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Corporate Matters

A quarterly newsletter from our Corporate team keeping you informed of the latest legal news and developments.

Latest Issue

In the latest issue of Corporate Matters our tax expert Mark Whiteside looks at the key tax changes for businesses from the Autumn Statement.

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Do you know what action to take when a customer goes into insolvency to protect your retention of title rights?

Friday 23rd October 2015

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Corporate Matters - Issue 9 

Where you have supplied goods to a customer who goes into liquidation or administration then as an unsecured creditor you can often expect to receive little if anything as a distribution in the insolvency of the company. However, your terms and conditions could contain retention of title provisions, which will entitle you to collect any goods which remain on the customer’s premises on its insolvency. 

It is essential to act quickly upon become aware of a customer’s financial distress. You should undertake a stock take of your goods at the customer’s premises, review your terms and conditions and put the customer on written notice of your retention of title rights. 

If you are unable to take action before an administration process is started against the customer, then the company will have the protection of an administration moratorium, preventing you from taking action without the consent of the administrator or the permission of the court. The administrators will still normally allow you access to the premises to take a stock take and your retention of title will remain valid despite the moratorium.

Administrators will often sell the business of an insolvent company before putting creditors on notice but will sell subject to any retention of title rights that suppliers have. In those circumstances you will need to approach the buyer of the business to either reach an agreement allowing them to retain the goods if they pay the contract price or arrange for collection of the goods by you. 

You should undertake a health check to ensure that your terms and conditions apply to your supply contracts (preferably they should be signed by the customer) and that you have valid retention of title provisions in them.

If you require more information on what action to take when a customer goes into insolvency please contact: 

Robert Turner
Partner
Tel: 0161 836 8821
Email Robert

 

 


Future growth: A look at Initial Public Offerings (IPOs)

Tuesday 21st July 2015

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Corporate Matters - Issue 8

In the last edition of Corporate Matters we highlighted five reasons why companies might consider seeking private equity investment. This time round we highlight some of the issues for a company, its management and investors considering an IPO as a vehicle for future growth.

2014 was a strong year for IPOs, and following the uncertainty of the general election period the indications are that it remains a good time for companies to join the public markets. Set out below are a number of reasons why an IPO and life on the public markets can provide real benefits to companies. 

  1. Raising funds: the decision to join a public market is mostly driven by a desire to raise funds. Funds raised at IPO enable the company to take the next strategic step in its journey, whether that is making acquisitions, hiring more people, expanding facilities or developing breakout products. In addition, companies on a public market have the opportunity to raise further funds. 
     
  2. Credibility: being on a public market is a statement that a company has met rigorous regulatory standards, and has appropriate systems, controls and governance processes in place. This gives comfort to customers and suppliers, and is especially relevant for companies that want to win larger customers. Additional prestige, greater press coverage and analysts’ reports also give traded companies increased opportunity to raise their profile with customers and suppliers. 
     
  3. Currency: shares in publicly traded companies have an easily agreed value. Traded companies can use their shares as a currency to make acquisitions, which reduces their need to use cash reserves/borrow (as much) to fund a deal. This ability to realise value for their shares enables shareholders at the time of the IPO to exit or partially exit from the business. 
     
  4. Liquidity: the liquidity of publicly traded shares means a market exists for shareholders to realise all or part of their investment over time. It also allows the company to broaden its shareholder base. Significantly, this liquidity gives the company a highly effective tool to incentivise and reward its employees with share options that have a real day one value.

A company considering an IPO should be aware of the full impact of being on a public market. Potential concerns, all of which should be outweighed if it is right for an IPO, include:  

  • Susceptibility to market conditions. 
     
  • A potential loss of control as certain decisions, notably around significant acquisitions, require prior shareholder approval. 
     
  • Greater compliance, disclosure and reporting requirements, each consuming management time (especially during the IPO process) and additional costs, in addition to the increased responsibilities and duties for the directors. 
     
  • Loss of privacy because of additional reporting and disclosure requirements and greater accountability to shareholders. 

To discuss the advantages and potential pitfalls of an IPO, the IPO process itself, the choice of the right public market, or funding alternatives, please contact Andrew Millar or David Bowcock:


Andrew Millar

Partner
Tel: 0161 836 8965
Email: andrew.millar@brabners.com




David Bowcock

Head of Corporate - Manchester
Tel: 0161 836 8948
Email: david.bowcock@brabners.com

 

 


Legislative developments: UK company law changes update and share buybacks

Tuesday 21st July 2015

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Corporate Matters - Issue 8

No more corporate directors or anonymous individuals with significant control

In the last issue, we detailed some of the changes to UK company law that the Small Business, Enterprise and Employment Act 2015 (the “Act”) will implement. Further detail is now emerging with the publication of a recent government consultation paper.

  • Provisional implementation dates for adoption of the register of individuals with significant control (PSCs) provide that companies need to compile a PSC register in January 2016 with information available to the public from April 2016. The effect of this is that any person with a greater than 25% interest in the Company will need to be disclosed even if to date they have held their shares through a nominee or trustee.
     
  • Since 2008 all companies have been required to have a director who is a natural person. The Act now provides that all directors who are not natural persons will automatically cease to be directors 12 months after the relevant provision is implemented. The implementation date for this provision is now postponed to April 2016 from October 2015.

We will continue to provide regular updates as more of the Act’s provisions are fleshed out.

If you would like more information about these changes please contact:


Andrew Millar

Partner
Tel: 0161 836 8965
Email: andrew.millar@brabners.com

 

Share buybacks - the de minimis exemption

On 24 April 2015, the Department for Business, Innovation and Skills published some updated guidance on share buybacks for private companies.

During 2013 changes to the share buyback regime were made to make it easier for employees to own shares. However the initial guidance was unclear resulting in a number of companies overlooking this option.

The key change clarified by the latest guidance is in respect of shares bought back out of capital using the de minimis exemption. Under this exemption it was already possible for small amounts of shares to be bought back out of capital without the need to follow strict procedures set out in the Act (such as creditor protection measures). However, the purchase price that could be paid for these shares was unclear.  

The new guidance has clarified that shares may be bought back out of capital under the de minimis exemption up to the aggregate purchase price in any one financial year of the lower of £15,000 or the nominal value of 5% of the Company’s fully paid share capital as calculated at the start of the financial year. 

It was also clarified that shares bought under this exemption can be bought back at a discount or a premium to the nominal value.

For more information on share buybacks please contact: 


James Petts

Solicitor
Tel:0161 836 8805
Email: james.petts@brabners.com


Lessons from the courts: Notice rights and penalty clauses

Tuesday 21st July 2015

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Corporate Matters - Issue 8

Get your notice right or lose your claim

The recent case of Ipsos SA v Dentsu Aegis Network Limited highlighted the importance of complying with the notice requirements of a share purchase agreement (“SPA”). In this instance, the SPA required any warranty claims to be properly notified within a two year time limit and stipulated what should be included in a notice of claim. The Buyer was of the view that it had a claim and went as far as sending two letters on the issue. The Court ruled that whilst the letters were sent within the two year limit, they did not include all the stipulated requirements so notice was not properly served and the Buyer was not entitled to bring a claim.

For more information on making a warranty claim please contact:


Simon Lewis

Senior Associate
Tel: 0161 836 8930
Email: simon.lewis@brabners.com

 

Penalty Clauses – what contractual protection provisions are unenforceable?

The general contractual rule about clauses in contracts that prescribe the financial consequences of a breach of contract is that the consequences must be regarded as a genuine pre-estimate of loss. If they are not and they are instead a “penalty” for breaching the contract then the clause may well be unenforceable. This summer sees this century old contractual rule tested by the highest court in the land with an expectation that the courts may be looking to create a new, more flexible rule. We will report back on this but for the time being please ensure that any contractual protections you enter into are justifiable having regard to the breach as if they are not then they may well be struck down.

If you would like to discuss any issues you may have with contractual protection provisions please contact:


Rupert Gill

Partner
Tel: 0151 600 3106
Email: rupert.gill@brabners.com


Did you know: Rules on permitted company names has recently changed?

Tuesday 21st July 2015

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Corporate Matters - Issue 8

The rules on permitted company names has recently changed. For example, words such as “Holdings” and “Group” no longer need specific consent to be used and the list of symbols that can be used has been extended. At the same time, however, the rules on what names are regarded as being too similar to other existing names to be permissible have been hardened.

You can read more about company name changes in our blog.

If you would like more information or advice regarding company names please contact:


Rupert Gill

Partner
Tel: 0151 600 3106
Email: rupert.gill@brabners.com


Private Equity – The Challenge

Tuesday 14th April 2015

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Corporate Matters - Issue 7

A recent BVCA report highlights that, in the North West, private equity and venture capital have made more than 190 investments, worth £2.4 billion, into companies employing more than 33,000 people. Nationally over 2,200 businesses are backed by private equity. Manchester is now the largest hub for the sector outside of London and that trend needs to continue but at the same time the underrepresentation of the Merseyside region needs to be addressed with proportionately far fewer businesses having taken private equity investment.

To encourage business owners to look (or look again) at private equity investment, we set out below five reasons why private equity is worth considering:

  1. No Repayments: Unlike bank debt, there is no need to make ongoing capital repayments.  It is therefore ideal for businesses which may have little or no income stream at the start.  The lack of repayments can also mean that you grow more quickly as you can plough spare cash back into the business.
     
  2. No Personal Guarantee: You won’t be required to provide a personal guarantee so there is less risk in the event things go wrong.
     
  3. Expertise to Help You Grow: Investors bring with them a huge amount of expertise and a network of contacts, which they can use to help you grow the business. They will usually help you find a non-executive director who has built a business in a relevant sector and can give you the benefit of their experience.
     
  4. You Can Retain a Majority Share: Many venture capitalists will structure their investment such that management will be able to retain a majority stake. This might involve additional members of the team sharing in the equity as they will be keen to ensure that those individuals who are driving the business forward are sufficiently motivated.
     
  5. A Way to Secure Your Future: For older entrepreneurs whose wealth is tied up in the company, releasing a minority stake while continuing to run the business could put your personal finances on a more secure footing and offer a route to bring through the next generation of management that the parties could otherwise not afford.
     

There are other reasons and considerations but if you would like to discuss the process further please contact Rupert Gill or your usual Corporate team contact.


Rupert Gill

Partner
Tel: 0151 600 3106
Email: rupert.gill@brabners.com

 

Brabners acted for the Business Growth Fund on its £7m investment in Hobs Reprographics.
To read about this deal please follow these links to Insider and The Business Desk.

Our Corporate Deals Update also featured this deal in addition to other deal activities we have been involved with.

 

 

 


Legislation Update: Changes to UK Company Law - Small Business, Enterprise and Employment Act 2015 Receives Royal Assent

Tuesday 14th April 2015

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Corporate Matters - Issue 7

The Small Business, Enterprise and Employment Act 2015 (the “Act”) received Royal Assent on 26 March 2015 and will be implemented over the coming months. The Act covers a wide range of matters, including changes to company law that will not only have a significant practical impact on a lot of companies, but may also affect how a company’s ownership is structured in the future. Some of those changes are discussed in more detail below.

Register of People with Significant Control

The highest profile change to company law implemented by the Act is to introduce the requirement that companies (but not limited liability partnerships) will be required to maintain a public register of people with significant control (“PSC”) from 1 January 2016. The only companies that, as it stands, will be exempt are companies that are already subject to rule 5 of the Disclosure and Transparency Rules, which in practice means that most companies listed in the UK will be exempt.

Broadly speaking, an individual will be a PSC if they satisfy one of the following:

  1. holding (directly or indirectly) more than 25% of the nominal value of the shares;

  2. holding (directly or indirectly) more than 25% of the voting rights;

  3. having the right (directly or indirectly) to appoint or remove a majority of the board;

  4. having the right to exercise, or actually exercise, “significant influence or control” over the company (it is intended that guidance will be issued about the meaning of this phrase at some point in the future); or

  5. having the right to exercise, or actually exercise, significant influence or control over a trust or firm (which in itself isn’t a legal entity) that satisfies any of (1) to (4) above.

Companies will be obliged to investigate PSCs and obtain the necessary information about them. PSCs will themselves be under an obligation to provide companies with the relevant information, although those obligations won’t be triggered unless a company has first failed to meet its own obligations.

The details to be included in the register of PSCs that are individuals include name, service address, country of usual residence, nationality, date of birth and usual residential address. The register must also include the date on which someone became a PSC and the nature of the control (meaning which of the qualifying criteria applies). Residential addresses of individuals won’t be made publicly available.

There are further provisions in place so that, if an individual (“X”) is a PSC of company A, which in turn would (if it was an individual) be a PSC of company B, the PSC register of company B will refer to company A rather than X, as long as company A is itself subject to either the Act or rule 5 of the Disclosure and Transparency Rules.

A company’s PSC register must be kept available for inspection at a company’s registered office, although private companies have the option to maintain the register through Companies House rather than maintain a separate register itself. This may well be more convenient for a lot of companies, although it’s worth noting that maintaining the register at Companies House will mean that exact dates of birth of PSCs will be publicly available, which otherwise wouldn’t be the case.

Company Filings

Under the Act annual returns will, from April 2016, no longer be required. Instead a company will be required to deliver a statement confirming that the company has filed any change to certain information that it was required to file in the relevant period. That confirmatory statement will need to be provided at least once in every 12 month period, but a company can provide statements more often should they wish.

The information that is subject to the confirmatory statement is registered office, registers of officers and (if applicable) PSCs, obligations arising out of the decision to use the central register (about which please see below), and where a company keeps certain of its records. The confirmatory statement must also include details of any changes to a company’s principal business activities, its share capital, its shareholders and (if applicable) its PSC register.

A particularly welcome change is that, also from April 2016, statements of capital (relating to shares), which have caused a fair amount of confusion since their introduction under the Companies Act 2006, will no longer need to specify the amount paid and unpaid on each share; instead they will just need to specify the aggregate unpaid amount on the total number of shares.

Central Register

From April 2016 a private company will have the option to maintain certain of its statutory registers on the public register through Companies House, rather than having to maintain statutory registers that it holds itself. The relevant registers include those of members, directors, director residential addresses and secretaries (and also of PSCs). Registers of charges and share transfers are not included in this list.

It is worth noting that, before maintaining the register of members in this way, all of the company’s members must give their prior consent.

Dates of Birth

From October 2015 the public record will no longer show the day of the month in which an individual was born (it will still show the month and the year). Companies will, however, still be required to file the exact date of birth, and include that date in their register of directors or PSCs (as relevant).

In practice it may take a while for many individuals to reap the benefit of this element of the Act, as the date of birth will not be removed from historic filings, and if a company chooses to maintain its PSC register through Companies House then the full date will be publicly available in any case.

Appointment of Directors

The Act simplifies the process to have directors registered as having been appointed with Companies House. Instead of including a consent to act (which in practice often entailed obtaining two signatures on the relevant form or obtaining additional pieces of personal information if filing online), an appointment will now just contain a confirmation by the company that the director has so consented.

Companies House will write to each newly appointed director, who will have the right to object to the appointment if indeed they did not consent.

Corporate Directors

From October 2015 there will be a general prohibition on a company having a corporate director. However, the debate as to exceptions to that general rule is ongoing – it is almost certain that the prohibition will not be universally applicable.

If any corporate directors (who are subject to the prohibition) are not removed as directors of a company by October 2016 then they will automatically cease to be directors from then.

Shadow Directors

A shadow director is someone who is not officially appointed as a director of a company but in accordance with whose directions or instructions the official directors are nonetheless accustomed to act. Under the Act shadow directors will be subject to the director duties prescribed in the Companies Act.

Bearer Shares/Share Warrants

From 26 May 2015 a company will no longer be permitted to issue bearer shares. Further, from that date holders of existing bearer shares will only have a nine month window in which to surrender their bearer shares in return for registered shares, failing which a company will be required to apply to court to have the bearer shares cancelled.

 


The Budget: Entrepreneurs’ Relief and Tax Changes for Investors

Tuesday 14th April 2015

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Corporate Matters - Issue 7

Entrepreneurs’ Relief

Two important changes were introduced with effect from 18 March 2015 as part of an ongoing crackdown on perceived tax avoidance strategies relating to Entrepreneurs’ Relief (“ER”).

Firstly, sales of shares in “management company” structures will no longer benefit from ER. Previously, individuals who would not have satisfied the 5% shareholding condition were able to join together to form a “management company”, which would itself hold a 10% shareholding in the trading company. This arrangement benefitted from special rules relating to joint ventures, and enabled those minority shareholders to qualify for ER. This type of planning was considered contrary to the Government’s intention when the ER legislation was introduced. Going forwards, ER will only apply to companies that have a significant trade of their own.

Secondly, the availability of ER to “associated disposals” of personal assets has been restricted. ER generally applies to sales of businesses and shares in trading companies. However, it is relatively common for assets used by a business to be owned by an individual in their personal capacity (for example property). The ER legislation deals with this by allowing ER to apply to “associated disposals” (i.e. sales of personal assets used by a business, provided that the sale is connected to a wider disposal of the business). Previously there was no minimum disposal requirement and the Government was concerned that this rule was being used for unacceptable tax planning. Going forwards, ER will not be available for “associated disposals” of personal assets unless the taxpayer is also disposing of at least a 5% stake in the underlying business.

Some good news for investors

The Budget also concluded two key tax changes which will be of interest to angel investors and investors in venture capital funds.

Firstly, from 6 April 2015 the Government will be abolishing the rule that 70% of money raised by a company under a Seed Enterprise Investment Scheme (SEIS) must have been spent before the company can raise money under an Enterprise Investment Scheme (EIS) or from venture capital trust (VCT) funds.  This will now allow companies to simultaneously seek to raise SEIS funding alongside EIS and VCT funding.

Secondly, the Government has announced that it intends to introduce legislation to allow individuals lending money through peer to peer lending platforms to offset any losses from bad debts against interest realised on peer to peer loans.  This will be of particular interest to investors participating in debt crowd funding platforms.

If you would like more information about these changes or to discuss any corporate tax and investment matters please contact either:

Mark Whiteside
Partner
Tel: 0151 600 3269
Email: mark.whiteside@brabners.com

 

 


Daniel Hayhurst
Solicitor
Tel: 0151 600 3155
Email: daniel.hayhurst@brabners.com


 


Lessons from the Courts - A look at: Good Faith, Accounting Policies & Standards and Directors' Duties

Tuesday 14th April 2015

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Corporate Matters - Issue 7

Doctrine of Good Faith – Honesty and Integrity

As an update to our recent article  “What is meant by good faith?”, in a recent case a judge has implied the doctrines of honesty and integrity into the terms of a contract.  The furthering of the law in this area should be noted as the courts seem to be increasingly inclined to imply moral standards into the terms of a contract.

Completion Accounts – What if Accounting Policies and Accounting Standards contradict each other?

The case of Shafi v Rutherford highlighted the necessity of reviewing a target company’s accounting policies and clearly stating whether a target’s accounting policies prevail over accounting standards.  In this case the target’s policy in respect of equipment leases was subsequently found to be non-compliant with the applicable accounting standards. The question of which should apply when drawing up the completion accounts then arose.  Fortunately (or unfortunately depending upon your point of view), the share purchase agreement set out which should prevail but preferably the non-compliance would have been spotted and addressed during due diligence so that all parties understood the financial consequences prior to completion and without having to resort to expensive litigation.

Director’s Duty to deliver up Information

The case of Eurasian Natural Resources Corporation Ltd v Judge highlighted the need for a properly drafted service agreement.  In this instance Mr Judge’s service agreement did not require him to deliver up confidential information concerning the company he was a director of upon termination of his post.  The company attempted to rely upon the directors’ fiduciary duties of confidence to require its delivery but a court found that was insufficient; yes Mr Judge had to keep the information confidential but he was under no obligation to return it as there was no specific contractual obligation on him to do so.

Update on Warranty Limitations

It is common, when buying and selling companies, for share purchase agreements to contain a number of limitations on the warranties given by a seller, including a provision that a buyer must bring any claim within a certain number of weeks of becoming aware of the matter.  The limitations of a seller’s liability will cease to be effective if a buyer can establish that the seller has acted fraudulently.

In the case of Hut Group Limited –v- Nobahar-Cookson the court held that the time limit for a buyer to give notice of a claim will start to run when the buyer becomes aware that there is a proper basis for pursuing a warranty claim (not from the earlier point of when the buyer first becomes aware of the facts ultimately lead to the claim).   While this case will give buyers comfort, it does highlight the need to act quickly where a potential warranty claim is suspected to avoid the risk of losing the claim.

The Court also held that the fraud exclusion to the warranty limitations applied to the fraudulent acts of a party’s employee, even though he was not a director.   This emphasises the need for sellers to take care to ensure that all of the information provided to a buyer in a transaction has been properly prepared and does not contain any fraudulent statements.

If you would like more information about the issues raised above or to discuss any other corporate law matter you may have please contact either:


Rupert Gill

Partner
Tel: 0151 600 3106
Email: rupert.gill@brabners.com

 


Daniel Hayhurst
Solicitor
Tel: 0151 600 3155
Email: daniel.hayhurst@brabners.com

 


Did You Know? A look at Trading Disclosures

Tuesday 14th April 2015

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Corporate Matters - Issue 7

A company is required to display its name at its registered office and other places of business, on business correspondence, documents and on websites. The purpose of this requirement is that the legal identity of every company should be revealed to anyone who has, or may wish to have, dealings with it.  There are slightly relaxed rules for groups of companies relating to the display of group company names at the registered office.

The company must also display some further additional information including the part of the United Kingdom in which it is registered (i.e. England and Wales, or Wales, or Scotland, or Northern Ireland), its registered number and the address of the company's registered office.

A company does not have to state the directors' names on its business letters unless it chooses to do so. However, if it does decide to include the names then it must state the names of all its directors. In other words, a company cannot be selective about which directors' names it shows - it must show all of them or none of them.

If you would like to discuss any trading disclosure matters you may have please contact:

Adrian RogersAdrian Rogers
Senior Associate
Tel: 0151 600 3127
Email: adrian.rogers@brabners.com


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