Business, Company & Commercial Law Recent News

For further help or information regarding the articles below, please contact Jonathan Cobbold or Nick Amor

IS AN AGREEMENT TO NEGOTIATE ENFORCEABLE?

The courts have long held that you can not have a contract to negotiate and, at the end of the contract, and so force the other party to buy or sell. However, the courts have held that an agreement to negotiate can be legally binding, providing it is sufficiently well defined. There must be an express commitment to use good faith and a fixed period to negotiate. This means the seller would be unable to carry on negotiations, at the same time, with a competing buyer - thus giving the buyer the best possible chance to be the first to buy the property or sign the contract.

MUSIC TO THEIR EARS

The Phonographic Performance Limited (PPL) licence fees are collected from businesses to authorise them to play music in pubs, bars, restaurants, cafés, shops, offices and factories. A new pricing structure came into force in 2006 which meant that larger businesses paid up to 400% more than previously (the average increase was 130%). The copyright tribunal has now disapproved of these large increases and ordered that a 10% increase plus inflation was reasonable - the PPL must now pay refunds for over-payments since the 1st January 2006 - affecting 1,000’s of businesses. Businesses should consider whether they should claim a refund.

SHARES – REFUSAL TO REGISTER

Most Directors have a discretionary power to refuse to register transfers of shares. However, that power must be exercised for a proper purpose, and in good faith i.e. it must be a decision most likely to promote the success of the company. If there is any improper or collateral purpose, the court will order the transfer of the shares to be registered. The Companies Act 2006 changed the law in October 2009 so that Directors must give a written reason for refusal within 2 months. The Directors will have to give further information backing up the reason for their refusal as the buyer of the shares may request.

Commercial Law - A Sign of The Times

Rent - Pay as you Go

Many tenants are asking their landlord if they can pay rent monthly rather than quarterly; if the landlord agrees then he must act very carefully to ensure that this is not a permanent binding agreement. If monthly payments or indeed part payments are accepted, then there's a real risk that landlords will lose remedies. Check your Lease to see if there's a guarantee, and whether its terms allow the landlord to modify the tenant's rent obligations.

If the landlord is willing to agree such an arrangement then make sure that it's in writing, that it's temporary, that it can be revoked at will and that it will not adversely affect any rent review clauses, guarantors or Authorised Guarantee Agreements.

Rent Arrears

A common method used by landlords is to send in a Court Certified Bailiff prior to forfeiting the Lease, thus gaining priority over all creditors on seizing goods within the demised premises. The new Commercial Rent Arrears Recovery Regime (CRAR) was intended to replace this ancient remedy - but the CRAR has now been delayed until April 2012. Good news for landlords.

Business Rates and Insolvent Tenants

The three or six month period of rates relief for empty properties begins to run from the moment the property becomes unoccupied. A liquidator is exempt from rates liability but the time period still runs so that both reliefs are contemporaneous. If a tenant goes into liquidation and vacates an industrial property, with the liquidator then disclaiming the Lease five months later, the landlord will only benefit from the one month left of the six months' rate relief window.

Accordingly landlords must carefully examine liquidator's notices of disclaimer for any possible flaws that might render the disclaimer invalid.

In the case of a solvent tenant, then the landlord should protect himself by an indemnity clause in the Lease ensuring that he can claim loss of rates relief from that tenant who has claimed rates relief and then vacated.

CHARGING INTEREST FOR LATE PAYMENT ON BUSINESS DEBTS

Can we remind our business clients about the Commercial Debts (Interest) Act 1998, which provides that Statutory interest is automatically applicable at the end of the credit period set out in the contract. If there is no agreed period in the contract, the default credit period will be 30 days from the date of delivery of the goods or services, or the date of receipt of the invoice. Interest then runs at 8% above base rate and is calculated on a simple daily basis. Statutory interest is generous and exceeds that set out in most contracts.

TAKING A LEASE IN TODAY'S MARKET?

Good quality tenants are highly sought after by landlords and if a tenant can show good financial strength to the Landlord then the following concessions should be sought:

* Rent free periods
* Contribution to fit out costs
* Early termination break clauses
* Maximum flexibility to sell or underlet the Lease
* Monthly rent rather than quarterly rent
* Contribution towards Tenants legal fees
* Schedule of Condition to water down any repairing or redecoration requirements

DE FACTO DIRECTORS

If your job title is 'commercial director' or something similar, but you don't sit on the board, then take comfort.

Mr Davies ran a small building company with the help of his wife. Although she was held out as a director, Mrs Davies was never formally appointed as such, and neither performed the functions of a director, nor directed the business of the company. She was not aware that her husband had taken, for himself personally, a payment due to the company, and had used company money to discharge a personal debt.

When the company went into liquidation, the liquidator sought to recover these sums from both Mr and Mrs Davies on the grounds that they had been guilty of misfeasance. He argued that Mrs Davies was liable as a 'de facto' director. Although the liquidator's claim against Mr Davies succeeded, his claim against the wife failed. Merely describing herself as a director had not made Mrs Davies a 'de facto' director.

ENERGY PERFORMANCE CERTIFICATES - EPCS

As from 1 October 2008, with very few exceptions, whenever a commercial building is sold, built or let, it will need an energy performance certificate ("EPC") from a qualified energy assessor. This certificate will rate the building for energy efficiency between grades A and G and include recommendations for improving efficiency. In larger public buildings, of more than 1,000 m2, the certificate will have to be on display. Failure to obtain an EPC will be punishable by fine. Although there will initially be no obligation to improve the efficiency of a building, there is already talk of introducing incentives through the business rates to do so.

BREAK POINT

The terms of a break clause in a lease are applied very strictly. If there are any pre-conditions to the break clause, these will be interpreted strictly. They are not subject to a reasonableness test. A classic example of this is a case in which a break clause was conditional upon the tenant having applied two coats of paint to a property, but in which the tenant applied only one coat. It was held by the Court that the break clause was not valid. If the break clause states 'vacant possession must be given' this can be more stringent and more far reaching that it sounds. It can mean that all rubbish must be removed from the premises and not only must the tenant have vacated, but any other occupiers and subtenants must also have cleared out of the property.

THE COMPANIES ACT 2006

The Act became law on the 8th November 2006 but has gradually come into force.

The key points are:-

  1. It replaces and codifies Directors' duties (including a new duty to promote the success of the company, which must include impact on the community and the environment).
  2. Giving all Directors an option to file service addresses on the public record rather than private residential addresses.
  3. Promoting shareholders' engagement and a long term investment culture through enhancing the power of proxies and enfranchising indirect investors.
  4. Simplifying and deregulating the legal requirements for running private companies through measures such as simplification of capital reduction provisions, abolishing of the prohibition of financial assistance prior to completed purchase of their own shares etc.
  5. Extending the rights of shareholders to sue for negligence and other defaults and rights to bring derivative claims in certain circumstances.
  6. A new criminal offence of recklessly or knowingly including misleading false or deceptive details and audit reports.
  7. Measures to allow companies to limit the liability of their auditors.
  8. Simplifying the company formation process including abolishing the requirement for authorised share capital.
  9. Certain transactions between the company's Directors which were previously prohibited will be lawful subject to the prior approval of shareholders (e.g. loans from a company to its Directors).
  10. The current age restriction of 70 for Directors of public companies will be abolished.
  11. The Act will require at least one Director to be a living person although corporate Directors are still permitted.
  12. A company's capacity will be unlimited unless its Articles specifically provide otherwise.
  13. A single Director can execute a document as a Deed on behalf of the company by a simple signature in the presence of a witness.
  14. Shareholder meetings can be held more quickly - special resolutions will require only 14 days' notice unless proposed at an AGM.
  15. Companies will be able to communicate electronically with their shareholders or by websites.
  16. Private companies will no longer need to appoint a Company Secretary.
  17. A written resolution will now require a simple majority for ordinary resolutions or 75% for special resolutions.
  18. Companies no longer have to hold an Annual General Meeting.
  19. Where private companies with only one class of shares the Directors will have unlimited authority to allot shares.

The changes to Company Law effected by the Companies Act 2006 are far reaching. With space constraints in this Newsletter, I can only scratch the surface of the changes. Please contact me if you are concerned about the effect of the changes upon your Company, or if you require advice concerning any matter relating to Company Law.

DIRECTORS BEWARE

If a Director signs a contract on behalf of his Company, knowing that the Company cannot pay for the goods to be supplied under that Contract, the Director can be held personally liable to pay for the goods. In a recent case on this point, the Court did say that every case would turn upon its own facts, but the moral of the story is that a Director who knows that his Company cannot pay for goods, but signs for them anyway, will not have much judicial sympathy bestowed upon him.