What is a force majeure clause?

Force majeure clauses are commonly found in commercial contracts and seek to suspend or excuse one or more parties from performance of their contractual obligations if an event occurs that is outside their reasonable control.

With the coronavirus outbreak now becoming a global concern as the disease spreads across Europe, it begs the question as to whether companies will be able to declare the epidemic a force majeure event.

What does ‘force majeure’ mean?

Rather unhelpfully, force majeure is a term deriving from French law and doesn’t have a recognised definition or meaning under English law. This means that any force majeure clause must be carefully drafted to include the specific types of events that the parties want the provision to cover, for example: fire, flood, industrial action or in the case of coronavirus, disease.

What if there isn’t a force majeure clause in the contract?

A force majeure clause cannot be implied, consequently, there will be no protection for parties without an express clause in the contract. Even if the contract does contain a force majeure clause, there is no certainty that a party will be able to successfully rely upon it.

In the absence of an express clause, the common law doctrine of frustration may apply in circumstances where a contract has become impossible to perform due to an unforeseen event. The effect of frustration is that a contract will be automatically discharged and the parties are excused from their future obligations.

Can I invoke the force majeure clause in response to the coronavirus outbreak?

The English courts have typically interpreted force majeure clauses strictly so it is not guaranteed that you will be able to successfully rely upon it. The clause will require careful analysis to establish whether it covers events such as “disease” or “epidemic”.

You would then need to show that you have been prevented, hindered or delayed from performing your obligations directly due to the coronavirus outbreak.

What should our business do?

If you are concerned about the impact of the coronavirus on your business, you should review your contracts and consider time limits and notice requirements under any force majeure clauses. The defaulting party is usually required to use its reasonable endeavours to prevent or mitigate the effects of the force majeure event so it is important that you take any appropriate mitigation steps before invoking the clause.

Going forwards, it would be sensible to consider whether your current force majeure clauses adequately cover potential eventualities outside your control that could prevent you from performing your obligations under any existing or future contracts.

If you would like to discuss the impact of coronavirus on your commercial contracts please contact Liz Appleyard of our Commercial Team on 01908 396230.

A Buyer of a Company will typically want a way to calculate the equity value of what they are buying.  Purchasing a Company without any way to make adjustments to the price needs careful thought, and professional consultation. There are two generally used ways of making adjustments:

Completion Accounts

Any adjustments to price are made by reference to the Company’s balance sheet as at the date of purchase, prepared after the date of purchase. Typically, an initial amount of the price is paid at Completion usually based on an estimate of the final balance sheet. Any adjustment is then made once the Completion Accounts are agreed. Any adjustments to price are usually on a pound for pound basis. The Sale Agreement will need to detail how these accounts are prepared; the accounting policies to be used; any pre-agreed basis upon which a particular asset or liability will be treated; who will prepare them; timescales for preparation and review by the other party; and how any disputes will be resolved. Typical areas of dispute may include providing for liabilities of uncertain amounts; provisions around bad debts/stock; new provisions that did not feature in the Company’s previous accounts. If the Contract has been properly drafted and professional advice taken disputes are unlikely to arise!

Locked Box

Typically, any adjustments to value are made to the Company’s balance sheet which is prepared at a date prior to completion of the purchase. The Seller will give contractual assurance to the Buyer as to the accuracy of such balance sheet, which if they turn out to be incorrect gives the Buyer the right to make a claim against the Seller for loss suffered (unlike the pound for pound adjustment under Completion Accounts). In addition, the Contract between the Buyer and Seller will prohibit money and assets being taken out of the Company for the benefit of the Seller and its connected persons from the date of the agreed balance sheet until completion. Such payments are known as “Leakage” and in circumstances where there are known payments these are allowed and termed “Permitted Leakage” – eg, payment of rent by the Company to a shareholder/shareholders pension fund. Because the balance sheet is prepared before Completion a certain amount of due diligence should be carried out on it by the Buyer.

Which method is used will depend on the particular circumstances of the deal, and it should be noted that the Completion Accounts process can be used for both share and trade/asset purchases.  In any event, professional advice should be sought at an early stage and throughout the purchase process to ensure the legal documents accurately reflect how the deal is priced and what adjustments may be made.

For further information Talk to Tollers. Partner, Matthew Crosse, has over 20 years’ experience advising those buying and selling businesses and companies, including management buy outs and private equity fundraising. You can contact Matthew on 07720 561328 or by emailing matthew.crosse@tollers.co.uk

The question of whether or not software amounts to goods or services crops up in various situations and has been the subject of debate for some time. The Court of Appeal has recently provided some clarity on the issue specifically in the context of the Commercial Agents (Council Directive) Regulations 1993 (the Regulations).

The Regulations enhance and protect the position of commercial agents vis-à-vis their relationship with the principal appointing them. The Regulations only apply to agents who sell or purchase goods and not those dealing in services but they do not go on to define what “goods” are.

When the Regulations came into force in 2003 the DTI at the time stated that it considered that the definition of Goods in the Sale of Goods Act 1979 was a reasonable guide, although not necessarily absolute. This definition relates to tangible goods. In today’s world, given the development of new technologies since the Regulations came into force, the leading Judge in the most recent case commented that the distinction between tangible and intangible goods seems artificial in today’s world but that it was not up to the court to update the definition of goods by judicial interpretation. This was a matter for parliament.

The case in question involved the release of software by means of an electronic download. The Court recognised that the distinction between tangible and intangible goods was difficult as for example the supply of a back-up disk would amount to goods whereas the electronic download of software does not; similarly the sale of a book is goods but the download of an e-book is not.

In a post Brexit world the scope of the Regulations is something that should be addressed by Parliament. The Regulations stem from an EU Directive and change is unlikely to happen before the UK leaves the EU. The possible options are that the definition of goods in the Regulations could be extended to include computer software; that the Regulations be extended to provide protection for commercial agents selling services as well as those selling goods; or to extend the Regulations to cover the new category introduced by the Consumer Rights Act 2015 – digital content.

A significant expansion of the scope of the Regulations will be unpopular with principals but the position is not fit for purpose in the modern digital age.

If you would like more information in relation to the Regulations, Talk to Tollers on 01908 396230 and ask for Liz Appleyard in our Commercial Law Team.

As the news is reporting with increasing frequency the chances of there being a no-deal Brexit are looming increasingly large. Whilst politicians on all sides struggle to reach agreement on the UK’s withdrawal from the EU businesses should be preparing for Brexit as best they can.

A starting point for every business is to carry out a Brexit risk profiling exercise. This is so that the Company can identify what risk Brexit poses for the business and, where possible, steps are taken to mitigate these risks.

Key areas to review are:

1. Continuity of supply

Does the business require any particular market authorisations? Financial services and pharmaceuticals are key risk areas. Licences may be required and current certifications may no longer be recognised.

2. Supply chain issues

Consider the commercial impact of delays and costs that might be incurred if import and export formalities with the EU are imposed similar to those which currently exist for business outside of the EU.

3. Compliance with EU law

EU law will not disappear. Businesses in the UK that trade in Europe will still need to comply with certain directly applicable EU Laws such as GDPR.

4. Contracts

Review your current contracts. Look at the definition of Territory – is this defined as the EU? Would contracts be better if migrated to a different group company? Are there any provisions in existing contracts that may be rendered ineffective, uncertain or undesirable because of Brexit? Consider a renegotiation or exit strategy.

5. Registration of intellectual property rights

EU registrations of trademarks and registered community designs will continue to provide protection in relation to the EU member states. Existing European Patents will be unaffected as the EU Patent system is not connected to the EU but exists as a result of an international treaty.

If you hold EU trademarks consider separate UK registrations if these are not already in place.

6. Governing law and jurisdiction clauses

The choice of governing law in contracts is largely expected to be unaffected by Brexit.

During the transition period (March 2019 – December 2020) the current rules on jurisdiction and enforcement of judgments will continue to apply where proceedings are commenced before the end of the transition period. This has been confirmed by a joint statement published in June 2018 by the UK and EU negotiators. The position from 2021 onwards is not yet clear but the UK does intend to accede to the Hague Convention on the Choice of Court Agreements.

Businesses should be reviewing their Brexit risk profile now and considering any changes to processes or contracts that need to be put in place before 29 March 2019. If you would like to discuss issues arising out of Brexit that may affect your business please Talk to Tollers and contact Liz Appleyard of our Commercial Team on 01908 396230.

Earlier this year Skansen Interior Limited (Skansen), a small interior design company, was found guilty under section 7 of the Bribery Act 2010 for failing to prevent bribery. This is the first UK contested case where the defendant had tried to rely on the “adequate procedures” defence against the charge of failing to prevent bribery. Until now, there has been limited guidance available to businesses as to what constitutes “adequate procedures”.

The background to the case is that during a tender process for refurbishment contracts worth in total £6 million, Skansen made two payments to a senior employee within the customer’s tender team. In exchange, Skansen received an advantage and won the tender. A third payment was discovered and stopped by Skansen’s management who reported the matter for investigation. Despite Skansen’s co-operation, it was prosecuted for failing to prevent bribery.

One of the arguments Skansen’s lawyers put forward in defence was that the size of Skansen’s business (being less than 30 employees) meant that sophisticated anti-bribery controls were not necessary. The jury disagreed and Skansen was convicted. The only penalty available in this case was an absolute discharge due to the fact that Skansen was a dormant company with no assets at the time of trial. Many will interpret the decision to prosecute Skansen on this basis as a clear message that even small businesses must still comply with the Bribery Act.

During due diligence and warranty negotiations in merger and acquisition deals, we often hear that the target company couldn’t possibly be involved in bribery and that bribery considerations are irrelevant. This case illustrates that bribery can occur in all sorts of companies, including SMEs and owner-managed businesses and must be considered seriously.

Buyers (and their lenders) are likely to be more cautious to this risk now and accordingly will carry out enhanced due diligence and demand stronger contractual protections. On the other hand, sellers should consider these issues carefully and review their anti-bribery procedures and documents.

Talk to Tollers!

Tollers are able to advise you on the risks associated with the Act and how best to tackle these risks in the context of an M&A deal.

Please contact either Craig Harrison on 01908 306937 and craig.harrison@tollers.co.uk or Ryan Chia on 01908 306948 and ryan.chia@tollers.co.uk.

Early last month the Corporate Services legal team at Tollers advised that the tax advantages of Enterprise Management Incentive (EMI) share option schemes had been suspended indefinitely whilst the UK Government sought EU State Aid approval for continuing the scheme. This lapse was a surprise given the longevity and popularity of the scheme. Our advice at the time of the suspension was to delay the grant of new EMI share options until State Aid had been reinstated and certainty over the tax treatment of EMI share options had returned.

The team are pleased to say that the EU State Aid approval is now back in place and that the tax benefits available under the EMI scheme have been reinstated. The announcement was made by the EU yesterday and can be found here: EU Press Release for EMI Share Options. It was also confirmed on Twitter earlier today EU Commission Competition Department.

The press release advises that “The European Commission has approved under EU State aid rules the prolongation of the UK Enterprise Management Initiative scheme, which reduces the taxation of employee share options for small and medium sized enterprises (SMEs)”. In the Commission’s assessment, it found that the extension of the measure is necessary to help UK SMEs attract and retain talented and skilled personnel. Without prejudice to any provisions of the UK’s withdrawal agreement, the approval will apply until the UK ceases to be a member of the EU.

This is great news for those businesses that were delaying the grant of EMI share options and means that they can now press on with their plans to attract and retain key employees using EMI incentives.

For further information on this issue or employee share options in general please contact Craig Harrison at craig.harrison@tollers.co.uk or call him on 01908 306937.

Businesses generally keep their business website under constant review to add new products and services, case histories and other information. Next time your business reviews its website consider whether or not the website complies with the legal requirements relating to information that must be provided.

Registered Information

For a UK registered company, the website needs to display basic details about the company.  This consists of:

If the business is not run by a registered company the website should provide the following information:

In either case, the following must also be provided:

Protection of privacy and intellectual property rights

In addition to details about the business a website should also include the following:

Cookie Policy

Cookies are used to obtain information about visitors to the website. It is a requirement of the Privacy and E-commerce Regulations that the operator of a website provides information on the use of cookies and obtains consent to their use.

Privacy Policy

Under the Data Protection Act 1998, if a business uses personal data relating to a visitor to its website, then it must have a privacy policy or data protection notice on its website. ‘Personal data’ is information about the visitor that makes them identifiable and also data which lets the business know about the visitor’s online behaviour when visiting the website. The Privacy Policy is therefore needed to inform that individual of what personal data will be collected and how it will be used.

Terms of Use

A business should also include terms of use on its website. These terms of use regulate access to and use of the website, protection of the intellectual property included on the website and an exclusion of liability for the protection of the website operator.

If you would like more information to ensure your website is fully compliant, Talk to Tollers on 01908 396230 and ask for Liz Appleyard in our Commercial Law Team.

On Wednesday 4th April HM Revenue & Customs (HMRC) published its Employment related securities bulletin No 27 (April 2018) in which it advised that EU State Aid approval for Enterprise Management Incentives (EMI) share option schemes, will expire on 6 April 2018. The tax relief associated with EMI share options is technically a form of state aid to the companies granting such options and therefore requires approval from the EU Commission.

The full terms of the note can be found here: HMRC ERS Bulletin No.27 (April 2018) EMI State Aid

The good news is that HMRC considers that EMI share options granted up to and including 6 April 2018 (and shares acquired under these options) will not be affected by this lapse of the approval.

The bulletin indicates that EMI share options granted in the period from 7 April 2018 until State Aid approval is renewed “may” have to be treated as non tax-advantaged options. HMRC is recommending that:  “Companies may wish to consider delaying the grant of employee share options intended to qualify as EMI options until fresh EU State Aid approval has been given.”

Currently, there is no guidance on how long this period of uncertainty will persist.  However, HMRC’s bulletin states that the Government is working hard to ensure this period is as short as possible.

EMI share options are extremely tax-advantaged and have been a great success in assisting high-growth companies recruiting and retaining key employees. Notwithstanding the failure to renew EU State Aid approval prior to its lapse, there is no indication that the Government intends to withdraw the benefits associated with EMI share options.

The uncertainty over how long it will take to obtain EU State Aid approval for EMI share options will create complications. The grant of EMI share options is almost always based on a valuation of the business agreed with HMRC. Typically such valuations are valid for 60 days from the date of reaching agreement, but companies can request HMRC to extend this period for up to a further 30 days. Any significant delay in obtaining EU State Aid approval for EMI share options could mean some companies will need to either request an extension or reissue their valuation application in respect of proposed EMI options that were not granted on or before 6 April 2018.

For further information on this issue or employee share options generally please contact Craig Harrison at craig.harrison@tollers.co.uk or on 01908 306937.

No doubt many of you have been inundated with invites to seminars to discuss GDPR. However, the reality is that it is coming into force on 25th May 2018 and we all need to be ready for it.

Handy HR steps to follow:

Don’t forget that GDPR compliance is not just an HR issue but affects the whole business. To get ready for GDPR, you’ll need to:

  1. Make sure you have the resources to get ready. Getting compliant can cost time and money, so get the powers that be on board;
  2. Carry out a data audit. What personal data do you hold and where and what do you do with it?
  3. Ask yourself why you’re holding that data. Do you actually use it?
  4. Ask yourself if you have a legal basis for processing personal data?
  5. Update your policies and review your employment contracts;
  6. Review and update your internal processes. You’ll need to know how to restrict someone’s data if they ask or be able to detect security breaches;
  7. Review and update any commercial contracts or contracts with third parties;
  8. Appoint a person responsible for data protection compliance within your organisation;
  9. Train those will be responsible for data protection compliance; and
  10. Keep it under review! It’s important to stay compliant.

What does this mean to you?

Failure to comply with GDPR can result in a fine of up to €20,000,000 or 4% of your global turnover, whichever is higher. There are also various criminal offences. Remember the Information Commissioner’s Office (ICO) is likely to be harder on those companies who have done nothing.

Talk to Tollers

If you haven’t updated your handbooks or reviewed your contracts, now is the time to do it. At Tollers we’re here for you, so why not let us review your handbook and contracts and help bring them line so that they’re GDPR compliant. We can also review your commercial or third party contracts and terms of business, so Talk to Tollers.

We are happy to come out and see you to discuss your GDPR needs and see how you’re getting on with GDPR compliance. If you’d like us to visit then please contact us. We’re here for you.

Protecting your Business

If you are the owner of a business, whether that be as a Sole Trader, Partner or Director, you may have recognised the importance of obtaining “Key Man” life insurance should you pass away, but have you given consideration as to what would happen to your business if you lost mental capacity?

Mental capacity could decline or be lost due to any number of factors, including illness, brain injury, stroke or as the result of an accident. It is important to note that losing capacity is not just a risk to be associated with the elderly and diseases such as dementia.

Many business people assume that their next of kin would automatically step in or that informal arrangements within the business are sufficient in these circumstances, but this is not the case. There is no automatic legal authority for anyone to take on your role and this could have damaging consequences for your business.

If you were to lose capacity tomorrow, consider your employees – how would they be paid? There may be no authority in place for money to be paid out of the business accounts and so VAT payments, supplier invoices, rent, insurance and other contractual business payments could be left in arrears. In addition, there is unlikely to be an alternative arrangement for signing cheques, accessing bank accounts and completing or authorising ongoing contractual transactions generally.

It’s easy when you know how

Protecting your business in the event of incapacity, whether permanent or temporary, is simple: Make a Lasting Power of Attorney (LPA).

A Lasting Power of Attorney is a document which allows you to appoint a person or people you would trust to manage your property and financial affairs, should you become unable to do so.

The LPA document gives you complete control by allowing you to choose who to appoint and, if more than one person, how they make decisions between them. LPAs can be made to deal with property and financial decisions in your business and also for you personally and so you can make separate documents to run concurrently, with different Attorneys on each, should you see fit.

As well as resolving the issues set out above, an LPA has further practical benefits in that it can be used with your consent whilst you have capacity. This can provide flexibility for extended holidays, business trips, temporary stays in hospital or general absence through illness.

If you lost capacity without an LPA in place, the process that follows can be lengthy, complex and expensive and involves an application to the Court for someone to act on your behalf. At this stage, you would have no control over who applies for this authority and they may be given permission to act for both your personal and business matters.

It is clear to see that a Lasting Power of Attorney is an invaluable and essential protection for any business. Prepared at Tollers by qualified lawyers for a competitive fixed cost, can you afford not to protect your business?

For further information Talk to Tollers’ Trusts and Estates Team today.

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