ISSUE 22 - SEPT 2026
MAGAZINE Navigating Complexity. Reaching New Heights.
Thought Leadership for and by the Disputes Community
ThoughtLeaders4 Disputes Magazine • ISSUE 22
INTRODUCTION
“The summit is what drives us, but the climb itself is what matters.”
- Conrad Anker
We are thrilled to present Issue 22 of the Disputes magazine. This edition dives into the themes of: Class Actions, Corporate Disputes, International Arbitration, Family Business Disputes. Each theme offers an insight into the current trends and hot topics in the ever-changing nature of legal conflicts. As always, we extend our sincere thanks to our Corporate Partners, contributors, and readers for their support in bringing this issue to you. Do keep an eye out as we continue to offer various engaging events in the Disputes Community.
The ThoughtLeaders4 Disputes Team Paul Barford Founder/ Managing Director 020 3398 8510
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Dan Sullivan Business Development & Partnership Manager | Disputes Community 020 3059 9524 email Dan
Syedur Rahman - Rahman Ravelli
Dr. Malte Stubinger-Brauer Deminor Litigation Funding
Natalia Mesa Koch - Byfield
Qingyuan Wang - BDO
Maanas Jain - Outer Temple
Damien Berkhout Lindenbaum
Charlotte Norton - Dains
Nicola Sharp - Rahman Ravelli Caroline Marley - BRG
| Class Actions | Compensation for Arco Shareholders in the Sale of Belfius Bank - Let’s Set All Emotions Aside, This is About Honouring a Deal that Goes Back to 2008............
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No Tailored EU Regulation for Litigation Funding - What the Commission’s Decision Really Means for Investors, Funders, and Litigants....................
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When AI Sits between Disclosure and Decision Reliance in Large-Scale Securities Claims.................................................... 13
| Corporate Dis putes | 60 Seconds with... Damiën Berkhout.................... 17
When Will the English Courts Refuse a Letter of Request?................................... 19 60 Seconds with... Caroline Marley....................... 22
Deutsche Bank’s London Branch Fined for Russia Sanctions Breach....................... 24
CONTRIBUTORS Erik Bomans - Deminor Litigation Funding
CONTENTS
Chambers
| International Arbitration | Communications-Led Enforcement Insights From the Yukos Asset-Recovery Strategy........................................ 27 60 Seconds with... Maanas Jain............................. 29
Accountants
| Family Business Dis putes |
Stephen Greenway - Dains
Family Business Disputes… A Forensic Accountant’s Perspective................... 31
Accountants
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ThoughtLeaders4 Disputes Magazine • ISSUE 22
| Class Actions |
COMPENSATION FOR ARCO SHAREHOLDERS IN THE SALE OF BELFIUS BANK
LET’S SET ALL EMOTIONS ASIDE, THIS IS ABOUT HONOURING A DEAL THAT GOES BACK TO 2008 Authored by: Erik Bomans (Chief Executive Officer) - Deminor Litigation Funding
The debate over compensating Arco shareholders keeps getting tangled in emotion, but strip that away and it is simply about honouring a deal struck in 2008, when the Belgian State offered 800,000 cooperative members a guarantee to secure the first Dexia rescue. With Belfius now worth around €10 billion and €3.7 billion in dividends already drawn, living up to that promise is both fair and legally correct. Compensating Arco shareholders for their losses often runs into emotional or philosophical objections. Why should the taxpayer foot the bill for losses caused by the Christian labour movement?
The State’s commitment didn’t come about because of political pressure, or because the Arco shareholders belonged to a social movement or formed the electorate of a particular political party.
“Let them pay for it themselves; this isn’t a matter for the taxpayer”
The only reason this commitment was made is that the Belgian State needed the support of Arco’s cooperative members for the first bailout of Dexia.
is a common refrain. Yet this is about honouring commitments made earlier; a quid pro quo, a deal struck in 2008. The only reason we’re still debating this today is because the State refuses to live up to its side of the bargain.
their savings in the midst of the financial crisis, a state guarantee had to be provided. The State gambled with the savings of 800,000 small investors. That gamble turned out badly. When you lose at the casino, you have to pay for your losses. Yet in this case, the State has consistently refused to do so.
To secure that support and prevent Arco shareholders from withdrawing
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ThoughtLeaders4 Disputes Magazine • ISSUE 22 Let’s go back in time. On September 30, 2008, in the middle of the financial crisis, the Dexia group had to be rescued. Various Belgian, French, and Luxembourg authorities took part in the capital increase. The Belgian State, however, demanded that Arco Group, the cooperative holding company above Dexia Bank, also subscribe to the capital increase. Arco Group, however, didn’t have the money to subscribe. So a construction was devised whereby Dexia Bank, itself a beneficiary of the capital increase, would grant a loan to Arco Group, so that with the borrowed money (plus freshly raised funds from Arco’s cooperative members) it could participate in the capital increase for €350m. From a liquidity standpoint, this “robbing Peter to pay Paul” operation made no sense whatsoever for Dexia Bank, but it certainly looked good on the financial markets that existing shareholders were participating in the capital increase.
To protect itself as the lender in this operation, Dexia Bank demanded a pledge over all of Arco Group’s remaining assets. So if things went wrong, Arco Group stood to lose everything; not just the Dexia shares, but all of Arco Group’s other assets were put at risk as well. Dexia Bank thus protected itself, and indeed ran away with the furniture once things actually did go wrong in 2011. Subscribing with borrowed money, in the middle of a financial crisis, to new shares of a bank under financial stress, while pledging all your assets in the process… that was obviously at odds with Arco Group’s cooperative philosophy. And it ran completely counter to the “safe” and “risk-free” nature of an investment in Arco, which Arco Group always touted when attracting savings from its cooperative shareholders. By forcing Arco to take on such irresponsible risks, the Belgian government feared that the cooperative shareholders might withdraw from Arco’s capital. Under the company’s
statutes, they could indeed do so during the first half of each financial year, at the nominal value of their investment, including capitalised dividends. There was also the danger that they would then immediately withdraw their deposits from Dexia Bank. Had that risk materialised, it would have completely undermined Dexia’s rescue operation.
| Class Actions | Arco’s participation in Dexia’s 2008 capital increase was a pure fiction, set up by the Belgian State with the support of Dexia Bank (now Belfius). This scheme was only possible thanks to the state guarantee that was granted. Everything formed a single whole. Remove one element, and the entire construction falls apart. The savings of 800,000 cooperative members were swept up into this scheme. The State gambled and made a deal:
“If we lose, we’ll cover the consequences”. But the State never honoured its side of the deal.
That, and only that, is why the Belgian State decided at the time that it was necessary to grant the 800,000 private Arco shareholders a state guarantee to protect their invested capital. And so it happened. In the months and years following the promise of the state guarantee (between September 2008 and December 2011), Arco was able to reassure its own private shareholders about the value of their investment. According to Arco, this value remained fully intact, even when the annual accounts showed that, due to Dexia’s losses, not much of that value actually remained. After all, there was a state guarantee covering the full value of their investment. Arco’s cooperative shareholders sat tight, trusting in the guarantee given by the Belgian State.
Belfius Bank and the State managed to save assets for themselves, and the State is entitled to them, given the significant financial risks it took on. Over the past years, the State has already received €3.7 billion in dividends from Belfius Bank. Today, the Bank’s value is estimated at €10 billion. But it is simply fair, morally important, and legally correct that the promises made to Arco’s shareholders are now honoured. Let’s set aside all emotional and philosophical considerations. This is about carrying out a deal from the past: nothing more, nothing less. If the State wants to show that it is a reliable partner for the future, it must first honour its commitments from the past.
It later emerged from statements by ministers that they knew the promised state guarantee was in fact invalid. They had indeed been warned by the National Bank and the Council of State about the possible invalidity of the state guarantee. But of course, these doubts were never shared with Arco’s cooperative members. This history doesn’t get enough attention in the current debate about compensating Arco’s cooperative shareholders. In 2008, the private savers were sorely needed for the success of Dexia’s rescue operation. Their support was seen as essential. That’s why a state guarantee was offered. It wasn’t given out of sympathy, nor because Arco Group belonged to a social movement close to the then Prime Minister.
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ThoughtLeaders4 Disputes Magazine • ISSUE 22
NO TAILORED EU REGULATION FOR LITIGATION FUNDING
WHAT THE COMMISSION’S DECISION REALLY MEANS FOR INVESTORS, FUNDERS, AND LITIGANTS Authored by: Dr. Malte Stübinger-Brauer (General Counsel Germany) - Deminor Litigation Funding
Four years of institutional deliberation over whether and how Europe should regulate litigation funding have ended not with a rulebook but with a deliberate decision to stand back. For clients and counsel working with funders, this ends a period of uncertainty. For an industry that spent much of that period bracing for licensing regimes, fee caps, and fiduciary duties borrowed from consumer law, the Commission’s choice to let existing frameworks do the work is a significant moment, and one worth understanding properly as it also affects parties seeking third-party funding, and counsel advising them. After more than four years of institutional deliberation, the European Commission has confirmed that it will not introduce EU-wide legislation to regulate the third-party litigation funding (“TPLF”) industry. European Commissioner for Democracy, Justice, the Rule of Law and Consumer Protection, Michael McGrath, made this clear in his closing remarks at the final meeting of the EU’s High-Level Forum on Justice for Growth on 18 November 2025. He noted that forum participants, comprising Member States, the European Parliament, and key EU-level stakeholder organisations, had indicated that there is currently no need to further regulate TPLF at EU level. Commissioner McGrath stated that the Commission would instead
prioritise monitoring the implementation of the Representative Actions Directive (Directive (EU) 2020/1828) over any new legislative proposals. This decision marks the conclusion of a legislative journey that began with the European Parliament’s ambitious call for hard regulation. It also preserves an important mechanism for access to justice, as litigation funding continues to enable claimants to pursue meritorious claims that might otherwise be financially out of reach. At the same time it provides welcome clarity for the litigation funding market in Germany and across Europe. The following update traces the key steps of this process and offers an assessment of the outcome.
The Origins: The Voss Report and the European Parliament’s Push for Regulation The institutional debate over regulating TPLF at EU level was set in motion in June 2021. At that time, MEP Axel Voss presented a first draft of his legislative own-initiative report (“INL”) on
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ThoughtLeaders4 Disputes Magazine • ISSUE 22 “responsible private funding of litigation” before the European Parliament’s Committee on Legal Affairs (“JURI”). The Voss Report was, according to its preface, motivated by the observation that TPLF was a growing but largely unregulated practice within the Union, with at least 45 funders known to operate across Member States at the time. Its proponents argued that a regulatory vacuum risked exposing claimants to potential conflicts of interest, opaque funding terms, and disproportionate returns to funders at the expense of those they purported to assist. The JURI committee adopted the Voss Report on 14 July 2022. On 13 September 2022, the European Parliament voted overwhelmingly (504 votes to 57, with 65 abstentions) to adopt a resolution requesting the Commission to submit a legislative proposal for a directive establishing common minimum standards for commercial TPLF. The resolution was grounded in Article 225 of the Treaty on the Functioning of the European Union, which entitles the Parliament to request the Commission to table legislation and, should it decline, to state its reasons.
• A cap on funder returns, requiring that at least 60 per cent of the gross settlement or damages be paid to claimants, save in exceptional circumstances. This provision was aimed at preventing what the Voss Report described as disproportionate returns, which, in some instances outside the Union, were said to reach up to 300 per cent of the funder’s investment. • Disclosure and transparency obligations requiring claimants and their lawyers to inform courts of the existence and identity of commercial funding, and to disclose the full, unredacted funding agreement upon request of the court or the defendant. • Joint liability of the funder for adverse costs in the event of unsuccessful litigation, preventing funders from limiting their exposure through contractual carve-outs. The draft directive was comprehensive in scope, applying not only to court proceedings but also to international arbitration and alternative dispute resolution mechanisms seated in the EU.
The Draft Directive: A Comprehensive Regulatory Proposal The resolution was accompanied by an annex containing a full draft directive, which outlined a far-reaching framework for the regulation of litigation funders across the EU. According to many professionals from the industry, but also the broader disputes and legal community, it went far beyond what could be viewed as reasonable. Among the key elements of the proposed directive were the following: • An authorisation system requiring Member States to establish independent supervisory authorities tasked with licensing, monitoring, and, where necessary, sanctioning litigation funders. Funders would need to demonstrate capital adequacy and compliance with governance requirements before being permitted to operate. • A fiduciary duty obliging funders to act in the best interests of claimants and prohibiting them from exercising undue control over the legal proceedings they finance. Any contractual clause granting a funder the power to influence decisions on claims, settlement, or litigation strategy would be rendered void.
The Commission’s Response: A Mapping Study Before Action The Commission responded cautiously to the Parliament’s resolution. In its formal reply of 30 November 2022, the Commission acknowledged the concerns raised but declined to act immediately. It noted that within the specific area of collective redress, TPLF was already addressed by Article 10 of the Representative Actions Directive (RAD), which requires Member States to prevent conflicts of interest and ensure that funding does not compromise consumer protection in representative actions. The Commission committed to assessing the need for further regulation only once the transposition deadline of the RAD had expired and announced that it would first launch a comprehensive mapping exercise.
| Class Actions | That mapping study, conducted in association with the British Institute of International and Comparative Law, was published in March 2025. The report (on an impressive volume of 706 pages) analysed the legal frameworks and practices of TPLF in all 27 EU Member States as well as selected non-EU countries, including the United Kingdom, the United States, Canada, and Switzerland. It drew on the results of an extensive stakeholder consultation involving litigation funders, law firms, businesses, consumer organisations, judiciary, and academia. Deminor senior case managers were among the respondents. The study’s conclusions were nuanced. It confirmed that TPLF remains largely unregulated at Union level, with significant variation across Member States. It acknowledged that the absence of specific regulation creates “a certain degree of confusion and uncertainty” in some jurisdictions but also recorded that stakeholders held deeply divergent views on the appropriate level and form of regulatory intervention. Notably, most funders and consumer organisations generally opposed stringent regulation, while some business groups favoured a more comprehensive approach. The study also highlighted that most EU jurisdictions generally allow TPLF and that, in the absence of bespoke legislation, general contract law, consumer protection law, civil procedure, and existing banking and financial regulatory frameworks provide a baseline of governance.
The Decision: No Need for EU-Level Regulation Against this backdrop, Commissioner McGrath’s announcement in November 2025 that the Commission would not pursue legislation came as a wellconsidered conclusion. Rather than introducing prescriptive rules, the Commission chose to focus on ensuring and monitoring the transposition of the Representative Actions Directive by Member States. The decision effectively preserves the existing diversity in how TPLF is treated across Member States, leaving it to individual jurisdictions to determine whether further regulation is needed.
A Welcome Outcome: Why Hard Regulation Was Never Warranted From the perspective of the litigation funding industry and the sophisticated commercial parties it serves, the
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| Class Actions |
ThoughtLeaders4 Disputes Magazine • ISSUE 22 Commission’s decision is the right one. Several considerations support this view. • The market does not display systemic problems. The Commission’s own mapping study, which can be considered the most comprehensive empirical assessment of the European TPLF landscape to date, did not identify evidence of widespread market failure or systemic abuse. Those who favoured no regulation rightly argued that
“there is no evidence of TPLF having a negative effect and that over-strict regulation could effectively stop TPLF activity and hinder access to justice”. The filtering function of professional funders, who conduct rigorous due diligence and legal merit analysis before committing capital, in fact strengthens the quality of claims that proceed, rather than encouraging frivolous litigation. • Industry self-regulation provides meaningful safeguards. The litigation funding industry has developed its own governance structures. The International Legal Finance Association (“ILFA”), the only global trade association of commercial legal finance companies, maintains a set of Best Practice principles to which its members commit. These principles address clarity and transparency in funding arrangements, respect for lawyers’ duties to clients and to the courts, the avoidance of conflicts of interest, the preservation of confidentiality and legal privilege, and capital adequacy. At the European level, the European Litigation Funders Association (“ELFA”) was established with a similar mandate, including a Code of Conduct promoting best practices across the continent. While the Voss Report criticised voluntary codes for their limited uptake, it is notable that the industry’s leading and most reputable funders, i.e. those who hold the vast majority of deployed capital, are members of these associations and operate within their frameworks. • Consumer protection law already covers the B2C landscape. Where TPLF touches consumer-facing claims, the existing European legal architecture provides robust protections. Article 10 of the
Representative Actions Directive specifically addresses thirdparty funding in the context of representative actions, requiring Member States to prevent conflicts of interest and ensure that funding does not undermine consumer protection. Several Member States have gone further in their national transpositions: Germany, for instance, limits funder returns to no more than 10 per cent of total awards in representative actions and mandates disclosure of funding agreements to courts. Other Member States have imposed additional safeguards, including caps on loan fees, anti-money laundering requirements for funders, and prohibitions on TPLF altogether in certain consumer contexts. This patchwork of consumer protection measures ensures a high level of information transparency and claimant protection in precisely those scenarios where individuals may be most vulnerable. • The B2B context calls for a different approach. The overwhelming majority of third-party funding in the commercial litigation and international arbitration space involves sophisticated corporate parties. Those are companies with experienced inhouse legal teams, external counsel, and the commercial acumen to evaluate funding arrangements on their own terms, not consumers in need of paternalistic protection. They are businesses seeking to hedge the financial risk of a dispute, often one of considerable complexity and value. In this setting, the rationale for prescriptive regulation dissolves. As ILFA has consistently emphasised, commercial legal finance transactions in private commercial actions represent a form of corporate finance between private parties and should be treated accordingly. Imposing rigid fee caps, fiduciary duties modelled on consumer protection principles or burdensome authorisation requirements would not protect sophisticated corporate clients. Quite the contrary, it would restrict their options and reduce the availability of funding precisely when it is most needed. • Overregulation risks undermining access to justice. A separate study published by the European Law Institute in October 2024 cautioned that prescriptive regulation of the litigation funding industry could restrict access to justice and recommended that regulation “should either be to address an identifiable, and fixable, problem or to ensure
consistency of best practice”. A light-touch approach, it concluded, was preferable. The ILFA echoed this assessment, with its Executive Director Paul Kong stating that the Commission’s decision
“appears to close any talk of the need for new regulation, which was completely without evidence and created considerable uncertainty for the sector”.
Outlook The Commission’s decision does not preclude future regulatory action, and the matter remains one for individual Member States to address within their own legal systems. It is worth noting that the United Kingdom has taken a different path: the Civil Justice Council’s final report, published in June 2025, recommended the introduction of lighttouch statutory regulation alongside a reversal of the PACCAR decision, and the UK Government announced in December 2025 its intention to legislate accordingly. Whether this divergence between the EU and the UK will have practical implications for cross-border disputes and forum selection remains to be seen. For the time being, however, the European landscape is one of regulatory restraint, and rightly so. The litigation funding industry has demonstrated that it can operate responsibly within existing legal frameworks, guided by industry best practices and the commercial discipline of a maturing market. The Commission’s decision reflects a sound assessment that hard regulation is neither necessary nor proportionate, and that the focus should instead remain on ensuring the effective implementation of those consumer protection measures that already exist.
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ThoughtLeaders4 Disputes Magazine • ISSUE 22
| Class Actions |
WHEN AI SITS BETWEEN DISCLOSURE AND DECISION
RELIANCE IN LARGE-SCALE SECURITIES CLAIMS Authored by: Qingyuan Wang (Senior Manager) - BDO
As AI tools increasingly sit between issuer disclosures and investment decisions, reliance in securities claims may become less about whether a human read a document and more about how information moved through the decision-making process. That has practical consequences for evidence, claimant scope, quantum and settlement value in large-scale investor claims. question: how did information reach the investor, how did it influence the investment decision, and what records exist to prove that pathway?
Standard Chartered showed that the issue is not closed: the court refused to strike out similar claims and did not treat Allianz as determinative.
Why Reliance Matters at Scale Reliance has always been a critical feature of securities claims under section 90A FSMA. In large-scale investor claims, it also affects who falls within the claimant group, how the claim is evidenced and how large the damages base may become. A narrow approach may reduce the claimant group; a broader one may expand it. In that sense, reliance can operate as a multiplier on claim value. Reliance is therefore both a legal threshold issue and an economic
On that framing, passive or tracker-style investors face an obvious problem: if nobody involved in the investment decision read or considered the relevant disclosure, proving reliance becomes more difficult.
A Less Settled Reliance Debate Recent cases suggest that the reliance question is less settled than it may once have appeared. In Allianz v Barclays, the court took a relatively strict approach. Reliance was treated by reference to the common law of deceit, creating difficulty for claimants who could not show actual engagement with the relevant published information.
Then came Ivanishvili, where the Privy Council rejected the proposition that a claimant in deceit must have been consciously aware of the representation in order to have relied on it. Although not a section 90A claim, it supports the broader point that reliance may not always turn on a simple “did someone read it?” question. Taken together, these cases leave the doctrine unsettled. For largescale claims, they point towards a practical question: how did the relevant information reach the decision-maker, and when is that enough to count as reliance?
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ThoughtLeaders4 Disputes Magazine • ISSUE 22
AI as an Information Intermediary AI changes the analysis because it introduces a new intermediary between issuer disclosure and investor decisionmaking. At one end of the spectrum, a portfolio manager or analyst may use an AI tool to summarise an annual report or trading update, read the summary and then make, or contribute to, an investment decision. In substance, that still looks close to conventional reliance, even if the primary disclosure was not read line by line. A step further on, AI output may feed an internal note, screening process or investment model used by a human decision-maker. The question is whether that mediated information remains sufficiently close to the issuer’s published information to support reliance. Further along the spectrum, more systematic investment processes may ingest public disclosures, extract signals and generate trading decisions with little or no human engagement with the specific document. At that point, the issue begins to resemble the passiveinvestor problem in another form. AI can also distort the information chain. If the tool misstates the issuer’s disclosure, omits an important qualification or produces a distorted summary, the question is whether the investment decision was based on the issuer’s information or on something materially different produced by the AI intermediary. That may create a break in the information chain.
Claimant Scope, Quantum and Settlement Value The commercial significance is clearest in claimant scope and quantum. Reliance determines which investors can credibly form part of the claim. That, in turn, affects the damages base. A narrow approach may exclude investors whose decisions were passive, index-driven or supported
by systematic processes with limited evidence of engagement with the relevant disclosure. A broader approach may bring more investors within scope, including where issuer information reached the investment process through analysts, internal models or AI-enabled tools. For claimant firms and funders, this matters at the book-building stage. The question is whether investors’ decisionmaking processes can support a credible reliance case. For defendants, the same issue affects exposure analysis and settlement strategy. In practice, reliance is a driver of class size, quantum and settlement value.
| Class Actions | market prices reflect publicly available information. The commercial difference is significant: engagement-based reliance narrows the claimant group, while price-based reliance can widen it. AI sharpens that tension. If automated tools parse filings quickly and feed investment screens, trading signals or portfolio models, public information may be incorporated into market prices faster and more widely than before. That may strengthen the economic intuition behind price-based reliance, even if it does not answer the legal question. Faster incorporation of information is not the same as accurate pricing. Correlated models, shared data sources and herding behaviour may all cut the other way. But AI makes information transmission more complex. For class actions, that complexity matters because it can influence who is included in the claim and how the claim is valued.
Evidence and Audit Trails The evidential consequences are just as important. In an AI-assisted workflow, proving reliance may increasingly require reconstructing the pathway from disclosure to trade: what went into the tool, what came out, who saw the output, how it was used, and how it fed the eventual decision. That is a different exercise from asking a witness whether they read a particular announcement. System records, model documentation, prompts, summaries and audit trails may become central. Firms that can reconstruct how issuer information moved through their investment process may be in a stronger position than those relying on recollection alone. For defendants, the same evidence may provide opportunities to test whether the claimant relied on the issuer’s information, or instead acted on price movement, general market sentiment or a materially altered intermediary output.
Price Reliance and the Size of the Claim Price-based reliance matters because it can affect the size of the claimant group and the damages base. English law has so far been reluctant to treat price alone as enough for reliance. By contrast, the US fraud-on-themarket approach rests on the idea that
Final Reflection From an economist’s perspective, one workable way to frame the issue is this: did a decision-maker, whether human or system-based, engage with a faithful representation of the issuer’s published information, and did that engagement influence the investment decision? That approach leaves room for AI as a reading aid, analytical input or structured part of the investment process. It also preserves important limits. Pure price-only reasoning remains different from reliance on issuer information, and a decision based on inaccurate AI output may not be reliance on the issuer’s statement at all. AI changes the route by which issuer information may reach the investment decision. For large-scale securities claims, the practical question is therefore how that route can be evidenced, tested and modelled, and where the reliance line should be drawn. This can affect claimant scope, the damages base and overall claim value. That is why AImediated reliance is a legal, economic and evidential issue.
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ThoughtLeaders4 Disputes Magazine • ISSUE 22
60 SECONDS WITH... DAMIËN BERKHOUT PARTNER
LINDENBAUM
hat was it that first made you W want to become a litigator?
People around me knew me to be
a litigator before I entered private practice. For me, however, I knew it on the first day as a lawyer. I received two assignments: assisting in a transaction and a new dispute. One felt like homework, the other felt like home. What’s the most underrated skill a disputes lawyer should have?
Underrated? The ability to manage different work flows with incomplete information while determining the proper strategy.
If you could change one thing about the litigation process tomorrow, what would it be?
We should further deformalise
proceedings and thus speed up litigation. The procedural debates in particular take way too much time. These issues can and should be resolved much quicker. Longer litigation is bad for all parties involved. Yes, also for defendants, who are dealing with high legal costs, and when they lose their case after years have to pay interest over the claim amount (compounded interest in many countries, I might add). I is the topic everyone is A talking about. What’s one thing about AI in the legal world that genuinely interests you?
One thing that I am spending quite
ensure that new lawyers have the right skills for litigation practice? There is a lot of opportunity with these new tools, but we risk losing a generation of talent if we do not deeply consider how to teach this talent the proper way to be a litigator.
I f you could spend a day shadowing anyone, past or present, who would it be and why?
Presuming I can also choose the specific day, and that in this theoretical world I can speak the appropriate languages to understand things as they are happening, it would either be Jesus during the last meal or Socrates on his final day.
What’s the most interesting trend you’re seeing in crossborder disputes right now?
The increasing collaboration
offee meeting, courtroom, C conference or client dinner, where do the best conversations happen?
between firms cross-border, which is creating unexpected efficiencies, new arguments, new cases.
In the morning, at home, with my
family. The best place for negotiations is the coffee meeting of course.
When you’re not working, how do you switch off and recharge?
You mean we are allowed to stop
working? In all seriousness: I fear that I am very much a cliché in this respect. The answer is: participating in various sports, reading, writing and family time are the ways to recharge. Of course the term ‘recharge’ incorrectly suggests that work is something that only drains our energy, whereas life outside of work adds energy. A false proposition of course. What’s the best piece of career advice you’ve ever received?
A word of warning by my mentor.
Early bird or night owl?
Night owl. Morning people are not to be trusted of course. hat’s the one app you couldn’t W live without?
That is a terrifying question. I
would be able to live without any application on my phone. Or without a phone for that matter. Now, no books, that would be torture.
Talented people are everywhere. But only talented people with grit and a support team arrive at the desired destination. So be prepared, diligent and kind.
a bit of time on concerns the question of training: how do we
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ThoughtLeaders4 Disputes Magazine • ISSUE 22
| Corporate Dis putes |
WHEN WILL THE ENGLISH COURTS
REFUSE A LETTER OF REQUEST? Authored by: Nicola Sharp (Legal Director) - Rahman Ravelli Cross-border litigation often requires evidence to be obtained from witnesses or companies located outside the jurisdiction of the court hearing the dispute. One of the mechanisms for doing so is the Letter of Request, through which one court asks the judicial authorities of another country to assist in obtaining evidence. The English courts are generally willing to provide judicial assistance to overseas proceedings, but there are limitations. The courts exercise their powers cautiously, balancing the interests of international judicial cooperation against the need to protect individuals and businesses from oppressive or inappropriate requests. The starting point is that English courts will require good reasons to refuse to accede a Letter of Request. The concept of comity requires a high degree of deference to the views expressed by courts seeking UK judicial assistance.
That said, the English courts have discretion on whether or not to refuse the Letter of Request, and they take a restrictive approach to requests that appear to be ‘fishing expeditions’.
is implemented into UK law by the Evidence (Proceedings in Other Jurisdictions) Act 1975 (the 1975 Act). For the High Court of England and Wales to grant an order, the request from the foreign court must comply with the strict requirements of the 1975 Act.
Too Broad or Unspecific The most important limitation is found in Section 2(4)(b) of the 1975 Act. This states that a court order cannot require a person to produce
The Legal Framework The process for enforcing a request for evidence from a foreign court is governed by the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters (the Hague Evidence Convention), which
“any documents other than particular documents specified in the order”. This rule exists because the UK, under Article 23 of the Hague Evidence Convention, has opted out of providing the wide-ranging “pre-trial discovery” that is common in the US.
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ThoughtLeaders4 Disputes Magazine • ISSUE 22 English law, by contrast, requires much greater specificity in Letters of Requests. English courts will not permit a “fishing expedition” where a party asks for broad categories of documents to see what might be useful. The courts require specific, identifiable documents to be requested. Re Asbestos Insurance Coverage Cases established that a request must be for “actual documents” which are “separately described” or described in a way that the “exact document in each case is clearly indicated”. A request for
“all the respondent’s bank statements for 1984” was given as an example of an impermissible request for a general class of documents. General words like a request for “any memoranda, correspondence or other documents relevant thereto” or “any memoranda, correspondence or other documents referred to therein” are too wide and will be struck out. In Galas v Aleve Inc [2018] EWHC 2366 (QB), Morris J set aside part of an order giving effect to a Letter of Request from a US court on the basis that it identified categories of documents, which were impermissible, rather than specific documents.
Accordingly, a request should identify: • the witnesses from whom evidence is sought; • t he documents or categories of documents required; and • the issues to which that evidence relates. The greater the precision of the request, the more likely the English court is to grant it.
Proportionality One of the concepts that underpins the supervision of litigation in England and Wales is proportionality, as set out in the Civil Procedure Rules. The burden imposed on the witness or company by the request in the letter must be proportionate to the likely value of the evidence. Where compliance would involve substantial expense, significant business disruption or the review of vast quantities of documentation, the court may conclude that the request should be modified or refused.
| Corporate Dis putes | the court held that the Letter of Request sought information, not evidence for trial, and that it was oppressive because it allowed the applicant to obtain testimony and documents from the respondents prior to formulating proceedings against them.
Conclusion The English courts strongly support international judicial cooperation and recognise the importance of assisting foreign courts in the administration of justice. However, that support is balanced by well-established safeguards designed to protect witnesses and businesses from excessive or inappropriate requests. The English courts give effect to Letters of Request as far as possible, but do not permit them to become vehicles for speculative discovery or oppressive evidence gathering. Instead, they insist upon identifiable, relevant and proportionate requests that respect procedural fairness.
Vexatious or Oppressive The English courts will not grant a request if it is considered to be vexatious or oppressive.
Evidence Must Relate to Material Facts The Letter of Request must seek evidence, rather than just information, and the evidence must relate to an issue in the proceedings. Requests under the 1975 Act cannot seek relevant information in general, but only information which will be evidence of material facts. In Rio Tinto Zinc Corp v Westinghouse Electric Corp [1978] AC 547, the House of Lords distinguished between requesting known evidence and seeking discovery in the hope of locating evidence. The latter falls outside the statutory scheme.
The question of whether a Letter of Request will be considered to be oppressive where allegations of fraud have been made against the proposed witness was considered in Autonomy Inc and another v Hussain [2016] EWHC 3268 (QB). The court held that an examination of the witness would be oppressive, as the claimant’s allegations of fraud against him in proceedings in London had not been pleaded properly. In Byju’s Alpha Inc v OCI Ltd and others [2025] EWHC 271 (KB), the court set aside an order giving effect to a Letter of Request which required the respondents to provide documents and sworn testimony for fraud-related proceedings in Delaware. In so doing,
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M&A Disputes Report 2026 M&A disputes are on the rise as global deal activity regains momentum. While dealmakers have renewed confidence in the strength of the mergers and acquisitions (M&A) market following years of disruption, the disputes emerging from this period point to a more complex and high-stakes environment. Transaction complexity, heightened geopolitical risk and increased scrutiny of post-closing performance are driving more frequent M&A disputes as rising deal stakes push dispute values higher. Now in its seventh year, BRG’s M&A Disputes Report 2026 draws on insights from BRG experts, in-depth interviews with leading dispute and corporate lawyers, and a global survey of more than 200 attorneys, private equity professionals and corporate finance advisors. Covering AsiaPacific (APAC), Europe, the Middle East and Africa (EMEA), Latin America and North America, the report examines key M&A dispute trends and risk drivers—including how macroeconomic, geopolitical and regulatory forces are shaping the landscape—as well as how dealmakers are approaching dispute resolution and mitigation across industries and regions. DOWNLOAD THE FULL REPORT
Key takeaways from this year’s report include: M&A dispute volume increased in 2025, with growth concentrated in small and middlemarket transactions. – Respondents expect M&A dispute volume to increase alongside growth in the average value of disputes. – The geopolitical environment is expected to play a more prominent role in M&A disputes, ranking among the leading anticipated catalysts and as the top expected driver in Latin America. – Financial services experienced the highest level of M&A dispute activity in 2025,
while respondents expect energy and climate–related transactions to emerge as prominent areas of dispute activity in 2026. – Earnouts and representations and warranties (R&W) featured prominently in M&A disputes in 2025, with earnouts expected to be the most prevalent contractual element in disputes in 2026. The report also examines how M&A disputes are resolved in practice, including settlement trends, dispute resolution venues and the influence of private equity involvement on dispute outcomes.
T H I N K B R G.C O M
| Corporate Dis putes |
ThoughtLeaders4 Disputes Magazine • ISSUE 22
60 SECONDS WITH... CAROLINE MARLEY FORENSIC ACCOUNTANT
BRG
an you tell us a little about your C role at BRG and what first attracted you to forensic accounting and investigations?
I’m an Associate Director in the Forensic
Technology, Investigations and Discovery practice and I focus on forensic accounting matters, including investigations, audit negligence disputes, and other complex commercial disputes where accounting issues are key. I really enjoy the problem solving aspect of forensic accounting. It is very satisfying to be able to work out what went wrong and what the impact was. I am also glad to be able to assist clients when they are going through a crisis and help them to piece together and understand what happened. ou’ve spent much of your career Y investigating fraud and misconduct - what are some of the biggest risks organisations should be watching out for today?
I’ve recently worked on a case where
significant pressure was exerted on an individual by more senior colleagues to mis-represent certain financial positions to paint a more favourable picture of what was going on in the business. The individual certainly bore responsibility but had been put in a very difficult position. Where organisations are under pressure to meet certain targets, or are under financial strain, the risks of fraud and misconduct increase. Separately I think that the increasing use of generative AI is likely to make it more difficult to identify fraudulent invoices and documentation or phishing emails and deep fake videos when previously it was easier to spot fakes.
audit negligence dispute is that they often centre around judgmental areas. You need to understand what information was available to the auditors at the time, what decisions they made and why and determine whether they acted reasonably. hen you’re starting a complex W investigation, what’s the first thing you look for?
It is important to get a really good
understanding of the issue and what questions need answering. What do we know? What are the facts? What are we trying to find out? You need to understand all this before you can make a plan for what work to do next. ou’ve worked across a range of Y sectors and clients. Have you noticed any common themes among organisations that are particularly effective at preventing fraud?
Good governance from the top of an
organisation and a culture conducive to people within the organisation feeling comfortable to speak up and raise concerns are key to effective fraud prevention. Following that, organisations which invest time in properly assessing and understanding their specific fraud risks stand a better chance of preventing fraud. hat’s the most rewarding part of W your role when you’ve been working on a difficult investigation or dispute?
Working out what happened, what
went wrong and being able to provide the answers to the key stakeholders.
Achieving my ACA qualification. A lot of hard work goes into passing those exams.
utside of work, how do you like to O switch off and recharge?
To really switch off mentally I find
snowboarding and horse riding the best. They really allow me to completely clear my head. Unfortunately, they’re not so easy to do every day when I don’t live in the mountains and don’t have my own horse! One day! I f you could spend a day shadowing anyone - past or present - who would it be and why?
An astronaut conducting research
experiments on a space mission. I think it would be fascinating to be at the cutting edge of scientific research and exploration, not to mention the amazing views. I don’t think I’d like to spend more than a day in space though! Fun Fire-Round Finish Tea or coffee? I drink both equally but no caffeinated versions after lunchtime please. Early bird or night owl? I used to be a night owl but now I’d say neither – I need my sleep! Book, podcast or Netflix? All of these – also audiobooks. Most-used app on your phone? Spotify
udit negligence is a highly A specialised area. What drew you to this field, and what makes it so interesting?
You also mentor ACA students at BRG. What’s the best piece of career advice you’ve ever received?
I worked in audit while I was completing
That everything is really all about
my ACA before moving into forensics and so I have a background in audit. What I find particularly interesting in an
ooking back, is there a moment in L your career that you’re particularly proud of?
relationships!
One thing people would be surprised to learn about you? I’m happiest when performing in a show, on stage, in front of as large a theatre audience as possible. (Will only surprise those who do not know me).
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Regulatory investigations, large-scale commercial disputes involving corporate wrongdoing, reputational issues, corporate liability and multi-jurisdictional enforcement. Asset recovery, internal investigations and compliance. Discreet, bespoke and expert legal representation for corporates, senior business individuals and professionals in London, the UK and worldwide.
+44 (0)203 947 1539 www.rahmanravelli.co.uk “Fresh and fearless in their thinking. They know their cases inside out.” The Chambers UK Guide
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| Corporate Dis putes |
ThoughtLeaders4 Disputes Magazine • ISSUE 22
DEUTSCHE BANK’S LONDON BRANCH FINED FOR RUSSIA SANCTIONS BREACH
Authored by: Syedur Rahman (Partner) - Rahman Ravelli Syed Rahman of Rahman Ravelli details the facts and the significance of the case.
Intention The Deutsche Bank penalty can be seen as significant as it is a clear indicator that OFSI remains prepared to bring enforcement action against institutions. This is the case even in situations where there is no evidence of any intention to do wrong and / or where there has been self-reporting; although the reduction obtained by Deutsche Bank for voluntary disclosure illustrates the potential value of such an approach.
The London branch of Deutsche Bank has been fined £165,000 for a breach of Britain’s Russia financial sanctions regime. The fine was accompanied by a warning from the Office of Financial Sanctions Implementation (OFIS), which imposed it, that such enforcement action remains a strategic priority. Deutsche Bank’s London branch told OFSI in September 2022 that the bank had processed two payments in June and July of that year, involving a total of £635,619, to a Russian entity that was wholly owned by a sanctioned company. OFSI said payments were processed for a corporate customer incorporated in Ireland to a Russian app developer owned by a sanctioned entity. The Russian app developer’s ownership structure had not been identified by Deutsche Bank because the bank was using a third-party screening vendor (which provides software and services to vet parties) that did not contain this data.
The bank’s voluntary disclosure of the sanctions breach meant it qualified for a 45% discount on the original £300,000 penalty that had been imposed. The penalty comes only a month after Deutsche Bank made regulators aware of potential breaches of rules that limit deposits involving Russian individuals to less than 100,000 euros. A Deutsche Bank spokesman said:
“We have strengthened and continue to strengthen all aspects of our sanctions compliance framework and associated processes.’’
The focus is now increasingly on whether firms have sufficiently robust controls, adequate screening architecture and governance frameworks that are fit for purpose. This case has shown in the starkest terms that the use of third-party screening providers is no defence. OFSI’s decision leaves no doubt that the responsibility for sanctions compliance rests solely with the regulated entity.
23
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ThoughtLeaders4 Disputes Magazine • ISSUE 22
| International Arbitration |
COMMUNICATIONS-LED ENFORCEMENT
INSIGHTS FROM THE YUKOS ASSET-RECOVERY STRATEGY Authored by: Natalia Mesa Koch (Consultant) - Byfield Enforcing a $65 billion arbitral award against a sovereign state is not just a legal challenge, it is a complex exercise of sustained pressure and persistence. Nowhere is this more apparent than in the long-running Yukos case, which has evolved from a landmark arbitration into a multi-jurisdictional asset recovery programme. What has emerged in this process is not just a conventional enforcement exercise, but a highly visible campaign in which legal tactics and communications are closely aligned. In this case, shaping the media narrative to apply pressure on a sovereign state has become as important as identifying recoverable assets.
The Road to a Global Asset-Recovery Programme The origins of the dispute are well known. In 2014, a tribunal in The Hague found that Russia had unlawfully expropriated Yukos Oil Company and awarded over $50 billion in damages to its former shareholders, an amount which has since grown to $65 billion accounting for interests. After years of legal setbacks and appeals, the awards were definitively reinstated in 2020, and in October 2025 the Dutch Supreme Court confirmed they were final and enforceable worldwide. More recently, in March 2026 the Commercial Court in London ruled that former Yukos investors could proceed with enforcement in England. With the legal framework now largely settled, the focus has shifted to identifying, targeting and
seizing Russian state assets across jurisdictions including the UK, the Netherlands, France, Belgium, Singapore and the United States. This enforcement phase is politically sensitive and, above all, inherently public. An interesting pattern has emerged in the types of assets being pursued by former Yukos shareholders. In traditional asset recovery, the objective is straightforward: maximise financial return. In the Yukos case, the choice of assets suggests a parallel objective: to generate visibility and increase pressure on Russia. Rather than quietly pursuing the most valuable assets in purely financial terms, the strategy appears to prioritise those that carry symbolic or reputational weight, are located in high-profile jurisdictions, or are likely to attract media coverage and political attention. In this communications-led approach to enforcement, the legal and PR strategies are closely integrated.
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ThoughtLeaders4 Disputes Magazine • ISSUE 22 Similar strategic assets have been seized in the Netherlands. In 2024, the first tangible recovery in this jurisdiction came through the seizure and auction of 18 Russian-owned liquor trademarks, including Stolichnaya and Moskovskaya.
Targeting MediaFriendly Assets in London and the Netherlands London offers a clear example of how this strategy works in practice. The UK has become one of the most active and consequential enforcement jurisdictions for the Yukos case. In February 2024, former Yukos shareholders obtained an interim charging order over a Russianowned property in Kensington. The asset itself, a vacant plot purchased for £8 million in 2006, was not financially transformative in the context of a $65 billion award. However, the asset’s location was highly symbolic. Prime London real estate carries global recognition, and the news of a Kremlin asset seized in this location inevitably attracted widespread media attention, tapping into broader narratives around Russian wealth in the capital. The headlines generated by targeting this strategic asset sent a clear signal: enforcement is achievable, even in a jurisdiction often perceived as legally complex and protective of sovereign assets. The value of the Kensington property was therefore not in its financial contribution to the overall recovery, but in the visibility and credibility it conferred on the enforcement process.
The approximately $1.7 million raised in this auction was negligible relative to the total award, and yet the media impact was substantial. The seizure of these iconic vodka brands generated widespread international coverage. This was not just because they were a symbol of Russian soft-power, but because they were consumer-facing, culturally recognisable assets rather than the complex financial instruments usually targeted in enforcement actions. Once again, the assets were not chosen for their monetary value, but for their ability to create headlines and reinforce a broader narrative: that any Russian state-linked asset, no matter how unconventional, could be targeted anywhere in the world.
Applying Pressure by Generating Headlines From a communications perspective, the Yukos campaign demonstrates how visibility can accelerate legal strategy. Each well-publicised enforcement action contributes to a cumulative narrative of progress and inevitability. Coverage of asset seizures in major jurisdictions such as London or Amsterdam reinforce the perception of growing legal exposure, not only for the state itself but also for those interacting with it. Over time, this can influence behaviour beyond the immediate dispute. Financial institutions and commercial partners may reassess their risk exposure to state-linked assets if they see claimants are pursuing enforcement aggressively, putting pressure on the state to pay the arbitral award.
| International Arbitration | By targeting culturally or politically significant assets, the claimants are able to keep the dispute in the public eye and reinforce the sense that the asset-recovery process is active and irreversible.
The Growing Role of Communications in Enforcement Proceedings The Yukos case shows how modern enforcement, particularly against sovereign states, extends beyond the courtroom. Legal victories establish the framework but real-world recovery depends on strategy, persistence and, increasingly, communications. By aligning asset recovery efforts with a proactive communications strategy, the former Yukos shareholders have shown how headlines can be used not just to publicise enforcement, but to drive it. In a geopolitical landscape where traditional enforcement mechanisms face structural limits, reputation has become a critical tool, and media strategies are now an essential part of any high-stakes, cross-border asset recovery programme.
Generating media coverage by targeting specific assets also helps maintain the case’s momentum. Asset recovery at this scale is inevitably slow and contested, with long periods between substantive developments. Without consistent media engagement, there is a risk that the case fades from view.
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ThoughtLeaders4 Disputes Magazine • ISSUE 22
| International Arbitration |
60 SECONDS WITH... MAANAS JAIN BARRISTER
OUTER TEMPLE CHAMBERS
ow did you start your career, and H what led you to your current role at Outer Temple Chambers?
What is the biggest challenge facing your clients in today’s disputes landscape?
I started my career at the selfemployed bar doing a mix of civil and commercial work. I then spent over a decade working in two leading international arbitration practices. This gave me the chance to work on interesting and high-value international disputes with seasoned advocates at the top of their game. Moving back to the bar has allowed me increased independence and flexibility to fully harness the international network I developed in private practice. I have also been able to continue my focus on international commercial arbitration, investment treaty disputes and arbitration-related court litigation.
wo related challenges: costs T pressures and the disruption of AI. Clients are under increasing pressure to ensure their lawyers are producing more for less. At the same time, the rapid developments in AI are changing how disputes work is scoped, staffed and delivered. The practitioners that thrive will be those that efficiently embed AI in their everyday practice without sacrificing the strategic judgment and advocacy complex international disputes demand.
What attracted you to a career in law, and did you always know you wanted to work in disputes? I am not one of those practitioners that decided to become a barrister at a precociously young age. I studied English as an undergraduate and have always enjoyed debating and performing. Working as a disputes advocate seemed like the best way to marry these different interests and earn a living at the same time. What has been the highlight of your career so far? he landmark decision of the UK T Supreme Court in Halliburton v Chubb (in which I appeared as counsel for one of the interveners, the ICC Court). The decision was important in confirming that English law remains firmly in step with internationally accepted best practices on independence and impartiality of arbitrators.
hat emerging trend do you think W professionals in the disputes sector should be paying closer attention to? he re-emergence of resource T nationalism, particularly in the critical minerals sector. As governments race to secure supply chains for lithium, cobalt, rare earths, and other transition minerals, there has been a wave of State interventions across the globe — from unjustified regulatory pressure to outright expropriations. This is generating a new generation of investor-state claims and commercial disputes that sit at the intersection of the right to regulate, climate policy, and public international law. What advice would you give to someone starting their career in law?
How do you switch off outside of work? pending time with my wife and young S children; reading; going to the theatre; and finding any excuse for a long and well-lubricated lunch. If you could have dinner with any person, past or present, who would it be and why? irginia Woolf, Phillip Roth and V Vladimir Nabakov. My literary heroes that would collectively make up quite the dinner party. What innovations would you most like to see in international arbitration? more robust set of tools for tribunals A to combat guerilla tactics. Some in our community have posited the potential recognition of an arbitral equivalent to contempt of court. This would allow tribunals to sanction parties that abuse the process – whether through unsolicited submissions or other dilatory tactics. Such sanctions might include more frequent use of interim costs orders or the forfeiture of specific procedural rights (e.g., stripping a party of the right to submit further written submissions). This will not be appropriate in every case. However, recognition of the concept itself has the potential to be a significant deterrent on the worst types of abuses all too commonly seen in international arbitration cases.
ast the net wide and be open to C diverse areas of law. Understand early that there is no replacement for hard work. Find mentors that will guide and champion your practice. Treat your career like a marathon not a sprint. What is one skill that has been invaluable to your success? eing curious – about people, ideas B and problems.
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ThoughtLeaders4 Disputes Magazine • ISSUE 22
| Family Business Dis putes |
FAMILY BUSINESS DISPUTES…
A FORENSIC ACCOUNTANT’S PERSPECTIVE Authored by: Charlotte Norton (Forensic Associate Director) & Stephen Greenway (Head of Forensics) - Dains Accountants Limited Disputes involving family businesses are often some of the most acrimonious and, given the emotive element, can be some of the most challenging from a quantum perspective. When shareholders fall out, whether in a family business or not, a valuation of the company and individual shareholdings is often required. In this article, we address some of the key factors associated with many family businesses that, in our experience, are an area of contention and also impact the determination of the value of the company and ultimately the individual shareholdings.
All in Agreement … or Not Like a lot of organisations, family businesses are regularly built on trust. They are often passed from generation to generation, with an expectation that the next generation will take the reins. They are typically formed when relationships are harmonious and disputes are not envisaged. The familiarity of the shareholders, who are also often directors, may mean that important paperwork gets overlooked or may be outdated. • S hareholder agreements may set out how shares are to be valued when an individual is exiting a business, these agreements however are often absent in family businesses, or where drafted they are unsigned. Afterall, “why would they need a shareholders’ agreement, they are family?” • A rticles of Association, which may also provide a method for valuing shareholdings on exit may not have been updated and any references or methodologies contained within may be outdated.
• B oard meetings may be less formal in a family business and where decisions are made out of hours “around the kitchen table,” these may not be documented. Of course, board meeting minutes and documentation regarding key decisions, as well as plans for the future of the business, is evidence that may eliminate or reduce the chance of a dispute, or where a dispute arises may be relied upon to support a case. Policies and procedures may also not be in place or kept up to date, as
“things are done as they always have been done” and family members are trusted to do what is right for the business. A lack of policies and procedures however may again be the catalyst for a dispute if family shareholders become aggrieved and allegations of unfair prejudice may arise. The forensic accountant, in trying to provide a valuation, will have to tackle the lack of key agreements and documentation. The absence of information will have a bearing on the valuation and will impact the number of assumptions that will be required.
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ThoughtLeaders4 Disputes Magazine • ISSUE 22
A Gift, a Loan, or an Investment?
Stranger and Not so Stranger Danger
Family members often provide funds to startup businesses or as a cash injection to support existing businesses.
When families involved in businesses together fall out, both personal and professional relationships are impacted.
Documentation may not be prepared and so the nature of the funding provided and intentions may not be captured correctly.
The familiarity of the individuals involved often leads to accusations regarding personal expenditure and whether this has been correctly recorded in the directors’ loan accounts. For example, it is not uncommon for allegations to be made around the use of Amazon accounts and whether the expenditure is personal or for genuine business use.
How the funds received have been treated can impact a valuation. Without paperwork the parties may have differing accounts regarding the nature and terms of the funding which will need to be unpicked in a dispute. A cash gift to a company is unusual and may lead to unexpected tax consequences for the existing shareholders. There would be no expectation of refunding the monies and there would be no upside received if the business succeeded. It is more common for a cash injection to be treated as: i) a loan, which may or may not attract interest, but ultimately will be expected to be repaid. The loan would therefore be treated as debt in a valuation; or ii) an equity investment through the purchase of shares. If shares are issued in return for funds received, this would dilute any existing shareholdings and may impact distribution of earnings, depending on share classification and the rights attached. The existing shareholders may not wish to relinquish control however and a hefty share premium may be paid for the shares if the funding exceeds the value of the shares received in exchange. In this scenario, the investor is likely to only receive a minority shareholding, which would not carry control or influence over the company regarding distributions and there would be no right to repayment. (Shaded box)
| Family Business Dis putes | Family members may also be employed within the business; employment contracts however may not exist or again may not be updated on a timely basis to reflect the role and remuneration of those individuals. Any valuation should consider the role of the individuals employed by the business, in particular family members, including directors, whether the role is one required by the business, and whether the salary paid to them is commensurate with that role.
Summary Family businesses can often be highly successful but when families fall out the disputes arising can be some of the most painful. Everything may seem rosy but things can turn sour quickly and it is important to have clear documentation in place regarding key decisions and key company information. A dispute may not be avoided but having evidence of decisions made may assist in the process of reaching a settlement and determining quantum.
Any incorrect recording of expenditure may not only impact the valuation of a business but also have unintended tax consequences for the business and the individuals involved in the business. We often see disputes where family members have received shareholdings and are made directors of companies but only certain members of the family contribute to the day to day running of the company. This mismatch in effort can lead to disputes. Allegations of unfair prejudice may occur if there is an expectation of earnings, whether realistic or not, from the shareholdings which do not materialise. Those family members which do not contribute but have been made directors by virtue of inheritance may be denied access to the accounting records and may not have an understanding of the business, which may lead to noncompliance with their director’s duties under the Companies Act. This can sometimes lead to different views on so-called ‘minority discount’ where family members will have completely different ideas on the level of control, often incorrectly conflating this with the level of contribution put into the company. Although this is ultimately a legal matter, forensic accountants are often called on to provide guidance on level of minority discount in family disputes.
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