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A B C D E F G H I J K L M N O P R S T V W Y

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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What is meant by good faith?

Friday 28th November 2014

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Corporate Matters - Issue 6

The term “good faith” is often used in contract law but what does it actually mean?

The problem with “good faith” is that it is far too ambiguous. There are no specific rules that it implies and it is therefore not clear whether or not individuals or firms are acting in “good faith.” By using the term “good faith” you are leaving yourself open to interpretation by the courts if and when someone questions your behaviour and it is placed out of your hands. Having said that, the term is accepted by many to mean honest cooperation and fidelity to the parties’ bargain.

Under UK Law the term “Good Faith” does not have a proper legal definition. It is often used in contracts to mean that both parties will cooperate with each other and there will be an honest relationship between everyone involved. Problems arise when one side believes that the other is not acting in “good faith.” They may well claim that there is a breach of the contract. Although not officially part of UK law, many judges are willing to accept “good faith” in certain circumstances though every case will be different, hence the inherent uncertainty with using the term.

If a case is taken to court such as Yam Seng vs. International Trade Cooperation (2013) it is up to the court to interpret the meaning of “good faith”. In the aforementioned example, the judge ruled that the dishonesty shown by ITC in providing false information to Seng was not in “good faith” and the contract was subsequently legitimately terminated by Yam Seng.

Where the case has a clear set of agreements and the contract explicitly states the agreement made between the two parties then the term “in good faith” will have very little impact because the terms of the agreement are very clear. In a contract where the agreement is less clear “good faith” becomes more significant because any form of unfair behaviour can be seen as disobeying the agreement that had previously been made.

When drafting contracts the focus should be upon ensuring that the contract is written clearly and explicitly states what is expected of both parties under the agreement. This will help prevent future disputes over what is meant by “good faith” given it has no clear legal meaning.

If you require any more information about drafting contracts or for any other corporate law matters you may have please contact:


Rupert Gill

Partner
Tel: 0151 600 3106
Email Rupert


Did you know? A look at a Company's Statutory Books

Friday 28th November 2014

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Corporate Matters - Issue 6

A Company’s Statutory Books are a collection of registers setting out details of the members (shareholders) of the Company; the directors; any mortgages; share transfers; and share allotments. They may also include minute books and resolutions. Although often ignored, the Companies Act 2006 requires every Company to maintain these registers (either in hard or soft copy).

The most notable register, is the register of members. Failure to maintain this is an offence under the Companies Act which could result in a fine of £1,000, increasing by £100 for each day the books remain out of date.

On a sale of a Company, the Buyer will request sight of the Statutory Books ahead of Completion and if they have not been kept up to date, the Buyer will require them to be reconstituted. If the Buyer is not comfortable that the reconstituted Books represent an accurate record then they may request that the Sellers indemnify the Buyer for any loss suffered as a result of the Statutory Books not being correctly maintained. Sellers, of course, want to give as few indemnities as possible.

If you require any more information about Statutory Books or for any other corporate law matter you may have please contact:


James Petts

Solicitor
Tel: 0161 836 8805
Email James


Legislative Developments - Corporate Governance Code 2014

Friday 28th November 2014

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Corporate Matters - Issue 6

Recent amendments to the UK Corporate Governance Code have come into force as of September 2014. Although the provisions of the Code are not mandatory for private companies they are considered best practice and compliance leads to improved governance and risk management.

The re-emphasis of the need for remuneration packages to promote the long-term success of the company is one provision of note for private companies. A bonus award in respect of short term performance can lead to disparity between the long term strategy of the business and the short term approach of employees striving to satisfy short term targets. The Code suggests that bonus targets should be long term in nature as well as being both stretching and rigorously applied.

If you require more information about the recent amendments to the UK Corporate Governance Code or for any other corporate law matter you may have please contact:


Rupert Gill

Partner
Tel: 0151 600 3106
Email Rupert


Lessons from the Courts - A look at: Shareholders Confidentiality Obligations and "Subject to Contract"

Friday 28th November 2014

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Corporate Matters - Issue 6

Shareholders Confidentiality Obligations

A buyer looking to purchase shares in a private company will inevitably want to see more commercially sensitive information than is publicly available at Companies House prior to sale. However, the selling shareholder will be under an obligation, either express or implied, to keep such commercially sensitive information confidential which may in turn make finding a buyer for those shares difficult should the other shareholders not want to sell.

In a recent case the court has confirmed that without obtaining approval from the other shareholders in the company, the shareholder may be unable to disclose confidential information about the Company. This decision provides clarity for shareholders, but the practical implication could be that private investors find the sale of their holding challenging without cooperation from fellow shareholders.

Subject to Contract

In contract law the use of the phrase “subject to contract” in a situation where negotiations are on-going is crucial. As seen in the Newbury –v- Sun Microsystems case, an offer which clearly states the terms of an agreement can be deemed to be a binding contractual offer should the phrase “subject to contract” not be present. If accepted by the other party, the offer will become a contract. In this instance Sun made an offer and within it stated that it would be subsequently documented “in a suitably worded document.” The Court ruled that this simply meant that the agreement would be written up and wasn’t intended to mean that the negotiations are on-going.

When making an offer/writing heads of terms, if you intend to negotiate a subsequent contract before being bound it is vital to include “subject to contract” so that both parties understand the stage at which the deal is at.

If you require more information about Shareholders Confidentiality Obligations or Subject to Contracts or for any other corporate law matter you may have please contact:


Rupert Gill

Partner
Tel: 0151 600 3106
Email Rupert


Corporate Matters - Issue 5 - June 2014


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Corporate Matters - Issue 4 - March 2014


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Corporate Matters - Issue 3 - October 2013


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Corporate Matters – Issue 2 – May 2013


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Corporate Matters – Issue 1 – December 2012


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