Registration of charges

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New regulations come into effect on 6 April 2013 making various changes to the scheme for registering charges with Companies House.

The current position is that the Companies Act lists the types of charges that are registerable, whereas the new regime will provide that all charges are registerable other than certain specific categories of charge, the most notable of which is a rent deposit deed. In practice, apart from rent deposit deeds no longer being registered, the new provisions are unlikely to have much impact on what charges are registered or not: the consequences of failing to register are so draconian (the charge is void against a liquidator) that a ‘safety first’ attitude will still prevail in terms of deciding whether or not to register.

There are some procedural changes being brought in as well, the most important of which is the introduction of an electronic filing facility. Companies will be able to file charges against their own company using their existing company authentication code. A lender will also be able to file charges electronically and any lenders who wish to be able to do so should visit the Companies House website to apply for a lender authentication code.

In addition, from 6 April 2013, Companies House will no longer accept the original instrument. A certified copy of the instrument will have to be filed with the application to register a charge and any originals submitted will no longer be returned.

Once registered a copy of the instrument will be placed on the public record and will be capable of being downloaded.

It will be possible to redact any personal information from the filed instrument such as:

  • personal information relating to an individual (other than the name of an individual);
  • the number or other identifier of a bank or a securities account of a company or an individual; or
  • a signature.

If you would like any further information about these changes please do get in touch, by emailing david.kinch@edwincoe.com.

Update: Chinese AIM Listed Companies

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It is now more than 15 years since Griffin Mining became the first Chinese business to be admitted to AIM in 1997.  Since then more than 90 companies with an underlying Chinese business have joined AIM.  There was a peak of 31 Chinese IPOs on AIM in 2006, reflecting general trading conditions, and a high of 67 Chinese businesses on AIM in 2008.  Reflecting the downturn, the number dropped to 43 in 2011.

However, the trend appears to be reversing, as the total number of Chinese AIM listed companies increased to a reported 48 at the end of 2012 - the result of 5 de-listings and 10 IPOs during 2012. Edwin Coe is delighted to have advised on 3 (30%) of these IPOs.

The 48 Chinese AIM listed companies were reported to have an aggregate market capitalisation of £2.76 billion and an average market capitalisation of £57.50 million (most AIM companies have a market capitalisation of less than £25 million).  £42.45 million is reported to have been raised for IPOs with a further £7.92 million from secondary fundraisings in 2012.  Although the aggregate market capitalisation of Chinese companies at the end of 2012 represents a decline of 19.3% over 2011, the increased number of admissions is encouraging.

We have seen continuing interest from businesses in the Far East in obtaining a listing in London, and we are currently beginning work on a new Chinese AIM float. As our team has been involved in nine successful AIM flotations of Chinese businesses, we are looking forward to capitalising on this experience and working on further transactions.

Data Protection Act Penalties

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Since 2010 the Information Commissioner has been able to issue monetary penalties of up to £500,000 where there has been a serious contravention of the data protection principles in the Data Protection Act 1998 (the “Act”). Recent cases involving Data Protection Act penalties have again highlighted the need for organisations to implement and adhere to a strong data protection policy.

A monetary penalty may be issued if the Information Commissioner is satisfied that:

• there has been a serious contravention of the data protection principles under the Act;

• the contravention was likely to cause substantial damage or distress; and

• the contravention was deliberate OR the data controller ought to have known that there was a risk that the data protection principles would be contravened and such contravention would be likely to cause substantial damage or distress yet they failed to take reasonable steps to prevent the breach.

Recent monetary penalties

Monetary penalties have been issued to numerous councils and other public bodies where sensitive personal data relating to children or other vulnerable individuals has been lost or erroneously sent to the wrong person. However, private companies are by no means exempt from monetary penalties.

Prudential Assurance Company Limited was fined £50,000 for contravention of the duty to ensure personal data is kept up to date and accurate. Two customer records were merged on their database which resulted in financial information being erroneously sent to each customer and the funds of a pension policy belonging to Customer A being transferred by Customer B.

Welcome Financial Services Limited was fined £150,000 for losing two tapes which held the personal data of customers such as names, addresses and telephone numbers and data relating to current and former employees such as bank account details, CVs and national insurance information. Welcome had failed to take appropriate technical and organisational measures to prevent the loss and unauthorised processing of personal data. The tapes were unencrypted despite there being a policy in place stating that the tapes should be encrypted, and other appropriate IT security measures had not been implemented.

What is clear from these cases is that companies should review their data protection policies to reduce the risk of breaching the data protection principles under the Act and incurring a monetary penalty, or often more damaging, suffering the discomfiture of an adverse finding under the Act.

Issues to consider include:

• Do you have a data protection policy in place? Is it enforced?

• Have staff who handle personal data been provided with sufficient training to ensure compliance with the Act?

• How is your personal data stored? Is it encrypted and is any data stored on a web server protected by sufficient security?

• What measures are in place to prevent personal data accidentally being sent to the wrong person?

• When personal data is destroyed is it done so securely?

• Customer and employee information both constitute personal data so be sure to assess the security and processing of both these types of information.

Edwin Coe is a high-quality, commercial law firm with expertise in specific practice areas and industry sectors. The firm provides tailored and integrated services to both UK and international clients.

Employee Shareholders: Government to press on

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Back in the Autumn the Government announced proposals to introduce a new employee status.  Originally called ‘employee owners’, they have already been rebranded as ‘employee shareholders’ and the aim is (where employer and employee so choose) to allow employees to receive shares in their employer in exchange for waiving certain employment rights. 

The Government ran a relatively short consultation exercise on the proposals the results of which were published before Christmas.  The general feedback from the consultation suggests there is not much enthusiasm for the plans and some concern they will introduce additional complexity into an area that is quite complex enough already.

In summary, the new proposals provide for employees to give up certain unfair dismissal rights, rights to statutory redundancy pay and certain rights to request flexible working or training.  Employees will also have to give 16 weeks notice to return early from maternity leave, as opposed to the norm of 8 weeks.  In return, the employee will receive “free” shares in their employer with a value of at least £2,000 which will be CGT exempt up to a value of £50,000 (although employers can grant shares worth more than this if they choose to do so).

The scheme will be available to overseas companies and, for employees employed by a subsidiary, they may receive shares in a parent company.

From reading the responses to the consultation process you would be forgiven for thinking this was a solution to a problem which did not exist: while employers are not great fans of unfair dismissal claims, they do not generally decide not to recruit staff because of the risk of a claim from their new recruit.  It is also difficult to see many small companies with relatively small share capitals wanting to take this up not least because of the requirement to agree a value of the shares with HMRC.  There are also a number of thorny issues raised by the proposals in the context of tax and national insurance treatment and what happens to the shares on a sale of the business and how this new legislation will interact with TUPE.  Quite how these issues will be addressed remains to be seen.

Having said that, the Government appears to have the bit between the teeth and, despite the proposals’ lukewarm reception, is committed to pressing ahead with the proposals and is aiming to implement the new legislation in spring 2013.

Edwin Coe is a leading commercial law firm with expertise in specific practice areas and business sectors. The firm offers tailored and cost-effective legal solutions to clients based in the United Kingdom and overseas.

Conflicts between Shareholder and Director Roles

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It is not unusual for one person to act in more than one capacity in connection with the same company. In fact a director will often also be a shareholder. A shareholder may conduct himself in accordance with a shareholders agreement, whereas that same person in their capacity as director would be bound to conduct themselves in accordance with their statutory duties. This was the situation in a recent case which has highlighted the difficulties when dual roles are held and the extra care that should be taken when entering into shareholders agreements if the parties hold these dual roles.

The case

Mr Jackson and the two defendants owned a Cayman company and entered into a shareholders agreement under which the two defendants made a commitment, as shareholders, to Mr Jackson’s appointment as a director of another company, TFG, and to his appointment at each successive AGM. However, Mr Jackson’s appointment was later terminated by the two defendants, in their capacity as directors of TFG, on the grounds that he was unsuitable. Mr Jackson brought a claim in relation to his termination. The defendants argued that they had to terminate Mr Jackson’s appointment in order to comply with their statutory fiduciary duties. The shareholders agreement was seen to conflict with their duty to act in the best interests of TFG.

The decision

The court found that the defendants were not bound to terminate Mr Jackson’s appointment. It was ruled that it was an implied term of the shareholders agreement that the defendants were not entitled to take any steps to remove Mr Jackson, including that they could not vote as directors to remove him under the articles of association. The court emphasised that it is a general rule of contract law that a contracting party must not do anything voluntarily to render the performance of the agreement impossible or futile.

The argument that the directors had no choice but to remove Mr Jackson in order to comply with their fiduciary duties was not successful. The court found that there were further options available to the defendants in their capacity as directors that should have been considered. In order to ensure that they were not in breach of their fiduciary duties the directors could have got the Cayman company to sanction their breach of duty or changed the articles of association of TFG to remove the provision allowing them to remove another director from office. Furthermore the defendants were obliged to take such steps as under the shareholders agreement there was a further assurance clause which stated that the parties would take such action as might be reasonably required to give effect to the agreement. It is arguable that had this further assurance clause not existed the court might have held that the shareholders agreement was unenforceable.

Impact of the case

This case has emphasised the rule of contract law that it is a breach of contract to do something voluntarily that will render an agreement inoperative. Therefore, when drafting, it is important to remember that the terms of a shareholders’ agreement should be reconciled with the provisions of the articles of association to ensure the documents are consistent, convey the same meaning and to avoid any unnecessary litigation. The case has also highlighted that shareholder and director roles do not exist in parallel universes and more thought may be needed to make sure all parties are aware of the impact that provisions in an agreement may have on their responsibilities and duties in relation to their dual capacity as shareholder and director.

Edwin Coe: Corporate Manslaughter Case Study

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Edwin Coe reviews a recent case in which a company has been found guilty of corporate manslaughter following the death of an employee who fell through a roof whilst carrying out roof maintenance. 

 Lion Steel Equipment Limited pleaded guilty to the charge under the Corporate Manslaughter and Corporate Homicide Act 2007 (the Act). Charges of manslaughter against the three directors of the Company were dropped by the Prosecution in return for Lion Steel pleading guilty to corporate manslaughter. Other charges for breaches of the Health and Safety at Work Act 1974 were likewise withdrawn. 

Upon conviction, Lion Steel was fined £480,000 which is lower than the Sentencing Guidelines Council’s guidance suggested starting position of £500,000. The court took into account the guilty plea and also the possibility that a larger fine might imperil Lion Steel’s business and the employment of its remaining staff. The judge ordered the fine to be paid in instalments to allow time for the Lion Steel to take out loans secured against its premises. No remedial or publicity orders were made.

This is the third successful prosecution since the Act came into force in 2008. All three cases have involved the death of an employee leading from safety failings of the companies involved. The Act was introduced to make it easier to convict companies whose work activities cause someone’s death by linking the breach to senior management actions, i.e. those who play significant roles in the management, organisation and decision making in a company. The Act is concerned with the way an activity is managed or organised and considers how responsibility is discharged at different levels of an organisation. Senior management need to ensure that they have adequate processes for health and safety and risk management in place and that health and safety leadership within the organisation is adequate.

What is clear from these cases is that companies should take key practical steps to reduce the risk of health and safety incidents and prosecution under the Act including:

  •  Ensure that health and safety leadership within the company meets the standards set out in the joint guidance issued by the Institute of Directors and the Health and Safety Commission;
  •  Consider whether safety management systems have been successful to date, and what improvements should be made;
  •  Consider the value of an independent audit of health and safety compliance;
  •  Develop an incident response plan; and
  •  Review the organisation’s liability insurance to check that recoverable legal costs incurred under the Act would be covered.

Edwin Coe has acted in some of the major corporate manslaughter cases and has advised clients on the area for a number of years.

Website cookies: time to comply

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Since 26 May 2012 the Information Commissioner’s Office (ICO) has had the ability to consider complaints about website cookies and has also had the ability to consider using its enforcement powers to compel website owners/operators (Operators) to comply with the legal requirements of the Privacy and Electronic Communications (EC Directive) Regulations 2003 as amended.

Subject to certain exceptions, the setting of cookies on website users’ (“Users”) computers will only be allowed:

1. When the User has been provided with clear and comprehensive information about the purpose for which the cookie is stored and accessed; and

2. The User has given their consent.

The ICO has made it clear that Operators should obtain a User’s consent (1) before the cookie is set and (2) that consent is obtained through an affirmative step on the part of the User.

Implied Consent

On 25 May 2012, the ICO confirmed that Operators may rely on “implied consent” but that such consent has to be a “freely given, specific and informed indication of the individual’s wishes” and there has to be some action taken by the consenting individual from which their consent can be inferred (e.g. by moving from one page to another or clicking on a particular button). The ICO states that the “key point …is that when taking this action the individual has to have a reasonable understanding that by doing so they are agreeing to cookies being set”.

Main Exception

Operators will not be required to obtain a User’s consent prior to setting any “essential” cookies. These are cookies which are “strictly necessary” to provide the User with a service requested by them (e.g. an online shopping-basket facility where the website needs to remember products chosen by a User on a previous page). The ICO have stated, however, that this exception must be interpreted quite narrowly in view of the Regulations’ use of the phrase “strictly necessary”.

Enforcement/Penalties

The Information Commissioner has a range of options available to take formal action against Operators to ensure compliance with the Regulations including:

• Information Notice – requiring an Operator to provide specified information within a certain timeframe;

• Undertaking – committing an Operator to a particular course of action (e.g. to start obtaining the necessary consents);

• Enforcement Notice – compelling an Operator to take certain actions (e.g. to start obtaining the necessary consents). Failure to do so can be a criminal offence; and

• Monetary Penalty Notice – requiring an Operator to pay monetary penalty of an amount determined by the ICO. The maximum penalty is currently £500,000.

How Edwin Coe can help

Operators

We can provide:

• Checklists for Operators to carryout their own “cookie audit”;

• Advice on how to provide information about cookies used on a website;

• Advice on how such information can be brought to the User’s attention;

• Guidance on how in practice to obtain a User’s consent; and

• Advice on the related matter of the Data Protection Act and the personal data an Operator collects from Users.

Users

We can advise Users on:

• Bringing complaints to the ICO in relation an Operators’ breach of the Regulations in relation to cookies set on the User’s computer; and

• In relation to the misuse of a User’s personal data by an Operator.

If you would like any further information or advice in relation to this matter please contact simon.miles@edwincoe.com or call 020 7691 4054.

Enterprise Investment Scheme and The Finance Act 2012

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The Government has put great store in the Enterprise Investment Scheme (EIS) providing a stimulus to investment into entrepreneurial companies. The Finance Bill published on 29 March 2012 extended the scope of the relief, which allows investors to reduce income tax liability by 30% of the amount invested, to not pay capital gains tax on a disposal of shares after three years or three years after commencement of trade and can reduce or eliminate inheritance tax on such shares on death.

Individuals are now able to invest up to £1 million from this tax year and claim EIS relief on the investment (the limit having gone up from £500,000 for the year ended 5 April 2012) as well as carrying back the value of any investment into the prior year where the relief has not been used up in the prior year.

Other rules have also been liberalised to make the scheme more effective but these require EU State Aid Approval which is expected by the time of the Royal Assent to the Finance Bill in July 2012. These changes include the increase of the employee limit of the company being invested in to fewer than 250 from fewer than 50 at the time of issue of the shares. It also includes an increase of the threshold of gross assets of the company to no more than £15 million before the investment and £16 million immediately after (from the current limits of £7 million and £8 million) and, very importantly, an increase of the maximum amount which can be raised by a company under EIS to £5 million in a tax year from £2 million. It is this which will significantly improve the effect of this scheme allowing larger fundraisings for growth.

But it is very disappointing that at the same time the Finance Bill brings in provisions which take the relief away in two situations where it was providing valuable support to growing companies. An EIS qualifying company cannot now utilise EIS funds raised to acquire another company. EIS funds can still be used to acquire a business or as working capital for an acquired company.

In addition a new “disqualifying arrangements” test has been added which may hit many EIS structures, particularly in the media fields of film, TV and music. A disqualifying arrangement is where a majority of EIS funds raised is paid to or for the benefit of the party to the arrangements or a person connected to such a party. It will also be where, in the absence of arrangements, it would have been reasonable to expect the business activity would have been carried on as part of another business by a person who is a party to the arrangements or a person connected with such a party.

For further information on EIS or this article, please contact Victor Hawrych, Partner
E: victor.hawrych@edwincoe.com T: +44 (0) 20 7691 4000
Edwin Coe LLP – Winner of the EIS Association Law Firm of 2010 and runner up in 2011

Changes to the UK Takeover Code

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Changes to the UK Takeover Code

On 19 September 2011, significant changes were made to the UK Takeover Regime and the Takeover Panel has issued a new Takeover Code. Broadly, the code applies to takovers of public companies in the UK/Channel Islands.

The changes provide increased protection for target companies against protracted and drawn-out virtual bids,strengthen the position of target companies, increase transparency and improve the quality of disclosure and provide greater recognition of the interests of the target company stakeholders. As a result, the UK may no longer be perceived to be a relatively buyer friendly environment for takovers of public companies.

A summary of the changes are as follows:

1. Identifying potential bidders

A target company that starts an offer period must confirm the identity of any potential bidder with which the target is in talks or from which it has received an approach (which has not been unequivocally rejected).

Where the offer period starts with an announcement by a potential bidder, the target company is not required to make an announcement identifying any other potential bidders with which it is in talks unless rumour and speculation specifically identifies a potential bidder that has not previously been identified.

2. Put up or shut up deadline

The “put up or shut up” regime has changed and a potential bidder is now required to clarify its position within a fixed period of 28 days following the date of the announcement in which it is first publicly named, unless an extension of that period is obtained from the Takeover Panel at the request of the target company. This deadline will fall away if any bidder subsequently announces a firm intention to make an offer.

3. Deal protection prohibition

The new Code prohibits a target company from entering into any “offer-related arrangement” (that is, any agreement,arrangement or commitment in connection with an offer) with a bidder which is outside the ordinary course of business. The prohibition covers inducement and break fee and also prevents exclusivity arrangements and implementation agreements from being implemented. This is a significant change as such arrangements were previously a common feature of public company takeovers.

4. Disclosure of advisers’ fees

Both the bidder and target company must disclose offer related fees and expenses, including the fees of financial advisers and lawyers, and for the bidder to disclose fees and expenses in relation to its bid financing arrangements. Any material changes to the publicly disclosed fee arrangements must be disclosed privately to the Panel who will determine whether further public disclosure might be required.

5. Disclosure of financial information and financing arrangements for the offer

Disclosure will be required in respect of financial information about a bidder, details of debt facilities (including interest rates, key covenants and security arrangements) and financing documentation will have to be put on display.

6. Statements about the target business

A number of changes have also been made to the Code which are aimed at improving the quality of disclosure about a bidder’s intentions for the target company and its employees following the bid, and improving the ability for employee representatives to give their views.