Survey on new lease accounting standards

Posted on 30/07/2015
Survey on new lease accounting standards

On 22 July 2015, a public survey was launched to assess the possible impact of new lease accounting standards on financial covenants in loan agreements. Responses to the survey should be submitted by 30 September 2015.

New lease accounting standards

The International Accounting Standards Board (IASB) has proposed certain changes to the existing lease accounting requirements, and intends to announce the effective date for the new International Financial Reporting Standards (IFRS) on leases by the end of 2015.

The main change will be that lessees will be required to recognise assets and liabilities for all identified leases (subject to limited exceptions), including operating leases and finance leases. Currently, lessees only need to recognise finance leases.

Impact on financial covenants

Financial covenants in loan agreements will often use ratios to measure ‘debt’, ‘net financial position’, ‘interest cover’ and/or EBITDA*. The definitions of the relevant covenant terms will be crucial in determining whether the new IFRS on leases could lead to issues for borrowers, particularly those with material leases, in complying with their covenants.

For example, if a borrower’s financial covenants are to be calculated by reference to IFRS, the fact that they will need to start recognising leases that were previously off-balance sheet may impact whether they can continue to meet the covenant ratios at the levels agreed in the loan agreement.

Lenders and borrowers may, however, have already agreed financial covenants that take into account off-balance sheet lease commitments, in which case the impact of the new IFRS on leases will be more limited. They may also have agreed that the covenants will be calculated by reference to accounting standards in place when the loan agreement was entered into, so IFRS changes will not affect the covenant calculations.

The survey

In order to assess the impact of the new IFRS on leases on financial covenants across Europe, the survey referred to above has been launched. All entities are encouraged by the Financial Reporting Council, the European Financial Reporting Advisory Group, the IASB and other National Standard Setters to participate in the survey.

For more information, email

*Earnings before interest, taxes, depreciation and amortisation

No Win No fee and Car Parking Charges

Posted on July 29, 2015
No Win No fee and Car Parking Charges

Decisions of the Supreme Court, the highest court, are usually keenly awaited. They can have real practical implications as two very recent cases show.

Motor sports, human rights and no win no fee

Not a combination one would usually put together, but in this appeal[1] the operators of a motor sports stadium challenged the very basis of the no win no fee costs regime that was in place before April 2013.

The owners of a bungalow brought a claim in nuisance against the operators of the stadium. The owners won after an eleven day trial and numerous appeals and were awarded £20,750 in damages. The stadium operators were ordered to pay 60% of the owners’ costs.

The owners had entered into a no win no fee conditional fee agreement (CFA) with their lawyers and had taken out an after the event insurance policy. Under the rules applicable at that time, the success fee and insurance premium were part of the costs that could be recovered from the operators. The operators challenged their liability to pay the success fee and premium on the basis that it infringed their right to a fair trial under the European Convention on Human Rights (ECHR). They argued that the system then in place unjustifiably interfered with the rights of ‘non-rich’ litigants who unsuccessfully contested litigation brought by parties who had the benefit of CFAs and insurance.

A finding that the CFA costs regime was incompatible with the ECHR would have had major implications for claims brought under CFAs entered into before April 2013.

The Supreme Court decision

The majority of the Supreme Court found that the Convention rights of the stadium operators were not infringed. It was recognised that there had been no perfect solution of how best to enhance access to justice following the withdrawal of legal aid for costs for civil cases. But whilst the flaws with the system were recognised that was not the deciding factor. The issue was whether it was a disproportionate way of achieving a legitimate aim.

The majority view was that the scheme as a whole was a rational and coherent scheme for providing access to justice to those to whom it would probably otherwise have been denied. The Government was entitled to a considerable area of discretionary judgment in choosing the scheme that it considered would strike the right balance whilst at the same time securing access to justice.

The decision brings to an end attempts to challenge the CFA system.

The car parking charges case continues…

In the last week, the Supreme Court has heard an appeal by an individual [2] to overturn an £85 car parking charge. We have discussed this in earlier blogs (Swerving unenforceable contracts: my car parking experience) and we will provide an update on the outcome, although that is likely to be some months away.

You can watch Supreme Court proceedings live, or even ‘on demand’ at

[1] Coventry Lawrence [2015] UKSC 50

[2] Beavis v ParkingEye Ltd

Important changes to private fund limited partnerships

Posted on 29/07/2015
Important changes to private fund limited partnerships

The Government is proposing dramatic changes to private funds structured using an English limited partnership in order to ensure that this 100 year old vehicle is better suited to the needs of the modern private equity investment industry.

Whilst the limited partnership offers flexibility, tax transparency and, crucially, limited liability for investors, the associated legislation has not changed much since it was introduced in 1907. The Government is therefore proposing changes which it hopes will ensure that the UK limited partnership continues to be the market standard structure for European private equity and venture capital funds.

Key changes include:

Creating a new category of private fund limited partnerships to which the proposed changes will apply. Limited partnership can apply to have this designated status when they are first registered. Existing funds will be able to opt into the new regime by applying for private fund limited partnership status within 12 months of the changes coming into force.
Setting out a ‘white list’ of permitted management activities. Limited partners currently lose the protection of limited liability if they take part in the management of the partnership business. However, there is no guidance on what this means – what limited partners can or can’t do in practice – and therefore uncertainty exists around whether various normal investment activities (such as monitoring investments, approving new investments and advising the general partner) would result in limited partners becoming liable for the debts and obligations of the limited partnership. A new list of 25 permitted activities should provide some well-needed clarity here.
Removing the requirement for a capital contribution by limited partners. Although limited partners are currently required to make a capital contribution to the limited partnership, there is no required minimum. The typical structure of a private fund requires investors to make a low capital contribution (simply to meet the statutory requirement) and to provide the bulk of their funding commitment in the form of interest free loans. The minimal capital contribution serves little purpose, adds unnecessary complexity to limited partnership funds and causes confusion for those not familiar with UK limited partnership law.
Other changes will ensure that defunct limited partnerships can be removed from the register (meaning names could be reused), that partners can agree amongst themselves who should wind up a partnership without having to obtain a court order and that the information needed to register a limited partnership is simplified.

The Government has also stated that it remains committed to exploring ways which would permit UK funds outside Scotland to have separate legal personality (in the same way as Scottish limited partnerships already have). However, this more fundamental change is not being proposed now as further work is needed to explore the implications and legislative changes required.

Further details of the proposed changes can be found here. The consultation closes on 5 October 2015 and a timetable for implementation (and any amendments to the proposals) will be confirmed after that date.

This post was edited by Sophie Brookes. For more information, email

Bona Vacantia Land and mortgagees

Bona Vacantia Land and mortgagees

Posted on 27/07/2015

Where a company owns property and that company is dissolved from the register at Companies House, the land it owns becomes ‘bona vacantia’ (literally ‘vacant goods’) and vests in the Crown. This can make things difficult for a mortgagee who has a legal charge over that property. Whilst the power of sale can still be exercised, it has generally been necessary to inform the treasury solicitor and seek consent to the sale, even if there was to be a shortfall against the secured debt. This inevitably increased both the time taken to sell and related costs.

However, the Bona Vacantia Department (BVD) of the Government Legal Department has now set out new guidelines, specifying a new procedure for dealing with these cases which will be trialled as of 1 July 2015.

Under the guidelines, the mortgagee does not need to contact the BVD until the property has been sold and only if there is a surplus due to the Crown. If there is no surplus (as in many cases) no contact needs to be made with the BVD at all.

If there is a surplus, the mortgagee (or more likely its legal representatives) must write to the BVD confirming the details of the company which owned the property (including the name, company number and registered office). The letter should also enclose official copies for the property (including the Land Registry filed plan) and copies of the legal charge and transfer. Finally the letter must enclose a redemption statement showing the proceeds of sale, any costs deducted, the amount which has been paid to the mortgagee and confirmation of the surplus payable to the Crown.

On receipt of the documentation listed above, the BVD will check the evidence and completion statement and, assuming they are happy with the information, will provide instructions on how the surplus monies should be paid. If the BVD are not satisfied with the evidence provided, they may raise further queries.

The new trial guidelines appear to be a sensible modification of the procedure around bona vacantia property and should decrease the time and cost spent in dealing with these properties. In most cases, no contact will need to be made with the BVD at all. Even where contact does need to be made, as this needs only to be done after the event, it should not delay the sale of the property or the payment of proceeds to the mortgagee. Notwithstanding this, the duties of a mortgagee when exercising a power of sale under a mortgage should not of course be forgotten.

This post was edited by Lisa Smith. For more information, email

DLRAA accepts cheque from Gateley Plc

DLRAA accepts cheque from Gateley Plc
22nd July 2015

Following a year of fundraising, the Leicester office of national law firm, Gateley Plc, has handed over a cheque for more than £2000 to the Derbyshire, Leicestershire & Rutland Air Ambulance (DLRAA).

Every year, each of the firm’s regional offices nominates a local charity to benefit from its fundraising activity, and on Friday, 3 July, staff from Gateley went to the DLRAA base to present the emergency crew with a cheque for £2048.84. Fundraising for the charity was organised by the office’s charity champion and trainee solicitor, Fiona Grocock.

In addition to dress down days, bake sales and charity raffles, the Leicester office also raised money through a number of unique events. Recently the office held a cocktail making evening, whilst two members of staff participated in a Leicester based corporate relay, running over six miles each, raising a total of £252.

Sophie Burt, national partnerships manager for DLRAA commented: “Gateley have been fantastic, as the office managed to beat their original fundraising target of £1700, which is the cost of sending one of our helicopters out on one trauma call. The DLRAA relies on local businesses such as Gateley who choose to support their local charities, and the money raised will be used to keep the Air Ambulance up and running, helping us save lives.”

Gareth John, Corporate partner and head of the Leicester office commented: “We nominated the DLRAA as our local charity for 2014/15 due to its significant lifesaving work across the region. As a worthwhile charity which requires significant funding, we wanted to help the DLRAA continue its lifesaving work by doing whatever fundraising activity we could to help”.

Absolutely…….not a legal assignment

Posted on 17/07/2015
Absolutely…….not a legal assignment

In a recent blog post, we considered the difference between legal and equitable assignments and, in particular, the notices that need to be served to create a legal assignment.

A subsequent High Court decision [1] has highlighted the importance of ensuring not only that the right notices are served – the nature of an assignment of a borrower’s rights will also be based on the parties’ intentions as evidenced throughout the agreement.

Legal or equitable?

As a quick recap, a legal assignment must be absolute and comply with statutory requirements [2], including serving notice on the other contractual parties. A legal assignment has the benefit of enabling the legal assignee to bring an action in its own name against the third party contractor. This was the key point that the High Court had to consider in the above case, i.e. who had the right to bring an action under the assigned agreement, the assignor (if the assignment was equitable) or the assignee (if the assignment was legal).

Absolute not always absolute

On its face, the assignment appeared to be a legal one – the assignment clause stated that the assignor assigned “absolutely…all of its rights” in respect of the agreement in question, which is one of the statutory requirements of a legal assignment. Notice of the assignment was also served on the third party to the agreement.

The court noted, however, that there were a number of provisions in the assignment that indicated that the parties had not intended for the assignment to be absolute/legal, despite the points referred to above. In particular, the court highlighted that:

There was a general reservation clause which meant that the assignor remained “at all times… the absolute, legal and beneficial owner of the Specified Contracts”.
The borrower was under a duty to “perform its obligations, and diligently pursue its rights…including bringing proceedings” under the assigned agreement. As discussed previously, a legal assignment moves the right to bring a claim exclusively to the assignee, so this clause was more consistent with an equitable assignment than a legal one.
The decision

The court decided that, on balance, the assignment was not absolute and did not pass the exclusive right to bring proceedings to the assignee.

The case therefore highlights an important point – careful thought is required by the parties as to whether they intend to create an absolute, legal assignment or, instead, an (equitable) assignment by way of security. The terms of the assignment then need to reflect the parties’ intentions – calling an assignment absolute will not in itself be sufficient where the other terms are inconsistent.

For more information, email

[1] Ardila Investments NV v ENRC NC and another [2015] EWHC 1667 (Comm)

[2] In particular, section 136 of the Law of Property Act 1925

Gateley.Pre-Close Trading Update

Pre-Close Trading Update
16th July 2015

Gateley (Holdings) Plc, (AIM:GTLY) a leading national commercial law firm which listed on AIM in June, announces a pre-close trading update in respect of its wholly owned subsidiary, Gateley Plc (formerly the business of Gateley LLP) for the year ended 30 April 2015.

The Board is pleased to announce that the business continued to perform well in the second half of its financial year. Revenues in the second half continued to demonstrate strong fee income growth and demand for Gateley’s services and as a result full year revenue for the Group is expected to be not less than £60 million, representing a 10% increase over 2014 and yielding an EBITDA in line with management expectations.

Gateley will announce its Preliminary Results on 15 September 2015.

Michael Ward, CEO of Gateley, commented:

“We are encouraged to report such a strong trading statement, our first as a public company. Post-admission to AIM, Gateley continues to trade very well and we look to the future with confidence.”


Gateley (Holdings) Plc

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