Peverel Administration; Householders need not fear?

A number of holding companies within the Peverel Group, one of the largest residential property management companies in the UK, went into administration this week (Monday 15th March), but the message for the 300,000 homeowners whose flats are managed by Peverel companies is “don’t panic”.

The Peverel Group is owned by the Tchenquiz brothers who last week were called in for questioning by the Serious Fraud Office in connection with investigations into the failure of the Icelandic bank Kaupthing. The Tchenquiz businesses were one of Kaupthing’s largest customers with about £2 billion of loans.

Bank of America Merrill Lynch have demanded that Peverel repay a loan of £124.6 million plus £11.4 million interest within 24 hours, leaving Peverel with no alternative but to go into administration.

However the operating companies, which actually provide the services to flat owners and residential homes, are profitable and will continue to trade normally, according to Simon Appell, a partner in Zolfo Cooper, who have been appointed administrators.

A statement posted on the Peverel Group web site confirms that the operating companies will not be affected by the administration and that normal service will continue to be provided to tenants and landlords.

The role of a residential management company is to provide services such as cleaning, lighting, gardening, maintenance, and repairs to the common parts of estates and developments that are sold as leasehold flats. The management company assesses the expenditure that will be required each year, collects contributions - known as the service charge - from the flat owners, and manages the maintenance and expenditure through the year.

The management company will also usually provide for a sinking fund for expenditure required every few years such as external redecoration. It is not the landlord, but is usually appointed by the landlord to carry out the landlord’s maintenance obligations.

Peverel is unusual in that it started life under McCarthy and Stone and was intended to manage their retirement homes. As a result it owns, as well as manages, a large portfolio of retirement homes.

Said Adrian Toulson, residential conveyancing expert with this firm; “Many people may be worried about the safety of the money they have paid as service charge but there does not seem to be any need for concern. There is no suggestion of misconduct on the part of the operating companies and, since they hold the service charge money as statutory trustees, it should be ring fenced and accounted for down to the last penny.”

Budget Update

Chancellor George Osborne’s delivered his second budget a few weeks ago, saying it was intended to provide “enduring growth for the future”. As commentators and analysts weigh up the package of measures, it is charities, the property sector and research-based businesses that look set to be the winners.

For enterprise, the biggest headline catcher is the announcement of a reduction in the rate of corporation tax, which has already drawn a reaction from big business, with the WPP Advertising Group saying it will possibly return its tax headquarters to the UK as a result. The rate will be reduced by 2% from April, and will reduce by 1% increments to 23% from April 2014, making it the lowest corporation tax rate among the G7 industrialised countries. “This move could make other business structures, such as corporate members of LLPs more attractive in future, so it’s going to be worth reviewing this,” said Brendan O'Brien.

Research and development for small and medium sized companies – those with up to 250 employees - has received a boost in the shape of a hike in R&D tax relief, rising this April to 200% and further to 225% in 2012.

“The sort of expenditure that can be classified under this R&D heading is actually quite wide-ranging, so many companies should benefit. It is any activity which contributes to the resolution of scientific or technological uncertainty or which sets out to find a scientific or technological advance,” added Brendan O'Brien.

And for entrepreneurs, there is a doubling in the lifetime limit for gains which qualify for Entrepreneurs’ Relief on the sale of a company, rising to £10m from April 2011. Said Brendan O'Brien: “This allows qualifying gains to be taxed at 10% instead of the usual capital gains tax rate of up to 28%. This doubling of the limit adds up to an additional potential tax saving of £900,000 for an individual who has developed their company and now sells up. It’s certainly worth getting some advice if you are at an advanced stage in any sale negotiations, to make sure you benefit from this.”

Another longer term benefit for business which is up for consultation is the potential merging of national contributions and income tax, one of a series of options intended to cut back on regulation. Some £350m worth of regulation will be removed, according to the Chancellor. Ten new Enterprise Zones have been announced, with more to follow. Designed to boost regional economies, these revive the 1980’s concept and will offer simplified planning rules and tax breaks for business, including business rate exemption for five years. There is also likely to be enhanced capital allowances for manufacturing companies.

Employment Law Newsletter April 2011

Dear Employer It seems that you may see little of your employees during April, with all the Bank Holidays that are upon us. If you regard that as good news, there is even more good cheer in the Government’s proposals to cut the red tape for small businesses: see section ‘Some Recent Changes and Cases in Employment Law’. Meanwhile, we hope you have not missed the boat for putting into motion any retirement procedures, because it is now too late for the default retirement age to be effective: see the ‘Employer Trap’ section. We wish you a Happy Easter, and may all your eggs be Fabergé. If you have any comments or suggestions on this newsletter, please email newsletter@breezeandwyles.co.uk Kind regards The Employment Law Team

Some Recent Changes and Cases in Employment Law

1. LESS RED TAPE!

The Business Secretary, Vince Cable, has announced a range of measures to reduce the amount of red tape faced by businesses. These include (but are not necessarily limited to the following:

· Repealing the regulations which were going to extend the right to request flexible working to the parents of 17-year olds. This means that the right to request flexible working will continue to be available only to parents of children aged under 17 and disabled children under 18, and to carers of certain adults.

· There will be a moratorium introduced to exempt businesses with fewer than 10 employees, and genuine “start-ups”, from new domestic regulation for 3 years. Watch this space for more details.

· There is also going to be a public audit of almost 22,000 statutory instruments, which includes regulations. Through a dedicated website, businesses will be asked to tell the Government what they think of certain regulations and how to improve the system. Any overly burdensome or unnecessary regulation will be removed, unless Government departments can prove there is a good reason for them.

2. TEAM POACHING

A recent case where an employee left his employment and poached fellow employees is of interest because, unusually, the High Court took a pro-employee stance. Key points from the case included the fact that the employer argued that the team leader of a small group of insurance brokers was a “fiduciary”, and therefore had particular fiduciary duties, but the Court disagreed (e.g. because he was never a statutory director and was never part of senior management).

The Court also criticised another case which is often relied on by employers who seek to show that an employee has breached the implied duty of fidelity. The Court criticised the proposition that requires an employee to disclose to the employer that fellow employees are being recruited by a competitor as being unsound (the “Kynixa” case).

Also, an assertion by the employer that all the departing employees’ budgeted business would be lost as a result of their wrong doing was unlikely to be correct. Instead, the employer should claim damages based on a “bottom up” approach, by looking at each individual client, identifying the opportunity of retaining its business.

The moral for employers is that they should ensure there are sufficient provisions in the employment contract to widen the duty of disclosure (i.e. giving information to the employer) and the duty of fidelity, and where appropriate to impose fiduciary obligations. [Longmar Global v West & Others (2011)]. What’s in the pipeline

1. BRIBERY ACT 2010

The implementation of this was delayed, and it is now coming into force on 1st July 2011. On 31st March, the Ministry of Justice published guidance on the procedures that commercial organisations should put in place to prevent persons associated with them from bribing. If companies put into place anti-bribery procedures, it will enable them to rely on the statutory defence to the charge of failing to prevent bribery under Section 7 of the Act. (This has been touched on in previous Ezines.)

The guidance sets out six guiding principles, each followed by commentary and examples. The guidance stresses that it is not advocating a “one size fits all” approach. Instead, organisations are encouraged to put in place procedures that are proportionate to the risk of bribery faced by their particular organisation.

The guidance also includes practical case studies on hospitality, facilitation payment and joint ventures, to provide additional clarity in these areas. There is also a “quick start guide”, explaining the key points organisations should know prior to the Act coming into force.

The guidance can be obtained from the justice.gov.uk website.

2 CHANGES TO LEGISLATION

These include (but are not necessarily limited to):

3rd April : Additional paternity leave and pay regulations that came into force in April 2010 apply to parents of children due (or matched for adoption) on or after 3rd April 2011. 3rd April : Statutory maternity, paternity and adoption pay increases from £124.88 to £128.73. 5th April : For the public sector, the General Public Sector Equality Duty in Section 149 of the Equality Act 2010 comes into force. 6th April : The default retirement age will be phased out and the statutory retirement procedure abolished (to finally take effect in October). 6th April : The Positive Action in Recruitment and Promotion Provisions in Section 159 of the Equality Act 2010 comes into force. 6th April : Statutory Sick Pay increases from £79.15 to £81.60. 11th April : Maternity Allowance increases from £124.88 to £128.73. The Employer Traps and Other Tips

1. PERFORMANCE MANAGEMENT/APPRAISAL SYSTEMS

With the abolition of the default retirement age which takes effect in October, you can choose to impose a fixed retirement age within your business. However, if you do so, you must be able to show that this is a “proportionate” means of achieving a “legitimate” aim. In practice, this will be very difficult for most employers to do. Instead, older employees will have to be managed in the same way as younger staff, meaning there will be an increased emphasis on “performance issues”. It will therefore be essential: (1) to have performance management and appraisal systems in place in order to be able objectively to measure the performance of your staff; (2) to be able to show that no assumptions were made that the employee’s capability would necessarily decrease as their age increased. It would be wise, therefore, to review your management and appraisal systems.

2. RESTRICTIVE COVENANTS

Remember, you can try to protect your business by including in the employment contract certain restrictive covenants which prevent the employee competing for a certain time after termination. However, do not be tempted by the “one size fits all” precedent that you may have come across: be aware that such clauses are, on the face of it, void unless they can be objectively justified as protecting your legitimate business interests. In short, take advice.