Putting a stop to fraud Make sure your business is not left with costly liabilities
a lupton fawcett denison till periodical
Issue 4 The terms and conditions of modern marriage Setting social media boundaries The changing future of share buy-backs Building risk management into construction Putting a stop to fraud
a lupton fawcett denison till periodical
Contents 3. Evolving to keep our clients one step ahead Managing Director, Richard Marshall, explains how our business is expanding and evolving to meet the changing needs of our clients. 4. Collaborating on pricing Our flexible new pricing structure that is enabling us to provide better value to our clients. 6. The terms and conditions of modern marriage Once the preserve of the rich and famous, marital agreements are on the rise and look set to change the face of marriage in the UK. 8. When trade secrets aren’t secret Why keeping business information confidential can be harder than you think.
Welcome to the fourth edition of atticus. We have packed this issue with the latest industry insight and clear, impartial advice as we take a look at some of the biggest issues and opportunities facing business today.
9. Setting social media boundaries How a better social media policy means better protection for employers. 10. A well-engineered relationship John Samuel, Group Finance Director of Renew Holdings plc, discusses just what makes his relationship with Lupton Fawcett Denison Till run so smoothly. 11. The changing future of share buy-backs When it comes to share buy-backs there’s a new regime for private companies. 12. To innovate you have to collaborate Taking a look at a unique collaboration between businesses and universities that helps to advance innovation. 13. Building risk management into construction Gareth Hevey discusses the opportunities for anyone thinking of improving, extending or refurbishing their premises. 14. Putting a stop to fraud Simon Lockley, Director at Lupton Fawcett Denison Till, outlines the steps any business can take to protect itself against fraud.
Lupton Fawcett Denison Till Yorkshire House, East Parade, Leeds, LS1 5BD Leeds: T: 0113 280 2000 F: 0113 245 6782 Lupton Fawcett Denison Till The Synergy Building, Belgrave House, 47 Bank Street, Sheffield, S1 2DR Sheffield: T: 0114 276 6607 F: 0114 276 6608 Lupton Fawcett Denison Till Stamford House, Piccadilly, York, YO1 9PP York: T: 01904 611411 F: 01904 646972 Lupton Fawcett Denison Till is the trading name of Lupton Fawcett LLP, a limited liability partnership, registered in England and Wales, with partnership number OC316270. The registered office is at Yorkshire House, East Parade, Leeds, LS1 5BD. A list of Members’ names is available on our website and open to inspection at our offices. Authorised and regulated by the Solicitors Regulation Authority and regulated by the Financial Conduct Authority in relation to Consumer Credit Licence matters under Interim Permission No 665319. Please note that this publication contains general information and does not constitute advice on any specific matter. Whilst Lupton Fawcett Denison Till endeavours to ensure that the content in this publication is accurate and up-to-date, nothing within this publication should be construed or regarded as legal advice. www.lf-dt.com
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The main aim of atticus is to inform and entertain, but we also hope to give you an insight into Lupton Fawcett Denison Till, and some of our clients and contacts, along the way. We don’t intend this to be a technical publication, but we will keep you up-to-date with any changes and trends in the law that we think are interesting or relevant. Finally, we fully expect to evolve and develop this journal over time to better reflect the kinds of articles that you would like to read, so please don’t hesitate to let us know what you think and to make any suggestions for future editions. Email your thoughts to firstname.lastname@example.org
Kevin Emsley Chairman
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Evolving to keep our clients one step ahead Lupton Fawcett Denison Till’s Managing Director, Richard Marshall, explains how our business is expanding and evolving to meet the changing needs of our clients, and how new appointments are enabling us to provide greater expertise.
As you may be aware, our strategy is firmly focused on becoming Yorkshire’s mid-market law firm of choice, and providing niche services to clients of all sizes, across the region. Naturally, we’re also happy to export Yorkshire quality, attitude and value to clients outside the county! In keeping with our long-term strategy, I am delighted to say that we have taken a further step towards our goal through our merger with York firm Denison Till. From our point of view, our move into York was driven by a firmly-held belief that York and North Yorkshire present tremendous opportunities. For Denison Till, the merger reflects a desire to be better placed to serve their clients’ needs, and a wish to meet the challenges of a continually-changing market. Joining forces with Denison Till allows us to move three steps closer to our objectives. Firstly, it gives us a first class platform from which to serve York and North Yorkshire; secondly, it adds three new services to our offering, namely Landed Estates & Agricultural expertise, Construction Law, and Ecclesiastical Law; and thirdly, it allows us to work alongside a like-minded group of lawyers and support staff. In addition to this merger, we have also recently made a number of senior appointments, which will strengthen our team and allow us to provide additional expertise. This includes welcoming Paul Sykes as a
Director in the Dispute Management Department, together with Jonathan Moore as a Director in Commercial Property, both in our York office. We have also made three other significant appointments in Sheffield: Simon Lockley, who now heads up Dispute Management; Julian Rowden, our new head of Commercial Property; and Joan Pettingill who joins our employment team. Our Sheffield appointments reflect our continued commitment to growth in Sheffield and South Yorkshire, a commitment which was underlined further by our recent move into new offices in the Synergy building on Bank Street. In previous editions of atticus, I have discussed our belief in maintaining a well-controlled fixed cost base, to guarantee our clients the best possible value for money. Our new Sheffield office reflects this principle. Although spacious, comfortable and fit-for-purpose, our new office is in direct contrast to the opulent marble-floored atriums so beloved of many other professional firms. While it is great to be able to announce new mergers and lateral hires, our strategy is not simply about growth. Above all, we aim to create a strong commercial offering that meets all of our clients’ wealth creation needs, and provide a suite of personal wealth preservation services. We aim to support these with the real value and first-class quality that our clients have come to expect.
Our continuing growth and expansion is merely an effective way to achieve these goals and provide the scale and stability our clients require. Naturally, evolution is just as important as expansion. Alongside growing our services and offering, we continue to review and refine the way we work. With this in mind, we are currently in the process of improving our overall quality and value. Over the last few months, we have been working closely with consultants to embed lean management and process mapping into our firm. This will not only allow us to deliver the consistent quality that your business needs, but also ultimately reduce our costs and improve the way we manage risk. I have no doubt that the outcome will be good news for all our clients. Naturally, this project will not happen overnight, but we are committed to what I know will be a long but valuable journey. All in all, the last few months have been a period of considerable change and development. I hope that this brief review demonstrates how determined we are to help your business overcome its commercial challenges, and how in future our drive to become the region’s “go to” law firm can make a real difference to your success.
We aim to create a strong commercial offering that meets all our clients’ wealth creation needs
Collaborating on pricing Lupton Fawcett Denison Till’s Managing Director, Richard Marshall, explains how a more flexible pricing structure is enabling us to provide better value to our clients.
We are conscious that pricing needs to be a more collaborative process. Having listened closely to our clients, it is clear to us that they prefer flexibility and choice. So, in line with this feedback, we have developed a new pricing process that ensures your business always receives good value on your terms. This process is structured around the following principles: – A move away from a cost plus mentality and a real effort to reduce production costs; – Greater cost consciousness - “spending” our clients’ money with care, as if it were our own; – A wider choice of pricing and payment options; – More client involvement and engagement in pricing; – Complete transparency; – Fixed pricing as an option and fewer hidden costs to enable better budget planning; – A closer correlation between price and the value of the results achieved; – A willingness to share price risk with our clients.
Key to our new process is a clearer understanding of what is important to your business and which services interest you. This in turn ensures that you only ever pay for the services you want and need. We would also like to explore the extent to which you share the risk in pricing and the extent to which you might prefer certainty. We can then develop bespoke pricing and payment choices to match. The diagram on the facing page gives further insights into how our process works. As I am sure you will appreciate, rolling out a new pricing model can be a time-consuming and complex process. However, we’re already making good progress and some clients are already benefiting from the change. Rest assured, our roll-out will continue throughout the next twelve months: and within the next year, we hope to bring all of our clients the same flexible pricing options.
“Pricing needs to be a more collaborative process.”
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Deve Developing Pricing Options
- Pricing choice - Price certainty - Price linked to result - Price risk sharing - Payment choice
- Hourly rates (with a price range) - Fixed fees - Flat/portfolio fee - Conditional/contingent fees & Damages-Based Agreements - Fee cap & collar - Abort/success fees - Service level guarantee - Retainers - Bundling & unbundling - Volume pricing - Versioning - Urgency option - Combining pricing options
Documentt the Arrangement ment
Developing Payment Options
Focused on the clientâ€™s requirements: - What are we doing for you? - What arenâ€™t we doing for you? - Who is doing it? - When will it be done? - How much will it cost?
- Monthly - Staged - All at the end - Hold backs - Deposit - Trigger event - Combining payment options
The key components: (a) Scope (b) Assumptions (c) Exclusions (d) Clarity & brevity
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The terms and conditions of modern marriage
In 2010, judges ruled that German heiress Katrin Radmacher should retain her £100million fortune following her divorce from her banker husband. This was in line with the terms of the pre-nuptial agreement the couple had previously signed. In doing so, the judges overturned the longstanding practice of dividing up a couple’s assets based on the principle of fairness. At a time when relationship breakdown is on the rise, more and more couples are choosing to resolve the financial consequences of divorce or dissolution through some form of agreement. Agreements can not only simplify the legal process, but also help to minimise the associated distress and expense. However, while pre-nuptial, post-nuptial and separation agreements are commonly accepted by courts in Europe and the US, they are not currently enforceable under English law. That is, however, set to change following the publication of the eagerly-awaited report from the Law Commission into the treatment of these agreements.
Defining a grey area
Once the preserve of the rich and famous, marital agreements are on the rise and look set to change the face of marriage in the UK. With the Law Commission’s long-awaited report released at the end of February 2014, Chris Burns examines why agreements remain a grey area, and the factors courts often consider in assessing validity.
Marital agreements and marriage will go hand in hand in all walks of life
Courts are increasingly referring to the Radmacher ruling for guidance. Prior to making its decision, the Supreme court closely analysed the nature of nuptial agreements, and while the court was broadly in favour of such agreements taking effect, it also recognised that care should be applied. The Law Commission’s report recommends that legislation be enacted to introduce “qualifying nuptial agreements”. These would be enforceable contracts, not subject to the scrutiny of the courts, which would enable couples to make binding arrangements about the financial consequences of divorce or dissolution. In order for an agreement to be a “qualifying” nuptial agreement, certain procedural safeguards would have to be met. Qualifying agreements could not, however, be used by the parties to contract out of meeting the “financial needs” of each other and of any children. A series of factors, which would diminish (although not necessarily destroy) the weight to be given to any such agreement, has been developed. These include the following areas:
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Determining the parties’ needs One of the key factors that any court must take into account when making a decision is the parties’ financial needs. However, the meaning of “needs” in this context has generated uncertainty and there is confusion about the extent to which one spouse should be required to meet the other’s needs after their formal relationship has come to an end.
Children take priority over small print The first consideration in any ruling must be given to the children of the family, regardless of the terms of any nuptial agreement. In this respect, no agreement can ever be allowed to prejudice the reasonable requirements of a child.
The importance of free will If the agreement is to carry any weight, the parties must enter into it of their own free will, without any undue influence or pressure. The court will consider whether there was any material lack of disclosure. That is to say, each party must have all the information that is material to his or her decision to sign a pre-nuptial agreement. There does not have to be ‘full and frank’ disclosure, merely a sufficient level of transparency to enable a free decision to be made. Any duress, fraud or misrepresentation will undermine the effect that such an agreement would otherwise have. Unreasonable conduct, such as undue pressure (falling short of duress), may also dilute the weight given to the agreement. The court may additionally take into consideration the parties’ emotional state, what pressures he/she was under to sign, and the timing of the agreement, relative to the date of the marriage/partnership. Issues such as the age and maturity of the parties, and whether they had been in a married or long-term relationships previously, may well also be pertinent factors. Last but not least, the court may seek to determine whether the marriage would have gone ahead without the agreement.
that it would not be fair to lay down rules that would limit the court’s flexibility. The court subsequently confirmed that no agreement can ignore basic needs. If the agreement had the effect of leaving one partner in a predicament of real need, while the other enjoyed a lavish lifestyle, then the result would likely be unfair. However, the Supreme court also pointed out that a predicament of real need (at least on the facts of the Radmacher case) was merely one that did not leave her husband in a state of destitution!
The rise of autonomy The desire for autonomy is undoubtedly the driving force behind more and more couples choosing to regulate their own financial affairs. In circumstances where parties have drawn up an agreement, which they have both freely signed, the court is likely to respect its terms. The question of autonomy is particularly relevant where the agreement seeks to protect premarital property. In the Radmacher case, the court noted that it would be ‘paternalistic and patronising to override their agreement simply on the basis that the court knows best’. However, by contrast, if the agreement sought to allocate money yet to be earned in a way which was disproportionately in favour of the earner rather than the home-keeper, then, as the Supreme court pointed out, it may well be easier to find that agreement unfair.
Future circumstances The longer a marriage has lasted, the more likely that unknown and unforeseen contingencies will affect the parties’ rights. This is more likely to make it unfair to hold the parties to their agreement. Such circumstances are, however, likely to be fact-specific. Another factor considered by the courts may include how the courts treat property that one party has brought into the relationship or acquired by gift or inheritance during it.
An adherence to fairness
The principles in practice
Problems can arise where the terms of the agreement make provisions which go against the principles the court would apply if considering matters in a traditional divorce setting. In the Radmacher case, the Supreme court decided
Since Radmacher, the courts have continued to take these factors into consideration and sent out a clear message that more judicial notice is being taken of marital agreements. In December 2013, Mr Justice Mostyn enforced a
pre-nuptial agreement in an application by the wife for interim maintenance in a marriage which was only 15 months old. Following the parties’ engagement, a draft pre-nuptial agreement was produced by the husband. Over a significant period of time, the agreement went back and forth between the husband and wife and their respective legal teams. In the run up to the final agreement being signed in May 2012, this was intensely negotiated. Having considered in detail the provisions of the agreement and the mechanics of its negotiation and how it came to be agreed between the parties, Mostyn J concluded: ‘It must be obvious that the principal object of the exercise in this case (as indeed in every case where a nuptial agreement is signed) is to avoid subsequent expensive and stressful litigation; and it is for this reason, as will be seen, that the law adopts a strict policy of requiring the demonstration of something unfair before it will open the Pandora’s box of litigation where there has been an agreement of this nature.’ After considering the law on pre-nuptial agreements and how it applied to the arrangement in that particular case, Mostyn J went on to conclude that: ‘…when adjudicating the question of interim maintenance, where there has been a pre-nuptial agreement, the court should seek to apply the terms of the pre-nuptial agreement as closely and practically as it can, unless the evidence of the wife in support of the application demonstrates, to a convincing standard, that she has a prospect of satisfying a court that the agreement should not be upheld.’ It is therefore anticipated that marital agreements and marriage will go hand in hand in all walks of life. To find out more about the changing face of Family Law, simply contact Chis Burns on 0113 280 2115 or email email@example.com
In recent years there have been many cases where ex-employees have been asked to join a rival company and have been accused of taking confidential information. In cases where there has been blatant stealing of information, the person in question can expect robust treatment from the courts. However, where individuals have not obviously taken information but are steeped in confidential knowledge of the business, things get trickier. According to the courts, a former employee can use his or her general skill and knowledge within their new role, but not what the court regards as trade secrets or essential confidential information. The problem is that there is no definition of a trade secret or essential confidential information. Consequently, predicting the outcome of some cases can be extremely difficult. Interestingly, the European Commission - love it or hate it - has very recently proposed a Directive to harmonise the legal protection for trade secrets and know-how across the EU. The proposed Directive has a definition of a legally protectable trade secret as follows:
‘trade secret’ means information which meets all of the following requirements: is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question; has commercial value because it is secret; has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.”
The Directive - if it ever comes into force - will require UK law about trade secrets and confidential know-how to change. For example, currently in UK law the know-how or trade secret must be confidential to have legal protection as ‘confidential information’: but how will that be squared with the proposed Directive only requiring that the information ‘has been subject to reasonable steps … to keep it secret’? In another recent development, in a case in the Supreme court called Vestergaard Frandsen HAF and others v Best Net Europe Limited  UKSC 31, the court was faced
When trade secrets aren’t secret Why keeping business information confidential can be harder than you think, by John Sykes, Head of Intellectual Property and Commercial Law.
with a case in which two individuals left their employment and worked together with a former consultant of the same former employer to develop a rival business. The case against the consultant and one of the ex-employees was straightforward. However, the other ex-employee had no knowledge of the misuse of the confidential information and trade secrets. Eventually the Supreme court decided she could not be held
The problem is that there is no definition of a trade secret or essential confidential information legally responsible for their misuse. It was not enough that she had been employed by the former employer whose trade secrets were being misused, or that she was working with two others who were in fact misusing the trade secrets of the former employer. Inevitably employers believe that their ex-employees have gained an advantage whilst working for them, and that, when they leave, that information should not be used for the benefit of a rival. The courts don’t see it this way. They see the general skill and knowledge of an employee as portable and usable by rivals or the former employee to compete. Competition is thought to be good for the economy as a whole. So as a general rule, the courts will only intervene if detailed and specific confidential information has been misappropriated or misused; such as a chemical formula, a software algorithm, or a detailed business proposal. The deliberate copying of lists of prices and customers is likely to be regarded as a breach of confidence and infringement of copyright and/or database rights. It goes without saying that employers can protect themselves by all their employees having a good contract of employment with appropriate terms about confidential information. This is essential to improve not just the prospects of success but the predictability of the outcome of any court action.
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Setting social media boundaries A better social media policy means better protection for employers. Alexandria Quigley, Senior Employment Solicitor, shows how businesses can prepare themselves against problems that may arise.
Developments in social media have made it easier for individuals to communicate with each other and with the wider world. Instant communication platforms like Facebook and Twitter can be invaluable for businesses, particularly when promoting their brands. But employee misuse of these platforms can cause employers major headaches. Here are a few of the key issues that face employers when dealing with social media, and guidance on ways they can protect themselves. “I didn’t say that” Within an employment context, social media sites can cause real problems because they provide a new (and increasingly dangerous) platform for employees to complain about their employers, colleagues, suppliers and even customers. Before taking action against employees who make inappropriate comments about their working environment on social media websites, employers should consider (a) whether there is a genuine risk to their reputation, and (b) whether employees have been informed of the consequences of making such comments. Cases in point In Preece v J D Wetherspoon, the employer operated an internet policy which included the term: “You should not write ... or contribute to a blog where the content lowers the reputation of the organisation, staff or customers and/or contravenes J D W equal opportunities policy. This includes pages on web sites such as MySpace and/or Facebook.” Following an altercation with some customers, Miss Preece posted a derogatory comment about them on Facebook. Miss Preece was summarily dismissed from Wetherspoons on the basis that she had breached her employer’s policies. Miss Preece subsequently brought an unfair dismissal claim. The Employment Tribunal found that Miss Preece had been fairly dismissed. Key to this decision was the fact that Miss Preece was aware of, and had signed a copy of, her former employer’s policy in relation to internet and social media use. By contrast, in Whitham v Club 24 Ltd t/a Ventura, Ms Whitham worked for Club 24, which provided customer services to Skoda, which is part of the Volkswagen Group. She worked in an office with both Club 24 and Volkswagen employees. One day after work, Ms Whitham posted negative comments about her colleagues on her Facebook account, though her privacy settings meant that only her friends could see her messages. Ms Whitham was summarily dismissed for potentially harming her employer’s relationship with Volkswagen, and as a consequence brought an unfair dismissal claim against her employer. The Employment Tribunal found her dismissal to be unfair. It held that Ms Whitham was not complaining about Volkswagen, but about her working conditions and the people with whom she worked. It also found that her comments were “mild” and would not, in reality, have resulted in Volkswagen terminating its contract with Club 24.
Comments made on social media can be interpreted within an employment law context
Examples like these go to show how comments made on social media can be interpreted within an employment law context. Companies would do well to safeguard themselves by putting proper policies and procedures in place. Staying on top of LinkedIn Websites such as LinkedIn are often maintained both in and out of work time, and can be of great benefit to employers in generating business. However, there remain a lot of unanswered questions relating to the use of LinkedIn by employees. Employers should ensure that they have effective restrictions within their contracts of employment which prevent the use and disclosure of confidential information (by any means) by unscrupulous employees who seek to compete with their former businesses. Bullying, Harassment & Discrimination Social media websites have become another medium in which bullying and harassment can take place. Employers should be aware that they can be vicariously liable for the actions of their employees if the actions take place “in the course of employment”. This has a very wide meaning, and can include actions that take place outside the workplace. In order to successfully defend claims which are brought as a result of their employees’ actions, employers should have clear dignity-at-work and anti-bullying and harassment policies. In Teggart v TeleTech UK Limited, Mr Teggart posted offensive comments on his Facebook page about a female colleague. Mr Teggart was subsequently dismissed for gross misconduct for the harassment of a fellow employee, and for bringing his employer into disrepute by using its name in connection with the comments. The Employment Tribunal found that the employer’s finding of harassment was reasonable and his dismissal was fair. What should employers do to protect themselves? Employers should implement clear policies which deal with IT, internet and social media use. They should also consider the extent to which their IT and communications systems can be utilised by employees to access social media. Employers should consider whether to prevent employees from referring to the business in comments which are posted on the internet. The consequences of failing to comply with these policies (e.g. potential dismissal) should also be made clear to employees. Clear policies relating to bullying, harassment and discrimination (also within the social media remits) should be brought to the attention of employees. These should be accompanied by appropriate training. This will enable employers to better defend claims for vicarious liability. There is little doubt that employers who wish to dismiss employees for making inappropriate comments on social media sites will have greater difficulty in doing so if they don’t have proper policies in place. If you do not have a social media policy or you feel that your policy is unsuitable or out of date, please contact Alexandria Quigley on 0113 280 2085 or email firstname.lastname@example.org.
A well-engineered relationship John Samuel, Group Finance Director of Renew Holdings plc, discusses just what makes his relationship with Lupton Fawcett Denison Till run so smoothly.
How long have you worked with Lupton Fawcett Denison Till? I first came across Lupton Fawcett Denison Till in 1986, but it was only when I was appointed to the board of Renew Holdings plc in 2006 that we began working together. We had a few small items that needed attention, the first piece of work being to review a notice of AGM. Since then, they have become a trusted advisor and we have worked together on several other projects both large and small. You recently instructed Lupton Fawcett Denison Till on a sizeable deal. Why did you trust them to do the last big acquisition? Lupton Fawcett Denison Till has recently advised Renew Holdings plc on the acquisition of Lewis Civil Engineering: an £8m transaction to buy a Welsh-based family business. It was important to Renew Holdings plc that the deal was carried out efficiently, but also that the lawyers were able to empathise with a family-run business and its advisors. Lupton Fawcett Denison Till was a natural choice as they have a lot of experience with companies like Lewis. We found their personal approach very reassuring, and it made for a constructive rapport throughout. What kind of problems and challenges do they advise you on? A business of our size will always need occasional services of a law firm, and Lupton Fawcett Denison Till has risen to every challenge. Since the outset of our relationship they have helped us with many and varied projects. The fact they have a fully integrated practice means they have been able to handle everything from small reorganisations within the group to acquisitions, changing documents and other smaller tasks.
“Lupton Fawcett Denison Till has demonstrated that they can get under the skin of the business.”
What, if anything, makes Lupton Fawcett Denison Till different? Their combination of approachability and professionalism. We are able to work with
Lupton Fawcett Denison Till at a senior level. They are a pleasure to deal with and we inevitably find their advice very astute. On a recent project, they went above and beyond to understand the issues we had which has always made us feel like we were in good hands. Their wide-ranging expertise allows them to give us good advice on several specific areas of law. In your opinion, how do they approach their work and how does it help you? Lupton Fawcett Denison Till has demonstrated that they can get under the skin of the business. They challenge briefs when necessary, and look at the events and contracts in great detail. They only use experienced and professional people to carry out the work. The approach is, however, a personal one and I know that Renew Holdings plc is an important and valued client, not just another client. It’s important to both businesses to understand each other, so we’ve arranged for the senior teams of both companies to meet. This demonstrates exactly how well we are working together. Why do you continue to use Lupton Fawcett Denison Till ? This is a growing relationship and we are working together to broaden the understanding between the two firms. We work well together, and they always make us feel like they have our interests at heart. Recently, when working on a particular project, we worked late in the Leeds offices. When we discovered a potential issue in the early hours of the morning, Lupton Fawcett Denison Till worked quickly to isolate and resolve it in the right way. Working with them has been very beneficial for us. Their professionalism and commercial acumen means we can always rest easy.
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The changing future of share buy-backs When it comes to share buy-backs there’s a new regime for private companies. By Jonathan Oxley, Director in Corporate Finance at Lupton Fawcett Denison Till.
What is a share buy-back? A share buy-back is when a company buys shares back from one or more of its shareholders, as opposed to shares being transferred between shareholders. Why do buy-backs happen? The most common reason for a share buy-back is to provide an exit route for a shareholder who is retiring or leaving the company for other reasons. There can be other reasons for a company to buy back shares. It could be any of the following: – – – – –
return surplus cash to shareholders; increase earnings per share; increase net assets per share; enhance share liquidity; and increase gearing.
Share buy-backs have for many years been restricted by legislation. This legislation is designed to (a) maintain the capital base and (b) prevent buy-backs being used as a way to disguise regular remuneration in order to avoid tax. Recent Changes The Government is currently promoting greater employee ownership of businesses. In 2012, the Nuttall Report on Employee Ownership simplifed the process for private companies wanting to buy back shares from departing employees by creating new regulations.
These new regulations came into force on 30 April 2013. Here is a summary of the main changes to the existing law: – a buy-back of shares can now be approved by an ordinary resolution of shareholders (therefore by a simple majority); – companies can now buy back shares using cash. Under the previous rules, a buy-back was only possible if a company also had sufficient distributable reserves. The amount of cash that can be used must not exceed £15,000 or 5% of the share capital of the company, whichever is the lower. A special resolution will be required if there is no provision for share buy-back in the company’s articles; – payment can now be made in instalments if connected with an employee share scheme, which was not previously possible; – multiple share buy-backs can be dealt with by one ordinary resolution if connected with an employee share scheme and provided the drafting of the resolution is appropriate; and – private companies can now hold shares in treasury following a buy-back, so they are, for example, available for other employees, rather than being cancelled on buy-back as was previously the case. Where there was no ready market for an unlisted company’s shares, one common practice was to create an employee benefit trust
(EBT). However, the changes introduced by the regulations can remove the need for an EBT and reduce the administration time and expense involved. If your unlisted company has been discouraged from introducing and/or expanding employee share plans, or share ownership - either because of liquidity issues or a reluctance to use an EBT – then it could be time for you to reconsider your position. These reforms will be of particular relevance for companies which view employee ownership as a long-term strategy. Nevertheless, for private companies without this structure, the reforms should remove much of the onerous administration connected with the buy-back of shares. The Government intends to review these reforms over the next three years. Among other things they will be checking to make sure there are no adverse consequences as a result of the simplification of the process. For further information on the new share buy-back regime or the employee shareholder regime, please contact Jonathan Oxley on 0113 280 2091 or email email@example.com.
The Government is currently promoting greater employee ownership of businesses
Innovation has a huge impact on the way we live our lives. But bringing those innovations to life and marketing them can be tough in today’s competitive environment. Lack of resources and technological expertise can be problematic for even the largest of companies. One answer for business owners has come from an unlikely place: university. The University of Huddersfield is already helping businesses through its £12m 3M Buckley Innovation Centre, which acts as a gateway to the University’s key research centres and high-tech facilities. So far this partnership has already overseen many successful collaborations between businesses and academia.
This centre might just be the innovation of the century
Growing business, faster The beauty of 3M BIC is its egalitarian approach that actively promotes business growth. It’s a place where high-growth, high-tech companies can work alongside the University to transfer knowledge. A place where businesses are given the tools they need to grow and move into new markets.
The flexible work spaces, laboratories and grow-on space are designed to accommodate all types of companies at all levels of growth, and so far the results have been positive. Many of the businesses involved report that the environment fosters a spirit of innovation, and encourages collaboration. Moreover the scheme has already had a positive effect on regional growth and regeneration. Collaboration is the key 3M BIC has proved that collaboration works. The University appointed serial entrepreneur Professor Graham Leslie as its first resident professor in enterprise and entrepreneurship, using his wealth of industry experience to attract businesses from all over the region and beyond. Companies are bringing the academic expertise of the University to bear on growing their business, while the University is able to showcase their research in a commercial environment. It’s an approach which seems to benefit both parties equally well. Where technology means business At the heart of 3M BIC is Innovation Avenue. Here businesses can find the latest technology for the manufacturing and engineering sectors – from atomic force microscopes to a 3D printer that enables users to turn digital models into solid prototypes for product manufacture. This set-up is especially valuable to SMEs or business start-ups, as it gives them access to technology
To innovate you have to collaborate A unique collaboration between businesses and universities helps to advance innovation. Professor Liz TownAndrews, CEO of the 3M Buckley Innovation Centre, explains why combining academic knowledge with commercial capability can drive forward innovation in the UK.
that otherwise would have been out of their reach. One such SME is Formative Design, which provides engineering design consultancy. Their owner, Gary Fenton, says: “A lot of my clients are from the medical device sector, so having access to technology and the market is ideal. It allows me to create prototypes for my clients, at no extra cost to my business.” Any interested business can benefit from access to the facilities and take advantage of the specialist consultancy, research and development projects through the centre’s network membership, designed for those wanting to be a part of 3M BIC’s high growth approach.. For any business looking to grow and break into new markets, this centre might just be the innovation of the century. 3M BIC is part-funded by the European Regional Development Fund, the University of Huddersfield and Kirklees Council. For more information about the 3M Buckley Innovation Centre call 01484 473191, email firstname.lastname@example.org or visit www.3mbic.com.
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Building risk management into construction The economic downturn has been good news for businesses seeking to expand their premises. Eager to secure new business, building contractors are increasingly offering new clients competitive deals. However, instability in the construction market also means a high level of risk. Whether you are looking to refurbish, extend or design and build premises from scratch, it is important to identify, assess, manage and insure against legal risk. This process enables you to create a well-defined legal document that ensures your project is completed on time, to the required standard and within budget. While every contract is different, the following section outlines the factors every company should take into consideration: 1. The lowest price is not always the best value Awarding a contract on price alone may not always be the best solution. At the tender stage it is important to consider designs which make long-term building running costs more economical, e.g. through better heating and insulation. This has the added benefit of reducing your company’s “carbon footprint”. 2. Contractor balance sheets can be deceptive A contractor’s balance sheets may look good, but can be misleading. The cash sums owed to contractors on completed jobs could be illusory or subject to lengthy and risky claims. So it is imperative that all contractors are subject to a thorough credit check. 3. Careful planning is essential Even the most meticulously-planned projects can be derailed by unexpected delays and problems. Careful planning and risk management allows you to anticipate pitfalls and delivers added peace of mind. Bonds, guarantees and third party warranties are a practical way to protect your investment. To avoid being left out of pocket, it is worth agreeing a performance bond for a percentage of works value payable on insolvency of the contractor. This provides a “fighting fund” to deal with any costs. Similarly, a parent company guarantee ensures that your chosen contractor fulfils all of the obligations of their contract. Naturally, some delays such as bad weather are unavoidable. These ‘relevant events’ should be defined and agreed before the contract is created. This not only incentivises contractors to complete on time, but assures you liquidated damages, if a contractor cannot demonstrate that they have been delayed by a relevant event. Last but not least, a good ground survey is a must, as unanticipated ground problems can delay construction from the outset and disrupt and prolong the entire construction programme throughout.
The current climate presents genuine opportunities for anyone thinking of improving, extending or refurbishing their premises. However, as Gareth Hevey explains, it pays to identify and minimise the legal risks of dealing with contractors and consultants, before the first brick is laid.
Gareth Hevey 4. The devil is in the detail Clarity is key when agreeing contracts. Accurate drawings, specifications, designs and data should outline the scope of the proposed works in advance. The contract should also clearly define the proposed building use and the design, materials and workmanship required to meet that use. Taking time to dot the ‘I’s and cross the ‘T’s eliminates confusion and reduces delays, and a similar approach can be applied to contract costs. Clearly-annotated breakdowns of the total “Contract Sum” and price fixing strategies – such as a Guaranteed Maximum Price Mechanism – can help to rein in costs and avoid unplanned expenditure. 5. The less control on design - the higher the cost Design may be the most creative and ongoing stage of the process, and it still requires a methodical and co-ordinated approach. From concept to completion, it is critical to spell out who is designing what, so contractors, sub–contractors and consultants all understand their remit. This avoids duplication, spiralling costs and delay. 6. Good management is worth the cost Keeping project costs to a minimum and maintaining high standards requires continual management, and the appointment of an architect, a quantity surveyor and a project manager more than repays the initial investment. Reputable consultants can also help to manage and document on-site Health & Safety to ensure your project complies with current regulations. 7. Anticipate teething problems On completion, there may still be teething problems or outstanding issues. Wherever possible, you should make clear provision for the rectification of these defects at the contractor’s cost. Careful thought should
also be given to dispute resolution and the associated cost and time implications. It’s worth remembering that contractors are entitled to make a claim against you regarding any issue, and that these claims may have to be settled within 28 days under the statutory adjudication process. While it is true that many of these factors are covered by regular industry forms, such as JCT and NEC, these do not always adequately cover the total risk. So careful management of all risks is essential by amending the industry forms with a set of special conditions tailored to your specific project requirements. However, a one-size fits all approach to every contractor and every project is not recommended. Many contractors are reliable and reputable and will resent unreasonable amendments to standard contracts – resulting in unnecessary conflict, delays, claims and inflated costs. Striking a perfect balance between risk and reassurance can be a complicated process, but if your company is considering approaching a contractor in the current climate, and for the first time, the creation of a well-defined contract is still the most effective place to start.
The creation of a welldefined contract is still the most effective place to start
Fraud is growing fast. In Yorkshire alone, The National Fraud Authority estimates that the cost of fraud to local businesses has more than trebled from £17m to £53m in the last 12 months. Estimated losses to the UK economy could be as high as £52 billion. From higher insurance premiums to legal expenses, fraud costs SMEs £9.2 billion per annum. However, despite the scale of the problem, many companies have yet to consider preventative measures and lack contingency plans should they become victims of fraud. Many senior managers believe that fraud is either something that happens to other companies, or that little can be done to prevent it. The truth lies somewhere in between. While fraud indirectly affects all businesses, there are simple and inexpensive measures your company can take to avoid becoming a victim
From higher insurance premiums to legal expenses, fraud costs SMEs £9.2 billion per annum Preventing internal fraud According to Action Fraud, nearly 1 in 5 small businesses have been defrauded by one of their own employees. While these events are often due to a single person acting in isolation, the damage to your business can be huge. A stark example was provided in the case of bank trader Nick Leeson, whose unauthorised losses caused Barings Bank to go bust. Whilst solving internal fraud may seem an impossible task, there are a number of steps you can take to prevent or quickly detect fraudulent actions of rogue employees. These include asking for independent references when
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Putting a stop to fraud At a time when fraud in the UK is approaching epidemic proportions, it is easy to believe that falling victim to fraudulent practices is inevitable. Not so, says Simon Lockley, Director at Lupton Fawcett Denison Till, , who outlines the steps any company can take to protect themselves.
employees join the company, and monitoring staff for ‘tell tale’ signs, such as a sudden change of lifestyle, erratic behaviour, reluctance to take holidays, or a cavalier approach towards systems and controls. It is also important to closely observe ‘areas of opportunity’ such as misuse of company credit cards, false expense claims and false or fraudulent contracts and invoices. To establish a zero tolerance culture amongst their employees, many companies provide guidelines for preventing, detecting and dealing with fraud. Companies should also be aware of their most valuable physical and intellectual assets, and restrict access to them accordingly. Tackling external threats Just as critical is the potential threat posed by customers and suppliers. Fraudsters often pose as regular customers, with common frauds including the misuse of electronic payments, use of stolen or fake debit/credit cards, and cheque over-payments. Long firm fraud, a favourite of the Krays, is also prevalent. Long firm frauds initially involve fraudsters placing orders to establish a decent credit history. These are followed by a number of larger orders, which once delivered are never paid for. Wherever possible, companies should closely monitor large or unusual orders, undertake regular customer credit checks and, where appropriate, visit company premises. Spotting supplier fraud Invoices are a well-established area for fraud with as many as 675,000 businesses having fallen victim to a fake invoice fraud at some point in their trading history (source: Action Fraud). Such frauds can involve fraudsters masquerading as a regular supplier, or an actual supplier over-charging. Companies should also be aware of insolvent trading, where companies either trade immediately before going bankrupt, or phoenix companies that attempt to establish a trading relationship. Key to tackling this issue is the importance of regular and ongoing checks. Customers and suppliers who appear credible and stable at the outset can quickly change for the worse.
Protecting intellectual property and data While it is easy to focus your fraud prevention measures on protecting physical assets like laptops and hard drives, it is all too easy to overlook the information that is stored on them. The theft of valuable data is often harder to detect and can be extremely damaging to your reputation and competitive advantage. Worse still, you could also be prosecuted and heavily fined by the Information Commissioner for failing to protect your corporate data. By way of example, NHS Surrey was recently fined £160,000 after hard drives containing personal patient data were sold on an online auction site. Although many of us would agree on the need for enforcement in this instance, many would be surprised at the fine of £5000 imposed on the sole proprietor of Jala Transport Limited. While driving home in the rush hour, a thief smashed the side window of his car and stole a bag containing an external hard drive which contained the details of over 250 customers. The proprietor was subsequently fined by the Information Commissioner, despite ensuring that the drive was password protected and reporting the incident immediately. The Commissioner highlighted the failure of not properly encrypting confidential material. If it had not been for the fact that the financial resources of Jala Transport Limited were extremely limited, the fine would have been closer to £70,000! Reducing risk with insurance Where a risk assessment identifies a risk of internal or external fraud in your company, it may be worth discussing the matter with your insurance broker. There is currently a wide range of bespoke policies available which can provide inexpensive protection from the consequences of fraud. However, many companies overlook these options. As insurance broker Gordon Brain from Eastwood and Partners comments: “The take-up of these policies is often low amongst SMEs and there is a lack of awareness of the extent of the cover and the low cost of obtaining this type of cover.” Mr Brain makes similar comments in relation to cover in respect of Director’s liabilities.
Acting quickly to minimise impact Unfortunately, the impact of fraud is not restricted to dealing with rogue employees or fraudsters who have targeted your company. Sometimes, even the innocent can fall under suspicion. As a result, it pays to consider legal representation within your contingency plans. Lawyers can represent either the company owners or (should the company wish to support them) their employees. This expertise can be invaluable in the event of the police wishing to interview staff under caution at a police station. Reliable legal representation at an early stage of an investigation can also be critical in preventing an otherwise worrying and costly criminal investigation. How to mitigate damage If you do become the victim of a fraud, effective planning is essential to mitigate damage. Pre-existing arrangements with your legal advisors not only save time, but also allow you to use freezing orders to prevent fraudsters from transferring or dissipating any assets. On discovering fraudulent activity it is important to act quickly and decisively. You should take the following into consideration: – When, and if, you should call the police; – What type of experts, such as forensic accountants, IT recovery experts and employment lawyers, you need to mitigate any loss; – What steps can be taken to recover stolen assets; – Whether a private prosecution is appropriate. While the impact of fraud remains an issue for every company, it is not insurmountable. By having an awareness of the areas of your business which may be vulnerable, and acting accordingly, it is easy to maintain a sensible and practical approach. Lupton Fawcett Denison Till has a dedicated Civil Fraud Asset Recovery Unit which helps companies and individuals who are victims of fraud. For further help and advice, please contact Simon Lockley on 0114 228 3297, Robert Tranter on 0114 228 3292 or email email@example.com.
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