CreditFILE November 2008 

In-House News: Brethertons Scores High in Legal 500 League Table

Brethertons has once again been confirmed as one of the UK’s leading law firms in the Legal 500 2008 directory and is the highest ranked Law Firm in both Banbury and Rugby.

Moving up 112 places in just one year, Brethertons LLP is recognised as the 221 largest law firm in the UK.   The Legal 500 series is widely regarded as offering an impartial judgement of law firm capabilities based on extensive research.  It is a comprehensive annual review covering each of the different legal disciplines and categorising the best firms.

Regional Law firm Brethertons is listed in the third tier of top West Midlands, South East and Thames Valley firms and has been recognised in seven of its specialist fields. 

From the Legal 500 - Areas where the firm’s teams are singled-out for particular praise include:

Recommended in Debt Recovery:

“Shaun Jardine at Brethertons LLP heads a group with ‘significant expertise and experience’ and ‘strong links with businesses in the firm’s area’. The group advises on commercial and property management debt recovery in the UK and internationally.  Mediation and online dispute resolution work are unusual strengths.”

Recommended in Family:

“Simon Craddock at Brethertons LLP, who has unusual expertise in international child abduction cases.”

Recommended in Employment in Thames Valley:

“Detailed and pragmatic associate Natalie Roach at Brethertons LLP.”

Richard Pell, Senior Partner at Brethertons LLP explains:

“To be recognised as a leading force in the market by the Legal 500 is a great achievement, and to have moved up 112 places in just one year is a fantastic accolade.  We are extremely pleased to be recommended so highly again particularly as the research reflects the voice of the profession along with our clients.”

Bank Can’t Change its Mind

Although it involved an individual borrower, the outcome of a recent case will be regarded with relief by anyone who is having trouble with their bank – an increasing problem as the credit crunch continues.

The case involved a man who had negotiated with his bank to have a secured overdraft, which was repayable over 20 years. The overdraft agreement provided that should the agreed borrowing limit be exceeded, the bank had the right to demand repayment of the whole of the overdraft. Failure to meet the demand would trigger the bank’s right to take possession of the property against which the advance was secured. The man failed to keep within the agreed overdraft limit and was contacted by the bank. His bank manager held discussions with him and the man claimed he obtained the bank’s agreement to a three-month moratorium, during which it would not seek a possession order if he brought the account back within the overdraft limit. There was to be a further review at the end of the period. The bank denied that this had been agreed.

The bank sought a possession order, which was granted. The man appealed. The Court of Appeal found that the bank had given an undertaking to the man not to issue proceedings for possession for three months if the terms agreed were adhered to. It had not agreed that it would never apply for a possession order, just to postpone the application. The bank could not change its mind. Accordingly, the original possession order was set aside.

This case illustrates that a bank cannot agree to take one course of action and then take another. If you find yourself in a similar position, it is very important to obtain the strongest evidence you can of what has been agreed by the bank. Taking professional advice so that variations to agreements are properly recorded is a good safeguard. We can advise you if you are having difficulty with your bank or with collecting your debts.

Business Failures to Reach New Peak

According to accountants BDO Stoy Hayward, the number of business failures in 2009 is expected to be the highest since the dotcom bubble burst, with the restricted availability of finance being the main cause. In stark contrast with the dotcom era, only the technology, media and telecommunications sector is expected not to show an increased failure rate. Nearly 18,000 businesses are expected to go bust in 2008 and business profits are expected to be at their lowest level for nearly 20 years.

Brethertons’ view:

“It is a good time to make sure your credit control, purchasing policy, overheads and gross profit margins are carefully monitored. All will affect your cash-flow. If you are experiencing difficulties with obtaining payment from customers or could benefit from a review of your terms of trade, contact us for advice.”

Business Fraud Booms

A study by accountants BDO Stoy Hayward has found that business fraud is up by over 70 per cent compared with last year and they estimate the cost of business fraud is now more than £700 million a year.

Management fraud accounts for nearly half of the total, according to the report. The finance and insurance sectors seem to be the worst hit, with more than 90 per cent of the reported total affecting those sectors. This may, however, just be an indication that these sectors have comparatively well developed internal controls, so are more likely than businesses operating in other sectors to detect fraud.

Recently, ‘Big 4’ accountants KPMG reported that in the first six months of 2008, 128 cases of fraud came to court, involving more than £630 million, an increase of nearly 50 per cent on the previous six months and an amount which was more than the total for any year in the 20 years the firm has been keeping statistics. Over half of the fraud they reported was against the financial sector.

With the impact of the credit crunch and the record level of financial fraud being uncovered, it is unsurprising that the banks are being even more careful in their lending decisions. 

Companies Act 2006 – The Next Round

The next round of changes resulting from the Companies Act 2006 come into effect on 1 October 2008. The most important of these are as follows:

• Every company must have at least one director who is a ‘natural person’. This means that companies where the directors are exclusively other companies (as is not uncommon for subsidiaries) will have to appoint at least one individual as a director. There is, however, a concession which allows companies that did not have a natural person as a director on the date on which the Act received Royal Assent (8 November 2006) to delay compliance until 1 October 2010
• The restrictions on providing financial assistance for the acquisition of a company’s own shares are repealed (Part 18). This will make it easier for smaller companies to widen the base of their shareholdings. There are other changes in the rules governing reductions in share capital (Part 17)
• Substantial changes are made relating to a director’s duties with regard to avoidance of conflicts of interest. These are contained in Chapter 2 of Part 10 of the Act and are sufficiently important to be recommended reading for all company directors. See http://www.opsi.gov.uk/acts/acts2006/ukpga_20060046_en_13 (and scroll down)
• An objection to a company name may be made if it is sufficiently similar to another name that is owned by the objector and compromises their goodwill (Part 5); and
• New regulations requiring companies to display specified information at their trading premises and on documents or communications.

Failure to comply with any of the new requirements may leave the company and/or its directors liable to a fine. The final round of changes is due to come into effect in October 2009.

Contract Ceases When Small Breaches Repeated

Customers who don’t pay their bills are bad enough, but customers who don’t pay their bills and then attempt to sue when the supplier stops work could be considered to be very bad news indeed.

This situation can occur if a customer suffers a loss because their supplier has not done the work contracted and the contract is still ‘live’.

In a recent case, a consultant engineer was retained to advise another consulting firm which had successfully tendered to manage a project to remove radioactive waste. The payment for his work was based on an agreed hourly rate with monthly billing. For more than 18 months the consulting firm failed to pay his invoices when they fell due and the delays were substantial. After making repeated complaints, the engineer refused to continue to work for the firm, which then instructed another firm. The consulting firm brought a claim against the engineer for the losses his cessation of work caused them and, not unexpectedly, he counterclaimed for the amount of his outstanding bills.

The engineer argued that the consulting firm’s repeated failure to pay him with reasonable promptness meant that it had repudiated its contract with him. The consulting firm argued that it had not breached the contract, because the payments were made eventually and the breaches of the agreed terms were not sufficient to justify bringing the contract to an end.

The case reached the Court of Appeal, which upheld the engineer’s argument. It was of particular importance to the decision that the consulting firm had repeatedly and cynically breached the agreement regarding payment terms despite numerous complaints. He was therefore entitled to consider that there was every likelihood this would continue to be the case.

Brethertons’ view:

“One of the reasons why this affair resulted in a prolonged court battle was that the contract terms were agreed verbally, without the benefit of a proper contract being put in place. A written contract in the right form would have allowed each side to understand where they stood and would have provided a mechanism for the termination of the contract which was unequivocal.”

Copy Without Breaking the Law

It is not at all widely recognised that copying or reusing material from the Internet, even material which is freely exhibited, is normally a breach of the author’s copyright.

In order to allow cost-effective compliance with copyright law, the Copyright Licensing Agency has created a series of digital licences. These allow, in addition to the photocopying and scanning rights included in existing licences, the copying and reuse of electronic and online publications. They also allow limited central storage of extracts and articles, which means that a business with the appropriate licence can now copy an article, whether it originated in print or digital format, and make it available on its company intranet for up to 30 days. 

For more information on the licensing of copyright, see http://www.cla.co.uk/.

Foreign VAT – Get it Right

It is commonly thought that within the EU, recovering VAT on expenditure made whilst abroad is merely a matter of calculating the VAT at the applicable rate and claiming it via your VAT return.

However, the right to recover VAT on a VAT return is limited to VAT incurred in the country of registration. Overseas VAT is reclaimed by submitting a claim directly to the country concerned (this is called an ‘8th Directive claim’). Typically it can take months (sometimes years) for these claims to be processed and the VAT repaid.

For more details on recovery of overseas VAT, see
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000860&propertyType=document.

A number of firms offer a VAT reclaim service in exchange for a fee, which is normally based on a percentage of the VAT repayments received.

Overseas VAT which is incorrectly claimed as input tax on a VAT return can lead to an assessment for VAT over-claimed and possibly trigger a penalty.

HM Revenue and Customs have recently issued a leaflet explaining the new penalty regime that applies in relation to incorrect claims by overseas businesses for VAT incurred in the UK. This can be found at http://www.hmrc.gov.uk/vat/new-pens-refunds.pdf

In Brief: Insolvency in the Internet Age

On 1 October 2008, the Companies (Trading Disclosures) (Insolvency) Regulations 2008 come into effect, bringing insolvency law into the Internet age.

The Regulations require a company that is in administration, receivership or operating under a debt moratorium to indicate the fact clearly on its website as well as on its letterhead, invoices and so on.

Free Webinars

12.30pm - 13th November:  Small Claims Court Procedures In A Nutshell- How to maximise your chances of successfully recovering your cash if you have to 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:-

• How to avoid bad debts in the first place
• Smalls County Court proceedings
• Preparation of cases
• Conducts at hearings
• Enforcement proceedings and recovering expenses.

12.30pm – 4th December: Effective Letter Writing –
How to write letters which will grab a debtor’s attention.