Why use a shareholders agreement rather than amending the articles?

A Shareholder Agreement is a contract between the shareholders of a company and in some instances the company itself governing the management of the company and the relationship between the parties. The agreement will set out the basic terms of the relationship between the shareholders, their rights and obligations and any remedies for non-performance. This will include, for instance, matters upon which a vote needs to be taken and where such votes will require unanimity or a higher degree of consent than 51:49. The primary objective of a shareholders agreement is to create balance between shareholders whose economic power may be unequal.

An example is where four investors 25% shareholders all contributing equal capital into the company. However, one of the investors has utilised all of their savings in so doing. The others, having not agreed previously to do so, are willing to invest further sums. They issue shares to themselves in return for the future investments and dilute the value of the shareholder incapable of providing additional funding. By itself this is not unfair prejudice. However, they are now in a position to ignore the other shareholder when taking management decisions and that shareholder may be unfairly prejudiced by the choices made over which (through the articles) their say is merely words. A properly drafted shareholders agreement can deal with these situations and prevent them happening. The negotiations leading to a shareholders agreement will draw more out of the parties than they would otherwise discuss in the heat of initial investment

Various pieces of legislation provide remedies for 'unfair prejudice' between shareholders, particularly where those prejudiced are minority shareholders (namely section 459 Companies Act 1985 (now section 994 Companies Act 2006), Section 260 of the Companies Act 2006 (derivative claim) and sections 122-125 of the Insolvency Act 1986). However, the cost of taking proceedings can be prohibitive particularly when the investor has invested all of their life savings, or a significant part, into the company venture. The risks associated with litigation are quite high due the difficulty of providing sufficient evidence to convince a court of the merits of the claim. A properly drafted Shareholders Agreement will attempt to bridge the gap of ‘unfair prejudice’ to prevent certain situations arising and in those situations providing mechanisms to deal with those issues.

The Articles of Association provide an enforceable contractual relationship between the company and a member (section 33 Companies Act 2006). However, a member will not always be able to force the company to enforce the Articles against another member. Additionally, there is serious doubt that one shareholder can bring a claim against another shareholder pursuant to the articles. On the other hand, these remedies are available through a properly drafted Shareholders Agreement.

It is often of benefit to include in the agreement a 'duty of good faith'. When investing in a company, the parties will justifiably look first to their own commercial interests before that of the other shareholders. A ‘Good Faith’ clause will seek to ensure that the parties are looking out for the general interest of the investment as a whole rather than their own commercial interests.

With this in mind we recommend that if you are looking to invest for the first time you ensure that you have a Shareholders Agreement in place before providing the investment so that whilst it might lie in the cupboard for many years, on the day that a problem arises it is their ready to be used for your benefit to protect your investment.

When bothersome building work can lead to harassment

Property owners who carry out building works could find themselves liable not just for nuisance, but also for harassing their neighbours if their behaviour amounts to deliberate and persistent tormenting.

An Englishman’s home may be his castle, but now there is a new weapon in the armoury to deal with feudal behaviour by neighbours from hell.

That’s the outcome of the latest Court of Appeal case which has ruled that house owners who torment their neighbours could find themselves in court for harassment.

Samantha Jones and Rachel Lovegrove moved into their new home in Nottingham in 2002 and within a matter of weeks their next door neighbours, Liam and Lesley Ruth, started major works to enlarge their house, both on the ground floor and by adding a third storey.

The work should have been completed within a year, but instead it dragged on for five years leaving Jones and Lovegrove to suffer from the resulting noise, dust, pollution and vibration. They also experienced trespass by the Ruths, who erected scaffolding in their garden without permission, made holes in the gable end wall of their property to insert purlins, and caused substantial damage with increased structural loads caused by the new third storey.

Not surprisingly, Jones and Lovegrove won their claim for nuisance and trespass, winning a substantial sum in damages. But more unusually, Samantha Jones also claimed damages for personal injury under the Protection from Harassment Act 1997, which she claimed had been caused by Mr Ruth and his family.

Severe back pain brought on by anxiety and depression meant she had been unable to work since April 2005 and was receiving physiotherapy and counselling. She claimed that the anxiety was caused by the Ruth’s aggressive and intimidatory behaviour, their refusal to provide information about the progress of the work and by ignoring repeated requests to reduce the noise and make good the damage they had caused. They had also left abusive notes concerning the same sex relationship of Jones and Lovegrove.

At the first trial, the judge agreed the behaviour was harassment but awarded Samantha Jones just £6000 for distress and anxiety, way below the amount she had claimed. He refused further compensation by saying the injuries and loss of earnings were not foreseeable.

But the Court of Appeal disagreed, saying that the trial judge had been wrong to apply negligence criteria to the claim. They said that there was no requirement of foreseeability under the Protection from Harassment Act and awarded Ms Jones the full amount she had claimed.

Explained Property Law expert and Senior Partner Peter Tunstill of Breeze & Wyles Solicitors LLP: “Although this judgement does not say that building works on their own will amount to harassment, it does give comfort to people who are faced with extreme behaviour by a neighbour. All too often there are stories of difficult and aggressive neighbours who refuse to put matters right. Following this judgement, those neighbours may be found guilty of harassment and they will have to pay the cost, whatever it may be.”

He added: “It’s important to keep neighbours in mind when you’re buying a property. Asking the sellers if there have been any previous disputes is one of the standard questions asked during the conveyancing process and if a seller doesn’t disclose any dispute, they will be in trouble for misrepresentation. “

“And if you get involved with neighbours wanting to use part of your building for their own development, as in this case, then you need to find out what your rights are for any compensation and deal with it at the outset. The Court of Appeal held that the correct damages to compensate for the Ruths tying into the dividing wall was £15,000, being the equivalent price that might have been paid if the households had negotiated a price and agreed what’s called an ‘easement’ on the property before work started.“

ENDS

Jones and Lovegrove v Ruth [2011] EWCA Civ 804
Protection from Harassment Act 1997

Web site content note:

This is not legal advice; it is intended to provide information of general interest about current legal issues.

Breeze Blog by Breeze & Wyles Solicitors LLP: Debt Recovery Launch Party 6 September 2011

Breeze Blog by Breeze & Wyles Solicitors LLP: Debt Recovery Launch Party 6 September 2011: "Breeze & Wyles Solicitors LLP is delighted to announce its volume debt recovery launch party. If you are interested in attending please see..."

Debt Recovery Launch Party 6 September 2011

Breeze & Wyles Solicitors LLP is delighted to announce its volume debt recovery launch party. If you are interested in attending please see attached invite and contact details to attend

Warning: Employee or Contractor - Be careful in your negotiations

When using people assets to operate your business it is essential to clarify the extent of your responsibilities to those people. When working on ad-hoc contracts it might be better to use people in a contractor capacity to ensure that their use is more flexible. When operations are stable, stability in use of people is key and then contracts of employment are preferred.

Recently a decision of the Supreme court Autoclenz -v- Belcher has sought to clarify the precess of ensuring that you know which type of contract applies to the use of an individual or group of individuals.

Autoclenz provided car-cleaning services to motor retailers and auctioneers. It employed a number of valeters, including the claimants. The contracts under which the valeters worked described them as sub-contractors. The claimants issued proceedings against Autoclenz in November 2007 at the employment tribunal, seeking to be legally recognised as workers within reg 2(1) of the National Minimum Wage Regulations 1999. The tribunal held that they were workers. Autoclenz appealed to the Employment Appeal Tribunal, which held that the claimants were workers on the basis that although they were not working pursuant to contracts under s 54(3)(a) of the National Minimum Wage Act 1998 (the 1998 Act), they were working under another contract under s 54(3)(b) of that Act. Both parties appealed to the Court of Appeal, which held that the claimants were workers under both s 54(3)(a) and (b) of the 1998 Act. Autoclenz appealed to the Supreme Court.

The issue arose as to whether the claimants were workers within reg 2(1) of the 1999 Regulations (which adopted the definition in s 54(3) of the 1998 Act) and within reg 2(1) of the Working Time Regulations 1998.

The appeal would be dismissed.

The essential question in each case was what the terms of the agreement had been. Although an agreement might be implied rather than express, the court of tribunal's task was to ascertain what had been agreed. The relative bargaining power of the parties would have to be taken into account in deciding what had been agreed and the true agreement would often have to be gleaned from all the circumstances of the case, of which the written agreement was only a part.

On the evidence, the documents had not reflected the true agreement between the parties. Four essential contractual terms had been agreed between the parties:

(i) that the valeters would perform the services defined in the contract within a reasonable time and in a good and workmanlike manner;
(ii) that the valeters would be paid for that work;
(iii) that the valeters would be obliged to carry out the work offered to them and Autoclenz had undertaken to offer work; and
(iv) that the valeters had had to personally do the work and could not provide a substitute to do so. Accordingly, the tribunal had been entitled to hold that the claimants were workers because they had been working under contracts of employment within the meaning of reg 2(1) of the 1999 Regulations and reg 2(1) of the 1998 Regulations.

Applying the relevant principles, the Court of Appeal had been correct in holding that those had been the true terms of the contract and that the tribunal had been entitled to disregard the terms of the written documents in so far as they had been inconsistent with them.

What can we learn from the celebrities?

Those who enjoy a bit of celebrity news will have seen the speculation surrounding Cheryl and Ashley Cole's alleged reconciliation.

So, do we think that Cheryl's showing us that it's possible to forgive and forget, is it simple naivety, or is it a publicity ploy?! Who knows!

What it's probably safe to assume is that they'll have taken legal advice about the protection of their substantial assets.

Many people don't realise that when a couple get married they automatically take on financial responsibilities towards each other. In the event of a breakdown of the marriage it's the court that has the last say as to how those assets are divided.

It is possible, however, to protect those assets by way of a pre-nuptial or post-nuptial agreement but only if the document is accurately drafted and legal advice has been sought. A quick agreement drawn up over the kitchen table just won't do.

As experienced family solicitors we regularly advise on asset protection. If you can identify with similar concerns, why not drop into our local offices in Ducketts Wharf for some practical advice.

“Staycation” second homes can be legal minefields, warns Breeze and Wyles Solicitors LLP

John Appleton of Breeze and Wyles Solicitors LLP in Enfield says the popularity of second homes in the UK, which are often used as holiday homes, could expose owners to a “minefield” of risks.

The popularity of "staycations" - staying in the UK rather than travelling overseas for a holiday - has seen more second homes being used by "staycationers."

Statistics from the English Housing Survey: Household Report 2009-10 shows that there are 279,000 second homes in England, but Breeze & Wyles Solicitors LLP which holds the Law Society's excellence in home buying accolade - the Conveyancing Quality Scheme (CQS), is warning that owners are not always aware of the potential problems of owning a second home.

John Appleton Head of Residential Coneyancing says: “Second homes are often unoccupied for long periods of time. However, they could become targets for squatters, or there could be legal considerations to take into account when renting them out for short periods to holiday makers, and there are often insurance issues to take into account, not to mention the types of issues that come with buying any home, such as any legal anomalies or liabilities attached to the property.

"There are also tax implications for second home owners that need to be considered.

“It is essential that anyone buying a second home contacts a CQS accredited solicitor such as Breeze & Wyles Solicitors LLP to look at the potential risks and benefits of buying.

"Equally, anyone who already owns a second home for their own holiday purposes, but plans to let it be used by family members or others for extended periods could be changing its status as a holiday home without realising.

"During off seasons second home owners might look to rent out the property for long periods of time and suddenly you have a landlord and tenant relationship which carries with it a host of additional obligations and liabilities.”

Breeze & Wyles Solicitors LLP underwent a rigorous application and assessment by the national Law Society to become part of CQS initiative, which recognises high quality in residential conveyancing. CQS has the support of the Council of Mortgage Lenders, the Building Societies Association, Legal Ombudsman and the Association of British Insurers.

Ends

Martyn Bateman martyn.bateman@breezeandwyles.co.uk

Breeze and Wyles conquers Berlin metaphorically speaking

Two Partners of Breeze & Wyles Solicitors LLP formed part of a team that cycled from Radwinter to Berlin. The ride was completed in seven and half days covering 660 miles at an average of 90 miles per day.

On a personal note I would like to thank a number of people for their help and support. In particular Helen for her unswerving support for the project and my training, Simon Berry for his fantastic organisation and the marathon trip back from Berlin, Ruth Berry for bringing us clean clothes to the Hotel in Berlin and giving us a tour of Berlin on Saturday and Sunday, the remainder of the team (Murray Fraser, Darren Rudkin, Tom Berry and Jack D. Palma) for being there and making what was at times a very difficult trip light hearted, the guys at Newdales Bicycle shop in Saffron Walden for their constant help and finally Stuart Pothecary at Dulwich Cycle Fix for his continued advice in the run up to the start day. I wouldn’t have done this without all of you!

For those who enjoy seeing pain and endurance I have penned my diary here for those to read

DAY1 (Friday 22 July 2011): Start 3.30pm Radwinter to Harwich (52 Miles)

Starting from Simon’s house in Radwinter at 3.15pm we met with the other members of the team and had our first chance to meet with Jack Palma (who for the rest of the trip gave us much merriment). The weather was good and with a following wind we made the ferry port by 8.30pm with only two stops totalling approximately 1 hour.

We caught the 11.15pm Ferry to Hook of Holland.

DAY2: Hook of Holland to Arnhem (109 miles – aggregate 161 miles)

Arriving at the Hook we disembarked the ferry at 8.30 am and headed for the Hague to find the start of the Route R1 that starts at Boulogne and ends in St Petersburg. This route passes through the Hague and Berlin and was initially considered to be the best route both in terms of shortest route and the limited number of climbs. The weather was slightly cloudy but we had no rain during the day. However, finding the R1 was more of a challenge than was expected taking until 11.00 am. During the day the temperature fell and stopping became a challenge as getting warm again was more difficult when we started. During the day Jack suffered a calf muscle pull and had to take a bus from Woerden to Utrecht and then a train from Utrecht to Arnhem to meet with us in the evening at the hotel. At this stage we thought that Jack would play no further part in the trip.

DAY3: Arnhem to Munster (98 miles – aggregate 259 miles)

This was by far and away the worst day of the trip. The route was flat until the end but the weather was atrocious. Raining from the moment we started until we finished. The clothes I was wearing to cycle in got wet and I was very cold, so much so that by the end of the day I was wearing three cycling tops all of which were wringing. When we arrived at the Hotel at 9.30pm I could not stop myself shivering and had to shower for 20 minutes just to raise my internal body temperature. Jack remained at Arnhem looking to catch up with us later in the trip.

DAY4: Munster to Hoxter (99 miles – aggregate 358 miles)

Relief! It wasn’t raining and the sun was out. The day was perfect but the route now included some significant climbs which slowed overall progress. Leaving at 9 am we made our way slowly out of Munster finding the R1 after about an hour. Following the R1 became a challenge as the quality of the pathway deteriorated rapidly as we left the city and some debate was had about returning to minor roads to ensure that progress was made and no damage caused to the bikes. Using the minor roads was a good decision and we made good progress during the middle of the day until we reached the Wesser Hills. From a personal perspective the hill descents were one of the major highlights of the trip where those wishing to push themselves achieved in excess of 35 mph with no traffic on the road. However, finding the hotel was a significant challenge as it was not in the city of Hoxter but about 10km before it. Good meal in the evening as the Hotel was contacted and agreed to keep the restaurant open despite us arriving at 10.30 pm.

DAY5: Hoxter to Goslar (88 miles - aggregate 446 miles)

Raining again for most of the day. Climbs and descents galore. The hotels start to blur. Met with Jack in the evening who having tried out a ride on his bike during the day announced that he would be fit for the rest of the trip. At the start whilst pumping up the tyres I noticed that Tom Berry had a broken spoke on his back wheel. We had to get this fixed in Hoxter before proceeding further. Leaving the hotel we made our first and only significant mistake. We took a direct route rather than following the main road. Within half a mile we had a 30% upward incline lasting for 2 kilometres. Everyone had to walk up the hill wasting a large amount of time. We only arrived in Hoxter (10Km) at 11 am..

DAY6: Goslar to Bermburg (85 miles – aggregate 531 miles)

Jack joins us for the trip and the weather is good. We made excellent progress as we passed into the old East Germany. Almost immediately we passed into the old GDR despite a lot of money having been spent Germany is finding it difficult to paper over the cracks. The roads and buildings are of a poorer quality. In fact on one occasion travelling on what in the UK would be a good quality B road on the map we suddenly found ourselves (still travelling on that road on the map) riding on a dirt track between Redisleben and Rheinstedt. Having departed the Harz Hills the riding was easier and faster and we arrived at the Hotel in Bermburg at 8.30 pm. Unfortunately Tom broke 2 spokes on his rear wheel late morning and we had to find a bicycle shop on route to carry out repairs. This delayed us by about an hour.

At the end of the ride Jack felt tired but had no reason to complain about his leg which had withstood the ride – Great News!

DAY7: Bermburg to Wittemberg (50 miles – aggregate 581 miles)

This was the shortest full day of the trip. Leaving late at 9.30 am we arrived in Wittemberg at 4.30pm and had an opportunity to sight see around Wittemberg, where Martin Luther nailed his criticism of the pope to the Church-Schloss door.

DAY8: Wittemberg to Berlin (79 miles – aggregate 660 miles)

Aaargh! It’s raining again!

Made excellent progress in the morning leaving at 7.30 am we had ridden 54 miles by lunch including stops. We stopped at a restaurant in Potsdam and took over the facilities as we dried and changed clothes for the final leg. The staff were extremely helpful both in providing things for us and being calm in the face of this onslaught.

The roads were excellent as you would expect in the run in to a capital city and indeed there was an eight km stretch through the woods where the road/path was about 20 ft wide and no traffic. Speeds increased to mid 20’s mph in the afternoon as the end was in sight.

Eventually we arrived at the Brandenburg Gate (See Photo) at 6.30 pm took some photographs and departed for the hotel. Though not clear from the photo it was still raining and we were drenched (although not as cold as on DAY3). We arrived at the Hotel at 7pm to a nice glass of Gin and Tonic. What a relief!

Looking back on the trip I was surprised by the caution with which drivers in Holland and Germany approached cyclists and the quality of the cycle paths. Both the drivers and local authorities in the UK have a lot to learn if cycling is to become as popular here as on the continent, particularly in the year that we have the first Briton to win a jersey of an colour in the Tour de France!

NOTE:

Brendan arrived in Berlin on Friday at 7pm having started cycling from Radwinter the previous Friday. The total distance cycled was 660 miles at an average of ninety miles a day. It was hoped that by cycling in July bad weather would be avoided. This was not the case. On three days, including the last day, it rained solidly. Despite the weather it was great to finish with very few aches and pains.

He did all of this with a 30lb rucksack on his back and one of Ralph's muslin nappies to protect his follically challenged head from the sun!

Brendan is still accepting donations to Radwinter Church, in particular the 'loo' fund. If you wish to donate please make cheques payable to 'Radwinter PCC' and send them to him at our home address: Bank House, Sampford Road, Radwinter, Essex, CB10 2TL.

He hopes to raise £5000 this year.