And Another Thing….

I wrote a piece on the Pre-Action Protocol for Debt Claims yesterday – link here. I took the title at face value and assumed that it was about Debt Claims – by businesses against customers or possibly others for sums of money that were owed by individuals.

However, the definition of scope is surprisingly wide:

1.1 This Protocol applies to any business (including sole traders and public bodies) claiming payment of a debt from an individual (including sole traders).

A number of people have pointed out to me that most claims for possession or forfeiture of leases include a claim for payment of  a debt – the rent or service charge arrears – and so the Protocol appears to apply to them.

Now the Protocol doesn’t apply when the debt is covered by another protocol (para 1.4) but the only possession claims that are covered by their own protocols are mortgage possession claims and possession claims by social landlords. The other claims  – for ASTs based on rent arrears (Grounds 8 or 10 or 11), for long residential leases based on arrears of rent or service charges, and even for business tenancies  where the tenant is a sole trader – are not, so the Protocol presumably applies. In all of these cases the Landlord invariably asks for a money judgment against the Tenant for the amount of the arrears, and this is clearly a “debt” in the normal meanong of the word.

I haven’t thought it all through, but I can’t think that this was entirely intended. The timescales in the Protocol don’t really fit in at all well to the normal commercial timescales in possession claims. Is the tenant really going to be given up to 90 days before possession proceedings can be brought against them, when the rent is normally payable monthly, or even weekly? Is the Landlord going to have to ask for possession but not a money judgment until a lot later, when the tenant has possibly moved out?

And what about the complicated procedure for claims for service charges, with all their applications to the FTT, or the rules on payment for maintenance, complete with the mechanism for consultation beforehand, payments of estimated sums on account, followed by balancing charges, and so on? This really doesn’t tie in with the Protocol procedure.

I just don’t know, because it was only drawn to my attention by James Attew of Brethertons today (here) and I had previously thought that as the Protocol has been around in draft form since late 2015 somebody would have thought of this by now.

Now it may be that there is going to be a new protocol covering all this, although I haven’t heard anything about it. Or the courts are going to say that “debt” doesn’t mean “debt” for these purposes, or something. I just hope that it isn’t another mess-up on the lines of the deposit protection fiasco, because that is rather what it looks like at present.

Any views would be most welcome.

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Pay Up or I’ll…Wait For It!

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The 7-day letter is one of the oldest forms of legal communication. Asking your lawyer to write to a debtor telling them to pay up or be sued has been around since Victorian times, and indeed for a lot longer. The exact form, and the period given, has varied over the years. When I qualified (a disturbing time ago now) it was usual to give 7 days, although the court were fairly sanguine if you gave less, and given that all communication was by letter, and all payments by cheque, the debtor would have to get their skates on to get payment to you in time. The letter could be very short and to the point, and no information other than the amount due and perhaps the invoice number was required.

Then the Pre-Action Protocol in the CPR increased the length of time to at least 14 days, and required certain basic information, and the provision of details of where to get help to be given to non-businesses. This was generally felt to be a good idea, although some debtors would play the system, asking for extra time to take advice when they had no intentions of taking any. But it meant that you might get offers of settlement before you issued proceedings rather than afterwards, which did at least save the issue fee. And you might be able to weed out the debtors who had no income or assets and so weren’t worth suing at all.

Well, everything has now been turned on its head, at least in respect of claims against individuals by businesses by the Pre-Action Protocol for Debt Claims which comes into force on 1st October 2017.

The Scope of the Protocol

It covers any business (including sole traders and public bodies) claiming payment of a debt from an individual (including a sole trader). It complements any regulatory regime applying to the creditor (eg  under the Financial Conduct Authority) which must be complied with as well, but does not apply to debts covered by other Protocols , such as the Construction and Engineering, or the Mortgage Arrears Protocols, or to claims by HMRC for taxes and duties (covered by PD7D).

So a claim against a consumer or a sole trader (eg F Bloggs t/a The Red Lion PH) is covered. A claim against a partnership or a limited company (eg F Bloggs Ltd t/a The Red Lion PH) isn’t.

What is Required

I am afraid that there is no alternative to setting a lot of the Protocol out in this piece, although I have summarised where I can. The exact wording can be seen via the link here and above.

  1. The Letter of Claim

The creditor has to send a Letter of Claim to the debtor. So far no real change. Note however that this must be sent by post – email or other electronic means will not do unless the debtor has expressly requested that the post is not used. And the Letter of Claim needs a lot more information than before, including:

  • the amount of the debt
  • whether interest or other charges are continuing
  • details of any oral agreement
  • the date and parties of any written agreement and an offer to supply a copy on request
  • assignment details if relevant
  • if regular instalments are being offered, or paid, an explanation of why the offer is not aceptable and why a court claim is being considered
  • how the debt can be paid – where and how – and how to discuss payment terms
  • the address where the completed Reply Form should be sent

The creditor also needs to send

  • an up to date statement of account, or details of how the claim is made up including any interest and administrative charges
  • the Information Sheet and Reply Form in Annex I
  • a Financial Statement form (like the example at Annex II)

2. The Response by the Debtor

If the debtor does not respond within 30 days the creditor can start proceedings.

If they do (using the Reply Form) they can ask for copies of any relevant documents, supply any document sof their own, and make proposals. The creditor should allow at least 30 days from receipt of the Reply Form, or 30 days from provision of any documents requested before issuing proceedings. If the debtor needs more than 30 days to get debt advice they can ask for it and the creditor should allow extra time if reasonable in the circumstances.

Any proposals for payment by instalments should be considered and if not acceptable the creditor should give the debtor reasons in writing. And a partly completed Reply Form should elicit an attempt to contact the debtor to obtain further information.

3. Disclosure of Documents

If the debt, including any interest or time for payment etc, is disputed the parties should exchange information and documents to enable them to understand each other’s position. And if the debtor asks for a document or information it should be provided within 30 days, or an explanation should be given as to why it is unavailable.

4. Attempts to settle and ADR

Parties should negotiate on any points still in dispute using ADR if appropriate. This can range from discussions to formal steps such as mediation in a larger case.

If the parties reach agreement on repayment the creditor should not start court proceedings while the debtor complies with the agreement. And if they wish to start court proceedings at a later date they must send a new Letter of Claim and start the Protocol afresh, although they don’t need to send documentation again if it has been sent in the last 6 months.

5. Taking Stock

If the debtor has responded to the Letter of Claim but agreement has not been reached the creditor should give them at least 14 days’ notice of their intention to start court proceedings, to allow both parties to review their positions and see if proceedings can be avoided.

The Consequences of not Complying with the Protocol

These are the usual consequences of not complying with a Pre-Action Protocol – the court can give more time, penalise in costs or interest or in other ways. But it looks at the substance, and is not concerned with minor or technical breaches.

It is not clear at present how far the courts are going to enforce compliance with the Protocol, given the enormous number of debt claims that go to a default judgment and enforcement without any court officers actually looking at them. The other protocols generally cover areas which are disputed and where the parties can raise breaches in a Defence or application of some kind. Most debt claims are undefended and with most debtors unrepresented they may not know if corners have been cut or even avoided altogether. See below.**

The Annexes

You really need to read the Protocol for these. They set out

  • An Information Sheet (compulsory)
  • A Reply Form (also compulsory)
  • A Standard Financial Statement (an example)

So What does a Creditor Do?

This cannot be ignored. It will have a radical affect on the recovery of debts from individuals, and unless businesses adapt appropriately they may suffer a disastrous hit to their cashflow. Because today’s 14 day letter will turn into between 30 and 104 days under this new regime, and possibly more if the debtor goes through the process, agrees to pay and then only pays a couple of instalments, when the Protocol must start again.

Possible suggestions:

  1. Don’t allow credit – get paid up front before the goods or services are supplied. You may lose some customers, but customers who don’t pay aren’t worth having.
  2. If you deal with businesses consider avoiding sole traders. Claims against partnerships and companies are not affected by this. Although a small company may not be worth suing either, for different reasons.
  3. And make sure you know who you are contracting with (always a good idea anyway). Is The Red Lion PH run by a sole trader, or a partnership, or a company, and if so who are they?
  4. Credit-check you customers before you do business with them, not just before you sue them.
  5. Start the process very early – the moment that the payment becomes overdue.
  6. Send non-protocol letters chasing debts as present, knowing that at the end of the day you probably won’t sue for claims below a certain value.
  7. Insure, or factor, or sell your debts, or consider doing so. 50% of a debt that is actually paid is better than 100% of a debt that isn’t.
  8. Get some training so you can get things right, or pass the debt collection to an outside collector who knows the ropes.
  9. And get your paperwork in order. The new system will expose errors that you used to be able to hide in the past.
  10. Or hope for the best and see above.**

And the Verdict?

When the Mortgage Arrears Protocol was introduced a number of years ago there was much concern in the industry that the new procedure, not that different to that given here, would make mortgage arrears impossible to recover. In fact, once the lenders had got used to things I understand that it made very little difference, and although the process took longer this merely allowed the borrowers who could pay if given time a bit more time to pay, to everybody’s advantage. The borrowers who couldn’t pay were evicted a bit later, but as most of the debts were covered by the security of the houses the lenders got paid in the end. So on the whole it was a good result.

I’m not sure that this will happen here. Consumer debts aren’t covered by security on the whole, and small businesses can be badly affected by delays in payment. There is a lot of scope for the ingenious debtor to delay things and play the system.

These procedures may be appropriate for a finance company, or a credit card company which is recovering debts on a large scale, although they are already covered by the FCA’s requirements which are not that different. They are less appropriate for the plumber or nursery, or indeed the  friendly local solicitor who don’t insist on payment in advance at the moment. Although that may have to change.

It will be interesting to see how this works out.


 

A Tale of Sheep, Goats, Foxes and Dinosaurs

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.

So What are the Risks? Should I take It?

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.

 

 

Why All Businesses are Risky

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.

Breaking Up is Hard to Do – disputes inside companies

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.

Where Do We Go Now?

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.