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Admin. Tasks For Later Life

If you are helping a loved one who is ill or vulnerable in their later life, whether formally or informally, there are various bodies that you might encounter with whom you will need to liaise to assist you with your loved one’s affairs.

In this post we highlight the main organisations and outlines why you may need to deal with them.

Whilst some organisations might be happy to liaise with you on an informal basis, many will not. Even those bodies which are willing to discuss your loved one’s affairs will require proper authority before allowing you to make any decisions for them.

In addition to your loved one’s solicitor, the main organisations that you might need to contact during this stage include, the Office of the Public Guardian, the Court of Protection, and the Official Solicitor. You may also have to deal with the NHS, and your local authority.

Making Sure You Have The Right Authority

If you know that your loved one has planned ahead by making a power of attorney, you will need to locate the original. This might be stored with their papers at home, but it is more likely that their solicitor will be holding it for safekeeping. If so, they will need identification from you to release the original. Some solicitors will also require either your loved one’s authority or, if they no longer have mental capacity, some form of medical proof of such lack of capacity.

Office Of The Public Guardian

The Office of the Public Guardian is responsible for registering powers of attorney and maintaining records of all the registered powers of attorney in England and Wales.

If you are uncertain about whether your loved one has made a power of attorney, it is possible to request a search of the Office of the Public Guardian’s records. This requires a specific form, which our solicitors can assist you to complete.

If you already know that a power of attorney exists, then you might need to liaise with the Office of the Public Guardian to register it. Again, this is a process with which our solicitors can assist. The process is dependent on the type of power of attorney:

  • if your loved one made an enduring power of attorney, then it will be up to you to register this; or
  • if they made a lasting power of attorney then this may already be registered.

You should check the position with a solicitor to ensure you are fully aware of what is required of you.

The Court Of Protection

The Court of Protection steps in when somebody loses mental capacity without having made a power of attorney, or when a power of attorney has been misused.

Whilst establishing authority to act, you might need to be in touch with the Court of Protection. An application to the Court of Protection, whether a general application to be appointed to manage someone’s affairs or an application asking the court to make a specific decision on the person’s behalf, is a very serious matter and one which requires sufficient evidence and various prescribed application forms. Our solicitors are experienced and knowledgeable in the most appropriate way in which to make a successful application to the Court of Protection.

In some circumstances, the Court of Protection may decide that it is appropriate to appoint a panel deputy to deal with your loved one’s affairs, either temporarily or permanently. For example, if there is any disagreement among the family as to who should be appointed, or if the person’s financial affairs are particularly onerous and would be better handled by a professional, or if there has been some evidence of financial abuse.

If so, then you will also need to liaise with the panel deputy. Panel deputies are solicitors who have been specifically vetted and chosen by the Court of Protection on the basis of their experience and knowledge. The panel deputy would be acting on behalf of your loved one, and you would be free to appoint your own solicitor to act for you, who could also liaise with the panel deputy on your behalf.

The Official Solicitor

The Official Solicitor’s Office is a governmental body which acts on behalf of those who are vulnerable and unable to instruct a solicitor of their own volition.

If the Court of Protection does need to become involved, the Official Solicitor may also be appointed. This is often the case when an application is being made to remove an attorney for wrongdoing, or if there are other particular safeguarding concerns around your loved one.

If the Official Solicitor is appointed, they will be appointed on behalf of your loved one, rather than you, but you will need to liaise and negotiate with them, and our solicitors can assist you with this. The Official Solicitor’s Office is an independent government body. The Court of Protection refers matters to the Official Solicitor’s Office and, within the organisation, a suitable solicitor is chosen and appointed to act on behalf of your loved one. If the appointment of the Official Solicitor is deemed necessary, the cost of this service will be met from your loved one’s funds.

Acting For Your Loved One Once Authority Is Established

If you are appointed as your loved one’s attorney or deputy, you would then need to deal with various organisations to ensure their affairs continue to run smoothly and that their needs are taken care of. This would include financial institutions, such as their existing banks and any investment companies, as well as potentially the Land Registry and conveyancing solicitor if they have a property that needs to be sold, and a financial advisor who specialises in later life clients to ensure that your loved one’s funds are securely and appropriately invested in a risk-averse way that will yield the best possible returns.

Whilst your loved one’s financial position is important to ensure that they have access to suitable care, if a loved one is ill or vulnerable you may also be concerned about the health organisations you need to contact.

Local Authority – Social Services

Depending upon their financial circumstances, your loved one’s local authority may be involved in ensuring that they are placed in a suitable care home or that suitable at-home care is provided. The local authority will also be key in establishing whether funding for your loved one’s care is available.

Provided you have the relevant authority, you are entitled to attend any meetings with the local authority when financial support is discussed. Before attending any care funding meetings, you should seek advice from a solicitor so that you are fully aware of your loved one’s rights and options. If required, you are also entitled to request that your solicitor attends the meeting with you.

National Health Service

Similarly, the NHS may be involved in discussions and decisions surrounding care funding. NHS care funding is available in limited circumstances, but you should obtain legal advice and explore whether this applies to your loved one. You may also be required to attend meetings with NHS doctors, or other medical staff, to discuss aspects of your loved one’s care and how this should be managed.

If you are making decisions on their behalf, it is important that you ensure you are involved in the process all the way along so that you can make decisions on a fully informed basis and one that is in the best interests of your loved one.

How We Can Help

Acting for a loved one when they are ill or vulnerable can be very rewarding, but it can also be an onerous responsibility. Our solicitors can help you to ensure that your duties as an attorney or deputy are adhered to properly and fully, and that your loved one is cared for in the best possible manner.

Notes

For further information about estate planning click here.

Planning For The End Of A Contract

Imagine that a contract you entered into is not going as expected and you want to terminate. All you want is to get out of this contract, but if it is not terminated properly, it could end up causing even more problems. Ending a contract cleanly is therefore probably just as important as putting a contract in place at the outset.

Termination provisions are usually standard in contracts but ensuring they are properly drafted and parties are aware of the steps involved in terminating without any adverse consequences is important to give peace of mind.

As important as termination clauses are in contracts, if a party wishes to exercise their right to terminate, there are actually several key questions to consider and work through to ensure that both the termination and provisions are followed strictly. Triggering termination (without triggering an inadvertent breach of the contract) can be a tricky process for parties to follow, and it make sense to get legal advice to navigate this.

Types Of Contract Termination

Commercial contracts generally have two types of termination: ‘at will’ and ‘for cause’.

Terminating at will gives one or all parties the right to exit a contract upon giving a certain amount of written notice to the other party.

Terminating for cause gives one party the right to terminate if a condition of some form of breach has been triggered, and usually these clauses allow parties to terminate immediately with notice. For the most part, these are standard clauses though some parts may be subject to negotiation.

Key Questions

The key questions to consider when seeking to terminate a contract would be:

  • Does a right to terminate actually exist?
  • What is the method to issue an effective notice of termination?

Termination at will is probably the easiest to deal with because each party should have the right. The method would be prescribed as a notice (usually written) to be provided to the other party within a certain number of days before the termination is expected to become effective.

Termination for cause requires one to determine if a cause actually exists before you can follow the steps of giving notice. This is discussed more below.

However, in both of the above cases, the ‘notices’ and ‘effect of termination’ clauses will also be pertinent in ascertaining how notices should be served and what the parties’ obligations are post-termination. Clearly, reading the termination provision in isolation will not suffice and this is why professional legal assistance is strongly encouraged.

Establishing The Cause

Typical examples of termination for cause would be:

  • a material breach which subsists even after a grace period is given or if it cannot be remedied at all;
  • insolvency proceedings commencing; or
  • when a contract-specific clause, that was negotiated between the parties to address particular risk exposure, has been triggered.

The first step in establishing whether a cause under this type of termination provision exists is to interpret the clause strictly. For example, if the clause states ‘a material breach which is not remedied after 30 days of being given notice of such breach’, it would be imperative to:

  • first decide if the breach by the other party would be considered material – did it impact you financially or did you not receive their services for an extended period of time?
  • next, send a notice informing them that they are in material breach and have 30 days to remedy it; and
  • only once the first two have passed, then a notice of termination should be issued.

Why Getting The Notice Correct Is Vital

Termination can be invalid when a party does not serve a notice in the method, form, or time frame as strictly prescribed in the contract. If in doubt, always consult a lawyer to ensure you do not inadvertently invalidate your right to terminate.

Common pitfalls to look out for include:

  • ensuring the form is correct (for example is email acceptable?);
  • addressing the notice to the person or using the correct contact details set out in the notices clause; or
  • adhering to timelines prescribed in the contract, for example are they working to business days or calendar days, and how to confirm receipt.

All of the foregoing issues could be contested to show notice was not given in accordance with the contract and is therefore invalid.

For example, establishing if notice has indeed been received would be a prudent step to take especially if the contract is silent on this point.

The recent case of Struthers v Davies (2022) highlighted the importance of strict and precise adherence to how notice is served and when. This case involved a claim for damages from homeowners against their building contractor for defective and incomplete work. In assessing if the homeowners were eligible, the court first considered if termination was actually effective. The impact of ineffective termination was considered in this case and the consequences highlighted as a possible repudiatory breach, which means the terminating party could be liable for rejecting a contract without proper basis.

How We Can Help

Getting the intricate network of notice, termination and effects of termination clauses tightly and clearly drafted and in sync with each other, greatly improves the chances of parties being able to terminate easily and correctly. This is why it is important to seek professional legal advice to protect your right to exit the contract, and to ensure you have a clear method in place for doing so to prevent further problems. Our team of lawyers can help navigate this important element of any commercial contract.

Notes

For further information about contracts click here, and for contract disputes click here.

 

The Perils Of A DIY Will

Many people who opt to make a home-made will do so because they think they will save money on legal fees. Unfortunately, this can lead to problems and unexpected costs later down the line for the family who may be left to unravel problems at a difficult time. DIY wills are sometimes declared invalid, or they can result in problems that require court intervention far more commonly than wills that have been professionally drafted.

What Can Go Wrong With A DIY Will

The worst-case scenario with a home-made will is that the entire document is declared invalid. If this is the case, then your estate will not pass in accordance with your wishes and assets could end up in the hands of someone who you do not wish to inherit.

Alternatively, a home-made will might cause problems in relation to certain aspects of the contents, typically due to not fully understanding the legal requirements for a will. For example:

  • Executors – Some home-made wills fail to appoint an executor because the person who has made it incorrectly thought it was only necessary to state who they wish their estate to pass to. An executor appointment is a vital part of the will. Without naming an executor, the remainder of the will may be valid, but pre-existing laws will determine who deals with the estate administration. This could, therefore, be someone who you would not wish to be involved. The same issue can occur if you appoint an executor without thinking about a replacement who could step in if your first choice is unavailable.
  • Trustees – If your will requires trustees and you do not include the correct legal provision for this, it may result in an expensive and time-consuming court process for suitable trustees to be appointed after your death. The costs of such a process would be taken from the trust assets, leaving less for your beneficiaries.
  • Children – In the case of young children, a will should always appoint a suitable guardian. If the will fails to do so and you die leaving children who are under the age of 18, someone will need to apply to the court to gain legal responsibility for them. Not only could this end up being someone who you do not necessarily trust to raise your children, it would involve lengthy court proceedings which may use up a large amount of your children’s inheritance.
  • Gifts – Aside from issues with the people who should be named in the will but are not, a DIY will might result in issues with the gifts listed. Beneficiaries of a will should be carefully named or defined. The items to be gifted should also be clearly defined. If there is any doubt as to who the intended beneficiary is, or what the gift is, it can end up being a decision for the court to determine. Again, this is likely to prove costly and time-consuming, reducing the inheritance ultimately available and delaying the time by which this will be paid to your beneficiaries. The court could also rule that the intended beneficiary was someone different to the person you intended.
  • Beneficiaries – It may also be the case that a DIY will does not contain a default provision, which will mean that if the first intended beneficiary has died the estate will end up passing by intestacy instead. Sometimes, a home-made will may also seek to leave a gift to a beneficiary that is not a valid legal entity for the purpose of receiving gifts, which again could result in the intestacy rules applying instead. These may not be in accordance with your wishes.
  • Taxes and costs – Certain gifts might require some consideration in terms of specific requirements, such as who should pay any associated costs involved (for example costs of sale or taxes), or the age at which the gift should be inherited. If the will does not specify these aspects, then the law will determine them, and this may end up causing costs to beneficiaries unfairly or against your wishes. It could also result in higher taxes having to be paid, which a solicitor could have advised on and drafted the will to mitigate.

The Benefit Of Using A Solicitor To Draft Your Will

Solicitors undergo rigorous training and receive regular updates on case law to ensure that they are fully aware of the correct legal terminology to use in a will so as to give effect to your wishes. They are also familiar with common issues and how to avoid these, as well as relevant tax laws and the appropriate ways in which to structure a will to make the most of any tax allowances.

A solicitor will discuss all of your family and financial circumstances with you to help you make an informed decision about the exact terms of your will so that you can ensure you and your loved ones are protected.

When choosing a firm of solicitors, it is advisable to seek a firm with appropriate accreditations. Solicitors are regulated by the Solicitors Regulation Authority and may have belong to other professional bodies, such as STEP or SFE which demonstrate a greater level of knowledge or experience.

As well as the benefit of solicitors being regulated, individual solicitors and their firms are also required to obtain professional indemnity insurance, giving you a route to redress if anything were to go wrong.

How We Can Help

Preparing your own will at home may seem like a good idea, but the cost-saving could backfire on your loved ones after your death. It is usually worth spending a small amount upfront to protect your assets and your family in the long term. Our solicitors can help you to ensure that your will is fit for purpose and achieves your desires.

Notes

For more information about making a will, click here.

What Are The Options For Funding A Management Buyout?

If you have been presented with an opportunity for a potential management buyout (MBO) at the company where you work, and you believe there is a strong future for the business, then one of your first and most pressing considerations will be the funding.

There are several options for funding an MBO, each with different features in terms of cost, risk, and availability. It is in your best interests to consider all the avenues available, and to make a well-informed decision which will hopefully pay dividends long into the future.

Buyers of companies have become increasingly creative as to how to fund their purchases. Sometimes this creativity has arisen out of sheer necessity as, if the money is not immediately to hand, strategies need to be developed to secure it. Other modern funding routes have arisen out of seller desperation, where providing a funding lifeline to the buyer has been the best way for the seller to secure an exit from their business.

Main Funding Options

The main funding options for an MBO can be distilled into the following groupings. In this post we take a brief look at each in turn:

  • Private equity – this route usually involves either venture capitalists, angel investors or high-net-worth individuals investing in the business in return for an equity stake so as to secure a future return on their investment. It may also involve an element of help or mentorship, and you can benefit from leverage of the investor’s contacts.
  • Individual loans – in this option, each member of the MBO team takes out a personal loan (if required), which may be unsecured or sometimes secured against their own property. The liability for repayment rests with the individual members in their personal capacity.
  • Leveraged finance – here the loan is secured over the assets of the company being acquired. In this sense, you could think of it as akin to buying a house with a mortgage – the asset itself is used as the means of securing the finance. The business assets are therefore at risk until the loan is repaid.
  • Standard business loan – in this case, a business loan is obtained but on an unsecured basis. The liability for repayment rests with the business, but it is not secured directly against the business assets.
  • Seller finance – this option can be a little more creative and is not ‘one size fits all’. For example, options include:
    • a simple deferred consideration, where the purchase price is paid over time (often from business profits);
    • seller sliding equity, whereby the seller is paid off over time and their equity stake diminishes with each tranche paid; or
    • where the seller takes a private mortgage over business property or takes some other form of security to ensure that they are paid for their shares.

The Pros And Cons Of Each Option

Private equity

This option may provide you with a route to a debt-free acquisition. Although you will have to give up some equity in return, the lack of debt will give you some vital breathing space, particularly in the early stages of your purchase.

Also, if the investors can provide you with value in the form of knowledge, contacts or supply chain assistance etc, this may boost your company’s growth.

You must bear in mind with this option that the private equity market is very competitive, and investors are only looking for the very best investment opportunities. Clearly, if the business concerned has a strong balance sheet, a lengthy trading history and a prominent brand name, then would-be investors will be far more likely to get on board.

However, the main disadvantage is the need for constant reporting to investors and the ongoing requirement to meet their (often overly ambitious) growth targets. To those with an entrepreneurial outlook, who value freedom in their decision-making, having external shareholders can become limiting and tiresome.

Individual loans

The key downside here is that the MBO team are taking on personal liability, and may be putting their homes at risk, depending on the conditions of the loan. The big upside is that the buyers retain all the equity in their acquisition, so if the business thrives their investment may prove very lucrative.

Also, it is possible that the personal finance terms may be available on more competitive rates than commercial financing, particularly if first or second mortgages are taken out to secure the loans.

This option can sometimes be problematic where there are significant differences in personal wealth, individual asset base, or credit profile amongst the MBO team. For example, some members may feel they have more to lose and this could lead to issues arising in other areas of the deal, such as equity stakes, management roles and voting rights.

Leveraged finance

This option avoids personal liability for the team. However, it relies on the business owning property or other viable assets which are suitable for lending security purposes. Where that is the case, the finance is likely to be on better terms than for a standard unsecured business loan (see below), but nevertheless it will still require repayment and may place the business under a cash flow burden when it can least afford it.

Further, in circumstances where the repayment terms prove too challenging and payment defaults arise, the business may be put in a disastrous position if and when the loan is called in and the business assets are seized or repossessed.

Standard business loan

A routine method of funding that may well be straightforward to obtain, particularly if the loan is provided via the company’s existing bankers. However, as with the leveraged finance option, it may still prove a drain on cash flow.

Seller finance

This can be an excellent route for a distressed sale, or where the MBO team lack the more conventional routes to finance as set out above. The great thing about seller finance is that it can be structured to suit all parties.

If the business is loss-making or is suffering from cashflow or solvency issues, you may be able to take advantage of the situation to secure seller finance terms which may not have been available otherwise.

The seller finance option can provide a quick path to completion, which may be the overriding objective if the business is facing uncertain times, or the seller has simply had enough and is desperate to quit or retire.

How We Can Help

If you are considering a management buyout, then speak to our corporate and commercial solicitors without delay. We can evaluate your situation and help you identify the best way forward in terms of your MBO funding options and many other aspects of the potential transaction.

Notes

For further information about MBOs and business purchases, click here.

Wrapping Up The Administration Of An Estate After Probate

Carrying out the duties of an executor is both a privilege and a burden.  You have been tasked with ensuring that someone’s wishes are carried out after their death, and this can often be more complex and take longer than you imagine.  Some people prepare well for their death and leave their affairs in good order with clear instructions – but this is not always the case, and problems can come from a multitude of directions.

Before the administration of an estate can be completed, there are several important final steps to take. Wrapping up the estate administration involves finalising distributions, as well as dealing with final taxes and preparing the accounts. Taking care with all the last steps thoroughly will help to prevent any last-minute problems.

Distributing Remaining Assets

At this point it is likely that you have distributed any legacies, whether specific items or monetary gifts, and that you are left with the residual pot of assets to allocate to one or more beneficiaries.

As an executor, you must be satisfied that any final distributions are:

  • in accordance with the will or intestacy; and
  • appropriate and in line with the estate assets available.

If there is a will, this sets out the shares each beneficiary is to receive. If there is no will, the intestacy rules must be followed. If you are unclear on the will’s interpretation or you are uncertain what the intestacy rules entail, you should seek advice before making any distributions to ensure you do so correctly.

Paying out too much from an estate could see you personally liable if you are left with insufficient funds to pay creditors or other beneficiaries. It is important to make sure that the figures add up by preparing draft estate accounts and ensuring these are updated throughout the administration, taking into account all of the known liabilities and estate expenses. Only once you are satisfied that all relevant liabilities and expenses can and have been paid should you make the final distributions.

Not paying the beneficiaries enough from estate funds can be equally tricky. In some instances, you will have no choice but to hold on to funds. For example, certain types of investments can take a long time to liquidise, or you may still be trying to establish contact with a beneficiary. If you find yourself holding onto funds that are no longer required for the estate administration, for example if you have retained too much for the payment of liabilities or tax, you will need to account to all the beneficiaries again for the small sums held. This is not only time-consuming but could also prove costly to the estate if you end up requiring legal advice at this late stage.

Paying Tax Liabilities

Where any estate assets generate income, such as a rental property or shareholdings, it will usually fall to you as executor to calculate and pay any income tax due.

You will also need to consider capital gains tax if assets have been sold for more than their probate value, for example property or shares.

If you fail to deal with the income or capital gains taxes before distributing the estate, it will be your responsibility to pay the tax due if you cannot reclaim it from beneficiaries. If the beneficiaries do not agree to paying funds back to the estate for this purpose, it could become necessary to issue court proceedings which can easily become a protracted and costly exercise.

There may be circumstances where it is more beneficial to appropriate assets to beneficiaries so that they become responsible for the income tax and capital gains tax arising on those assets. Appropriation is similar to transferring an asset however you, as the executor, remain as the legal owner and the beneficiary only receives the beneficial interest in the asset. Appropriation can be done at any point, and can be a useful tax-saving tool, but you should seek advice on this point early to ensure that you are dealing with the estate in the most tax-efficient way for everyone concerned as soon as possible during the estate administration.

If assets are appropriated, then it is important to make sure that everyone is clear about who is responsible for which taxes and that all beneficiaries are fully advised and aware of their responsibilities. If you fail to make a beneficiary aware of the implications of appropriation, you could find yourself personally liable for resulting tax payments.

Estate Accounts

Finalising the estate accounts is a vital part of any estate administration. It forms part of your executor’s duties to prepare accounts to be presented to the court on demand. Estate accounts set out:

  • the estate summary, which details the value of the assets and liabilities at the date of death;
  • the capital accounts, which details administration costs, inheritance tax liabilities, and all other capital income and expenses during the administration period;
  • the income account, which details all of the income received and tax due during the administration period; and
  • the distribution accounts, which set out how the net value after expenses is distributed.

To calculate the net value after taxes, you will need to account for:

  • any capital received since death, such as a refund of care fees or council tax;
  • any income received since death, such as interest on bank account or dividends on shares; and
  • executor expenses, such as any valuation fees or the probate application fee and professional costs – such as legal fees, accountants’ fees, conveyancing costs and searches.

As executor, it is for you to approve and sign off the draft estate accounts. Once signed, the final estate accounts should be sent to all the residual beneficiaries for their agreement before distributions are made. Beneficiaries are not required to approve the estate accounts, but it is courteous to seek their agreement to the final accounts.

Unallocated Assets

In the event that there are any assets that you have been unable to deal with, or payments that you have been unable to finalise, you should discuss these with the beneficiaries. Ideally you will be able to plan together how best to resolve the situation, including any necessary contingencies for additional payments that might fall due or additional assets that might later be realised by the estate. For example, sometimes foreign shareholdings can prove difficult to access and to sell. If the shares only represent a very small portion of the overall estate, you and the beneficiaries may choose not to pursue the sums, instead agreeing that the shareholders should donate them to a local charity. If there is a beneficiary who cannot be located, you and the other beneficiaries will need to decide who holds on to their share. This could be you, the court, or the other beneficiaries on the proviso that they repay this should the missing beneficiary later appear.

Retaining Paperwork

Once the estate accounts have been finalised and the estate can be wound up, it is important to ensure that a copy of the accounts is retained by you and any other executors in case these are required in the future, either by creditors, beneficiaries, or the court.

You should keep the accounts ready for presentation for as long as possible, but in any event for at least six years.

How We Can Help

Before finalising an estate and making final distribution payments to beneficiaries, it is important to ensure that all final matters are fully concluded, including payment of all tax liabilities, and the preparation of estate accounts.

Even if you have dealt with the estate administration yourself, it can be beneficial to instruct a solicitor for these important final steps, especially if there is any risk of a future dispute. You may still find yourself personally liable if you simply failed to seek appropriate advice.

Our solicitors can help you to ensure that your tax and accounting duties are adhered to properly and fully. For further information, please contact us.

Notes

For further information about probate and the administration of estates, click here.

Is Your Partnership Agreement Still Fit For Purpose?

As a business owner in partnership with others, you probably took great care to consider the key issues and agree a carefully worded partnership agreement at the formation of your business.  But once signed, has this important document been filed away under lock and key without a great deal of attention since then?

There are major risks in not reviewing your partnership agreement regularly. It may not serve its main purpose as a reference point in administrating your partnership and in preventing legal disputes between the partners. In more extreme cases, your agreement may even be deemed null and void, and you would have to fall back on the provisions of the Partnership Act 1890 – a simplistic piece of legislation which would apply rudimentary terms which may be contrary to your interests.

There are many different circumstances that should trigger a review of your partnership agreement, such as a change in the law or the business structures. And it is vital that business partners keep their terms under regular review to ensure the agreement remains fit for purpose.

What Should Trigger A Partnership Agreement Review?

It is wise to carry out a periodic review of your partnership agreement, for example every two to three years, or as you deem appropriate in the circumstances.

You should also review the agreement whenever there are major changes or developments within your business, or when there are significant external factors. Some of the key triggers for a review include:

  • Change to partnership structure – as you grow you may wish to change the structure of your business, for example bringing in a new tier of salaried partners or fixed-share partners. Any such changes should trigger a review of your profit-sharing arrangements to make sure that no inadvertent anomalies are introduced. You will also need to decide how such structural changes should impact on agreed partner liability for losses and additional capital contributions etc.
  • New or departing partners – if you bring on board a new equity partner, or if there are changes to the partnership as a result of a resignation or retirement, then you should revisit your agreement. In the case of a new partner, you should ensure that any agreed onboarding terms are reflected. A resigning or retiring partner who is not being replaced may still necessitate changes, for example if they are carrying out fundamental roles for the partnership that require reallocation, such as managing partner or finance partner.
  • Financial variations – if you wish to make any changes to the partners’ profit shares or any other financial variations (such as capital accounts) then such changes should be reflected in the agreement. It may be that such matters are dealt with in the schedules at the end of the agreement, and if so, it may be that only the schedules require updating. It is so important that profit and loss sharing and capital contributions are accurately reflected in the agreement at all times, as these are the areas that can notoriously lead to a partner dispute. Including worked examples, with detailed calculations, can be particularly helpful where there are complex or varied distributions or separate ‘bonus’ profit allocations.
  • Change in law – if there is a change in the law, such as with regards to taxation, then you should take appropriate legal and accounting advice to see if there are any tweaks that should be made to your agreement to benefit you. For example, if there are particularly generous capital allowances introduced that you wish to benefit from, you and your fellow partners may agree to relax your retained profit policies to free up additional funds for tax-efficient investments.
  • Business pivot – if your business has changed, or plans to change in a significant way, then you should revisit your partnership agreement to make a critical assessment as to whether the terms still align. For example, if you are a ‘bricks and mortar’ retailer and transition to an online-only business model, it will involve many practical changes to your business, which would ultimately affect your partnership. You may need less working capital and fewer staff members due to closing retail units. You may need additional capabilities in new fields, such as e-commerce, digital marketing and warehousing and fulfilment etc. As such, the make-up and approach of the partnership would have to evolve as a result, leading to partner incomings and outgoings, increased outsourcing, shifts in policy and budgeting, international growth focus and so on.
  • Business purchase – if your partnership purchases the assets of another business, then naturally your business will evolve in various ways. The asset purchase may lead to your workforce increasing overnight, with a significant impact on your profit and loss and balance sheet. Where the business purchase materially impacts these areas, it is only sensible to review your partnership agreement. The enlarged business may shift focus onto areas of the agreement that had previously been overlooked, such as financial management, partner authority levels and day-to-day management clauses.

What Are The Risks Of Not Reviewing?

If your partnership agreement becomes out of date, lagging behind developments within your business or developments in the law, there are various risks that can arise.

This can lead to a lack of clarity and certainty if the agreement no longer reflects your business as it operates. In turn, this uncertainty can lead to disputes between partners and any ambiguity can be the cause of partners arguing over their preferred interpretation.

Of course, any such disputes also become more challenging to resolve. The partnership agreement is intended to provide a reference tool for resolution, but it cannot perform that role if it is out of date.

In a worst-case scenario, your agreement may be deemed null and void and it may be that the court would have to resolve any disputes according to the law as opposed to the original intentions.

How We Can Help

If you are in partnership and have not reviewed your agreement recently or have made changes to your business that need to be reflected, then get in touch with our team of commercial solicitors without delay. We can take a look at your existing agreement, advise on any changes which ought to be made, and carry out the necessary drafting work required. You can then focus on your business in the knowledge that your partnership agreement remains fit for purpose.

For an informal conversation, please contact us.

Notes

For further information about partnership agreement, click here.

The Role Of NDAs And Confidentiality Clauses When Appointing A New Supplier

When appointing a new supplier there is often a dilemma over the issue of confidentiality. How do you strike the balance between sharing enough information to obtain the best deal without jeopardising confidential business information?

It is imperative that business owners treat their confidential information with the utmost importance when appointing new suppliers. For example, sharing designs and recipes with other businesses can be risky if the process is not managed carefully with appropriate legal safeguards.

How To Mitigate The Risks Of A Confidentiality Leak

Counterfeiters and copycats often obtain information via the existing supply chain, so one of your earliest considerations when appointing a new supplier should be the matter of confidentiality. It is advisable to think about this issue in advance of the initial meeting, so that you can prepare your strategy and approach from the very start.

The two main options are limiting disclosure and the use of a non-disclosure agreement (NDA); however it is usually prudent to use a combination of both.

  • Limiting disclosure – by taking extreme care with precisely what confidential (or commercially sensitive) information is revealed, to whom, and at what stage, you can go some way towards mitigating the risk of leaks. Think of this like the ‘dripping-tap’ approach, whereby at each stage just enough information is shared with the right people to take the appointment process to the next stage without over-sharing at any time.
  • A non-disclosure agreement (NDA) – here, a contractual agreement is entered into with proposed suppliers at a very early stage, ideally before any information that is not already in the public domain is shared. The NDA contains confidentiality clauses which protect the information from being shared further or used other than for the purposes of this disclosure. If the supplier is then formally engaged, there is likely to be additional confidentiality clauses embedded in the supplier agreement, as a ‘belt and braces’ approach.

The Pros And Cons Of Each Option

The key advantage of the dripping-tap approach to disclosure is that you limit the risks at source; put simply, if information is not released in the first place then it cannot get into the wrong hands.

However, this approach comes with a sizeable downside, which can impact both you and your supplier. Without your supplier being able to see the full picture, it may prove problematic in scoping, quoting and selection. Also, when the relationship gets underway, the limitations in your disclosure may cause your supplier to be hamstrung and producing at less than their full potential.

An NDA can be an excellent tool in protecting your business information. They are becoming an accepted part of modern business practice as courts have shown a willingness to enforce them, either by way of an injunction, damages, or both, depending on the circumstances of the case.

However, on occasions an NDA can scare some potential suppliers who may otherwise have been a good fit. This may be the case for smaller or less sophisticated suppliers, who may not feel comfortable in signing up to a legally binding document at such an early stage.

Trust And Risk Management

Clearly you should adopt a tiered risk management approach to any supplier engagement, taking a practical approach to each appointment depending on the circumstances. The higher the risk profile of the appointment, and the greater the impact to your business if it goes wrong, the more care you need to take with confidentiality information.

Also, it is vital that you do not overlook confidentiality issues as the relationship between you and your supplier progresses. Over time, the nature and extent of the business relationship may evolve and their access to confidential information and documentation may increase. Where this is the case, great care should be taken to ensure that the confidentiality terms are reviewed regularly to ensure they remain fit for purpose.

Further, the role of trust in the supplier relationship cannot be underestimated. Naturally, you will generally exercise more caution when dealing with new suppliers who you have not done business with before.

Summary

In conclusion, when appointing a new supplier, you will need to take a balanced approach towards confidentiality that suits the nature and risk profile of the contract, the type of disclosure contemplated, and your previous experience (if any) with that particular supplier.

You need to find a balance between sharing enough information to get the best deal, while not over-sharing in such a manner to expose your business to any unnecessary risk. In addition, you should use non-disclosure agreements and confidentiality clauses in your supplier agreements where possible to add an extra layer of security.

How We Can Help

If you are appointing a new supplier and are looking to address confidentiality risks, then get in touch with our team of commercial solicitors without delay. We can discuss the specifics of your situation and prepare suitable contractual agreements, to give you some peace of mind when disclosing key information.

Notes

For further information about commercial contracts, click here.

Distributing The Gifts In An Estate After Probate

When dealing with the administration of an estate, distributing the gifts is one of the final stages. It is important that executors do not make distributions too soon, to protect themselves and the estate against debts or claims. Executors are advised not to pay out gifts before obtaining the Grant of Probate as time limits for claims against an estate usually run from the date of the grant, rather than the date of death.

Often executors and beneficiaries alike do not realise exactly how many different steps are required to administer an estate, but there are several parts of the process before distribution will be possible. Once you are in a position to make distributions from the estate, there are various considerations that will need to be made.

Beneficiaries

Even though you will not be able to distribute the estate until late in the process, you should already have located all the beneficiaries and notified them that they are due to receive items or money from the estate. You should, at this stage, check that their contact details remain the same and check their bank details in readiness for payment of the sums due to them.

If you have not yet attempted to locate any beneficiaries, now is the time to do so. If you have been unable to locate any beneficiaries, or you are now unable to re-establish contact with them, you will need to hold onto any items or money due to them until they are found, or until you have taken satisfactory alternative steps.

You must take all reasonable steps to locate beneficiaries. If you cannot locate a beneficiary yourself, you should seek help from a reputable tracing agent. If the tracing agent is also unable to locate the beneficiary, there are options available to you to ensure that you are not forced to hold on to that beneficiary’s share of the estate forevermore. Some of these options involve reaching an agreement with other beneficiaries, some will involve making an application to court. A solicitor can help you to identify the most suitable option for your circumstances and help facilitate the process.

Communications

Beneficiaries often do not understand why things take so long, so proactive communication with beneficiaries is key to the prevention of frustration.

You should let them know as soon as the grant of probate has been received and when they can expect to receive their gift.

No beneficiary is obliged to accept a gift left to them in a will. It is always worth checking with beneficiaries if they actually want what has been gifted to them, especially if it is a particular item.

Before distributing gifts to beneficiaries, make sure you check how they would like to receive the gift. For example, if the beneficiary is due to receive shares, they might prefer to receive the shares themselves so that they can retain these as an investment. Alternatively, they may not wish to deal with the complexities of shareholdings and simply prefer for the estate to sell the shares and then to receive the monetary value instead. You should always be led by the beneficiary’s preferences and wishes. If a beneficiary has no preference as to whether they receive a gift of shares as shares or as money, you should consider whether selling would be disadvantageous. For example, if the shares have recently dropped significantly in value but they may well go back up, it might be more advantageous to transfer the shares to the beneficiary so that they can retain them until they increase in value.

Unwanted Gifts

If the beneficiary does not wish to receive it, they can disclaim their gift, which could then leave the item available for another beneficiary who does wish to receive it as part of their share.

Disclaiming a gift requires a formal written document, which a solicitor can help you to arrange.

Practical Distribution Of Gifts

Where specific items are to be shipped to a beneficiary, the will should specify who is to pay the cost of the shipping. This is particularly important if the beneficiary is based overseas or when the shipping would be more expensive than usual for any other reason.

Until gifts can be distributed, the executor should keep these somewhere safe and should insure items of significant monetary value.

For gifts of shares, the cost of selling or transferring these would be borne according to the terms of the will. If the will does not specify who should pay the costs, it will be for the beneficiary of the shares to bear the burden.

Timing

If some assets are taking a long time to realise, you may be under pressure from beneficiaries to distribute whatever you can. Specific gifts, such as jewellery or artwork, can be passed on to the recipients as soon as it is available, so long as the gift is not under dispute. You can also make interim distributions to those beneficiaries who are due to receive the residue of the estate whilst you are awaiting receipt of any remaining assets.

How Can We Help?

As with all stages of estate administration, any distribution must be in accordance with the will (or intestacy rules) and in the best interest of all the beneficiaries. If you are unsure about what you are allowed to distribute, or if you find yourself dealing with any difficult beneficiaries, our solicitors can help.

Notes

For further information about our probate service, click here.

Top Tips For Negotiating MBO Sales

If you are planning to sell your business to your management team, agreeing the terms of the deal is just the beginning. It is vital that you manage the management buyout (MBO) process from start to finish as you would any major project. At each stage there will be key decisions and making the right judgements along the way may be the difference between the success and failure of the deal.

Agreeing your MBO sale in principle is only the start. To ensure successful completion, you have to remain focussed on the detail and drive the sale through to the end. In this post we highlight some key tips to reduce the chances of a management buyout deal failing, and to ensure you are in the strongest negotiating position.

Early Disclosure

The buyers must understand the fundamentals of the business from an early stage, so that they can make an informed decision as to whether to proceed with the purchase and how to fund it. Consequently, it is usually a good idea to disclose key information, such as the overall financial picture, sooner rather than later. This allows the buyers the opportunity to prepare for the transaction properly and it also avoids wasting time if the deal is simply not viable for them from the outset.

Furthermore, by having a deep and thorough understanding of the known strengths and weaknesses of your business, and by adopting a transparent approach from the start, you can utilise this to your advantage in your negotiations. This ‘cards face up’ approach gives an early sense of reassurance to the MBO team which allows you to remain in control of the discussions as the sale progresses.

It is, of course, appropriate that you ask the buyers to sign a confidentiality or non-disclosure agreement prior to making such disclosures. Our team can assist in drafting a suitable agreement, specifically designed for an MBO deal.

Prepare The Team

It is in your interests to ensure the MBO team members are capable of seeing the deal through to completion and making a success of their purchase. This is particularly the case if there is any aspect of seller financing or deferred payment in the payment structure.

With this in mind, it is wise to ensure there are the right people in the buying team, and that they have ‘eyes wide open’ going into the transaction. If there are any weak links, such as an individual who lacks the required experience or has the wrong mindset, then it is a good idea to suggest their removal before they potentially jeopardise the deal.

Critical Issues

There is often a series of critical issues at the heart of any business transaction that may have the potential to make the deal succeed or fail. Examples of such matters might include taxation; the business valuation; the proposed payment structure; and any debt repayment plan.

It is vital that you address such issues early by involving your solicitors and accountants early on, having honest discussions with the buyers and making informed yet pragmatic decisions with the end goal in sight.

This approach will help prevent any of these issues becoming a dealbreaker or being used as an argument by the MBO team to drive down the price. If you fail to do this, it is all too easy for the buyers to take control of matters and issue an ultimatum in a key area.

Be Helpful With Due Diligence

At the due diligence stage there will typically be a mountain of enquiries and requests for documentation. It is usually best to be helpful and supportive during this stage, taking the view that due diligence is a routine and entirely normal part of any business sale transaction.

This attitude also places you in a strong position during all negotiations, as once again it reassures the buying team that you have nothing to hide and that the business is a worthwhile acquisition.

We are happy to support you throughout this part of the process, and we can advise on any queries that are non-standard or that may require particularly careful consideration.

Avoid Late Surprises

Nothing has more potential to scupper a deal than a late surprise. You must do all you can to eliminate this risk by being appropriately transparent throughout. Late surprises unnerve buyers and funders and can create fatal doubt over the deal at the worst possible time, just as you are approaching completion.

The better approach is to address known weaknesses or problematic areas in the business head-on and take ownership of how to resolve them, providing practical solutions and workarounds. This is a good negotiation tactic as it helps remove what would otherwise be a potentially powerful bargaining chip that could help the buyers drive the price down.

Warranties And Indemnities

It is entirely normal for the buyers to ask for a series of warranties and indemnities in the business sale and purchase agreement.

In this context, warranties are contractual promises or assurances that you as a seller are making about the state of the business and the veracity of the information and documentation that you have disclosed. Typical warranties might extend to, for example, the accounts giving a true and fair picture of the business or your ownership of intellectual property rights being in order.

Indemnities are agreements to meet certain liabilities on behalf of the buyer in the event of them arising at some point in the future. These liabilities may cover such matters as taxation, litigation, or employment claims arising from events occurring before completion. They provide some comfort to the buyer in stepping into the ownership of the business and facing a range of potentially unknown liabilities, some of which will be entirely outside of their control.

The buyers will be advised by their lawyers on the importance of the warranties and indemnities. Since they are a standard request in the majority of business sale and purchase matters, you should approach these requests in a fair and reasonable manner.  If you do not, then there is always the risk that the buyers will seek to price this risk into the deal and lower their offer price as a result.

When negotiating warranties and indemnities, it is wise to bear in mind that there is usually a compromise to be found in the wording, provided that both parties are sensible and appreciate both sides of the equation.

Our corporate and commercial team are highly experienced in negotiating these types of warranties and indemnities. We will be happy to advise you on what is reasonable and what is not in your specific circumstances.

How We Can Help

We can support and guide you throughout your MBO sale and protect your interests at each step of the process with the ultimate aim of securing a timely completion.

Our solicitors will be able to advise you on all the procedural aspects and we can draft and negotiate all the documentation required.

If you are planning to sell your business by way of a management buyout, it is best to engage solicitors at the very start so that you get the most benefit.

Notes

For further information about our business sale and purchase, MBO and M&A services, click here.

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