LEGAL UPDATE Imelda Moffat March 2011 Topics

LEGAL UPDATE Imelda Moffat March 2011

Topics • Business structures • Companies Act 2006 • Charities • Employment • Pensions • Powers of attorney • Bribery • Privilege • Legal reform • Case review

Example of supporting information • • Enlightened shareholder value – what does it mean? Codifying the common law requirement to act in the company’s best interest. Directors must act in a way that promotes company success for the benefit of shareholders as a whole, and in doing so must have regard where appropriate to: – – long-term factors interest of other stakeholders (eg, employees, suppliers and customers) community and environment company reputation. • Government guidance is available at www. berr. gov. uk/files/file 40139. pdf • • Other useful links are http: //www. berr. gov. uk/whatwedo/businesslaw/co%2 Dact%2 D 2006/ and http: //www. companieshouse. gov. uk/companies. Act. shtml • • • And some ICAEW links are: www. icaew. com/companylaw CA 06 and major accounting changes: www. icaew. com/index. cfm/route/156108/ FFM CA 06 Summary: www. icaew. com/index. cfm/route/148125/ • There is a useful and short leaflet summarising the changes for private companies available at www. berr. gov. uk/files/file 42262. pdf • • There is also a more detailed one at www. berr. gov. uk/files/file 42261. pdf and www. companieshouse. gov. uk/companies. Act/pdf/berr. Updating. Your. Clients. pdf • • And finally BERR is now BIS - Department for Business Innovation and Skills – as of June 2009

What am I? • Principal/Sole trader • Company • Partnership • LLP • CIC • CIO

Limited Liability Partnership • Established in 2001 • Limited liability partnership • To the world it’s a company, amongst its members it’s a partnership • Exists independently of members

Limited Partnerships. . (. . as opposed to LLPs!) • Established in 1907 • Not a legal entity • Frequently transaction specific (eg funds) • ‘Registration’ conclusive since 1 October 09 • Get the forms right ! • Watch this space…

Community Interest Company • Established in 2005 and cannot be a charity • Separate regulator who oversees an asset lock • Has flexibility of corporate structure with community interest features

Charitable Incorporated Organisation • Register with Charity Commission only • Annual report only, no directors report • Remember to distinguish from CIC which is not charitable

Companies Act 2006 • Final changes now in force • All companies must have at least one director who is a “natural person” from 1 October 2010

Operational flexibility • AGM and Company secretary are optional (not PLCs) • Simplified internal procedures • Share capital can be reduced without the need for court approval (not PLCs) • Financial assistance is permitted (not PLCs)

Charities Act 2006 • Changes to audit requirements and eased internal administration • Introduction of CIOs – Charitable Incorporated Organisations

Changes in more detail • Most charities with annual income below £ 500 k need not be audited (unless constitution stipulates) • Enhanced whistleblower protection for accountants • Simplified administration, for activities such as changes of purpose or transferring assets

Employment • Research carefully and take advice • Availability of good resources

Status • Employee • Worker • Self employed

Types of work • Part time • Fixed term • Flexible working

Pinch points • Give a statement of employment within 2 months • Plan early on business sales and restructuring and assess position

More changes • Equality Act 2010 – – • Consolidation Protected characteristics Default retirement age – New consultation to phase it out – April 2011 – Clarkson case

Pensions • Imelda’s test……. • Pensions Protection Fund • Moral hazards regime – Notifiable events – Contribution notices and FSDs – Clearance – ‘Material detriment’ test

The Basics • October 2012 – largest employers first, steep scale and affecting those with less than 50 employees - August 2014 to February 2016 • Automatic staging dates dependent on PAYE reference • Auto-enrolment with compulsory employer contributions • Includes permanent, temporary and agency workers

Specifics • Age 22 upwards ( but younger can elect ) • Administration hurdles – Investment in systems – Review of existing schemes – Prepare for self certification – Guidance for trustees

Arrangements • Choose Qualifying Scheme(s) – Is existing scheme compliant ? – Two tier arrangements needed ? – Feeder schemes ? • NEST scheme

Powers of Attorney Gone: enduring powers of attorney Now: lasting powers of attorney • Ordinary powers of attorney • Personal Welfare LPA • Property and Affairs LPA

Practicalities • LPA introduced in 2007 • New ‘Office of Public Guardian’ • Registration is key, else LPA is invalid • Complex and time delays

Bribery Act 2010 • Four main offences – Paying bribes – Receiving bribes – Bribery of foreign officials – Corporate offence - failure of commercial organisations to prevent bribery • Onus on corporates to ensure anti corruption procedures are robust

Bribery continued • Formal guidance still awaited but consultation helpful • Problematic for – Overseas business activities – Facilitation payments – Hospitality • Don’t wait – start thinking now

Legal Professional Privilege (LPP) • Two elements • Litigation privilege – Protects a confidential communication between a client or its legal advisor and a third party, where the dominant purpose is in connection with actual or contemplated litigation • Advice privilege – Protects confidential and qualifying communications between a client and a legal advisor, which are made for the purpose of seeking or giving legal advice or legal assistance.

The Prudential case • Why did the ICAEW intervene ? • What do we hope for ?

Akzo Nobel case • Ruling in September 2010 • Does NOT affect the scope of privilege under English law • In EU competition law investigations, communications with in house lawyers are still not privileged

Legal services reform • Why? • Legal Services Act 2007 – Legal Services Board - LSB – External ownership and investment – Alternative business structures - ABS – First true MDPs involving lawyers and other professionals • The key is a reserved legal service somewhere in the mix

Institute concerns • The process ……. • Divergent views on nature of firms and “legal advice” • Timing - first ABS operational in October 2011

Considerations • You could be a – Participant – Manager – Investor • Appetite depends on business model, size, niche – Consider MDPs to save costs – Tax services – Forensic and insolvency specialists – Novel structures and relationships for service delivery

The future • Legal competitors will be looking at you and your business offering • Innovate – you may want to add specialised services or enter into collaborative arrangements • Remember its professional services reform

Liability of Directors • Lindsay v O’Loughnane • Beware the “twilight zone…. . ” between financial difficulty and insolvency • A representation made to creditors upon which they relied gave rise to personal liability under the tort of deceit

Assessment of Director’s liability • In the matter of Overnight Limited (in liquidation) • Dependant on facts, a court may make its own assessment on contribution based on roles in the fraud and depart from a joint and several basis • Query whether this principle could be extended beyond fraud

Liability of pension scheme trustees • Decision 2679/4 of the Pensions Ombudsman • Section 61 of the Trustee Act 1961 • Excuses trustees from personal liability for breach of trust if they have acted “ honestly and reasonably and ought fairly to be excused”

Dead men’s shoes • Seldon v Clarkson Wright and Jakes • Different approach for employees and partners • Supreme Court to hear appeal • Limiting the need to expel partners by way of performance management “contributes to the congenial and supportive culture of the firm”

Any questions. . ?

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