Articles

'Capital Deal' Law Gazette
31.01.08

London firm DG law acted for Shared Value a London- based capital markets communications consultancy, acquired by International Marketing & Sales Group for £2.4 Million. South west firm Bevan Brittan acted for the purchaser.

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Article Times 'My Weekend'
09.07.07
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The “history” of s151 and Financial Assistance
10.04.07

The recent case of Corporate Development Partners LLC v E-Relationship Marketing Limited ChD 2007 highlights an area of the law which can sometimes send shudders up the spines of private company directors and their advisers – as the case deals with s.151 of the Companies Act 1986. Those that have been involved in acquisitions of shares of private companies will be familiar with the words “financial assistance” and “whitewash”. They may also connect these words with “expensive” and “unnecessary”. But as can be seen below this is soon to become a part of history.

Section 151 of the Companies Act 1986 prevents companies - private and public limited from providing “financial assistance for the purchase of their own shares”. In essence a company cannot utilise its own assets in any to help a purchase acquire its shares. This restriction dated back to the 19th Century and the efforts of legislators then to protect investors and creditors from unscrupulous directors who would asset strip a company to further the expansion plans of their company the expense of those that had provided the initial finance. To show how serious the issue was the law has attached criminal law penalties where the provisions have been breached. Hence why those involved take a very cautious approach when interpreting and advising on the law in this area. The problem with the legislation in its varying forms over the years has been that it has caused academics, judges and litigators to wrestle constantly over the precise meaning as to what did and didn’t include financial assistance. Sometimes innocuous agreements and proposals can and have resulted in directors and their advisers finding themselves on the wrong end of a serious litigation claim. In the above case for example corporate advisers had entered into a relatively straightforward contingency fee agreement with the owners of a company looking to acquire another company. Unknown to them a proposed acquisition was restructured and their agreement was called into question on the grounds that it breached s.151 and was therefore void and unlawful.

In certain cases private companies are permitted to put their otherwise unlawful transaction through what is referred to as a “whitewash procedure”. This is the mechanism which statue has created to protect shareholders and creditors of private companies and ensure that they have the opportunity to sanction the activities of the Company. However this process is not straightforward and often incurs material advisory expenses and can sometimes restrict the scope of a transaction. Once completed, however, the relevant transaction for example a loan by a target company to its new parent to pay for its shares, can be completed and is deemed lawful. Public Companies it should be noted are not able to utilise this exemption on public policy grounds. The process does demand, however, additional layers of corporate approval and the preparation of financial statements to confirm that the creditors and shareholders of the company are not being unfairly prejudiced.

After much lobbying and discussion the new Companies Act 2006 will from October 2008 implement section 682. This will grant to private companies the exemption that has long been asked for - that private companies be permitted to grant was may otherwise be considered financial assistance – without the need for a “whitewash”. This is good news for all those involved in mergers, acquisitions, sales and financing of private limited companies. (Public Companies will still be prohibited). It removes a layer of complication in sometimes otherwise straightforward transactions. A whole body of judicial opinion, professional expertise and advice will unfortunately be consigned to the history books and only relate to those matters which arose pre October 2008. And some (including this writer!) who have spent time getting to grips with the nuances of the legislation will now be left without a specialise subject. In essence though it is good news as now directors will be much freer to do what they do best - which is running their company.


'Standard Terms - Saving Legal Expense When Running Your Business'
06.04.07

Running a business can be a bit like driving a car. It’s all fine till something goes wrong. When it does it can often mean huge inconvenience and an expensive bill. One of the areas where a business can be caught out is in the area of contract law and particularly standard terms of trade. This is an area where disputes can cause unnecessary delays in where you are trying to get to and significant costs in putting it right. A recent case has highlighted the pit fall of failing to check exactly what standard terms and conditions say before entering into a contract with a company from abroad.

In the recent case of 7E Communications Ltd v Vertex Antennentechnick GMbH AC 2007 the directors of 7EC Ltd found this out to their cost that their standard terms and conditions did not apply. In this case the parties missed the fact that they were entering into a contract for the supply of goods which would ultimately be regulated by German - not English law. Both companies had standard terms and conditions, but the UK directors of 7EC Ltd did not notice that their terms were in effect over ridden by the German company’s when they placed an order. A few defective products later, and the Court of Appeal made an important ruling about what are referred to as “Jurisdiction” clauses and their interpretation. One of the the important message coming out of the case being that if the parties are not clear at the outset as to which of their business terms are to govern a relationship then it could end up being left to the courts to determine the true meaning of a contract - and in certain cases very much to the disadvantage of the person raising the claim

In a similar vein - I recently acted for a client who had purchased IT products from a reseller based in the UK and the my client disputed the terms of the contract. The reseller was caught out as they had simply copied the terms and conditions of their parent supplier; they failed to notice that the contract they were seeking to impose on my client was in fact governed by the courts of Norway – the home of the parent company. Neither party wanted their dispute settled abroad so the reseller was forced to reach a compromise with my client very much to the advantage of my client. It was my clients luck rather than good risk management which enabled them to escape from a nasty piece of litigation. It is not unknown for people setting up in business to copy the terms and conditions of their former employers if they are entering the same business or their competitors where it is a new sector for them. This is done in an effort to keep their start up costs to a minimum. While frowned upon this is understandable. What often then happens is this. The nature of the business changes but the terms and conditions don’t - leaving that company exposed when an issue arises. This could be for example trying to enforce non- payment against a customer or defending a claim from a supplier. A review of your terms now could save you money in the future.


Accepting terms and conditions without noticing the implications can cost money in the long run. Basing your terms of trade on a third party can seem to be a saving on the surface, but it can carry a long term hidden cost element. The message is that even though terms of trade are often referred to as the “small print” it is always worth taking the time to read these and consider their implications. We now live in an age of “clicking” and “accepting” company’s terms of trade in our hurry to download the product or make an order on line. Every so often it is worth stopping to actually read what terms you are accepting to avoid making agreements which cause expense and heartache later. That way you can keep your business running on the road and avoiding the legal pot holes.

'3 Big Legal Things to think about when selling your business'
David Gordon
09.03.07

Selling your business can be one of the toughest jobs – perhaps second only to setting it up. While there is endless information on how to value your business, talk to buyers, prepare financially for sale. There is less information on the practical legal perspective. My experience in for sellers of owner managed business’s tells me the following. I also hope it will cut down some of the inevitable stress which goes hand in hand with a major life event.

Get your House In- Order

Selling your business in many ways is similar to selling your house. It is important to get it in a shape that makes it easy on the eyes of the purchaser and their advisers. Clearly the finances are the crucial element to present well. Often over looked are the underlying paper work which tells the story of how your business is run. Make sure that all key customer and supplier contracts are available and up to date. Recall copies of leases, shareholder agreements and employment contracts if they are held with advisers who are not involved in the deal. Ask your self what paper work would you like to see if you were coming to this business for the first time? Having it in a form which is easily copy able helps a great deal. This cuts down the delay between heads of terms and actually seeing an offer agreement on the table. Delay can often be measured in £ on the sale price.

How to Dress-Up the Issues

When you are selling you are very often selling “warts and all”. Buyers expect there to be issues in a business. Sometimes they may even be buying a company because they feel they can over come issues which you are struggling to resolve. So in a sense they can be an opportunity for the buyer to add value to your business in the future. A purchaser will get spooked if you claim there is nothing they should be aware of. They will get really spooked if you try and suppress negative information until the very last minute. And worse still if issues are discovered and not handled in the right way then a buyer will be encouraged to use this as a rod to beat the back of a seller and drive down the price. To give some context to this - successful busy companies will often be the subject of or a party to litigation, whether it is debt recovery or product liability. While unpleasant, time consuming and costly in the modern world it is now almost inevitable that someone somewhere will try and raise a claim against you. Provide the buyer with the facts early. Show the steps that are being take to resolve the issue. Demonstrate the protocols that have been put in place to minimise the risk in the future. Don’t – repeat – don’t bury the paper work in the bottom of a file and then try and hide it or reveal it at the last minute. If it really is a deal breaker – better to break the deal early than at the end of protracted negotiations when you will be liable for larger abort fees

Having a “Point Man” or” Woman”

I recently advised a five shareholder company on the sale of their business. They took a very smart step and appointed a Chief Operating Officer (COO) 6 months before sale. She – yes she did an exceptional job in sorting out the finances of the company and presenting the company in the best possible light. During the negotiations she was able to carry the strain of the information transfer (due diligence) while the purchaser’s advisers carried out their review of the company. During the tense moments she was able to act as a lightening rod for issues and then obtain a consensus view from the five sellers. She was also able to drive the time table in a sensible way even bring the purchase in ahead of schedule – which is almost unheard of. Man or woman it is key to have an individual who can be the spokes person during the negotiations so that all parties can reach decisions quickly and efficiently. If given enough responsibility then that person can shape the deal to achieve a smooth exit for all. The price paid in appointing the COO in the above example was more than covered in the enhanced sale value achieved for the company and the reduced costs on professional advice.

Very often people reach heads of terms to sell their company and then quite rightly expect the sale to go through very quickly after that. Equally often the process becomes slow, frustrating and stressful while seemingly new issues are raised and discussed. Sellers find it difficult to balance the running of the business with the time commitment needed to resolve these issues. It is hoped that the points raised here go some way to helping cut through these difficulties and help the seller/s extract the maximum value for their enterprise.


Articles
23/02/07
Please See article on
My Business

26/01/07
PRESS RELEASE
DG LAW MANAGES MULTI MILLION PROPERTY SALE

DG Law, a leading corporate and commercial consultancy, has played a pivotal role in the sale of national planning and regeneration firm Hepher Dixon to property giant Savills.

The purchase, which formally completed on the 5th of January, has effectively doubled Savills’ planning and regeneration team, and the purchase will significantly increase its current planning and regeneration capacity.

Established in 1995, Hepher Dixon is a leading force in the planning sector with offices in Milton Keynes, Leeds, Cardiff and London.

Darren Clayton of city based leading niche employment solicitors Doyle Clayton managed the deal, in close partnership with David Gordon of DG Law. Set up in 2004, DG Law is a boutique London based firm providing specialist advice on all aspects of corporate and commercial deals. Clayton’s experience lies predominantly in the fields of employment and litigation, while Gordon’s knowledge of the banking and property sectors proved extremely valuable to the requirements of the deal.

The deal was conducted within a very tight timetable that proved challenging for all involved; initial discussions commenced in mid October and contracts were exchanged by the end of November.

Roger Hepher, Founding Partner of Hepher Dixon, commented:

“David Gordon and Darren Clayton did an outstanding job of representing our interests, providing wise counsel and concluding the deal on time, despite a very unforgiving schedule for completion.”

David Gordon, Managing Director of DG Law, commented:

“This was undoubtedly one of the most challenging deals I have worked on to date, but I was able to draw upon past experience to overcome problems and maintain the momentum. My background in the city stood me in good stead for the pace of this deal, and I feel confident that all parties can be pleased with both the result and finishing according to the planned timetable.”

- ENDS –

Notes to Editors

For Further information on DG Law, please visit www.dg-law.co.uk or contact Kirsty McRae at Zebra Public Relations:

Telephone: 0207 935 6859
Mobile: 07968 287093
Email: kirsty@zebrapr.net


DG Law – Background Information

Established in 2004, DG Law is a South London based boutique law firm specialising in legal advice and consultancy services across the corporate and commercial sectors.

David Gordon, Managing Director, is qualified as a Solicitor and as an associate of the Chartered Institute of Bankers in Scotland (ACIBS). He has over a decade of experience in advising a multitude of organisations and individuals across numerous industry sectors. Specialist areas include property, banking/ financial, employment, contract, leisure, catering, IT and management consultancy.

The firm provides a convenient ‘one stop shop’ for SMEs and owner managed businesses requiring professional calibre legal support services with a friendly, efficient and personal approach.


Copyright DG law 2007