CASH FLOW AND CORONAVIRUS – What directors must do

Paul Cooper at Blake-Turner has for many years advised clients experiencing cash flow difficulties.  All too often an otherwise sound business hits a hurdle and all of a sudden it is “insolvent” because it realises it will not be able to pay certain debts as they fall due in the next few weeks and months.

To describe the current Coronavirus pandemic as a “hurdle” would be a massive understatement, but the responsibilities of directors remain exactly the same.

What directors must do

1.     Change your priorities:

As soon as the directors of a company realise that there is a real prospect of them not being able to meet their debts as they fall due (“cash flow insolvent”), whether now or in the future, then when making decisions they must make the interests of creditors paramount.  If they fail to do this, then they risk making themselves personally liable for some of the debts of the company.

2.     Plan carefully:

Whilst it is far from clear when the current crisis will end (this blog was created in March 2020), we are being given assurances by the Government and international organisations that will possibly be in around 3 months’ time. Also, that the government will assist by way of backing bank loans and paying 80% of furloughed employees’ wages.

Therefore, if you are a director of a company who envisages being cash flow insolvent in the coming three months you need to plan now.  If your business is fundamentally sound, you may well be justified in continuing to trade, even if that incurs a lot of debt, provided that you reasonably consider that when we emerge you are likely to be able to trade through those losses and pay off those loans. In those circumstances, creditors will obviously be far better off than they would be were you to simply give up now and allow the company to go bust.

3.     Record your decisions to protect yourself:

It is important to protect yourself personally as a director by keeping minutes of your board meetings at which you make the decision to continue to trade. Also, to regularly review that decision and minute each review and the reasons for your decisions. Also, keep copies of your cash flow forecasts as they evolve over time. If the worst subsequently happens, a contemporaneous record of your thought processes and decisions will be of great assistance in defending any claim against you personally by a liquidator or the Official Receiver.

4.     Seek advice:

If you carry out your cash flow forecasts, and budget thereafter, and come to a view that it is unlikely that you will be unable to trade through and/or recoup your losses and/or pay off the short term debt, then you must immediately seek advice from an insolvency lawyer such as Paul Cooper at Blake-Turner, or an insolvency practitioner.  A director can be made personally liable for certain debts if they continue to trade and spend money where it is not reasonable for them to do so, and in continuing to spend money and incur liabilities they will ultimately make the creditors worse off. Taking professional advice and minuting decisions will show you acted reasonably at all times and be crucial in ensuring you do not become personally liable.

5.     If it comes to the worst:

A business can often be saved by putting the company into administration and selling that business.  This is often by way of a pre-pack sale in which most if not all of the current debts of the company can be left behind and a new company continue to trade the business and save the employees’ jobs. Blake-Turner have extensive experience in this area.

There are also other options if you decide you cannot continue to trade, such as liquidation or a CVA.  Please click on the foregoing links for further information in that regard.

At Blake-Turner we have years of experience of assisting distressed companies.  We understand the desire to save and restructure where possible and we can advise you of various strategies by which you can do this.  Please contact Paul Cooper on +44 (0) 7967 014788 or at paul.cooper@blaketurner.com

Coronavirus: Employment law update

Coronavirus employment law update:

Blake Turner LLP is currently assisting and advising numerous clients navigating the impacts of coronavirus on employment related matters. Please contact Rupert Farr for more information at Rupert.farr@blaketurner.com or on 07799 065638.

The impact of the coronavirus (COVID-19) pandemic on businesses across the UK has been critical. Businesses across a wide range of sectors have been forced to let go of staff or have incurred significant costs due to staff absence. Measures were announced in the Chancellor’s most recent Budget to mitigate the impact including; Statutory Sick Pay (SSP) relief for SMEs, tax breaks, government-backed loans and an HMRC helpline. However, there are fewer protections for staff in place and freelancers may find themselves without work for an indeterminate period. As the situation progresses, it is likely that many more staff will have to be let go, and it is important that both employers and employees are aware of their rights and obligations. A statement was recently released by the Government strongly encouraging all workers who are able to work from home to do so. However, is not yet clear whether businesses will be forced to shut down to stop the virus from rapidly spreading. Many workers will not be able to work from home; particularly those in sectors such as retail, manufacturing and hospitality.

Employers should keep abreast of Government updates on COVID-19, and advise customers and employees on how they plan to deal with the impacts of the virus. Ideally there should be a point of contact for COVID-19 matters. Employers should also ensure that remote working arrangements do not result in weaker protections for client data or confidentiality. They should monitor employees who may have contracted COVID-19 and implement measures to minimise the risk of the virus spreading, for example, by reducing travel to the bare minimum. Particular attention should be given to those employees with disabilities and underlying health conditions and they may want to consider making alternative arrangements for those who are high-risk. Businesses should also check with insurance providers whether they are covered; this is unlikely to be the case for the majority.

Employees who have symptoms, or live with people who have, should check the most up to date UK Government and NHS advice online. SSP will be available from day one instead of day 4 and for those who have been let go, Universal Credit and Employment and Support Allowance is available.

Government advice and resources available to employers, employees and businesses:
https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19

Blake Turner LLP is currently assisting and advising numerous clients navigating the impacts of coronavirus on employment related matters.

Please contact Rupert Farr for more information at: Rupert.farr@blaketurner.com or on 07799 065638.

For more information about business support relating to the Coronavirus Job Retention Scheme click here.

Read More

Partnership Disputes and LLP Disputes

Before the introduction of the Limited Liability Partnership (“LLP”) as a legal entity in English law 20 years ago, the only form of legal partnership that existed was a partnership under the Partnership Act 1890.  A significant difference was that in an old style partnerships each partner had joint (but not several) liability.  In an LLP some or all of the partners have a form of limited liability similar to that of shareholders of a company.  Unlike a company, the partners have the right to manage a business directly.

As such, the range of partnership disputes is now wider than before and includes disputes between members (as they are known) of an LLP and not just partners of a partnership.

As with an old-style partnership, LLPs are often governed by an agreement between the members which are generally known and referred to as partners.  This agreement obviously comes into play in the event of a partnership dispute.  Absent a written agreement the relationship between the members and the LLP and third parties is governed by the Limited Liability Partnerships Act 2000 and the Limited Liability Partnership Regulations 2001 and subsequent amendments thereto.

Often one of the central features of a partnership dispute focuses on who has control of the LLP (or partnership) during the dispute between members or partners.

Focusing on LLPs there may well be a dispute resolution procedure in any written LLP agreement but in the absence of such, it must be remembered that under the 2000 Act each member has the right to manage the affairs of the LLP.  This, of course, can be curtailed or controlled by any LLP Agreement, but in the absence of one, it can lead to great difficulties not only between the members themselves but apropos third parties.  Members do have the same rights as shareholders to claim for unfair prejudice if the LLP is being conducted in a manner unfairly prejudicial.  However, many LLP agreements expressly exclude such rights and a member is therefore left to resort to the agreement and the Act and its regulations to seek redress.

If the relationship between the members breaks down and cannot be repaired either informally or through the procedures set out in any written agreement (if there is one) then it is crucial that you should take early legal advice to determine from the start what position you as a member (especially a minority one) are in advance of taking action.  Often LLP agreements are drafted to ensure a deadlock situation between equal partners, which makes matters even more difficult.  Together with a lawyer, a strategy can be put in place to try to achieve the speediest and most economical resolution to a dispute (which may or may not involve purchasing or selling of one member’s share to others).

Rupert Farr, head of Litigation at Blake-Turner, has extensive experience in partnership disputes, both old-style partnerships and LLPs, in different areas of industry and business (including accountants, facilities management, digital payment companies, and others).  He would be happy to discuss any partnership dispute case which you have with an initial consultation being free of charge before a decision is made as to whether to go forward.

FAREWELL TO THE “SMASH AND GRAB”

FAREWELL TO THE “SMASH AND GRAB”

For those participants in the Construction Industry who have been living in a cave for the last 20 years, it may come as a surprise that legislation which took effect in 1998 and 2011 introduced a new payment regime with concepts such as “withholding notices” and “payless notices”.

The regime imposed stringent obligations on paying parties to issue within short periods of time after receipt of invoices a notification setting out any sum which was not to be paid and specifying the reasons why.

Many employers and main contractors have continued to be caught out by this payment regime with main contractors and subcontractors taking advantage of any default by the paying party to issue adjudication notices requiring payment due to the absence of the requisite notifications. The Technology and Construction Court have reviewed this previously and come to the conclusion that failure to issue the correct notice is in effect strict liability to make payment.

His Honour Judge Peter Coulson in the recent case of Grove Developments has taken a different stance. He is unable to support the opinion of previous colleagues and has given binding authority that the absence of a payment notice is not fatal and a paying party will be entitled to commence a counter-adjudication seeking a “true value” of the invoice or account in question.

This is not a time for complacency and employers and main contractors must continue to comply with the payment regime.

However, in the event of default this case does allow a paying party to at least issue a counter-adjudication to nullify the effect of the inevitable decision of any first adjudicator being asked to order payment for failure to comply.

To discuss this or any other construction law issues please contact Blake Turner at info@blaketurner.com or on 020 7952 6214.

Read More

How to correctly conclude a claim by way of a consent order

How to correctly conclude a claim by way of a consent order

In the matter Spice and Anor –v- Tuli and Anor [2012] which was heard in the Court of Appeal, the Defendant appealed the decision that the Claimant was allowed to bring a claim by way of a consent order based on the same set of facts as a claim which they agreed to dismiss.

The case discusses the use of the words “withdrawn”, “dismissed” and “discontinued” when concluding cases by way of consent. The word “withdrawn” is not appropriate as there is no provision in the CPR for a claim to be withdrawn, only discontinued or dismissed.

Facts

Spicer and Anor originally bought proceedings for possession. The day before the final hearing the Defendant provided disclosure. As the Claimant needed more time to investigate this disclosure they agreed a Consent Order dismissing the proceedings. In agreeing the consent order the Claimant’s Solicitor made it clear they would be investigating the disclosure and its validity.

Two months after the Order was filed the Claimant filed new proceedings, including the original claim for possession. The Defendant sought to strike out the claim on the basis that the claim for possession was barred as a result of cause of action estoppel. In addition, they argued that the fresh action was an abuse of process.

The application was unsuccessful and the Claimant was allowed to bring the second claim. The Defendant appealed the decision.

Decision

At the appeal it was concluded that there was no abuse of process. First, it was in the public interest that the disclosure was investigated for validity and secondly that the Claimant’s Solicitors had made it clear they would not stop the investigation just because the claim had been dismissed by way of consent.

The Court of Appeal considered the principle of cause of action estoppel. Whilst the principle of estoppel relies on the principle that there is finality of litigation it was created as “judge-made law”. As Judges often avoid setting absolute limits to any rule the Court of Appeal could understand why, in previous cases, the principle had been applied with a degree of flexibility rather than using a rigid application.

The case of Ako v Rothschild Asset Management Limited [2002] was considered. This is an Employment Tribunal case in which Dyson LJ concluded that a withdrawal or judgment by consent invariably results in a cause of action or issue estoppel. It was concluded that if it is clear that a party withdrawing their claim is not intending to abandon it or any issue within it then they cannot be barred from raising the point in subsequent proceedings unless it would be an abuse of process.

Although the Ako case was an Employment Tribunal case, and therefore subject to different rules than the Courts, Lewison LJ applied the case outside of Tribunal proceedings.
The appeal was dismissed and the Claimant was allowed to bring their second claim.

Comments

As a Claimant, care needs to be taken when signing consent orders. If there is an intention to bring the claim again in the future then proceedings need to be discontinued and not dismissed. In addition, it should be made clear to the Defendant’s Solicitors that there is an intention to bring future proceedings based on the same claim.

As a Defendant, before signing consent orders the Claimant’s intentions need to be clear. Defendant’s need to be aware of the implications in relation to the possibility of future proceedings against them.

IMPORTANT: This blog is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

For further information on this please contact [ ] on: [ ] or [ ].

Employer pension contributions

Employer pension contributions count towards a week’s pay

Facts

In the Employment Appeal Tribunal (“EAT”) and in the matter of University of Sunderland (“University”) v Ms K Drossou, the University of Sunderland appealed against the finding that employer pension contributions are to be considered when calculating the claimant’s weekly pay.

Ms Drossou worked for the University and was dismissed as a result of an irretrievable breakdown in working relationships. Ms Drossou was considered to be the primary cause of the breakdown.  The employment tribunal found that she had been unfairly dismissed and ordered the University to reinstate her. The University did not comply with the order and the tribunal awarded compensation instead. The EAT departed from the usual practice of excluding pension payments in calculating the weekly wage on the basis that section 221(2) of the RTA 1996 does not state that the amount payable by the employer under the contract of employment has to be payable to the employee and remuneration in section 221(2) means a reward in return for services and pension contributions are no less a reward for service than basic pay. The University appealed this finding.

Decision

The appeal was dismissed. The EAT agreed with the tribunal with respect to the above reasons. The EAT drew the distinction between section 221(2) and section 27(1) of the RTA 1996. The latter specifies that the sums must be payable to the worker whereas those words are absent in section 221(2).

Comments

Pension payments have not been taken into consideration when calculating a claimant’s weekly wage on the basis that the payment is not received directly by the employee but paid into a pension fund. This decision has increased the potential value of a claimant’s weekly pay. This decision will be important for employers who pay a high employer contribution rate. It is yet to be seen whether there will be further litigation following this decision or whether the correctness of the EAT’s judgment will be challenged.

 

IMPORTANT: This blog is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

 

For further information on this or any other employment related matters please contact Rupert Farr on: 020 7952 6216 or rupert.farr@blaketurner.com.

 

Statutory adjudication to the construction industry

The Housing Grants, Construction and Regeneration Act 1996

The Housing Grants, Construction and Regeneration Act 1996 introduced statutory adjudication to the construction industry in addition to contractual adjudication which already featured in a number of standard form contracts.

Statutory adjudication provides for a 28 days fast track dispute resolution procedure.

In the almost 20 years since adjudication has been available through this piece of legislation, Lewis Cohen has represented a number of claimants and respondents in the process dealing with a number of issues including final account disputes, claims for delay and disruption and claims for defective workmanship and negligent design.

Not only does Lewis have a breadth of knowledge from his experience in this field but he recently studied for two years on the RICS Diploma course and is now a qualified adjudicator.

Adjudication, by its nature, remains a private dispute resolution procedure unless the decision is taken to court for enforcement.

Lewis has experience in successfully enforcing adjudicator’s decisions in the Technology & Construction Court.

Given the fast track nature of adjudication, this requires a flexible response when defending claims and Lewis and his team are able to offer immediate advice and a rapid response when acting for both the claimant and the respondent.

 

Sexual and racial discrimination case

Sexual and racial discrimination case

Blake Turner Solicitors recently acted in a discrimination case for an employer who faced a claim of sexual and racial discrimination for an employee who had worked there for less than six weeks.

Despite obtaining a Deposit Order against the Claimant at an early stage in the proceedings (on the basis that the Claimant had low prospects of success), the Claimant decided to pursue the matter all the way to the full Tribunal hearing.

After one aborted hearing in August, the employer was successful in defeating all heads of the claim.  As the judgment was based on the same findings as the Deposit Order, the Claimant was deemed to have behaved unreasonably in continuing with the proceedings.

As a result we made an application on behalf of our client for a Costs Order against the Claimant.  Costs Orders in Tribunal proceedings are extremely rare and are very much the exception to the rule.  Indeed they are only obtained in 0.07% of cases.  We were successful in obtaining the Order after a day’s hearing before the same Tribunal which heard the case.

For further information on this or any other employment related matters please contact Rupert Farr on: 020 7952 6216 or rupert.farr@blaketurner.com

Prison for employee for deleting evidence

Former employee sent to prison for deleting evidence in breach of court order

Facts
In OCS Group UK Ltd (“OCS”) v Dadi and others, a former employee of the claimant was committed to prison for six weeks for breaching an injunction to preserve evidence pending trial of an action against Dadi for breach of confidence.

Mr Dadi had worked for OCS. OSC lost a contract to one of its competitors – OmniServ. Mr Dadi was transferred to OmniServ under TUPE. Before the TUPE transfer, OCS brought a claim against Mr Dadi on the basis that Mr Dadi had conspired with one of the other defendants, Mr Ahitan, by emailing confidential information belonging to OCS to his personal email account over a period of time. Mr Ahitan worked for OmniServ but previously worked for OCS as Mr Dadi’s manager.

OCS obtained an injunction against Mr Dadi which prohibited him from disclosing or making use of any of OCS’s confidential information, required him to provide information to the court about what discourse he had made of that information, required him to preserve hard copy and electronic documents, and, prohibited him from disclosing to anyone else (except his legal representatives) the existence of the order or the possibility of proceedings being commenced.

The standard notice on the front page explained that breach of the order would be a contempt of court which could result in imprisonment.

OCS’s lawyer personally served the order and read out the notice. Immediately following this, Mr Dadi telephoned Mr Ahitan and informed him of the injunction. He also deleted several emails from his personal email account. The following day, Mr Dadi deleted a further 8,000 emails and told various family members about the injunction.

OCS applied for Mr Dadi to be committed to prison for contempt of court.

Decision
Mr Dadi was sentenced to six weeks in prison for contempt. The court emphasised their strong disapproval of his conduct and imposed the prison sentence also to act as a deterrent. The court took into account that the acts were “deliberate and contumacious breaches”.

The breaches had significantly prejudiced OCS and cost them considerably in forensic examination to salvage information that should have been left untouched.

Comments
It is not unusual to see a sentence such as this for breach of an injunction but it is not often these powers are being used in an employment context. This case highlights the importance of complying strictly with injunctions aimed at preserving evidence. The court will have little sympathy with pleas of naïveté especially if an employee goes to great lengths to cover their tracks. The notice on the front of the order is there for a reason.

IMPORTANT: This blog is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

For further information on this or any other employment related matters please contact Rupert Farr on: 020 7952 6216 or rupert.farr@blaketurner.com.

Employment Tribunal fees ruled unlawful

Supreme Court rules Employment Tribunal fees are unlawful

Facts

In 2013 the Government introduced employment tribunal fees of up to £1200 in order to reduce the number of weak and vexatious cases brought by litigants. As a result, this has led to a 79% reduction of cases brought in the Employment Tribunal in the last three years.

The trade union, UNISON, brought a case seeking judicial review of the fees arguing that the fees prevented workers accessing justice and were therefore unlawful. The fees were originally brought in for the objective of transferring part of the cost burden from the taxpayer. Fees ranged from £390 to £1200 depending on the complexity and time spent on the issues.

Decision

The lower courts dismissed UNISON’s claim but the Supreme Court has ruled that the Government was acting unlawfully and unconstitutionally when the fees were introduced. The Government have committed to reimburse all fees if it is found they acted unlawfully. It is expected that £32m will need to be repaid to Claimants.

Fees will be stopped immediately and the process of reimbursement will begin. The taxpayer will now be forced to pick up the bill.

Discrimination cases cost more for claimants because of the complexity and the time the hearings took. The Supreme Court held that the fees were indirectly discriminatory because a higher proportion of women would bring discrimination cases.

 

Comments

This case has provided a fundamental change for claimants who were previously obliged to pay fees for bringing a claim against an employer. The change in law with regard to fees will now make it easier for employees to bring claims against an employer. The ruling has been described as, “a major victory for employees everywhere.” It remains to be seen whether there will be a large increase in cases brought to the Employment Tribunal but it will certainly not lead to a decrease!

 

IMPORTANT: This blog is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

 

For further information on this or any other employment related matters please contact Rupert Farr on: 020 7952 6216 or rupert.farr@blaketurner.com