Swift Commercial Dispute Resolution – Your Checklist to Achieve a Successful Outcome

Swift Commercial Dispute Resolution – Your Checklist to Achieve a Successful Outcome

Swift Commercial Dispute Resolution – Your Checklist to Achieve a Successful Outcome

Commercial disputes can be extremely complex and involve substantial costs, reputational damage and harm to previously successful business relationships.

Finding a swift, fair and enforceable resolution is in the interest of all parties.

Even if you have a valid claim or have grounds to reject a claim made against your business, it is important to present a watertight case to avoid future issues.

In this guide, The Law Firm Group explains the process for resolving a commercial dispute, with a checklist to ensure you have everything you need to succeed.

Commercial Dispute Basics

Before we get into more detail, let’s rewind to step one, when a dispute first arises.

Usually, this begins with an informal notice, such as a request for an unpaid invoice to be settled.

Disputes require a paper trail to evidence that attempts have been made to resolve the problem before escalating. If you haven’t tried to resolve a conflict at the early stages, it may be challenging to progress things further.

Where these efforts have proven unsuccessful, the claimant will need to consider the costs of legal action compared to the benefits of seeking legal support to recover damages, expenses, or monies owed.

Solicitors often use a pre-action letter to gently caution that the claimant will make a legal claim if the matter is not concluded by a finite date.

Sending a Letter Before Action in Business Conflicts

Issuing this letter does not constitute the start of litigation, and rather, it is an attempt to reinforce the claimant’s position, demonstrating the legal basis for the claim.

If you receive a letter before action, we recommend seeking legal advice immediately, as the time limits are not negotiable, and you need to respond as quickly as possible.

Proceeding to Court Action to Progress a Commercial Dispute

Should an agreement not be forthcoming, court processes can begin. This is a critical stage in a commercial dispute and usually avoidable with decisive, swift action and a willingness to negotiate.

Once you initiate or receive notice of court proceedings, you are subject to the court’s regulations around paying for costs.

At this step, a claimant will prepare a formal legal case by filing a claim form and the particulars, which explain their argument and why they are seeking a court-ordered outcome.

Defendants must respond to the claim within 14 days of the notice being served, to submit a defence, or acknowledge the court action.

The Commercial Dispute Resolution Checklist

For most businesses, avoiding an expensive, public, and potentially lengthy court battle is highly preferable, so putting together your claim or defence is key to a quick and acceptable outcome.

If you have received a letter before action or wish to initiate a claim, this checklist will help ensure you have all the background information ready.

1. Review contracts and agreements It’s crucial to refresh your memory about any contracts, agreements or negotiations concerning the conduct between the two businesses.

Many disputes involve confusion over the clarity of contracts, so going back to the original documentation is important to identify how either party has broken the agreement and when.

2. Assess the loss Whether as the claimant or defendant, you need to know the costs involved to make decisions about a settlement agreement, out of court negotiations, or proceeding to litigation.
3. Collect evidence The more written documentation, the better!

Collect everything relevant to the situation, including emails, meeting minutes, contracts, agreements, statements referring to phone calls or verbal discussions, purchase orders, remittances and reports from other colleagues.

4.  Negotiate If you can reach a mutually agreeable decision before litigation, you usually both stand to save a considerable amount in court fees.

We suggest recording negotiations with letters and notes, or minutes, agendas and meeting records to avoid further conflicts or misunderstandings.

5. Consider alternative dispute resolutions The commercial team at The Law Firm Group can advise on out of court agreement processes, including arbitration or mediation, which may help reach an amicable solution without the expense and publicity of a court process.
6. Identify likely outcomes It’s essential to think about the likelihood of reaching the solution you are aiming for.

For example, if we consider the example earlier about an unpaid invoice, but you know that the other business is in severe financial difficulties, is it worth covering legal costs to instigate a court case if the potential for repayment is very low?

7. Seek legal advice If you haven’t already, now is a time to discuss the matter with an accredited commercial solicitor, assess the risks and rewards, and make clear decisions about the way forward.

Unless the dispute is straightforward, involves a small monetary value, and doesn’t seem to pose any risk of a counterclaim, legal advice is strongly advisable.

8. Evaluate the strength of your claim Most businesses in a conflict feel convinced that they are right, but you need to assess whether you have enough evidence and grounds to make a factual claim.

This process means looking at the legal position of the company and the documentation available. The potential for a counterclaim or even losing the case in court are also crucial factors.

9. Estimate timescales and costs Whichever legal action you take, there will be costs and timescales involved.

Speak with your solicitor to get a firm idea about the likely length of time before you reach an outcome and the total costs to decide whether the conflict is worth pursuing.

10. Make a final decision At this stage, you know how strong your claim is; you have all the evidence and benefit from legal advice about the right options for your business.

Now, you’ll need to decide whether you’re willing to compromise and perhaps accept staged payments, make a partial claim, or whether it’s worth abandoning the claim or pursuing full legal action.

 

Once your litigation has been finalised, you’ll still need to consider enforcement action, so a court case is often the last resort in a commercial dispute involving substantial amounts.

Expert Advice on Commercial Dispute Resolutions

If you need practical legal support deciding how to proceed with a business dispute or specific advice around commercial law relating to your claim, please get in touch with The Law Firm Group.

We’ll run through the situation, provide guidance, and help you choose the best approaches to successfully reach a favourable outcome, balancing risks versus rewards and costs versus returns.

Call or email us to talk about it. 0300 303 3805

How to Negotiate a Commercial Lease – Common Pitfalls to Avoid

How to Negotiate a Commercial Lease – Common Pitfalls to Avoid

How to Negotiate a Commercial Lease – Common Pitfalls to Avoid

Negotiating a commercial lease for a new trading premise or renegotiating an existing lease may seem quite simple. And on the face of it, it is! You need to agree on the rental costs, duration of the contract, and each party’s obligations.

However, agreeing to blanket terms can leave you without a safety cushion if things go wrong or even mean falling foul of the small print and damaging your relationship with your landlord.

It’s highly advisable never to sign a lease, or any business contract, without carefully assessing the terms, clauses, and conditions.

In this guide, the business specialists at The Law Firm Group advise on some of the typical issues we deal with and how to ensure your commercial lease meets your expectations.

Signing a Commercial Lease Under Pressure

Lack of available space and rising property costs can be a significant challenge, but doing your homework and taking your time to inspect the premise in question is key.

You can uncover a surprising amount of information by visiting a potential rental unit and speaking to other tenants, such as:

    • Problems experienced by other businesses nearby.
    • Checking the square footage, parking availability and loading space.
    • Verifying times when accessibility may be compromised (such as industrial estate opening hours).
    • Looking into the security available or any risks in the area.
    • Inspecting the property’s condition, inside and out, especially in wet weather.

Location matters. Even if you’re finding it tough to rent a property in your desired area, focusing single-mindedly on this factor can mean you spend more than you can afford or perhaps can’t meet the needs of your staff and clients.

Take your time to assess the amenities on offer, and evaluate the maintenance services the landlord is offering – if you’re under pressure to sign a lease quickly or advised that there is competition from other tenants, it may be a red flag.

Understanding the Complexities of Your Business Lease Terms

When you’re satisfied that you have found the ideal premise and that the rental costs are appropriate for your business, it’s time to look closely into all of the associated terms in your rental contract.

Terms include several core pieces of information:

    • How long the lease runs for, and your options for extending the period.
    • Break clauses – if you need to end the contract early, and any penalties or notice periods attached.
    • Rent-free periods, often available at the start of a longer lease term, usually from three to 12 months.
    • Maintenance obligations – the tenant will normally be responsible for much of the general upkeep, so inspecting the property first is essential.
    • Repairs, and whether the landlord is committing to fixing any fundamental issues with the property before you move in.
    • Alteration rights – can you add internal walls or remodel? Do you need written consent to make such adjustments?
    • Is subletting allowed for all or some parts of the property?
    • Service charges – sums payable to Landlord for insurance and maintenance.
    • Future obligations – your obligations to the Landlord after you have assigned the lease.
    • Land registration – leases over 7 years long have to be registered at the land registry.

At this stage, if you haven’t already contacted an experienced solicitor, you should do so before going ahead with the lease agreement.

Most landlords are prepared to negotiate the terms, but you’ll need to understand each provision and then compare that to your expectations to determine which elements require a discussion.

Failing to read the terms thoroughly and any unwillingness to negotiate could be detrimental in the long term.

It’s wise to think about how your trading structure or processes might change in a few years and whether the building will remain fit for purpose in its current condition.

Controlling Commercial Rent Costs

Pricing is undoubtedly one of the most important factors in your commercial lease, but forgetting about ancillary costs or additional charges could be extremely expensive.

While monthly rent and a deposit are typical landlord requirements, there are several other costs that you may need to incorporate into your budget.

Build-Out Costs

Some commercial landlords will offer to build out the space. Usually, that means adding internal partitions, replacing a roller shutter door, or perhaps upgrading the flooring so that the building is ready to move into.

If the landlord is stripping the premise back, they may expect the tenant to contribute to those expenses, so you need to clarify.

Don’t assume that a build-out will be solely the landlord’s responsibility! One option is to negotiate on reconfiguring or redecorating the space in return for a rent-free period, for as many months as it would take to claw back the amount spent.

Commercial Building Taxes

Some business units on long leases may be subject to Stamp Duty – and if you’re signing a contract for over seven years, you will need to register with the Land Registry and pay the appropriate fee.

Other cost considerations include council tax and other levies that might apply to commercial units in the local authority area.

Reinstatement Costs

While it’s common to think about the immediate future when signing a new lease, you should also have one eye on the future.

For example, if you intend to make alterations to the premise and have the landlord’s consent, will they expect you to cover the cost of restoring the property to its former condition when you move out?

It could be very costly if that includes things like reinstating suspended ceilings, removing walls or structural work.

Rising Rental Charges

Finally, make sure you understand whether the rent is due to change and if there is a fixed period built into your lease.

Multi-let buildings with several units are also typically subject to maintenance and insurance contributions towards the upkeep of common areas.

Where possible, these costs should be capped or fixed for the duration so you won’t suddenly be hit with rising costs.

Legal Advice When Negotiating a Commercial Lease

Professional advice is invaluable when you are negotiating a commercial lease – the points we’ve explored above give you a glimpse into the many complications that can arise if you aren’t confident that your lease terms are acceptable.

As your legal representatives, The Law Firm Group apply our years of business experience to comb through the terms of your tenancy agreement, identify clauses of concern, recommend negotiating points, and even liaise directly with your prospective landlord if you wish.

Please get in touch for more advice about the common stumbling blocks in commercial leases – and how to ensure you steer well clear.

Call or email us to talk about it. 0300 303 3805

Benefits of Working With a Solicitor to Set Up a New Business

Benefits of Working With a Solicitor to Set Up a New Business

Benefits of Working With a Solicitor to Set Up a New Business

Launching a new venture can be hugely exciting. But establishing the optimal trading structure, customising contractual terms, and creating a bespoke set of association documents can be time-consuming.

The regulatory framework is complex, so legal advice from day one is the best possible way to ensure you’ve dotted all your I’s and crossed all your T’s.

Today we’ll explains why an early consultation with an experienced solicitor is key to ironing out potential teething problems and how a skilled legal adviser might even improve your initial start-up investment prospects!

Essential Legal Advice When Setting Up a New Company

One of the stressors for new business owners is the myriad of decisions that must be made.

Investigating financing opportunities, analysing legal implications, determining whether offered terms are reasonable, all while looking to establish a customer base and build branding and reputation.

A solicitor specialising in business law does much more than step in when you have a dispute or legal challenge.

We assist clients with:

    • Considering the tax implications of varying business models.
    • Advice on the right time to start your first trading period.
    • Negotiating lending terms for start-up capital investments.

Depending on the nature of your business it may also be necessary to set up contracts for supply or procurement, in which case you’ll need to look at product liabilities, insurance coverage, and finessing your marketing to comply with statutory industry regulations.

Getting it wrong at the early stages can be disastrous even for outstanding business concepts, so we always recommend speaking with a solicitor right from the beginning to ensure your launch runs smoothly.

Advantages of Legal Support When Launching a New Business Venture

There are multiple elements of establishing a new enterprise that involve contracts and agreements, all of which benefit from an astute legal eye to point out issues or recommend amendments.

For example:

    • Building leases
    • Client or supplier contracts
    • Employment offers
    • Shareholder agreements

Any documents that comprise an agreement between two businesses should be fully reviewed and negotiated to identify clauses or terms that conflict with your company objectives.

Partnership agreements or shareholder contracts must outline the financial contributions of each party, ownership proportion, and the anticipated returns.

Getting these agreements spot-on is advantageous to support your position as the company grows, avoid conflict, and secure your status as a new start-up with a solid grounding supported by an experienced legal team.

The Significance of Adequate Insurance

Insurance coverage is necessary to protect your business from multiple risks and potential exposures that could dislodge a fledgling business before it has a chance to gain market share.

With policies ranging from public indemnity, employer’s insurance, product liability, legal indemnity, building coverage and many more besides, selecting insurance without spending over and above your budget can make a big impact.

Our business solicitors offer advice to identify your most significant risks and decide which exposures are worth guarding against, such as:

    • Employee damages or accidents.
    • Protection if a product injures somebody.
    • Safeguarding your assets, premises and visitors.

Most new businesses will look to minimise initial costs, so a legal consultant can recommend the coverage worth investing in and those you can afford to postpone.

Securing Funding for a New Business Proposition

We’ve mentioned investment, and it’s often a space that will make or break a new company on the brink of a launch date.

External financing relies on robust incorporation or partnership documents, whether through a private investor, a bank, crowdfunding, or venture capitalist.

It can be tough to secure investment without legally valid documentation that meets investor expectations, so all the foundational documents must pass inspection.

There are endless reasons why accurate and complete incorporation documents matter, but as a few examples:

    • Venture capitalists will not invest in new businesses without comprehensive corporate records and incorporation documents.
    • Poorly constructed documents prepared from templates can expose founders to losing shares or control over the company.
    • Financial negotiations hinge on the abilities of the business owners to confer and handle requests while fostering positive relationships. Third-party financiers are proficient at making deals to their benefit, so having a legally aware approach can be meaningful for the business’s long-term success.

Here at The Law Firm Group, we never recommend using standard incorporation documents for these reasons.

While it’s possible to download a template at a very low cost or use standardised paperwork available through Companies House, this method can be costly and pose vulnerabilities later down the line.

Guidance to Protect Intellectual Property

Intellectual property (IP) can present a bit of a grey area but covers some of those proprietary designs and product engineering that is unique to your new business idea:

    • Artwork and literary pieces
    • Logos, symbols, names and graphics
    • Fresh inventions
    • Designs

Ensuring you understand how IP ownership works is important, particularly if you commission designers or agencies to create business branding.

Contracts must state your ownership of the IP, or permitted legal usage rights, to avoid the prospect of legal challenges, often when the new business has reached a certain level of success.

It is also crucial to protect IP from the competition, especially for new businesses that have innovative creations and designs, which can be vulnerable to things like copying trading names, replicating a logo, or reverse engineering a product.

Finding Independent Legal Support to Set Up a New Business

As we’ve seen, there are numerous benefits of having professional advice at every stage of setting up a new business – from crafting your trading documents to entering into contractual agreements.

As your commercial solicitors, our role is to identify potential risks, analyse the terms of each contract, and help you make informed decisions about the best ways to proceed.

For more advice about creating a future-proof trading structure or addressing challenges you’ve faced running a start-up company, please get in touch with The Law Firm Group at your convenience for professional, impartial and friendly advice.

Call or email us to talk about it. 0300 303 3805

Company Wrongdoing – Understanding Director’s Responsibilities

Company Wrongdoing – Understanding Director’s Responsibilities

Company Wrongdoing – Understanding Director’s Responsibilities

Whether you’re just launching a new limited company, or have been a director for many years, it is never a bad time to review your obligations and what responsibilities go hand in hand with a registered directorship.

The Law Firm Group works with businesses and private clients, and knows that very often concerns about such responsibilities only arise in challenging times.

If your business has a trademark issue, is facing liquidation, or has a legal problem, directors will need to review their risk exposure and what personal consequences such a situation might have.

However, if you know from the outset what your responsibilities are, you can lead from the front with clear oversight of your liabilities as a director.

Separating Personal Liability from a Limited Company

Incorporated businesses are a separate legal entity from their owners or directors.

That does not mean that, in every case, a director cannot be found personally liable in the event of company wrongdoing.

For example:

  • In tort cases, in a civil court (as opposed to a criminal case), a director might be liable for the same acts as the company.
  • Courts may deem that a director has authorised, or caused an act of wrongdoing to take place.
  • If a director is found to have assisted with an infringement act, such as a breach of trademark rules in a passing off claim, they may be considered personally responsible.

Case law demonstrates that if a director has created an infringement, or assisted in it then if that contribution has been above inconsequential, the court can decide to share the responsibility for making reparations to that director, as well as or instead of the company.

These laws show us why every company director must have an understanding of all critical business activities.

For example, if a company took out a significant amount of borrowing, paid dividends to a director, then entered into administration, a court may find that the director personally benefited from the loan and must contribute towards the losses from their finances.

Therefore, The Law Firm Group would always advise seeking independent, professional advice if you have any concerns, or are keen to understand any potential liabilities and what actions are available to you.

The Responsibilities of a Director in the UK

The key to having a successful, litigation-free directorship is to have a firm grasp of your responsibilities.

Of course, in the real world, most directors can’t have direct oversight of every activity of every department and every employee of their business!

Our legal teams often consult with clients who are asked to sign paperwork regularly, might not have been aware of an area of risk, and therefore feel that they cannot be held personally liable for an instance of wrongdoing.

The reality is that the law will very rarely recognise ignorance as a defence. So outside of exceptional circumstances, it is up to you to know what is happening and manage your business within the scope of your position.

You can refresh your understanding of your responsibilities at any time, but to recap:

  1. Constitution: Every UK limited company needs to have a constitution. Often this is created from the model articles available from Companies House. Within that constitution is the articles of association, that set out the rules for your board. We’d recommend reviewing the articles if you haven’t done so recently, which set out what your powers are
  2. The Success of the Business: The next key responsibility is to promote your company’s success. If you have over 250 employees and are considered a large business, you’ll need to include a report about how you have done so along with your annual statements. That means making decisions for the benefit of the business shareholders, protecting the firm’s reputation, and considering other factors such as the environment.
  3. Sound Judgment: Many of the decisions we all make daily are dependent on our judgement, and as a director, those choices need to be made independently. That means not delegating important decisions to others without the requisite authority, and forming your own view.
  4. zue Diligence: This is a phrase we often hear, but what does it mean? Due diligence is about showing skill and care in the way you work. Some directors might demonstrate this through continued professional development or generally keep aware of market conditions and company performance.
  5. Conflicts of Interest: Being a director has risks and rewards like any role, but it is vital to be objective when it comes to conflicts where a particular contract or job might benefit you personally. Such conflicts need to be disclosed to the board members, and sometimes also to shareholders, and you’ll also need to disclose any significant gifts. Note that you have a statutory duty to declare an interest in any pre-existing or new transactions that the business might undertake.
  6. Record Keeping: A widespread problem, particularly for SMEs, is not keeping records of events such as board meetings or votes. It is imperative that meetings are minuted, and the records kept for ten years. Those records protect you in the event of any wrongdoing being found, and evidence what decisions were made, by whom, and on what basis.

How Can I Ensure I Am Fulfilling my Fiduciary Duties as a Director?

Your role as a director is to manage the company on behalf of the shareholders, and you may well own shares as well as running the show!

The Companies Act 2006 outlines all the responsibilities we have explored above and is a useful reference if you are facing a problem and need to know where you stand.

If you have fulfilled all your responsibilities within the powers set out in the constitution, and have used appropriate skill, care and diligence in your work, it is unlikely that you could be held personally liable should the business have been found to be in breach of a contract or law.

It is difficult to give a broad overview of how you avoid any personal liability. Still, in most cases, this could only arise where it can be proven that you have breached your fiduciary duties to look after the shareholders’ interests.

For example, suppose you knew a business was insolvent and allowed it to continue trading, or didn’t disclose a conflict of interest before accepting a substantial business contract. In that case, this could be a more serious issue.

Should you require assistance in understanding any aspect of your director’s responsibilities, be facing a challenge related to company wrongdoing, or feel that you would benefit from professional advice from a highly experienced legal team, do get in touch!

The Law Firm Group has offices across England and are always on hand to provide sound legal advice to help you decide on the best courses of action.

Call or email us to talk about it. 0300 303 3805

Brexit and Employment Law – Everything British Businesses Need to Know

Brexit and Employment Law – Everything British Businesses Need to Know

Brexit and Employment Law – Everything British Businesses Need to Know

Now that Brexit has taken place, talk has resumed on its impacts on businesses in the UK.

We all know that customs processes will be a little different and potentially prices on some goods will change.

However there has also been a great deal of speculation about British employment law and what will change now that the country has left the European Union.

Here we’ll run through how UK laws align with EU directives and what repercussions, if any, you should keep an eye out for as a British business.

What Parts of UK Employment Law Come from the European Union?

The first thing to clarify is that much of the UK law is indeed British. Therefore they won’t change at all now that the country has left the EU, although it is correct that there is now more significant potential for some legislation to change.

Most of the speculation is based on the fact that many British laws are derived from EU law, and hence, won’t those laws now change dramatically?

Our short answer is no, not in most cases!

The Transition Period ended on 31st December 2020. As at that point in time, the UK converted existing EU regulations into domestic law.

In any case, there are equivalents for much of the EU legislation already in place. For example, the EU Equality Directives were brought into UK law by the Equality Act 2010.

So, although Britain isn’t part of the EU any longer, and accordingly doesn’t have to comply with the EU rules, we already have legislation to implement the requisite provisions.

Therefore, we’d like to clarify that areas of law we’re all familiar with in terms of employment will not change unless the government decides to make any reforms, which at this stage feels unlikely.

There are some specific exceptions, such as European Works Councils, but general rights and obligations continue as they were.

How Does Brexit Affect Cross-Border Employment?

Figures from the Office for National Statistics, published in February 2020 show that there were nearly two and a half million EU nationals working in the UK. There were a further 3.37 million workers who originate from outside of Europe.

Those figures demonstrate that a fair number of employers are now concerned about whether they need to do things differently to retain those workforce team members.

The UK government has confirmed that, for now, the rights of EU citizens already working in Britain will not change. There is no requirement to dismiss staff, or implement any new contracts or pay rates as they remain entitled to work here as before Brexit.

Here is how the forthcoming reforms will work:

  • EU nationals now have six months to apply under the EU Settlement Scheme.
  • Employers can still take on European staff and need to check their Right to Work in the UK in the same way, until 30th June 2021.
  • You cannot select a candidate for a role based on their citizenship and therefore must not discriminate against any EU/EEA or Swiss applicants.
  • Candidates applying for a role from the EU can use their passport or national ID card to evidence their identity.
  • Other international applicants can produce an immigration document to prove their right to work in the UK.

Should you have staff from EU countries that have not already done so, they may need support to apply to the EU Settlement Scheme before the 30th June cut off.

There are a few rules around eligibility for the scheme, in that:

  • They need to have started living in the UK before 31st December 2020.
  • UK residents originally from the EU must apply even if they already hold permanent residence.
  • Children must be applied for separately from their parents or guardians.

People living and working in the UK don’t need to apply to the scheme if they already have indefinite leave to enter the UK, remain in the UK, hold dual citizenship, or are an Irish citizen.

Workers who have a British job but don’t live in the country do not need to apply. They are called ‘Frontier Workers’ and there is a separate permit available.

Is UK Employment Law Likely to Change in the Future?

Potentially. But given the current pandemic crisis and the last-minute nature of the departure agreement from the EU, it seems very unlikely that the government will implement any widespread reforms in the near future.

Discrimination law is the most probable area of reform. The UK already had discrimination laws far in advance of joining the EU, although this was updated when the Equality Act came into force in 2010.

There is a chance that the newly autonomous British government may introduce changes such as:

  • Capping the maximum discrimination award amount.
  • Banning zero-hours contracts.
  • Increasing the capacity of trade unions.
  • Changing rules for TUPE transfers.
  • Reviewing the rights of agency workers.
  • Amending laws around holiday pay.

However, these are speculations and proposals, some of which were announced by The Labour Party and would not be considered were they not to win the next election.

Any changes to employment law would also take a considerable amount of time to introduce.

Theoretically, the Supreme Court has the power to overturn British laws created in line with EU directives. Such changes would still be subject to substantial debate and would be highly unlikely to be implemented any time soon.

For now, we continue as we were. With consideration given to EU citizens working in the UK who need to apply through the settlement scheme to continue doing so.

The most significant potential for change is around UK laws influenced by the European Court of Justice decisions. The Withdrawal Act 2018 allows the British court system to change rules and disregard initiatives agreed upon after 31st December 2020 – but not before.

If you are concerned about any aspect of employment law, how Brexit might impact your workforce, or what protections you can put in place for your staff, please contact The Law Firm Group.

Our Workplace Law teams are specialists in employment law and can offer professional advice about the best options to safeguard your business.

Call or email us to talk about it. 0300 303 3805

The Corporate Insolvency and Governance Act 2020 Explained – and What it Means for UK Business Owners

The Corporate Insolvency and Governance Act 2020 Explained – and What it Means for UK Business Owners

The Corporate Insolvency and Governance Act 2020 Explained – and What it Means for UK Business Owners

Alongside many of the economic stimulus measures and financial reprieves announced during the Coronavirus pandemic, the UK government has also introduced temporary measures relating to corporate insolvency.

The rules about winding up businesses are set out in The Corporate Insolvency and Governance Act 2020, which came into force in June.

In September, as it became clear that regular trading was not about to resume any time soon, the government extended the Act’s measures.

While the original Act was due to end in December 2020, it has now been extended further. Some of the rules are in place until March, and some until April 2021.

The Law Firm Group receives regular enquiries from struggling businesses that have been severely impacted by lockdowns and the pandemic crisis. As such, it is no surprise that insolvency proceedings and redundancies have been on the rise – and these measures are intended to support companies dealing with these unique pressures.

Here we’ll look a little closer at the Act, what it means, and what you as a UK business owner need to know.

How Long Have Wrongful Trading Liabilities Been Suspended For?

Wrongful trading is a serious scenario, and one of the common situations is where a director knows a business to be insolvent, and yet allows it to continue trading.

The issue here is that by failing to declare insolvency, the company is likely to take out credit it does not intend to repay, increasing potential losses suffered by creditors, and the directors fail to fulfil their fiduciary duty towards the shareholders.

However, in light of the tremendously difficult business climate caused by the pandemic, the government decided to suspend wrongful trading measures.

  • Initially, these measures came until effect until 30th September 2020.
  • While the measures have not been extended as such, a new suspension has been introduced from 26th November 2020 until 30th April 2021.

This does not mean that a company should continue trading under any circumstances. Directors could still be subject to legal scrutiny if they willfully allow reckless trading, and know they have no opportunity to recover a profitable position.

What it is intended to do is avoid unnecessary pressures, with UK businesses dealing with multiple issues:

  • Rent arrears and VAT deferrals.
  • The challenge of forecasting trading in such an uncertain environment.
  • Difficulty in securing affordable lending.
  • Time delays in receipt of discretionary grant funding.
  • Uncertainty about the end of the furlough scheme and recalling staff.
  • Concerns about potential breaches of financial covenants.

In short, provided they have done everything possible to uphold their statutory duties, a director will not be investigated on the grounds of wrongful trading during this suspension period.

You should note that the usual investigations in an insolvency scenario remain, as well repercussions for fraudulent trading.

Additionally, the suspension is NOT retrospective and therefore does not offer any exemptions from the Insolvency Act 1986 for actions taking place between 1st October and 25th November 2020.

What Other Changes Have Been Introduced That Impact Company Trading?

The focus of the suspension to wrongful trading is intended to help business owners focus all of their time, resources and efforts on continuing to trade.

If a business would be temporarily considered insolvent due to trading restrictions, and yet has the opportunity to resume regular business when lockdowns cease, and therefore bring their liabilities up to date, there is less chance of employee redundancies and business closures.

Alongside this, there is a range of other short-term rules:

  • Companies registered at Companies House have extensions to filing deadlines. These are offered automatically and do not have to be applied for. There have also been several extensions to payment deadlines and filing dates against corporate liabilities.
  • Businesses may hold virtual meetings, such as AGMs, to allow voting and decision-making to continue, when a physical meeting is not permitted, or advisable under safety guidelines. This measure was extended to 30th December 2020 and since extended further to 31st March 2021.
  • Creditors may not petition the winding-up of a business under statutory measures during this exemption period. They can only raise such a petition if they have reason to believe that the company has not been affected financially by Coronavirus, or would be unable to pay their debts even if the virus had not had any effect.
  • Exemptions to wrongful trading mean that businesses can continue their operations until March 2021. This moratorium period is intended to give them time to resolve financial issues without the threat of creditors’ enforcement action.
  • Landlords of privately rented commercial premises are prohibited from repossessing properties. This measure also runs until March 2021, and so a company cannot be evicted in this period per The Business Tenancies Regulations 2020.

While this package of measures is welcome news for many British businesses, it remains crucial to take action and consider a recovery strategy if you are facing potential insolvency.

There are several grant schemes and funding options, depending on your business’s size and sector. You can also access help with covering employee costs to retain staff and avoid redundancy scenarios that might be resolved when trading can resume.

Suppose you are concerned about your trading position. In that case, it’s also still important to consider your risk exposure as a director or business owner, and whether you can take steps to mitigate any exposure.

For example:

  • Convening board meetings to discuss whether ongoing trading is financially viable. Ensure all such discussions are minuted and recorded.
  • Make concerted efforts to draw up meaningful financial forecasts, even where so many factors may yet be uncertain.
  • Keep in contact with creditors and discuss repayment plans or schedules to reduce the debt amount.
  • Plan for contingencies, should insolvency become an unfortunate reality.

As a full spectrum legal practice, The Law Firm Group can provide professional support with your insolvency strategy or plan to resume profitable trading.

Our teams specialise in every facet of company law, from restructuring to maximise your business’s value for sale, to capitalising on any market opportunities that might restore your position.

We also offer solicitors with experience in commercial property, should you be facing a challenge around privately leased premises, and independent legal guidance through commercial borrowing processes.

If you’re unsure what support would be beneficial, but know that your business would benefit from an expert listening ear, do get in touch. We’ll work through your key challenges and business risks to draw up a future-proof strategy for recovery.

Call or email us to talk about it. 0300 303 3805

Appointments Now Available in Our Tunbridge Wells Office

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