What is the Law in Your Life?

5 things you should know about Company Striking Off and Dissolution:

1.  If a company is no longer needed it can apply to the registrar of companies to be struck off and dissolved.  This procedure is called “voluntary striking off”. An application for voluntary striking off can only be made by the company’s directors on the company’s behalf.

2.  To apply for strike off a company must complete and sign a Form DS01 and send this to Companies House with the required fee. Within 7 days of sending the form, the directors who signed the form must send a copy to all members, existing and likely creditors, employees, managers or trustees of any employee pension fund and to any directors who have not signed the form; failure to do so is an offence. Upon receipt of the Form, Companies House will, if it is acceptable, register the information and put it on the company’s public record, publish notice of the proposed striking off in the Gazette to allow interested parties the opportunity to object and place a copy of the Gazette notice on the company’s public record. If there is no reason to delay, the registrar will strike the company off the register not less than 2 months after the date of the notice. The company will be dissolved on publication of another notice in the relevant Gazette.

3.  From the date of dissolution, any assets of a dissolved company will belong to the Crown.

4.   Creditors and other interested parties can apply for a company that has been struck off and dissolved to be restored to the register. Any company which is restored to the register is deemed to have continued in existence as if it had not been struck off and dissolved.

5.   A recent decision of the Inner House of the Court of Session on appeal from the Sheriff Principal has confirmed the effect a company’s striking off and subsequent restoration to the register has on a lease when the lease is disclaimed by the Crown prior to restoration. The argument by the tenant that their restoration to the register meant that the lease continued as if there had been no interruption caused by its striking off was successful before the initial sheriff hearing the case, but lost on appeal to the Sheriff Principal. The tenant (and one of its directors) appealed to the Court of Session. The Inner House considered the effect of the disclaimer and the proper construction of the relevant provisions of the Companies Act 2006. The Inner House held that on the date the tenant was dissolved and struck off, its rights vested in the Queen’s and the Lord Treasurer’s Remembrance (“QLTR”) as ownerless property. However, the QLTR’s subsequent disclaimer of the lease meant that: (1) the tenant’s rights in the lease terminated on that date; and (2) any rights in the lease were deemed not to have vested in the QLTR as ownerless property. As a result the tenant’s rights, interests and liabilities in the lease had come to an end. 

What is the Law in Your Life?

5 things you should know about Enterprise Management Incentives.

1.   An Enterprise Management Incentive (“EMI”) is an option to purchase shares granted by a company to an employee which meets the various qualifying criteria and, therefore, qualifies for special tax treatments.

2.  EMIs offer generous tax advantages to both qualifying companies and participants, as follows:

• no income tax or National Insurance contributions ("NICs") on grant of the option;
• no income tax or NICs on exercise of the option (as long as the exercise price is set at a value equal to or greater than the market value of the shares on the date the option was granted);
• on disposal of the shares acquired pursuant to the EMI option ("EMI Option Shares"), the individual's gain is subject to capital gains tax at a lower rate than income tax;
• Entrepreneurs' Relief may be available on the disposal of EMI Option Shares, meaning gains on disposal may be taxed at just 10%. 

3.   There are a number of legal requirements which companies must satisfy in order for their share options to qualify as EMIs, including: 

• the company must carry on a "qualifying trade" in the UK;
• the company must not have gross assets exceeding £30 million at the time the share option is granted; and
• the company must have fewer than 250 full-time equivalent employees at the time the share option is granted. 

The shares used for EMI options can be subject to restrictions, but they must be ordinary shares which are "fully paid up" and not redeemable or convertible.

In order to qualify, participating employees must spend at least 25 hours per week or, if less, 75% of their working time, on the business of the company. Individuals with a “material interest” in the company, either on their own or together with one or more associates, are also unable to participate.

4.   Employees must be able to exercise EMI options within 10 years. The option terms must be set out in a written agreement which must detail any restrictions on the shares.  The company must deliver, electronically, an annual return to HMRC in respect of the EMI options.

5.   It is recommended that companies establish the market value of the shares that will be put under option before EMI options are granted. The value can be formally agreed with HMRC, or the company can use its own valuation although it would then be open to HMRC to query this. HMRC must be notified electronically of any grants of EMI options within 92 days of the grant date. HMRC has 12 months to make enquiries as to eligibility. If it does not make such enquiries, and all information provided is correct, then the share option is deemed to qualify.

What is the Law in Your Life?

5 things you should know about the changes to the directors' disqualification regime.

1.  The Small Business, Enterprise and Employment Act 2015 ("the Act") has introduced a number of changes to the law relating to directors' disqualification. This blog post addresses some of the key changes.

2.  The Act introduces two new grounds for disqualification as a director: (1) proceedings will be possible against a director on the basis that he has been convicted overseas of certain offences connected with establishing and running companies; and (2) where a director has been disqualified in circumstances where his conduct makes him unfit to be involved in the management of a company and that director was acting on the directions or instructions of a third party, it will be possible to bring disqualification proceedings against the third party exerting that influence.

3.  There has been an expansion of the matters that a court must take into account when determining an application for disqualification, including a director's track record, the nature and extent of any loss or harm caused and their activities overseas. When determining whether a person's conduct as a director of a company makes them unfit to be involved in the management of a company, conduct as a director of any overseas company must now be considered.

4.  Where a company becomes insolvent: (1) insolvency practitioners will be obliged to report to the Secretary of State on the conduct of every director of the company at the date of the insolvency (and during the three previous years) and in that report, describe any conduct which may assist the Secretary of State in deciding whether to bring disqualification proceedings - previously, insolvency practitioners were only required to report if they felt that the director's conduct showed he was unfit to be involved in the management of a company; (2) the length of time during which disqualification proceedings can be brought against a director will be extended from two years to three years after the date on which the company becomes insolvent; and (3) courts will have the ability to order a person subject to a disqualification order to make a payment for the benefit of one or more creditors of the insolvent company, where the conduct of that person which led to his disqualification has caused the creditor(s) to suffer loss.

5.  Whilst the majority of the changes set out above were brought into effect on 1 October 2015, the changes relating to the reporting obligations of insolvency practitioners were not and, at present, there is no indication as to when these changes will be brought into force. 

What is the Law in Your Life?

5 things you should know about the Consumer Rights Act 2015 - Part 2

1. Misleading Information: At the moment, a consumer given misleading information is only able to pursue an action for misrepresentation. This is because such information does not form part of the contract. However, under the 2015 Act a more straightforward remedy for breach of contract is now available. Any spoken or written statements made by the trader about his service will be binding contractual terms. This includes both pre and post contractual statements, provided those statements related to the service to be provided.

2.  Unfair Terms: Where terms in a consumer contract are deemed unfair, they may not bind the consumer. The existing "fairness test" is retained in the 2015 Act, but terms relating to the price and contract subject matter will only be exempt if they are both transparent and prominent. For a term to be transparent it must be in plain and intelligible language. For a term to be prominent it must be brought to the consumer’s attention. Terms which allow the trader to determine the price after the consumer is bound will be presumed to be unfair

3. Enforcement: Enforcers of consumer law already have remedial powers against offending businesses. In particular, enforcers may seek to obtain civil injunctions ordering the cessation of infringing acts. They may, furthermore, bring criminal prosecutions. The 2015 Act extends the civil remedies available to enforcers by setting out a number of “Enhanced Consumer Measures” which may be sought. The incoming Enhanced Consumer Measures (“ECMs”) include: (a) reimbursement of financial loss; (b) publication of the breach on the business’ website, in its stores, or within the press; (c) publication of the breach on the Trading Standards website; and (d) orders for the remediation of the business’ internal practices. Please note that details of possible measures are not included in the 2015 Act. The guidance published by the Government in relation to the ECM’s explains the reason for this is to ensure that “the enforcer or the court retain the flexibility to find the most appropriate measure or measures to deal with a business that has broken the law”.

4.  Secondary Ticketing:  The 2015 Act beefs up the regulation of the secondary ticket market by introducing new requirements.  For example, resellers and operators of resale facilities will need to ensure purchasers are provided with basic information on each ticket for sale, including the row/seat number it relates to, any restrictions as to who it can be used by (for example, any age limit applicable) and its face value.  Local authority trading standards will be responsible for enforcing these new provisions and will have the power to impose fines on sellers and secondary ticketing platforms who fail to comply.

5.  The 2015 Act is expected to come into force on 1st October 2015 (with the exception of the secondary ticketing provisions which are already in force) so businesses should take steps now to review existing consumer related practices and terms and conditions. 

What is the Law in Your Life?

5 things you should know about the Consumer Rights Act 2015 - Part 1

1.  The 2015 Act applies to contracts between a trader and a consumer, and not to business to business or consumer to consumer contracts.

2.  Under the 2015 Act, consumers will have new rights in respect of faulty or not as described goods, services and digital content

3.  Goods: Terms will still be implied into consumer contracts that goods will be of satisfactory quality, fit for a particular purpose, and as described. Businesses cannot contract out of these terms.  Consumers will have the “short-term" right to reject goods that are faulty or not as described within 30 days. Consumers will have the right to request that faulty or not as described goods are repaired or replaced (even after the 30 day right to reject period has expired). Consumers will have the right to a reduction in the price or to reject the goods after one unsuccessful repair or replacement.  Traders may be entitled to make a deduction in respect of any use the consumer has had of the goods before they are rejected in certain circumstances.  As a general rule, no deduction can be made if the consumer exercised their “final right to reject” within the first 6 months although certain goods are exempt from this rule, including motor vehicles.

4.  Services: Terms will still be implied into consumer contracts for the supply of services that: the service will be performed with reasonable skill and care, the price will be reasonable if not agreed, and the service will be performed within a reasonable period if not agreed. Businesses cannot contract out of these terms. If the service is not performed with reasonable care and skill, or it does not conform to pre-contractual statements made by the trader, consumers can require the trader to perform the service again to put it right. If a repeat performance is not possible or not repeated within a reasonable time the consumer has the right to a price reduction.  A consumer may also request a price reduction if services are not provided within a reasonable time.

5.  Digital Content: The 2015 Act introduces specific rights and remedies for paid for digital content or digital content that comes free with physical goods (but is not otherwise available for free). It does not cover internet or mobile services that provide access to digital content. Digital content must be: of satisfactory quality, fit for a particular purpose, and as described. If not, consumers have the right to a repair or replacement, or a reduction in price.  Businesses cannot contract out of these terms.  Consumers are entitled to claim compensation if the digital content supplied by the trader damages their electronic device or other digital content so long as the consumer can show that the trader did not exercise reasonable skill and care.  In these circumstances, the trader must either repair the damage or pay compensation to the consumer.

What is the Law in your Life?

5 things you should know about interpretation of contracts:

1.  A contract between two parties will generally be interpreted according to its terms i.e. within the four walls of the document.

2.  The contract will be considered as a whole

3.  Where the words used in a contract are clear and not open to more than one interpretation, a court must give them their natural meaning and cannot substitute what it, or one of the parties, considers a more commercially sensible outcome.

4.  Where however there are two possible constructions of a contract, the court is entitled to prefer the construction which is consistent with business common sense and reject the other.

5.  Clarity is key when adjusting contracts in an effort to avoid possible ambiguity and therefore uncertainty.

What is the Law in your Life?

5 things you should know about The Legal Writings (Counterparts and Delivery) (Scotland) Act 2015:

1.   This eagerly awaited piece of legislation finally came into force on 1st July 2015.  In short, this means that execution in counterpart in now recognised in Scots law. For a brief overview of this Act, please see our blog “Electronic deeds and execution in counterpart”.

2.   Nominee: Under section 2 of the Act, the parties to a document executed in counterpart can nominate someone to take delivery of the counterparts. It is perfectly competent for a solicitor acting for one of the parties to take on this role and indeed this is what was envisaged when the Act was drafted.  With regard to the scope of the nominee’s role, the Act makes it clear that the nominee’s duty is to “hold and preserve” the counterpart(s) for the benefit of all the parties.  If a solicitor does take on this role, they should take care so as not to inadvertently breach their duty as a nominee. A solicitor could not, for example, withhold a counterpart on a client’s instructions without breaching their duty under section 2 of the Act.

3.   Delivery by electronic means: It is clear under the Act that parties can agree to deliver by fax/email only the signing page of the contract, once signed in counterpart. The Act also makes it clear that there must be something beyond the signature to show it is part of the correct document. One possible solution to this would be to insert a footer/header which would set out the full name of the contract, the version of the contract, and the date it was transmitted etc.

4.   Counterparts clause: Under the Act, there is no requirement to have a counterparts clause.  However, it would be good practice to have such a clause, at the very least to serve as an explanation to third parties such as Registers of Scotland or Companies House.

5.   Assembly of the document: Under section 1 of the Act, upon execution, the counterparts are to be treated as a single document which may be made up of both/all the counterparts in full OR one of the counterparts in full, collated with the pages on which the other counterparts have been signed. For obvious reasons, the first option would be a much more unwieldy document but either is competent.