Indemnity insurance – are you covered?

Indemnity insurance – are you covered?

Posted on 27/05/2015

We often find ourselves suggesting to clients that it would be advisable to put in place indemnity insurance policies to cover risks that cannot easily be resolved another way. The range of policies available is extensive and can cover anything from chancel repair liability to missing documentation. Below are a number of key points that need to be considered when looking to put an indemnity policy in place:

Does the policy solve the problem?

The existence of an indemnity policy does not cure the defect, for example a policy that covers a chancel repair liability does not prevent a church from claiming costs towards the repair of a chancel. Generally, the aim of the policy is to cover the loss in value of a property which is caused as a result of that defect.

Is the defect covered?

As strange as it may sound, there are a number of policies available which appear to cover the risk in question, but when you read further into the policy actually exclude the risk you are trying to insure against! For example, it is not uncommon for mines and minerals policies to exclude claims relating to trespass. The key message is to check the exclusions clause.

What costs are covered?

Not only should you be checking that the correct defect is covered, you should also ensure that you are comfortable with the loss that is covered by the policy. Some policies will cover a loss in market value arising as a result of the defect, while others will also cover legal costs and business interruption. If there is a specific loss that you want to protect against, make sure that you let us know at an early stage.

Who is the insured party?

You should consider who needs to benefit from a specific policy. Should this be just you as owner/buyer, or does it also need to cover successors in title and mortgagees? It may be cheaper to cover these parties at the outset rather than trying to obtain an endorsement to a policy later down the line.

Full disclosure

It is important to disclose any relevant information relating to the risk to the indemnity broker. For example, an indemnity broker will require information regarding the proposed use of the property, the anticipated development value of the Property and details of any additional documentation (such as statutory declarations) that may be relevant to the policy. If you are found to have withheld any information or misled the insurer, then the policy may be invalid. However, you should also be careful not to put a third party on notice of a risk, for example, if you are looking at obtaining a policy for a lack of planning permission, you should not speak to the council about the issue. This could result in indemnity insurers refusing to cover the risk.

Have you paid in time?

The cost of an indemnity policy is usually a one-off payment, and as above the policy can often cover successors in title without any additional payment needed. Most indemnity brokers require payment to be made for a policy within 2 weeks of the cover date. If the payment is not made, the policy may automatically be invalidated. It is therefore important to put your solicitor in funds for the policy premium when asked for it.

This post was edited by Charlotte Chapman. For more information, email blogs@gateleyuk.com.

Have you noticed?

Have you noticed?

Posted on 15/05/2015

An important part of a lender’s security is often the assignment of a borrower’s rights under key contracts, insurance policies and, in a real estate context, rental income.

A question that can arise is how far the lender wants to go in perfecting the assignment, and whether that causes potential issues for the borrower and its relationships with its customers/suppliers.

Nature of assignment

Security documents often include provisions which set out the borrower’s rights under specified contracts that are assigned to the lender, so that following the assignment it is the lender (instead of the borrower) that has the benefit of those rights.

An assignment can be legal or equitable.

What’s the difference?

For an equitable assignment, the arrangement only needs to be between the lender and the borrower – no notice to the other parties to the assigned contract is required. This has the advantage of confidentiality, particularly for a borrower who may not want its customers or suppliers to know that it has transferred its rights to a third party lender – where no notice has been given, the other parties can continue to deal with the borrower without reference to the lender.

Equitable assignments, however, have certain potential disadvantages for lenders which may mean they are not acceptable. There are two main points for lenders to consider:
1.Claims under the contract: A legal assignee can bring proceedings against the other contracting parties in its own name, whereas an equitable assignee will need to join the assignor (i.e. the borrower) to the action. This may be a concern to lenders in an enforcement context.
2.Priority: Without notice being served on the other contracting parties, the lender will not have priority over any later assignments where notice is served (unless the later assignee knows of the lender’s earlier assignment).

Notices required for legal assignments

The requirements for a legal assignment are set out in statute [1]. One of the requirements is that express written notice of the assignment must be given to the other parties to the relevant contract.

This means that the lender or the borrower will need to write to the other parties to tell them about the assignment. Borrowers who want to keep the assignment between them and the lender may therefore have an issue with this requirement, and so it will be a case of balancing the borrower’s commercial sensitivities with the lender’s need for a legal assignment.

If a legal assignment is required, the borrower may wish to serve the written notice on the other parties from a relationship perspective, rather than the lender giving the notice.

For more information, email blogs@gateleyuk.com.

[1] See section 136 of the Law of Property Act 1925.

Uncovering intellectual property value during insolvency – a practitioners’ guide

Uncovering intellectual property value during insolvency – a practitioners’ guide
26th May 2015

When trying to extract value from a company in distress, one area to consider is intellectual property.

But, uncovering the value of a company’s Intellectual Property Rights (“IPR”) during the insolvency process can be a challenging undertaking – with IPR values often turning up in unexpected places.
While precise valuations for intellectual property should be left to those skilled and experienced in such matters, there are certain key indicators to consider when trying to assess the value of the various types of IPRs:

Patents

In the UK, patented inventions are protected for up to 20 years. As a general rule of thumb, the longer a patent has left to run, the more valuable it will be. How valuable any specific patent itself may be depends on its nature and possible applications, and should be referred to professional valuation experts to determine. Factors to take into account could include how many similar patents exist, how broad the patent’s application is, and the size of the industry in which the patented process or technology is used.

Trademarks

Trademarks in the UK can exist as registered trademarks, often symbolised by use of ®, or unregistered trademarks, sometimes indicated by ™. In a dispute between the holders of similar trademarks, the owner of a registered trademark acting in good faith will usually succeed against an unregistered trademark owner. Therefore, generally the first indicator of value in a trademark is whether or not it has been registered.

In contrast to patents, a trademark’s fortunes are often dependent on the strength of the business behind the trademark. If the business collapses, the value of related trademarks may do likewise. In an insolvency scenario, the eventual liquidation of a struggling company is often a real possibility. As such, if value trademarks are involved, Insolvency Practitioners (“IPs”) should look to protect these brands early on in an administration. If successfully trading out of the administration does not seem likely, it may be advisable to sell to an interested party before the company’s failure erodes the value of the trademarks it owns.

Designs

Like trademarks, designs can be registered or unregistered. Registered designs are protected for up to 25 years. Similarly to patents, their value is likely to remain even when a business fails. For instance, if a firm of architects becomes insolvent, while it may be difficult to find a party interested in purchasing the trading name of the firm, there may be a market for the architectural plans that firm has developed.

Copyright

In contrast to patents, trademarks and designs, it is not possible to register copyright protection. However, copyright protection applies automatically to original work that satisfies the necessary criteria. Copyright works can often command extremely high value. For instance, one need only think of a certain boy wizard who has generated a fortune for his creator, her publisher, and the associated film studios to realise the stratospheric heights to which copyright value can soar.

Tracing ownership of copyright can often be a difficult process. But establishing ownership beyond doubt can reap dividends when it comes to selling the company’s assets.

Many routes

Above are just some of the areas worth investigating for IPR values. These can also commonly extend to confidential information trade secrets, know how, database rights and domain names. For example, for IPs looking to trade a company out of insolvency (perhaps via a Company Voluntary Arrangement), it is also worth noting that some IPRs can be licensed instead of sold outright, which could provide the company with a regular and certain income stream.

Regardless of the value of any particular IPR, the important consideration of any IP upon becoming involved with a company in financial difficulties should be to ensure that ownership of the IPR can be traced to the company. This is because in today’s business landscape, more value can be attributed to intellectual property rights than ever before. “Knowledge is power” as the saying goes, or, to put it more aptly in the context of corporate insolvency, knowledge is value.

If you would like more information or advice please contact Fiona McKerrell, Partner, Corporate Recovery at FMckerrell@hbjgateley.com

Important changes come into force today

Important changes come into force today
Posted on 26/05/2015

Today, a number of provisions of the Small Business, Enterprise and Employment Act 2015 and the Deregulation Act 2015 will come into effect. A number of these provisions introduce changes to insolvency legislation, and were enacted as part of the Government’s Red Tape Challenge programme.

From today, the following changes (unless otherwise stated) will apply to all existing and new cases:

Small Business, Enterprise and Employment Act 2015

Powers of a liquidator
No requirement for a liquidator to obtain the sanction of the court or a creditors’ committee to exercise their powers (specified in Part 1 of Schedule 4 to the Insolvency Act 1986).

Powers of a trustee in bankruptcy
No requirement for a trustee in bankruptcy to obtain the sanction of the court or a creditors’ committee to exercise their powers (specified in Part 1 of Schedule 5 to the Insolvency Act 1986).

Extension of administrator’s term of office
An administrator’s terms of office may be extended for a specified period not exceeding one year by consent.

Payments to unsecured creditors
An administrator may make a distribution of the prescribed part without having to get court permission.

Moving from administration to creditors’ voluntary liquidation (CVL)
A company cannot move from administration to CVL where the only distribution to be made to unsecured creditors is a distribution of the prescribed part.

Sales to connected persons
The Secretary of State may introduce regulations which prohibit or impose requirements or conditions in relation to the disposal, hiring out or sale of property of a company by an administrator to a connected person of the company. No such regulations have been made yet.

Creditors not required to prove small debts – company or individual insolvency
The power to introduce a rule to allow an IP to make a distribution of a company’s property to a creditor who has not proved a small debt. The amount of a ‘small debt’ has been proposed to be set at £1,000. This rule has not yet been finalised.

Time limit for challenging IVAs
A 28 day time limited for challenging voluntary arrangements from the date the creditors decided whether to approve the proposed voluntary arrangement has been introduced, where there is no interim order.

Abolition of fast track voluntary arrangements
Various sections of the Insolvency Act 1986 have been omitted to remove the procedure to make fast-track voluntary arrangements. This has no effect for cases where a debtor has submitted the necessary documents and statements to the official receiver before today.

Progress reports – voluntary winding-up
A liquidator must produce a progress report relating to the prescribed matters for each prescribed period, including on a change of liquidator with one year of the commencement of the winding up of a company.

Deregulation Act 2015

Appointment of administrators
Clarification: an administrator of a company can still be appointed after a winding up petition has been presented if the person proposing to make the appointment filed a notice of intention to appoint with the court before the petition was presented.

Winding up petitions presented on public interest grounds, against Societas Europaeas and petitions presented by the Financial Conduct Authority or Prudential Regulation Authority are excluded from the operation of this provision.

Treatment of liabilities relating to contracts of employment
The definition of ‘wages and salary’ through the Insolvency Act 1986 is amended to reflect the fact that ‘year in hand’ schemes have been prohibited by the Working Time Regulations 1998.

This post was edited by Matthew Flint. For more information, email blogs@gateleyuk.com.

A day at the London High Court

27th May 2015

A day at the London High CourtI attended a summary judgment hearing at the High Court in London earlier this year as part of my contentious Corporate Recovery seat. The civil procedure rules (CPR) have an overriding objective to deal with cases justly and at proportionate cost. With this in mind, the rules allow either party to apply for summary judgment before the hearing of the case. This is essentially for circumstances in which one party is confident that the merits of their case alone are so strong and their oppositions so weak, that it is unnecessary to dedicate time and expense to a full blown trial. A summary judgment hearing allows the parties to present their legal and factual submissions to the judge who decides whether the case can be decided at this stage, instead of trial. Parties prepare in much the same way as for trial, they must provide disclosure, submit witness statements and instruct counsel.

The allocation to the High Court in London reflects the substantial value in dispute and of course heightened the feeling of tension. The court room next door had attracted much media attention and was full with reporters. As The Rolls Building is the court which deals with some of the most high profile disputes between businesses, it was not surprising to see a media presence.

The main proceedings of our case had been on-going for some time and as we acted for the claimant, we had applied to the court for summary judgment. Civil litigation is a core module on the LPC, in fact, on the course I was asked to make a summary judgment application as part of my advocacy assessment. There are two limbs that must be satisfied in order for summary judgment in favour of the claimant to be granted:

the court must be satisfied that the defendant has no real prospect of success; and
there is no other compelling reason why the case or issue should be heard at a trial.
Therefore all the goal posts were the same except the values, risk to reputations and grievances were multiplied tenfold.

The hearing was a culmination of much work between us, the client and counsel. Success at trial is of course determined by the merits of the case but the collaboration between the legal team and client is essential. An eye for detail, knowledge of the law and organisation are all key in ensuring that the time in court is as successful as possible.

Being privy to conversations and developments between our legal team, I could identify why and how counsel brought emphasis to certain elements of his submissions and used the supporting legal precedent to bolster his arguments. By the end, tensions were of course raised, as the judge had been coy in not giving any indication as to which argument he favoured, scrutinising each barrister equally. With great relief, judgment was delivered in our favour. It was an occasion for celebration and a moment which made me understand the feeling of triumph that draws people into the world of litigation.

The mechanics of the court system and how cases are brought to trial is all neatly laid out in the CPR. The rules govern each stage and provide a framework for cases to be heard in a fair and efficient way. Whilst this sounds a systematic and orderly approach to managing a contentious situation, the sums in dispute, reputations on the line and hours in preparation formulating a concise argument makes you realise that the formality is masking the greatest human instinct, to win.

This post was edited by Fionnuala Reihill. For more information, email blogs@gateleyuk.com.

career concept

I attended a summary judgment hearing at the High Court in London earlier this year as part of my contentious Corporate Recovery seat. The civil procedure rules (CPR) have an overriding objective to deal with cases justly and at proportionate cost. With this in mind, the rules allow either party to apply for summary judgment before the hearing of the case. This is essentially for circumstances in which one party is confident that the merits of their case alone are so strong and their oppositions so weak, that it is unnecessary to dedicate time and expense to a full blown trial. A summary judgment hearing allows the parties to present their legal and factual submissions to the judge who decides whether the case can be decided at this stage, instead of trial. Parties prepare in much the same way as for trial, they must provide disclosure, submit witness statements and instruct counsel.

The allocation to the High Court in London reflects the substantial value in dispute and of course heightened the feeling of tension. The court room next door had attracted much media attention and was full with reporters. As The Rolls Building is the court which deals with some of the most high profile disputes between businesses, it was not surprising to see a media presence.

The main proceedings of our case had been on-going for some time and as we acted for the claimant, we had applied to the court for summary judgment. Civil litigation is a core module on the LPC, in fact, on the course I was asked to make a summary judgment application as part of my advocacy assessment. There are two limbs that must be satisfied in order for summary judgment in favour of the claimant to be granted:

the court must be satisfied that the defendant has no real prospect of success; and
there is no other compelling reason why the case or issue should be heard at a trial.
Therefore all the goal posts were the same except the values, risk to reputations and grievances were multiplied tenfold.

The hearing was a culmination of much work between us, the client and counsel. Success at trial is of course determined by the merits of the case but the collaboration between the legal team and client is essential. An eye for detail, knowledge of the law and organisation are all key in ensuring that the time in court is as successful as possible.

Being privy to conversations and developments between our legal team, I could identify why and how counsel brought emphasis to certain elements of his submissions and used the supporting legal precedent to bolster his arguments. By the end, tensions were of course raised, as the judge had been coy in not giving any indication as to which argument he favoured, scrutinising each barrister equally. With great relief, judgment was delivered in our favour. It was an occasion for celebration and a moment which made me understand the feeling of triumph that draws people into the world of litigation.

The mechanics of the court system and how cases are brought to trial is all neatly laid out in the CPR. The rules govern each stage and provide a framework for cases to be heard in a fair and efficient way. Whilst this sounds a systematic and orderly approach to managing a contentious situation, the sums in dispute, reputations on the line and hours in preparation formulating a concise argument makes you realise that the formality is masking the greatest human instinct, to win.

This post was edited by Fionnuala Reihill. For more information, email blogs@gateleyuk.com.

Time runs out for bearer shares

Time runs out for bearer shares
Posted on 20/05/2015

The ban on bearer shares comes into force this month meaning holders of those shares need to hand them back for conversion into registered shares or risk losing the rights attached to those shares. And companies need to encourage bearer shareholders to surrender their shares to avoid having to make costly payments into court.

What are bearer shares?

Most shares in a company are registered shares, meaning the name of the shareholder appears both in the company’s register of members and also on the relevant share certificate. However, UK companies can also issue ‘bearer shares’ where no name appears in the company’s records in respect of those shares or on the legal document certifying their existence. The bearer shares are simply owned by whoever holds (or ‘bears’) the certificate for them at any time.

What’s the problem?

Because it is impossible to know who actually owns bearer shares at any time, they can be used to hide the true ownership of a company. This has led to concerns that bearer shares were being used to shield the identity of those using companies for criminal activities.

The ban

As from 26 May 2015 there will be a ban on any company issuing new bearer shares, even if this is permitted under the company’s articles. Companies will also be able to amend their articles to remove reference to bearer shares without having to pass a special resolution.

What about existing bearer shares?

Holders of existing bearer shares will have a period of nine months in which to surrender those shares to the company for conversion into registered shares. And the sooner they do that the better: from 26 December all rights attached to bearer shares will be automatically suspended. So, even if they are the majority shareholder, the holder of any bearer shares will be unable to vote or receive any dividends or capital (other than on a liquidation) in respect of those shares.

The company is required to notify its bearer shareholders of their right to surrender those shares and the consequences of failing to do so. Where any bearer shares are not surrendered during the nine month period, the company will have to apply to court for an order to cancel those shares. When that order is made, the company must pay into court an amount equal to the nominal value and any premium paid on the shares. That amount can be paid out to any holder of bearer shares who applies to court for a payment within three years but only if they can show the court that there were exceptional circumstances which prevented them from surrendering their shares during the nine month period. There’s no guidance yet on what ‘exceptional circumstances’ might be for this purpose but we’re guessing that ‘my dog ate the share instrument’ isn’t going to cut it.

Act now

Obviously, from the company’s perspective it would be preferable to avoid the costs of obtaining a court order and having to make the payment into court.

So if your company has bearer shares in issue, start planning now for how you will contact the holders of those shares so they can be converted into registered shares.

And, even if your company doesn’t have bearer shares, check your articles of association to see if they need updating to remove any power to issue such shares which is now redundant.

This post was edited by Sophie Brookes. For more information, email blogs@gateleyuk.com.

Deposits – the basics

Deposits – the basics
Posted on 21/05/2015

In property transactions a deposit is usually paid by the buyer on exchange of contracts and is used to demonstrate the buyer’s commitment to the transaction. In the event that the buyer does not complete its purchase the seller is usually able to keep the deposit and any interest accrued on it.

How much?

As a general rule a 10% deposit is considered reasonable in English law but the amount of deposit is usually a matter of negotiation between the parties to the transaction. Where the buyer is in a strong bargaining position it may be able to persuade the seller to accept a deposit of less than 10% however, the contract should provide for the deposit to be made up to 10% in the event that the buyer has failed to complete in accordance with the contractual timescale.

In situations where a deposit of more than 10% is paid then it may, depending on the circumstances of the transaction as a whole, be viewed as a penalty rather than a genuine deposit and the seller may be unable to retain it should the buyer fail to complete [1].

Agent v Stakeholder

Most property contracts will state that the seller’s solicitor will hold the deposit as stakeholder which means it will only be released to the seller in the event that completion takes place or on the buyer failing to complete.

The alternative to the deposit being held as stakeholder is that it be held by the seller’s solicitor as agent. In this situation the seller’s solicitor is able to pay the deposit to the seller immediately following exchange of contracts.

Risky?

The risks of allowing the deposit to be held as agent are significant and it may be difficult for the buyer to recover any sums paid should the seller default on the contract. The risks of proceeding in this way were recently demonstrated in a decision of the High Court [2].

The case concerned a property transaction in which, against the advice of his solicitor, a buyer paid a 20% deposit which was to be held as agent by the seller’s solicitor. The deposit was immediately released to the seller following exchange of contracts but unfortunately for the buyer it transpired that the seller was already insolvent at the point the deposit was paid over to him. The transaction did not complete and the buyer was unable to recover the deposit paid.

The decision demonstrated the importance of buyers being fully advised of the risks in proceeding with the deposit held as agent and acts as a reminder that it should be avoided whenever possible. It is however a commercial decision for the buyer at the end of the day and it is up to the buyer to decide whether it wants to take that risk.

This post was edited by Elly Duggins. For more information, email blogs@gateleyuk.com.

[1] Workers Trust and Merchant Bank Ltd v Dojap Investments Ltd [1993] UKPC 7

[2] Kandola v Mirza Solicitors LLP [2015] EWCH 460 (Ch)