The Orchard - Spring 2008

Spring 2008

In this issueCompany Secretaries: who needs them?Capital Gains Tax chargesDanger! Cash!Harassment, Homophobes and the HeterosexualConstruction Site Waste Management Plans required from April 2008Trustee in bankruptcy validly appointedNo win, no fee… no worries

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Company Secretaries: who needs them?

As the piecemeal implementation of the Companies Act grinds inexorably onwards, the next date of any significance is 1 April 2008 when it becomes optional for private companies to have a company secretary.

While this would seem to be a helpful simplification it should be noted that the duties which had been performed by the company secretary nonetheless need to be fulfilled and that if there is no company secretary then this responsibility will fall upon the director(s).

The directors are still able to authorise some person to perform the company secretary’s function without appointing that person as company secretary and it is likely that the outsourcing service suppliers of company secretarial services, such as that offered by Meade King, will choose to perform the service in this manner rather than as an officer of the company (as has been the case in the past).

The principal duties of a company secretary to a private company are:

To prepare and file the annual return
To file the annual accounts once this has been approved by the Board (and the shareholders of the company chooses to hold an AGM)
To file all other notices required by statute
To maintain the statutory registers of members, directors and charges
To issue notices of meetings to directors, members and auditors as appropriate.

Company secretaries have also in the past been used to sign deeds executed by the company with or without its common seal. A company can still choose whether to have a common seal and when to use it but if the seal is used it will still need to be signed by two officers. If the company has dispensed with the office of secretary then this would mean two directors would be needed.

However, a company can execute a deed on the signature of only one director provided that his/her signature is witnessed.

This change applies equally to existing companies as well as new companies. However, before rushing to move the present incumbent, an existing company should check its Articles of Association and other formal documentation such as employee handbooks, health and safety policies and the like to ensure that these do not show the company secretary as part of the process.

A private company can dispense with its company secretary even if that leaves it with only one director as the sole officer.

Meade King are now pleased to offer a cost effective company secretarial service to private company clients. If you would like further information please do not hesitate to contact James Hawkins. He can be contacted on 0117 926 4121 or jnh@meadeking.co.uk

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Capital Gains Tax charges

The Chancellor in his pre-budget report on 9 October 2007 announced significant changes to Capital Gains Tax (CGT). The key changes which take effect from 6 April 2008 are:

The base cost applied to all disposals of assets held at 31 March 1982 must now be their market value on that date
Taper relief will be abolished and replaced by a flat CGT rate of 18%
Following intense lobbying from business organisations a new “entrepreneur’s relief” will be introduced. This provides a flat 10% rate of tax on the first £1m of lifetime gains on business assets. Gains over £1m will be taxed at the full 18% rate
On disposals the indexation allowance will no longer be available.

The above changes constitute a simplification of the CGT charges, although simplification comes at some cost. For example, disposals of non-business assets might be best deferred until 2008/09. On the other side of the coin, most large disposals of business assets in 2008/09 will pay close to 80% more tax than they would currently.

It is anticipated that from 6 April onwards there is likely to be an emphasis in turning entrepreneur investment returns from income to capital, thus reducing the tax rates on the investment gains from 40% to 18%.

For further information please contact Richard Boulding on 0117 923 4031 or rjb@meadeking.co.uk

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Danger! Cash!

The Money Laundering Regulations 2007 came into effect on 15 December 2007 implementing the third European Union Money Laundering Directive. It significantly increased the obligations on companies and individuals to prevent and detect money laundering and created new requirements for them to develop internal systems and procedures to achieve this.

The Financial Action Task Force tackles money laundering on a world-wide basis and the current regulations were produced in line with their recommendations. The regulations aim to protect the UK financial system from organised crime and terrorism by restricting criminal access to the financial system.

The Money Laundering Regulations 2003 and The ‘High Value Dealer’

The earlier 2003 regulations (now replaced by the 2007 regulations) introduced a new category of persons (both legal and natural) known as the ‘High Value Dealer’ The 2007 regulations still apply to the High Value Dealer.

What is a High Value Dealer?

A High Value Dealer is defined as follows:

‘High Value Dealer’ means a firm or sole trader who by way of business trades in goods (including an auctioneer dealing in goods), when he receives, in respect of any transaction, a payment or payments in cash of at least 15,000 euros (approximately £11,500) in total, whether the transaction is executed in a single operation or in several operations which appear to be linked.’

The definition is wide and the qualifying financial threshold is relatively low. Any business accepting large cash payments is subject to the increased requirements and obligations under the 2007 regulations. Typical examples of High Value Dealers include wholesale retailers, auctioneers, antique dealers, car retailers, jewellers and other retailers of high value goods – anyone who deals in cash.

What Must a High Value Dealer do?

The first step for a High Value Dealer is to register with their supervisory authority, HM Revenue & Customs. Any new company must register before commencing trade.

The High Value Dealer must put in place systems to identify and prevent money laundering. It must report any suspicious transactions.

Customer Due Diligence

‘Customer Due Diligence’ is a core concept featuring throughout the regulations and it is therefore imperative that a High Value Dealer understands the necessary measures required to incorporate CDD into their business.

Regulation 5 defines the Customer Due Diligence Measures:

“Customer Due Diligence Measures” means

(a) identifying the customer and verifying the customer’s identity on the basis of documents, data or information from a reliable and independent source;

(b) identifying where there is a beneficial owner who is not the customer, the beneficial owner and taking adequate measures, on a risk-sensitive basis, to verify his identify so that the relevant person is satisfied that he knows who the beneficial owner is, including in the case of a legal person, trust or similar legal arrangement, measures to understand the ownership and control structure of the person, trust or arrangement; and

High Value Dealers must maintain full and accurate records of customers and transactions. They must ensure staff are properly trained on their legal obligations and the internal procedures in place.

The requirements are ongoing. The High Value Dealer must monitor the customer and the business relationship and be able to identify any large, unusual or suspicious transactions.

Risk Based Approach

The internal systems and procedures to prevent and detect money laundering should be risk-based. They should allow the High Value Dealer to vary the level of monitoring and customer due diligence in accordance with the risk posed in each situation.

The Regulations provide that the High Value Dealer must undertake enhanced due diligence in high-risk situations but also allows him to reduce the measures in low risk situations. It is important, that the internal systems and procedures are drafted in such a way as to make this possible. They must be flexible.

Sanctions

A failure to comply with the regulations can result in civil and criminal penalties ranging from fines to 14 years imprisonment. The courts have taken a strict line, especially in relation to instances of failure to report suspicions of money laundering. In R v Dougan (2006) the judge sentenced a solicitor whom he described as “a naïve [but not apparently dishonest] victim of a sophisticated criminal” to 3 months imprisonment for his failure to report.

Beware!

The serious and ever-changing threats from crime and terrorism have resulted in a series of legislative developments. These developments have greatly increased the legal obligations of those involved in financial services and cash transactions within the UK. It is vital that businesses are aware of their duties and ensure that their everyday business transactions are compliant.

If you require any further assistance on this article please contact Peter Watkin by email pjw@meadeking.co.uk or on 0117 926 4121.

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Harassment, Homophobes and the Heterosexual

In the recent case of English v Thomas Sanderson Blinds Ltd (UK EAT/0556/07) the EAT considered whether an individual who was not homosexual, but who had been subjected to homophobic banter (based on his private school education and residence in Brighton) by his work colleagues had been harassed within the meaning
of regulation 5(1) of the Sexual Orientation Regulations.

Regulation 5(1) defines harassment as::

unwanted conduct by a person (A);
on the grounds of sexual orientation;
which has the purpose or affect of violating a person (B’s) dignity or creating an intimidating hostile, degrading, humiliating or offensive environment for (B).

Industry guidance suggests that “on the ground of sexual orientation” may relate to B’s sexual orientation, or perceived sexual orientation, or the sexual orientation of others (e.g. a family member of B).

Mr English sought to rely on the perception element arguing that his background was perceived to have characteristics that would define his sexuality, but both the ET and EAT rejected his complaint as Mr English acknowledged that his colleagues did not believe him to be homosexual. Ultimately his appeal failed as he was not, and does not perceive to be homosexual and because he accepted that his colleagues did not believe him to be homosexual.

However, the EAT has given leave to appeal to the Court of Appeal on the grounds that in its view the Employment Equality (Sexual Orientation) Regulations 2004 do not properly implement the European Directive in that the definition of “harassment” under the Regulations is narrower than under the Directive.

If the provisions for harassment under Regulation 5 are amended, employers face an increased risk of complaints. Arguably an employee who is not necessarily the subject of discrimination, but rather of banter or teasing, will be able to bring claims in the Tribunal.

According to ACAS harassment may be unintentional, subtle or insidious. Employers may easily fall foul of the regulations, even where the work colleagues guilty of the ‘harassment’ believe it to be innocent teasing or banter.

There is also an increase of the number of cases that are being brought by employees under the Protection from Harassment Act, and instances where the alleged harassment is the act of dismissal!

Harassment will continue to be a hot topic and a potential problem area for employers. We suggest that employers review or implement equal opportunities policies and identify whether there is a need for staff diversity training.

For further advice and assistance on implementing relevant policies and procedures or any other employment matter please contact Nicola W Hughes on 0117 926 4121 or by email at nwh@meadeking.co.uk

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Construction Site Waste Management Plans required from April 2008

According to Government, the construction industry currently uses approximately 420 million tonnes of materials per year of which 109 million tonnes proceeds to waste. Over 31% of large fly tips tackled by the Environment Agency involve construction related waste.

The response to this situation is the introduction of the Site Waste Management Plans Regulations 2008, which are designed to help prevent the illegal disposal of waste and to promote the recovery of as much as possible.

The regulations require a site waste management plan to be prepared and implemented by clients and principal contractors for all construction projects
with an estimated cost higher than £300,000 excluding VAT. The plans must include details of the project, estimates of the nature and volumes of waste together with confirmation of the actual waste and management. The regulations are backed by criminal sanctions, with a range of offences relating to failure to produce or implement a plan. Magistrates will be able to impose fines up to £50,000, or refer defendants to the crown court for unlimited fines in appropriate cases.

The regulations come into effect from
6 April 2008.

For further information please contact Judith H Kelly on 0117 923 4033 or by email at jhk@meadeking.co.uk

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Trustee in bankruptcy validly appointed

Insolvency office-holders and the Insolvency Service itself will be breathing a sigh of relief as the High Court in Bristol ruled in favour of a trustee in bankruptcy faced with a challenge to his appointment by way of a “Block-Transfer Order”. Meade King acted for the trustee in bankruptcy, Mr O’Sullivan.

The challenge was brought by Mrs Angela Donaldson, who had been declared bankrupt on 25 September 1990. Mr O’Sullivan was appointed trustee in bankruptcy by order of Judge Havelock-Allen QC on 18 May 2006 as a result of the retirement of the previous incumbent, Mr Gilderthorp. He was appointed by way of a Block-Transfer Order, which has evolved to become the usual means to replace office-holders where multiple appointments are involved.

Mrs Donaldson’s application sought to challenge the appointment of Mr O’Sullivan. It was claimed that the Block-Transfer Order was ineffective because it made reference to Mr O’Sullivan being appointed “pursuant to Rule 6.132(5) Insolvency Rules 1986”, and that the court did not have jurisdiction to make an order in the terms that it did.

Had Mrs Donaldson succeeded there would have been very far-reaching consequences for the Insolvency Service, Insolvency Practitioners and bankrupts. The effect would have been that appointments of certain insolvency office-holders on the basis of Block-Transfer Orders would have been null and void. Administration of many hundreds or even thousands of cases would have reverted en mass to the Insolvency Service and in future, whenever a trustee in bankruptcy was removed, each case would revert to the Insolvency Service. In the Judgment itself Judge Havelock-Allen QC stated that:

“The administrative inconvenience which would arise if the Official Receiver had to assume control every time a trustee retired or resigned would be immense…It would be a recipe for confusion and delay”.

Under the recently introduced 3-year rule a trustee in bankruptcy is obliged to deal with the realisation of an interest in the family home promptly, for example by filing an application for possession within 3 years of the bankruptcy order. If Mrs Donaldson had succeeded with her contentions, it was likely that in cases where a second trustee took steps to realise the bankrupt’s interest in the matrimonial home, these steps could have been subject to challenge. This would have represented a significant problem if by the time of the challenge more then 3 years had passed since the bankruptcy order.

In fact the court rejected Mrs Donaldson’s argument that it did not have jurisdiction to make a Block-Transfer Order following a review and detailed analysis of all decided cases in relation to such orders.

In a 32-page judgment the Judge held that the court is empowered by Sections 303(2) and 363(1) of the Insolvency Act to appoint new office-holders in appropriate circumstances and not constrained by a narrow interpretation of the statutory provisions. The comprehensive and well-reasoned judgment of Judge Havelock-Allen QC emphasised “the over-arching power of the court to ensure that bankruptcies are properly and fairly administered” and would be expected to create certainty in this area of law.

It is understood however that Mrs Donaldson (who is publicly funded) is currently considering an appeal to the Court of Appeal.

For further information please contact
Keith Mahoney on tel. 0117 923 4027
email kwm@meadeking.co.uk or
Chris Mitchell on tel. 0117 926 4121
email cm@meadeking.co.uk

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No win, no fee… no worries. Funding professional negligence claims

Professional negligence claims are on the increase but historically their funding
has sometimes proved a problem for clients. No longer need this be the case…

The obvious way to fund cases is by entering into a Conditional Fee (no win, no fee) Agreement (a CFA). By doing so, the client shares the risk with the solicitor. Although many firms are reluctant to do so, we at Meade-King have used CFAs for insolvency and professional negligence work for some years. CFAs are only part of the solution however.

There are other problems:

(1) Defendant professionals are invariably represented by a small number of highly-qualified panel solicitors with considerable expertise. Traditionally claimants have been represented by a wide range of solicitors (often High Street practitioners with little or no specialisation in the complexities of professional negligence law).

(2) The cost of investigation. Many cases require counsel’s opinion or an expert’s report before proceedings can be issued. Those disbursements fall typically outside the terms of a CFA.

(3) The risk of losing and in consequence having to pay the defendant professional’s costs (adverse costs). It is possible for clients to protect themselves against this risk by taking out after-the-event (ATE) insurance cover, but premiums can represent a significant expense (sometimes 20% or more of the costs likely to be incurred).

As a long-term solution to deal with (1) the Professional Negligence Lawyers’ Association (PNLA) was set up by a group of solicitors to help those who were looking for a specialist lawyer to enable them to pursue their claim.

To assist with (2) and (3) the PNLA has (in conjunction with a highly regarded broker) set up an ATE insurance scheme applicable for all types of professional negligence disputes (other than clinical negligence) where the defendant has professional indemnity insurance.

Some of the principal benefits of the PNLA scheme are as follows:

£2,000 pre-investigation cover

ATE insurers will often only consider a case after the solicitor has done all the necessary investigation into the prospects of success (including, where necessary, securing an expert’s report or counsel’s opinion). They will then cherry-pick which cases they choose to support. However, a number of clients cannot afford the cost of paying for an expert’s report or opinion from counsel.

The PNLA scheme enables firms to issue a policy to a client on Day 1 provided they believe the case is more likely than not to succeed. Accordingly a client can now have the security of knowing that if the expert’s report or counsel’s advice proves unfavourable, the insurer will indemnify the client for the cost up to £2,000.

Pre-issue delegated authority

Under the PNLA scheme solicitors are granted delegated authority to issue policies themselves before proceedings are commenced. This is clearly sensible since if the case requires investigation, there is little the underwriters can add by reviewing the work already undertaken by the client’s specialist solicitor.

Deferred and self-insured premiums

Where the claimant takes out adverse costs insurance, he can recover any reasonable premium from his opponents if he wins (but obviously not if he loses). Traditionally, the premiums are paid upfront at the outset.
Under the PNLA scheme the premiums are paid at the end of the case and are self-insured. This means clients have no premium to pay upfront and no premium to pay if the case is abandoned, discontinued or lost at trial.

Stepped premiums

Under the PNLA scheme adverse costs premiums are increased in amount during the course of the litigation (stepped premiums). Since the claimant’s solicitor will tell the insurer for the defendant professional of the likely increase at each stage, and since the defendant will be liable for the amount of any reasonable premium if he loses, the arrangement for stepped premiums provides a real incentive to the professional to settle.

Guaranteed policy top-up

Uniquely, insurers under the PNLA scheme have agreed to guarantee that a top-up policy of up to an extra £100,000 will be available should the initial limit of indemnity provided prove to be insufficient and the case continues to have prospects of success. This provides clients with the comfort that the insurer is there to support them until the conclusion of the case.

Interlocutory cost cover

Ordinarily most ATE policies will only pay out if the overall case is unsuccessful. Therefore, any interlocutory costs awarded against the client have to be paid for privately, with the insurer reimbursing the client in the event that the case is unsuccessful. Under the PNLA scheme insurers pay up to £10,000 on an interim basis should the client be liable to pay an interim adverse cost order.

Part 36 cover

It has been specifically negotiated that should a Part 36 offer/payment into court be made by the opponent which the claimant’s legal advisors recommend should be rejected, provided written approval is obtained from the underwriters before rejection of the offer, the insurers will only offset any costs liability which arises if the offer is subsequently not beaten against any costs awarded to the claimant. The insurers will not offset such a costs liability against damages awarded to the claimant.

CFAs and non-CFAs

Some insurers insist that solicitors and counsel act on a CFA before agreeing to provide adverse costs insurance. The PNLA scheme is equally applicable where solicitors and counsel are acting on a private-paying retainer.

Adam Chivers is a member of the Professional Negligence Lawyers Association; a group of solicitors dedicated to the provision of expert advice to claimants in professional negligence cases. He can be contacted on (0117) 923 4028 or ajc@meadeking.co.uk

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