Autumn 2005

In this issue

Home Information Packs

Meade King News

Selling your business: disclosure in a virtual world

Quiet Enjoyment

Age Old Stereotypes

Debts across the spectrum - the House of Lords decides

Raising Venture Capital

Abandonment of a right of way

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Home Information Packs

If you are thinking of selling your house then you should be aware that from 2007 onwards all residential properties offered for sale with vacant possession, either through an estate agent or privately, will need to have available for any prospective purchaser a Home Information Pack (HIP).

It is the duty of the person responsible for marketing a property to have a HIP. The duty applies to the seller or to any estate agent he or she instructs.

The Act provides that the seller becomes responsible when he either puts the property on the market or makes public the fact that the property is on the market.

The HIP itself will be in two parts:

• a Home Condition Report (HCR). These will be prepared by a member of a new accredited body of "home inspectors" and will be produced in a prescribed form. The HCR will not be a valuation. The need to establish the accredited body and to provide for the regulation of home inspectors is the main reason for the delay until 2007
• searches and other documents relevant to the property

It is anticipated the pack will contain a copy of the seller's title, local search, drainage search, property information and fixtures, fittings and contents forms. The pack will also contain the terms of sale although not the actual sale contract.

Current estimates are that the production of a home information pack is likely to cost somewhere in the region of £750 + VAT which the seller will have to bear. It is a sobering thought that on the government's own statistics of the 2 million houses offered for sale each year, only 1.5 million actually sell. This suggests each year half a million packs will be prepared unnecessarily. It is anticipated that the government will introduce compulsory HIPs in certain parts of the country next year so they effectively have a dry run prior to compulsory introduction in 2007.

For further information on this please contact Richard Boulding at or on (0117) 926 4121

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Meade King News

We are delighted to announce the appointment of Laurence James as a new partner in the practice. Laurence joins the corporate and commercial team alongside James Hawkins. He is a company, commercial and corporate finance lawyer of some 25 years experience and has previously been a partner with Eversheds and Bond Pearce in the region.

He brings expertise in a wide range of business law specialisms, including company and partnership formations; corporate restructuring; venture capital and private equity finance; mergers acquisitions and disposals (of shares and assets) and joint ventures of many kinds.

Laurence's working style is pragmatic, responsive and "hands on". He places a high priority upon regular clear communications with his clients, contacts and colleagues and he regards easy and open accessibility as central to success in that regard. He understands that clients (and the intermediaries with whom he works) not only expect good value for money but also the extra benefits that flow from many years experience of negotiating, managing and implementing business deals.

Laurence is currently a non-executive director of three companies: a business mentoring company; a governmentfunded body promoting leadership and management excellence; and a high profile regional business club. He is also a member of the Institute of Directors and the Securities Institute.

Laurence has contributed this edition's article on venture capital on the back page and can be contacted on 0117 9234044 (direct line) or on his mobile 07968 427 044 or

We are also pleased to welcome a second recruit to the firm, Sharon Rosewarne. Sharon has joined our residential property team where she is assisting Rebecca Briley with her increasingly busy caseload.

Sharon can be contacted on 0117 926 4121 or e-mailed on

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Selling your business:
disclosure in a virtual world

A buyer of any business or shares in a business will always need to carry out due diligence to establish its opinion of that business.

The due diligence exercise can consist of all or any of the following:

• Discussions with the management and a review of the operational side of the business in the course of negotiations
• Investigation into the accounts and tax position of the business
• Formal pre-contract enquiries
• Warranties in the purchase agreement itself which elicit from the seller formal disclosure

Much of the information which will be relevant to a buyer's decision to proceed will have been disclosed to the buyer or its representatives before solicitors are asked to draft the purchase contract. However, it is often difficult to find a clear and agreed record of the information that has passed hands or indeed conversations that may or may not have been held between the parties and/or their representatives.

In an effort to minimise this uncertainty as to what information has changed hands in the course of negotiations, it is standard practice in business and share purchase agreements to provide that:

• The buyer will only rely on the representations and warranties contained in the contract itself so excluding pre-contract representations (but this will not allow a seller to avoid liability for dishonest representations which are not incorporated in the agreement) and
• On the same basis a seller is deemed to have only disclosed information in the disclosure letter and that any prior disclosure will be disregarded

This creates an artificial state of assumed knowledge. Unless the seller's advisors address this issue, a buyer may be able to claim for a breach of warranty just because it is not repeated in the seller's disclosure letter even though the buyer could be shown to have had actual knowledge of the fact or circumstance giving rise to the breach.

Buyers will seldom agree to any significant dilution of this artificial knowledge status, so a seller may be frustrated at being forced to repeat information for the disclosure which it knows it has already supplied to the buyer. The formal disclosure process can be made simpler for the seller if:

• The seller maintains a duplicate file of all information supplied to the buyer or its advisers which can then be incorporated into the disclosure letter by reference
• The buyer gives an undertaking or warranty to the seller that neither it nor its advisors have any actual knowledge of any claim

A seller should be deeply suspicious if the buyer refuses to give such a warranty in relation to its actual knowledge but a buyer may be less willing to concede matters of which it has:

• Constructive knowledge i.e. matters which it ought to have known given the opportunity it had to discover the relevant information, or
• Imputed knowledge i.e. knowledge which its advisors may have as a result of their investigation but which may not have been passed on to the buyer itself

A purchase contract can go some way towards lightening the seller's load in the due diligence process but even more important from its point of view is the need to prepare for disclosure from the outset of negotiations and to maintain reliable records of the information supplied to the buyer. It goes without saying that a solicitor's help in the disclosure process at an early stage can be invaluable!

For further information on this please contact James Hawkins on or on (0117) 926 4121

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Quiet Enjoyment

A recent case in the High Court* illustrates the problems a landlord can face when carrying out improvements for the general benefit of tenants on an estate.

In October 2001, the landlord installed speed humps on an estate road in Croydon. Generally applauded for improving safety the landlord had, unfortunately, overlooked the requirements of the business of one of its tenants. That tenant specialised in the repair of high performance and prestige cars such as Ferrari and Porsche which could have their front spoilers damaged or become grounded when going over the humps.

Needless to say, business declined as the customers of the tenant were not pleased to have their expensive cars further damaged when taking them in for repair. Although the humps were removed after one year, the damage had been done and the tenant went into liquidation. It was accepted that the installation of the speed humps was a breach of the landlord's covenant for quiet enjoyment and amounted to a derogation from its grant. The landlord was liable for substantial damages for the resultant loss of business suffered by the tenant.

*Ricci Stewart v. Scottish Widows & Life Assurance Society Plc - 22/06/05

For further information on this please contact Peter Watkin on or on (0117) 926 4121

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Age Old Stereotypes

On 1 October 2006, the UK legislation that prohibits discrimination on the grounds of age will come into force. The approach to age discrimination will essentially be the same as for the other established types of discrimination.

This legislation will inevitably require a major cultural change in business and employers will need to adopt positive age practices in recruitment, training, promotion and retirement. The effects are likely to be far reaching and the regulations introduce new provisions relating to service related benefits and occupational pensions. There will also be changes to the law to remove upper age limits on eligibility for statutory sick pay and maternity pay.

The rules will prohibit unjustified age discrimination in employment and vocational training. Employers who set their retirement age below 65 will be required to justify or change it. There will be a new duty on employers to consider an employee's request to continue working beyond retirement and a requirement that employees are given written notice of at least 6 months of the employers of the intended retirement date.

It is also intended that the upper age limits for the right to claim unfair dismissal and redundancy payments will be removed. Employers would be well advised to start planning for the changes now. Consider the following:

• Are your training and development opportunities fairly and equally available to all?
• Does your training budget, or training method or venue discriminate?
• Do you know the age profile of your workforce?
• Are your contract provisions discriminatory?
• Do your employee benefits discriminate?
• Do you offer medicals? Are these available by age?
• Do you overlook younger staff for promotion?
• Have you ever advertised using the words "young and dynamic"?

Some areas for potential discrimination are more easily detected than others and it would be a worthwhile investment of time to start reviewing working practices and policy now to assist in anticipating areas in need of change. Non compliance is likely to be costly to employers and in Ireland, where age discrimination legislation is already in force, ageism now accounts for 19% of all formal discrimination claims.

The DTI have published a 'Coming of Age' consultation paper to seek views on the new regulations, and this will run until 17 October 2005.

We have a limited number of "Be Ready" personal organisers published by the Age Partnership Group available free to a good home. If you would like a copy or further information on this please contact Nicola Hughes.

National Minimum Wage

In October the NMW will increase from £4.85ph to £5.05ph (and to £5.35ph from October 2006). The youth rate (18- 21 years) will increase to £4.25 this October (and to £4.45 in October 2006).

The right to work part time (continued)

You may recall the case of J. Starmer -v- British Airways plc. The female pilot was successful in the tribunal on a complaint of indirect sex discrimination on the basis that her employer refused to allow her to work part time so that she may have more time for child care. The airline sought to justify its refusal on a policy of a requirement of minimum flying hours for safety, and resources.

BA argued on appeal that (1) they had not applied a 'provision, criterion or practice' (PCP) that operated to the detriment of a considerably larger proportion of women than of men (2) if they had the PCP did not have discriminatory effect (3) in any event any discriminatory impact was justified. The Employment Appeal Tribunal dismissed all three grounds of BA's appeal upholding the decision of the ET.

It is unlikely that we have heard the final word in this case as BA have already indicated their intention to challenge the decision. In the meantime employers will need to consider any requests to work part time very carefully indeed.

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

For the previous article please see Orchard Summer 2005, A new right to work part time?

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Debts across the spectrum - the House of Lords decides

The House of Lords has finally resolved once and for all the pecking order for creditors to receive the book debts of companies in liquidation.

The case of National Westminster Bank Plc -v- Spectrum Plus Ltd [2005] UKHL 41 has for many months caused great controversy within the banking and insolvency communities, overturning previously settled law and causing a reassessment of how and when banks offer credit facilities to limited companies.

Prior to the first decision in Spectrum Plus, the law had been settled for many years that standard form debentures used by banks created a fixed charge over assets (and particularly book debts) of a company. All that changed with the first decision in Spectrum Plus but that decision was successfully appealed. Only now has the House of Lords had the final say.

The effect of the decision is that banks can no longer rely on a debenture creating a fixed charge over assets unless real control was exercised. The test is of substance and not form and in the absence of real control only a fixed charge will be created.

The effect of the decision will be different for those involved:

• Insolvency Practitioners will make payment from book debt realisations to preferential creditors instead of to banks (although this is further complicated by another case involving fees - Leyland Daf).
• Banks may be less likely to afford credit on the basis of a standard form debenture alone and may require specific charges over assets or even that payments be made into a "blocked" account under the control of the bank.
• Preferential creditors may be better off. However recent legislative changes have drastically reduced the classes of preferential creditors. While certain employee claims will remain preferential the claims of H M Revenue and Customs only remain preferential where insolvencies predate 15 September 2003.
• Directors may find borrowings difficult to come by and may be faced with new requests for personal guarantees of company liabilities.
• Guarantors of the debts of insolvent companies may come off worst of all as book debt realisations (which pre Spectrum Plus would have reduced bank debt and therefore the exposure of guarantors) are redirected to preferential creditors

For further information on this please contact Keith Mahoney at or on (0117) 926 4121

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Raising Venture Capital

Are you a company that needs significant additional finance for your business but doesn't want to extend your current borrowings? If so, and you do not have your own personal sources of financial support, you really have to consider venture capital (or private equity finance, as it is sometimes called) from venture capital firms ("VC firms").

VC firms provide finance in return for a proportion of a shareholding. The proportion increases with the perception of the risks involved. The challenge for you is to decide whether the participation of a VC firm is worth getting a smaller part of (hopefully) a much larger pot in due course.

Here are ten tips on obtaining venture capital: -

Demonstrate a successful track record. The generation of a solid and dependable cash flow is vital, especially if your profitability has been historically weak.

Management, management, management! VC's look for a mature, business like and committed squad of managers, the commitment being demonstrated by strong contracts of employment tying them into the company and by significant personal investments in it which link their rewards to the performance of the business.

Your business should be capable of generating a high return in terms of its likely capital growth. 20 to 30 percent per annum compound growth is a normal expectation.

Be clear about the exit you can provide to the VC over a three to seven year time scale. Typically, they are looking for a trade sale of the business, its refinancing by another institution, a flotation of the shares or a buy-back by the management team.

You need to have an investment requirement of at least £250k and preferably £1 million or more. Sums less than this are better funded via private third party investments (e.g. by so called business angels)

Be prepared to allocate significant management time to the investment process which will typically take three to six months and take steps to protect the performance of your business during this period.

For smaller investments, cater for around 10% of the amount being raised being allocated to expenses, including those incurred by the VC firm itself. This should reduce to around 5% for larger investments.

Prepare a clear business plan with proper professional help and marshall the evidence to support your financial projections. One of the most common reasons for rejecting an investment proposal is that the company's profit forecasts are seen as fanciful.

Do not hawk around your business plan. Select the VC firms you approach with great care. Take advice on suitable firms: some VC's may want to avoid your business sector; others may already be too heavily invested in it. Some are passive investors but others will want a level of control and representation at board level which you might find claustrophobic.

Get advice early on from an experienced accountant and lawyer

As a past member of the BVCA (British Venture Capital Association) Laurence James has many years experience of advising companies who are seeking Venture Capital and can introduce you to suitable firms locally and in London. Contacted him on 0117 9234044 (direct line) or on his mobile 07968 427 044 or

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Abandonment of a right of way

It is sometimes asked whether a right of way has been abandoned because of long disuse or use for a different purpose than the original grant. The Court of Appeal had to consider this question in a recent case* where a right of way had been granted for the purpose of access to three garages.

The three garages were demolished and replaced by ramps for a car park. Later, the land changed hands again and three garages were built on the sites of the original ones. It was argued that the demolition of the garages (with no intention of reinstatement at that time) showed that the land owner could not have contemplated using the right of way for the purpose of access to the garages and had abandoned it at that time. It was also argued that the creation of a wider right of way - for access to a car park - was evidence of abandonment of the original right.

Neither argument convinced the court. It held that a right of way continues to exist unless the person entitled to it shows clearly that neither he nor his successors wish to exercise the right in future. The creation of the wider right could have been restrained if the owner of the land over which it ran had taken action at that time, but it did not amount to evidence of abandonment.

*CDC2020 Plc v George Ferreira & Anor - 05/05/2005

For further information on this please contact Peter Watkin on or on (0117) 926 4121

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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.