For more information visit www.parissmithbusinessclub.co.uk

Proving fradulent misrepresentation is notoriously difficult and it is rare for a court to order the rescission of a share purchase agreement when the purchaser has been in control for some time.  This is exactly what happened in the recent case of Erlson Precision Holdings Limited (“Erlson”) v Hampson Industries PLC (“Hampson”).  The case highlights some useful considerations and warnings for both sellers and buyers. 

For more information visit www.parissmithbusinessclub.co.uk

BHF attribute their strong performance to the economic downturn and an ambitious expansion plan which has seen a 5% growth in the charity’s retail offering this year.

For more information on this area please refer to the Paris Smith Horizons Newsletter (Spring 2012) which is devoted exclusively to charity shops. The Newsletter contains articles on gift aid, sale of goods, volunteers, leasing a property and health and safety. The Newsletter is available on our
website (http://www.parissmith.co.uk/readingroom.php).

Useful information on charity shops can also be found on the Charity Retail Association website (http://www.charityretail.org.uk/) and the KnowHowNonProfit website (http://www.knowhownonprofit.org/funding/trading/charityshops).

If you would like to discuss any of the points raised in this blog please contact edward.power@parissmith.co.uk

In order to obtain a divorce, a person has to prove that the marriage or civil partnership has irretrievably broken down, and the facts to establish that could be one of the following:

1. Adultery
2. Unreasonable Behaviour
3. 2 years separation with consent
4. 5 years separation, no consent required
5. Desertion

If an individual wants to obtain a divorce now, rather than wait for a period of separation, then factors 1 or 2, would have to be used.  If using unreasonable behaviour, then the person wishing to obtain the divorce has to make a list of examples.

Others say that a ‘no fault’ system could make divorce too easy. In a Times interview on 3 January 2012 Sir Paul Coleridge said, ‘…the best structure in which to raise children, needs to be affirmed, strengthened and supported’.  He championed the ‘Marriage Foundation’ ( actually launched this week) and was of the view that people were quick to get out of relationships and into new ones at the first sign of trouble.  He even went as far as saying: ‘Recycle your rubbish by all means, but be very slow to recycle your partner’.

To some this may seem a harsh and sweeping statement, but perhaps he had been prompted by reading the ONS statistics published on 8 December 2011 (one month before his comment), detailing the divorce rates in 2010. 

Out of 119,589 cases, 35,310 involved people where one party was previously divorced or where both had been previously divorced; nearly 30%.  That said, a majority had never been married before, and the median duration of the marriages was 11.4 years, so a far cry from people ‘jumping ship’ and changing partners too quickly.

Looking at the reasons citing the end of the marriage, nearly half of those were on the basis of unreasonable behaviour, which can have the potential of leaving bad feeling.  Sir Paul Coleridge was concerned about the impact of divorce on children, but the process of the divorce itself does not have to be as bad as is reported. In fact, the reasons given are usually agreed in advance and even very mild reasons are enough to persuade the court to allow the divorce in the modern age.   It is conflict in other areas, whether relationships,  financial or relating to children, where the damage is caused.

That said, whilst there is an obligation in most cases to attach blame to obtain a divorce, the focus should be on dealing with separation in a more constructive manner, and to avoid becoming embroiled in needless arguments or point scoring.  There is much to be said for ending a marriage or civil partnership with dignity.

If you would like to discuss any issues raised in this blog please contact bindu.bansal@parissmith.co.uk

Groupon has been the subject of a string of consumer complaints since its launch including:

• Exaggerated and misleading savings claims;
• A failure to make clear any significant caveats or conditions of a particular promotion;
• Stating non-offer reference prices in a misleading manner;
• Failing to provide evidence that its offers were genuine and available to buy.

The OFT has given Groupon three months to improve its practices and will monitor it for a further six months after that to ensure compliance with consumer protection legislation.

Expect a general shake up of the current regulatory framework in the near future. A new Consumer Rights Directive is expected in the EU and a new Consumer Rights Bill in the UK.

If you wish to discuss any issues raised in this blog please contact emily.sadler@parissmith.co.uk

Actually, Rider came before Lawrence, so perhaps it was Ryder who was riding on the dicta of Coleridge in Rider, but anyway, the point is that dicta in the two cases are startlingly similar and family lawyers across the land should be sitting up and taking notice.  In fact, they should be chucking away their course notes and case reports from the last 10 years and dusting off their old paper copies of the Matrimonial Causes Act 1973 – there is a judicial revolution afoot!

In Lawrence, both Lord Justice Thorpe and Mr Justice Ryder expressed exasperation for the “prevalent practice of coining ever more sophisticated phrases which are intended by practitioners to highlight particular aspects of the notion of ‘fairness’” .  Essentially, we have a statute which sets out clearly the considerations to which practitioners and judges are to have regard when determining the financial provision to be made on divorce, and the invention of concepts such as “compensation”, “sharing”, “super-stellar contributions” etc has done nothing to clarify the manner in which the statutory considerations should be applied.  On the contrary, “that practice has created an expectation that the judge will consider the same in judgment.  That expectation is inappropriate not least because the linguistic devices employed are not terms of art: they are no more than tools to assist in the interpretation of fact which should not be elevated to the status of factors that have to be considered alongside the section 25 criteria.  Not only does such a misconception risk inappropriate weight being given to an analysis born out of a linguistic device, it carries with it the real danger of miscalculation” .

Now, in Riding, the judge complains that “counsel should not waste time in preliminary theoretical discussions, but move swiftly to look at practicalities of suggested outcomes”.  In this case, there was barely enough in the £4.5m pot to cater for both parties’ needs, yet between them the parties had spent £699,000 on costs.  Much time and money could have been saved if, rather than counsel slugging out the overly legalistic and complex concepts developed over the preceding decade, they had concentrated on the statutory criteria and what they meant in practice for these particular people.

If one case is a warning bell to the profession, then the other must surely be the wake-up and smell the coffee bell.  Leading counsel appeared in both cases, and if even leading counsel is being told to get back to the statute, then that is an example which we all need to follow.

The responses to its consultation paper, published in January 2011, indicated support for the introduction of a “qualifying nuptial agreement”.  It is now grappling with the manner in which such agreements should enjoy recognition and enforceability by the courts.

The introduction of legally enforceable marital agreements is likely to be received with open arms by many.  At the moment, and notwithstanding the decision in Radmacher (formerly Granatino) v Granatino [2010] 2 FLR 1900, there is no guarantee that any such agreement will be upheld by a divorce court.  In fact, arguably, the court may only uphold such an agreement if it would anyway have made orders broadly in those terms.  Given that one of the reasons for entering into such an agreement is to provide certainty in the event of relationship breakdown, the fact that it may end up being trampled on by a judge can come as an unwelcome, and sometimes very expensive, surprise.

The other side of the coin is that, by giving force to an agreement which may have been entered into many years previously, when circumstances were very different, and perhaps for different reasons, may end up giving rise to the most extreme sort of unfairness.  Thus, so far, the courts have retained their wide and flexible jurisdiction to make financial provision which is tailor-made to the facts of each case.  As part of that process, a pre-nup has been a “circumstance” or “conduct which it would be inequitable to disregard” – both statutory considerations to which a judge may give greater or lesser weight, depending on the circumstances of that particular case.  They have also journeyed over the years from being completely beyond the pale as being contrary to public policy, to the point at which their statutory recognition is a very real possibility – and, to some – a social necessity.

So, what sort of issues is the Law Commission considering?

• What safeguards should be in place if the court’s jurisdiction is to be ousted by marital property agreements?

• Should it be possible to contract out of having to provide for the other partner’s needs?

• What are the modern public policy considerations of such a contract?

• If it is to be possible to contract out of provision for needs, what is the definition of “needs”?

• Should marital property agreements be restricted to the treatment of non-matrimonial property?

• If so, then what should be the definition of non-matrimonial property?

A paradigm case for a pre-nup is the classic – and somewhat clichéd – case of an older, very successful businessman marrying a younger, relatively impecunious wife.  Naturally, the husband might want to consider how he might protect the business which he built up over the many years of hard work before he ever laid eyes on the wife.  They might have a couple of children, before the marriage ends say seven or eight years later.  Under the current law, the husband’s business is up for grabs.  It must be valued, and its value taken into account in the overall settlement.  If the non-business assets are not enough to meet the wife’s needs (and those of the children), then the business itself may be in jeopardy.  He may be forced to borrow heavily against the business, reduce its cash reserves, restructure it, dilute his own interest in it, or even to sell it.  Would a pre-nup have helped?  Arguably not, if it left the wife and children financially vulnerable, or even if it catered for her needs but left a glaring imbalance between the husband and the wife.  At the very least, there is a very real risk that the judge will override the pre-nup, and he would have every right to do so.

If the Law Commission recommends in favour of statutory reform, then enforceable pre-nups will be come a very real possibility, regardless of whether they are fair.

Usually, the Law Commission would expect to report within an approximate 3-year timescale, which in this instance would mean that we could expect a report this year, but its terms of reference, and therefore its timescale, have recently been increased to incorporate consideration of two further issues, namely the extent to which one partner should be expected to meet the needs of the other on divorce (or dissolution of civil partnership), to include consideration of the definition of “needs”; and the definition of non-matrimonial property and the manner in which it should be treated on divorce/dissolution (to include consideration of whether it should be possible to contract such property out of the equation).

As such, the time for the Law Commission’s report has likewise been extended – to autumn 2013 – and we must therefore wait until at least then to find out whether or not pre-nups are likely to complete their journey at last, from being unlawful to enforceable.

CMEC was established in July 2008, in order to assume responsibility for the Child Support Agency (“CSA”), which was seen to be failing.

The CSA was created in 1991 and, since 1993, has held responsibility for assessing and collecting child maintenance (save for limited circumstances, when the court retains jurisdiction).

Shortly after CMEC took over, the CSA had failed to collect maintenance totalling £3.8bn but was costing the taxpayer £610m to run .  CMEC’s spending for 2010/11 had reduced to £517m, but it still had arrears of £3.7bn.

The most recent figures suggest that for each £1 of maintenance collected, it costs the taxpayer 56p.  In Australia, where a similar system is operated, the equivalent cost is 35p.

CMEC’s forecast for 2014/15 is spending of £443m against a budget of £399m.  It cannot demonstrate even that it will keep within its own forecast, which depends on projected income (from the introduction of fees) and reduced workload (likewise brought about by the introduction of fees), neither of which can be demonstrated or accurately predicted.  CMEC’s own market research indicates a lower willingness to pay fees than is assumed in its budget forecast.

In 2008, CMEC was due to have implemented a new scheme for assessing child support, based on the paying parent’s gross income.  That scheme is now due to be implemented in October 2012, but CMEC is at risk of repeating past mistakes in terms of the introduction of new IT systems.  It has already revised its forecast cost of the new system from £149m to £275m, and it has no contingency plans to cover the possibility that its fee income projections might be optimistic.  As such, it may not be able to introduce the new scheme if the new IT system is simply unaffordable or the cost increases further.

So not a great start for CMEC, and no wonder it’s being scrapped, but what next?

Its functions will be transferred back to the Department of Work and Pensions, where “Ministers will have more direct control, responsibility and accountability for the delivery of child support strategic and operational policy as well as ongoing and future reforms to child maintenance” .  Just like the CSA then.

It is said by the Government that the transfer back to the Department will be at “minimal” cost, and that, in the longer term, “efficiencies” will be achieved, as duplication in terms of, for example, HR resources and administration can be avoided.  It recognises that CMEC has a number of large challenges, including the delivery of the new scheme, which suggests that the Government remains committed to that change.  However, there is a very real possibility that, even on its own analysis (which it cannot in any event substantiate), CMEC cannot afford to roll out the new scheme.  That being so, and once CMEC is behind the closed doors of the Department, the new scheme may die a quiet and private death.  Given that there has been insufficient scrutiny of the business case of the new scheme, this may not be a bad thing, so long as the cull takes place prior to the £275m cost of the new IT system.

During the Government’s consultation, concern was expressed by the respondents that Ministers would not be subject to the statutory objectives (aimed at maximising the number of children who have effective maintenance arrangements in place).  This concern was brushed aside.  Ministers, it is said, do not need such statutory objectives.  How, then, can they be accountable?

Generally, the abolition of CMEC and the transfer of its functions back into the Department would appear to be uncontroversial, and the potential for saving costs is recognised.  What remains unclear however is the ability of the Department to deliver on CMEC’s promises; whether in fact the new scheme will ever be delivered; whether in fact it should be delivered; and really, what was the point of the last 4 years, particularly if Ministers cannot be held to account for the continuing failure of the system?

If you would like to discuss any of the points raised in this blog please contact rachel.osgood@parissmith.co.uk

The insolvency of a supplier or customer is likely to cost your business, whether in terms of written off bills, wasted expenditure, or the time it takes to source alternative suppliers or replace lost customers.  

In most cases, the insolvency of a competitor will create opportunities for your business.  It is an obvious point, however, you could contact the insolvent competitor’s customers to remind them of your offering as an alternative supplier. Does it make sense to buy the insolvent company’s business?  Despite their insolvency, does the insolvent competitor have a strong brand that could be useful to your business?

Would it make sense to buy the business of an insolvent customer or supplier?  Have you been considering moving up or down the supply chain and perhaps this could give you a head start? 

We regularly act for buyers of insolvent businesses and each one comes with its own interesting story, with our clients buying for a multitude of reasons.

If you think the commercial reasons stack up, then you may want to approach the Insolvency Practitioner appointed to deal with the insolvent business (they will probably be called the “Administrator” or “Liquidator”) and make an offer “subject to contract”, to buy the business.    

Given the circumstances, you should be able to make an offer below what you would expect to pay if the business was solvent and you could pick up the business for a good price. That said, the Administrator will be under a duty to obtain the best price for the business and will be looking for a number of offers from various bidders.  The Administrator may not want to trade the business and will be looking to sell quickly.  If you get to this offer stage, you should involve us to guide you through the purchase. 

The Process and Common Pitfalls

An acquisition of a business from an Administrator (or Liquidator) is very different to an acquisition of a business from a solvent seller. The overriding principle is “caveat emptor” or buyer beware.  The Administrator will want a clean break following the sale (they will want to distribute the insolvent company’s assets to its creditors – the sale proceeds will be an asset as well) and will therefore refuse to give any warranties or indemnities to the buyer in respect of the business being purchased. The flip side is that the Administrator will require various indemnities from the buyer in a number of key areas.  You should bear this in mind when making an offer. 

Given the lack of warranty and indemnity protection, you should attempt to undertake as much due diligence as possible in relation to the business.  Bear in mind that the Administrator will be pushing for a swift sale (often this will be in the buyer’s interests as well – it should help to preserve business continuity) and therefore due diligence should be focused and relevant. 

The sale will be documented in a sale and purchase agreement.  It goes without saying that you should take legal advice on its terms to ensure this reflects the deal and market practice.

In our experience, common problem areas include:

Administrator’s appointment – recent case law has highlighted the need to carefully review the Administrator’s appointment papers to ensure they have been properly appointed.  An invalid appointment may result in a void sale as the Administrator will not have had the authority to sell the business;

• Security – does the insolvent company have a debenture or legal charge registered against it?  If so, it is important that a deed of release is entered into between the security holder and the insolvent company to release the business and its assets from such security; 
• Employees – The Transfer of Undertakings (Protection of Employment) Regulations 2006 (more commonly known as “TUPE”) requires the buyer to take on all the business’ employees on their current terms.  You will therefore want to know: who are the employees, how much do they get paid are there any ongoing employee disputes?  It would be wise to speak to senior employees to find out if any employees have recently left the business – they may pose a competitive threat;
• Property – on a solvent business sale you would normally secure occupation of the business property by way of a lease or freehold acquisition.  On an insolvent business purchase there usually is not time to sort this out.  You may not need the premises anyway, or perhaps you only need to occupy for a couple of weeks while relocating the business.  We would normally put in place a “licence to occupy” whilst sorting out a formal lease assignment – this still leaves the buyer with a degree of vulnerability;
• Contracts - are you interested in any key customer or supplier contracts?  We may be able to arrange formal assignments or novations of these to secure continuity however, in the time allowed, it may only be possible for you to make enquiries of the relevant customers/suppliers to evaluate the likelihood of them continuing to trade with you following the purchase; 
• Leased assets – is any of the equipment on hire purchase?  You will need to be alive to the possibility of vehicles or computer equipment, for example, being repossessed by a finance company.  Usually negotiation with the finance company, together with a cash payment, will allow any relevant agreements to be assigned and the equipment to be retained.

Conclusions

Whilst insolvency is not in itself positive, many clients turn this into an opportunity and have been able to bolt on a new business to their current businesses successfully.  Given the complexity and speed of the sale and purchase process, we would always recommend that you seek legal advice to guide you to the finishing line. 

If you would like to speak to one of our Insolvency and Recovery Group about an insolvency scenario or possible purchase from an insolvency practitioner please contact Richard Atcherley or Mike Pavitt.