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

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.

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.

It is undeniable that Brexit continues to dominate the business landscape in the UK. Following confirmation by the European Council in December that sufficient progress had been made on the first phase of talks (the Brexit bill, the rights of EU citizens and the Northern Irish border) to start discussions on an implementation period and the future trading relationship between the UK and the EU, attention will now turn to the details of that future relationship.

Services are an incredibly important part of the UK economy and ministers have wasted no time in trying to enlist support for the view that a Brexit deal should include financial services, despite the EU’s stance being entirely the opposite. The notion of a “Canada plus plus” trade deal, replicating the Canada-EU trade deal, but with an additional agreement on services, including financial services may have support in the UK, but it is vehemently opposed by the EU.

EU financial markets continue to grow and improve in efficiency, due mainly to the harmonisation of rules, the removal of barriers, greater competition and the development of new technology. Regulation and legislation play a key role in the first three of these growth factors and since UK financial services regulation has to comply with European law, untangling this position will be challenging. To illustrate the degree of the problem, it is thought that 70% of the policymaking effort of the Financial Conduct Authority (FCA) is driven by European initiatives.

Last month the FCA published a statement on the UK’s withdrawal from the EU, coming out (unsurprisingly) in support of free trade in financial services. The statement can be found in full by clicking this link.

The key points in the FCA’s statement are as follows:

Clearly the FCA and the Government are keen to assist relevant firms in navigating the issues that arise from Brexit but, as far as the future trading relationship in financial services provided from the UK into the EEA is concerned, there is little clarity at present.

Tollers will continue to review and report on topics related to Brexit and its impact on our clients.

Tollers are delighted to announce a new addition to the firm’s Commercial Services Business Unit. Craig Harrison joined the firm on 2nd January as a partner and head of the firm’s corporate and commercial team.

Craig is a highly accomplished corporate solicitor, having spent over 17 years acting for corporates,  professionals and owner managed businesses both in London and the surrounding Home Counties, providing advice, guidance and support across a wide range of corporate transactions including mergers and acquisitions, investments, share buybacks, share option schemes, financing arrangements and joint ventures.

Craig brings a wealth of experience to the team having trained and qualified with Watford based commercial law firm Matthew Arnold and Baldwin (MAB).  He joined MAB as a trainee in 1998, qualified in 2000 and became a partner in 2008. Following a year travelling, Craig joined Hertfordshire based Longmores Solicitors as their head of corporate and commercial where he established and developed a successful corporate practice for the firm.

Craig says “I am relishing the opportunity to work with the team at Tollers. I believe in leading by example and showing clients how we can add value to their businesses and organisations.”

As head of the corporate and commercial team, Craig’s vision is to build on Tollers’ successes supporting businesses to date by creating a cohesive team of lawyers that deliver commercially astute and client focused advice to Tollers business clients.

Craig goes on to say: “It is important to recognise that in such a fast-moving legal climate, clients will often want much more than traditional legal advice.  Commerciality in approach is what many clients now demand and at Tollers we can deliver a seamless service with a commitment to providing solutions and ensuring that our clients make the most of their opportunities.”

Duncan Nicholson, Tollers Managing Partner, says “We are delighted to have Craig on board, he brings a wealth of expertise and gravitas to the team and will ensure that Tollers continues to provide the highest calibre legal advice to the sectors and markets we serve.  The firm’s Commercial Services division can only benefit from having such a well-respected and experienced solicitor heading the team”.

Craig will base himself in Tollers’ Milton Keynes office and will manage the firm’s corporate and commercial operation across all of the Tollers offices.

Outside of work Craig is an avid sportsman and enjoys golf, cricket and scuba diving and the firm are looking forward to introducing him to the many sporting activities that we participate in.

If you would like to meet Craig and find out how the team can assist you, talk to Tollers on…. 01604 258558 or email craig.harrison@tollers.co.uk .

The Small Business, Enterprise and Employment Act 2015 has been phased in at various stages since it received royal assent in March 2015.

One of the headline corporate changes becomes effective today (6 April 2016). From this date, companies and Limited Liability Partnerships (“LLPs”) will be required to maintain a register of Persons with Significant Control (a “PSC”). This covers both individuals and corporate entities. The purpose of this change is to encourage transparency over corporate ownership with a view to reducing financial crime including money laundering and tax evasion. Accordingly, companies and LLPs must disclose details of their major shareholders who have or exert significant control or influence.

From 30 June 2016, all companies and LLPs will be required to file at Companies House details of all PSCs. This will be delivered together with the new confirmation statement (which will replace the annual return from 30 June 2016). As with the annual return, the information filed in the confirmation statement will be publicly available (with the usual exception of the PSC’s residential address).

In certain circumstances, PSC details can be withheld if that person is at serious risk of harm or intimidation due to the activities of, or association with, the relevant company or LLP. Those persons who qualify as a PSC have 12 weeks in which to relinquish or dispose or their interest or control in order to avoid appearing on the PSC register.

A person is deemed to hold significant control over a company if they:

–          hold more than 25% of shares or voting rights (whether directly or indirectly);

–          have the power to appoint or remove the majority of the board of directors;

–          exercise, or have the right to exert, significant influence or control over the company; or

–          exercise or have the right to exert significant influence or control over any trust or other entity which satisfies any of the above conditions.

Draft guidance has been published in respect of LLPs which indicates a similar approach to companies based on 25% or more of rights to assets of the LLP on a winding up, 25% or more of voting rights of LLP members, and the right to appoint or remove a majority of the management team of the LLP.

The statutory guidance for companies (which can be accessed via the web addresssets out a number of factors and examples which are indicative of significant influence or control.

The obligation to maintain a register includes noting where there are no registrable PSCs, if the company or LLP believes it has registrable PSCs but has not been able to confirm the relevant details, or if the company or LLP does not have the relevant information having made reasonable steps to investigate. A PSC itself is obliged to provide the relevant information to the company or LLP. Failure to comply with these obligations is a criminal offence by every officer or registrable PSC in default, punishable by a fine and/or imprisonment of up to 2 years.

Companies and LLPs must make their PSC register available for inspection for free, but can charge £12 per request for a copy of the PSC register.

For more information, talk to Tollers! Our Corporate Law team can advise you on the PSC register requirements, your obligations in respect of the new changes and corporate governance generally.

In the case of CF Partners (UK) LLP v Barclays Bank PLC (September 2014) Barclays were found to have breached a duty of confidence by misusing confidential information provided to it by the claimant. The claimant provided information to Barclays in relation to a proposed acquisition. When the claimant’s negotiations with the target broke down, Barclays stepped in and bought the target which it later sold at a substantial profit. The claimant was awarded £10million in compensation.

The judgment in this case raises a number of interesting points:

There was no binding confidentiality agreement in place: 

In this case there was no binding contractual obligation on the defendants to keep information supplied confidential. However the Court referred to the equitable duty of confidence that exists when one party receives information that he knows or ought to know is fairly and reasonably to be treated as confidential.The equitable duty of confidence is outside of any contractual relationship and even if the parties do agree a contractual relationship this does not define the scope, duration and terms of the equitable duty.

What is confidential information? 

Barclays argued thatthe business proposition put to it by the claimant was based on publically available information and therefore was not confidential. The Court found however that this was not the case. The package of information represented a significant degree of skill in its compilation which had also been a time consuming exercise. The claimant had also gathered third party expressions of interest from reputable sources. As a result parties do need to be aware of the breadth of information that may be classed as confidential. The more time and effort taken in compiling and presenting the information in a robust, reliable and logical form the more willing a court will be to treat that information as confidential.

How will damages be assessed? 

In this case the substantial award of damages was based on a hypothetical negotiation. The Court started with the basic principle that damages are to compensate for the value of the information taken and stated that this could only be determined by looking at what would be paid by a willing buyer to the seller. Effectively Barclays was stripped of profits made on the transaction.

Recipients of information from third parties must take care. Even if they do not have a contractual obligation to keep the information confidential it may be subject to an equitable duty of confidence, the breach of which may lead to a significant claim for damages. The recipient must consider if it knows or believes the information to be confidential and it must also take into account how the information has been compiled and the likely investment in that exercise.

Directors of a public limited company did not want a particular corporate shareholder to be able to vote at a shareholders’ meeting. They suspected the corporate shareholder was owned by individuals who were trying to gain control of the plc. They feared those individuals would use the meeting to stop the company from passing shareholder resolutions to raise more capital. This would drive the price of the plc’s shares down.

The directors used their statutory powers under the Companies Act to ask the corporate shareholder whether any third parties held interests in its shares, and the nature of those interests. The effect of the Act, and the plc’s articles of association, was that if the shareholder did not give accurate replies its shares could be stripped of their votes.

The directors decided the corporate shareholder’s reply was materially inaccurate and stopped it from voting on the resolutions to raise more capital at the relevant shareholders’ meeting, in accordance with the provisions of the Act and articles.

The corporate shareholder claimed the directors’ actions breached their fiduciary duty to ‘only exercise [their] powers for the purposes for which they are conferred’, as set out in the Companies Act. It said the proper purpose of the rule allowing directors to disenfranchise shares if the shareholder failed to provide accurate replies to a request for information under the Act is to incentivise shareholders to provide the information requested. However, the purpose of the directors in disenfranchising shares in this case had been to try to stop the acquisition of the plc, which was an improper purpose.

The directors argued that they acted to satisfy another fiduciary duty – to promote the success of the company by acting in its best interests.

The High Court found in favour of the corporate shareholder ruling that:

It ordered that the corporate shareholder’s votes should be counted when deciding whether or not the resolutions to raise more capital had been passed.

On appeal, the Court of Appeal overturned that decision and ruled:

Company directors and company secretaries should, however, note that leave has been granted to appeal this decision to the Supreme Court.


Directors considering whether to exercise statutory powers and/or powers given to them in their company’s articles of association should take legal advice before taking action to ensure the exercise of their powers does not breach their fiduciary duty to act only for proper purposes.

Case law: Eclairs Group Ltd v JKX Oil & Gas Plc [2014] EWCA Civ 640

A business wrote three letters to a metal products wholesaler alleging the wholesaler was selling products in breach of a patent owned by the business. It threatened to take the wholesaler to court unless it provided an account of its profits on sales of the infringing products.

If a business threatens anyone in the UK with court action for breach of its patent, registered trade mark, registered design or unregistered design, the other party may be able to claim damages for loss suffered because of such threats, and an injunction, if the threats are found to be groundless. They are treated as groundless if the business’s ‘rights’ turn out to be invalid, there hasn’t actually been any infringement or the business has no real intention of enforcing its rights in court. However, there are defences, including that the business did not suspect its rights were invalid at the time the threat was made.

People who can apply to court can be anyone threatened by the letter or communication sent, even if it is not addressed to them (for example, distributors, agents or customers).

The test of whether a threat has been made is objective: would the letter or communication lead a reasonable person with knowledge of all the relevant circumstances at the date of the letter or communication understand that the writer intends to convey an intention to enforce their rights by bringing legal proceedings in relation to one of the relevant rights?

In this case the Intellectual Property Enterprise Court ruled that the business was liable for making groundless threats. There are plans to reform this area of the law to reduce the risk to rights owners of being sued for making groundless threats, but no draft legislation is yet available.


Case ref: FH Brundle v Perry [2014] EWHC 475

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