����������������� Danielle Kidd & Alasdair Wood 3 May 2012
������������ � Scope of update: � Dividends � Impact of "Enviroco" case � Meaning of "reasonable endeavours" / "best endeavours" � Directors duties � Bribery Act 2010 � Companies House second filing service / updated stock transfer form � Sensitive company names / name swaps under "same name" regime � Earn outs UKGroups/41224723 3 May 2012 2
������������������� � Statutory rules - Companies Act 2006 ("CA06") Part 23 ss 829 to 853 � "Distribution" defined in s.829 CA06 as: " every description of distribution of a company's assets to its members, whether in cash or otherwise " except : � bonus issue � redemption/purchase of own shares out of capital / unrealised profit � reduction of share capital � distribution on winding-up UKGroups/41224723 3 May 2012 3
������������������������������������� � Restrictions apply to all dividends - including fixed or preference � No distributions can be made except out of " profits available for the purpose " ie accumulated realised profits (to extent not distributed/capitalised) less accumulated realised losses (s.830(2) CA06) � Accumulated figures – no need for profit in relevant year ie look back � Distributions are made by individual companies not groups � " Profit"/"loss " include revenue and capital profits and losses UKGroups/41224723 3 May 2012 4
������������������������ � Holland v Revenue and Customs and Another [2010] 1 WLR 2793 � De facto directors and unlawful dividends � Progress Property Company Ltd v Moorgarth Group Ltd [2011] 1 WLR 1 � Unlawful distributions (transfer at undervalue) � Objective or subjective approach? UKGroups/41224723 3 May 2012 5
����������������� � Farstad Supply A/S v Enviroco Limited [2011] 1 WLR 921 � S736(1) of the Companies Act 1985 (restated in section 1159(1) CA06 provides that: "a company is a "subsidiary" of another company, its "holding company", if that other company: (a) holds a majority of the voting rights in it; or (b) is a member of it and has the right to appoint or remove a majority of its board of directors; or (c) is a member of it and controls alone, pursuant to an agreement with other members, a majority of the voting rights in it; or if it is a subsidiary of a company which is itself a subsidiary of that other company. " UKGroups/41224723 3 May 2012 6
����������������������� � Ensure statutory definitions of " subsidiary " and " group " are extended when transferring legal title to shares by way of security, so that the company retains its status as a " subsidiary " and remains part of the wider " group ". For example: "In this agreement, any reference to "subsidiary" and "holding company" shall have the meanings set out in section 1159 CA 2006, but for the purposes of section 1159 (1) CA06 a company shall be treated as a member of another company if any shares in that other company are registered in the name of (i) a person by way of security (where the company has provided the security) or (ii) a person as nominee for the company." � May use wider definition of " subsidiary undertaking " in section 1162 of CA06 UKGroups/41224723 3 May 2012 7
������������������������������� ���������������������� � "Reasonable Endeavours" – least onerous � In performing the obligation, the Obligor* can weigh up its obligations under the contract with its reasonable commercial considerations � The Obligor is not required to sacrifice its own commercial interests when satisfying the obligation. For example, if it is in the Obligor's commercial interests to delay performance it may do so � "Best Endeavours" – most onerous � The Obligor needs to pursue all avenues in satisfying the obligation * " Obligo r" means the relevant party who must perform the obligation UKGroups/41224723 3 May 2012 8
�������������������������������������� ��������������� � Jet2.com Ltd v Blackpool Airport Ltd [2012] EWCA Civ 417 � The Court will try to uphold the endeavours clause where the contract is already being performed � Clause upheld despite fact that performance would cause financial loss to the Obligor � Best approach: consider what steps the relevant party should be required to take and make express provision for this in the contract UKGroups/41224723 3 May 2012 9
�������������������� ��������������� ����������������� � Mactaggart & Mickel Ltd v Hunter [2010] CSOH 130 � EDI Central Ltd v National Car Parks Ltd [2010] CSOH 141 � When drafting, specify the following: � steps that the party must take to reach the desired outcome � any time limit for the obligation � whether expenditure is to be incurred and if so how much � whether the party has to take any legal action � how the parties will communicate with each other UKGroups/41224723 3 May 2012 10
���������!��������������������������" � There is no complete definition of who a director is � CA06 states that a director includes " any person occupying the position of director, by …...whatever name called " � The Act does not attempt a more detailed definition because it is important to ensure that the term is applied to anybody who exercises real power within the company, particularly in relation to decision making � What is important is the role the directors play UKGroups/41224723 3 May 2012 11
#$���������������� � Title is irrelevant � Executive, non-executive, de facto, shadow, alternate, nominee….. � UK law does not differentiate between different types of directors UKGroups/41224723 3 May 2012 12
���������!����������������� act within powers exercise avoid conflict s.171 independent of interest judgement s.175 s.173 not to CA06 ss 170 - 177 accept benefits from Codified directors' promote success 3rd parties duties of the company s.176 s.172 declare interests exercise in existing transactions reasonable care, and proposed transactions skill & diligence s.177 s.174 UKGroups/41224723 3 May 2012 13
���������!���������������������������$ Duties are owed to the company …Not to the individual shareholders or third parties! The CA06 provides that compliance with the general duties does not remove the need for approval under the relevant provisions dealing with transactions which require members' approval Hawkes & Cuddy [2009] EWCA Civ 291 UKGroups/41224723 3 May 2012 14
���������!���������������������� � Section 172 CA06 "duty to promote the success of a company" � Lexi Holdings v Luqman [2010] EWCA Civ 1116: obligation to take appropriate steps � Brandeaux Advisers v Chadwick [2011] EWHC 58 (QB): duty to report wrongdoing � Safeway Stores v Twigger [2010] EWCA Civ 1472: directors not personally liable for wrongdoing � Towers v Premier Waste Management Ltd [2011] EWCA Civ 923: irrelevant whether company suffers actual loss � GHLM Trading Ltd v Maroo & Others [2012] EWHC 61 (Ch): directors sold stock to pay for own personal loan UKGroups/41224723 3 May 2012 15
���������!������������������������� � Some practical advice for clients considering directorships: � Consider whether they have sufficient time to devote to the role � Develop and refresh skills / knowledge � Continue receiving relevant training � Keep detailed records � Obtain independent professional advice whenever they judge it necessary UKGroups/41224723 3 May 2012 16
������$�����%&'&���������� � A strict liability corporate offence � Only defence is if the organisation puts in place "adequate procedures" � Some practical guidance on the six principles set out by the Government: 1. Proportionate procedures 2. Top level commitment 3. Risk assessment 4. Due diligence 5. Communication 6. Monitoring and review � Risk based approach depending on the size of the organisation and the sectors and jurisdictions within which it operates UKGroups/41224723 3 May 2012 17
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