Category: Commercial property

On 9 December 2020 the UK Government announced a further extension to the moratorium on forfeiture of leases on the grounds of non-payment of rent or other sums due, and the presentation of winding-up petitions.

The extension is until 31 March 2021

Whilst the Government has said this is a “final extension”, given this Government’s tendency to perform U-turns I wouldn’t count on it.

As most of you are probably aware, there are already restrictions on Commercial Rent Arrears Recovery until the same date, which limits the recovery action that can be taken.

So can commercial landlords do anything to recover outstanding rent?

There are genuine cases of many commercial tenants having effectively lost any income stream at all as a result of the global pandemic, and commercial landlords should exercise caution before taking any legal action in respect of those tenants.

There are, however, also many commercial tenants who are taking advantage of the Covid imposed limitations – the ‘can pay but choose not to pay’ tenants.

There is no embargo on debt proceedings being issued against a defaulting tenant and a money judgment being obtained for the rent arrears. The realisation that a CCJ entered against a tenant, which may potentially impact upon their credit rating, may bring about a reality check that there is only so long that they can avoid paying the outstanding rent and/or refuse to engage with the landlord. I see no reason why, in such cases, a commercial landlord should not take such action – at the very least it may bring the tenant to the table to enter into a dialogue with the landlord.

Landlords should also bear in mind their right to recover rent from former tenants and their guarantors by serving s.17 notices – remember that these must be served within 6 months of the arrears falling due.

The Government also announced that it would be carrying out “a review of the outdated commercial landlord and tenant legislation, to address concerns that the current framework does not reflect the current economic conditions”. On that one, watch this space.

If you are a commercial landlord and would like to discuss anything within this article, please contact Marcella Cox on 020 8427 9080 or by email on marcella.cox@vyman.co.uk.

When is a Company Insolvent?

There is no doubt that we are in a recession. Most businesses have been fundamentally affected by the COVID 19 pandemic. It is important for a company directors to be mindful of the possibility of insolvency and the implications.

When a business is unable to meet repayments on debt, or fulfil its financial responsibilities, it is considered insolvent.

For directors, this is a time fraught with risk, and it is up to them to manage the situation carefully and sensitively, in order to meet their obligations to the business and its shareholders, as well as creditors.

Should a director fail to act appropriately when a business becomes insolvent, there is a chance that they could face legal action and personal liability.So, it is very important to know what you need to do if you find yourself in this position.

What are the Warning Signs?

Before a business becomes insolvent, there will be an abundance of warning signs to be on the lookout for. It is helpful to know what these warning signs are, so that you can take timely action either to avoid insolvency, or to wind up the company in an orderly fashion.

Some of the signs to look out for include:

1. Decreased sales or revenue
2. Increased costs (e.g. of supplies, staff, etc)
3. Difficulty in securing loans, finance or other facilities
4. Suppliers or customers having difficulty in supplying or paying you
5. You are unable to pay staff wages
6. You cannot keep up with demands for payment
7. Other

Smaller signs that you are reaching a dangerous financial point include:

• Constant ‘firefighting’ with regards to staying on top of payments to creditors
• Paying bills later and later each month
• Stock deliveries being delayed due to non-payment, affecting your ability to make sales

Do you have Key Performance Indicators (KPIs) in Place?

A business which is running effectively will have several business performance systems in place to give you information about where your business stands financially.

You should have cash flow forecasts, aged debtors’ reports, and sales forecasts available to you at all times so that you can refer to them when examining the health of the business, and prior to making any important financial decisions.

Without these, it is impossible to identify your weak points, identify areas of improvement and make any business or strategic decisions confidently.

Company Insolvency Tests

If you think that you are in a tenuous position and might be on the way to insolvency, there are a couple of company insolvency tests which are generally used to determine whether your business is insolvent.

Balance Sheet Insolvency Test

A balance sheet insolvency test is designed to determine whether the shareholders’ funds are in the red, i.e. a negative figure. If your company liabilities are greater than your company assets, then your company is balance sheet insolvent. Your balance sheet should include future liabilities as well as contingent liabilities, for a more accurate overview of your position.

Cash Flow Insolvency Test

The cash flow test analyses your company’s ability to pay debts when they are due, or very near to the payment due date.

The cash flow test relies on simply looking at incomings and outgoings to determine whether your company can pay its bills in a timely manner.

What to do if your Company is Insolvent

If, as a director, you suspect that your company is insolvent, it is your responsibility to take appropriate steps to avoid increasing loss to creditors as this could make you personally liable for the company debts.

Once a company is insolvent, a director’s responsibilities crucially pass from having to act in the interests of the shareholders to one where they must actin the interests of creditors.

If you do not do this, then you could be guilty of “wrongful trading” under s214 of the Insolvency Act 1980 and could be made personally liable for creditor debts.

It is very important for directors to realise that they cannot rely on the “shield” of limited company status, which in normal times protects directors from being personally liable for any company debt.

Failing in your statutory duties as a director leaves you open to prosecution and may result in you having personal liability for company debts, a situation that must be avoided at all costs.

Are you worried about your Company?

If you are worried that your company may be insolvent now or that it may become insolvent soon it is vital that you act immediately.

By acting quickly you can initiate a process  which may save your business (for example administration or company voluntary agreement) or at least take steps towards an orderly winding up (which will hopefully minimise loss to creditors and the potential for claims against you).

If you wait until things are too late, then there is the possibility that you could be put into compulsory liquidation. When this happens, the court will appoint an insolvency practitioner, who has no prior relationship with you and may pursue a more aggressive stance in terms of viewing your conduct within the business. This could result in legal issues and financial loss for you as the winding up proceeds.

Vyman Solicitors are an accomplished and experienced firm in all areas of insolvency law and have established good working relationships with a number of insolvency practitioners and would welcome the opportunity to have a sympathetic discussion with you regarding any worries you may have about you and your Company’s financial position.

Please call us on 0208 427 9080 to find out more.

New data released by Remit Consulting, gathered from six leading property management companies in the UK, revealed that just 48% of tenants paid on time and in full in March. Just 41% of retail and hospitality tenants paid their rent while 57% of office tenants paid.

This comes as an update to the Coronavirus Act 2020 bans landlords from using their usual rent collection tactics in order to obtain rent from tenants.

Whilst some of the 80,000 tenants which made up the data have been unable to pay their rent due to the Covid-19 crisis, it was noted by researchers that a significant minority of businesses were unwilling to pay and others were both unwilling and unable.

So what does this mean for both businesses and landlords, in the uncertain climate that we currently find ourselves in?

Coronavirus Act  2020

The global pandemic is an unprecedented and economically damaging situation that is affecting most businesses in some way or another. The Coronavirus Act is legislation that has been drafted to protect businesses and individuals from economic damage during this time.

Businesses which rent property are likely to struggle over the coming months as business is slow or even non-existent whilst the UK lockdown remains in place. The Coronavirus Act prevents landlords from being able to start eviction proceedings on tenants for any reason, primarily until the 30th of June 2020 (although this may be extended if the Shelter-In-Place order is).

Section 82

Section 82 of the bill seeks to temporarily ban the forfeit of commercial leases for non-payment of rent until at least the 30th of June 2020. A further update to the legislation has targeted rent collection tactics, effectively stopping landlords from placing pressure on businesses who do not pay their rent during this time.

The reason for this update is that statutory demand notices and demand orders – both standard procedure for landlords attempting to force payment of rent – can force businesses into insolvency and make it harder for the business or individual to obtain credit in the future.

As a result of new regulations, Landlords are also unable to use Commercial Rent Arrears Recovery (CRAR) unless they are owed more than 90 days of unpaid rent. This protects any commercial business pushed into financial hardship as a direct result of Covid-19.

What Can Tenants Do?

If you run a business renting workspace, this legislation allows you to forego paying your rent for the stated time. However, rent is likely to still be owed after this meaning that you will eventually have to pay it in full so simply not settling up is not necessarily the best option.

The best thing for any tenant to do is to discuss their options with their landlord in order to come up with a solution that is mutually beneficial and ensures that you maintain your relationship with your landlord.

You could discuss with your landlord the following options:

1. Can you make monthly rental payments for the time being, as opposed to quarterly lump sums?
2. Could you get a moratorium on rent payments for the next few months? If not, could your rental payments during this period be split up and spread over the following six months after things have returned to normal?
3. Could you get a reduction in rent during the pandemic?
4. Could your rent be recalculated on a turnover-only basis?
5. Could your rent be reduced by 50% so it is equally covered by yourself and your landlord during this crisis?

While broaching this subject with your landlord may feel uncomfortable, most landlords do understand that this situation places many tenants in a difficult position. They also understand that it will be more difficult to find a new tenant during this time than to accept slightly different terms for a brief period.

Advice For Landlords

It is not only tenants being backed into a difficult position by the coronavirus pandemic. Landlords too are facing disruption to their income and uncertainty about the future. Here are some of the most common concerns and how you could overcome them.

If Your Tenant Cannot Pay Rent

The government has stated that you are not required to stop charging rent during this time and it is up to you to decide how best to handle the crisis. If your tenants are having trouble paying rent, the best thing to do is to have a discussion with them about their options.

Landlords are able to apply for a three-month payment holiday on your mortgage. If you secure this holiday and your tenants are unable to pay rent, this is much easier for you to manage financially.

You may also wish to consider accepting a lower rent payment in the short term and arranging a repayment plan to cover the debt later on.

Can You Reclaim Your Property?

The Coronavirus Act 2020 restricts you from commencing possession proceedings for any reason until the 30th of June 2020 unless you give your tenants three months’ notice. The government has also warned landlords not to commence repossession proceedings unless they have a very good reason to do so.

All housing possession cases have been suspended for 90 days as of the 27th of March. So, if you had already issued your tenant with a possession notice before 27 March, you still won’t be able to take it to court until the 90-day period is over.

What’s Next?

In all cases, whether you are a tenant or landlord, the law is not completely straightforward. We suggest that, if you are having an issue with rent or non-payment of rent, you speak with us at Vyman so that we can assign a solicitor to your case and they can look into your specific arrangement to see how you should best proceed.

We can look at your lease to see if there are any clauses or other legal grounds that justify non-payment of rent at this time. This could include:

• A ‘force majeure’ clause
• A frustration of the agreement (meaning that the terms of the agreement cannot be abided by thanks to unforeseen circumstances, of which Covid-19 would be the perfect example)
• The agreement becoming illegal. Covid-19 regulations make it illegal to operate certain types of business, which could in turn make for a good argument that your obligation to pay rent should be suspended during this time.

Contact us on anup.vyas@vyman.co.uk or sheetal.badiani@vyman.co.uk and we will review your tenancy agreement for £275 + VAT.

We aim to provide a response within two business days and will advise you on your position during the coronavirus pandemic as well as any additional steps pertinent to your situation which we would recommend.

We may also provide you with a letter from us to give to your landlord and assist your negotiations.

Many tenants have not paid their 25 March 2020 quarter’s rent. The scene is now set for a dog fight between landlords and tenants.

In this article, we give some guidance as to what both landlords and tenants should be thinking about.

THE LEGAL BASIS FOR THE LOCKDOWN

First, it is important to understand the legal basis of the lockdown. The Health Protection (Coronavirus, Restrictions) (England) Regulations 2020 (‘Covid Regulations’) came into force on 26 March 2020. The regulations impose various restrictions:

1. Businesses (food and drink) which must close during the emergency period, except for the purpose of selling take away food. This includes all restaurants, cafes, bars and pubs.
2. Businesses which must close with no exceptions. This includes, cinemas, theatres, nightclubs, bingo halls, concert halls, casinos, betting shops, spas, nail/beauty/hair salons and barbers, massage parlours, indoor fitness studios/gyms, bowling alleys, amusement arcades, indoor leisure centres, car showrooms, and the list goes on.
3. Restrictions on Movement. No person may leave their home without reasonable excuse i.e.
   1. a. to obtain necessities including food and medicine,
   2. b. to take exercise,
   3. c. to seek medical assistance, or
   4. d. to travel for work where it is not reasonably possible for the person to work from home.

It is a criminal offence to breach these restrictions.

The Secretary of State must review the restrictions every 21 days, the first review to be carried out on 16 April 2020.

WHAT SHOULD THE OCCUPIERS DO ABOUT RATES?

Business Rates Holiday

If the occupier is in the Retail, Hospitality or Leisure business or a Child Nursery, the occupier is entitled to a rates holiday for 2020/21. All the local authorities should reissue the relevant rates bills.

1. Retail includes all types of shops: opticians, post offices, car showrooms, petrol stations, garden centres, hairdressers, beauty salons, nail bars, travel agents, dry cleaners, letting agents, estate agents.
2. Hospitality includes restaurants, café’s, sandwich shops, pubs, bars, takeaways, live music venues.
3. Leisure includes: cinemas, hotels, nightclubs, gyms, casinos, sports clubs, etc.

• Sectors that do not qualify include:
  • medical services
  • professional services
  • financial services
  • educational institutions
  • manufacturing

Other Rates Exemptions

Under the Local Government Finance Act 1988, section 45, unoccupied property is generally liable to rates. However, pursuant to the Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008, certain premises are exempt including:

1. If the owner is prohibited by law from occupying it or allowing it to be occupied.
2. The premises are kept vacant by reason of action taken by or on behalf of the Crown or any local or public authority with a view to prohibiting its occupation.

We therefore believe that where a business is not automatically entitled to a rates holidays, it may nevertheless be exempt from rates by reason of occupation being unlawful.

CASH GRANTS

Certain businesses  will be entitled to cash grants:

1. £10,000. Businesses that qualify for a rates holiday and have a rateable value of up to £15,000.
2. £25,000. Businesses that qualify for a rates holiday and have a rateable value of over £15,000 but less than £51,000.

IS THE TENANT LEGALLY ENTITLED TO WITHHOLD RENT?

A party can be excused from performing its obligations under a contract, such as a lease or tenancy agreement, if: (1) there is a ‘force majeure’ clause; (2) the contract is ‘frustrated’; or (3) the performance becomes illegal:

1. Force Majeure. Most leases/tenancies will not have a force majeure clause, but it is worth double checking.
2. Frustration. This is unlikely to apply to most longer-term leases / tenancies. However, case law does suggest that, where circumstances render it difficult or impossible for a landlord or tenant to carry out its obligations, there would be a defence to a claim for breach.
3. Illegality. Case law also suggests that where there is temporary illegality, the operation of a contract may be suspended.

Under the Covid Regulations, as described above, it is illegal to operate many businesses. In our view, it is therefore arguable that the obligation to pay rent is suspended during the Covid lockdown.

SO, WHAT SHOULD YOU DO IF YOU ARE A TENANT?

1. Rates. If you are entitled to a rates holiday, obviously do not pay. If not, consider whether you can argue you are exempt on the basis that it is unlawful to occupy the premises.
2. Cash Grants. Apply for the cash grants assuming that you are entitled.
3. Other Financial Assistance. The Government has proposed various schemes to help all businesses including: the Employee Job Retention (or Furlough) Scheme; Self-Employed Grants; Tax and VAT Deferral and Time to Pay Schemes; and the Coronavirus Business Interruption Loan Scheme. These schemes are beyond the scope of this article, but should be investigated by tenants.
4. Rent. Engage with your landlord and see if your landlord is willing to suspend your rent payments on the grounds described above. Bear in mind that under the Coronavirus Act 2020, no business will be forced out of their premises if they miss a rent payment over the next three months. This is likely to apply until 30 June 2020 but could be extended.

WHAT SHOULD YOU DO IF YOU ARE A LANDLORD?

1. Mortgage Payment Holiday. The Government has placed all banks under pressure to agree mortgage payment holidays for at least 3 months. Many commercial lenders are offering 6 months capital repayment holidays. If your property is mortgaged, in order to preserve your cash flow and mitigate the effects of non-payment of rent by tenants, consider seeking a mortgage payment holiday from your lender.
2. Engage with your Tenant. Advise your tenants and/or encourage them to take advantage of the rates holidays, possible rates exemption, cash grants and other financial assistance available, so that their business is more likely to survive, and they can afford to pay you rent.
3. Other Financial Assistance. Some of Government schemes that may be available to tenants may also equally be available to landlords.
4. Consider Legal Action. Your tenant may bluntly refuse to pay the rent. The legal arguments raised above in favour of rent being suspended are by no means clear cut or bound to succeed. Although you cannot forfeit the lease or force the tenant out, at least until 30 June 2020, you can still sue or serve a statutory demand for the rent.
5. Come to an Arrangement with your Tenant. Your tenant may seek some form of concession from you. Landlords should advance the commercial, moral and legal case for rent not being suspended or waived altogether. Landlord and tenants are in it together and there may be a good long-term case for sharing the pain. Ultimately, landlords may be willing to agree a deferment, monthly (as opposed to quarterly) payments, or some other concession. Please see our separate article on factors the landlord should consider. Landlords should ensure that they do not unintentionally vary the lease or tenancy or waive their rights, and that any arrangement is committed to writing.

WE ARE HERE TO HELP

Whether you are a landlord or a tenant, we are happy to help you in dealing with your rent and rates issues, applying for grants, or negotiating with lenders. Please do not hesitate to contact a member of our team at any time for a free initial consultation.

We are getting numerous enquiries from both landlords and tenants in relation to their position for non-payment of rent for commercial leases during this Covid-19 pandemic.

As of 25 March 2020, the Coronavirus Act 2020 (“the Act”) was enacted. In accordance with Section 82 of the Act, all forfeiture of leases for non-payment of rent have been prohibited from 25 March 2020 to 30 June 2020 inclusive. In addition, all on-going forfeiture proceedings in Court will fall under this Act and will therefore be adjourned. The Government have the ability to extend this period of time subject to the on-going pandemic.

Interestingly, this legislation only applies for non-payment of rent and does not provide the tenant with protection from forfeiture for other breaches of covenants contained within the lease.

Furthermore, whilst the landlord cannot forfeit the lease for non-payment of rent, the landlord will still have the ordinary recourse for the recoverability of the rent, for instance, issuing a money claim for unpaid rent, serving a statutory demand, CRAR etc. It should be noted any Court proceedings will most likely be delayed as a result of Covid-19, whereas insolvency proceedings have been adjourned for a period of 3 months.

During this period the landlord will be unable to waive the right to forfeit the lease unless the landlord expressly does so in writing. This will allow the landlord the option of forfeiting the lease once this Act is no longer in force.

Finally, this Act will only apply to leases which fall under Part 2 of the Landlord and Tenant Act 1954, consequently Tenancies at Will, leases under the period of 6 months and any other agreements which are not protected by the 1954 Act, will not be protected by this Act.

If you have any queries regarding any of the above, please do not hesitate to contact us on 020 8427 9080 or gurpreet.dhillon@vyman.co.uk / marcella.cox@vyman.co.uk.

Generally, a bankruptcy order will be automatically discharged 12 months’ after it is made.  However, it is open to a Trustee in Bankruptcy to apply for the automatic discharge to be suspended, usually on the basis that the bankrupt has failed to comply with the terms of their bankruptcy.  The Court has a discretion as to whether to extend the bankruptcy, and this discretion will be exercised depending upon the circumstances of the particular case.

We have recently acted for a client who was subject to a bankruptcy order.  Three days before his automatic discharge, and without any prior warning, his Trustees applied to the Court for the automatic discharge to be suspended.  We considered the application and took the view that the Trustees’ application had been made on a number of spurious grounds; we advised our client to challenge the application.     

One of the grounds upon which the Trustees were pursuing the application was that our client had failed to disclose a number of bank accounts and these were required in order that they could properly investigate his affairs.  When the Trustees’ additional evidence was filed, it became apparent that not only had the Trustees been in receipt of all of bank statements for the ‘missing’ accounts for 6 months prior to their application, but they had not asked one single question of our client about the accounts.  Given this, we invited the Trustees to withdraw their application but they steadfastly refused.

At the final hearing the Judge agreed with us that the Trustees application was without merit and dismissed it, and made a costs order in our client’s favour.  Cheekily, the Trustees asked if the costs could be paid from the bankruptcy estate – so they basically wanted our client to pay for their failings!  The (very sensible) Judge refused and held the Trustees’ personally liable for all of the costs – result!

If you would like to discuss any issues arising from bankruptcy, or if you are a Trustee and want to know how to avoid end up on the wrong end of a costs order, please contact Marcella Cox on marcella.cox@vyman.co.uk for an initial, no obligation chat.

Most commercial leases have a clause which entitles a landlord to terminate the lease by forfeiture if the tenant breaches its obligations. Once the right to forfeit arises, if a landlord acts in a way so as to treat the lease as if it is continuing, for example, by demanding or accepting rent, the landlord is said to have waived the breach and therefore loses its right to forfeiture.

Commercial Rent Arrears Recovery (CRAR) is a process which enables commercial landlords to take control of a tenant’s goods and sell them to recover rent arrears.

Saravnanthan Thirunavukkrasu vs. Baljit Singh Brar & Another (September 2018)

The High Court has recently dealt with a case where a tenant was in rent arrears and the landlord instructed enforcement agents to use the CRAR procedure. The enforcement agents entered the property and seized goods to the value of the arrears; the tenant subsequently paid the outstanding sum due.

However, whilst the CRAR procedure was on-going, the landlord entered the property to forfeit the lease by peaceable re-entry. The tenant claimed the forfeiture was unlawful because, in exercising the CRAR procedure, the landlord had waived its right to forfeit the lease.

The High Court agreed with the tenant and held that in the circumstances of this case the CRAR procedure could only be exercised if the lease was still in existence. In choosing to adopt the CRAR procedure the landlord had elected to treat the lease as continuing, thereby losing its right to forfeit the lease. The forfeiture was therefore unlawful and damages and costs were awarded against the landlord. Ouch!

It is essential that, when considering enforcement action against a defaulting tenant, the landlord carefully considers the options available to it and takes legal advice as to those options at the earliest opportunity.

If you require any further information or guidance on this issue please do not hesitate to contact Marcella Cox on marcella.cox@vyman.co.uk or by telephone on 020 8427 9080.

As advisers to many companies and company directors and shareholders, the Vyman team thought you would be interested in the following Supreme Court case.

Burnden Holdings (UK) Ltd v Fielding (28 February 2018)

In short, the directors of the company had made a significant distribution to themselves as shareholders. Subsequently, the company went into liquidation and the liquidator made a claim against the directors claiming that the transactions constituted an unlawful distribution (because the company never had sufficient distributable profits).

The claim was commenced more than 6 years after the distribution and so the directors argued that the claim was statute barred. However, the Supreme Court disagreed and stated that the assets which were distributed were trust assets and therefore the limitation period relating to trusts should apply. Generally, there is no limitation period which prevents the recovery of trust assets.

Comment

The notable point about this case is that the Supreme Court now regards property and funds belonging to a company as trust property. If the directors deal with such property or assets wrongly, a claim can be pursued long after the events in question and no limitation period will apply.

The onus is therefore on advisers to make sure that any transactions involving directors and shareholders are lawful and properly authorised.

If you require any further information or guidance in relation to these sort of issues, please do not hesitate to contact us at info@vyman.co.uk or 0208 427 9080.

DOWNLOAD: Joint Venture Pitfalls Strategies

This report is for you if:

• You are already in business with ‘partners’
• You are thinking about going into business with partners
• In your existing business, tensions or disputes have arisen with your partners

In this report you will discover:

• The ways in which you can avoid disputes arising in the first place, and
• If a dispute has arisen, strategies you should adopt for resolutionWhilst the process of implementing the strategies we have set out in this report are not totally pain free, if you do think about the practical steps and strategies set out in this report, you should be able to avoid or minimise the impact of actual or potential disputes.

Examples:

In this report, we use the words ‘partner’ and ‘joint ventures’. These words are meant to include:

• Traditional partnerships
• Quasi partnership (joint shareholders in a limited company)
• Family businesses
• Professional partnerships, companies or LLPs (e.g. doctors, lawyers, accountants)

Disputes between partners can have tremendous costs:

1. Emotional stress, strain, worry and tension. This has been known to lead to physical ill health and, in certain cases, a shorter life span.
2. Financial losses. Partners may be so busy squabbling with each other that the business itself suffers leading to loss of income as well as value. In some cases, the business has failed altogether at tremendous personal cost, both financial and reputational, to the partners. This can in extreme cases give rise to personal insolvency and claims by creditors (such as banks pursuant to guarantees).

Strategy 1 – Establish and Agree Goals

At the outset of any business venture, you must agree upon and establish the goals, not only of the business but also of the individual partners.

Possible Goals – in entering into a joint-venture, partners may have one or more of the following goals in mind:

• Income generation
• Employment for themselves/others
• Capital growth
• Freedom
• A particular lifestyle
• Kudos/status
• Securing the future for the next generation

Unless the partners are in agreement as to what the personal and business goals are, tensions can arise.

If you have not established firm goals from the outset, you may flounder and have partners pulling in different directions. This will in all likelihood prevent the business and the individual partners achieving their maximum potential and may waste a lot of time, money and energy in the process.

In dispute situations, you should be clear in your own mind as to what goal you wish to achieve:

• Do you wish to exit and recover the value of your share in the business?
• Do you wish your partners to exit and allow you to carry on without them?
• Do you wish to continue working together? Is that possible?

CASE STUDY
We represented an individual who was a minority shareholder in a successful company. He was in dispute with the main shareholder. It was clear that our client had to exit the business on the basis that the majority shareholder would buy him out. That was the goal, and with our assistance, our client achieved an exit which reflected the value of his share in the business and the loss of his position.

But each case is different and depends on the individual circumstances. So, if you are in a dispute situation, you do need specialist advice to help you determine what your goal should be.

Strategy 2 – Devise and Implement Plans and Strategies for achieving your Goals

Once you have decided what your and the business’ goals are, you must take steps to implement them.

The old adage is a good one: if you fail to plan, you plan to fail!

If you have established your goals but you do not have a plan in place to achieve them, your goals may never be realised. Again, the impact will be that you may continue to flounder and waste time at your personal expense and at the expense of the business.

At the outset
The following matters should be clarified:

• Individual responsibilities
• How the business is to be funded
• How profits are to be extracted
• How to deal with losses
• Partners’ salaries and other benefits
• Exit strategies

Dispute situations

You should be clear in your own mind as to how you will achieve your goal. There are a number of plans and strategies you can adopt. They are likely to involve a combination of:

• Formal “without prejudice” or settlement discussions
• Mediation Strategy – formal or informal
• Litigation Strategy (involving Court proceedings)

CASE STUDY
We once represented a family business in which there were 4 partners who were brothers. Unfortunately, two of the brothers passed away and this led to a difference of approach between the different generations within the family. Community leaders were involved to help resolve the dispute which was settled by a distribution of different parts of the business and business properties to different members of the family on agreed terms and without recourse to litigation. We successfully facilitated and assisted with those settlement terms.

Unfortunately, where certain partners are intransigent, there is no alternative but to litigate. In a very similar case involving 6 partners who were all members of the same family, the only way to achieve a resolution and distribution of assets was to litigate in the High Court. That was however a costly and protracted resolution.

Strategy 3 – Document the Deal

Once you have established your goals and a strategy for how to implement them, it is important that this is documented.

Whilst it is possible for an agreement to be prepared without appropriate specialist advice, this can be dangerous with potentially disastrous consequences.

CASE STUDY
One of our clients did prepare ‘heads of terms’ himself which documented certain agreements which had been reached between him and his partners relating to the exit of his partners. Unfortunately, the other partners reneged on the heads of terms arguing that, for certain technical reasons, they were not legally binding. This demonstrates the importance of taking specialist advice when it comes to negotiating, concluding and formalising such terms.

CASE STUDY
We prepared a lease for our client. It was meant to be for just a small part of a building. In order to let a different part of the building, the client amended the document himself without referring back to us. The tenant subsequently argued that he had been granted a lease of the entire building at a fraction of the market rent. Whilst ultimately the client succeeded, this was after a delay of around 2 years, a 1 week trial in the High Court, and costs in the region of £100,000.

CASE STUDY
This case involved the distribution of various property assets amongst the partners. Not only did all the properties have to be valued, the partners had to agree that the valuations were correct. Because the properties were to be distributed amongst the partners and various balancing payments were required the ability of the partners to raise finance in order to conclude the deal was also important. The taxation implications also had to be considered.