Commercial Client Reference Articles

Informing and Consulting Employees

The EU Information and Consultation Directive 2002 established minimum requirements for companies with more than 50 employees for consulting and informing them on a wide variety of subjects. The Directive does not apply to those businesses with fewer than 50 employees.

The Information and Consultation of Employees Regulations 2004 implement the Directive in the UK. The Regulations apply to public and private undertakings that carry out an economic activity. The undertaking does not have to be operating for gain.

Since 6 April 2008, the Regulations have applied to public and private undertakings that carry out an economic activity where there are more than 50 employees. The undertaking does not have to be operating for gain.

The requirement to inform and consult employees does not operate automatically. It is triggered either where a valid written request to agree consultation arrangements is made by 10 per cent of the employees (subject to a minimum of 15 employees) or if the employer chooses to start the process.

Employers must initiate negotiations for an agreement no later than three months after a valid request is received and have six months from the date of the written request to reach a negotiated agreement. An agreement must establish how the employer will inform and consult employees or their representatives on an ongoing basis but the legislation does allow the flexibility to agree consultation arrangements which suit the individual needs of the undertaking.

Where no agreement is reached, standard information and consultation provisions will apply giving employees the right to information and consultation as set out in the original Directive. These give employees the right to:

  • information on the recent and probable development of the undertaking or establishment’s activities and economic situation;
  • information and consultation on the situation, structure and probable development of employment within the undertaking and on any measures likely to be taken, particularly with regard to any threat to employment; and
  • information on decisions likely to lead to substantial changes in work organisation or in contractual relations, including collective redundancies and business transfers (as defined in the relevant legislation).

Information must be given at an appropriate time and in an appropriate way so that representatives of the workforce are able to conduct an adequate study and, where necessary, prepare for consultation. In other words, it is not merely a matter of involving staff in discussions as to how best to implement decisions that the management has already taken.

The consultation will have to take place at the relevant level on both sides, which will vary with the nature and severity of the matter being discussed.

Employers who have already established procedures for informing and consulting with employees can satisfy the requirements of the Regulations if they gain the agreement of their employees to carry on existing good practice. If a valid employee request is made in such circumstances, the employer has the option of organising a ballot of all employees. If at least 40 per cent of employees and a majority of those taking part in the vote endorse the initial request, the employer is obliged to negotiate a new agreement. Existing arrangements will be considered suitable if they:

  • are in writing;
  • cover all employees of the undertaking;
  • have been approved by the employees; and
  • set out how the employer is to give information to employees or their representatives and seek their views on it.

The Regulations allow employers to restrict information on grounds of confidentiality if it is in the legitimate interest of the business to do so. Also, they are not required to disclose information to representatives where this would be prejudicial to or seriously harm the functioning of the undertaking.

Employers who fail to comply with the Regulations could face a fine of up to £75,000.

The Advisory, Conciliation and Arbitration service has an advisory booklet on employee communications and consultation.

Drug Policy - Recognising the Signs and What to Do

Substance abuse amongst staff can affect all areas of employment, whether it be a decrease in productivity, increased absenteeism or the increased likelihood of accidents and injuries. The failure to identify and deal with a problem is an unnecessary risk for businesses and can prove costly.

The Law

The Misuse of Drugs Act 1971 makes it an offence for any person to permit the production, supply or use of controlled drugs or substances on their premises, unless they have been prescribed by a doctor.

Employers also have a general duty under health and safety legislation to ensure, as far as is reasonably practicable, the health and safety and welfare at work of their employees and to make sure that no one else is put at risk as a result of the work activities of an employee.

Under the Management of Health and Safety at Work Regulations 1999 employers have a duty to assess the risks to the health and safety of their employees. If you knowingly allow an employee to carry on working whilst under the influence of drugs and this puts others at risk, you could be prosecuted.

Health and safety law applies to driving activities as it does to other work activities and the risks must be managed accordingly. Drivers must not be under the influence of drugs while driving, attempting to drive or when they are in charge of a vehicle. In addition, the Crime and Courts Act 2013 (Commencement No 1) (England and Wales) Order 2014, which came into force on 2 March 2015, makes it a criminal offence for a person to drive with a concentration of any specified controlled drug above the maximum specified limit for that particular drug.

What to Look Out For

Possible signs of drug misuse include:

  • impaired performance such as lack of concentration, a tendency to become confused and poor judgement;
  • sudden mood changes and unpredictable behaviour;
  • poor time-keeping;
  • unusual irritability and deteriorating relationships with others;
  • lower personal standards – self-neglect;
  • increased time off work;
  • dishonesty and theft.

There may, of course, be other reasons for such behaviour patterns but it is sensible to consider the possibility that misuse of drugs could be the cause.

What to Do

Even if you are confident that your business does not currently have a problem, drug misuse that affects the workplace is a growing threat. It is advisable to have an agreed, written policy setting out the company’s position.

Employees should be well informed as to the policy and know that it applies to everyone in the company. It should form part of your overall health and safety policy. Make sure you consult with employees and with safety representatives.

The policy should include a definition of drug misuse, have clearly stated aims, name the persons responsible for carrying out the policy and give clear guidelines as to what employees must do to comply with the rules.

If an employee suffers from drug addiction, you should support them, not punish them. Offer them counselling and encourage them to seek voluntary help. Addiction could be viewed as an illness in an unfair dismissal case so disciplinary procedures may not be appropriate. The policy should contain a statement assuring employees that problems will be dealt with in confidence, subject to the provisions of the law. It should, however, be made clear that a breach of the law (for example the possession of or dealing in substances that are controlled under the Misuse of Drugs Act in the workplace) will be reported to the police immediately. Make clear the circumstances in which disciplinary action will be taken.

It is important to train key staff to be aware of the signs of drug misuse and how to handle the situation sensitively.

Review your policy regularly and check that it is widely understood. If you have a staff handbook, it should contain details of the policy. Make awareness of the policy a part of the induction programme for new employees.

Where it is justified, some employers screen employees for illegal substances as part of their drug policy, particularly in safety critical industries. With the widespread advance in non-intrusive methods of testing, this is likely to become more common. However, this is a very sensitive area because of the legal issues involved and we would recommend you take advice to ensure there is no breach of your employees’ rights. Also, the results of any drug tests must be handled in accordance with the General Data Protection Regulation and the Data Protection Act 2018. Good practice recommendations specific to the collection and handling of information derived from drug and alcohol testing can be found in Part Four of the data protection 'Employment Practices Code' published by the Information Commissioner's Office.

Psychoactive Substances and Your Workplace Drug Policy

The Psychoactive Substances Act 2016 makes it an offence to produce, supply, offer to supply, import or export any psychoactive substance if it is likely to be consumed for its mind-altering properties. There is a list of exemptions, which includes legal substances that are in everyday use, such as nicotine, caffeine and alcohol, and medicines, which are regulated elsewhere.

The substances targeted by the Act usually contain one or more chemical substances which, when consumed, imitate the effects of illegal drugs controlled by the Misuse of Drugs Act. Prior to the ban, these substances were frequently referred to as 'legal highs'. They often contain ingredients that have not been tested on humans and so their effects are hard to predict. As such substances are not generally intended for human consumption, they have frequently been marketed as bath salts, incense or plant food. The drugs have three main effects – as stimulants, sedatives or hallucinogens.

Possession of a psychoactive substance is not in itself an offence, except where it occurs within a 'custodial institution' – i.e. a prison, young offender institution, remand or removal centre etc.

The Advisory, Conciliation and Arbitration Service (Acas) advises employers who do not already do so to include the use of psychoactive substances in their workplace drug and alcohol policies. As screening for their use can be difficult, Acas suggests focusing on the effects of such mind-altering substances on employees' behaviour and ability to work, rather than on the drugs themselves.

A Guide to the Agency Workers Regulations

The Agency Workers Regulations 2010 (AWR) came into force on 1 October 2011. They apply to those workers who are supplied by a temporary work agency to work temporarily for and under the supervision and direction of a hirer.

All temporary agency workers are entitled, from the first day of their assignment, to information on any job vacancies and to make use of collective facilities and amenities available to comparable workers and employees. These may include staff canteens, childcare facilities, transport services (such as local pick-ups and drop-offs and transport between sites – but not company car allowances or season ticket loans), staff common rooms, prayer rooms and car parking.

Employers should ensure that temporary agency workers know how to access information relating to job vacancies and are aware of all relevant facilities. This can be done either by providing details directly to the worker, as part of an induction pack, or by providing details to the employment agency to pass on to the agency worker as part of the information on the assignment.

Agency Workers Who Have Completed a 12-Week Qualifying Period
Once a temporary agency worker has worked in the same job for the same hirer for a period of 12 calendar weeks, they are entitled to the same basic employment and working conditions as if they had been recruited directly by the employer.

Because the working patterns of temporary agency workers can be irregular, the AWR provide for a number of circumstances in which breaks do not prevent them from completing the qualifying period. Employers are therefore advised to study the rules for calculating this period in order to avoid errors.

Basic employment and working conditions include:

  • *basic pay;
  • duration of working time;
  • annual leave;
  • night work; and
  • rest breaks and rest periods.

*N.B Under the 'Swedish derogation' – so called because it was introduced into the AWR at the request of the Swedish Government – there is currently an exemption from the requirement to provide the same pay and conditions as far as pay is concerned where the temporary work agency offers an agency worker a permanent contract of employment and pays the worker between assignments. However, one of the changes the Government intends to make following the Matthew Taylor Good Work Review is to enact legislation to repeal the Swedish derogation.

The rights with regard to pay include:

  • basic pay based on the annual salary the agency worker would have received if recruited directly – this will usually be converted into an hourly or daily rate, taking into account any pay increments the worker would have received;
  • overtime payments – subject to the same requirements as if the worker had been recruited directly;
  • payment for annual leave;
  • bonus or commission payments linked to the amount and quality of work completed – e.g. achievement of sales targets;
  • bonuses linked to personal performance or non-contractual payments that are made with such regularity that they are customary;
  • vouchers or stamps which have a monetary value and can be exchanged for money, goods or services – e.g. luncheon vouchers, childcare vouchers but not salary sacrifice schemes; and
  • paid time off for antenatal appointments.

Some payments may require those recruited directly to complete a period of service – e.g. enhanced entitlement to annual leave after 12 months. A temporary agency worker will need to complete the same period of service to become eligible. This should be calculated from the start of the 12-week qualifying period.

The rights with regard to pay do not include:

  • occupational schemes – sick pay, maternity, paternity and adoption pay;
  • redundancy and notice pay;
  • payment for time off to carry out trade union duties;
  • guarantee payments, as they apply to directly recruited staff if laid off;
  • advances in pay – e.g. for season tickets;
  • payments or rewards linked to financial participation schemes such as share ownership;
  • the majority of benefits in kind – e.g. reduced-rate mortgages or employer-funded training allowances;
  • bonuses where there is no recognition of a worker’s personal contribution, such as a flat rate bonus paid to the workforce to encourage loyalty or reward long service; and
  • additional, non-contractual bonuses – as long as these payments are not made so often that they have become customary.

Temporary agency workers are covered by the automatic pension enrolment scheme. For further information, see the website of the Pensions Regulator.

To ensure equal treatment after 12 weeks’ service, employers who use temporary agency workers should have in place proper job descriptions and pay structures for the roles they perform. In addition, to facilitate calculation of the qualifying period, a record should be maintained showing the dates and hours worked, the location of their work and their job role. Employment agencies should be provided with information on the basic terms of comparable staff hired directly by the employer.

The AWR contain anti-avoidance provisions which prevent a series of assignments being structured so as to prevent a temporary agency worker from completing the qualifying period. Breaks between assignments will not, therefore, necessarily prevent agency workers from gaining the same basic employment and working conditions as staff recruited directly.

Detailed guidance on the AWR can be found on the website of the Department for Business, Innovation & Skills.

Corporate Manslaughter and Gross Negligence Manslaughter

The Corporate Manslaughter and Corporate Homicide Act 2007 established a new statutory offence of corporate manslaughter (corporate culpable homicide in Scotland).

An organisation is guilty of the offence if the way in which it manages or organises its activities causes a death and amounts to a gross breach of a relevant duty of care to the deceased. A substantial part of the breach must have been in the way activities were managed by the senior management of the organisation.

The offence built on the responsibilities that employers and organisations already owed to their employees and members of the general public, with regard to the premises occupied and the activities carried out.

Before the introduction of the Act, an organisation could only be convicted of manslaughter if a ‘directing mind’ – i.e. a senior manager or director – was also personally liable. However, this did not reflect the reality of the way decisions are made in large organisations and there were very few prosecutions as a result. Under the Act, the offence is concerned with the corporate liability of the organisation itself, allowing this to be assessed on a wider basis and providing greater accountability for serious management failings across the organisation.

When determining whether an organisation is guilty of the offence of corporate manslaughter, the courts will look at management systems and practices across the organisation and whether an adequate standard of care was applied to the fatal activity. Juries are required to consider the extent to which an organisation was in breach of its health and safety requirements and how serious those failings were. They are able to consider the culture that exists within an organisation regarding health and safety issues. Lax management attitudes that result in a lower standard of care than could reasonably be expected will be punished.

An organisation convicted of corporate manslaughter receive:

  • an unlimited fine;
  • a publicity order requiring the organisation to publicise its conviction and certain details of the offence; and
  • a remedial order requiring the organisation to address the cause of the fatal injury.

Cases brought under the Act took a while to reach court, with the first prosecutions involving small companies. However, more recent cases, although few in number, show that the courts take very seriously breaches of health and safety laws that lead to someone being killed.

Employers are advised to keep their procedures under review, especially those with direct health and safety implications. Successful defences to charges of corporate manslaughter will inevitably depend on being able to prove that the organisation takes a responsible attitude to health and safety, with appropriate risk management procedures in place that are enforced rigorously.

The offence of corporate manslaughter is concerned with corporate liability and does not apply to directors or other individuals who have a senior role in the company or organisation. However, existing health and safety law and the offence of 'gross negligence manslaughter' continue to apply to individuals. Prosecutions against individuals are taken where there is sufficient evidence and it is in the public interest to do so.

A consultation paper published in July 2017 by the Sentencing Council for England and Wales ('Manslaughter Guideline Consultation') proposed that the current law on manslaughter committed by negligent employers should be beefed up, with longer potential terms of imprisonment for individuals found guilty of gross negligence manslaughter.

The Sentencing Council has now published 'Manslaughter – Definitive Guideline', setting out how offenders convicted of manslaughter should be sentenced in England and Wales. In cases of gross negligence manslaughter, judges are being advised to consider life in prison for the most serious culprits, with a recommendation that they serve at least 18 years before being eligible for parole. In a workplace setting, the offence could cover individual employers whose long-standing and serious disregard for the safety of employees, motivated by cost cutting, results in someone being killed. The guideline will come into force for sentences handed down from 1 November 2018.

The majority of those charged with the offence are likely to be employers, but grossly negligent medical practitioners can also be charged.

Settlement Agreements

Following changes made by the Enterprise and Regulatory Reform Act 2013, compromise agreements were renamed ‘settlement agreements’ and new provisions (Section 111A) were inserted into the Employment Rights Act 1996 (ERA) making settlement agreement discussions inadmissible as evidence in ordinary unfair dismissal cases so that offers to end the employment relationship on agreed terms can now be made on a confidential basis.

Employee safeguards that applied to compromise agreements also apply to settlement agreements. For a settlement agreement to be legally binding, the following conditions must be met:

  • The agreement, though not necessarily the initial offer, must be in writing;
  • The agreement must relate to a particular complaint or proceedings;
  • The employee must have received advice from a relevant independent adviser as to the terms and effect of the proposed agreement and, in particular, its effect on his or her ability to pursue an Employment Tribunal (ET) claim;
  • The independent adviser must have a current contract of insurance or professional indemnity covering the risk of a claim by the employee in respect of loss arising from the advice;
  • The agreement must identify the adviser; and
  • The agreement must state that the applicable statutory conditions regulating the settlement agreement have been met.

However, whereas compromise agreements could only be used to resolve ongoing workplace issues, as a mechanism for preventing possible future complaints to the ET, settlement agreements can be used to end an employment relationship on agreed terms.

The communications that take place in order to reach a settlement agreement that relates to an existing employment dispute will normally be on a ‘without prejudice’ basis – i.e. they will be inadmissible as evidence before the court or ET – provided they constitute a genuine attempt to resolve the dispute and there is no fraud, undue influence or other ‘unambiguous impropriety’. Prior to the introduction of Section 111A of the ERA, this ‘without prejudice’ confidentiality did not apply where there was no existing dispute between the parties. The change was made in order to allow greater flexibility in the use of confidential discussions as a means of ending the employment relationship. Section 111A, which runs alongside the ‘without prejudice’ principle, provides that even where no employment dispute exists, the parties may still offer and discuss a settlement agreement in the knowledge that their conversations cannot be used as evidence in any subsequent unfair dismissal claim. However, the protection will not apply where there is some ‘improper behaviour’ in relation to the settlement agreement discussions or the offer, unless the ET decides that it would be just to exclude the evidence.

The Advisory, Conciliation and Arbitration Service (Acas) produced a statutory Code of Practice, ‘Settlement Agreements under Section 111A of the Employment Rights Act 1996’, which focuses on the confidentiality aspect of Section 111A of the ERA. This sets out the legal requirements with regard to such agreements and also provides general guidance on best practice, such as a recommendation that employers allow employees to be accompanied during the negotiations by a work colleague, trade union official or trade union representative, together with some examples of what would constitute ‘improper behaviour’ in this context.

In addition, Acas published a guide on settlement agreements, which contains non-statutory guidance (including template letters) designed to help employers and employees understand what settlement agreements are, what their effect is, when they might best be used and how they can be negotiated.

Whether or not these changes will have the desired effect of enabling employers and employees to have honest and open discussions about ending the employment relationship remains to be seen. If a settlement agreement cannot be reached, damage will have been done to the employment relationship, which might make moving forward difficult for both parties. Employers will have to handle the process carefully to avoid being faced with allegations of improper, or possibly discriminatory, behaviour by an employee who wishes to rely on the communications as evidence in an ET claim.

When Are Settlement Discussions Protected?

Faithorn Farrell Timms LLP v Bailey looked at when settlement discussions are protected  and illustrates how the pre-termination and the without prejudice rules can run alongside each other. The case was the first appellate judgment on the inadmissibility conferred by Section 111A of the ERA.

The case concerned the admissibility of evidence in a secretary's claims against her employer. Ms Bailey had worked part-time as an office secretary for Faithorn Farrell Timms plc, a firm of surveyors, from March 2009 until she resigned after part-time working was no longer an option for her and discussions she had initiated with a view to agreeing terms on which to end her employment had broken down. Whatever the initial intention, it was common ground that by 7 January 2015 the parties were in dispute. Whilst earlier correspondence from Ms Bailey's solicitor setting out her position had been marked 'without prejudice', her employer's response was not so marked. During the latter part of January, Ms Bailey raised an internal grievance, but this was rejected. Her grievance letter had made it clear she was openly relying on matters set out in the earlier correspondence. Faithorn Farrell Timms did not question Ms Bailey's having referred to the correspondence between them on an open basis and had itself referred to it in its report on her grievance.

Ms Bailey resigned on 26 February 2015 and brought claims of constructive dismissal and indirect sex discrimination arising, in part, from her employer's conduct towards her during the negotiations. In her claim form, she made reference to the content of letters exchanged between her and her employer and hoped to rely on this as evidence in both claims. Faithorn Farrell Timms denied the claims but did not object at this stage to the open reference to the various documents mentioned by Ms Bailey and cited the same material in support of its own case.

In deciding on the admissibility of the documentation, the Employment Appeal Tribunal noted that Section 111A has to be viewed independently of common law without prejudice principles. It proceeded on the basis that there was no dispute prior to 7 January, so issues of admissibility prior to that date could only be considered under Section 111A, not as instances of without prejudice privilege. Key findings were:

  • Faithorn Farrell Timms had waived without prejudice privilege by failing to object to the evidence raised in Ms Bailey's ET1 and itself relying on that material in its ET3;
  • Unlike without prejudice discussions, the provisions of Section 111A do not allow privilege to be waived, even with the consent of both parties;
  • Protection of pre-termination negotiations under Section 111A is not restricted to any offer made or discussions that take place. It also extends to the fact of those discussions. Furthermore, Section 111A need not be limited to the direct discussions between the main protagonists; it may extend to internal discussions – for example a line manager's discussions with senior managers or an HR advisor; and
  • Protection under Section 111A only applies to claims of unfair dismissal. Where, as in this case, there is a parallel claim, material may be inadmissible in respect of the unfair dismissal claim but be admissible in respect of the discrimination claim.

The matter was referred back to the ET as it had failed to consider Ms Bailey's claim that there was improper behaviour on the part of her employer that would allow the documentation on which she wished to rely to be used as evidence during the unfair dismissal proceedings.

Written Statement of Employment Particulars

A contract of employment may be verbal but all employees, whether part-time or full-time, are entitled by law to be given a written statement setting out the main particulars of their employment, provided their employment lasts for one month or more. Currently, all the required particulars must be given within two months of the start of the employment, unless the employee is to work abroad for more than one month within two months of commencing employment. In this case, the information must be provided before the employee goes away.

It is not necessary to provide all the required information at the same time. It can be given in separate documents provided certain details are collected together in one principal statement. These are:

  • the names of the employer and the employee;
  • the job title or a description of the job;
  • the date on which the employment began;
  • if a previous job counts towards a period of continuous employment, the date on which the period started;
  • the hours of work, including whether employees will have to work Sundays, nights or overtime;
  • the remuneration and whether pay is weekly, monthly etc.;
  • holiday entitlement; and
  • the address(es) of the place or places of work and whether the employee might have to relocate.

As well as the principal statement, the following information must also be provided in writing:

  • where the job is not permanent, the period for which the employment is expected to continue or, if it is for a fixed term, the date on which it is to end;
  • the length of notice the employee must give or is entitled to receive;
  • details of any relevant collective agreements;
  • details of pensions and pension schemes;
  • who to go to with a grievance;
  • how to complain about how a grievance is handled; and
  • how to complain about a disciplinary or dismissal decision.

The written statement need not include the following but, where it does not, it must say where the information can be found:

  • sick pay and procedures;
  • disciplinary and dismissal procedures; and
  • grievance procedures.

If an employee is required to work outside the UK for a period of more than one month, then the statement of employment particulars must also specify:

  • the period for which the employee is to work outside the UK;
  • the currency in which remuneration is to be paid while the employee is working abroad;
  • any additional pay and benefits; and
  • any terms and conditions relating to the employee’s return to the UK.

If an employee is sent to work in another country in the European Economic Area, the terms and conditions of his or her employment must meet the legal minimum requirements in that country as regards:

  • working hours and rest breaks;
  • holiday entitlement; and
  • minimum pay (including overtime).

Employers do have a degree of flexibility as to how to communicate the statement of employment particulars. If a written contract or letter of engagement provides the required information and is given to the employee within the appropriate time limits, then a separate statement of particulars is not required.

Under Section 38 of the Employment Act 2002, unless there are exceptional circumstances that would make an award inequitable, an employee whose employer fails to provide them with a written statement of employment particulars within the set time frame could be entitled to a minimum award of two weeks' pay or a maximum award of four weeks' pay, depending on the circumstances. This right only applies, however, if the employee has successfully brought another substantive claim.

Dismissing an employee for exercising or trying to exercise his or her statutory right to a written statement of employment particulars is automatically unfair dismissal with no minimum service requirement.

As proposed in the Government's 'Good Work Plan' on employment rights, published in December 2018 in response to the 2017 Taylor Review of Modern Working Practices, legislation has now been passed (The Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018) that makes changes to the Employment Rights Act 1996 so that the right to be given a written statement of employment particulars is a day one right that is extended to all staff – workers as well as employees. The changes are due to take effect from April 2020.

An example of a written statement of employment particulars form which meets the requirements of employment legislation is available from the GOV.UK website. Guidance on completing the form can be found at the end of the document.

Insolvency and Pre-Packs

Legislation on insolvency enacted in the Small Business, Enterprise and Employment Act 2015  affect directors of companies that become insolvent.

The Act added two new grounds for disqualifying a person from being a director of a UK company and broaden the range of review of the past conduct of a director and the 'harm done' as a result of an insolvency. In 2016 Parliament issued a research briefing on the operation of pre-packs and setting out the need to comply with best practice when undertaking pre-pack sales out of administration.

What will be particularly worrisome for directors, and which should be of particular concern to those – including non-executive directors – who do not take an active and inquiring role in the management of the company, is that the Secretary of State has enhanced powers to make directors personally responsible for losses suffered by creditors in appropriate circumstances.

The Government has also made it known that it will consider implementing further changes that will affect 'pre-pack' sales of insolvent companies if voluntary measures currently in place do not prove to be successful in curbing abuses.


What follows below is a snapshot of some of the more important ones.

  • A new regime for the conduct of creditors' meetings is to be introduced, the practical effect of which will be that the proposals of the insolvency practitioner as regards the insolvent entity will be deemed to be accepted unless ten per cent of the creditors (by value) object. A formal meeting will not be held unless requested by at least ten per cent (by value or number) of the creditors.


  • Administrators will be given the same powers as liquidators of companies to bring claims for wrongful or fraudulent trading.


  • Directors of insolvent companies are at increased risk of having compensation orders made against them and face an extension to the period – from two years to three – within which an application to disqualify them from acting as directors can be brought. Compensation orders can also be brought against non-directors who advise a director who becomes disqualified.

 

In the 2018 Autumn Budget statement, the Government took the step of announcing the reintroduction of Crown Preference, meaning that debts die to the Crown (eg taxes) will take preference for payment over debts due to other unsecured creditors.

Insolvency practitioners who overstep the mark when arranging pre-packs (typically transferring assets for less than a value the creditors think is fair) can face sanctions from the courts, which seem to be taking an increasingly dim view of perceived sharp practcie.

Landlords - Dealing With Pre-Pack Tenants

Businesses in financial difficulties are increasingly seeking ways of ridding themselves of extra costs and, in many cases, premises let in more promising economic times are viewed as a substantial and avoidable liability, especially for businesses which have expanded too quickly.

One of the more common ways for a business to be restructured on a more profitable basis is to arrange to take the profitable parts into a new business by doing a ‘pre-pack’ administration – a procedure whereby the business, or part of it, is transferred to a new entity. Prior to this, the business will be placed into administration, which imposes a moratorium on legal processes, such as the landlord’s right to make the lease forfeit by peaceable re-entry.

The argument for pre-packs is that they maximise the chance of salvaging the business and preserving employment. On the downside, the creditors of the original business are often left nursing losses.

From the landlord’s perspective, a tenant which undertakes a pre-pack may well leave the rented unit behind if it is uneconomic to retain it, thus leaving the landlord facing the prospect of finding a new tenant and a loss of rental income.

If the new business wishes to retain the unit, there may be scope for the landlord to negotiate with the new occupier with regard to arrears of rent as well as adherence to the lease covenants.

The good news for landlords is that in most cases they should be entitled to retain a rent deposit paid by a tenant that goes into administration.

A recent case has also confirmed that it will be difficult in many circumstances for administrators to assign a tenancy 'by operaton of law'  - the landlord will normally have to made it unequivocal by its conduct that the prior tenant's tenancy had ended and a new tenancy begun.

A 2018 case confirmed that where a landlord wishes to use the statutory Commercial Rent Arrears Recovery (CRAR procedure that was introduced in 2014, the right will be lost to accept the tenancy as ceasing.

 

 

Disputes in the EU - Rules on Applicable Law

Where a dispute has a foreign element, one of the common problems is deciding under what jurisdiction legal action should be taken. This is avoided in many commercial contracts by specifying the applicable law in the contract, but in consumer contracts there is often no such clause. When the action arises because of a non-contractual issue, the problem is even more difficult.

The EU has set out regulations aimed at clarifying the issue of where action should be taken with regard to a range of non-contractual obligations in civil and commercial matters, excluding actions involving government bodies. These harmonise the rules for deciding jurisdiction across the EU (excluding Denmark), but also allow for the parties to elect for a specified jurisdiction to apply in certain circumstances. There is no freedom of choice in some types of action, for example those involving intellectual property and competition law.

The key concept is that the jurisdiction applicable will depend on the place where the damage occurs, or is likely to occur. This may well be different from the country in which the event giving rise to the action took place. There are some exceptions to this, however, the main one being that if both parties to a dispute are habitually resident in the same country, that country’s law will apply, no matter where the event took place.

Another exception will be where the event giving rise to the action is inextricably linked with a particular country, in which case the law of that country will apply.

It remains to be seen wheher Brexit will allow the UK to participate fully in the simplified system for enforcing trade debts and resolving trade disputes now in place.

Reports on dispute resolution and enforcement post-Brexit are available from the Parliament website.

Small Business Data Protection Law Compliance Checklist

The Information Commissioner's Office (ICO) publishes a great deal of useful information for all organisations on data protection and compliance with data protection law.

The ICO has recently updated its guidance on exemptions from some of the rights and obligations under the General Data Protection Regulation (GDPR) and the Data Protection Act 2018 (DPA).

For small businesses and sole traders, the ICO has also created a small business data protection checklist to allow them to assess how well they comply with data protection law. This can be found here and should only take a few minutes to complete.

If you are unsure about how the GDPR and DPA affect your organisation, we can advise you. In October alone the ICO announced that fines totalling £825,000 had been levied on three organisations for breaches of data protection law or nuisance calling.

It is better to be safe than sorry.

 

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