Going legal ? Read this first…

If you are in business, dealing with individuals who sometimes don’t pay, you may be thinking about “going legal“.  The County Court rules relating to debt claims are due to change in October 2017 and you must be aware of the new protocol to follow or the Court will impose sanctions.

You can check out the full version here :

https://www.justice.gov.uk/courts/procedure-rules/civil/pdf/protocols/pre-action-protocol-for-debt-claims.pdf

The main changes are the work that has to be done and the longer timescales before you can safely issue a court claim. You have to allow the debtor a lot more time, pre-action, providing more details of the debt itself and also listening more to any proposals for settlement. This may sound frustrating when you’ve done the work and expect to be paid, but there has been a trend for some time now for the Courts to require the parties to try to settle without using the Court’s time and resources, which are constantly under pressure – as are those who haven’t been paid, one might argue!

In particular, note that “individuals” now includes “sole traders” – so this not only relates to private debts but also could take in some commercial work.

The significant point is to make sure that you have all the details you need before you start chasing the debt so that you can keep up the pressure within the Court’s timeframe. The lesson to learn from all this is that it is more important than ever to keep accurate records, emails, evidence of communications etc when you’re in business and expect to be paid for the work you’ve done.

If you need any help with this, contact the Dispute Resolution team at Curwens – Rose Albay – 0208 363 4444.

https://www.curwens.co.uk/business-services/business-dispute-resolution/

 

Spencer Laymond is a company lawyer with Curwens Solicitors. He sets out here his seven reasons why you may not need a partnership agreement and save yourself the money.

This may seem an unusual headline.  Why would you not want or need a partnership agreement? After all, isn’t it common sense? If you are in business with someone, shouldn’t you have a written partnership agreement? Surely it would be bad practice not to have a partnership agreement, especially if cost was not an issue?

Well, without giving the game away early, yes, if you are in business with other people, then there really should be some agreement in place setting out the expectations and exit strategy.  Yes, there will be a cash investment, in order to prepare a suitable partnership agreement but it can be dull reading explanations of things we know we should be doing, especially if it is the same old information, said the same old way. So we have turned this subject on its head, to make it a little more interesting and persuade a few more people, not only to take notice but also to take action.

We make one assumption – that you are in fact in partnership.  So here they are – seven reasons why you may not think you need a partnership agreement…

Reason 1 – You and your business partners are immortal 

If you and your business partners believe you will never die, will never suffer a serious accident or illness, or will never find yourselves incapable of continuing your role in the business (whether through age, mental capacity or otherwise), then, as much as you do not need an agreement to breathe, you may not need a partnership agreement regulating what to do if one of you should die.

If you want to check the law for yourself – the Partnership Act 1890, section 33(1) provides that a partnership is automatically dissolved on the death of any partner. That’s it. Without an agreement, on death of a partner, the business comes to an abrupt end.

But, if the death of a partner is not enough grief and aggravation, the business coming to an end itself sets a process in motion. When a partnership is dissolved, the dissolution means the start of a process of winding up. The process of winding up then disposes of the business, settling accounts with creditors and returning any surplus assets to the partners. At the end of the winding up, what once was the partnership business will be confined to history. Winding up can also give rise to unexpected and adverse legal and tax consequences.

So if you and your business partners are not immortal, the takeaway point is that there can be fatal consequences to the business, if there is no partnership agreement in place.

Reason 2 – It is reasonable for any one partner, at any time, to put the business into dissolution

Staying with the same doom and gloom theme of dissolution, if it’s perfectly reasonable for all the partners to walk around as if they have full and unrestricted access to a “button” which can be pressed at any time, a button which if pressed will kill the partnership immediately, irrespective of the circumstances and consequences to the business and other partners, then you may not need a partnership agreement.

If you want to check the law for yourself – Under the Partnership Act 1890, there are not one, but two sections that enable a partnership to be brought to an end by any partner at any time. These are sections 26(1) and 32(c). So, without an agreement, any partner, at any time, for any reason, can immediately trigger the dissolution of the partnership, and its winding up.

However, even if you and your partners have all the trust and confidence in the world in each other, even if you are family or lifelong friends, to protect the business, to provide some assurance in the event of a change in circumstances, a partnership agreement will be required.

Reason 3 – You and your business partners are happy to divide profits and losses equally, even if you have contributed different amounts of capital

Say, for example, you are in a three person partnership. Partner 1 has invested £10,000, partner 2 has invested £20,000 and partner 3 has invested £30,000. We are treating the investments as genuine capital contributions, in the sense that once the money has been invested in the partnership, it becomes permanently endowed to the partnership. The total capital invested is £60,000, of which partner 1 has invested 16.67%, partner 2 has invested 33.33% and partner 3 has invested 50%.  Each partner does exactly the same work and contributes exactly the same amount of the time to the business. Each year the business makes profits of £100,000, and each year all partners are happy to share the profits equally so that each partner receives £33,333.33. Equally if each year the business makes losses of £100,000, then the partners are happy to share the losses equally. If all partners are happy for the profits and losses of the partnership to be shared evenly, then you may not need a partnership agreement.

If you want to check the law for yourself, it’s section 24(1) of the Partnership Act 1890.  However, if you and your partners wish to share profits (or losses) in a way which reflects the original investments and perhaps different on-going contributions, then a partnership agreement will be required.

Keep in mind also that capital contributions may not be solely cash, but other property such as land and equipment. Whilst partnership accounts may make clear what assets are owned by the partnership and what assets are retained personally by an individual owner, there have been occasions where the courts have not accepted the evidence of the accounts – my third reason for a written agreement.

Reason 4 – It is reasonable for a majority of partners to oppress a minority of partners

Here we are concerned with the day to day management of the partnership business as well as its longer term direction. If you are a partner, you will automatically have a right to participate in the management. However, if you have no issue with your voice and opinion effectively falling on deaf ears and counting for nothing; if you have no issue with the seniors steering the ship as they please; if you have no issue with how decisions, big or small, are resolved, then you may not need a partnership agreement.

If you want to check the law for yourself – the Partnership Act 1890, section 24(5) provides that every partner is entitled to take part in the management of the business. Section 24 (8) then provides that differences on “ordinary matters” connected with the partnership business may be decided by a majority of partners.

The law being the law, the rules are subject to two exceptions, a few provisos and a qualification.

The exceptions:   There are two matters where even a minority partner has a veto. First, changes to the nature of the business, for example, going from software development to fish farming. Second, whether to admit a new partner – but that is about the sum of it so far as the statutory veto rights go.

The provisos:   All partners have a right to be heard; have a right to be notified of meetings; owe a duty of good faith to all partners; nevertheless, when it comes to voting, the minority can still be outvoted.

The qualification:   The rule is the majority decide “ordinary matters“, but what may be regarded as an ordinary matter in one partnership, may not be regarded as an ordinary matter in another partnership. So it is not just the number of partners voting for or against a matter that may count, but what the matter itself relates to. Is it an ordinary matter or not?

The point to takeaway here is that the Partnership Act creates scant protection for partners who find they are being oppressed by the majority. If this is acceptable then a partnership agreement may not be required.

If certainty and fairness are important, then a partnership agreement will be required.

Reason 5 – It is reasonable for a partner leaving the business to (a) freely take with them existing partnership clients (b) work for a local competitor (c) poach existing partnership staff

If the loss of clients and customers, if the loss of staff and other partners, and if the expansion of a local competitor business at the expense of your own business is of no concern to the partnership, then you may not need a partnership agreement.

 If you want to check the law for yourself, it will be a quick exercise. With the exception of a very few very limited and case specific examples, there is no law by default that provides any of these or other restrictions on partners. On the contrary, the law that there is on the subject, is law which provides for the framework as to whether any restrictions in an agreement are in fact enforceable, and whether restrictions are fair and reasonable to protect a legitimate business interest.

So if protecting your clients and customers, your staff and partners and if you do not want your competitors to get richer at your expense, are important, then a partnership agreement will be required.

Reason 6 – Even if a partner’s conduct is akin to gross misconduct, they are disqualified from their profession, they have committed murder, it is reasonable not to have a right to expel them

The principle of the partnership is “partners until death do us part”, so no matter what behaviour or scenario affects another partner, once in the partnership they have guaranteed membership for life, then you may not need a partnership agreement.

If you want to check the law for yourself – the Partnership Act 1890, section 25 provides that no majority of the partners can expel any partner unless power to do so has been conferred by express agreement between the partners.

If on the other hand you may be concerned with not having an effective remedy if a partner breaches an agreement, suffers prolonged mental or physical ill health, becomes insolvent, gets disqualified, ceases to hold relevant qualifications, neglects to perform his or her duties, is found guilty of a serious criminal activity or otherwise brings the partnership into disrepute, then a partnership agreement will be required.

Reason 7 – It is reasonable for one partner to take full responsibility for paying the debts and liabilities of a bankrupt partner

If your business partners all become bankrupt and the partnership has liabilities to pay, if those liabilities are either not covered by insurance or there is no insurance at all and you are happy to meet all the liabilities yourself, as your partners do not have the means, then you may not need a partnership agreement.

If you want to check the law for yourself – the Partnership Act 1890, section 9 provides that every partner in a firm is liable jointly with the other partners for all the debts and obligations of the firm.

Whilst there are some finer distinctions to this rule, the joint liability rule is a sound principle on a statutory footing.   Furthermore, keep in mind another consequence of partnership is that all partners are jointly liable for (a) wrongful acts and omissions of the other partners – in other words all partners are jointly responsible for the negligence of another partner; and (b) the misapplication of property or money received from third parties by one partner – in other words all partners being jointly responsible for another partner “doing a bunk” with a client’s money.

So if you don’t fancy being the “fall guy” and having to risk losing your home and jeopardising the financial integrity of your family assets, then a partnership agreement will be required. Moreover, depending on the nature of the business and availability of insurance, it may even be necessary to incorporate your partnership into a limited liability partnership (LLP); the subject of which is a blog for another occasion.

Concluding thoughts…

In conclusion, you may not need a partnership agreement and you can save yourself the money in having one prepared, if (and only “IF”) :

  1. You and your business partners are immortal;
  2. It is reasonable for any one partner, at any time, to put the business into dissolution;
  3. You and your business partners are happy to divide profits and losses equally, even if you have contributed different amounts of capital;
  4. It is reasonable for a majority of partners to oppress the minority;
  5. It is reasonable for a partner leaving the business to (a) freely take with them existing partnership clients (b) work for local competitor (c) poach existing partnership staff;
  6. Even if a partner’s conduct is akin to gross misconduct, they are disqualified from their profession, they have committed murder, it is reasonable not to have a right to expel them; and
  7. It is reasonable for one partner to take full responsibility for paying the debts and liabilities of a bankrupt partner.

However, if none of the above applies to you and you are in a partnership, then you really should consider putting a partnership agreement in place.

If you have any questions relating to this blog then please contact Spencer Laymond, our company law specialist either by email at mailto: spencer.laymond@curwens.co.uk or by telephone on (020) 8363 4444.

Accountants – 7 pitfalls to avoid when buying Gross Recurring Fees

For my latest blog, I’m grateful to my colleague, Spencer Laymond for reference to his Report for Accountants “7 pitfalls to avoid when buying Gross Recurring Fees”.  This is just an extract from the much longer and more detailed Report which is available direct from Spencer on 0208 363 4444  or by email  spencer.laymond@curwens.co.uk

“Introduction

Buying a block of gross recurring accountancy fees can be an exciting and stressful time. Exciting – because with the right deal, the additional fees can be an effective mechanism to your grow your business. But stressful – because even with the right deal, if the structure is wrong, or if certain pre-purchase checks are not made, the acquisition can have disastrous consequences.   Even with that fantastic potential (“red ribbon”) acquisition,  one has to be very careful.  According to Dr William G. Hill  the “red ribbon rule” says that if a deal sounds too good to be true, then it is too good to be true! Particular care must be taken to avoid the potential pitfalls.

What are these pitfalls?

There are many potential pitfalls that could arise and for convenience we have placed them into the following 7 categories:

Pitfall 1 – The seller does not own the goodwill.     The issue is that goodwill and turnover are not interdependent. Looking at the measure of what a business takes from an analysis of the profit and loss account, whilst a relevant indicator, it is only an indicator. Importantly, turnover is not conclusive evidence that the goodwill generating the turnover is actually owned by a person selling.

Pitfall 2 – Past performance does not equal future performance.     Rather than considering any specific reasons why future performance may not equal past performance, we look at the two main ways to protect against this pitfall.  First through pre-purchase due diligence, and second with a price adjuster clause in the purchase agreement.

Pitfall 3 – Relying on seller warranties rather than a price adjuster clause.    Suing for breach of warranty should be considered a remedy of the last resort. It involves a legal process which may have inherent uncertainties in terms of costs, outcome and time involved. Accordingly we recommend, when buying a business priced on the actual performance (an earn out), both a price adjuster clause and suite of warranties should be incorporated.

Pitfall 4 – Acts of God.     What are we trying to get at here? Well, in general terms, any major event that, irrespective of probability, if it arose would create a material issue for the buyer.

Pitfall 5 – Misunderstanding the implication of the Transfer of Undertakings (Protection of   Employees) Regulations 2006.      Where an accountant is buying a block of gross recurring fees, the risks of TUPE cannot be ignored.   We highlight that the transfer of staff is automatic and it is statutory i.e. the buyer and seller cannot as between themselves merely agree which members of staff transfer.

Pitfall 6 – Buying the shares in a limited liability company.     The main issue, and the reason for this pitfall, is that when acquiring shares in a company, a buyer will acquire the company with all of its historic, current, prospective and contingent liabilities.

Pitfall 7 – Not accounting for integration of systems, cultures and office space.     The extent of the issue is likely to be determined in part through the due diligence process, but in part, for a number of reasons, there may be a number of factors where it is impossible to fully account for.  The answer may fall into the overall price / price mechanism you are prepared to agree on.

Concluding thoughts and next steps

We can offer a number of services to assist with the process of spotting or dealing with a red ribbon acquisition, that is too good to be true – from legal due diligence to drafting and negotiating the purchase agreement – it’s then down to you to implement the plan to win over client relationships.”

Spencer Laymond       0208 363 4444

Partner, Curwens LLP               

www.curwens.co.uk

9 Reasons to make a Will

Radio 2 recently reported on research that found the majority of adults do not have a valid will in place. Given the relatively low cost of having one professionally prepared, there is no excuse and it can avoid a potential mess being left behind for your loved ones to clear up.

And if you still need convincing – read on……

 1.   You get to choose who benefits from your estate

  •  without a will, the intestacy rules apply and there is no provision for unmarried partners
  • if a couple die together and have no children, there is a presumption that the younger survived the elder, so everything goes to the younger’s relatives

 2.   It ensures your wishes are binding

  •  the executors dealing with your will are required to comply with certain rules

3.   You make sure the funeral arrangements you want are clear

  •  it is still important to make your next of kin aware of your wishes as the funeral may take place before your will is even found

 4.   Allows you to have a voice about your children

  •  you can appoint legal guardians
  • if you want someone to care for your children who would not usually be considered their next of kin then you can explain your reasons

5.   It can safeguard your business

  •  you ideally need to consider in advance tax points such as IHT (Inheritance Tax) relief
  • decide who to leave as the majority shareholder – although this would also need to be in accordance with any shareholders agreement

6.   It enables you to leave gifts to charity

  •  many charities rely heavily on bequests in wills
  • these gifts are free of IHT

7.   It enables you to make minor/specific bequests

  •  the intestacy rules simply split your estate into percentages
  • you may prefer to make individual gifts of personal items eg jewellery

 8.   It allows you to choose your own executors

  •  you can save money with less professional involvement if you appoint friends or relatives
  • you can avoid overburdening your next of kin (at a time when they will be very emotional) as there is a presumption they will deal with the estate if there is no will

9.   It enables you to take advantage of some tax planning

  •  getting professional advice on a will includes reviewing your IHT position and how it will get paid

 If you would like to make a will, please contact our James Blakemore on 01992 631461 or email him at james.blakemore@curwens.co.uk

Curwens LLP is your local firm of solicitors offering most areas of legal advice – based in Royston, Hoddesdon and Enfield.

 

Landlord and Tenant Headaches

This month, I’m grateful to my colleague, Amanda Thurston, who wrote an article recently on this difficult topic.

 

“Landlord and Tenant law is a notoriously tricky area. It’s all too easy to get into difficulty. Whether you’re a Landlord dealing with a commercial lease or residential tenancies, the chances are that before too long you will come up against a “difficult” tenant.

Of course, if you are the tenant trying to negotiate fair terms for a new tenancy or lease you may well argue you are having to deal with a “difficult” landlord !

In our commercially minded world, Landlords and Tenants have to negotiate hard on many issues within a Tenancy or Lease including :-

  • break clauses,
  • service charges,
  • late payment of rent,
  • obligations for repairs

It’s very important for anyone in this position to get the right kind of legal and commercial advice – particularly in respect of dilapidations (in commercial premises), where an experienced surveyor can even be instructed to carry out a valuation to help negotiate a fair settlement.

Arguably, there is extra pressure on residential Landlords as, whether you have just one buy-to-let property or a large portfolio, you need to ensure you have completely up to date advice on all matters regarding how to enforce your Tenancy Agreement. The process of evicting a non-paying tenant is even more of a minefield. It’s so easy to make a simple mistake when dealing with a residential tenant and if your Court application fails, it can leave you out of pocket for outstanding rent and the Court costs.  Even worse, you could still be stuck with the non-paying tenant and have to start the eviction process all over again.

For the unwary, there are far too many traps to fall into. Our advice is – take good legal advice!  At Curwens’ Hoddesdon office, we have a new commercial property solicitor who has recently joined us – Jolyon Bland – he can be contacted at Jolyon.Bland@curwens.co.uk”

http://www.curwens.co.uk

 

 

Still not networking ?

Curwens LLP Logo HIGH QUALITY smaller                                                                                                             NEM new profile pic March 2013

It does surprise me just how often I go to open networking events, such as those at the North London Chamber of Commerce and find that I’m the only solicitor in the room.

That’s fine for me, because I make plenty of business connections which  develop into business relationships – and that takes time, as we know – but what about the thousands of other businesses who are struggling to make connections ?  I do wonder how others are getting to meet fellow business people in their local communities.

I’ve noticed that the networking meetings list is growing, particularly in North London and Hertfordshire, with a whole range of events (often in pubs!) which gives us the opportunity of meeting informally and testing out the potential for another conversation at another time.  Those of us who are in the Chambers of Commerce, BNI, Athena or similar much more focussed networking groups know the value of follow-up after that first introduction – whether just over a cup of coffee or a longer one-to-one meeting.

People will do business with people they get to know, like and trust and who are willing to help them, so I’m always encouraging our younger solicitors to develop that approach with people they meet.

Don’t be afraid of rejection. They do say “you have to kiss a lot of frogs before you find your handsome Prince“. So if you don’t hit gold first time round, keep trying and keep the mind-set to ask about the other person first. You never know who you’ll be able to help and who in turn will help you improve your own business connections.

My suggestion to anyone who is looking for more business but is not yet attending networking events is to take a deep breath, grab a pile of your business cards and get out there (with a smile, a firm handshake and an open mind) to widen your network…..and don’t forget to follow-up / follow-up / follow-up!  I’m not an expert, but if you’re still thinking about trying networking and want to talk it over, just give me a ring – 0208 363 4444.  I’m happy to help !

What is “BYOD”? You need to know…..

BYOD = “Bring your own device” No – I didn’t know it meant either until recently, when we realised that a lot more of our employees were having to log in remotely to keep in contact with us, so this is becoming very important for employers.

What is “bring your own device” (BYOD)?

Many employees now own personal mobile devices (such as tablets, smartphones, laptops or notebook computers) that can be used for business purposes. Businesses are receiving an increasing number of requests to allow employees to use these devices at work and, of course, this creates risks as well as benefits.  If this is a situation which affects your business, we would strongly advise discussing this with your employee.

Benefits

BYOD can bring a number of benefits to businesses, including:

  • Increased flexibility and efficiency in working practices.
  • Improved employee morale and job satisfaction.
  • A reduction in business costs as employees invest in their own devices.

Risks

Personal mobile devices are owned, maintained and supported by the user, rather than the business. This means that a business will have significantly less control over the device than it would normally have over a traditional corporately owned and provided device.

Securing data stored on the device is vital and a business should

  • require the use of a strong password to secure the device and use encryption to store data on the device securely.
  • be aware that a business is responsible for protecting company data stored on personal mobile devices.
  • consider implementing security measures to prevent unauthorised or unlawful access to the business’s systems or company data, for example, ensuring that access to the device is locked or data automatically deleted if an incorrect password is inputted too many times.

There is also risk of exposure to damage to the business’s:

  • IT resources and communications systems.
  • Confidential and proprietary information.
  • Corporate reputation.

Mobile Device Management

The business should ensure that its employees understand what type of data can be stored on a personal device and which cannot. Mobile Device Management software allows a business to remotely manage and configure many aspects of personal mobile devices – typical features include:

  • Automatically locking the device after a period of inactivity.
  • Executing a remote wipe of the device (make sure employees are aware that devices can be automatically or remotely deleted and in which circumstances).
  • Preventing the installation of unapproved apps.

Monitoring use of the device

If a business wants to monitor employees’ use of personal mobile devices, it must:

  • make its reasons for monitoring clear; and
  • explain the benefits the business expects will be delivered by monitoring (for example, preventing misuse of the device).
  • ensure that monitoring technology remains proportionate and not excessive, especially during periods of personal use (for example, evenings and weekends).

Loss or theft of the device

  • The biggest cause of data loss is still the physical loss of a personal mobile device (for example, through theft or by being left on public transport).
  • Loss or theft of the device could lead to unauthorised or unlawful access to the business’s systems or company data. The business must ensure a process is in place for quickly and effectively revoking access to a device in the event that it is reported lost or stolen.
  • Businesses should consider registering devices with a remote locate and wipe facility to maintain confidentiality of the data in the event of a loss or theft.

Transferring data

BYOD arrangements generally involve the transfer of data between the personal mobile device and the business’ systems. This process can present risks, especially where it involves a large volume of sensitive information. Transferring the data via an encrypted channel offers the maximum protection.

Employees should avoid public cloud-based sharing which has not been fully assessed. Businesses should consider providing guidance to employees on how to assess the security of Wi-Fi networks (such as those in hotels or cafes) and think about how it will manage data held on an employee’s personal mobile device should the employee leave the business.

 

For more information, contact me on 0208 363 4444

http://www.curwens.co.uk