Main menu

Liverpool:

+44 (0)151 600 3000

Manchester:

+44 (0)161 836 8800

Preston:

+44 (0)1772 823 921

Search form

Search form

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

Corporate

Crowd Funding, where do I stand if my investment fails?
Wednesday 25th November 2015

The BBC recently reported on the difficulties faced by investors in Zano, who invested via Kickstarter to fund the development of a mini drone, in anticipation that each investor would recieve one of the drones once the project was completed.  Following difficulties within the company, it now looks highly unlikely that investors will receive a product meeting the specifications originally anticipated (if, indeed, a product at all).

In this Article we consider the position that investors may find themselves in when Crowd Funding Investments go wrong:

Debt Crowd Funding

Debt Crowd Funding (or peer to peer lending) arguably provides investors with the greatest level of certainty of receiving their money back. Unlike with other forms of Crowd Funding, investors can expect to receive a repayment of their investment (plus interest) by the end of the loan period.  Certain Debt Crowd Funding loans will also be secured against the assets of a company (e.g. with mortgage over the company’s property or a charge over its stock).

Where a company that Debt Crowd Funding fails, an investor with security will have the right to receive a proportion of the proceeds from the sale of the mortgaged property or charged assets, in priority to the company’s unsecured creditors. It is important to note that, while security will give an investor priority over a Company’s unsecured creditors, investors are still likely to rank behind any bank or other intuitional creditors (who will demand to rank ahead of any crowd funding investors).

If an investor has made a Debt Crowd Funding investment on a unsecured basis, they will rank as an unsecured creditor of the company and, in the event of insolvency, can likely to expect to receive only a few pence in the pound (if anything at all) from the sale of the assets of the company once the secured creditors have been repaid.

Reward Crowd Funding

As with Zano, Reward Crowd Funding involves investors investing in a company in exchange for a promise of a future reward or product. Where the company fails to deliver on the promised reward (or delivers a reward which is not up to the expected standard) an investor may have a contractual claim against the company.  However, if the company is insolvent such a contractual claim will only entitle the investor to rank as an unsecured creditor, standing behind the secured creditors of the company.

Equity Crowd Funding

Equity Crowd Funding involves investors subscribing for shares in a company. Unlike Debt Crowd Funding, the investment will not normally be repaid by the company over time and, unlike Reward Crowd Funding, the shareholder cannot normally expect to receive a reward from the company.  Investors investing for Equity Crowd Funding can hope to receive dividends over time or a share in the in the proceeds on the sale of the company, if the company is ever sold.

In the event of insolvency, shareholders will rank behind all of the company’s other creditors and investors can only expect to receive any of their money back once all of the company’s other secured and unsecured creditors have been paid.  In most insolvency cases, this is extremely unlikely.

Investors Beware

Crowd funding is becoming increasingly popular for start-up companies or concepts, which are considered too risky by the traditional mainstream funders. It is therefore important that potential investors ensure that they are fully aware of the risk in pursuing a Crowd Funding Investment, particularly (as in the case of Zano) the risk that the promised reward may never materialise.

Investors should also be clear before committing to an investment as to the level of due diligence undertaken by the Crowd Funding Platform.  The level of due diligence undertaking by platforms does vary and may not (particularly in the case of a start-up concept) extend to confirming that the concept behind the investment is viable.

Silver Lining/Tax Relief?

The Government has recently consulted on the introduction of a new form of bad debt relief for peer to peer loans (although it is proposed that any relief would only be available against income from other peer to peer loans, rather than general income). The relevant legislation is proposed for Finance Bill 2016, however it could be the case that peer to peer lenders who suffer bad debts between 6 April 2015 and 5 April 2016, that meet the conditions for relief when introduced, will still be able to claim that relief in their 2015 tax return.


Author:

When to sell your business
Thursday 22nd October 2015

In this series of blogs looking at selling your business, we have previously looked at the sale process in overview and answered the questions of "Why you should sell your business" and "How to sell your business". In this edition we are going to focus on the "when to sell your business".

Timing the sale of your business can be critical and have an impact upon price, the sale process and indeed whether the business will be sold at all.  There are a number of factors to take into account which may include the following:

  1. Growth – you need to be able to demonstrate that there is potential for further growth in the business that the buyer can take advantage of.
     
  2. Year end - typically a buyer will want to see a relatively recent set of filed (ideally, but not necessarily, audited) accounts.  Whilst it is not critical to have these in place for when you go to market, you will have to at least be able to show anticipated figures for the current/recently concluded year end.  The risk, however, is that the actual results don't meet or exceed the anticipated results which is likely to lead to a loss of buyer confidence at best through to a reduction in the buyer's offer to the buyer actually walking away.
     
  3. Seasonality - if there is strong seasonality to your business then given the time and effort any sales process takes, trying to sell during your busy period makes little sense. It is vital during any sales process that management keeps control over the business; the sales process is distracting enough without having to deal with your busy period as well at the peak of that process.  At the same time, please bear in mind that any sales process will typically last 6-9 months so advance planning and the support of your advisors is critical.
     
  4. Business Issues - as part of the scoping exercise with your advisors you should take a close look at your business to prepare it for sale.  That process may identify issues that will be unattractive to a buyer.  The integrated approach offered by Brabners and Brabners Stuart helps this as there is immediate legal support for any issues identified by Brabners Stuart.  Those issues may be ongoing litigation, poor compliance, untidy contractual arrangements with your employees or unprotected intellectual property rights to name but a few.  Wherever possible steps should be taken to resolve any such issues prior to going to market to avoid them causing a buyer concern (or worse).
     
  5. The market/legislation – regard should be had to the market the business operates in as well as impending legislation affecting the business.  Both can give risks and opportunities.
     
  6. Presentation - there will be times of the year when your business will look better than others. Whilst it is accepted that this is window dressing, don't underestimate its power if it is done well.
     
  7. Your Buyer - in some cases you will know who you will want to market your business to.  In such instances be careful with the timing of your approach.  For example, approaching a listed Plc that is in the process of presenting its results to the city runs the risk of the approach getting lost.
     
  8. Personal Issues - remember that your advisors cannot undergo the process alone, they are instead your guides for a journey that has to be undergone together.  Accordingly, if there are dates that have to be avoided for whatever reason, factor them into the timetable from the start (rather than announcing that you are off on a three week holiday at a critical time with only a few days notice.....been there!).

Having said all of the above, there is never a perfect time to sell and there will always be reasons to put the sale off.  The risk is that you don’t decide to sell until the growth in the business is exhausted thereby making the attractiveness of the business that much less.

The final critical question is "to whom?" which is something we will look at further in our next blog.  To read the next blog when it is published over the next month please follow us on our Twitter account.

If you would like to discuss any matters regarding selling your business please contact Rupert Gill on 0151 600 3106 or by email at Rupert.gill@brabners.com.


Author:

How to sell your business
Tuesday 22nd September 2015

In this series of blogs looking at selling your business, we have previously looked at the sale process in overview and also at the question of "why?" (read our previous post 'looking to sell your business'). In this edition we are going to focus on the "how?".

Having taken that difficult decision to sell what may have been a lifetime's work or a family jewel, the next step is likely to be almost as difficult; how does one go about selling a business. The temptation will be to jump immediately to the questions of "when" and "to whom" but those are decisions better taken in conjunction with your advisors. Instead, focus on the "how" and the first step in answering that question is by the appointment of appropriate advisers.

When appointing advisers there is an important balance to be struck between not discarding people that you trust, have worked with and who have advised you during the course of your everyday business dealings but at the same time ensuring that you have advisers with appropriate deal and negotiating expertise.  Both trust and appropriate expertise are critical and to ensure that you have that balance right speak to people you know, your bank manager or even your existing advisers about whether they are suitably equipped. That advice will principally come in the form of lead advisory services (usually accountants who specialise in sales activity) and legal advice. Typically the lead advisers will advise you on price, undertake the research to find an appropriate buyer and then structure and negotiate the transaction with the lawyers then implementing it as well as providing specific advice on legal issues that may arise along the way.

Having decided on your advisers the next step is to consider factors such as your price aspirations, the advisers expectations of what price might reasonably be expected to be achievable, whether the sale should be structured by way of a sale of the Company's assets or of the shares in the Company, who might be likely buyers (be that an MBO, trade sale, sale to private equity or otherwise) and how those buyers might be approached.

Whether the sale is a sale of assets or a sale of shares is likely to be primarily tax driven. The conventional wisdom is that a seller will want a share sale to take advantage of entrepreneurs relief and avoid the risk of a double tax hit; indeed that is the most common structure.  However, a buyer may not want the risk of acquiring a company or the cost of the more detailed due diligence exercise that a share sale necessitates. Alternatively, the company that owns the business being sold may have history that makes a share sale difficult or other assets that wouldn't form part of the sale.  Accordingly, nothing can be certain at this early stage.

For the reasons stated above, appropriate advice is critical to guide you through the "how" at this stage in the process. Ideally you will only want to try to sell once, in a manner that helps the business but at the same time maximises your value and therefore having advisers who are in a position to give you the best advice having regard to nature of your deal is critical. Partly for those reasons Brabners became a partner in what is now Brabners Stuart, a lead advisory practice, giving you an integrated approach between your legal and lead advisory teams.

The next critical question is "when?" which is something we will look at further in our next blog.  To read the next blog when it is published over the next month please follow us on our Twitter account.

If you would like to discuss any matters regarding selling your business please contact Rupert Gill on 0151 600 3106 or by email at Rupert.Gill@brabners.com.


Author:

Looking to sell your business?
Tuesday 21st July 2015

In the first of a series of blogs looking at selling your business we give you an overview of the sale process. Over the series we will cover specific areas in more detail such as how, when and to whom to sell your business to, but for this edition we are also going to focus on the “why?”. After all, a decision to sell a business is going to be a difficult one for a seller, particularly so for those such as the entrepreneur whose business is his or her lifework or for the current generation of a family business that may go back a few generations. So why do people sell?

 

Background

 

A sale process in many respects follows the same path a house sale i.e. decide to sell, market the business, find a buyer, agree a price, answer the buyer’s due diligence enquiries, agree contractual terms, sign the contract, receive the sale proceeds. The big difference, of course, is the added complications of a business compared to a house such as employees, accounts, obligations to funders, obligations to customers and suppliers, litigation, compliance, regulatory issues, the landlord, environmental issues and so on; in other words, no two businesses are the same. It is these complicating factors that can delay a sale, cause a price reduction or result in the sale falling through and accordingly, as you would with your house, we cannot overstate the benefit of “getting your house in order” before you market the business. Every deal will have its difficulties, but a well presented business will give a buyer the confidence it needs to proceed, especially in the current market that is typified by nervous buyers.

 

The sale process will also mean that you will rely heavily on your advisors (be they legal, accounting, pensions, tax, lead advisory etc) to do just that, advise. You will therefore want a team that you know and trust but who also have the core competencies for transactions of this nature. Trusted advisors will be key to the process being successful.

 

Why Sell?

 

So why do people sell? One of the main reasons, particularly in the current market where there has been a number of years of low deal activity, is the desire to retire and realise the value of the business. We are seeing many business owners who in normal times may have sold a few years ago making the decision to sell now. Coupled with that is an increasingly acquisitive market of larger corporates and overseas buyers who have weathered the storm, horded their cash and now wish to make it work for them.

There are of course any number of other reasons for sale be it:

  • a lack of viable successors within the business;
  • a forced sale due to financial difficulties;
  • the need for the business to grow and it being unable to do so under current ownership due to e.g. lack of available funds; or
  • a desire to realise value in a growing business before its current growth plateaus

to name but a few. Ultimately everyone will have their own personal reasons but the most important thing is wherever possible, plan to do so well in advance. A typical sale process will take 6-9 months at least from the point of marketing the business and that doesn’t include the time needed to prepare the marketing material (known as an information memorandum) and to “get your house in order”.

We will be looking at the “how?” part of the sale process in the next blog which we will publish in September. To read the next blog follow us on our Twitter account @BrabnersCorp     

If you would like to discuss any matters regarding selling your business please contact Rupert Gill on 0151 600 3106 or by email to rupert.gill@brabners.com


Author:

Company Name Changes – Are You Protected?
Monday 16th February 2015

Many people will have sought to obtain a certain company name in the past only to have been frustrated by the seemingly unfathomable rules. Often you will find that names aren’t available because they include certain words that make the proposed company name the “same” as an existing company name, even if it isn’t the same at all. Well, as of 31 January 2015, the rules have changed, and while the changes will make it easier to obtain company names, it may actually leave some companies more exposed.

This is because certain words have been removed from the “same as” list. Those words are “export”, “group”, “holdings”, “imports”, “international” and “services”. So, by way of example, if you have the company name “Brabners Limited”, that will no longer prevent someone from registering “Brabners Group Limited” as its company name. However, it may still be possible for rights holders to bring a complaint for an opportunistic company name registration, or court proceedings for trade mark infringement or passing off if a similar company name is registered and/or used by a third party.

Companies should consider whether they want to, for example, change their name or incorporate dormant subsidiaries to protect against certain company names being registered.

Whilst having a company name registered does prevent someone from registering the “same” company name, it doesn’t fully protect any intellectual property that you have in the company name. Companies should always consider if any of their names, be it their registered company name or their trading names, need to be protected (for example by way of a trademark). Further information about protecting your intellectual property can be found in the IP section of our website.

It is also worth noting that, as part of the same new legislation, UK registered companies can now use “accents, diacritical marks and ligatures” in their registered company name – for example, your company name can now include the word “café”, when in the past it would have had to be “cafe”. Words that are spelt the same, just with an accent or mark on one or more of the letters, will be regarded as the “same”, however.


Author:

Including commission and bonuses in holiday pay calculations
Tuesday 7th October 2014

Recent cases have called into question the approach taken by employers towards calculating holiday pay. The potential inclusion of commission and bonuses in holiday pay calculations has serious consequences for employers in sales-driven industries like the motor trade, in terms of budgeting for historical liabilities and future increases in holiday pay.

Recent cases

In Williams v British Airways plc the CJEU held that as well as basic salary, a pilot’s holiday pay calculations should have included reference to a flying allowance of £10/hour for time spent in the air (because the allowance was “intrinsically linked to performance”).

In Lock v British Gas Trading Limited the CJEU held that a sales consultant’s commission (which represented approximately 60% of his total earnings) should have been included in his holiday pay calculations. The rationale was that workers must not be deterred from taking holiday or be placed at a financial disadvantage by doing so.

The Employment Appeal Tribunal’s decisions are awaited in two cases concerning whether overtime should be included in holiday pay calculations, but are expected to go in favour of the employees.

The decisions have wide implications for the automotive sector because other types of incentive payments could also be regarded as “intrinsically linked to performance”. There is a high risk that performance-related bonuses should be taken into account when calculating holiday pay (depending on how the schemes are structured).

Action plan

  1. Analyse how many employees within your organisation will be affected by these decisions and how their pay is comprised.
  2. Review all your bonus, commission, overtime and allowance schemes. Consider if you need to change how you calculate holiday pay for your staff.
  3. Agree on your business strategy for addressing potential liabilities created by workers making back pay claims.

At Brabners we have specialist knowledge in the automotive sector, servicing clients throughout the UK. We would be pleased to advise on holiday pay entitlements and calculations which might apply within your business, and strategies for dealing with potential claims. Please contact caroline.litchfield@brabners.com (Head of Automotive Sector) or rachael.kirkup@brabners.com (Employment specialist) with any queries.


Author:

Pages