The outbreak of COVID-19 has forced many business owners to ‘press pause’ on their business whilst the NHS fights the pandemic. However, when you are a business owner ‘pressing pause’ is not really an option. Therefore, in this time of uncertainty, what can you do to drive your business forwards? We are all guilty of having a ‘to do’ list that we never get to and save for a rainy day. Despite the spring weather, now is a good time to reflect on your business so that when the lockdown starts to lift, you are in a better position to commence trading once more. One classic example is putting in place a Shareholders Agreement. This is a private contract that regulates the relationship between shareholders and can deal with many aspects of business including:

• How key decisions are made
• How a deadlock is dealt with
• Restrictions on transferring shares
• What happens in the event of death or incapacity
• Employee Shareholders and what happens if they resign
• Managing a majority/minority shareholder relationship
• Dividend policies
• Confidentiality
• Competition and Restrictive Covenants
• Valuation procedures and policies

Ultimately, by putting in place a Shareholders Agreement you can prevent a dispute and address many of the uncertainties that can come up in the course of business.

If you would like assistance with putting in place a Shareholders Agreement or would like an existing agreement to be reviewed, please contact Holly Threlfall and the Business Services team on 01604 828282 / 01908 660966 or email holly.threlfall@franklins-sols.co.uk.

“I’ve looked at the accounts and everything seems to be okay”. Unfortunately, when discussing the prospect of legal due diligence this is often the response that I receive.  The caveat “buyer beware” applies to your transaction and the onus is on you to undertake detailed enquiries and ensure that you know what you are buying, warts and all.

Due diligence is about identifying risks and mitigating them so that not only do you have a successful transaction, but a successful business to trade moving forwards. Analysing the Company’s accounts is crucial to confirming the value of what you are buying and understanding its income, liabilities and cash flow (amongst many other things) all of which will have an impact on your ability to profit from the deal and ensuring that you can meet the repayment terms of any funding. However, the company’s accounts are only one part of the story.

Contracts

You’ve analysed the accounts and the seller has disclosed that the company is turning a healthy profit and has multiple returning clients. The regular business results in a healthy cash flow that supports your funding requirements for the deal. This is all excellent news.

However underpinning every business relationship is a contract. It does not need to be in writing to be binding, however having written terms certainly gives you comfort as to the terms of service. If there are no written terms, reasonable notice can be given to terminate a contract. So here is the question: what if the customers are unsettled by the change in ownership and give notice to terminate? That income that you were relying upon may dissipate quickly.

It’s not just the customers that you need to think of – what about suppliers? What happens if the change of control triggers a right for them to terminate or change terms of business? You could lose your supply chain that not only could this be disruptive to the business, but could also result in you needing to find alternative suppliers or negotiate new terms, which may be less favourable.

Business, after all, often comes down to relationships. People deal with people and ownership changes can be unsettling. Undertaking legal due diligence can identify the risks specific to the business you are acquiring, the potential impact that a change of team may have and allow you to put a mechanism in place or have comfort in the contractual terms to ensure a successful business post-completion.

Litigation

The accounts may make provision for a potential claim against the company, however founded or unfounded that it may be. That may give you an indication as to what the seller considers the value of the potential liability to the company in monetary terms, but it does not give you an understanding of the likelihood of success of the claim or the broader impact that it may have.

The question is, what is the claim? Is it faulty goods that have been provided – if so has the problem been rectified or could potential claims follow? The risk to the company could be far greater in terms of cost that the initial claim itself and may need rectifying and indeed an indemnity from the seller in respect of any other claims that could arise.

Another key question is reputation – is the claim likely to be public and could it mar the company’s reputation? Take data breaches for example. Personal data is highly sensitive and not only are the sanctions costly, but if made public can damage the company’s reputation and impact its business and therefore income. Identifying the risks of this in due diligence can allow you to put a plan in place to manage the risk and damage to reputation and mean that you are proceeding with your eyes open rather than being blindsided post-completion!

Property

This is one of the highest areas of risk in any transaction as the property may not just be somewhere that the company trades from but also an investment in itself. It’s a great asset to have on the balance sheet and is often leveraged as a part of the transaction in favour of your funders. Although you may not be directly acquiring the property as it is already owned by the target, nevertheless indirectly you are taking on both the asset and associated liabilities and if that asset is compromised; not only can it compromise your security but the investment and business trade itself.

There are a multitude of issues that can arise in relation to property that could be costly:

• Covenants and restrictions on certain types of trade or activities could impact your business growth and development plans or access to the premises could be an issue not originally picked up.
• If leasehold, the term of your lease and whether or not you have security of tenure is vital to your continued occupation and ability to trade from the premises. If the lease is due to expire with no right to hold-over shortly after the acquisition, this will have a significant impact on the business.
• If the property is in a bad state of repair the cost can be significant and the question is, who is going to bear the burden of that cost? If you don’t undertake due diligence and thorough investigations this could be a liability that you suffer even if it happened in the seller’s period of ownership.

The above are just a few examples of property issues that can be detrimental to the business that you are acquiring. You would be amazed at the skeletons that are in the closet that we have encountered, from unpaid Stamp Duty Land Tax to issues with the scope of property ownership and access. Thorough due diligence gives you the opportunity to consider the risks and address them prior to completion or in the sale contract itself by apportioning liability. Without due diligence, you may not become aware of the underlying concerns and put yourself at risk post-completion.

Accounts vs Legal Due Diligence

I don’t deny that accounts due diligence is fundamental to a transaction – indeed in every transaction I work closely with my client’s accountants and tax advisors to ensure that they are also satisfied from a tax and accounting perspective and that the sale contract addresses any underlying concerns. However, it is only by working together that we can protect you.

The above are only examples of a few areas that are covered by legal due diligence and it is only by undertaking thorough investigations from both perspectives that you can ensure that you have fully appraised the opportunity and proceed with the transaction with confidence.

If you would like to know more about legal due diligence please contact our Business Services team on 01908 660966/ 01604 828282 or email ddaudit@franklins-sols.co.uk. 

The Government and businesses alike have raised concerns over lenders’ willingness to grant loans via the Government’s Business Interruption Loan Scheme (the “Scheme”).

Speaking at Downing Street yesterday evening, the Business Secretary, Alok Sharma, expressed his concern that lenders are continuing to offer their business loans and products on their standard commercial terms in the first instance, with interest rates in some cases being charged as high as 30%. If lenders can offer financial support to their business customers whilst utilising their own products and services and without the need to rely upon the Scheme, it appears they are continuing to do so.

One of the current terms of the Scheme states that it is at the discretion of a lender as to whether the Scheme may be used for unsecured lending facilities that are granted for £250,000 or under. For any facilities granted in excess of £250,000, lenders must establish a clear lack of security prior to offering businesses access to the Scheme. Furthermore, it would appear that lenders are continuing to make access to the Scheme contingent upon directors utilising their own property and assets as a form of security in return for obtaining an emergency bailout, which may even include entering into personal guarantees! This is clearly not what the Government had intended when offering the Scheme, as the intention behind the Scheme is to relieve the pressure that is being placed on businesses, not for this to be increased by asking directors to personally guarantee the debt.

Changes to the Scheme are imminent and it is clear that the Scheme has not been implemented as smoothly as the Government may have hoped. The Government has expressed that it intends to iron out these issues and to make the terms of the Scheme clearer in order to make access the Scheme as simple as possible.

If you need any help and assistance in relation to loans or personal guarantees, Franklins are here to help. Please do not hesitate to contact Holly Threlfall, Associate Partner in our Business Services team on 01604 828282 / 01908 660966 or email holly.threlfall@franklins-sols.co.uk.

As COVID-19 intensifies and emergency legislation is being passed, the Government has put in place unprecedented support for businesses, seeking to protect the wellbeing and health of the UK economy. 

The Chancellor announced in the 2020 Budget that there would be temporary, timely and targeted measures to support the business community. One of these measures is the Coronavirus Business Interruption Loan Scheme. 

The primary objective of the scheme is to support small and medium sized businesses to access financial support from banks up to £5million (previously this was up to £1.2million) during this time of uncertainty and the inevitable cash-flow disruption.

Key Features

The key features of the scheme are:

• up to £5million available to small and medium sized businesses;
• repayment term of up to six years for loans and asset finance facilities and up to three years for overdrafts and invoice finance facilities;
• partial government backed guarantee of 80% against the outstanding balance;
• no fee payable by the businesses accessing the scheme;
• no upfront cost and lower initial repayments with the assistance of the Government covering the initial 12 months of interest and fees due and any lender-levied fees;
• at the discretion of the lender, unsecured lending for facilities of £250,000.00 and under; and 
• the borrower will remain 100% liable for the debt raised through the scheme. 

How does it work?

In order to take advantage of the scheme, you would apply to one of the 40 accredited finance providers (which include all major banks) for funding. You would need to submit a business plan as soon as possible for them to consider with your application. If successful, your advance is then guaranteed for up to 80% by the British Business Bank (which is government owned).

What is the purpose of the guarantee?

The Guarantee minimises the associated risk to your lender of a default on the loan, providing them with the reassurance that should you fail to pay the British Business Bank will step in. Ultimately, the Government is guaranteeing 80% of the outstanding balance to your lender, subject to an overall cap. However, this does not mean that they are making the repayments for you. The guarantee is a safety net for the banks, you will still need to make repayments as principal obligor however should you be unable to make repayments as they fall due to insolvency your lender has the surety of repayment from the government. I sincerely hope that this would not be the case and that you can continue to trade during this difficult time. Of course, if you are worried about solvency you should ensure that you speak with an Insolvency Practitioner as soon as possible. The sooner they are aware of any difficulties that you may be facing the sooner they can step in and support you and your business.

With the government guarantee behind you and your lender’s risk reduced, it enables businesses, which may be declined for financial support from banks due to a lack of security, the ability to access sufficient support during these exceptional times.

Am I Eligible?

In order to apply for a loan under the Business Loan Interruption Scheme, you must be eligible. That is you must:

• be a business – that is a sole trader, freelancer, body corporate, limited partnerships, limited liability partnerships or other legal entity;
• operate your business through a business bank account in the UK;
• have a turnover of no more than £45million per financial year; and
• have a viable borrowing proposal agreed with the bank where it is considered whether the provision of finance will enable the business to trade out of any short-to-medium term difficulty.

The following sectors are not eligible to apply for the Scheme:

• building societies;
• insurers and reinsurers, this does not include insurance brokers;
• the public sector; and
• employer, professional, religious or political membership organisation or trade unions. 

For more information on the Business Interruption Loan Scheme please see blood pressure the government website here. 

More information is also available from the Bank of England here.

If you are considering drawing a loan and would like advice and support on the legal terms and your obligations, please don’t hesitate to contact our Business Services team and we would be happy to assist on 01604 828282 / 01908 660966 or email businessservices@franklins-sols.co.uk.

Following the instruction from our Prime Minister yesterday that we must all stay home to stay safe; never has it been so evident that health and wellbeing is paramount. We take our duty of care to our clients and staff seriously and as such we have adapted our working practices following the outbreak of COVID-19. However, rest assured that our Business Services’ Team of expert-solicitors are still available to support you, your business and customers through this difficult time.

Fortunately, we live in a connected world and with the support of technology we are able to continue to provide you with the high-standard of service and care that our clients expect of us. Although regrettably we cannot offer face-to-face meetings at this time we are of course happy to advise you via Face-Time, Skype or other means of video-conference. As many of our new clients are aware, our on-boarding process is entirely remote and does not require you to attend at our office or leave the safety of your home. Therefore, whether a returning or new client we can still assist and provide you with the quality legal services that you need.

As you may expect we have been putting in place a contingency plan over the past weeks and the majority of our teams are now working remotely. In this digital age many of our services are already provided electronically therefore there will be minimal disruption to your matter with us. However, unfortunately there may be some unavoidable disturbances as we overcome new challenges and adjust to a new way of working, but please bear with us as we will rise to the challenge and move forwards as must we all. Although our doors may be closed, we are open for business and willing, ready and able to assist you.

If you have any queries or concerns then please don’t hesitate to contact me directly on 07879464500.

Thank you once again for your patience. Please stay home and stay safe.

Andrea Smith,

Head of Business Services

Following the instruction from our Prime Minister yesterday that we must all stay home to stay safe; never has it been so evident that health and wellbeing is paramount. We take our duty of care to our clients and staff seriously and as such we have adapted our working practices following the outbreak of COVID-19. However, rest assured that our Business Services’ Team of expert-solicitors are still available to support you, your business and customers through this difficult time.

Fortunately, we live in a connected world and with the support of technology we are able to continue to provide you with the high-standard of service and care that our clients expect of us. Although regrettably we cannot offer face-to-face meetings at this time we are of course happy to advise you via Face-Time, Skype or other means of video-conference. As many of our new clients are aware, our on-boarding process is entirely remote and does not require you to attend at our office or leave the safety of your home. Therefore, whether a returning or new client we can still assist and provide you with the quality legal services that you need.

As you may expect we have been putting in place a contingency plan over the past weeks and the majority of our teams are now working remotely. In this digital age many of our services are already provided electronically therefore there will be minimal disruption to your matter with us. However, unfortunately there may be some unavoidable disturbances as we overcome new challenges and adjust to a new way of working, but please bear with us as we will rise to the challenge and move forwards as must we all. Although our doors may be closed, we are open for business and willing, ready and able to assist you.

If you have any queries or concerns then please don’t hesitate to contact me directly on 07879464500.

Thank you once again for your patience. Please stay home and stay safe.

Andrea Smith

Head of Business Services

The impact of COVID-19 is beginning to become reality to many industries. It is no longer that disease confined to far-off lands, but it is here on our doorstep. Businesses are beginning to feel the squeeze as supply chains are interrupted; social distancing measures are imposed and school closures take effect from today. As reality sinks in for many of us it becomes apparent that the health risk to all individuals outweighs the risk to the economy and we should encourage and support social distancing and remote working wherever possible.

To facilitate this and minimise the damage to business while we fight this outbreak, the government have introduced a series of measures to support businesses through this difficult time including:

• up to 80% pay for employees (up to £2,500.00 per month);
• a business rates holiday for certain industries; and
• a Business Interruption Loan Scheme guaranteed by the government up to 80% of each loan.

More information can be found on the government website.

If you are looking to draw a loan and would like advice or guidance on the terms of the loan and any security documentation that accompany it, our business services team can help. Please don’t hesitate to contact Holly Threlfall on 01908 660966 / 01604 828282 or email BusinessServices@franklins-sols.co.uk.

Directors around the country are facing unprecedented problems following the outbreak of COVID-19 in the UK. There are natural concerns to health; the economy and now with schools due to close and talk of a London ‘lock down’ the issues are rising. Unfortunately, there is no ‘one size fits’ all solution on whether to trade and how to weather this storm. Ultimately, as a director your duty is to act in your Company’s best commercial interest. That does not just mean financially, but taking into account the following:

• The consequences of the decision in the long term
• The interests of your employees
• Your business relationships with others
• The impact that the decision will have on the environment and the community
• Maintaining high standards of business
• Acting fairly between the members of the Company

In the current climate, considering the impact on your employees, business relationships and impact on the community may be particularly prudent.

Whilst the decision on how to proceed is yours, if you would like further guidance on your duties as a director and even a sounding board please don’t hesitate to get in touch. We have both a dedicated corporate and employment team within business services and both myself and my colleague Ben Stanton, our employment Partner, would be happy to help! Call 01604 828282 / 01908 660966 or email BusinessServices@franklins-sols.co.uk. 

The long-anticipated spring budget has been released. On the back of an interest rate-drop, COVID-19 and only a few weeks after Rishi Sunak stepped up to the plate it’s certainly an interesting one!

It’s not surprising that measures are being taken to offer support in the light of the outbreak of COVID-19. There is the promise of a robust response including: a £5 billion emergency response fund for the NHS; and financial support for small businesses to weather the storm in the form of business interruption loans and refunds for statutory sick payments for two weeks.

There is a drive towards investment in infrastructure and further support for businesses in the retail, leisure and hospitality sectors through the abolition of business rates if they have a rateable value of less than £51,000.00.

However, one of the most contentions decisions will be the change in Entrepreneurs Relief, reducing the lifetime allowance from £10,000,000.00 to £1,000,000.00. This is sure to have an impact on many SMEs and entrepreneurs who relied on this relief!

Other changes announced concerned employment law:

• Statutory Sick Pay is now available for all employees advised to self-isolate, even if they do not have symptoms.
• For all businesses with fewer than 250 employees, the Government will fund Statutory sick pay for two weeks (a cost of up to £2 billion) to encourage self-isolation.
• The Living Wage (already increasing on 1st April 2020 from £8.21 to £8.72) will represent two thirds of the median wage by 2024, a projected figure of £10.50 per hour.
• National Insurance Contributions will be raised from £8,632.00 to £9,500.00, a tax cut for 31 million saving a typical employee £104 a year.

For more information, you can find highlights of the key points on BBC’s website

The process for making decisions can vary from company to company and must reflect your Articles of Association. However, there are common elements that need to be complied with to ensure due procedure and prevent a decision being challenged due to lack of authority.

The basic principles of how to convene a Board Meeting are:

• Notice – you need to issue notice of the meeting to all of the directors. Check your Articles to see any requirements in relation to:
  1. how the notice must be given (e.g. can it be sent via email, even WhatsApp, or does it have to be by post)
  2. how far in advance it must be given
  3. What needs to be in the notice – it may be obvious but the date, time and location should be specified
  4. How the directors can attend – can they attend via skype or video conference

• Convene the meeting – it may sound obvious but you need to ensure that you convene a meeting which complies with your Articles. You need to check:
  1. Chairman – who will run the meeting
  2. Quorum – do you have enough eligible directors present to convene the meeting?
  3. Conflict – are all of the directors entitled to vote or are they conflicted in the decision being made?

• Pass Resolutions – Ultimately the point of your meeting is to pass resolutions and make decisions. These need to be in the Company’s best commercial interest and should consider the S172 Factors. For more information on the s172 Factors – please see our Q&A Guide on what to consider in Board Meetings. Remember you may need Shareholder Authority to pass certain resolutions and the meeting may need to be adjourned to enable you to obtain the requisite consent.

• Minute the meeting – you must minute the decisions made in the meeting. The minutes should be signed off by your chairman.

• Filing – Don’t forget that you need to undertake filing following your meeting. This may include filing certain returns at Companies House but at the very least a copy of your minutes must be stored with your Statutory Books for at least 10 years

For more information and guidance on convening Board Meetings, please don’t hesitate to get in touch with Franklins’ Business Services team who would be happy to assist on 01604 828282 / 01908 660966 or at BusinessSevices@franklins-sols.co.uk.