to make themselves visible. When serious problems that have remained undiscovered for a substantial period come to light, a company’s auditors may well find themselves facing a writ.
The sections of the Companies Act 2006 which allow auditors to limit their liability for audit work, with the agreement of their audit client, are now in force. However, because the Financial Reporting Council is delaying the provision of guidance on the form such agreements should take, it is likely to be some time before your auditor proposes a ‘liability limitation agreement’ to you.
Recently, a claim against a firm of auditors, which had failed to spot an £80 million fraud committed by the managing director of a company, was struck out by the Court of Appeal. The Court concluded that the claim, if successful, would confer ‘benefits on the corporate vehicle, which was used to commit the fraud and was not the victim of it’. Because the claim arose from the illegal behaviour of the claimant, it failed.
Company Accounts – New Disclosure Requirements
The Companies Act 2006 has led to a number of changes in accounting requirements for companies, chief amongst which are the removal of the need to hold an annual general meeting and the change in the filing deadline for private companies to nine months after their financial year end. Public companies must file their accounts with the Registrar of Companies within six months of the year end and listed companies within four months.
Companies which do not hold annual general meetings must send out to members annual accounts, or summary financial statements if appropriate, by the time these are due to be filed with the Registrar.
Other important changes are the removal of the option not to prepare group accounts for medium-sized groups and a new requirement that medium-sized companies must disclose their turnover. There is, however, no need for an analysis of turnover.
Employee Liable for Employer’s Losses
Employees who breach their duty of good faith to their employer can be held to account for any resultant losses to the employer, even if the employee has not benefited personally from the breach.
A recent High Court case involved an insurance broker who backdated insurance cover notes, which allowed claims to be made by the firm’s clients who would otherwise have been uninsured. Following an investigation by the insurance company involved, the firm that employed the broker accepted that backdated cover notes had been issued and reached a settlement with the insurer, which involved paying them compensation.
The firm dismissed the broker and sued him for its losses, which were the payment made to the insurance company plus the increase in the cost of its professional indemnity insurance and other costs which had arisen by virtue of the broker’s breach of his duty of good faith.
The Court accepted that the accusations made against the broker were very serious and that the more serious these were, the higher the standard of proof had to be, especially in the absence of any evidence of any personal gain resulting from the backdating of the cover notes.
Despite the broker’s excellent past track record, the judge ruled that the evidence was compelling that he had backdated the cover notes and that this had caused each of the losses for which his ex-employer claimed. Accordingly, he was liable for the losses.
Guidance on Letters of Intent
Letters of intent are widely used in the building trade, because it is normal for both developer and contractor to wish to make progress on a building project without having to wait until the formal contractual arrangements have been fully agreed. However, letters of intent are fraught with possible pitfalls and have led to a procession of cases coming before the courts. The best way to ensure their successful use is to take advice to ensure the drafting of any documentation is as tight as possible.
Following yet another recent case dealing with a dispute (this time involving more than £1 million) over work done under letters of intent, the court has issued guidance over their use.
The recommendations are that any letter should:
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state clearly whether it is intended to be binding or non-binding
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state what the rights of the respective parties are in the event that a formal agreement is not subsequently reached. In particular, care should be taken to ensure that the method of dealing with any dispute and the effects of termination are clearly set out
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set out whether it is intended to constitute a contract under the Construction Act (and if it is not so intended, care should be taken that the wording does not unintentionally create such a contract); and
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set out any financial, time or other limits which apply to the work done by the contractor under the letter of intent.
We can assist you in making sure that your letters of intent create only the rights and obligations that you intend.
New Powers for ICO for Data Breaches
The Information Commissioner’s Office (ICO) has been given the power to impose substantial fines on organisations that deliberately or recklessly commit serious breaches of the Data Protection Act (DPA). The new power is granted under the Criminal Justice and Immigration Act, which recently received Royal Assent. Hitherto, the ICO could only issue an enforcement notice against an organisation that was in breach of the DPA.
David Smith, the Deputy Information Commissioner, said:
“This change in the law sends a very clear signal that data protection must be a priority and that it is completely unacceptable to be cavalier with people’s personal information. The prospect of substantial fines for deliberate or reckless breaches of the Data Protection Principles will act as a strong deterrent and help ensure that organisations take their data protection obligations more seriously.”
There are eight Data Protection Principles with which anyone who processes personal information must comply. The data must be:
1. Processed fairly and lawfully
2. Processed for limited purposes
3. Adequate, relevant and not excessive
4. Accurate and up to date
5. Not kept for longer than is necessary
6. Processed in line with the individual’s rights
7. Secure; and
8. Not transferred to other countries without adequate protection.
The power will not apply retrospectively.
Provision of Assistance for Purchase of Shares – Points to Ponder
The provision of assistance by a company for the purchase of its shares has long been a difficult area of law. The practice was prohibited until the 1981 Companies Act came into force, when a ‘whitewash’ procedure was introduced which allowed private companies to give financial assistance for the purchase of their shares provided that a number of requirements were met.
The problem with the provision by a company of financial assistance (e.g. a loan) for the purchase of its shares has rested in the possibility that this can, when used without sufficient scruples, undermine the interests of other shareholders and even creditors of the company.
The downside of the equation is that the prevention of such assistance sometimes makes it difficult for shares to be issued and this could be to the detriment of the company. For example, it might be considered to be in the company’s interests to offer shares to an executive as an incentive, but the person concerned might be unable to raise the money to buy them. Without setting up a rather complex (and sometimes expensive and/or inappropriate) mechanism, the company’s wish to have the executive obtain an interest in its shares might be frustrated.
Relief is now to hand in the form of the Companies Act 2006 which, from October 2008, will allow a private company to provide financial assistance for the purchase of its shares. Public companies are still prohibited from so doing.
The right is not unlimited, however. Protection for shareholders and creditors also now depends on the requirement that the company’s directors consider whether the proposed share transaction is consistent with their duty to promote the success of the company for the benefit of the shareholders as a whole. If the proposed share transaction does not achieve that end, the directors cannot authorise it. Their duty also extends to the protection of the creditors – for example, where financial assistance is given for the acquisition of shares in a company which is insolvent, the directors could be found personally liable for any losses to creditors which may result.
Brethertons' view:
“The relaxation of the rules does give private companies increased flexibility in dealing with their shares. However, it places the ultimate responsibility for any decision to give assistance for the acquisition of shares in the company on the directors who authorised the transaction. It is a burden which should not be discharged lightly and professional advice is recommended before such transactions are carried out. It is also likely that in cases where there is significant bank borrowing, the bank may require extra comfort to ensure its position is protected.”
Tough Going for Customers as Banks Seek Security
Recent figures from the Courts Service show that lenders of consumer credit (as opposed to mortgages) are increasingly taking steps to reduce their risk by seeking to secure their lending against the homes of credit card holders and other unsecured borrowers who have a chequered repayment history – in some cases seeking charging orders on a borrower’s home if only one payment is missed.
The number of applications made in 2006 was over 90,000, nearly six times the number made in 2000. 2007 is expected to show a further increase. That this is an attempt by the banks to obtain better levels of security is clear, as credit agency Experian recently reported that unsecured debt growth in the UK has been slowing, having risen only 9.2 per cent in the last 12 months. According to Experian, ‘The data also suggests that lenders have been implementing credit tightening policies well before the widely reported credit crunch of August 2007. It shows that growth in lending has slowed markedly across all key credit products and credit tightening on cards, loans and mortgages was already well established in advance of the so-called credit crunch’.
The increasing number of bankruptcy and winding-up petitions (up from 12,000 in 1999 to 52,000 in 2006), fuelled in part by the more beneficial bankruptcy regime created by the Enterprise Act 2002, has no doubt added to the nervousness of lenders.
What this means for businesses is that lenders are increasingly seeking to obtain extra security for existing advances and have reduced the lending risk they are willing to take, as well as seeking higher lending margins – a factor which means that recent base-rate cuts have not been passed on in full to borrowers. Failure to adhere to covenants in lending agreements is unwise and the use of credit cards as a source of short-term emergency finance is becoming a riskier strategy than hitherto.
Simpler Execution of Deeds for Companies
Companies can now execute documents under deed without having to have the document signed by two officers (directors or the company secretary) or affixing the company’s seal.
Now, provided it is allowed under the company’s articles of association, all that is required is the signature of a single director, provided the signature is properly witnessed.
Webinar Programme
5th September 2008:Overpayment of Salaries - The Right to Recover Webinar
As all Payroll Managers know, recovering money from ex-employees can
be fraught with problems. Overpayments can include salaries, benefits,
holiday pay and employee loans. Brethertons have a specialist team of
collections staff who have many years of experience in these types of
recoveries.
Subjects which will be covered include:
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How problems occur and how they can be avoided
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Christmas and holiday periods - safeguards employers can make
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Contractual terms of employment – what your contracts should
contain
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Genuine errors or mistakes of law – what’s the difference?
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Court action
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Defences
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Remedies
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Situations when the employees have spent the money.
Click here to download the booking form for the Overpayment of Salaries webinar.
11th September 2008: ‘Terms and Conditions, Whats the Point?’ webinar
All business should have Terms and Conditions of Trading, as failure to do so could mean that it is left to the Court to decide on what terms businesses have entered into contracts. Who in there right mind will want a Judge deciding the terms on which you should do business?
Click here to download the booking form for the Terms and Conditions webinar.
22nd September 2008: ‘New Build Problems - How to Overcome Them’
This webinar will cover the following topics:
Click here to download the booking form for the New Build Problems - How to Overcome Them webinar.
13th November 2008: ‘Small Claims Court Procedures In A Nutshell'
How to maximise your chances of successfully recovering your cash if you go to a court hearing
If your debts remain unpaid you may find yourself attending a hearing before a District Judge in the Small Claims Court. This Webinar will cover the following subjects:
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How to avoid bad debts in the first place
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Small claims County Court proceedings
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Preparation of cases
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Conducts at hearings
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Enforcement proceedings and recovering expenses
Click here to download the booking form for the Small Claims Court Procedures In A Nutshell
4th December 2008: Effective Letter Writing
How to write letters which will grab a debtor’s attention
If your debts remain unpaid you may find yourself attending a hearing before a District Judge in the Small Claims Court. This Webinar will cover the following subjects:
Click here to download the booking form for the Effective Letter Writing Webinar
