Coventry View

A litigation lawyer's perspective

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A Tale of Sheep, Goats, Foxes and Dinosaurs

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I’m writing this on 29th March 2017, and the only thing that we can be certain about for the next two years or more is that things will be uncertain. So what can you do to make the best of it, as a family, or a small business, and what can we do to help you?

Things have also changed radically in the court system. There are far fewer courts and fewer court staff, legal aid has disappeared, and procedure keeps changing. Litigants have to do a lot more work, yet the costs you can get back have been slashed. It is a new world.

And with a new landscape, like the earth after the asteroid, this is no place for dinosaurs. This piece is aimed at helping you pick the lawyers who will help you to survive. Sheep, goats and foxes survive – dinosaurs don’t – so how can you tell them apart?

The Sheep, the Goats, the Foxes and the Dinosaurs

The Sheep are big companies, the Government and its quangos, and the rich, and their lawyers. They can afford to carry on much as before and have hardly noticed a change.

The Goats are smaller businesses, landlords and tenants, and the rest of the population. They use Foxes to help them – smaller specialised lawyers and other agencies who adapt rapidly to change. They have noticed very significant increases in cost and in the time taken to deal with their legal cases. So they have to be canny and resourceful, and will be the heroes of this article.

The Dinosaurs used to be either Sheep or Goats, or their lawyers. They didn’t notice the change in the legal environment until it was too late, if at all, and so are trying to carry on as if nothing had changed, with disastrous consequences. They can’t cope with the changes and are infuriated with the way in which the Foxes run rings round them. The lawyers have gone out of business.

What to look for in a Fox

In the new world there are many new markers to help pick out those in the know:

  • They are light on their feet – ready to adapt to changes quickly. Just because they always did something one way doesn’t mean that it’s the best way now.
  • They keep up to date – there are frequent changes in the law and procedure, and in the court decisions that follow them. You have to be ahead of the crowd to win.
  • Winning matters – you want a lawyer who will win for you.
  • They keep an open mind – there are lots of different ways of doing things. If one way doesn’t work they pick another.
  • Payment by the hour is on the way out – clients much prefer fixed fees, or payment in stages, so they offer this when possible.
  • They know the shortcuts – nobody wants to go all the way to trial. They know how to get summary judgment, or get the defence struck out, or most importantly, a good offer.
  • They specialise – nobody knows everything well enough to be really good at it. And being really good matters.
  • They get it right first time – you can’t afford to do things twice.
  • They don’t carry passengers – they have a few experts plus a flexible team of contacts to call on when they need them. Why should you pay for all the extras that you don’t need?
  • They’re friendly – this is the key to being a small business. They get on well with their clients, with the courts, and with other lawyers. They don’t waste time with histrionics – they get to the point and get things done.
  • And they remember that they’re lawyers – they advise you, they do the business, but at the end of the day it’s your life, and your business, and they let you make the decisions and call the shots when it matters.

I can’t tell you everything. This is only a short article, and besides, I have a living to make, so come to me, and the Team, to learn more. But remember, this is the new reality. And if you ignore it you are likely to go the same way as the dinosaurs. Which is not a good idea, on the whole.

Written by Coventry Man

31/03/2017 at 21:14

So What are the Risks? Should I take It?

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Lawyers are often asked by their clients what they think about an offer that has been made by the other side. This is one of the most difficult parts of lawyering, but one of the most rewarding, and when I do this I feel that I am really earning my fees.

Because there are no end of factors to take into account. Some of the more obvious are:

  • How the offer compares with the amount claimed
  • What your chances of success are
  • How these will affect the likely result – might you lose, or only win less
  • And how much this depends on inponderables – like how key witnesses do at trial, or what the undisclosed documents might show

But you rapidly get on to more complicated areas:

  • Will the other side pay the amount of the offer?
  • Will they be able to pay any judgment for more?
  • Can your client afford to take the case to trial?
  • Can your opponent?

And then there is the nature of the advice that you give:

  • You need to give a young, inexperienced client more advice than an older, wiser one
  • But if the client has little money you can’t spend too much time or money in doing this
  • Some problems are legal and need detailed explanation
  • Some are really matters of business and more for the client to decide

However, few clients are aware of the possible cost, or risk, of substantial litigation, and most need to be advised on this, so that they can make an informed choice on what they want to do.

Of course, not all clients have the same goals. Some want certainty, and a rapid settlement even if they might get more by pushing on. Others want to get the most possible, even if they are taking a lot more risk of failure, or significant irrecoverable expense.

No, advice of this sort is where litigators really earn their money, and it was in the spotlight recently in the case of Graham Seery v Leathes Prior [2017]EWHC80(QB) which was a professional negligence claim against a firm of solicitors in Norwich by a disgruntled client who settled a claim, with their advice, and then felt that he might have got more if he has pushed on a bit further.

What I always like about this sort of thing is the chance to read the letters of advice written by other lawyers. This one, written by Dan Chapman, was a cracker. It was given against a background of a very slippery opponent, and a claim against a company wth a doubtful financial position. The Claimant had been made offers from the other side that were getting up to £310,000 but negotiations were stalling and a decision had to be made on whether to take the offer, or make tactical steps which might get more. Part of a letter quoted in the judgment reads:

“… I have a strong feeling that we might be at the end of the road in these negotiations; I know my counterpart feels that his clients are also being ’emotive’ about the dispute and thus perspective is being lost. He feels also there is not likely to be any more movement from his clients, rightly or wrongly.

So I suggest you discuss the current offer – which totals 310k with 210k being paid up-front (I think we should be able to reallocate the figures to get it all net, so assume this for the time being) and the remaining 100k paid over 18 mths with interest – with your wife tonight. It seems to me a huge financial decision for you and your family; if we reject this now I think we will be tied down to litigation for sometime. We will need to fight the Tribunal claim, issue winding up petitions and, to gain any real value (since the Tribunal claim is worthless in real terms), issue (and succeed on) a High Court unfair prejudice claim. The costs will be enormous (not by SJ Berwin standards, of course, but huge nonetheless) and no guarantee of any return whatsoever if FWA go bust in the meantime (or manage to reallocate their assets). So take some time to seriously consider your options, and check that you and your wife are comfortable with where we are going – as I say, my very strong hunch (and I am usually right on these things) is that their offer is now their final offer. Of course, that doesn’t make it right or mean you should accept it – but I need to advise you of the consequences of rejecting what might well be their final offer. As experienced litigators, we tend to have a feel for how these sort of cases pan out, and you don’t pay me to tell you what you want to hear, but what I would advise. In this particular case, if it were me then I would accept the offer, bank the cash (as galling as it undoubtedly is to you) and get on with my life. But it is not me who is living this case, and I shall do whatever you instruct me to do!

Please don’t misunderstand me – I (and my firm) will be more than happy to fight this all the way. However, I have a duty to ensure that you (and your family) are fully aware of what you are getting yourselves into. I don’t want to be walking out of the High Court in 2 years time, telling you that whilst we have won the total damages you are able to recover from FWA amount to zero since the company has gone into liquidation, and then handing you my firm’s bill for 70k, at which point you might wish you had accepted the 310k on offer! You would not be too pleased with me, either, if I had not have advised (sic) you to accept that 310k! And then I would be getting sued for negligence!”

All excellent stuff, especially the bit that I have emphasised.

In the light of this you won’t be too surprised to hear that Sir David Eady, an immensely experienced judge, now sitting in retirement, dismissed the claim. A warmer judge (Sir David being notoriously unemotional) might have congratulated the solicitors on the quality of the advice given. I do so here, for what it’s worth.

 

 

Written by Coventry Man

25/01/2017 at 22:04

Why All Businesses are Risky

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This isn’t my normal legal/land-law sort of piece. However, in another life I attend networking breakfasts in Leamington Spa, and this piece is based on a talk that I gave there.

I’ve spent over 35 years as a litigation solicitor. This gives you a very jaundiced view of things. People only come to see me when things have gone wrong. So I’m very used to risk – a major part of my work is managing risk. What can I pass on?

All businesses have risk

If you’re an employee you get paid a salary which doesn’t normally depend too precisely on how much money you are making for your employer. But if you are in business you charge your clients/customers/patients fees and you incur expenses such as salaries, rent, and the cost of materials, and the two sides of the equation are only distantly related to each other. If your income is larger than your expenses you make a profit, and if they aren’t you make a loss, and in many businesses the difference is a very thin line. So there is a risk.

It is part of being a business. You can’t eliminate it. You have to recognise it, and then live with it. And do remember there is the world of difference between being good at an activity  – say photography – and being able to trade successfully as a photographer. You need many extra skills. Risk management is one of them.

Going into business is risky – but then so is living. We could all avoid the risk of being knocked down by a bus by staying at home all day. But we don’t – we just remember to look both ways for the large red (or blue) things. And the budding photographer can manage his risk by getting his staging checked, having the children chaperoned, and taking lots of pictures so that some of them are what the clients want.

Risk isn’t bad in itself. It’s unmanaged, unrecognised risk that is the problem. You have to have a sense of proportion. You walk a lot closer to the edge of a kerb than you do to the edge of  a cliff because the consequences of getting things wrong are so much more serious. So you factor the chances of failure against the consequences of failure and act accordingly.

Of course you don’t always have to take the risks offered. If you don’t like what you see

  • avoid the activity. I don’t know much about conveyancing. So I don’t do it, and any that comes my way is sent on to others who know better;
  • protect by taking precautions, or undertaking training, or by limiting your potential liabilty by contract, or whatever;
  • protect things by insurance, or laying off liability on sub contractors, so you aren’t in the line of fire if things do go wrong.

And remember, risk can be a reason for you to charge a premium price for a tricky job. And if you do enough of something you ought to get pretty good at it, so you have a niche, and are doing things that are well within your comfort-zone. Taming lions doesn’t bother a lion-tamer, although it would certainly bother me.

Risk is good.

Types of risk

It’s essential to recognise & evaluate risk when you see it. At any rate you have to know when there is a problem. As a partner said when I was a trainee in London:

You don’t need to know where the mines are. We have people to tell you that. But you’ve got to know that you’re in a b****y minefield!

A major reason for business failure is not providing for risks properly. If you’re a buy-to-let landlord you have to factor the risk of voids, or the 6-9 months it takes to get an eviction, or changes in the tax on interest, or changes in the law (eg on s21 or the definition of Houses in Multiple Occupation) into your business plan or you will make a lot less than you were expecting, possibly fatally so.

Or say that you are an IT company and allow one customer to account for say 40% of your turnover. You are very vulnerable if their business fails, or is taken over by somebody who doesn’t continue the relationship. We all know to our cost that big and apparently healthy companies can fail – BhS or Austin Reed are only the latest examples. And if they ask you to cut your charges, or give them freebies, you may be unable to resist. Think of farmers, supermarkets, and the price of milk. You have to have your wits about you all the time.

There are two main types of risk – risks of trading, and personal risks – and here are a few examples.

Risks of Trading

  • bad debts/insolvent debtors.
  • changes in the market -new competitors, changes in fashion, technological breakthroughs.
  • changes in cost of fuel, or changes in law or tax.
  • unexpected costs of repairs or research, or a court case.
  • supply problems.
  • employee problems.
  • landlord or tenant problems.
  • black swans – totally unexpected developments that you could not foresee (like the discovery of black swans in Australia when all the rest of the world’s swans are basically white.)

Do remember that most businesses fail because of cashflow problems, not lack of profits as such.

Personal Risks

  • illness/death of owner or family, or key workers
  • divorce of owner(s) or key workers.
  • internal disputes inside company.
  • age and succession.

What to do

Before you start research the business thoroughly. The internet is a wonderful tool, as are books, but they are not enough in themselves. Not everything they say is right, and your particular type of work, or location, or skills, may be different. There is no substitute to practical hands-on working as close to your proposed business as possible. But do remember that if you are working with the vendors of the business that they might not be entirely balanced in their view of things. They are unlikely to undervalue their business or its prospects.

Once you have started take as much advice as you can. You don’t need to follow all of it, indeed you’d be a fool if you did. But you ought to consider it. There are a lot a potential places to get advice – colleagues (if you can), contacts in your trade, networking contacts, friends and relations (although they may not know much about your business), formal mentors, formal training courses and qualifications, and professionals – accountants (the key advisor for most small businesses), lawyers, surveyors, IT techies. And pick the right one – ask around, don’t just read their blurb or go for price.

And then take precautions:

  • set up your organisation properly. Register with HMRC. Get a partnership agreement, or shareholders’ agreement to avoid internal disagreements. Get employment contracts.
  • get terms of business and contracts – either from your trade body or from a lawyer – and use them.
  • set up systems, and follow them.
  • keep records, and back them up regularly.
  • insure against risks that you don’t want to cover yourself.
  • talk to banks before you’re in trouble rather than afterwards.
  • take up credit references for customers and suppliers – accounts at Companies House can be 2-3 years out of date.
  • keep your life/work balance under control.
  • don’t fall out with your wife, or business partner. That will really mess things up.
  • and don’t fall out with suppliers, or competitors unless completely unavoidable. A bit of good will goes a long way.

If you are in trouble seek help early. All professionals find it so much easier to help you if they are called in before matters are going terminal. They may be able to stop you making things worse.

And manage risk. Do what you are good at, and comfortable with. Get others to do the rest. These can be employees, or sub-contractors, or suppliers, or agents. There will be a cost, but it may be worth it. Alternatively, don’t do it at all – like me and conveyancing. And if you are doing something new, start in a small way and work up with time.

What not to do

Don’t ignore problems, or only address them at the last minute.

But don’t get over-protective either. Don’t lose a good oppertunity by refusing to raise modest amounts of finance for it. Or get wildly over-insured against all possible risks, or spend a disproprtionate amount of time and money on seeking advice (I never said that business choices were easy to make.)

Obviously don’t take wild, unassessed risks. But more importantly don’t let your staff or colleagues do so either – often without realising the nature of the risks they are taking, if they have less experience or expertise than you. Or if you haven’t filled them in about the potential problem.

And don’t get too worried either. If you are sick with worry all the time you ought to be doing something else.

Legal dangers – the realities

There is a lot more to taking people to court than just getting the law right, although that undoubtedly helps. Courts are slow and expensive. Opponents go bust and are unable to pay judgments, or the winner’s costs. A lot of management time has to be put into fighting a case which could more productively be used earning money for your business. Big opponents can be very difficult to deal with, as they can throw vast resources both in cash and in manpower at a problem that you can’t match.

You need to be almost certain to win sometimes for it to be all worthwhile. Because if you are certain to win the other side is certain to lose, and can usually be persuaded to do a deal. The courts are really only just a method of getting the parties round a table to settle things, so the sooner you can convince them of this the easier it will be. And if you have good documentary evidence, created at the same time as the events, then any judge is almost certain to find in your favour, so this is the thing to do. Record, get receipts, take photos, confirm things in writing. Don’t just rely on your memory, and an impressive witness-box manner, because that rarely wins these days.

Further information

There is a lot of training out there which can give you useful skills and some of it is essential – if you want to drive an HGV lorry you have to have a licence. And there is genuine expertise and proven techniques in marketing, sales and management, which can be learned, as well as the more classical skills like book-keeping. Look around and pick what suits you.

Obviously keep your technical knowledge up to date. This is what your customer expects and might give you a competitive edge. Things can change very quickly – don’t get left behind.

Books, the internet, trade periodicals and so on can be excellent in showing you the way into a problem, or in keeping an overview on an aspect that you don’t come to very often, or in showing the current trends and interests in your field.

If you need detailed help in a technical area you can go to a professional, for a price. For most small businesses the accountant is the first port of call, and they should be able to direct you to appropriate lawyers or surveyors or whatever if it isn’t their sort of problem.

However, do beware that a lot of “training” is really just a way for the trainer to make a living, rather than being a lot of practical use to you. And some professionals aren’t worth much either.

Finally

So, as I said before

Risk is Good.

Or more accurately

Managed, understood, recognised, prepared risk can be good in appropriate circumstances.

But even then, beware of black swans. Such as the referendum leading to Brexit, which nobody expected when my own business was set up a few years ago, and and the long-term result of which is impossible to predict. A definite risk – but perhaps one for another day.

Written by Coventry Man

22/07/2016 at 00:02

Breaking Up is Hard to Do – disputes inside companies

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The Scenario

Bill and Tom are bakers and set up a specialist bread and cake shop in Borchester. Their products sold like, well, hot cakes, and after a couple of years they had opened a branch in nearby (but upmarket) Ambridge. Things were looking good.

After taking advice they had incorporated their business as Bill and Tom’s Bakery Ltd, with each of them being a director and owning half of the shares. This meant that they had no personal liability towards creditors, and there were tax advantages as each of them could draw some wages as an employee and take the balance as dividends, avoiding NI contributions.

The leases were in the name of the company, and the employees were too. All very organised.

The Problem

Bill and Tom fell out over some doughnuts. Tom went off and wouldn’t talk to Bill or co-operate in running the business. It was deadlock as they each had equal votes as directors or as shareholders. Worse, Bill suspected that Tom was setting up a new shop with one of the Archers, and went to see a solicitor to stop him. He found to his horror that

  •  He couldn’t instruct the solicitor on behalf of the company (which would have numerous claims against Tom);
  •  He couldn’t take action himself as he had no claims;
  •  Tom had terminated his guarantee to the bank and they had frozen the company’s account so he couldn’t pay the rent or the staff or the suppliers;
  •  Tom was notifying customers that Archer’s Bakery was opening shortly and seeking orders for them.

All Bill could do was petition to wind up the company (which he didn’t want to do, and which would take months anyway) or get involved in really complicated court proceedings involving s994 Companies Act 2006 which were likely to last 12-18 months and cost £50,000+. It was a disaster.

The Answer

Curtains for Bill & Tom’s Bakery. Equality was not enough. If only they had protected themselves against deadlock by either entering into a shareholder’s agreement giving rights directly to the shareholders, or by giving a small number of shares (say 5%) to a trusted adviser, who could resolve the crisis by outvoting one or the other of them.

Do remember that no amount of fancy arrangements are worth anything if the parties can’t afford to enforce them. And this is a pretty basic sort of problem, that happens in real life as well as on radio. So be prepared.

Written by Coventry Man

12/05/2015 at 15:42

Where Do We Go Now?

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I started this blog in 2011 and as you do at this time of year, I’ve been looking back through the postings to see what I seem to be writing about. The blog is meant to be about property litigation, and to no real surprise I have written quite a lot about that. However, I do keep coming back to a different topic, and this is another piece of that sort.

The topic is the actual way in which people can use their legal rights and the legal system that supports them.

As a practical lawyer I know that for people to have useful legal rights they need a lot more than just having the rights themselves. They need to know about them, be able to get advice, and have practical, and affordable ways of enforcing them.  I have written about the need for all businesses to know some basic law in Law and Business and about some of the other requirements for a practical legal system in Having Rights is Not Enough, and pointed out why Mediation is not the answer,  but this time I want to look at things from another angle. I touched on it in Tell Me what You Want, but I’ve developed it further here.

A lot has been made of the changes in legal procedure and practice over recent years. Some people say that it is a long-needed simplification, and the cutting of miles of unnecessary red tape, that will result in much quicker, easier and cheaper justice for all. Others say that it is the destruction of hundreds of years of justice and a legal profession solely for the advantage of big business, the government and other prowerful players in the field. The argument has raised a lot of heat, but not cast a lot of light, and I’m not going to tackle things in such a broad brush way. Because there was something to be said for both sides.

The practical effect however has changed the legal landscape, and like the earth after the asteroid, it is no longer a place for dinosaurs. This piece is aimed at lawyers who want to survive.

The Sheep, Goats and Dinosaurs

In the new reality you can divide the survivors into two sorts: the sheep and the goats.

The Sheep are major companies, the Government and its quangos, and High Net Worth Individuals, engaged in disputes with other Sheep, and the large firms of lawyers they use, based in the major cities.They deal with the High Court, and the Court of Appeal, and apart from some increase in cost, and some decrease in the time taken by the Courts to deal with things, they will have noticed very little change.

The Goats are smaller businesses, clubs and associations, and the rest of the population. They have disputes with other Goats, and also from time to time with Sheep. They also use Goats –  smaller specialised lawyers and other agencies who adapt rapidly to change. They generally deal the County Court and District Registries, and have noticed very significant increases in cost and in the time taken to deal with their cases, and a large reduction in the resourses available for their use. So they have to be canny and resourceful and will be the heroes of this article.

The Dinosaurs used to be either Sheep or Goats, or their lawyers. They didn’t notice the change in the legal environment until too late, if at all, and so are either trying to carry on as if nothing had changed, with disasterous consequences, or have given up any significant use of the court system, and try to deal with things in other ways.  The lawyers have gone out of business.

How to be a lawyer for Goats

In the new world there are many new rules:

  • Be light on your feet – be ready to adapt to changes quickly. Just because you always did something one way doesn’t mean that it’s the best way now.
  • Keep up to date – there are frequent  changes in the law and the CPR and in the court decisions that follow them. You have to be ahead of the crowd to win.
  • Winning matters – this is why your clients come to you.
  • Keep an open mind – there are lots of different was of doing things. If one way doesn’t work there are many others.
  • Payment by the hour is on the way out. Clients much prefer payment by stages (eg up to issue) or by results. You have to adapt.
  • You’ve got to know the shortcuts. Nobody wants to go all the way to trial. Know how to get summary judgment or default judgment, or the Defence struck out. Or more usually, a good offer.
  • Specialise. You can’t know everything well enought to be really good at it. And being really good matters.
  • Get it right first time. You can’t afford to do things twice.
  • Don’t carry passengers. You need a few experts plus a flexible team to draw on when you need them.
  • Be small. You may grow into a Sheep with guaranteed multiple repeat businesses. But until then you can’t afford to be bigger than you have to be.
  • Make friends. This is the key to being a small business. There are lots of people out there who want to help you and you only need to pay them when you need them. And sometimes not even then. A smile may be worth hundreds.
  • And remember you’re a lawyer. You don’t run the client’s business or life. That’s their concern. But you’re liable to lots of extra obligations as a lawyer. And being one will pay the rent next year, when this client has moved on.

I’m not telling you everything. I need to make a living too. As I said, I’m a practical lawyer. But this is the new reality. And if you ignore it you are likely to go the same way as the dinosaurs. Which is not a good idea, on the whole.

A Happy New Year to you all.

Written by Coventry Man

01/01/2015 at 20:04

I’ll Be Having That – Pensions and Bankruptcy

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Here’s a scenario. It is September 2015. Basil is 59. After many years of running a successful company things seem to have gone wrong. As a last effort  he poured thousands of pounds of his own money into the business to try to turn things round but eventually couldn’t afford to pay any more and the business had to close, owing debts to suppliers, the bank and his landlord. The company went into liquidation, he lost his job and income. Worse still, his bank and landlord had received personal guarantees from Basil  for the monies owed to them, and when he couldn’t pay, as he had exhausted his funds in trying to save the business, he was made bankrupt. The house where he lived with his wife Barbara would most likely be repossessed by their mortgagees, as they could no longer afford to pay the last of the mortgage, and if they managed to avoid this it would probably be seized and sold by his Trustee in Bankruptcy under  s335A Insolvency Act 1986, unless Barbara could buy out his interest by scraping together the money from her own savings and money raised from their family and friends. Things were not looking good.

But there was a future. Basil would be discharged from bankruptcy after 12 months, and although Basil’s health had been ruined by the strain of the last few years, and he was unlikely to work again he had built up a good personal pension pot of £500,000 during the golden years of his business and they could look forward to a comfortable retirement, even if it wasn’t as comfortable as they had expected a few years before.

However, a few months before the bankruptcy was over Basil received an application from the Trustee for an Income Payment Order under s310 IA 86. This asked for an order for him to pay over his “surplus income” to the Trustee. Basil laughed – his only income was state benefits and there was no “surplus”. However, he looked at the application again and was horrified to find that the application contained a request for

  1. An order for Basil, or the Trustee in Basil’s name, to make an application to his pension scheme  for an immediate payment of the whole of his pension fund, as he was now entitled to under the pension ref0rms introduced in the Finance Act 2014
  2. The money to be paid over to the Trustee and applied
    1. in payment of the income tax due, amounting to some £154,887, and
    2. the balance of £345,123 in discharge of the bankruptcy debts and costs.

Basil was outraged. He understood that his pension was protected from bankruptcy, and besides, this was a terribly wasteful way of getting at the money, incurring tax as if it was all his income in the year of payment. So he sought advice, and was told to his horror that it was now the law. And a probable oversight by the powers that be.

The background

Prior to May 2000 personal pensions went to the Trustee like everything else and were lost to the bankrupt. Employers schemes were a bit different as the only entitlement was to the benefits, not the capital sum, and these were often protected by being a discretionary payment by the trustees.

This was felt to be unfair and s11 Welfare Reform and Pensions Act 1999 provided that rights under pensions schemes approved by HMRC were excluded from the bankrupt’s estate, and the Trustee couldn’t get at them.  All he could do was challenge excessive contributions, or include any income received from the scheme in an IPO.  Even unapproved schemes could be protected if the bankrupt persuaded the court that they were needed to satisfy the reasonable needs of the bankrupt and his family. In order for a scheme to be approved it had to fulfil various criteria, one of which was that the maximum lump sum that could be withdrawn was 25% of the total, and only from the age of at least 55 years. The Act did go on to prohibit any forfeiture of rights under personal pension schemes by reference to their bankruptcy s14. But on balance the pension looked pretty secure.

Trustees were initially resigned to the change, but as time went on there were rumblings that there might be a way round and in April 2012 the Bankruptcy Court ruled in Raithatha v Williamson [2012]EWHC909Ch  that an IPO could be made ordering the bankrupt , or the Trustee, to apply for a withdrawal of the 25% maximum sum and for it to be used to pay the debts. Mr Williamson appealed on a number of grounds, including an argument that he couldn’t be forced to exercise an option that he didn’t want to exercise, and that until he did so this wasn’t “income” and so couldn’t be subject to an IPO. It was also in breach of his rights under the ECHR to personal property. However, his appeal was compromised shortly before it was heard, and so the case stands, and is binding on DJs and Circuit Judges.

The case was in fact following on from a very similar case of Blight v Brewster [2012]EWHC165Ch although that case wasn’t referred to in the judgment in Williamson. The difference in Brewster was that the Defendant wasn’t bankrupt, he just had judgments entered against him. Again he was ordered to exercise an option and call down a 25% lump sum from Sun Life, so it could be used to pay his debts, and the Claimant was authorised to write on his behalf if he wouldn’t co-operate.  Although it can’t have helped his case that the judge clearly regarded him as a fraudster.

So up to 5th April 2015 25% of a personal pension is accessible to an IPO. However, as these benefits are normally only payable from the age of 55, and applications for IPOs have to be made before the bankruptcy is discharged, and can only run for 3 years, they really only affect debtors from 55 years upwards, who have not yet crystallised their pension by the purchase of an annuity or other long-term investment.

The Change

In the Budget speech Mr Osborne announced a wholesale reform of pensions legislation. Part of this was to allow the public to manage their own pensions, and to withdraw their funds and invest or use them as they thought best. This was a generally popular proposal, and most of the discussion has been on the tax implications, the risk of people wasting their money on cars and flashy holidays and the like.

Part of the reform includes changes being imposed on pension schemes by the government requiring them to allow people to withdraw funds in accordance with the new regime. These are terribly complicated, and I won’t trouble you with them now. But they will take effect from 6th April 2015, the start of the next tax year. My understanding (and I haven’t been able to find chapter and verse while writing this piece) is that the freedom will apply from the date that the pension can be taken, and in most cases this will remain at 55 years.

What has been overlooked is the effect that this will have on IPOs against pension pots. And there is clearly only one answer: Trustees will be able to apply for ALL of the vulnerable pot to be drawn down. The first 25% will remain tax-free, but the rest will be taxed at normal income tax rates – 20% 40% and 45% according to income.

All that they will have to overcome are the provisions in s 310 IA [link above] that:

(2) The court shall not make an income payments order the effect of which would be to reduce the income of the bankrupt when taken together with any payments to which subsection (8) applies below what appears to the court to be necessary for meeting the reasonable domestic needs of the bankrupt and his family

S(8) refers to guaranteed minimum pensions and protected rights under pension schemes. So the bankrupt must be left with enough to live on, but only just. And then only after taking account of pension payment which cannot be actually seized themselves.

The Outcome

It seems unlikely that this was intended. It hardly seems the best way to encourage entrepreneurs and the risk-takers needed if the economy is to grow as this government wants it to. And there has been no publicity apart from a few notes on insolvency websites. But there we are. You have been warned.

Distance Selling Regulations on Steroids

with 2 comments

The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (2013 No 3134)

Now as I’ve said before, you’re a bright and well-informed bunch, and have no doubt heard about the Distance Selling Regulations (Consumer Protection (Distance Selling) Regulations 2000)  which covered Distance Selling – basically selling things to people without meeting them, normally by internet or mail order. You may also have heard about the Cancellation of Contracts Regulations (Cancellation of Contracts made in a Consumer’s Home or Place of Work etc Regulations 2008) which really don’t need much explanation once you’ve read the title.

Well, you can (shortly) forget them, because from 13th June 2014 they have both been replaced by the regulations listed above, which I will call the CCR.

Now this isn’t some neat consolidating exercise, that just bundles the two sets of Regs into a new one. That would be far too easy. The CCR make important amendments to them, and adds in some new stuff too. And, most importantly, they apply to ALL contracts made between traders and consumers, in both cases as defined in the CCR, apart from the exempted transactions, which I’ll mention below. This includes transactions made face-to-face in your office or shop, and because of  the definitions some of these face-to-face transactions are treated as if they were made off-site, in a consumer’s home etc and have cancellation rights. So it matters to most of us one way or another.

I will concentrate in this piece on how this affect professional services, especially for solicitors, as it’s an area of particular interest to me. But I may come back and cover more of it later if the muse takes me.

I apologise if this isn’t one of my most engaging pieces, although I have tried my best. However, it is one of my most important, as it might affect my own income, and that of most other lawyers.

Please note that I haven’t always used the full definitions etc in order to make this more readable. If it matters, read the CCR. And remember this is journalism, not legal advice. If you want to know more, the Law Society have produced a very helpful Practice Note.

The exemptions

The main exemptions are set out in r6 and include many of the usual suspects – gambling, banking & financial services, conveyancing, letting residential property, construction of new buildings, delivery rounds, package holidays, timeshares etc vending machines and automatic commercial premises (the mind boggles, but I assume this is car-parks and the like). There is also exemption for certain things to do with telephones (which you will have to read of you want to know more) and for goods sold by way of execution. And there are also exemptions from some of the obligations in certain circumstances – eg there is no right to cancel for  medicinal products prescribed by a health care professional (not just Doctors, it seems). If this all matters to you you will have to read the CCR for the details.

The important point however is that the vast bulk of services provided by most professionals,  including lawyers, to consumers, will be covered, and all those of us who thought that because we saw people in our offices we could ignore all this rubbish will have to think again.

 Definitions

Trader – person acting for purposes relating to that person’s trade, business, craft or profession. This includes acting through agents/employees, and actions not exclusively for the trade etc.

Consumer – individual acting for purposes wholly or mainly outside that person’s trade, business craft or profession. So can’t be a company or partnership, but may include  transactions by sole-traders outside their trading field – eg personal tax advice.

There are lots more, mainly in r5, which are worth looking at. But some of them are so important that they need a section of their own.

On-Premises, Off-Premises and Distance Contracts

On-Premises Contracts – any contract between a trader and a consumer that is not a distance contract nor an off-premises contract. So read on.

Off-Premises Contracts – contracts that are either

  • made face-to-face off the trader’s premises.
  • where the consumer made an offer face-to-face off the trader’s premises.
  • made immediately after the trader had addressed the consumer face-to-face off the trader’s premises, and whether made on the premises or by distance communications.
  • during an excursion organised by the trader to promote his goods or services.

Note that the consumer’s offer may have been made some time previously – I’d like you to prepare my will – OK I’ll make you an appointment and we can discuss this at the office when I return from holiday. And how soon is “immediately” for the next scenario? Clearly  if you meet a client at court and ask them to come back to the office with you to discuss their problem this counts. What if they come in next week? And what is an “excursion”? Would a visit to a client in hospital count?

An awful lot of transactions that would naturally be considered as on-premises contracts may turn out not to be – especially if there is a series of discussions leading up to signed instructions. And it matters – see below.

Distance Contracts – made under “an organised distance sales or service-provision scheme”, without any meetings up to the point when the contract is made.

Note that the portion in quotes isn’t defined. It clearly covers tele-sales and mail-order, and orders via the internet. Does it include a client who gives instructions entirely by letter and telephone, or by email? Quite probably, but we don’t know.

Why this matters

Part 2 of the CCR sets out different sorts of information that the trader must provide to the consumer before the consumer is bound by the contract. The information is set out in Schedule 1 for on-premises contracts, and Schedule 2 for off-premises and distance contracts. So if you don’t give the consumer the info in Sch 2 because you think it’s an on-premises contract and you’re wrong then they aren’t bound by it, and this can be serious. Not only can’t you sue them for the price, but you may have to repay them any money paid up front. They probably have a right to cancel the contract at no cost to them. And it may even be a criminal offence – more details in Right to Cancel below.

The information for On-Premises Contracts

This information is only needed in so far as it isn’t apparent from the context. For example if you are working in an office with Bloggs & Co Solicitors on the door, you can take it that the client knows your business’s name. And there is an exemption for “day-to-day transactions entered into immediately” although this is not defined. Presumably a barber would be exempt, as would be most transactions in shops. And administering an oath.

The info which must be given “in a clear and comprehensible manner”

  • the main characteristics of the goods or services – ie what you are supplying
  • the trader’s identity (eg trading name) address and telephone number – you have to give your telephone number to all clients whether they ask for it or not.
  • the price, or if this can’t be calculated in advance, how it is calculated.
  • any delivery charges.
  • arrangements for payment, delivery and the time involved.
  • the trader’s complaints handling policy.
  • in sales contracts, confirmation that the trader must supply goods in accordance with the contract.
  • any after-sales service or guarantees.
  • how to terminate the contract.

There are extra requirements if there is digital content.

There is nothing particularly unexpected here, but it does mean the end of the single-visit-and-no-paperwork transaction. You will always have to supply the information which would normally be set out in any client care letter or business agreement, and may as well do so  that way, although it would be possible to set all this out in notices and leaflets, or indeed orally. But remember that these things can be difficult to prove later.

The big danger is the extra information that has to be given to off-premises contracts, and which may be missed if you don’t realise that you are dealing with one at the time. The safest course is to provide all that as well.

The information for Off-Premises Contracts

More comprehensive. Includes all the information needed for an On-Premises contract plus:

  • any fax or email addresses.
  • if trader is acting on behalf of another trader, the other trader’s details.
  • the other trader’s business address if different.
  • details of cost per billing period or any monthly charges .
  • details of any increased phone or other communication charges.
  • where a right to cancel exists, details in accordance with regl 27-38.
  • cost of returning any goods if cancellation.
  • if there is no right to cancel, information about this, or how it has been lost.
  • details of any codes of conduct and how copies may be obtained.
  • any minimum duration for the contract
  • any deposits required or other financial guarantees to be paid by the consumer
  • where applicable, any technical requirements or compatibility problems for digital content
  • any relevant  out of court complaints schemes and how to access them

Much of this won’t apply for a legal business. But the cancellation rights may, and are set out below. And if they do then you must give the consumer a prescribed cancellation form. All this information and a copy of the signed contract (or confirmation of its terms) must be given to the consumer on paper, or another durable medium” (eg email) if the consumer agrees, before any services are provided under the contract. And the burden is on the trader to prove that they did all this, in any dispute with the consumer.

The Right to Cancel

This generally applies to all Off-Premises and Distance Contracts, although there are a number of exceptions, such as medicinal products, products trading on financial markets, and a number of exceptions relating to goods, repairs, auctions, holidays and so on. The only relevant one for a (cheap) lawyer is that there is an exception for transactions when the total to be paid by the consumer does not exceed £42 (or the current equivalent to €50).

Otherwise the consumer has a right  under r29 to cancel any distance or off-premises contract, without giving any reason, at no basic cost to the consumer at all, apart from some delivery charges, or when the consumer requests early supply. The cancellation period starts when the contract is made and normally runs for the next 14 days  ie 15 days including the day of the contract (an increase from the 7 days previously). However, the period is extended until 14 days after the cancellation information is supplied, or 12 months  and 14 days after the contract if sooner.

To cancel, the consumer has to give the trader “a clear statement setting out the decision to cancel the contract”. This does not have to be in writing, but as it is for the consumer to prove that they gave it clearly the best option. It doesn’t have to be on the form supplied by the trader but it can be. And if it is sent it only has to be sent within the cancellation period – it can arrive later.

Once the contract is cancelled all obligations come to an end and the trader has to return all monies paid by the consumer within 14 days. Any ancillary contracts are ended too. Any goods have to be returned or collected, and there are complicated provisions for the cost of this. More relevantly, nothing need be paid for any services supplied in the cancellation period unless

  • the consumer has requested the trader to do so beforehand in a durable medium, and
  • the consumer has been informed that they would have to pay the reasonable cost of this, and
  • the consumer has been given proper notice of their right to cancel.

The amount must be a proportionate part of the total cost, and the right to cancel is only lost if the service has been fully supplied and the consumer has been informed that this would happen.

It is a nightmare. Fortunately Schedule 3 consists of an approved form of notice giving details of the right to cancel, and the prescribed cancellation notice  which can be adapted and completed and given to the consumer, although the information can be provided elsewhere if you want to take the risk.

If this isn’t bad enough, failing to give the consumer details of all the cancellation rights on an off-premises contract is a criminal offence under r19 punishable with a fine of up to £5,000, both on the trader and any individuals concerned, including directors of corporate bodies.

Distance Contracts

I won’t go through these in detail as anybody who is intending to do serious business in this way will have to read the words in the CCR and the guidance very carefully anyway, and the rest of you will just get confused, or bored.

However, briefly, the trader has to provide the same information as for an Off-Premises  contract, adapted for distance/electronic mediums. This includes any “Accept” button being labelled “ORDER WITH OBLIGATION TO PAY”  “or a corresponding unambiguous formulation”. And again the burden is in the trader to prove that they have complied with all this.

Other Provisions

Just in case this wasn’t enough, the government took the opportunity of tacking on some amendments to the law on the delivery of goods to consumers, (within 30 days unless otherwise agreed) and the passing of risk on sales of goods to consumers (on delivery to consumer, or their own delivery service) in rr42 & 43. Plus some more provisions on inertia selling, additional payments under a contract (consent needed and a pre-ticked box won’t do) and prohibiting telephone help lines at premium rates – rr39-41.

Will it do any good?

Well, it will be good for paper manufacturers, and the likes of Brother, Canon, Epsom and HP. Clients will have lots more information, some of which will be useful to them. Some of the sharper practices will be banned, and some of the worst operators will be dragged up to the level of the better ones. But there will be more box-ticking and things to trip over, and I have my doubts on how much good this does in the end. We’ll have to see.

What do we do now?

We need to look at our way of working and not just our terms of business.

  • Consider your clients. Are they ALL businesses, and attending for business purposes? What about the will for the MD, or the tax advice for the partner?
  • Do you always see any consumers in the office and never elsewhere? Or discuss things with them elsewhere and ask them to come in?
  • What about the consumers who live at a distance and who you don’t see at all, but handle by email/post/Skype/phone?

Unless you are certain that all your consumers are going to enter into On-Premises contracts then you need to get lots of paperwork organised and supply it at the appropriate time. You are going to have to get used to the right to cancel and not starting work until the paperwork is in order and the client has requested you to do so in writing. You may choose to treat all clients as being off-premises consumers for safety, or rigorously divide them up into the different sorts. But you need to start NOW as you have 10 days left as I write this.

There is useful advice from the Law Society as mentioned above (here’s the link again) and two helpful and comprehensive pieces by Kerry Underwood here and here. There are many more out there so look at some of them because it’s very important.

And the Regulations apply for all contracts entered into on or after 13th June 2014.

 

UPDATE – for details of a case on the old regulations see here.