Company & Commercial

Director’s Duties - Companies Act 2006

Duty to exercise reasonable care, skill and diligence. Directors have to achieve at least the level and skill of a reasonable person in their position but if they are more skilled they can be judged by their own higher standard.

Duty to promote the success of the company. This is an important new duty which requires the director to act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of the members. A director must consider the likely consequences of any decision in the long term. He also needs to consider the interests of the company’s employees, the need to foster the company’s business relationships with suppliers, customers and others and the impact of the company’s operations on the community and the environment. He also needs to consider the desirability of the company maintaining a reputation for high standards and also the need to act fairly between its members. All directors have to be aware of this list of factors and the board must weight this up as part of its decision-making.

Duty to act within accordance with the company’s constitution and to use powers for a proper purpose.

Duty to exercise independent judgement. This duty means that a director has to perform his judgement independently of anyone or anything. In particular directors may be in breach of duty if they fail to take appropriate legal advice.

Duty to avoid conflict. This is a new duty which came into force on 1st October.

Duty not to accept benefits from third parties and duty to declare any interest. This is also came into force on 1st October 2008.

Derivative actions. The new act allows company shareholders to take action against directors. In practice it is essential that the directors are aware of these duties and training should be considered to instil the factors directors must have regard to when considering how to promote to success of the company. It may be sensible for the company to consider further its indemnity insurance policy.

Health and safety. Health and safety issues must be taken very seriously. However in view of the hazardous nature of the business regular risk assessments should be taken particularly as directors can be personally liability. Corporate Manslaughter and Corporate Homicide Act 2007. This will come into force next April. Though directors are not personally liable under this act unlimited fines can be imposed in the event of breach. 3 July 2009

For further information on Lovegroves’ expertise in dealing with Company and Commercial Law issues please contact:

Rupert Wright, Solicitor
Company & Commercial
01753 851 133
rwright@lovegrovesllp.com

This article is written as a guide only. It should not be relied upon as a substitute for legal advice.

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Dispute Resolution & Litigation

Mediation should be ‘second nature’

“Mediation and other forms of [Alternative Dispute Resolution] should become second nature to litigators, litigants and the courts … education, education, education. I suggest that we should start with the law schools and the professional parties and their lawyers.” (Master of the Rolls, Lord Clarke of Stone-cum-Ebony in a recent speech (see www.judiciary.gov.uk.).

Currently, the suggestion of mediation is generally seen as a sign of weakness, and very careful consideration is given to the question whether mediation should be proposed. However, in Egan v. Motor Services (Bath) Ltd [2007] EWCA Civ 1002, Lord Justice Ward said “it is not a sign of weakness to suggest it. It is the hallmark of commonsense.”

Great emphasis is placed on ADR in the Solicitors’ Code of Conduct, the Pre-Action Protocols, and the Civil Procedure Rules (Part 1.4(2)(e)) www.justice.gov.uk Under Part 1.4 of the CPR, the court’s case management power is to encourage, not to compel, but according to Lord Justice Dyson, “the form of encouragement may be robust” (Halsey v. Milton Keynes General NHS Trust [2004] EWCA Civ 576).

However, where the parties have failed to consider mediation the court can issue costs sanctions. The court has the power (under CPR 44.5(3)(a)(ii)) to have regard to efforts made by the parties before and during litigation to resolve the dispute. Thus the threat of an adverse costs order should persuade parties to engage in ADR and it is hoped therefore in time ADR should become second nature.

7 August 2009

For further information on Lovegroves’ expertise in dealing with Dispute Resolution & Litigation issues please contact:

Khizar Arif, Solicitor-Advocate
Dispute Resolution & Litigation
01753 851 133
karif@lovegrovesllp.com

This is a guide only and should not be relied upon as a substitute for legal advice.

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Dispute Resolution & Litigation

Directors beware!

Directors can incur personal liability for actions and decisions in connection with their office.

Drouzhba Ltd v Wiseman and another [2007] EWCA Civ 1201 (Court of Appeal) concerned a director’s personal liability for fraudulent misrepresentation. The case may pave the way for creditors of a company to take direct action against directors, in deceit, where those directors appear to have been guilty of fraudulent trading and for creditors to obtain damages if successful. This would be separate from any action for fraudulent trading under the Insolvency Act 1986.

The success of such an action would require:

1. the finding of a dishonest representation (express or implied); and
2. a finding that the representation satisfied section 6 of the Statute of Frauds (Amendment) Act 1882.

One of the requirements of section 6 of the Act is that, to be actionable, the representation must be ‘made in writing’ and ‘signed by the party to be charged…’.

Drouzhba Ltd concerned an implied representation by the director and the point considered to be of central importance by the Court of Appeal was the requirement for a written representation (express or implied). The Court stressed that a representation made by conduct alone would be defeated by section 6 of the Act which provides no such action may be brought ‘unless such representation… be made in writing…’. The crux of the appeal was whether the implied representation was in writing or by conduct.

The Court stressed that ‘not every contract signed by a director contains implied representations by the director’ and that each case will depend on the facts. It may be easier to imply director representations where the director is (as in this case) a sole director who has sole practical control of a company.

Directors should be mindful, when signing contracts and documentation, of any representations that might be implied in the particular circumstances and satisfy themselves that fraudulent statements are not being made. A crucial point for consideration, as always, is the solvency of the company. The prudent course for a director with any doubts on solvency must be to satisfy herself as to the viability of the company generally and before signing any documentation that could contain an implied representation of solvency.

The findings in this case suggest that a representation might be implied where the documentation contains provision for payments to be made by the company and where it is signed by a director who is effectively ‘the mind’ of the company. If such a director intended the company to give a false statement and brought about the company’s giving of that false statement, the director may be personally liable in deceit.

Note that in a director’s liability insurance policy, the terms are likely to be such that if a director is found to be fraudulent, the insurers will cease to pay legal costs cover at that point and look to recover the defence costs paid. Terms of such policies should therefore be considered very carefully.

It is surprising however that there are not more claimants seeking to recover damages from directors who have entered into contracts on behalf of companies, when those companies are insolvent to the knowledge of the directors.

Fraudulent trading legislation (ss213 and 214 of the Insolvency Act 1985) can be used to make directors liable in these circumstances, but this route has possible disadvantages that it is for the liquidator to decide (and not a creditor) whether proceedings should be brought, and any recoveries shared between creditors. However, claims for fraudulent misrepresentation avoid these disadvantages.

7 August 2009

For further information on Lovegroves’ expertise in dealing with Employment Law issues please contact:

Khizar Arif, Solicitor-Advocate
Dispute Resolution & Litigation
01753 851 133
karif@lovegrovesllp.com

This is a guide only and should not be relied upon as a substitute for legal advice.

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Employment Law

Compromise Agreements – some tax issues

It will usually be in both the employer’s and employee’s interests to limit the liability for tax on severance contained in a compromise agreement. Income tax and NICs (currently 12.8%) must be considered and this can increase the cost of a settlement significantly. It should be noted that HMRC can recover not only unpaid tax and NICs from the defaulting employer but also interest and penalties, hence it is clearly important that severance is taxed correctly.

All payments relating to employment are taxable and subject to NIC as ‘employment income’ (s.6 Income Tax (Earnings and Pensions) Act 2003 (‘ITEPA’)). Examples of taxable employment income are:

• Salary
• Bonuses and commission
• Garden leave pay
• Consideration for restrictive covenants
• Contractual payments in lie of notice
• Ex gratia payments under unapproved retirement benefit schemes

S.401 of ITEPA provides that payments which constitute compensation for early termination of employment (which are not taxable as employment income) are taxable, but are not subject to NICs. However, the first £30,000 of such payment is not chargeable to tax or NICs. Examples of payments within s.401:

• Redundancy
• Damages for wrongful dismissal
• Damages for unfair dismissal
• Damages for discrimination (if connected with termination)

The £30,000 exemption

• Termination payments and variations to terms and conditions – exemption can apply
• Payments in lieu of notice<
• Contractual – fully taxable as employment income
• ‘Customary’ – fully taxable as it has origins in the ‘employer/employee relationship’
• Breach of contract – no PILON clause so will constitute damages and therefore attract exemption
• Discretionary – HMRC requires clear evidence that payment is compensation before exemption can apply

Non-taxable payments

• Damages for injuries to feelings
• Payments on account of injury or disability
• Compensation for defamation

01 March 2010

For further information on Lovegroves’ expertise in dealing with Employment Law issues please contact:

Khizar Arif, Solicitor-Advocate
Dispute Resolution & Litigation
01753 851 133
karif@lovegrovesllp.com

This is a guide only and should not be relied upon as a substitute for legal advice.

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‘Fit Notes’ - no more sick notes from April 2010

From 6 April 2010, The Statement of Fitness for Work will replace the old 'sick note' (The Social Security (Medical Evidence) and the Statutory Sick Pay (Medical Evidence) (Amendment) Regulations 2010).

The aim is to focus on what an employee may be able to do at work rather than what they cannot do. The new ‘fit note’ offers the option - 'may be fit for work taking account of the following advice'. The doctor will be able to recommend a phased return to work, amended duties, altered hours and/or workplace adaptations.

For form of the Statement click here.

This was originally proposed by Dame Carol Black’s Review of the Health of the Working-Age Population, “Working for a healthier tomorrow”, which urged a reform of the system. However, doctors have had reservations about the new regime which is forecast to save the economy over £200m over the next decade.

The British Medical Association’s concern is that a lack of knowledge on the part of the doctor about an employee’s workplace will make it difficult to take a view on whether the employee ‘may be fit for work’.

The overall practical effect therefore may be more pressure on doctors, and increased sickness and conflict if workers are forced back to work before they are better.

For further information see the DWP web page at http://www.dwp.gov.uk/fitnote/.

01 March 2010

For further information on Lovegroves’ expertise in dealing with Employment Law issues please contact:

Khizar Arif, Solicitor-Advocate
Dispute Resolution & Litigation
01753 851 133
karif@lovegrovesllp.com

This is a guide only and should not be relied upon as a substitute for legal advice.

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Rest Breaks at Work (The Working Time Regulations 1998)

1. Daily rest (reg. 10(1) and (2))
   
   Every worker must have a minimum of 11 consecutive hours rest during each 24 hour period during which he works for an employer, increased to 12 consecutive hours for a young worker (i.e. between 15 and 18 who is over compulsory school age).
2. Weekly rest (reg. 11(1) and (3))
   
   Every worker must have an uninterrupted rest period of not less than 24 hours in each seven-day period during which she works for her employer extended to 48 hours for a young worker. There is an alternative (at the employer’s option) of using a 2 week base period, in which case the rest period must be at least 48 uninterrupted hours or two separate uninterrupted 24 hour periods (reg. 11(2).
3. Rest breaks
   
   Every worker must have an uninterrupted rest break of not less than 20 minutes (or such longer period as may be agreed) if their daily working time is more than 6 hours, increasing for a young worker to not less than 30 minutes if their working period is more than 4½ hours (reg. 12(1).
4. Monotonous work
   
   Where the pattern according to which an employer organises work is such as to put the health and safety of a worker employed by him at risk, in particular because the work is monotonous or the work-rate is predetermined, the employer shall ensure that the worker is given adequate rest breaks (reg. 8) - this is in addition to the normal rest breaks required by the Regulations.

21 January 2010

For further information on Lovegroves’ expertise in dealing with Employment Law issues please contact:

Khizar Arif, Solicitor-Advocate
Dispute Resolution & Litigation
01753 851 133
karif@lovegrovesllp.com

This is a guide only and should not be relied upon as a substitute for legal advice.

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Written Statement of Employment Particulars

All employers (including ‘small employers’) are required to provide a written statement of initial employment particulars or of particulars of change) and details of disciplinary and grievance procedures.

The government's general intentions can be found in the explanatory notes on the Employment Act 2002 as follows:

• Ensuring that employers recognise the value of the statement;
• Making the content of the statement consistent for all employers;
• Ensuring the statement reflects the Act's requirements for minimum statutory discipline and grievance procedures;
• Creating an effective penalty for failing to supply a statement; and
• Providing flexibility to employers in how they go about providing the required statement.

For useful information, see the Government’s example of a written statement of employment particulars a copy of which can be downloaded; and the BIS guidance on "Written statement of employment particulars".

25 November 2009

For further information on Lovegroves’ expertise in dealing with Employment Law issues please contact:

Khizar Arif, Solicitor-Advocate
Dispute Resolution & Litigation
01753 851 133
karif@lovegrovesllp.com

This is a guide only and should not be relied upon as a substitute for legal advice.

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Health and Safety at Work

Failure to comply with duties imposed by the Health and Safety at Work etc Act 1974 is generally a criminal offence. Basically, the Act provides that:

"It shall be the duty of every employer to ensure, so far as is reasonably practicable, the health, safety and welfare at work of all his employees"

Failure to discharge this duty, and other duties, is a criminal offence, with an unlimited fine in a Crown Court.

The maximum penalty on summary conviction (i.e. in the Magistrates' Court) is £20,000 for some offences. There is no limit to fines on conviction on indictment (in the Crown Court), and imprisonment can be ordered in serious cases.

Note that the Corporate Manslaughter and Corporate Homicide Act 2007 created the offence of corporate manslaughter; and the Health and Safety (Offences) Act 2008, which came into force in January 2009 raises the maximum penalties in respect of certain health and safety offences.

25 November 2009

For further information on Lovegroves’ expertise in dealing with Employment Law issues please contact:

Khizar Arif, Solicitor-Advocate
Dispute Resolution & Litigation
01753 851 133
karif@lovegrovesllp.com

This is a guide only and should not be relied upon as a substitute for legal advice.

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National Minimum Wage

The 2008 annual increases in the National Minimum Wage (NMW) were as follows:-

• the adult NMW (aged 22 or more) increase on 1 October 2008 from £5.52 per hour to £5.73;
• for 18-21 year olds the NMW increase on 1October 2008 from £4.60 to £4.77; and
• for 16-17 year olds the NMW increase on 1 October 2008 from £3.40 to £3.53.

On 12th May 2009 the Government announced increases to come into effect from 1st October 2009 (as below), and from 1 October 2010 those aged 21 will qualify for the full adult rate:-

• the adult NMW (aged 22 or more) increase on 1 October 2009 from £5.73 per hour to £5.80;
• for 18-21 year olds the NMW increase on 1 October 2009 from £4.77 to £4.83; and
• for 16-17 year olds the NMW increase on 1 October 2009 from £3.53 to £3.57.

3 August 2009
For further information on Lovegroves’ expertise in dealing with Employment Law issues please contact:

Khizar Arif, Solicitor-Advocate
Dispute Resolution & Litigation
01753 851 133
karif@lovegrovesllp.com

This is a guide only and should not be relied upon as a substitute for legal advice.

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Status of Directors

The position of "company director" is an "office" not an employment. A director may be an employee as well as a director but indeed it is common for companies to have non-executive directors who are not employees, have no service agreement and no employment relationship with the company.

The fact that a person claiming to be an employee is the controlling shareholder of a company and ultimately has the power to prevent his own dismissal does not prevent him being an employee. The question of whether a director is an employee can be relevant when a company goes into liquidation as those who count as employees may be able to claim on the National Insurance Fund for damages for unpaid wages and other benefits. The fact that a person is also the controlling shareholder of the company by which he is employed does not of itself prevent him being an employee for the purposes of unfair dismissal law (see Secretary of State for Business, Enterprise and Regulatory Reform v. Neufeld & Another [2009] EWCA Civ 280.

3 August 2009

For further information on Lovegroves’ expertise in dealing with Employment Law issues please contact:

Khizar Arif, Solicitor-Advocate
Dispute Resolution & Litigation
01753 851 133
karif@lovegrovesllp.com

This article is a guide only and should not be relied upon as a substitute for legal advice.

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Disciplinary and Grievance Procedures

2009 changes/ ACAS Code of Practice

From 6 April 2009 Employment Tribunals (‘ETs’) must take the new ACAS Code of Practice on Disciplinary and Grievance Procedures into account when considering remedies in appropriate claims.

Disciplinary procedures are applied by employers, typically where there is alleged misconduct and/or poor performance by an employee. Grievance procedures are to be followed by employees with problems or complaints against employers. The aim of the Code is to provide the basic rules of fairness in procedure in either situation. For example, parties should raise and deal with issues promptly and should not unreasonably delay meetings, decisions or confirmation of those decisions; employers should carry out any investigations to establish the facts of the case; and employers should allow an employee to appeal against any formal decision made. ETs will be able to adjust any awards made in cases by up to 25% for failure to comply with any provision of the Code. If an ET feels that an employer has failed to comply with the Code it has power to increase any award by up to 25%. And if the tribunal feels an employee has failed to comply with the Code it can reduce any award by up to 25%.

It should be noted that the Code does not apply to dismissals arising from redundancy or to the non-renewal of fixed term contracts on expiry. ACAS have also published a guidance booklet but ETs are not required by law to have regard to it.

3 July 2009

For further information on Lovegroves’ expertise in dealing with Employment Law issues please contact:

Khizar Arif, Solicitor-Advocate
Dispute Resolution & Litigation
01753 851 133
karif@lovegrovesllp.com

This article is written as a guide only. It should not be relied upon as a substitute for legal advice.

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Conveyancing Law

House prices fall 1.6%

The website Rightmove reports a national 1.6% drop in average house prices through November. Despite increases in September and October, the average price has fallen slightly in the run up to Christmas. For most households, Christmas festivities come before moving house.

It is expected that, "there will be three months of prices dropping before a tentative recovery in early spring," says Miles Shipside, Commercial Director at Rightmove.

On a more positive note, the south of England continues to rise, partly due to the shortage of houses on the market. The low numbers of property being marketed, coupled with the decline in new houses being built has left people in homes unsuitable for their needs or too far from their places of work, according to Rightmove.

25 November 2009

For further information on Lovegroves’ expertise in Conveyancing please contact:

Tarek Qutteineh
Conveyancing
01753 851 133
TQutteineh@lovegrovesllp.com

This is a guide only and should not be relied upon as a substitute for legal advice.

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Stamp duty holiday almost over

As part of the Government’s attempts to stimulate the economy, the nil-rate band for stamp duty land tax was increased on property valued up to £125,000.00 to £175,000.00, as a temporary measure in September 2008. From 1st January 2010 this temporary stimulus will revert back to the 1% levy for property priced in this bracket.

Inevitably this temporary increase in the nil rate band has assisted first time buyers trying to get their first step onto the property ladder and statistics from the Council of Mortgage Lenders show that loans for property purchase to first time buyers continue to increase, month on month.

However, research undertaken by the Abbey indicates that up to 35,000 home buyers could miss out on a potential saving of up to £1,750 if they do not complete their property purchase by 31st December 2009. With an average conveyance taking approximately 12 weeks, buyers who fall into this price bracket and are not in a complete chain before 30th September this year could end up with an unaccounted additional disbursement.

The normal stamp duty land tax bandings are £0 up to £125,000.00 nil rate; £125,000.01 up to £250,000.00 payable at 1%; £250,000.01 up to £500,000.00 payable at 3%; and above £500,000.01 payable at 4%

It is make your mind up time for those considering buying houses in this temporary nil rate bracket.

8 September 2009

For further information on Lovegroves’ expertise in Conveyancing please contact:

Tarek Qutteineh
Conveyancing
01753 851 133
TQutteineh@lovegrovesllp.com

This is a guide only and should not be relied upon as a substitute for legal advice.

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House purchases increase

The Council of Mortgage Lenders (CML) are reporting a two-speed mortgage market. Home loans for purchase continue to rise, with August seeing a 29% increase in this sector, compared to the same month in 2008. However, home loans for re-mortgages are plummeting at the same time. August saw a 57% decrease on remortgages compared to the same month last year, with approximately 32,000 remortgage loans. This is largely due to the interest rates having dropped to 0.5%, which financial analysts predict will remain well into 2010, and likely to remain below 2% until 2011.  

CML economist says, "house purchase activity has revived from its moribund state at the beginning of the year. It will be a drawn out recovery process, with seasonal ups and downs, but house purchase activity is now on a firmer footing. Remortgaging demand has fallen away in the low interest environment and this is dragging down gross lending levels overall."  

With many economists agreeing that interest rates will remain low for a couple of years, this is an excellent time to purchase property.

12 October 2009

For further information on Lovegroves’ expertise in Conveyancing please contact:

Tarek Qutteineh
Conveyancing
01753 851 133
TQutteineh@lovegrovesllp.com

This is a guide only and should not be relied upon as a substitute for legal advice.

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Wills, Probate & Taxation Advice

New LPA forms

Lasting Powers of Attorney (LPA) forms have been completely redesigned and the much welcomed new forms designed in consultation with professionals in the industry were released by the Office of the Public Guardian on 1st October 2009.  

Previously many clients and practitioners complained about the length and design of the LPA forms. Property and Affairs LPAs ran to a considerable 26 pages and had no shortage of boxes to tick, and if one box went un-ticked due to a clerical oversight, then the entire LPA was liable to be rejected on registration and rendered invalid. Then the whole process of making an LPA would have to start all over again, perhaps because a Certificate Provider forgot to tick a box stating that they are aged over 18 years.  

Now the new LPA forms are much more approachable, better designed and more concisely stated. A Property and Affairs LPA now runs to 11 pages rather than 26 and has far fewer boxes to tick, and less room for clerical error.

Lasting Powers of Attorney are made to appoint attorneys to look after your financial affairs or personal welfare when you lack the ability to do so yourself. By making an LPA you need to be fully advised as to all of the consequences and practical aspects of appointing your attorneys, the scope of authority you are to give them, and how the LPA would be operated. An independent Certificate Provider must also certify that you are of capacity and fully understand the powers you are giving under your LPA.

Graham Harvey can advise on the creation of Lasting Powers of Attorney and act as a Certificate Provider.

14 October 2009

For further information on Lovegroves’ expertise in dealing with Wills, Probate, Trusts & Taxation issues please feel free to contact:

Avril Turner or Graham Harvey, Solicitors
Wills, Trusts, Probate & Taxation Advice
01753 851 133
gharvey@lovegrovesllp.com

This is a guide only and should not be relied upon as a substitute for legal advice.

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