Summer 2005

In this issue

Last orders please

Aged debts

Mobile but not too mobile

Income tax on pre-owned assets

Corporate manslaughter explained

A new right to work part time?

Funding for directors…

…and funding by directors

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Last orders please

All licensees hoping to continue in operation after November 2005 will not need reminding that the entitlement to convert their licences to the new regime only runs until 6 August 2005. Although the new law will not come into effect until 24 November 2005, no applications to convert as of right can be made after 6 August deadline, and anyone missing the deadline will need to make a full new application with no guarantee of success.

The gap between the deadline of 6 August and the effective date of 24 November has been left to allow all conversion applications to be processed in time for the introduction of the new law, so that premises can count on continuing uninterrupted trade. If the licensee misses the 6 August deadline, and is faced with the necessity to make a new application, he/she should not count on this being processed by the November deadline, particularly since Local Licensing Authorities are likely to be dealing with a tidal wave of just in time applications. So, if a licensee has not made the application yet, he should dust off the forms and get them submitted. Remember that a fully marked up scale plan is required to be submitted with the paperwork and this can sometimes take some time to prepare.

If you need any assistance with your application or on any other licensing issues, please contact Judith Kelly on 0117 926 4121 or e-mail her on

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Aged debts

The Court of Appeal has helpfully clarified the position for judgment creditors who commence winding up or bankruptcy proceedings more than 6 years after their judgment became enforceable.

In the case of Ridgeway Motors (Isleworth) Ltd –v– ALTS Ltd, the judgment debtor defended winding-up proceedings on the grounds that they were barred after 6 years under section 24(1) of the Limitation Act.

The Court explained that, while there were good policy reasons why claims should be brought without undue delay (for example to avoid evidence becoming stale and to avoid uncertainty for defendants), those considerations did not apply to judgments since those sorts of issues would already have been addressed.

A couple of reminders:

• ordinary creditors (as opposed to judgment creditors) remain subject to the 6 year limitation period in bringing their claim;
• judgment creditors who commence winding-up or bankruptcy proceedings after 6 years may still prove for the debt in the usual way in subsequent liquidation proceedings.

If you require help in debt recovery, please contact Val Chapman on 0117 926 4121 or e-mail her on

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Mobile but not too mobile

The Road Transport (Working Time) Regulations 2005 came into force on 4 April 2005 limiting the working time for mobile workers undertaking road transport activities. The aim is to further protect the health, welfare and safety of workers. The Regulations are not strictly limited to the road transport sector and have far-reaching implications for employers.

The Regulations cover companies that transport goods on their own account and apply to all 'mobile workers' falling within the definition. Broadly this includes the non-driving crew such as porters and security, as well as trainees and apprentices, for commercial or heavy goods and public service vehicles.

The main provisions are a maximum working week of 48 hours, over a 17 week reference period. No single week should entail more that 60 hours, provided the average of 48 hours is maintained. Night workers are limited to 10 hours work in any 24 hour period. Daily and weekly rest provisions have also been extended and the EU Driver's Hours Rules no longer take precedence.

A key feature is that there is no opt-out of the weekly working limits and there is limited opportunity for derogation through workforce or collective agreements.

Anyone working for more than one employer, such as agency workers, must inform each employer in writing of the number of hours worked for other employers. Records must be kept for two years.

Penalties for non-compliance include improvement and prohibition notices issued by VOSA (the Vehicle & Operators Services Agency) and criminal prosecutions for individual and corporate offences.

The regulations also increase the likelihood of employee litigation both through complaints being brought in the Employment Tribunal for breach of the Working Time Regulations and in the civil courts for breach of statutory duties and personal injury.

Employers will also need to invest more time in self-protection. As an obvious start, by making sure there is a thorough system in place for record keeping and monitoring your own and employee compliance.

For further information on this or any aspect of Employment law please contact Nicola Hughes at or on 0117 926 4121

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Income tax on pre-owned assets

Are you aware of this new retrospective taxation?

From 6 April this year a new income tax charge came into effect. It is designed to prevent inheritance tax planning which seeks to avoid the reservation of benefit rules. Particularly affected are those arrangements designed to place the family home outside the taxpayer's estate, using reversionary leases, Eversden, Ingram and home loan schemes.

However, the scope of the legislation is widely drawn and applies to intangible assets such as shares, as well as land and property and, importantly, catches any relevant transaction made after 17 March 1986.

The charge applies where an individual disposes of an asset or provides the money which is used directly or indirectly in the purchase of an asset where he or she continues to occupy or enjoy the asset.

The pre-owned assets charge affects three groups of property: land; chattels and intangible property held in a settlor interest trust.

Those who have already entered into such arrangements will need either to 'undo them' as far as they are able, or to pay income tax on the benefit retained.

The charge is an annual income tax on the benefit enjoyed - for example, if the individual has given away a house which he or she continues to occupy, he or she will be liable to income tax on the rental value. If this is £12,000 per annum and he or she is a higher rate taxpayer, the tax payable will be £4,800. As far as chattels and intangibles are concerned, the benefit will be 5% of the capital value of the asset.

There are exclusions and exempt transactions, including:

• Where the property forms part of the individual's estate
• Where the gift with reservation of benefit rules apply
• Where the annual value to be taxed is less than £5,000
• Transfers between spouses
• Gifts to a trust of which the spouse has an interest in possession
• Disposals of the whole interest in the property by arm's length sale
• Deeds of variation

If the arrangement does fall within the scope of the legislation, solutions include:

• electing that the property should be treated as subject to the reservation of benefit rules, thus 'opting back' into inheritance tax
• paying the income tax charge
• paying a full market rent

If you think you may be affected by these provisions or wish to discuss any other aspect of personal tax planning, please contact either Richard Boulding or Vanessa Eyre on 0117 926 4121 or e-mail them on or

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Corporate manslaughter explained

Shortly before the General Election, the Home Office presented a draft version of the long awaited Corporate Manslaughter Bill. The Queen's Speech confirmed the government's commitment to taking the Bill forward some time in the present parliamentary session, so a look at how the new law will operate is timely.

It is already possible to prosecute a company for manslaughter, but only where an individual at the top of the company hierarchy who can be identified as the "directing mind" of the company is them self guilty. This is known as the identification principle. According to Home Office figures, 34 prosecutions have been commenced against corporate employers for manslaughter since 1992. However only 6 small companies have been convicted. Unsuccessful prosecutions have tended to be very high profile, such as the Southall rail accident in 1997.

To counter what is seen as the ineffectiveness of the present law against corporations, the government now proposes a new structure, under which a company can be prosecuted without the need to prove an offence of manslaughter against one or more individual senior officers. Under the draft Bill, an organisation could be prosecuted for manslaughter if a "gross failing" by senior managers to take "reasonable care" for the safety of their workers or members of the public results in a person's death. It is proposed that the new offence will apply to all companies and other types of incorporated body, including public sector bodies such as local authorities. The new offence would not replace the liability of individuals nor would it replace other specific health and safety offences. It would reinforce existing legislation.

The new offence would be based on failures in the way the corporation's activities are managed rather than upon any particular negligent act by one individual. This "management failure" must amount to a gross breach of the duty to take reasonable care. The duty of care will be owed where an organisation is:

• an employer
• an occupier of land
• a supplier of goods
• a supplier of services
• conducting commercial activities

The duty is owed to those who will be affected by any of the above undertakings.

The test for "management failure" is intended to target failings by senior management in the strategic management of an organisation, not failings at relatively junior levels. The failure must result in a "gross breach" of the duty of care. The draft Bill includes statutory criteria for assessing whether a breach amounts to a gross breach. The intention is that the offence will only apply to conduct that falls far below that which could reasonably be expected.

Individuals convicted of manslaughter face a prison sentence. A corporation cannot be sent to prison, and the usual penalty will continue to be a fine, which the Home Office has suggested could be very substantial. However, the Bill also includes power for the Crown Court to order a convicted company to take specified steps to remedy any identified breach of duty.

The new offence will be a very serious one, prosecutable only in the Crown Court and not before Magistrates. It will rely heavily on current Health & Safety law to set the standards against which the organisation needs to have fallen short, and it is anticipated that investigations will continue to be a joint exercise between the police and the H & S Executive. If proceedings are issued, they will be pursued by the Crown Prosecution Service on evidence provided by the police.

It will therefore be possible for a company to be found guilty of corporate manslaughter without finding that any individual director is guilty of manslaughter. Similarly, it will be possible for an individual to be convicted of manslaughter without automatically implicating the company.

It is more than possible that the Bill will be amended before it is laid before Parliament, but it seems likely that it is now close to its final form and that we can expect it to be law within the next two years. In his introduction, Charles Clarke stated "Organisations who already take their obligations under H & S law seriously have nothing to fear". Certainly, observing H & S law is the key to avoiding problems under the new law.

If you need advice on any aspect of regulatory or H & S law, or if you would like your current procedures reviewed, please contact Judith Kelly on 0117 926 4121 or e-mail her on

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A new right to work part time?

A female pilot who was refused the right to work part-time to look after her baby has recently won her sex discrimination case in the Employment Tribunal.

Jessica Starmer, whose husband is also a British Airways pilot, flew short haul flights out of Heathrow and asked the airline last year whether she could work 50% part time so that she could look after her daughter. She was denied her request and continued to work a 75% rota.

Of the 2,980 BA pilots, 152 are women. Of those women 18 work a 75 per cent part-time rota. 11 male pilots work a 50 per cent rota. No female pilots are currently employed working 50 per cent of the time.

Mrs Starmer took a claim for indirect sex discrimination and also claimed she had a right to work part-time under flexible working regulations brought in by the Government last year.

BA denied the allegation of sex discrimination on health and safety grounds. It said it required pilots with less than 2,000 hours flying time to work at least 75 per cent of a normal rota. Mrs Starmer had completed about 1,100 hours. Interestingly BA did not introduce this rule until five months after Mrs Starmer's request.

A pilot's union spokesman said that you could only expect to accrue 2000 hours flying time over approximately five years. Mrs. Starmer argued that this meant BA was imposing a rule that women pilots could not have children for five years after joining.

BA also said it would be too expensive to have two part-time pilots covering Mrs Starmer's duties. Her current basic salary is £50,000 per annum.

In ruling for the claimant the Tribunal has assisted working mothers and bolstered the rights of employees seeking flexible working arrangements.

Consequently employers will need to take great care in dealing with requests for flexible working hours, particularly where children are potentially affected, regardless of the economic impact upon the business.

BA has stated their intention to launch an appeal in an effort to overturn the ruling. In the meantime other working mothers in similar positions are expected to follow Mrs Starmer's request for part-time working. The case has such far-reaching implications for employers, it is considered likely it will ultimately be taken to the European courts.

For further information on this or any aspect of Employment law please contact Nicola Hughes at nwh@meadeking.co.uk or on 0117 926 4121

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Funding for directors…

Directors owe numerous fiduciary duties to their companies (as do members of LLP's). These are well-rehearsed and include: -

• Demonstrating loyalty and goodwill
• Acting bona fide in the interests of the company
• Acting for a proper purpose
• Exercising reasonable care and diligence and skill
• Not making secret profits
• Not allowing the company to enter into a contract in excess of its powers ('ultra vires')
• Disclosing to the other directors any interests which may conflict with that of the Company
• Not borrowing money from the company
• Not taking compensation for loss of office without approval by the shareholders
• Not entering into substantial non cash transactions with the company without shareholder approval
• Not making donations to political parties without shareholder approval

A company and/or the liquidator of a company can take proceedings against a director for breach of duty or breach of trust to recover compensation and in many cases for an account of profit, which resulted from the use of company assets or opportunities.

In addition there are numerous criminal sanctions, which can be imposed on directors for breaches of their obligations under the Companies Act.

While many directors previously looked to the employer company to bear the costs of defending such claims and charges, this was prohibited by statute. A company was not able to indemnify the director as the case proceeded because, if the defence failed, then the company would itself have acted unlawfully in funding the case. The most that a company could do was to pay the premiums for indemnity insurance which would indemnify a director for costs of a successful defence.

Since 6 April 2005 these rules have been relaxed so that a company can if it so wishes agree to pay the costs of a director in defending claims against him as they are incurred. However this indemnity must not extend to paying the fines or penalties for which a director may be personally liable if convicted of an offence under the Companies Act or otherwise.

If the director is unsuccessful in defending his civil claim then the costs paid by the company under the indemnity must be repaid but this can be on terms agreed between the company and the director. To take advantage of this relaxation in the rules affecting directors' indemnities a company will need to amend its Articles to allow it to give a qualifying third party indemnity and the existence of that indemnity must be disclosed in the company's annual accounts each year.

It should be noted that the indemnity is still limited to the fees and the legal costs and other costs in successfully defending a claim against the director.

It still is unlawful for a company to indemnify the director against the costs of unsuccessfully defending a claim or indeed to indemnify the director against monies which the director is liable to pay to the company itself as a result of a breach of duty or trust.

If you want to take advantage in the relaxation of the rules then please contact James Hawkins for assistance in drafting the necessary resolution to amend the Articles of Association.

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…and funding by directors

You are a director and/or a shareholder of a private company and wish to issue or defend proceedings on its behalf. Is there any risk that in doing so you will be liable for adverse costs if the company fails in the litigation? The problem will only arise if the company is unable to meet the costs but the answer is: yes.

Two recent cases of Gemma -v- Gimson and CIBC Mellon Trust Company -v- Stolzenberg have provided some helpful guidance.

The principles are these:

• Orders for costs against non parties should be granted only in exceptional circumstances
• They could only be obtained against a non-party associated with an insolvent company if the claiming party can establish a causal link between the funding provided by the non-party and the costs incurred by the claiming party
• Where the non-party is a director of the insolvent company he might be liable for costs but only where he stood to benefit from the litigation, controlled and directed it or started and pursued it unreasonably or for an ulterior purpose not connected with the best interests of the company
• A director is required by virtue of his office to decide whether or not it is in the interests or the benefit of the company to bring or defend proceedings. If in causing the company to bring or defend proceedings he is acting in good faith and for what he believes to be the benefit of the company he is perfectly entitled to rely on the 'corporate veil' to avoid any personal responsibility
• A non director shareholder (or for that matter a director who prefers his own interests to that of the company) does not have the same protection. A shareholder in particular has no duty to the company to decide whether or not it is in its interest and for its benefit to bring or defend proceedings. If a person chooses to fund, control and direct litigation to promote or protect his own financial interests a court can make a costs order against him

These cases should be compared with the case of the rich philanthropist who funds a case with no financial interest in the outcome. In the (in)famous libel claim brought by Neil Hamilton against Mohammed Al-Fayed the claimant’s financial backers escaped liability because they were motivated by sympathy for an impecunious claimant litigating against a rich opponent – not by an expectation of gain for themselves if the claim succeeded. They avoided liability.

The moral is: beware. And always consider the possibility of a Conditional Fee (no win, no fee) Agreement which might be less risky than a potential personal liability for a director or shareholders.

For further information, please contact Adam Chivers on 0117 926 4121 or e-mail him on

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Whilst every effort has been made to ensure accuracy, information contained in the Orchard may not be comprehensive and should not be acted upon without professional advice.