Insolvency Service consultation on new Restructuring Moratorium

The Insolvency Service has begun a consultation on a new moratorium restructuring moratorium. To participate in the the consultation access

http://www.insolvency.gov.uk/insolvencyprofessionandlegislation/con_doc_register/RestructuringMoratoriumConsultationDocument.pdfCurrently you should note that the conulatation closes on 18 October 2010.

Where the Directors are unable to agree with the creditors of their company to restructure the debt the only realistic restructuring option available is to place the company in adminstration and restructure it from their. However, what this means is that the Directors lose control of the company and place it into the hands of an insolvency practitioner. In essence, this the argument in favour of the proposal.

On the other hand the proposal gives rise to concerns around deterioration of security, control of the Directors handling the restructuring whose interests will be paramount and the effectiveness of the oversight in the process to ensure a fair balance.

There is no doubt that a properly implemented process would be welcome extra option for Directors but what has happened to the Company Voluntary Arrangement. In the end someone must look after the creditors interests and isn't that what a CVA seeks to achieve. Giving too much control to the Directors over balances the various interests of the stakeholders in the company heavily in favour of the Directors interests and the continuation of the company as a going concern at the expense of the creditors.

Business Insolvency rates at 3 year low!

Experian reported yesterday that:

Insolvency rates among UK businesses are at their lowest number in three years, a new report has revealed.Experian's new Insolvency Index for August reveals that the rate of businesses going under dropped to 0.07 during the month, its lowest point since June 2007.Furthermore, the average financial strength rating across all sectors - which is given as a score out of 100 - increased from 80.79 in August 2009 to 81.06 in August 2010.

Smaller firms did very well in particular, with their score reaching 82.22 this year compared to 81.32 in August 2009.

Max Firth, managing principal of pH, an Experian company, said the results of the index reveal how quickly fortunes in business can change.

"This month's picture is very different to the one we saw back in March this year when all regions, bar one, saw an increase in insolvencies and the rate was almost double at 0.11 per cent," he commented.

The news comes despite a recent Bank of England report showing that lending to businesses, and smaller firms in particular, is still falling.

It is now cheaper to defend your Intellectual Property rights?

By introducing a cap on costs for the losing party the Intellectual Property Users Committee has demonstrated the desire to ensure that more people wishing to defend their Intellectual Property rights use the Patent County Court to protect the IP rights that they have.

The cap (inclusive of disbursements and any success fee) will be £50,000 for a determining liability and £25,000 on determining damages or account of profit. In addition the process will include caps on costs for each stage of the process to outcome. these caps can be removed if one party has acted in a manner not consistent with trying to resolve the matter.

Additionally, the court can with the consent of the parties agree to a trial based on the papers only.

With the complexities it is important to remember that this does not apply to further appeals and this is an important factor that should temper one's view on the positive move that this represents.

US and UK Intellectual Property Office joint statement on co-operation

In March 2010 the United States Patent and Trademark Office (USPTO) and the United Kingdom Intellectual Property Office (IPO) announced plans to begin cooperation on increasing the efficiency and quality of the patent examination process by making greater use of each other’s work on commonly filed patent applications and eliminating duplication of work. This initiative will yield efficiencies in patent processing and thus shorten the innovation cycle. Work sharing is central to the efforts of both patent offices to fuel economic growth and create jobs - which are high priorities for both governments.

The offices have completed foundational work and preliminary studies and will begin work-sharing implementation in October. The initial phase of implementation will focus on maximizing re-use during examination of commonly filed applications by providing access to work completed and currently made available by each office. This will be combined with examiner training, data collection and analysis to gauge effectiveness and make necessary adjustments. At the same time the offices will work on such longer-term issues as easier access to each office’s application files to create a more robust work-sharing environment.

"By enabling both offices to maximize the use of each other’s search and examination results, this work-sharing initiative should reduce patent backlogs and help us process patents more efficiently," Under Secretary and Director of the USPTO David Kappos commented. "I believe that it will serve as a model for our efforts at work-sharing with other countries as a means to improve the global patent system and bring innovation to market sooner."

UK Intellectual Property Minister Baroness Wilcox said:

"I am delighted we are now ready to implement this work-sharing programme. It will bring real benefits to business in the UK and US by helping to create a more efficient and effective patent system."

Fall out from Sixty CVA continues

Following the decision in Mourant -v- Sixty the fall out from the judicial criticism continues. Among the tasks of the recently appointed liquidators is the process of investigating the actions of the previous joint administrators.

The issue of 'guarantee stripping' is a very real problem for Landlords where they have properly negotiated guarantees and suddenly find that the impact of the CVA on them is to damage or reduce the benefit of this guarantee.

This issue will continue to run but perhaps behind closed doors.

Archial Collapse shows signs of toughening stance by HMRC on "Time to Pay"

It was announced today that one of the UK's largest Architecture practices has placed itself into Adminstration following a rejection by HMRC of its plan to pay its tax liabilities on a monthly basis.

This blog has stated on a number of occasions in the past that HMRC would begin to toughen its stance to deal with the outstanding tax liabilities that have and will continue to build up. Whilst many saw this process as a quick fix for their cash flow problems in the past where they could not fix those inherent problems during the period of grace that they were given entering the scheme only pushed the inevitable business failure back.

It is sad to see the loss of such a large business with a good brand but this blog suggests that more is to come as HMRC get to grips with the problems that it has had built for it.

Strong decision making is key to effective board performance, says draft guidance

A well-designed decision-making process is one of the most important hallmarks of a strong board, according to draft guidance launched today for public consultation by the Institute of Chartered Secretaries and Administrators. When making decisions, boards should guard against the effects of a dominant personality, the existence of "no go" areas for non-executives and a poor line of sight to significant risk.

ICSA was asked to develop the guidance by the Financial Reporting Council to complement the new UK Corporate Governance Code which was issued in May. It will submit a final text later in the year for adoption by the FRC as a replacement to the existing Higgs Guidance.

The guidance is entitled "Improving Board Effectiveness". It has been drafted by a Steering Group chaired by Sir John Egan, recent chair of Severn Trent Plc, and takes account of an initial consultation involving both investors and chairs, directors, company secretaries and professional advisers operating in the boardrooms of UK plc.

That exercise revealed overwhelming support for short, non-prescriptive guidance to help improve board effectiveness. Key issues covered by the draft guidance are:

 More emphasis on the role of the chair as critical to building an effective board
 The importance of the board's role in creating a high-performance culture which maximises the opportunities for value creation and minimises risk
 The need to create an environment of challenge in the boardroom
 The value for companies of well-informed and high-quality board decision making
 Board composition and diversity as major factors in delivering an effective board
 The advantages of a good training and development programme designed to improve directors' skills, experience and knowledge
 The benefits of regular board evaluation to explore how well the board is functioning
Sir John Egan, chair of the Steering Group, said:
"Having received a wide range of responses during the initial stage of the consultation, we are now strongly encouraging all involved to submit comments that will help us complete the task of delivering guidance that will have a real impact on board effectiveness in the UK."

Baroness Hogg, FRC Chairman said:

"We are grateful to ICSA and the Steering Group for their work and look forward to the final text. The result should be guidance that will help boards apply the Governance Code in ways that deliver the most practical benefit."

This second stage of the consultation ends on 14 October 2010. ‘Improving board effectiveness’ is available here. It is intended that the completed draft guidance will be submitted to the FRC in November. The FRC intends to publish the final guidance by the end of 2010.

OFT and Competition Commission issue new advice on Mergers

On 16 September 2010 the OFT and the Competition Commission issued a joint statement on their approach to Mergers and when the OFT will refer a matter to the CC

" The publication explains the approach of the OFT when considering whether or not to refer a merger to the CC for further investigation and the approach of the CC when exploring more extensively the statutory questions posed in merger references. It highlights the differences of emphasis, as well as the commonalities, between the approaches of the OFT and the CC (‘the Authorities’). The new guidelines comprise seven parts:

• Part 1 provides some explanatory notes and outlines the UK merger regime.

• Part 2 sets out the overarching questions the OFT and the CC must consider
in conducting reviews of mergers.

• Part 3 explains what is meant by a ‘relevant merger situation’.

• Part 4 explains the Authorities’ approach to the concept of a ‘substantial lessening of competition’ (SLC) and outlines the notions of ‘theories of harm’ and the ‘counterfactual’.

• Part 5 describes the analytical approach and methodologies applied by the Authorities in considering the SLC test.

• Part 6 provides guidance on public interest cases.

• Part 7 lists additional guidance relevant to the UK merger control regime.

UK and Foreign IPs competing for UK assets. Reality or illusion?

As a result of a recent Court of Appeal judgment in the case of Rubin and another v Eurofinance SA the ruling allows foreign IPs to pursue directors and assets in the UK jurisdiction arising as a result of foreign jurisdiction insolvency proceedings. Does this mean that UK practitioners will constantly be in conflict with practitioners from other jurisdictions in more complex matters?

UK based received David Rubin and Partners (DRP) applied for an order in the New York courts to pursue Eurofinance in the UK. The basis is that Eurofinance, a British Virgin Islands company, with customers in the US had assets in the UK and some of the Directors were located here. The New York court granted an order to pursue the Directors and Assets following which the DRP applied to enforce the order through the UK courts. Using the 2006 rules of the UN Commission on International Trade Law (UNCITRAL) model law on Cross-Border Insolvency as set out in Schedule 1 to the Cross-Border Insolvency Regulations 2006 the court considered whether the procedure under the Regulations and the Model Law could be used to enforce the judgment in the adversary proceedings in England and in particular:

1.whether the conditions for recognition in article 17 of Schedule 1 to the Model Law had been fulfilled; and

2.the nature of the assistance which the court could and should give.

The court ruled, inter alia, that foreign bankruptcy proceedings should be recognised as a foreign main proceeding in accordance with the Model Law and that the appointment of the receivers as foreign representatives within the meaning of article 2(j) of the Model Law should similarly be recognised.

It is important to remember that the ordinary rules for enforcing or more precisely not enforcing, foreign judgments did not apply to bankruptcy proceedings. However, as the defendants weren’t affected by the ordinary rules regarding private international law the Model Law provided a unique situation in which enforcement could occur in the UK. As a result it is apparent that foreign insolvency practitioners can pursue directors in the UK jurisdiction.

There is some argument in the legal press presently about the similarity of application in foreign jurisdictions and whether this rule applies mutatis mutandis. But what does this mean for the priorities of enforcement between competing UK IPs and those from foreign jurisdictions? Whilst this case does not relate to competing interests the door is now open and the likelihood of the situation arising is ever nearer.

One only has to look at the Allen Stanford and related insolvency issues in the US to see that competing interests can cost the creditors of UK companies, significant amounts of money simply to rationalise the priorities.

I would welcome your views.

Deadline for Companies looms to get real people on the board

The deadline is approaching for every company to have at least one director who is an individual not a corporation.
In the past it was common for subsidiary companies of a group of companies to have just one director and for that director to be a corporation.
Under the Companies Act 2006 this is no longer allowed; every company must have at least one director who is a “natural person” - that is, an individual human being, not a corporate entity.
However transitional provisions gave companies with a sole corporate director a period of grace to appoint an individual as a director.
That period of grace expires on 30th September 2010, and after that date any company that does not have at least one individual ‘natural person’ director, will be liable to a fine of £5,000 plus a daily default fine.
“Clearly any company in this situation must act quickly and take advice as to the formalities required to appoint an additional or replacement director,” said company law expert Brendan O’Brien of Breeze & Wyles Solicitors LLP.

UK Company: Warning to Directors signing contracts when company insolvent!

The Court of Appeal in the case Contex Drouzhba Ltd v Wiseman and another and using the Statute of Frauds (Amendment) Act 1828 held that where a Company Director signs a purchase order or contract knowing that the company he/she is binding was insolvent then that Director may be held liable to the other party.

"Every promisor impliedly represents that he has at the moment of making the promise the intention of fulfilling the obligations that he has undertaken and if it can be shown that no such intention existed in his mind, at that moment he is guilty of a misrepresentation."

It was added that:

"I should not be taken as saying that every contract signed by a director contains implied representations by the director. Each case will depend on its own facts. But that a director signing for a company may be making an implied representation about the ability of the company to pay is, in fact, supported by the case ... ...the Oaten Case [John Hudson & Company Limited v Oaten]."

Very real care must be taken when it is possible that a company is insolvent to make absolutely sure that the signing of the documents does not present an unintended outcome.

It should be made clear that this is a separate action capable of being brought directly by the contracting party against the Director and distinct from the Director's liability under ss 213-214 of the Insolvency Act 1986.

Basel III: What does it mean for the Banking Sector and wider economy in the UK

The weekend passes and the commentators pen words around the impact of the decisions taken last week on the future of global banking. With required Tier One capital ratios less than those being currently held by most UK banks (albeit propped up by UK tax payer support) does this mean that the UK banks are able to start lending again.

The story on lending is one of banks constantly saying that they are lending but the perception from business is that this is far from the case. Many people that I speak to say that the reverse is true. Banks tend to obstructive at worst or at best lend on unpalatable terms totally unreflective of the historic low interest rates.

There is no doubt that the banks must never return to the risk ignorance of 2008 and before but the Tax Payer and Business has supported them through effectively a period of insolvency since. Is it not now the time to give business a break and start working proactively with the right businesses to increase demand and boost the economy. Whilst the government is in no position to drive economic change with its main focus on tackling the deficit the banks can be forced (and i mean forced) to kick start lending.

Those commentators who have discussed this seem to be missing the point. This is not simply an argument about shareholder's getting the risks right. The Banks must try to do more business with the appropriate risk processes in place. All business is a risk but with the right processes risk can be managed. It seems to me that the usual culprits needs to have somethign to talk about so focus away from the positive news onto issues that seem irrelevant to the ordinary person (or even the business owner). It always seems to be forgotten that apart from the State, in the UK the owners of SME businesses are the largest employers. The health of the economy is dependent on their ability to both stay afloat and when the need arises grow their businesses, thereby developing employment opportunities for the wider population. With the press talking double dip, the impact on consumer confidence will increase the likelihood of this happening. The impact on SME businesses will be damaging and on employment levels catastrophic.

This is not meant to be a naive call to action, as it is accepted that the outlook for the global economy is uncertain but is there a better time for the UK economy to start to steal a march on its rivals placing UK business in a strong global position.

I would welcome all comments to

brendan.obrien@breezeandwyles.co.uk

The Future of Narrative Reporting - Consultation - 35 days left to respond

Ed Davey, Minister for Employment Relations, Consumer and Postal Affairs states:

"UK companies are rightly considered to rank among the best in the world in their standards of corporate governance and reporting. However, the recent economic crisis has put a spotlight on all aspects of our regulatory framework including our corporate governance model and forced us to consider where things have gone wrong and why. The broad consensus is that, while the UK model of corporate governance is not essentially flawed, there are areas where we all need to do better – as Government, as companies and as shareholders.

Our goal must be to ensure that our companies are clear-sighted and focused on the issues which matter to their long term success and therefore to their members. Disclosing good quality and relevant information on these issues in company narrative reporting is necessary if shareholders are to make well informed decisions in their role as company owners. And it is very important that there is a clear link between the company’s strategic objectives and the criteria for payments to directors.

The coalition’s commitment to reinstating an Operating and Financial Review to ensure that social and environmental duties have to be covered in company reporting and to investigate further ways of improving corporate accountability and transparency is central to achieving these aims.

I have three objectives for this consultation. First, I want to see what we can do collectively to drive up the quality of narrative reporting to the level of the best, including on social and environmental issues. Second, I want to empower shareholders so they can step up and act as effective owners in the long term interests of the companies they invest in but to do this, they need companies to report on their activities in a material and relevant manner. Finally, I want to achieve coherence without increasing the regulatory burden on business.

I look forward to hearing your ideas and to discussing how we take forward the outcomes of this consultation "

Continuation of Proceedings when UK Company in Administration

In the recent case of Unite the Union v Nortel Networks UK Ltd (in administration) the courts were asked to decide the whether in the instant case exceptional circumstances existed meaning that the court could grant permission for the claimants to continue to proceed against the company in respect of Employment Tribunal claims.

Paragraph 43(6) of Schedule B1 of the Insolvency Act 1986 provides that: -

"(6) No legal process (including legal proceedings, execution, distress and diligence) may be instituted or continued against the company or property of the company except--
(a) with the consent of the administrator, or
(b) with the permission of the court."

The claimants had already requested and been refused consent by the Administrators under 6(a). The claims in respect of which permission was sought at the instant hearing were for unfair dismissal, breach of contract and discrimination.

The claimants argued that the permission should be granted as the claims had a real prospect of success and it would be inequitable not to allow them to proceed. They also argued that the claims did not fall within rules 12.3(1) and 13.12 of the Insolvency Rules and could not be debts or liabilities for the purposes of the administration, buhowever, if continued to judgment, the claims would be provable in subsequent liquidation proceedings, which rendered the cases sufficiently exceptional to grant permission to proceed. The major factors were the propositions that:

(i) because of the moratorium, the applicants currently had no claim at all;

(ii) if the moratorium were lifted, there could be a claim but until there was a judgment on that claim there could be no provable debt;

(iii) that was because the company was defending the claims and the actual existence of a provable debt would depend upon the exercise of judicial discretion; and

(iv) although there could not be a claim in the administration, there could be a claim in a subsequent liquidation.

In dismissing the application, the court stated that

"The claimants would still have claims even if permission for the actions to continue to judgment were refused. Their position in relation to the moratorium on the claims was no different from that of any other trade creditor or unsecured lender.

The submission that if there was a claim it nonetheless required a judgment to render it provable could not be sustained, having regard to the nature of the claim and the point of the nature of the decision on which an award depended. Each of the claims in this application was either a debt or liability to which the company had been subject at the date of administration, or a debt or liability to which it became subject after the date of administration by reason of an obligation incurred before that date.

In all the circumstances, the claims advanced by the applicants were not 'exceptional' so as to warrant the grant of permission for their continuation and the lifting of the moratorium otherwise applying in the administration."

Accordingly, the court has demonstrated an unwillingness to find 'exceptional' circumstances to support the continuation of proceedings against the company in proceedings.

Almost 150,000 small businesses at risk from Public Sector cuts

According to research by insolvency trade body R3, almost 10% (or 148,000) of small businesses fear they could be pushed into insolvency if they lose their public sector contracts. This is reflective of an overall trend, with one third of small businesses describing themselves as ‘reliant on contracts from the public sector’. This ‘worst case’ scenario would have a dramatic effect on the current levels of corporate insolvency. To provide some context, business failures ran to 26,000 for the whole of 2009.

R3’s President Steven Law commented:

“It is of course highly unlikely that all public sector contracts will be withdrawn and the figure of 150,000 business failures would represent a worst case scenario. Yet with the prevalence of small businesses in the UK and an increasing reliance on public sector contracts dating back to 1990s, these cuts are likely to be felt extremely keenly. Businesses need to be aware of this risk and seek professional advice before this reliance on public sector work threatens their survival. We have just seen the recent case of the Connaught collapse, blamed on local authorities deferring spending on contracts after cuts.”

The research finds that of all small businesses:

24% (or 377,000 businesses) would see their profit reduced if their public sector contracts were pulled

16% (or 253,000 businesses) would be unable to fund expansion

14% (or 216,000 businesses) would consider job losses

11% (or 173,000 businesses) would be in serious financial trouble

Steven Law added: “Worryingly these results suggest that a significant proportion of small businesses, which rely on Government contracts are going to struggle to fund expansion and modernise. They have already drawn heavily on their reserves to survive the recession and they will be unable to compete in the market as the economy grows.

“This comes against a backdrop of corporate insolvency figures being kept down by HMRC’s Time to pay agreements and historically low interest rates,” concluded Steven Law.

UK Company Purchase Practical Considerations - Due Diligence, Warranties and Disclosure

Buying a company is a difficult, but potentially rewarding process, which may take days or weeks depending on the complexity of the company structure. This is not entirely dependent on the price being paid. Because buying a company will involve investing a significant amount of money and time, it is essential that the purchaser gathers enough information about the company to ensure that following purchase there are no nasty surprises. This process is commonly referred to as conducting due diligence.

In most company purchases, the purchaser will want to learn everything possible about that company before signing the purchase agreement. Alternatively, if there isn't time to do that, then the purchaser will want to make sure that the representations of the vendor concerning the company are quite comprehensive and that the definitive agreement allows him to back out of the deal if the due diligence done after signing the agreement is not satisfactory. However, the latter process is not really desirable to either party. The damage to the company by the change of leadership or a potential leadership vacuum is likely to be permanent.


Why do due diligence?

Conducting proper due diligence will help the purchaser to avoid the following problems:

· Discovering that the purchase price of the business is too high
· Misunderstandings as to the type and condition of the company being bought
· Bad financial situations
· Bad management
· Pending litigation
· Contingent liabilities
· Situations likely to lead to increased tax burden

And indeed to fully understand what it is that the purchaser are buying. The purchaser’s ability to run the company post purchase needs to be informed and this is in part done through the due diligence process.

What are warranties?

Warranties are statements made by the vendor to the purchaser regarding the status of the company and the existence of any issues that may be of concern to the purchaser. The purchase agreement will contain a schedule of warranties covering almost all parts of the company’s business. The warranties usually include statements about the following items:

· Vendors ability to sell
· Accounts
· Employees
· Property
· Litigation
· Pensions
· Insurance
· Tax
· Environment
· Regulatory matters

If after completion it transpires that a warranty untrue, a purchaser may have a claim for damages for the loss it has suffered. However, litigation is a destructive process and should be avoided wherever possible. As a result warranties are not a substitute for detailed and in-depth due diligence. In effect the warranties deal with those items drawn out by the due diligence that are key to the purchaser in the purchase of the company.

To avoid the warranties becoming extremely complicated and lengthy, a vendor will qualify those warranties in a separate document known as the Disclosure Letter. Where disclosures reveal a liability that the purchaser would assume they can request an indemnity from the vendor in respect of that liability.

What are indemnities?

Indemnities are promises made by a vendor to meet a specific potential legal liability which a purchaser may incur following an acquisition. An indemnity would entitle the purchaser to a payment if the event giving rise to the indemnity takes place.

It is important to be aware of the difference between a warranty and an indemnity. A warranty is a contractual statement made by the vendor regarding the state of the target company and an indemnity is a promise to indemnify, i.e. to reimburse the purchaser in respect of a specific liability if it arises.

Limiting the Vendor's exposure

The problem with these items is that the vendor’s exposure to warranty and indemnity claims is unlimited. That is not a reflection of a fair position. The company is an asset and the company either has value or it does not. If in the worst possible situation the company has no value that the Vendor should have been paid nothing for it. This scenario informs the process of limitation of liability. The Vendor’s exposure to these claims should be no more than what he was paid for it.

Practical Advice on the sale or purchase of a UK Company - Introduction

Introduction

For 18 months or so acquisition activity has been dormant as shareholders have been reluctant to sell on the basis of valuations that reflect the current economic climate, believing whether rightly or wrongly that shareholder value will return in the ensuing upswing. While it is important to note that the upswing is only just beginning and that there are very real risks that there may be further pain to come if the press talk us into a 'double dip', some purchasers are now entering the market. However, the days of setting a price and paying it at completion are for the time being things of the past. Indeed the valuation process is now part of the consideration process with the purchaser utilising consideration tools in a transparent manner that were previously part of the hidden process of valuation and that places the risk of underlying asset valuation together with goodwill on the seller. For instance, a purchase price can be a mix of : -

1. Cash payment up front (which will normally be a much smaller amount than previously);

2. Underlying (non-goodwill) assets paid after completion based on agreed completion accounts;

3. Quasi-Goodwill payments calculated by way of earnout (particularly relevant in an owner managed business) subject to maximum period and payment.

The process of creation of the Heads of Terms it a much longer process than it was. Purchasers are now specific about the calculation of the amount that they are prepared to pay to the seller for the company and its business. Moreover, the seller will try to fight their corner to ensure that they get best value for the work that they have put in over the years to create what is being sold.

The difficulty with a calculation of the underlying assets is the basis upon which the agreed form will take such as management accounts versus UK GAAP. The solicitors and accountants may have little control over the production of the Heads of Terms and therefore are left with a document that informs the legal documents and leaves the seller exposed to greater risks based on a lack of understanding. Whilst this is of little concern in most cases the introduction of the wrong word into the Heads of Terms can prove extremely costly as it may extend the negotiation thereby increasing the negotiations involved or indeed leading to a collapse of the acquisition process. Additionally, simple items such as debt provision where a business owner could quite correctly apply a process of bad debt provision in the knowledge that those debts greater than 90 days will still get paid (and need not be provided for) and provide for others less than 90 days that certainly won't get paid. This may be at odds with the Purchasers process where they may wish to calculate bad debt provisions on 90 days plus. In this case, the negotiations may have to focus on individual debts which leads to protracted discussions.

As regards Earnout, a wordy description in the Head of Terms is sometimes unhelpful. Almost invariably this can only really be described by way of a spreadsheet setting out certain scenarios. The Seller is taking a risk in following an original draft because it will often be wrong. The Seller should have protections by way of a right to be passed full and detailed information on process and perhaps even involvement on an ongoing basis with the Company's Customers. This is often acheieved by a short term conultancy agreement which in most cases is to the benefit of the Purchaser as there is a seamless hand over in respect of the business processes. Quite often the Seller is seen as integral to the business by its customers and where that person disappears from the scene this can have a negative effect on the trading position of the Company and its business.

Taken together the seller and purchaser are best advised to take advice on the Heads of Terms prior to them being signed to ensure that any grey area in the HOTs is expanded upon so that the process of agreement drafting doesn't become a continuing negotiation.

In the current market the Seller is taking some of the risk of the future performance of the Company and its business but in the current climate this is only to be expected. To ensure that the Seller and Purchaser know what they are transacting it is essential that they take the appropriate legal and accountancy advice.

In the next blog I will explain the process of Due Diligence, Warranties and Disclosure.

Breeze & Wyles Solicitors LLP nominated for best conveyancer 2010

Breeze & Wyles Solicitors LLP has been nominated as the best conveyancer at the Mortgage Strategy Awards 2010. Help us win the award for our automated processes by visiting http://www.mortgagestrategyawards.co.uk/nominations.aspx

Do Trustees in Bankruptcy really understand 'Use it or Lose it'

In the recent case of LEWIS AND LEWIS V METROPOLITAN PROPERTY REALISATIONS LTD the Court of Appeal has handed down further guidance to Trustees in respect of the impact of section 283A of the Insolvency Act 1986. Previously a Trustee could register their interest in a property forming part of the bankrupts estate and do nothing until such time as the value picked up sufficiently to give the creditors of that estate a reasonable return. In effect this could take place many years after the bankrtuptcy leaving the bankrupt and his family with many years of uncreatainty over their ownership. The Enterprise Act 2003 sought to deal with this 'unfairness'.

In essence the Trustee now has three years in which to liquidate the property and create a return to creditors or risk losing the interest in it, with it automatically reverting to the bankrupt on that date.

As you would expect with many technical issues such as this the Trustee in this case attempted to work around the rules by selling the property to a third party for a nominal sum with a future entitlement on resale of 25% of the net proceeds of sale (the sale was in effect that of the unencumbered share the bankrupt had in the property). Had this succeeded than the meaning, impact and spirit of the changes created by th Enterprise Act 2003 would have been changed by the courts.

Many a law student has wrestled with the process of court interpretation of statutory provisions and this case demonstrates this process in vivid detail.

In effect the court used a number of tools available to it and the reports on it show what was done extremely well: -

"(1) The issue was the construction or interpretation of the word 'realises' in s 283A(3)(a) of the Act in its proper context. The question was whether, in its context, it was capable of covering a transaction where there was a deferred monetary consideration during the period before that consideration came in.

(2) The dictionary definition and the examples of the uses of the word 'realise' in the Act tended to support a definition of 'converted into cash'.

(3) The scheme of s 283A of the Act was as follows: (i) The section only applied to that part of the bankrupt's estate comprised in his or his spouse/civil partner's or former spouse/civil partner's dwelling-house. It did not apply to other property. (ii) The trustee had 3 years to decide what to do where the estate had such an interest. (iii) If he did nothing, then, subject to the provisions of s 283A(6) of the Act, the estate lost the property interest. (iv) If the interest were of low value (within the meaning of the Act) the trustee, while technically owning the interest, would in practice have no enforcement mechanism available to him. If he did nothing, the interest reverted to the bankrupt under s 283A of the Act. If he started proceedings (whether for an order for sale or a charging order), that would technically keep his interest alive while the proceedings were pending but, under s 283A(4) of the Act the interest would revest when the proceedings were dismissed. (v) If the interest was of significant value, the trustee could (a) apply for an order for sale (giving the co-owner the opportunity to buy the trustee out at the then value, alternatively the property would be ordered to be sold and the trustee would recover the then value); (b) apply for a charging order (securing
[2009] BPIR 820 at 821

the then value to the trustee, with future increases going to the bankrupt); (c) reach an agreement with the bankrupt, in effect selling to the bankrupt (recovering the then value for the trustee and securing future increases for the bankrupt); (d) sell the interest to someone other than the bankrupt or the civil partner/spouse at a price payable and paid on sale (securing the then value, with future increases accruing to the purchaser); or (e) agree with the co-owner to sell (recovering for the trustee the then value).

(4) 'Realise' in s 283A(3)(a) of the Act did not include effecting a sale for future cash consideration, at the stage before that cash was got in. Re A Debtor (No 29 of 1986) and Re Byford (Deceased), Byford v Butler [2003] EWHC 1267 (Ch) considered.

(5) The reasoning of the judge failed to distinguish between the concepts of sale and realisation, and the differing significance of the powers of a trustee in bankruptcy and the limits placed on the exercise of those powers, and was thereby flawed.

(6) By the assignment, not all the cash to be obtained from the transaction was got in within 3 years. The sale from the trustees to M was not therefore within s 283A(3)(a) of the Act. L's interest in the property had reverted to him and M no longer had any interest in it."

Use or Lose it really means that - the Trustee should not try to use devices to prolong the period of sale so as to take the benefit of potential house price increases. On the other hand it is essential that the owner or other owners take proactive steps where possible to purchase the Trustees share.

Regulator Shuts Down 200th Rogue Claims Firm

Yesterday the Ministry of Justice reported that:

"Two hundred rogue claims management firms have now been closed by the Ministry of Justice.

The 200th case for the claims management regulation unit highlights the ongoing success of its efforts since it was launched in 2007 to protect customers from firms which breach rules and put their money at risk. This includes companies who offer to help people with personal injury compensation claims and with attempts to get their debts cancelled.

As the latest statistics were released the unit reaffirmed its determination to weed out firms whose actions harmed customers, including ongoing work to cut unwanted cold-calling in person, by phone and by text message and cracking down on misleading marketing, unfair upfront fees and “cash for crash” frauds.

Kevin Rousell, the head of the unit, said:

‘Many of these firms provide a valued service, helping people who might not otherwise be able to afford to have access to justice.

‘But there are some which mislead people or carry out various kinds of malpractice, deliberately or otherwise, and we are working hard to ensure they either bring their practices in line, or stop altogether.’

In the worst cases firms who had their authorisation cancelled were involved in fraud, while others were caught using misleading marketing and aggressive sales techniques.

The latest milestone follows the announcement in August 2009 that the 100th firm had been stopped from trading."

We understand that there are a significant number of compliant management companies in the market place whose reputation is affected by the actions of a small number. If you have been adversely affected by the actions of a claims management company contact us on mailbox@breezeandwyles.co.uk.

Examination of GB Patent Applications - Important advice from the IPO

Whilst the IPO is able to search a patent application typically within 4 months of being asked to do so, we are not able to provide a similar level of service in respect of requests for examinations. We are also acutely aware that our levels of unprocessed patent examinations are higher than they should be.

We have set ourselves a target to clear by the end of March 2011 all unprocessed examinations with filing or priority dates of February 2007 or older.

So when can you expect your examination report?

The calculator below gives an indication of when you might expect to receive your first examination report. This information was last updated on 31 August 2010

If you need your examination sooner then you can ask for it to be accelerated (see Patents fast grant guidance (200Kb) for further details)

If you decide you do not wish to proceed with your application then you can ask for it to be withdrawn. You are then likely to get a refund of the examination fee (see Withdrawing patent applications for further details).

Availability

Our Examination Report search service is usually available 24 hours a day, 7 days a week.
If you have any questions about intellectual property, or if you just need to speak to us, please contact our Information Centre on 0300 300 2000 or +44 (0)1633 814000. Our office hours are 09:00 to 17:00 Monday to Friday, excluding Bank Holidays.

If you notice a problem with this service, please contact us using the form below. Maintenance staff are available 08:30 to 17:00 Monday to Friday. Problems outside these times may not be rectified until maintenance staff are next available.
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Beware: Silence can be an acceptance of contract terms?

In the recent case of Jean Shaw v James Scott Builders the claimants employed an architect to design their retirement home, but relied on an unwritten, informal agreement with little detail on terms, and sealed by no more than a handshake with the contractor. After many problems, the contractor did not reply to an email containing formal contract terms from a Quantity Surveyor , who had been hired by the claimants to negotiate a formal building contract with him. This was after the contractor had been advised of this final version of the contract. There was also evidence that he was aware of the intention to formailse the contract terms.

The court, unusually, took Scott's silence to be an acceptance of the contractual terms.

In terms of informal arrangements it is essential that the parties to the relationship ensure that they have an audit trail of what is and is not agreed. Failing which it is likely that the 'actual agreement' will be determined by the court.

Are Company Officers aware of the implications of poor Health and Safety?

Officers of a company need to be sure aware of their responsibilities for Health and Safety issues and to ensure that they take all proper steps to minimise the risks to their staff and the general public and where necessary to have in place adequate financial protection to defend and action broguht against them. It can only be a matter of time before it is reported that a company's officers faces a criminal prosecution under the new Corporate Manslaughter Act 2007.

Thee are plenty of people in the market advocating D&O Policies. Directors and officers liability (D&O) insurance is a relatively inexpensive policy and could be absolutely priceless should a prosecution occur

Our recommendation is that your H&S policies should be robust enough to deal with every situation. This is the best insurance policy that you can get.

Have your health and safety policies tested - if you need assistance we can help you.