Judge & Priestley LLP Summer 2013 Business Client Newsletter

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Legally Speaking - Judge & Priestley’s Quarterly Legal Update for Commercial Clients

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say these firms are more productive, profitable and more resilient to economic shocks than other businesses.

The new rules mean that a company with employee ownership that issues shares directly to its employees will find it easier to buy back those shares when an employee leaves. It will then be able to re-issue those shares when new employees join. The changes will reduce

The Government has amended company law in an attempt to increase the number of firms offering direct employee ownership schemes.

UK employee owned companies have a turnover of £30bn a year and employ more than 130,000 people. Ministers

Law amended to boost employee ownershipthe administrative burden of share buybacks and enable companies to avoid situations where they become owned predominantly by former employees and others outside the company.

Employment Relations Minister Jo Swinson (pictured above) said: “We are committed to making direct employee ownership more attractive, cutting red tape for companies, and promoting new and more responsible ways of running a business.”

It’s hoped the changes will bring employee ownership to the attention of a wider audience.

Ministers say employee ownership in this context involves the employees of a company having a significant and meaningful stake in that company. To be meaningful, the employees’ stake should go beyond mere financial participation and underpin organisational structures that ensure employee engagement.

The measures to improve the system have been introduced through changes to the Companies Act 2006. They impose no additional costs on businesses, but should offer more flexibility and choice.

For more details contact Mark Oakley - 020 8290 7337 [email protected]

Letting agents face new regulationLetting agents are to be regulated to protect both tenants and landlords against unfair practices.

Housing Minister Mark Prisk has promised legislation that will raise standards across the industry. His proposal will oblige letting and managing agents, and agents involved in leasehold management, to offer tenants and landlords access to an approved redress scheme.

It’s expected that the new regulations will bring letting agents within the scope of the Consumers, Estate Agents and Redress Act.

The move has been welcomed by the Property Ombudsman Christopher Hamer as a positive measure to raise consumer protection by giving access to an independent disputes resolution mechanism.

Mr Hamer said: “Whilst full regulation is not yet on the agenda, the introduction

of compulsory redress brings about a level playing field for the industry and it will mean that a consumer has access to independent dispute resolution regardless of which agent they use.”

The proposal was welcomed as a step forward by the Association of Residential Letting Agents.

We shall keep clients informed of developments.

For more details contact Paul Stevens - 020 8290 7422 [email protected]

When drawing up contracts with automatic renewal clauses it is important to ensure that you fully understand what is being agreed.

Failure to do so can prove costly, as demonstrated in a recent case before the High Court. It involved an IT company and a bank that had entered into an agreement. There was a clause stating that the agreement would renew automatically

for a period of three years on each anniversary of the renewal date unless either party gave 90 day's notice of its intention to terminate.

The renewal date was 30 July, 2009. The bank gave 90 day's notice to terminate the agreement on 30 July 2010. The IT company said that once the renewed contract had begun in 2009, it could not be terminated until the end of the three-year period, which

would be 30 July 2012. The court found in favour of the IT company.

It held that the relevant clause in the agreement clearly referred to the subsequent renewal period as being three years. ‘Anniversary’ in this context meant three-year anniversary.

For more details contact Neil Cuffe - 020 8290 7405 [email protected]

Company’s confusion over IT contract renewal proves costly

Company stops former employee soliciting its clientsA company has been granted an interim injunction to prevent a former employee from soliciting its clients.

The case involved an employee who had been a senior manager and associate director of the company. In October 2012, he was told that he was no longer a senior manager but could continue as an associate director.

He found this unacceptable and handed in his notice in January 2013. His contract contained a restrictive covenant that prevented him, for six months after termination, from soliciting anyone who

the company had breached his terms of employment when it demoted him.

The judge felt this defence was unlikely to succeed at trial. Furthermore, a trial was unlikely to take place until after the period covered in the covenant had ended. It was therefore appropriate to grant an interim injunction preventing the employee from soliciting the company’s clients in breach of the restrictive covenant.

For more details contact Paul Stevens - 020 8290 7422 [email protected]

had been a client of the company in the preceding 12 months.

The company alleged that shortly after starting a new job, he started to solicit some of its clients, in breach of the covenant. When he refused to give undertakings that he would stop doing so, the company began legal proceedings.

The court held that the covenant did appear to be enforceable as there was no suggestion from the former employee that he had not solicited clients. His defence was based on his belief that

premises. These companies account for nearly 90% of complaints received.

Business Secretary Vince Cable, pictured right, said: “Pubs are small businesses under a great deal of pressure. Much of that pressure has come from the powerful pub companies and our plans are designed to rebalance this relationship.”

The proposals have been put to public consultation. We shall keep clients informed of developments.

For more details contact Mark Oakley - 020 8290 7337 [email protected]

New Code designed to get a fairer deal for pub tenantsThe Government is introducing a new Code of Practice to ensure that pub tenants are treated fairly and are allowed to run their businesses as they wish.

The Code will be enforced by an adjudicator with powers to fi ne large pub companies who abuse their powerful position.

Ministers say the measures will save tenants £100m a year. Under the proposals the Code will make sure that:

• pubs are treated fairly and lawfully by pub companies• tied pubs are no worse off than free-of-tie pubs• pub companies charge fair rents and beer prices, with the

possibility of open market rent reviews• tied pubs could have the option of a guest beer, picked

independently

Tenants who feel that they are being treated unfairly or that there has been a breach of the Code will be able to complain to the adjudicator who can investigate and arbitrate the dispute for them.

The adjudicator will have the power to enforce the Code and impose fi nes on pub companies if the breach is serious.

The Code will apply to pub companies that own more than 500

A company set up to preserve parkland has failed to stop planning permission being granted for a housing development.

The issue arose when East Devon District Council granted outline planning permission for a 400-home estate in a countryside location. A total of 40% of the homes would be in the affordable housing category.

The council granted permission knowing that it was breaching its own local development plan, but justifi ed the decision by saying there was a strong need to secure new housing, especially affordable housing.

The preservation company, Save Our Parkland Appeal Ltd, applied for a judicial review of the decision claiming that the council had failed to explain why it had departed from

its development plan. The court stated that the Town and Country Planning Act 1990 required local authorities to act in accordance with their development plans unless material considerations indicated otherwise.

The planning offi cer’s report to the council made it clear that there were policies and factors weighing both against and in favour of granting planning permission. It was clear that the local authority had to undertake a balancing exercise.

It therefore granted permission because it felt the benefi ts of the new homes, which were badly needed in the area, outweighed the fact that it was breaching its development plan on this occasion.

The application for judicial review was therefore refused.

For more details contact Steven Taylor - 020 8290 7304 [email protected]

Preservationists fail in bid to stop development

proposals will help all parties understand what the process involves and what to expect.”

The new rules are expected to come into effect later in the year.

Official figures show that there were 186,300 Employment Tribunals cases between April 2011 and March 2012. It is estimated that employers face average costs of £3,900.

Meanwhile, the Government has made significant concessions on its ‘shares for employment rights’ scheme in order to get it through the House of Lords.

Employees will have to be given free legal advice before they can sign away their employment rights. This advice cannot come from a lawyer connected with the company introducing the scheme.

The advice must cover the terms of the new employment status and a full explanation of what rights will be lost.

The independent legal advice must also cover issues relating to the nature of the shareholding such as whether they cover voting rights, include dividends and whether the shares can be sold. The employee will be given seven days to make a decision.

The vote by the Lords to accept the scheme means it will now become law and is likely to be implemented by the end of this year.

For more details contact Paul Stevens - 020 8290 7422 [email protected]

The Government has announced new measures designed to simplify and improve the employment tribunal system.

The move follows concerns from employers that tribunal cases are both expensive and time-consuming for them.

The proposals include new strike out powers to ensure that weak cases that should not proceed to a full hearing are halted at the earliest possible opportunity.

There will also be a new procedure for preliminary hearings that combines separate pre-hearing reviews and case management discussions. This will reduce the overall number of hearings and lead to a quicker disposal of cases saving time and costs for all parties.

Employment Minister Jo Swinson said: “Employment Tribunals are costly in terms of time, money and stress for everyone and they should always be the last resort, not the first port of call. We are committed to finding ways to resolve workplace disputes so they don’t end up with two sides in front of a tribunal. The

Changes affecting tribunals and ‘shares for rights’

Two directors have been disqualified for five years for taking a total of £59,000 from company funds instead of paying creditors after their business got into financial difficulties.

Neither director disputed that they took the money at a time when the company’s tax liabilities had risen to more than £109,000 and when a trade creditor had obtained a court judgment against them for over £16,000.

They have both given undertakings not to act as company directors for five years.

Vicky Bagnall, Director of Investigation and Enforcement Services at The Insolvency Service, said: “The Insolvency Service will rigorously pursue company directors who seek to benefit themselves ahead of their creditors by extracting company funds when others are not being paid.

"Fair treatment of creditors is essential for business confidence, which is, in turn, essential for economic growth. The protection of limited liability should only be available to those who comply with their obligations as company directors. If those obligations are ignored, that protection will be withdrawn.”

For more details contact Rachel Addai - 020 8290 7356 [email protected]

Directors disqualified for overlooking creditors

A contractor has been found liable for the damage caused by a factory fire even though the client was partly responsible for what happened.

The contractor had been hired to refurbish a factory roof. This required providing a suspended scaffold cage which contained gas-powered heaters.

Part way through the contract a fire broke out causing extensive damage to the factory. The evidence indicated that the fire had been started when one of the factory’s employees activated the gas heaters while carrying out maintenance work.

This led to a dispute over who was responsible for the damage: the contractor who supplied the heaters or the factory whose employee flicked the switch?

The court heard evidence that the heaters had not been routinely isolated during the course of the works. This was because of confusion between the two parties. The contractor’s site manager assumed that factory staff would isolate them.

However, the factory’s engineering manager had not read the contractor’s method statement and assumed he

would be informed if anything needed to be done. The court held that both parties were in breach of contract. However, the major failure was that of the contractor because it had failed to take all precautions within its power and failed to fulfil its obligation to continuously inspect the work.

These failings were so serious that they would over-ride any defence of contributory negligence on behalf of the factory owners.

For more details contact Mark Oakley - 020 8290 7337 [email protected]

Contractors liable for damages despite client’s failings

Workplace Law

For further information T. 020 8290 0333 F. 020 8464 3332 e. [email protected]

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This newsletter is intended merely to alert readers to legal developments as they arise. The articles are not intended to be a definitive analysis of current law and professional legal advice should always be taken before pursuing any course of action.

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SMEs at risk as they struggle with cash flow

SMEs had insufficient funds to pay their short-term debts. It means they may not be able to fund any future recovery.

The research also indicated that sales were holding up better than profitability, which could indicate that businesses are discounting prices, which is leading to an increase in pressure on their margins.

Bruce Mackay, Restructuring and Recovery Partner for Baker Tilly, said: “What concerns me is the large number of SMEs that are struggling to pay their short-term debts. Previous recessions have shown that businesses risk failing due to cash flow constraints as the economy starts to recover.”

The perilous state of some SMEs highlights the need for firms to keep a tight rein on their credit control.

Failure to enforce prompt payment can lead to cash flow problems and may even result in the debt having to be written off if a debtor goes out of business a few months later.

For more details contact Mark Oakley - 020 8290 7337 [email protected]

Company wins compensation for loss of businessA council has been ordered to pay compensation to the owners of an amusement arcade which lost business when a seaside pier was closed for safety reasons.

The case arose after the arcade owner became concerned about the structural integrity of the pier and commissioned a survey. It then provided a copy of the survey to the local authority in the hope that it would tell the owner of the pier to carry out repairs.

The council responded by giving notice that it was exercising its power under the Building Act 1984 to close the pier as it was unsafe to allow large numbers of people to use it. The arcade sought compensation for loss

of profit and diminution in the value of its business over a three-month period.

The council responded by saying the arcade had forfeited any right to compensation by breaching its legal obligations to ensure that visitors and staff were safe on its premises.

The court found in favour of the arcade owners. It held that the fact that the council may have acted reasonably in closing the pier could not defend it against a claim for compensation.

Otherwise, the fact that a local authority was properly exercising its powers would always be a defence to any claim, which could not be what the law intended.

Neither could the council claim the arcade had forfeited its right to damages by failing to ensure the safety of staff and customers.

Those obligations related to occupiers’ liability, and health and safety legislation. They were not a requirement of the Building Act 1984, which was the legislation that obliged the council to pay compensation.

The arcade had not done anything to contravene the Building Act and it was therefore entitled to damages after the pier was closed.

For more details contact Mark Oakley - 020 8290 7337 [email protected]

Many UK small and medium-sized enterprises (SME) are struggling with cash flow and are relying on their reserves to finance growth, according to new research.

The British challenger bank, Aldermore, surveyed 300 SMEs and found that 38% are depending on cash reserves to fund future development. A further 12% said they will turn to a bank loan, and 9% to an overdraft.

The remainder planned to use other forms of finance or were not planning to fund any future growth at this time.

Meanwhile, research by Baker Tilly shows that SMEs continue to struggle with cash flow problems. The Baker Tilly SME Distress Monitor, which covers 25,000 businesses, found that 24% of