The Orchard - Spring 2007

As reported in the last edition of the Orchard the Government is planning to introduce the new provisions in bite size chunks over the course of the next two years. The first instalment came into force at short notice on 20 January 2005. These provisions relate to "Company communications" and apply to all companies. They have been fast tracked as the Government was under an obligation to implement these provisions to comply with its EU obligations.

Sending information to companies

A Company is required to accept notice in hard copy i.e. paper copy which is capable of being read with the naked eye, electronic form (if the Company agrees) or any other manner in which the Company agrees.

Electronic form includes email and fax but is not limited to these and could be in the form of a CD-ROM or disc sent by post.

where it agrees to all documents or information being sent in electronic form specifying an address to which the electronic form communications can be sent i.e. a specified email address or fax number. This would apply generally to all documents
where it agrees to a specific document or piece of information being sent to it at a specified address for a specific purpose
where it is deemed to have agreed to consent to receiving electronic communications with its shareholders by including an electronic address on the relevant notice.

Receiving documents from companies

By the same token a Company can send notices and documents to its shareholders in the same manner. Again, electronic notices are only valid if the recipient agrees. Shareholders, however, will not be deemed to have agreed to receive notice by email simply because they have written to the Company showing an email address. A shareholder has to expressly agree.

Website requirements

As part of the implementation of the EU's first Company law directive a Company must now disclose the following information on its website as well as on its other official correspondence including letters and order forms sent in electronic format.

the Company's full name including the word limited or the letters Ltd if it is a private Company or public limited Company/plc
its place of registration i.e. England and Wales
its registered number
its registered office address
if it is in liquidation a statement that it is being wound up.

Failure to comply with this disclosure will render every officer or agent of the Company in default liable to a fine. Many of our clients have already made these changes to their websites.

Future changes

The next instalment of the Companies Act will come into force on 6 April. This raft of new provisions are of little direct relevance to owner managed businesses but some of the restrictions on directors will no longer apply namely:

A prohibition on directors receiving tax free payments from the Company
The requirement to disclose an interest in shares
The maximum age of 70 for directors of plc's

The next schedule implementation date will be 1 October 2007 when more substantive changes are due to be introduced regarding protection of members against unfair prejudice and derivative claims by shareholders in the name of Company. The more contentious changes to directors duties which have been well publicised in the press during the course of the passage through Parliament are at present not scheduled for introduction until October 2008 to allow for the current consultation to be concluded. Further information can be obtained from the DTI site www.gnn.gov.uk

Winsome Churchill

The decision of the Court of Appeal in the case of Churchill v First Independent Factors and Finance Limited has thrown into doubt the availability of the management buy out as a route forward for a failing company.

Section 216 of the Insolvency Act 1986 prevents the re-use of company names by successor companies. It was enacted in order to prevent "phoenix" companies from commencing trade following the failure of an earlier connected company.

In Churchill the Court considered the effect of Insolvency Rule 4.228, which allows a new company to trade provided that it has given notice of its intention to re-use the old company name. The Rule allows directors of the old company to operate a new company without the need for an order of the Court.

The Court of Appeal held that such a new company (newco) could only avoid a court application if directors of the old company (oldco) were not involved.

The Court of Appeal reviewed the legislation allowing newco to trade on the basis of having given notice. The Court concluded that such notice must be given before the person giving notice becomes involved in the management of newco. The decision effectively precludes directors of oldco from a seemless involvement in the management of newco. They need to give notice before they do so or secure an order from the court.

In future a successor company (including a company that has been the subject of a management buy out) will need to either make an application to the Court for leave to trade using the name of the failed company or face exposure to the consequences that flow from an infringement of Section 216, i.e. imprisonment or a fine or both coupled with personal liability for the debts of the new company.

While the decision in Churchill will not present difficulties for a properly structured management buy out untainted by any unfitness of its directors the decision nonetheless reasserts the courts as the arbiter of whether or not a "phoenix" company can come into existence.

For further information or assistance please contact Keith Mahoney on telephone (0117) 923 4037 or at or Chris Mitchell on (0117) 923 4021 or at .

Stub it out!

Since the Health and Safety legislation of 1974 employers have been under a duty to provide and maintain a working environment that is, so far as reasonably practicable, safe (without risk to health) and adequate (as regards facilities and arrangements for welfare at work).

Employees had been permitted to continue to smoke in the work place provided (1) non-smokers using rest areas were protected from any discomfort caused by tobacco smoke, and (2) any enclosed designated smoking areas were adequately ventilated.

Now it is no longer sufficient simply to segregate smokers and non-smokers within the same air space.

The Health Act 2006 prohibits smoking in all enclosed public and work places, in Wales from 1 April and in England from 1 July. All work places must be smoke free and it will be an offence to smoke in a smoke free area. More importantly for employers it will be an offence to fail to prevent smoking in a smoke free place.

Fines for individuals caught smoking will be up to £50 but for those in charge of the premises up to £2,500. On the spot fines for failing to display 'No Smoking' signs will be up to £200. Penalties may increase to £1000 if the issue is prosecuted in the criminal courts.

Though supported by statutory authority the smoking ban could in practice present some difficult situations for employers. Examples include:

Resentment of non-smokers and complications over break time allowed for smoking employees
Smoking in some traditional outside areas of work premises (such as car parks) may now breach the regulations if they are areas frequented by non-smokers, or if any shelter erected is deemed to be an 'enclosed' area
Strictly speaking an employee whose work place is at home will be precluded from smoking (!) unless no other employees or members of the public will ever need to have access there
The front of house image of a business can be adversely affected by a gathering of smoker employees and cigarette butts outside.

Employers may need to review any current smoking practices in the work place and their no-smoking policy, including any contractual terms to emphasise the employee's obligations.

To introduce or revise a no-smoking policy employers should consider the following:

Consult with employees
Ensure that staff understand the purpose of the legislation
Confirm that the policy applies to all workers at all levels, visitors and customers.
Make clear any shared responsibilities any member of staff has for ensuring that visitors comply with the regulations
Clarify the consequences of non-observance (both disciplinary and potential criminal sanctions) and review disciplinary procedures
Offer support and/or additional information about counselling or information organisations such as ASH
Consider promoting policies on good health generally

Employers may also wish to consider whether to make any provision for smokers on their outdoor premises. If so, there are unsurprisingly now several new links to websites selling smoking shelters and cigarette bins!

For further information or assistance please contact Nicola Hughes on 0117 923 4019 or at

Mental capacity update

Mental capacity is the ability to make decisions for ourselves e.g. what we eat and where we live. It is an issue that potentially affects everyone. Up to 2 million people in England and Wales lack mental capacity.

The Mental Capacity Act 2005 comes into effect in April and October 2007. It was passed because

previously there were only very limited options available for people who wanted to plan ahead for loss of mental capacity
it was believed that there was an inherent danger of people being unfairly written off as incapable
there was no legal right for relatives and carers to be consulted

assume a person has capacity unless proved otherwise
do not treat people as incapable of making a decision unless all practicable steps have been tried to help them
a person should not be treated as incapable of making a decision because his or her decision may seem unwise
always do things or take decisions for people without capacity in their best interests
before doing something to someone or make a decision on their behalf consider whether the outcome could be achieved in a less restrictive way

All decisions must be made in the best interests of the person who lacks capacity. The Act does not define best interests but does give a check list. The decision maker must

involve the person who lacks capacity
have regard for past and present wishes and feelings, especially written statements
consult with other who are involved in the care of the person
not make assumptions based solely on the person's age, appearance, condition or behaviour

Lasting Powers of Attorney (LPA) - see the article in the Christmas edition of The Orchard. The government has now announced that LPAs will not come into force until 1 October 2007. An Enduring Power of Attorney (EPA) can therefore continue to be made until 30 September 2007. We strongly recommend that clients consider creating EPAs before the 30 September 2007 deadline
Advance decisions to refuse treatment. These allow people to refuse specified medical treatment in advance. They are sometimes called 'living wills' or 'advanced directions' and are legally binding but the Act gives greater safeguards:
They must be made when a person still has capacity
They must be clear about the treatment it applies to and when
They must be in writing and witnessed if they apply to life sustaining treatment

Subject to court approval, doctors can provide treatment if they consider that the advance decision is not valid.

The Act sets up a new offence of ill treatment or wilful neglect of someone who lacks capacity by someone caring for them. Work is currently under way with the Crown Prosecution Service, Home Office and Police to implement the criminal offence

For more information or assistance please contact Anna Molter on 0117 923 4019 or at

Chancel Repairs

Despite attempts to modernise the law and practice relating to land some ancient rights rear their heads from time to time. One such is the liability to repair the chancel of the parish church.

This obligation can be traced back to the 12^th century. Historically, the Rector was responsible for the Chancel whilst the parishioners maintained the Nave. By the 16^th century many monasteries had acquired rectorships with all the property and liabilities that went with them. Then came Henry VIII. On the dissolution of the monasteries their lands were dispersed, along with liabilities attached to them and the owners of those lands became known as 'lay rectors'. The liability of lay rectors continues to this day and can be enforced by the PCC, if they can trace who is liable.

That was done easily in the case of a farmhouse in Warwickshire in 1994 when the PCC served a demand on the owner for £95,000 as the estimated cost of repairing the chancel of the local church. There was no doubt about the liability; it was referred to in the deeds of the farmhouse.

However, the owner considered the liability was unenforceable by reason of the Human Rights Act. The case¹ reached the House of Lords when their Lordships, perhaps unsurprisingly, overruled the Court of Appeal and decided that the PCC as an arm of the Church of England is part of a religious organization and not a public authority. The end result may have been obvious but the case did raise awareness of the existence of the liability.

That awareness has been increased by an amendment to the Land Registration Act 2002² which provides that chancel repair liability will continue to be an overriding interest for 10 years from the coming into force of the Act, i.e. until 13 October 2013. If the liability is not registered by then it will be unenforceable against a purchaser from the then owner of the land in question. This should concentrate the minds of PCCs who, as trustees, have a duty to protect the assets of the parish.

But, they have the same problem as property owners or potential buyers in that it is very difficult, if not impossible, in most cases to find out whether such a liability exists. It was easy with the old farmhouse in Warwickshire, but not so easy when land has been developed for housing or commercial purposes over the centuries. Searches can be made but they do not readily identify whether a particular property is subject to this liability. PCCs are unlikely to have the resources to carry out the extensive research that would be necessary to identify and register the liabilities within the next seven years. Insurance is available at modest cost but, in most cases the risk of the liability being enforced against a particular property will be negligible, especially if no claim has been made in the past.

(1) Aston Cantlow and Wilmcote with Billesley Parochial Church Council v Wallbank [2003] 3 All ER 1213
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(2) Land Registration Act 2002 (Transitional Provisions) (No. 2) Order 2003
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Professional negligence funding

Litigation is an expensive process - professional negligence not least. Many victims of professional negligence are deterred by the likely costs even if they have a good prima facie case.

Conditional Fee (no win, no fee) Agreements may help but they do not cover disbursements and of themselves provide no protection against the risks of an adverse costs order if the claim fails.

The Professional Negligence Lawyers Association was set up by a group of solicitors in different parts of the country who felt that the general public had no obvious focal point to obtain help if they were in dispute with a professional and were looking for a specialist to enable them to resolve the problem. Adam Chivers and Phil Burbidge are both active PNLA members.

PNLA is setting up a new insurance scheme to provide funding in negligence cases and to cover the premiums for adverse costs insurance. It is intended to cover both CFA and non CFA funded cases. Premiums will be deferred or self insured and will include cover for the clients counsel's fees (if not acting on a CFA) as well as for disbursements.

The effect is likely to be that clients with professional negligence claims will find that the claim is significantly easier to finance and will secure proper protection against the risk of suffering an adverse costs order.

Part 36 offers

Part 36 offers took the place in the Civil Procedure Rules of the old 'payments into court' regime. They were designed to offer both claimants and defendants the chance of taking the initiative in trying to settle cases by providing them with the opportunity of making without prejudice offers which carry costs consequences in the event of their rejection.

With effect from April of this year a new 'liberalised' regime for Part 36 offers comes into effect designed to assist in cost-effective dispute resolution.

Mediation and Part 36 offers both provide increasingly popular means of settling disputes early and economically.

For guidance notes on the new regime please contact either Phil Burbidge at or Adam Chivers at

Tenancy deposits: the new regime

Tenancy Deposit Protection schemes are mandatory for all deposits taken by landlords for assured shorthold tenancies (the most commonplace form of residential tenancy) as from 6 April 2007.

From this date, the landlord is obliged to implement one of the following schemes:

A custodial scheme

At the start of the tenancy
The landlord must pay any deposit collected from the tenant into one of the government approved designated schemes (The Deposit Protection Service, Tenance Deposit Solutions Ltd or the The Tenancy Deposit Scheme)
Within 14 days of receipt of the deposit, the landlord must then give the tenant prescribed information about the scheme being used and the tenancy
At the end of the tenancy
If the parties agree the amount of deposit to be returned they may both inform the scheme of the deposit amount. The scheme will then pay back the deposit as directed;
If the parties do not agree, the scheme will hold the amount until the dispute is resolved by agreement or by the courts

The scheme will be paid for by the interest accrued on the deposit whilst it is in the scheme. Any surplus interest will be offered to the tenant (or landlord if the tenant is not entitled to it).

Insurance-based schemes

At the start of the tenancy
The landlord retains any deposit collected from the tenant and pays a premium to the insurer
Within 14 days of receipt of the deposit, the landlord must then give the tenant prescibed information about the insurance policy
At the end of the tenancy
If the parties agree the amount of deposit to be returned, the landlord returns the agreed amount
If the parties do not agree the amount to be returned, the landlord must hand over the disputed amount to a custodial scheme for safekeeping until the dispute is resolved

Under both schemes the deposit (or a proportion of it) will have to be paid back within 10 days of the end of the tenancy. If there is a dispute, only the amount in dispute can be retained until the repayment has been determined by dispute resolution.

Any landlord who fails to implement the new arrangements after 6 April runs the risk of the following:

the landord will be prevented from taking advantage of the current rules allowing for the landlord to apply for an order for possession of an Assured Shorthold Tenancy after having given the tenant two months' notice.
the tenant can apply to the court requesting the deposit to be safeguarded or requiring the landlord to give the prescribed information. A court must either order the landlord to repay the deposit within 14 days or to pay the deposit to a custodial scheme. The court must also order the landlord to pay to the tenant within 14 days an amount equivalent to three times the deposit

For more information regarding this, or any other Landlord and Tenant issues, please contact Andrea O'Neil at

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.