League of Nations

I got back from the (long) journey to Avrio’s latest meeting in Malta – of which more later – just in time to follow the last day of the English Premier League (EPL).  As Alan Green said on Radio 5, “If this was a Hollywood movie, you wouldn’t believe the script”.

The timing for the EPL couldn’t be better, of course, as they are just about to renegotiate their commercial rights around the world.  One of the many fascinating things about the EPL is just how international it is: not only in relation to the number of countries which follow the games, but also where all the players come from.  And that leads me – albeit rather tenuously – back to Avrio.

My first Avrio meeting was (I think) in December 1990 – and since then there have been a very large number of meetings in many different locations, whether they were meetings of members or meetings of the board (as I was a Director for 10 years and President for 5).  So, I think it a reasonable question for you to ask me, “Why is CCW involved in Avrio?”

There are two main reasons:

  • CCW’s people who go to the meetings get an understanding of how law is dealt with elsewhere, and that should (in theory) make them better lawyers.
  • More importantly, we can offer a better service to any clients or contacts who have legal needs in jurisdictions that we can’t service ourselves.  Not only can we find out the answer that is needed but we can put you in touch with someone we know and trust. Recent examples involve transactions in Cyprus, Portugal and Italy.

What we have been guilty of – and the fault here is largely mine – is in not telling our clients and contacts more about Avrio.  So, fresh from the Malta meeting, I’m trying to do that now.  Please have a look at the Avrio website and if you are doing any business abroad – even in the near-abroad – think of our extended network of friends and contacts. Also, the next meeting will be in Croatia this Autumn – so expect a follow up email before then to try to find out if you have any business in Croatia and/or you have any legal problems you would like us to discuss with our Avrio colleagues at that meeting.

If that email doesn’t appear – remind me!

John Clarke

How do you avoid liabilities? As best as you can….

Sorry about the old asbestos pun, but a recent case (Chandler v Cape plc) is throwing something of a wobbly into the otherwise fairly staid world of corporate group structures.

Until the Cape decision, the law in the UK pretty much upheld what has been called the “corporate veil”. Broadly, that means that (for example) the liabilities of a subsidiary company remained with that subsidiary, and couldn’t be attributed to the parent unless there was something extra: a guarantee or undertaking from the parent, for example. In the past, health and safety issues have pushed at the boundaries of that “settled position” – but Cape may have run straight past the boundary!

Cape involved someone exposed to asbestos dust while working for a subsidiary of Cape. The subsidiary couldn’t pay damages awarded to the claimant, who then pursued Cape – and won. That was good news for that claimant and for others in similar positions – but from my usual point (advising businesses how they should be set up) it is worrying. So, what lessons are there to be learnt?

Firstly, don’t panic. Secondly, though, don’t ignore Cape. The lessons seem to be:

  • A parent company may be in the frame if it takes control over the relevant affairs of a subsidiary. So, the subsidiary must be able to make its own decisions (usually by its board).
  • Cape dealt specifically with health and safety issues, but the judgement was wider than that – so don’t assume this can be ring-fenced.
  • This liability was imposed on Cape a long time after the subsidiary ceased to exist. That has implications for corporate sales: expect to be asked Cape-related questions about any subsidiaries, whenever they existed.

I can’t help thinking that the corporate landscape just got a little more complex!

Yes we can…maybe

As I drove into work today and heard the news about the final stages of this year’s Presidential election I remembered the newsletter we issued when President Obama was being inaugurated in January 2009.  I know: that seems like yesterday to me too!

When we sent that mail shot I don’t think we expected that nearly 4 years later the economy would be as tough as it now is but given the current and continuing financial problems, I think it is worthwhile re-emphasising some of the points we made in January 2009.

As we said then, normally we would all run a mile rather than tell others that business isn’t too good.  You can’t talk to your bank, in case they pull the plug; and your auditors have statutory duties, so you may not be able to confide in them. But lawyers don’t have these issues to deal with – and might (just) have some ideas.

So:

  • Is your business structured in the best way to protect its value?
  • Are there hidden assets that can be used to generate cash flow?
  •  What changes should you be making now to prepare and protect your business?
  •  Are your terms and conditions robust enough when customers do not pay?
  •  Are you making the best use of your trading premises?

As recent cases we have dealt with show it is genuinely never too early to have a quiet, confidential chat about these issues. In many cases this isn’t a question of “time means money”: it is a case of “time might just mean survival”.

So, when you are ready, drop me an email or give me a call?

Forum shopping? I don’t like any sort of shopping…

A Scotsman, and Englishman and a Frenchman (and others) went into a bar (well, many bars actually). Yes, I’ve been to another Avrio Advocati meeting. This time, while the Frenchman didn’t sing, he did dance with a bride he didn’t know – but that’s another story!

You’ve heard me mention Avrio Advocati before. It’s a growing and active group of lawyers throughout Europe and beyond so that, if you have a problem in another country, we should have a colleague who can help.

Two or three of the sessions this time involved “forum shopping”. That means thinking about where legal contracts or proceedings should be based, to get round problems in one legal jurisdiction or take advantage of a peculiarity in another. And that’s not as esoteric as it sounds: people and businesses may have options that they (and their advisers) might not have thought of. Examples include:

  • Insolvency: there are quite different rules in different jurisdictions, so if someone has solvency issues, would they be dealt with better in Country A than Country B – and if so, how do you take advantage of that?
  • Family law: the rules relating to pre-nuptial contracts, divorce, maintenance and so on are quite different, jurisdiction to jurisdiction. If someone from Country A is married to someone in Country B and they live and have a business in Country C, if something goes wrong with the relationship, what law applies? Does either A or B have any options? And what happens to the business assets?

The more that people move around – whether for work or pleasure – the more these issues will become relevant to more people. So, please remember to let us know if any of these sorts of “forum issues” are relevant to you – and you should anticipate these sort of questions from us.

Given the complexity of the issues, you’ll understand why we needed to go into the “many bars” to have long and deep conversations on these and other(!) topics. And if you want to hear the story about a Frenchman singing, we’ll have to have a (long) chat……

 

Are family companies different?

There is a lot of talk in the press just now about how all companies are evil tax avoiders or (even worse) tax evaders.  It was good to hear some rebalancing on the radio that this all might just be “heat and light” from the politicians, but that will be the subject of a later rant (sorry blog). Few of the companies involved in this bad press are family companies, but family companies are not without their own problems.

Lately, I’ve been struck by a number of recent cases where there were striking similarities between what were broadly family companies – and that lead me to thinking (I know, a dangerous thing…….) whether there is anything inherently common to family companies that makes them different from other private companies.

In theory – and often in practice – shares are held in companies for a couple of reasons:

  • to make a gain when the shares were sold; and / or
  • to generate income through the payment of dividends.

That corporate law theory begins to “flex” for private companies for a variety of reasons:

  • often, it is unthinkable that the company could be sold;
  • dividends may not even be considered let alone paid, and
  • the company is more like an entity to hold the family business for successive generations.

So, with that in mind do we need to tweak what would otherwise be the “orthodoxy”?  Here are a few thoughts

If a company is not going to be sold but is going to be kept within the family then, over time, that will probably mean more shareholders as more generations are involved.

The more remote those shareholders are from the heart of the company and the more distant they are from its decision making – the more the risk of problems.  Consider: if a (remote) shareholder is not going to be able to sell his or her shares, then the share certificate is in effect a worthless piece of paper unless those shares pay dividends.  So is it inevitable that after a few generations, family companies have to pay dividend.

Whenever shareholder disputes happen they are hugely disruptive and hugely expensive.  In other words, they should be anticipated and avoided at all costs.  So, how would you go about avoiding a shareholder dispute from non-involved shareholders?

    •  A dividend strategy?
    •  Changing the rights attaching to the shares so that, in exchange for payment of regular dividends, the non-involved shareholders either don’t have any voting rights or have limited voting rights?

It is tempting to say that the problem should be removed altogether by “taking out” the non-involved shareholders, probably by the company buying back their shares.  But in the current financial climate:

    • Could those bought out shareholders get as good a return on that cash as they will get in the company?  Probably not.
    • Could the company borrow to fund that buyout and anything else it intends to do as cheaply as the cost of keeping those non-involved shareholders.  Probably not.

So I think there is something of a long term bargain between those at the heart and those at the periphery of family companies along the lines of:

  •  Those of us at the heart will look after your interests and pay you a good return as long as you keep out of our hair;    and
  •  Those at the periphery keep on banking the cheques.

The good news is that all of this is doable easily for private companies.  The big thing, though, is to think about the issue and put things in place when there are no problems.  Stating the obvious, when there are problems, people won’t agree to changes.

Food for thought?

It wisnae me..

A big boy did it and ran away. For non-Scottish readers, this is a more or less standard excuse from our (Scottish) childhood. But what on earth is the connection to an email from business lawyers (apart from the fact that they are based in Scotland)?

When things go wrong in contracts and in business, and in particular when they are heading towards court, that’s when everyone usually reaches for the paperwork – just to check that what the paperwork says is what it is supposed to say. And yes, that’s where we get the “I wish I had listened” sort of comment because – stating the obvious – when that dispute has blown up it is usually (although not always) impossible to put things right at that stage.

So, how do you stop things going wrong?

  1. Easy: don’t enter into any contracts. I know: that’s a bit like the old joke of the hospital that works perfectly until it is forced to accept some patients. You can’t be in business and not enter into contracts, and some will go wrong. So how do you go about limiting the damage when they do?
  2. If it is going to be you on the receiving end – say you have supplied something and it doesn’t work – what will you do then? Options include insuring against claims and having what lawyers call “exclusion clauses” in your contractual paperwork but (and this is a major “but”), will they work when the crunch comes? Those sorts of clauses if properly drafted do work, but they do have to legally form part of the contract – so in your case, do they? Are you sure (because this will only be tested “in extremis” when you are unlikely to be able to do much to remedy any shortfall).
  3. If your business is the party that suffered the loss, do you have a right of recovery against the supplier – and if you do, is the supplier good for your claim (or is your real target their insurer)? Again, does your paperwork say what you want it to say, particularly given that it will only be stress tested when you have a limited opportunity to change anything (particularly when your real target is the insurer)?

I know that a lawyer would say this anyway, but the paperwork does matter – not just that you have at least some paperwork (always a good idea) but that it does what you want it to do (amuch better idea). We’d much prefer to be involved in helping prevent problems arising (by getting it right at the outset or minimising the risk) than in trying to help you come up with reasons why your business should not bear that particular liability when things have gone wrong. In other words, could we try to avoid the “it wisnae me” defence?

Going forward, please have a think about the risks involved here – and please do get in touch if you’d like to chat through ways of avoiding or minimising them.

John Clarke

Where do you think you’re going?

We’ve already been challenging you to get your house in order earlier this month, but here’s one further resolution to give some thought to for 2013.

As is the case in so many different areas, having a think about what you intend to do with your business longer term and doing some planning is likely to be beneficial.  So:

–       What’s going to happen to your business in the future?  Is it going to stay in the family, be sold to colleagues already involved in the business or sold on the market?

–       When are you thinking of making any changes that you are planning to make?

Together, the answers to these sorts of questions get you thinking about:

–       Is training going to be needed for the people who succeed you?

–       What things need to be done to make the business more saleable – altering its look and feel and making it “cleaner”?

–       How might your plans be affected by changes to (for example) tax rates etc?

It is genuinely never too early to start thinking and discussing matters even if the net result of those discussions is “no change meantime”. Having a clear (or even rough) plan in place is not only good for your future, but can give you peace of mind in the present.

So, if this rings any sort of bell, give me a call or drop me an email.

John Clarke

CCW puts on its running shoes

As the nation has so recently been swept up in Commonwealth Games hysteria, CCW is proud to announce its headline sponsorship of a local sporting event which is sure to be more popular than ever, as the legacy of the Games takes shape. The CCW Linlithgow 10k race takes place on 28 September 2014, and will be the 22nd running of the event.

The sponsorship is part of a year long series of events to celebrate CCW’s tenth birthday, during which we have supported various local initiatives. Three from the firm will be running on the day, with various levels of experience. “Team CCW” is also raising funds for MS Society, and you can contribute by clicking the JustGiving link at the bottom of this page.

CCW is delighted to be supporting this local sporting event, which has helped race organisers Linlithgow AC to freeze the entrance fee from last year, making the race more accessible for all.

Graeme Lawson, one of the race organisers from the club, said, “This welcome sponsorship will enable the organisers to introduce exciting new developments including improvements to the race timing system and more effective route management over the popular figure of eight course that incorporates all the iconic features within the historic town of Linlithgow.”

An important part of the event is the children’s fun run, which covers the shorter 1.5km distance and is open to entrants from eight to fifteen years of age. This is expected to attract hundreds of entrants, and who knows, some of them may be our Games competitors of the future!

The CCW competitors will be providing regular updates on their training over the coming weeks.

Competition: There will be a prize of a bottle of bubbly for whoever guesses (a) the first CCW team member to cross the line; and (b) the closest to their winning time! Email your answers to ccw@ccwlegal.co.uk.

If you are interested in entering the CCW Linlithgow 10k click here.

“Team CCW” is also raising funds for MS Society, and you can contribute by clicking the JustGiving link below.

 

CCW Legal Caroline Maher

Your Employment Forum

Thank you to everyone who attended YOUR Employment Forum on Tuesday 6 May 2014 where we discussed:

The effect the introduction of fees has had on the number of claims to the Employment Tribunal;
alternatives to litigation including pre-termination discussions (or protected conversations) and Acas Early Conciliation (mandatory for all prospective Employment Tribunal claimants from 6 May); and when the ‘without prejudice’ principle will and will not apply.

The key message is that protected conversations may be a useful tool in an employer’s armoury, but that they should be used with caution. There are various exceptions to the rule that pre-termination discussions will be confidential, including where there is a claim relating to discrimination or breach of contract.

Accordingly, protected conversations are only useful in circumstances where the employer is certain that the only claim the employee could bring is one of unfair dismissal; however, in our experience, it is difficult for an employer to predict with any certainty what kind of claim an employee will bring. Employers therefore should always take advice before initiating such a conversation to ensure that it’s the right thing to do in the circumstances.

Time will tell if the Acas Early Conciliation will be a success, but the majority of those attending the Forum were doubtful. The key message on Early Conciliation is that now is the time for employers to plan who in their organisation, or which external advisor, is going to deal with Early Conciliation and to provide training where necessary. Acas have launched a national list to allow employers to nominate who in their organisation is the initial point of contact.

Acas may use their discretion to decide which companies are on the list but the email address to get in touch with Acas about this is ECcontactslist@acas.org.uk.

The general consensus was that Acas Conciliation may be useful in preventing cases going to the Tribunal where the matters in dispute, and the sums involved, are relatively simple and straightforward.

If you would like further information please contact Caroline Maher.

 

CCW Legal Alison Marshall

Do you know what happens to your shareholdings when you die?

If the answer is “no” or “I think so”, then it’s time to find out for sure.

Quite often, shareholders assume that their shares will simply pass on to their family and will somehow “get sorted out” after they pass away. However, this isn’t always the case, as there can be conflicting provisions in the company’s constitution or shareholders agreement, which create a headache for the company and executors alike once you’re gone.

There are usually several main factors to consider here for a privately-owned company:

For the company and its directors: who will have control of the company should a shareholder pass away?
For the shareholder in question: who will benefit from the value of my shares after I pass away?
For the remaining shareholders: will we end up with a new (potentially disinterested or troublesome) shareholder and will we be able to buy them out?

The answers aren’t the same for every situation, but often the unintended scenario which arises is that a shareholder’s spouse inherits the shares and the other shareholders do not have sufficient funds (or power) to buy the spouse out. Nobody is happy and it is not the situation intended by the now deceased shareholder.

However, there are several ways in which this can be avoided. The first step to solving this problem is to sit down and think about what you actually want to happen to your shares after your death.

In a family business, it might be that the shares pass to the next generation, who will carry on the business. In which case, it might be as simple as ensuring the company’s Articles permit that. For another business, it might be that you want to put in place insurance, so, when your spouse inherits the shares, the other shareholders will have the funds available to buy them.

Most intentions can be achieved in practice, but it is very easy to inadvertently scupper your intentions by not getting both the company and your personal affairs in order.

Although it’s a morbid topic to think about, it’s clearly worth looking into this and encouraging your fellow shareholders to do the same.

If you want to discuss these matters further, please contact Alison Marshall or John Clarke.