Make sure your family business has a succession plan

Handing over a family business to the next generation can prove surprisingly difficult for many people.

Research by the Family Business Place website suggested the issue can be so challenging that 62% of families would consider selling their business because of the difficulties of passing it on to family members. Another 55% said they felt succession issues could be a barrier to future success.

There can, of course, be concerns, especially when several family members may be involved. Difficult issues may arise such as who in the next generation should be in charge…do they have the necessary skills and enthusiasm to succeed…do they even want to take over…how should the succession be financed?

These questions can present difficulties but they can be overcome with a little forethought.

To ensure a smooth succession it’s vital to start planning several years ahead of your target retirement date. The first step is to hold meetings with those who will run the business when you leave so you can agree an exit strategy.

This could involve introducing a governance policy involving those who are going to take over. This would outline how company decisions should be taken and how disagreements should be resolved. Ideally, this policy should be in place before you leave so that everyone gets used to the new decision making process while you are still there to iron out any teething troubles.

There will also be several other matters to consider.

If you own a large share of the business, your successors may need to raise money to buy you out.

It may be that you agree to sell your shares back over several years so the firm’s finances aren’t put under too much pressure all at once. There could be tax implications so professional advice should be sought.

If you own the business premises, you will need to decide whether to sell or lease them back to the firm.

It’s also important that those who remain in the business consider how they’ll get by without you. It may be that your expertise can be passed on to the remaining directors, or they may have to replace you. In that case, a successor should be chosen before you leave.

If you have built up a close relationship with key customers then you should arrange for them to meet the other directors so trust can be developed and continuity assured.

Some entrepreneurs find it difficult emotionally to leave a business they have built up from scratch. If you feel that way then you might consider staying on as a part time consultant. This would provide stability for the firm and reassurance for its customers.

Throughout the succession planning process it’s important to get advice from your accountant and solicitor, and possibly your bank manager. Some people may worry that they are taking too much out of the business making it difficult for the next generation to succeed. On the other hand, those taking over may feel guilty that they aren’t paying their parents enough. Independent professional advice can ensure that the agreement is fair to everyone.

Please contact us about the issues raised in this article or any aspect of succession planning.

Large firms may have to reveal how quickly they pay invoices

Large and listed firms may soon have to publish details about their payment practices under proposals being drawn up by the government.

Companies will have to provide information about their average payment time and the proportion of invoices paid beyond terms. They will also have to reveal the percentage of invoices paid within 30 days, over 30 days, over 60 days and over 120 days.

The reports will have to be published quarterly and will be mandatory for all large and quoted companies.

The proposals have been drawn up in response to previous public consultations in which smaller firms requested greater transparency in how quickly large companies paid invoices. Ministers intend to introduce the measures as part of the Small Business, Enterprise and Employment Bill, which is currently going through Parliament.

It’s hoped that the enforced transparency and potential bad publicity will encourage companies to pay more promptly.

The government is running a consultation seeking views on the proposals, which would require that companies:

  • report on a quarterly basis
  • report on standardised metrics on payment performance
  • disclose additional narrative information on payment practices
  • publish the information on their website
  • face fines for breach of the requirement.

Business Minister Matthew Hancock said: “We know that small businesses are often reluctant to risk losing business by using the redress measures we’ve put in place, so we want to tackle the underlying culture by increasing transparency on payment practices and performance.

“The measures we are consulting on will make it clear to small businesses and consumers alike which large businesses behave properly, and those that think they can ride roughshod over their suppliers.”

We shall keep clients informed of developments.

Please contact us if you would like help with debt collection and credit control.

Builders win damages from client over contract breach

A contractor that was left more than £100,000 out of pocket when a customer cancelled a building project has been awarded damages by the High Court.

The compensation was awarded even though the firm didn’t have a signed contract.

The issue arose after the firm won a tender to build an extension to a house. During negotiations over final pricing, the customer was sent a blank copy of the proposed contract and the JCT Standard Building Contract which included an adjudication agreement. These were never signed.

During pre-contract meetings, a price was agreed, together with a commencement date and a 33-week contract period. The firm attended the site to start work and took delivery of equipment and materials.

However, because of changed circumstances, the customer wanted to put the job on hold and instructed the firm not to proceed. The firm claimed for aborted costs and the adjudicator ruled in its favour.

The customer claimed that no contract had been agreed so the adjudicator had no power to make such a decision.

The High Court ruled in favour of the firm. It said that in deciding such matters, the court had to apply an objective test as to whether the sides had to all outward appearances reached an agreement. That certainly appeared to be the case in this instance.

The judge said: “By their words and conduct the parties had reached a binding agreement on the essential terms of a contract, including as to scope, commencement and completion, contract sum, payment mechanism, the mechanism for change, valuation procedures and on the terms of the JCT form.”

The customer was therefore liable to pay the firm £104,852 to cover its costs and lost profits.

Please contact us if you would like more information about the issues raised in this article or any aspect of contract law.

Tenancy deposit error prevents landlord repossessing property

A landlord has been prevented from serving a possession notice because the tenant’s deposit had not been placed in an authorised protection scheme.

This was in spite of the fact that that the deposit had been paid before the Tenancy Deposit Scheme (TDS) regulations came into force.

The case involved a tenant who had started a tenancy in 2002 and paid a deposit. The tenancy was renewed in 2005. This was after the TDS regulations were introduced. However, the landlord didn’t place the deposit in an authorised scheme as it had been paid at the start of the original tenancy.

In 2012, the landlord served a possession notice. The tenant claimed the notice was invalid because the deposit had not been protected in a scheme. The court, however, ruled in favour of the landlord because the deposit had been paid before the regulations applied.

The Court of Appeal has now overturned that ruling. It held that the wording of the regulations was clearly targeted at cases where the deposit was not being held in an authorised scheme, regardless of when the deposit had originally been paid.

This should not have caused any problem for the landlord. He could have cleared the way to seek possession in two ways: he could have placed the deposit in an approved scheme or he could have repaid it to the tenant. He did neither so the possession notice was invalid.

Please contact us if you would like more information about the issues raised in this article or any aspect of commercial property law.

Obesity can constitute a disability, says EU court

The European Court of Justice (ECJ) has ruled that obesity can constitute a disability in certain circumstances if it impairs a person’s ability to work.

The ruling will have major implications for employers in the UK who may have to make adjustments for overweight employees or run the risk of discrimination claims.

The court made it clear that being overweight was not in itself a disability within the meaning of the Employment Equality Directive, but could be considered so if it created an impairment which prevented a person  being able to work on an equal footing with other employees.

The ruling stated: “The concept of ‘disability’ within the meaning of the directive must be understood as referring to a limitation which results in particular from long-term physical, mental or psychological impairments which may hinder the full and effective participation of the person concerned in professional life on an equal basis with other workers.

“While no general principle of EU law prohibits, in itself, discrimination on grounds of obesity, that condition falls within the concept of ‘disability’ where, under particular conditions, it hinders the full and effective participation of the person concerned in professional life on an equal basis with other workers.”

The ruling makes it clear that the cause of the obesity is irrelevant in terms of a person’s legal rights, even if it is as a result of the person’s gluttony and lifestyle.

The ruling says: “The directive has the object of implementing equal treatment and aims in particular to enable a person with a disability to have access to or participate in employment. In addition, it would run counter to the aim of the directive if its application was dependent on the origin of the disability.”

The case that prompted the ruling involved a Danish child minder, KarstenKaltoft, who was dismissed for being so overweight that he needed help to tie a child’s shoelaces.

The court didn’t define the level of Body Mass Index that would be required to class an employee as obese. It said such decisions should be made on a case by case basis.

Employers may wish to re-assess their employment policies to take account of the ruling.

Please contact us if you would like more information about the issues raised in this article or any aspect of employment law.

Broker ‘wasn’t negligent’ in underinsuring client’s assets

A court has ruled that an insurance broker had not acted negligently even though one of its commercial clients was found to be hugely under-insured following a fire.

The broker first met the client in 2009. The client had a projected turnover of £9m. The broker set the total business insurance sum for £2m.

The following year, the insurance was increased to £2.5m as the projected turnover increased to £11m.

Later that year there was a fire and the client realised that it didn’t have sufficient cover for certain elements of its loss.

The value of the damaged stock was around £400,000 but the insurance only covered £25,000. It would cost £1m to replace the machinery but the insurance was limited to only £460,000.

The client took legal action, claiming that the broker had acted negligently in failing to arrange adequate cover.

The broker accepted that it had under-insured the stock and machinery but denied it had acted negligently.

It said the insurance levels were based on figures provided by the client relating to gross profit, turnover, stock and machinery figures. These figures turned out to be an underestimate.

The court held that a broker was not expected to calculate the sum to be insured but should provide sufficient information and guidance to enable the client to do so. The evidence suggested the broker had done so in this case. He had provided an adequate explanation of the cover in 2009 and later in 2010.

The client had appeared to be well informed about its business and therefore the broker wasn’t required to verify the figures relating to the value of the stock and machinery.

Please contact us if you would like more information about the issues raised in this article.


Government announces initiatives to reduce gender pay gap

The government has announced that a £2m fund is to be spent on initiatives aimed at reducing the gender pay gap.

The funding will go towards training, events and monitoring programmes for women to help them move from low paid, low skilled work to jobs that are high paid and high skilled.

The measures will also help female employees to hold their companies to account over equal pay.

The overall pay gap is 19.7% which is lower than the 25% figure ten years ago. However, although the gap has narrowed, it is still significant, especially for older and part time workers.

One of the reasons for the gap is that there are more women in low paid jobs. The training on offer is aimed at helping them move into higher paid professions.

It is to be carried out by the UK Commission for Employment and Skills and will target women working in the science, technology, engineering and maths (STEM), retail and hospitality management, and agricultural sectors.

The government will also:

  • publish guidance to help women compare their pay to their male counterparts
  • invest £50,000 in further advice to enable female employees to hold their      companies to account if they think they are not being paid correctly
  • launch free pay analysis software to be made available to all companies to calculate their gender pay gap
  • implement further measures to strengthen the existing Think, Act, Report initiative.

Minister for Women and Equalities Nicky Morgan said: “The measures we’re announcing today will help to tackle the pay gap head-on. We will support women to move out of low paid, low skilled work, into high paid, high skilled work, through providing better training and mentoring. We will also give both women and employers the tools to assess and address unfair pay.”

The measures will make it easier for female employees to identify pay gaps within their company and also bring the issue to the attention of their bosses.

Please contact us if you would like more information about the issues raised in this article or any aspect of employment law.

Directors disqualified after failing to keep formal accounts

Two company directors have been disqualified after failing to keep adequate accountancy records.

They were directors of a firm which was incorporated in 2007 and acted as investment adviser to an arts fund. The fund was unsuccessful and one of the directors resigned in March 2009. The company ceased trading in October 2009.

The only formal accounts were to 31 January 2008.

The company went into liquidation and an application was issued for the directors to be disqualified. Following an investigation they were disqualified for a minimum period of two years. The deputy registrar found that they had failed to keep accurate records and failed to deliver the records to the liquidator.

One of the directors accepted the decision but the other appealed, saying that the deputy registrar had not properly proved that his misconduct justified a finding of unfitness.

However, the judge ruled that the deputy registrar had followed the correct procedure when making his decision.

He said the failure to maintain adequate accounting records made it very difficult, if not impossible, to fully understand the financial position of the company.

While the findings, taken individually, may not have meant the directors were unfit, the cumulative effect was serious enough to justify the disqualification. The appeal was dismissed.

Please contact us if you would like more information about the issues raised in this article or any aspect of company law.

Intellectual Property Act 2014 comes into effect

New measures to help designers and patent holders protect their valuable intellectual property (IP) came into effect in October.

The Intellectual Property Act 2014 was introduced to modernise and streamline the whole IP legal framework. It is hoped that the measures will contribute £500m to the UK economy over the next ten years.

Key reforms include:

  • the creation of a criminal offence for intentional copying of a registered design
  • new protections for pre-publication research to ensure the UK’s universities and the research sector remain a world-leader
  • webmarking to display your patent rights, allowing a company to put a web address rather than more detailed information about the patent status of a product
  • the expansion of the patent opinions service, providing quick and affordable opinions on a wider range of patent disputes
  • the promotion of international ‘patent work sharing’ to cut backlogs.

Consumers will also benefit from the changes. They will be given greater freedom to transfer content they have purchased on to different platforms. It is now legal to make personal copies of music across formats, for example, from CD to an mp3.

Other artists can also take content and use it for purposes such as parody, caricature and pastiche. They will be able to use a certain amount of material without the copyright holder’s permission as long as it is used in a fair and proportionate way.

The Minister for Intellectual Property, Baroness Neville-Rolfe DBE CMG, said: “These changes are going to bring our IP laws into the 21st century. They will mean that the UK IP regime will now be responsive to the modern business environment and more flexible for consumers.”

Please contact us for more information about patents and protecting intellectual property.

New Rent to Buy scheme to help young people

Up to 10,000 new homes will be built between 2015 and 2018 as part of the government’s new Rent to Buy scheme. Housing associations will be able to apply for low-cost loans from a fund of £400m to finance the projects.

They will then have 16 years to repay the loans, and during this time, the homes must be made available for rent at less than the market rate. Even if the loan is repaid before that time, the homes must be rented at a low rate for at least seven years.

The government hopes this will give young people the chance to save money for a deposit to ultimately buy their own home. The tenants will have first refusal to buy the property once they have lived there for seven years.

Communities Secretary Eric Pickles said: “This government is standing by people who work hard and do the right thing, and helping them move on and up in life.

“Both house building and the number of first time buyers are now at their highest rate since 2007. But there is more to do. As part of our wider housing programme, this new scheme will help increase the provision of low-cost rented accommodation and provide a springboard for young people to upgrade to home ownership down the line.”

Rent to Buy is the latest government initiative to bolster the UK housing market. It follows the Help to Buy scheme in which the government provided loans or guarantees for mortgages, and Right to Buy which helped people living in council houses buy their home at a discounted price.

Please contact us for more information about the issues raised in this article or any aspect of commercial property or landlord and tenant issues.