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In Business

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Current articles Summer 2008

Economic Forum – There is only Opportunity

Over 330 key players from the South East region's business community attended the highly successful Fourth Annual Hart Brown Economic Forum.

The event was held at the University of Surrey and presented by Hart Brown solicitors in conjunction with UniS, Barclays Commercial and the South East England Development Agency (SEEDA).

A timely economic assessment was provided by eminent speakers, experienced in the UK economy which included the Market Analysis Director and Chief Economist at Barclays UK Banking, Dr Richard Roberts; the Shadow Minister for the Treasury, Mark Hoban and the Director of Investment at PFP Wealth Management, Tim Price.

Dr Richard Roberts said, “Things are difficult and will get worse at the very least until mid 2009 in the housing market, construction and property; retail and consumer spending; Business to Consumer services and manufacturing.” On a slightly more positive note he said, “ Whilst we are in a period of below-trend economic growth, the consensus view is that a recession will be avoided even though it may not feel like it.”

Mark Hoban was critical of the Government’s failure to prepare the economy for difficult times. He said, “The changes needed to bring about greater opportunities in our economy include a reform of the UK tax system; a framework to incentivise businesses to both invest in – and remain in – the UK; a focus on improving our ailing manufacturing sector; a curb on growth in public spending and better regulation and control of the financial services sector.”

Tim Price, Director of Investment for PFP Wealth Management, added, “Happily there IS opportunity amid the gloom, but investors will have to work that much harder to exploit it. I suspect that we will continue to see the rise of so-called alternative assets (notably hedge funds).”

The speakers also pointed to opportunities in emerging markets like Brazil, Russia, India and China and advised businesses to focus on providing high-value, quality brands and to look long term. Opportunities in outsourcing were also highlighted.

The Fifth Annual Hart Brown Economic Forum will take place on Wednesday 24 June 2009, again at the University of Surrey. Giles Keating, Chair of Global Economics at Credit Suisse, will be the keynote speaker and Dr Vince Cable has also kindly agreed to speak.

To register your interest for the next Economic Forum in 2009, please email Hart Brown at Virginia Cook or call 01483 887780.

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Compensation for Commercial Agents

The Commercial Agents Regulations 1993 (CARS) offer protection to self-employed commercial agents. In particular, they entitle agents to statutory compensation if the principal (the person on whose behalf the agent acts) terminates the agency relationship.

This compensation is separate to any contractual damages that the agent may also be entitled to and is for damage suffered as a result of the termination.

Agents who have authority to negotiate on behalf of the principal are entitled to compensation, but the term ‘negotiate’ is not defined in the regulations.

In a recent case, the judge said that CARS are there to provide protection to agents by giving them a stake in the goodwill that they have generated for the principal. Therefore, courts should not limit or restrict the interpretation of the word ‘negotiate’. Here, it was decided that the agent who encouraged clients to buy the goods and liaised with the principal about pricing was ‘negotiating’ within the meaning of CARS.

The courts have previously said that compensation should be calculated by reference to the market value of the agency – the price a purchaser would pay to take it over. Factors to be considered included the growth of the product market, the net profit made by the agent and a discount for the future rate of interest.

In this recent case, the principal argued that the valuation placed on the agency was inaccurate, as it was based on a hypothetical market and therefore the compensation should not be payable. The judge rejected this argument and said that in the absence of a ‘real’ market a hypothetical market should be used, otherwise genuine compensation claims could be wrongly set aside.

However, agents are not entitled to compensation if they have breached the agency contract to such an extent that it justifies immediate termination. It was held in this case that persistent minor breaches could amount to a serious breach, barring the agent from claiming compensation.

For further information please contact Nigel Maud on 01483 887718.

 

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Illegal migrants – new penalties


The law on preventing illegal migrants from being employed changed recently and employers should take note.

The revised Immigration, Asylum and Nationality directive 2006 came into force on 29 February 2008.

The checks that employers should make, or should have made, to ensure that their employees are – or were – entitled to work in the UK depend on the initial employment date of each individual.

Under the revised 2006 directive, since 29 February 2008, if an employer knowingly employs an illegal migrant worker they could be prosecuted and receive an unlimited fine and/or a maximum two-year prison sentence.

If an employer negligently employs an illegal migrant worker from 29 February 2008 – that is, they can not show they have checked firstly the employee’s original documents and, secondly, that the documentation is genuine, the employer could be liable for a civil penalty of up to £10,000 per illegal worker.

Ursula Martiniussen, Employment Lawyer at Hart Brown, said, “Employers can protect themselves from civil liability by examining carefully the originals and keeping copies of documentation that prove an employee’s entitlement to work in the UK. Employers should do this for all prospective employees and not make assumptions, based on a person’s appearance or accent, to avoid claims of race discrimination.”

For further information see the UK Border Agency’s website at www.ukba.homeoffice.gov.uk/employers or contact Ursula Martiniussen, on 01483 887687.

 

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Buying at auction – the pitfalls

Whilst buying a commercial property at auction may sound attractive, it may bring problems to unprepared buyers.

The biggest difficulty which arises for a prospective buyer at auction is time, or rather lack of it. 

Unlike the usual transaction, when a buyer and its advisers have the time from receipt of contract and supporting documentation to put in hand searches, additional enquires and negotiate any necessary contractual terms, the ‘legal pack’, as prepared by the seller’s solicitors and the auctioneers, whether as a paper pack or posted on the website, is often not available until only a short time before the auction date and sometimes not until the auction date itself. This means there is only limited time to ascertain a clear picture of the property.  

It is sometimes the case that properties with inherent problems are put into auction and it is not unusual to find properties which are landlocked or where the seller does not have clear title or where the lease is deficient in some way.

The legal pack usually consists of basic title information, the contract (to which no amendments will be permitted), replies to standard enquiries given by the seller and searches, which may well be out of date. If additional information comes to light, the auctioneer can make last minute alterations and oral statements advising prospective bidders of the changes and in the buzz of the auction room it is easy to miss such announcements.

The binding and enforceable contract for sale and purchase is of course made at the fall of the auctioneer’s hammer. Although there have been cases where buyers have succeeded in claiming misrepresentation made prior to the auction, it is much more likely that a seller can successfully rely on the buyer being fixed with knowledge provided in the pack and in any last minute amendments. 

The sale is governed by the auctioneer’s own conditions as well as the standard property conditions, which are often varied to allow for protections for the seller such as the holding of deposit by auctioneer as agent, restrictions on raising requisitions, prohibition of sub-sales and reimbursement of some of the seller’s fees.

A prospective buyer should:

 

For advice, contact Celia Watts on 01483 887655.

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Opportunities for enterprising investors

A loophole has emerged as a result of the change in the capital gains tax (CGT) rules brought in on 6 April 2008, under which CGT is now payable at a flat rate of 18%.

Possible beneficiaries are people who have incurred a CGT liability at 40% during the last couple of tax years. Subject to certain conditions, if such a person invests a sum up to the amount of the chargeable gain in an Enterprise Investment Scheme (EIS) – within three years of the event triggering the gain – the CGT on the equivalent amount of the chargeable gain may be deferred until the EIS investment is sold. If CGT has already been paid, this can be claimed back.

When the EIS investment is sold, the CGT rate applicable to the deferred gains will now be a maximum of 18% instead of the previous maximum of 40%, a reduction of 22%.

Again, subject to certain conditions, EIS investments offer other tax benefits. 20% income tax relief applies up front on the amount invested up to a maximum of £500,000. Inheritance tax (IHT) business property relief also applies in most cases. Its effect is that, if the EIS investment is held for two years and retained until death, it will not be subject to IHT on the investor’s death. Any gains on the EIS investment itself are also tax free.

EIS investments are not for the faint hearted. The EIS was introduced to encourage investment in small new businesses. Investments are usually pooled, like unit trusts. Tight limits have, however, been imposed by the government on where and how much fund managers can invest. The upshot of this is that only very small companies qualify as suitable for EIS investment. This carries with it high risks, although one of the main providers offers a “protected” scheme designed to mitigate this.

If you would like to discuss the possible use of an EIS investment to mitigate your tax liabilities, please contact Paul Tobias, Head of our Trust & Investment Department,
on 01483 887760.

This article was based upon tax rules applicable at 3 June 2008. Anyone contemplating an EIS investment should only do so after obtaining personalised expert advice.

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Divorce and the family business

It is not uncommon in a marital breakdown for a business to be one of the assets that has been built up during the marriage and this needs to be taken into account in the overall settlement.

One spouse may have been engaged in the venture either alone or with others or alternatively both spouses may have built up the business together. Furthermore, a spouse may have shares or be on the payroll but have taken no active part in the venture.

Complex and challenging issues can therefore arise where a business is at the heart of the family’s income and assets involving not only family law but also company, partnership, employment and tax law. All these areas are fully covered by Hart Brown’s experienced team of lawyers.

The business is invariably the income-producing asset. Business performance may be affected by marital breakdown. If it’s a joint venture, can both spouses work together? It may be necessary to implement steps to ensure the continued running of the business.

In addition, it is essential that a realistic picture be obtained as to the real level of renumeration from the business and its liquidity and value. Such reports can be expensive and the spouses and their legal advisors must ensure that costs are in proportion to the value and issues in hand. 

If the business has substantial assets which can be utilised in a settlement without affecting its liquidity, then it may be necessary to look at how assets can be withdrawn in the most tax-efficient way. Again, an expert can be called upon to comment.

Equally, if one spouse is agreeable to transferring their shares to the other, then expert advice is required as to the value of those shares and the most tax-effective way of transferring them.

Where one spouse has been employed by the other they will have employment rights which must be taken into account and not be breached. 

Ideally spouses and their legal advisors should work together, with the assistance of the joint accountancy expert, to achieve a settlement which is fair and enables both parties to move forward with their lives.

For this reason many clients prefer the collaborative approach, whereby both spouses sit down with their advisors to find solutions together to the various issues which arise on the breakdown of their relationship. At Hart Brown we are able to offer this option to resolve issues. 

For further information contact Sharon Powell on 01483 887541.


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Riding high for Hart Brown

Hart Brown is sponsoring Emily Wiggins, an Associate in its Trust and Investment department, and her horse, Bazel Brown, at a number of events.

Emily regularly competes in showjumping and eventing at regional and national level and Hart Brown has sponsored her since she joined the firm in 2004.

The pair are due to compete at Hickstead Royal International Horse Show in July and at Blenheim in September. Emily says, “I ride five days a week and regularly train with an instructor and, at 17 hands, Bazel takes a lot of exercising! Hart Brown contributes towards my competition entries and the equipment required. It is an expensive sport and very hard work, but well worth it.”

Emily is based in Hart Brown’s Godalming office, where she specialises in Estate Administration, Wills, Trusts and Tax Planning.

 

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New appointments

Hart Brown is pleased to welcome the following people to the team:
Anne Thomas – Family Department (Godalming) – who joined on 12 May
Anna Reed – Commercial Business department (Guildford) – who joined on 1 July
Virginia Cook – Marketing department (Guildford) – who joined on 1 July
Sue Pape – Trust & Investment department (Guildford) – who joins on 29 July

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In Brief

I am delighted by the success of Hart Brown’s 4th Annual Economic Forum and the positive feedback we have received.

Another success has been our Wimbledon office move and we held a launch party in the village there recently to celebrate the merger with Ponsford Devenish, which was attended by both existing and new clients.

As well as growing the team and enhancing services by building a Family and Trust and Investment department, Hart Brown is refurbishing the Wimbledon offices later this year.

I hope you have found this issue of In Business interesting and relevant.

Bettina Brueggemann – Managing Partner


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