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Economic Crime (Transparency and Enforcement) Act 2022: Register of Overseas Entities

Sat, 18 Jun 2022 12:36:23 GMT

The UK Government passed legislation to increase transparency surrounding overseas entities owning UK real estate, something first announced as a possibility in 2016 by then Prime Minister David Cameron.

Summary

On 15 March 2022, the Economic Crime (Transparency and Enforcement) Act 2022 (the “ ECTEA ”) received royal assent. The objectives of the ECTEA are to increase transparency surrounding real estate ownership in the UK and to reduce the ability of foreign individuals and businesses to use UK property as a means of committing economic crime.

To this end, the ECTEA implements a public “Register of Overseas Entities” that will include beneficial ownership information for foreign entities of qualifying interests in land and property in the UK. The ECTEA will require any non-UK entity with a “relevant interest” in UK land to identify its beneficial owners and register with Companies House.

Other than in Northern Ireland, the ECTEA applies retrospectively. Any “relevant interest” in land acquired by foreign entities (i) since 1 January 1999 in England and Wales; and (ii) since 8 December 2014 in Scotland will be subject to registration. An entity will have a “relevant interest” in land if it is the registered proprietor of a “qualifying estate” (a freehold title or leasehold title of longer than (i) seven years in England and Wales; (ii) 20 years in Scotland; or (iii) 21 years in Northern Ireland).

The ECTEA provides for a transition period of six months to allow foreign owners to become compliant. This transition period has not yet begun to run; the commencement date will be confirmed by the Government through later regulation.

The registration requirements under the ECTEA do not extend to UK land held through a UK-incorporated company. UK companies are already required to disclose their beneficial owners to Companies House via a “People with Significant Control” (PSC) register. The qualifications of what constitutes a beneficial owner under ECTEA are similar to the requirements PSC register, and would any person:

holding, directly or indirectly, more than 25% of the shares in the foreign entity;
holding, directly or indirectly, more than 25% of the voting rights in the foreign entity;
holding the right, directly or indirectly, to appoint or remove a majority of the board of directors of the foreign entity; or
who exercises or has the right to exercise, significant influence over the foreign entity.

In this way, the ECTEA in effect seeks to introduce the same or a similar level of transparency for property owned by foreign companies as currently exists for UK companies. Also similar to the PSC requirements, the ECTEA requires the register to be updated annually.

A foreign entity cannot be registered at the Land Registry as a proprietor of a qualifying estate unless it is either registered with Companies House or exempt from the ECTEA requirements. Exemptions, however, are limited.

The ECTEA imposes penalties where a person fails to comply with the registration requirements, provides false or misleading information to Companies House, or makes prohibited dispositions of UK land within the scope of the ECTEA. Penalties include fines; restrictions on selling, purchasing or mortgaging UK land; and/or imprisonment.

Comment

Directors and shareholders of any overseas entity that is a registered proprietor of UK property should prepare for the registration requirements to go live, and to ensure compliance by the end of the transition period.

Going forward, where an overseas entity will be a registered proprietor of UK property, lenders should require evidence that the information required on the beneficial ownership is ready and sufficient for the application for the Register of Overseas Entities or, where the entity is already registered, that the registration is current.

Real estate financings made to foreign entities should include representations and warranties about the accuracy of filings and information on the new register.

Real estate financings made to foreign entities should include undertakings and covenants to address the ongoing requirements to update the information on the new register on an on-going basis.

Richard Spooner is the founder of Diaconate Advisors, which offers a Fractional General Counsel suite of services for businesses, providing access to an attorney and business partner who knows and understands your business and is part of your management team.

Potential Impacts of the UK Government’s Proposed “Levelling Up” Initiatives on the Private Rented Sector (PRS)

Tue, 08 Feb 2022 10:04:27 GMT

The UK Government’s Levelling Up White Paper outlines plans relating to the private rental sector that promise to significantly disrupt that market.

Summary

The UK Government’s aspirations for its Levelling Up strategy can be summarised as:

to spread prosperity across the country;
to shift government focus to ar eas that traditionally have been neglected; and
to transfer more spending power from Whitehall to local leaders.

In furtherance of these aspirations, the Government has introduced 12 “levelling up missions”. One such mission is that, by 2030, (i) renters will have a secure path to ownership and (ii) there is to be a 50% reduction in the number of sub-standard rental homes across the country with a particular emphasis on the lowest-performing areas.

In furtherance of these aims, the Government has stated that, inter alia :

A legally binding ‘Decent Homes Standard’ will be introduced for all rental properties, with the ambition of decreasing the number of non-decent rental homes by 50%.
A national landlord reg ister is being explored. Plans for a crackdown on rogue landlords will be set out, including fines and bans on offenders.
Currently, landlords have two alternatives through which they can regain possession of a property: Section 8 or Section 21. Section 8 proceedings can be used when the tenant has breached the terms of his or her tenancy agreement. In contrast, Section 21 procedures can be used to regain possession of a property even when the tenant has not breached the terms of the tenancy agreement, for instance at the end of an Assured Shorthold Tenancy or periodic tenancy. Due to the ‘no fault’ nature of Section 21, it has been deemed unfair and is to be abolished. The abolition of Section 21 is to be the subject of a Renter’s Reform Bill; a White Paper specific to this bill is anticipated in Spring 2022.

Comment

Decent homes standards were introduced in the social housing sector in the early 2000’s. However, a significant portion of families who claim housing benefit now rent through the private rented sector where there has not been comparable regulation. While the goal to decrease the number of unsafe or unsecure private rented homes is a laudable one, social housing properties often differ from properties in the private sector in terms of age and type, so some differentiation may be required.
It has been reported by The Times that as many as 800,000 private landlords stand to be affected by the decent homes proposals. Some proportion of that number will be “rogue landlords”; however, most landlords are already seeking to deliver suitable properties to the market. It may be that some of these landlords – many of whom may already have been subject to financial hardship due to COVID-19 and/or the previous elimination of certain tax benefits – may elect to sell their properties and leave the sector rather than absorb the additional time and cost constraints of the decent standard proposals. (The decent homes standards are in addition to stricter EPC regulations from 2025 which themselves will lead to increased costs.)
I n connection with the abolition of Section 21 as an eviction procedure, measures will need to be taken to bring efficiencies and cost reductions to Section 8 proceedings, where there is more scope for litigation, costs, and abuse. Landlords should benefit from clear grounds for taking possession, particularly for rental arrears, to maintain confidence in the market. It may be necessary to explore making all grounds for eviction mandatory (where the court must grant possession to the landlord if the grounds have been established) rather than discretionary (where the court must decide whether eviction is reasonable under the circumstances even when the grounds have been established). Landlords also expect to retain the right to remove tenants if they are selling the property or need to move into the property themselves, although there may be some limits placed on these grounds for eviction relative to what exist in Section 21 currently. The upcoming Renter’s Reform Bill White Paper will be met with considerable interest by landlords.
It remains to be seen whether the proposed national register for landlords will be implemented. The benefits of having such a register will be dependent on the amount and quality of the data captured. The severity of the fines and penalties, including whether they are civil or criminal penalties, is also a relevant consideration. Regardless, to give teeth to the proposals, local authorities will need sufficient resources to investigate complaints and prosecute rogue landlords for non-compliance.
There is currently no statutory licensing requirement of private sector property managers in England. The lack of licensing is not addressed by the White Paper, despite the fact that in 2018 the Government confirmed the intent to regulate letting and property management agents.

Non-Performing Loans: The NPL Directive

Wed, 02 Feb 2022 12:13:28 GMT

The NPL Directive is designed to address the high levels of non-performing loans held by banks in the European Union and to regulate the secondary NPL market.

Background

Directive (EU) 2021/2167 on Credit Servicers and Credit Purchasers (the “ NPL Directive ”) relating to “ Non-Performing Loans " or “ NPL’s ” was published on 8 December 2021 and took effect on 28 December 2021. EU member states are expected to adopt measures implementing the NPL Directive by 29 December 2 023.

Non-Performing Loans or NPL’s are loans with payments of interest or principal more than ninety (90) days past due or where the lender determines that the borrower is unlikely to be able to make its scheduled payments.

The NPL Directive is designed to ensure that an NPL borrower should not be disadvantaged by the sale of an in-scope NPL, principally through the mandatory engagement of Credit Servicers.

The NPL Directive also imposes rules designed to ensure a more transparent and well-functioning NPL secondary market by regulating the interactions between the banks and the Credit Purchasers acquiring NPL’s.

NPL Servicing

“ Credit Purchasers ” are institutions that acquire NPL’s from banks or from another Credit Purchaser. (The NPL Directive does not apply to NPL’s not originated by an EU-established bank or NPL’s purchased by EU-established bank. It also does not apply to transfers of NPLs before the transposition deadline of the NPL Directive.)

Credit Purchasers of in-scope NPL’s who are domiciled or established in the EU will not need to be licensed but will need to engage a “ Credit Servicer ” to conduct any “ Credit Servicing Activities ” over any in-scope NPL’s, . Credit Servicing Activities include:

recovering payments, including through enforcement;
negotiating loan amendments or waivers;
administering complaints; and
informing the borrower of any changes to the loan terms (e.g., interest rates).

Credit Purchasers that are not established or domiciled in the EU will need to designate an EU-domiciled or EU-established representative who will be responsible for the performance of the Credit Purchaser obligations under the NPL Directive. The appointed representative will be required to appoint a Credit Servicer (unless the representative is itself an authorised Credit Servicer).

To obtain authorisation, Credit Servicers will need to have management or administrative organ of sufficiently good repute and with adequate knowledge and experience to conduct the business. Credit Servicers that receive funds from borrowers will be subject to extra requirements, including to have a separate account to receive such funds.

Credit Servicers will be able to operate across the EU by virtue of an EU passport. The Host and Home Member States will cooperate and share information and will be entitled to impose sanctions, penalties, or remedial measures in the event of non-compliance with the NPL Directive. Each Member State must also establish a register of authorised Credit Servicers.

The NPL Directive imposes additional record keeping requirements on Credit Servicers. For example, they will be required to retain all correspondence with either the Credit Purchaser or the borrower.

Perhaps most importantly, Credit Servicers are required to act in good faith and professionally and to provide clear and accurate information, both with respect to the NPL borrower and to the Creditor Purchaser (or its appointed representative) who has engaged them.

The NPL Directive also includes some requirements about the Credit Servicing agreement under which a Credit Servicer is acting. For example, any such agreement must include, inter alia , (i) a detailed description of the credit servicing activities that are to be undertaken, (ii) the level and method of calculation of the Credit Servicer’s remuneration; and (iii) a clause requiring the fair and diligent treatment of the borrowers.

There is a six-month transition period following the transposition deadline for entities which currently provide Credit Servicing Activities to be authorised as a Credit Servicer.

Note the licensing requirement does not apply to the servicing of NPL’s by banks, certain professionals performing lending activities, AIFMs, and qualifying investment companies authorised under the UCITS Directive.

NPL Secondary Market

The NPL Directive imposes other obligations on banks looking to sell NPL’s. A Credit Purchaser is entitled to receive information about the collateral and the creditor’s rights under the credit agreement so that it can make its own assessment of the value of the position and the likelihood of recovery. These disclosures are to be made using templates which are to be developed by the European Banking Authority (“ EBA ”).

Twice a year, credit institutions who have sold NPL’s will be required to supply certain information to the relevant authority in their home state about any sales of NPL’s in the relevant period. This information includes:

the legal entity identifier (LEI) of any Credit Purchaser (or its designated representative, as applicable);
the outstanding balance of any NPL’s transferred;
the types of assets comprising the NPL’s; and
confirmation as to whether the NPL’s involve consumers.

In addition, any transfer of NPL’s will trigger a notification requirement to the relevant borrower, to be effected by the Credit Purchaser or the appointed Credit Servicer.

Comment

Member States with existing Credit Servicing regimes – such as Ireland – will need to consider how the Directive interplays with their existing national laws.

It is uncertain whether the UK government will implement analogous legislation.

EU NPL market participants, including US and UK NPL investors, should consider the information, disclosure , reporting, and conduct requirements imposed by virtue of the NPL Directive.

NPL investors should consider the requirements surrounding Credit Purchasers, including whether to use an existing EU affiliate as a Credit Purchaser or credit representative, or whether to establish a new affiliate or appoint a third party for future transactions.

Relationships with Credit Servicers will need to be established and relevant due diligence undertaken. .

Entities undertaking (or wishing to undertake) Credit Servicing Activities will need to: (i) obtain a Credit Servicing license and fulfil any passporting requirements; (ii ) ensure any Credit Servicing agreements comply with the NPL Directive; (iii) improve their record-keeping policies and procedures; and (iv) adjust policies and procedures with regards to their interactions with NPL borrowers.

Coronavirus (COVID-19) Vaccination in the Workplace – Legal Considerations (England)

Fri, 14 Jan 2022 14:42:16 GMT

Employers are facing a range of employment law issues related to COVID-19 vaccination requirements for new and existing employees.

Introduction and Employer Duties

Certain types of workers are required by law to be vaccinated against COVID-19, unless they have evidence that they are exempt. The categories of workers subject to this legal requirement include front line care staff and other individuals working in CQC-registered care homes, tradespeople, and hairdressers / beauticians. (It is possible this legal requirement will extend to people working in a CQC health or social care workplace, although that is not currently the law.)

In addition to those circumstances where vaccinations are legally required, employers have a duty to ensure, to the extent reasonably practicable, the health and safety of their employees at work. Asking employees to agree to a vaccination against COVID-19 is likely to be a reasonable measure to reduce the risk to employees' health from COVID-19.

If an employer feels it is important for its staff to be vaccinated, the employer may find it useful to first talk with its employees about the vaccine and share the benefits of vaccination. Where relevant, employers should include recognised trade union or staff representatives in any such discussions.

In order to encourage employees to get vaccinated, the employer may consider offering paid time off for vaccination appointments and/or paying staff their usual rate of pay if they are off sick with vaccine side effects.

Vaccine Requirements – Existing Employees

Legal advice should be taken prior to an employer implementing a vaccine policy or commencing any disciplinary procedure for an employee refusing a COVID-19 vaccine. In such cases, the employer would need to establish that the employee’s reason for refusing the vaccine is unreasonable and that the COVID-19 vaccination is necessary for the employee to perform his or her job.

If an employee is not vaccinated and is not exempt, informal discussions may be preferable to a formal disciplinary procedure. Where needed, alternative ways of working that are COVID-19 secure may need to be implemented and agreed. Options may be for the employee to work remotely, either at home or another place where vaccination status is not relevant, or for the employee to undertake training at home or away from the workplace.

Some employees may refuse to be vaccinated on religious grounds. Employers will have to deal with each such case on its individual merits and avoid direct or inadvertent discrimination under the Equality Act. The employee’s reasons for refusing vaccination would need to be considered. To constitute a protected belief under the Equality Act, the belief must be worthy of respect in a democratic society, not incompatible with human dignity and not in conflict with fundamental rights of others, and attain a certain level of cogency, seriousness, cohesion and importance.

Similarly, some people may have health reasons for not receiving the COVID-19 vaccine. In these cases, employers must be sensitive to individual circumstances and, as above, avoid direct or inadvertent breaches of the Equality Act.

Vaccine Requirements – New Employees

It is comparatively less risky for employers to mandate that all new employees be vaccinated against COVID-19 as a condition of employment; however, as above employers must ensure that they do not breach the Equality Act and inadvertently discriminate against individuals on the grounds of protected characteristics.

Data Protection Considerations

Employers can collect data on employees’ vaccination status provided that the collection of data is necessary and relevant for a specific purpose. However, employers should note that information about an employee’s vaccination status is classed as special category data and therefore is entitled to heightened data protection requirements. Employees would also have to be told why the information is needed and for how long it will be retained.

Conclusion

There are times when employees are legally required to be vaccinated. Outside those requirements, if an employer feels it is important for its staff to be vaccinated, they may find it useful to talk with their staff about the vaccine and share the benefits of being vaccinated. Employers should include recognised trade union or staff representatives in any discussions. Legal advice should be taken prior to an employer implementing a vaccine policy or commencing any disciplinary procedure for an employee refusing a COVID-19 vaccine. Employers should be mindful of possible discrimination claims under the Equality Act and must also ensure that any information collected about employees’ vaccination status is stored and processed in line with relevant data protection requirements for special category data.

Cladding – UK Government Announces New Plan to Protect Leaseholders

Tue, 11 Jan 2022 13:35:05 GMT

The government has announced that leaseholders in buildings between 11 and 18 metres (36-60ft) tall will no longer have to take out loans to cover costs to repair unsafe cladding. Instead, developers will be expected to cover the costs, estimated at £4bn. However, questions remain.

Under the plans released by the Government, no leaseholder living in their own flat will have to pay to fix unsafe cladding. The industry has been given two months to agree to a financial contributions scheme to fund the new plan. If no such agreement is reached, the government has said it will impose a solution in law.

However, it appears that the proposals apply only to cladding. As a result, leaseholders may still face bills for defective fire compartmentation, fire doors and other non-cladding faults. In addition to awaiting the response from the developer community, questions also remain as to whether mortgage companies will lend against the homes currently in need of repair. The current situation has prevented many owners from being able to sell their properties.

COVID-19 Update - Further Changes to Eviction Rules (England)

Thu, 03 Jun 2021 18:10:24 GMT

During the COVID pandemic, temporary arrangements were introduced to protect tenants against eviction. As the situation has improved, the minimum notice periods for evicting residential tenants in England have been reduced. In addition, the eviction ban in England has now ended.

Effective 1 June 2021, the minimum notice periods for most possession notices served between 1 June 2021 and 30 September 2021 (inclusive) have been reduced from 6 months to 4 months. Further changes to Section 8 notice periods (on the grounds of rent arrears) will take effect from 1 August 2021. Subject to public health advice, notice periods are scheduled to revert to pre-COVID levels effective 1 October 2021. In addition, the temporary eviction ban in England ended on 31 May 2021.

The following is a summary of the changes which apply (England only) from 1 June 2021:

Section 21

The notice period for serving a Section 21 notice has been reduced from 6 months to 4 months.
A new prescribed form must be used.
The period by which possession proceedings can be commenced will also be reduced, from 10 to 8 months from the date on which the Section 21 notice was given.

Section 8

Generally, where the current notice period was 6 months, the notice period has been reduced to 4 months.
A new prescribed form must be used.
Exceptions remain for notices served on the grounds of anti-social behaviour and domestic abuse.
When the grounds for eviction relate to rent arrears, the death of a tenant or there has been a breach of the ‘Right to Rent’ rules, the situation is more complex.

Rent Arrears:

In the case of “ Serious Rent Arrears ” (at least 4 months’ rent unpaid), landlords will have to give at least 4 weeks’ notice;
In the case of “ Non-Serious Rent Arrears ” (less than 4 months’ rent unpaid) landlords will have to give: (i) at least 4 months’ notice from 1 June 2021 through 31 July 2021; and (ii) at least 2 months’ notice from 1 August 2021.

Death of a Tenant:

In order to serve a Section 8 notice on the grounds of a tenant’s death, a landlord must give at least 2 months’ notice.

Right to Rent:

In order to serve a Section 8 notice on the grounds of immigration status, a landlord must give at least 2 weeks’ notice.

If a landlord recently served an eviction notice prior to the above notice periods being reduced, he or she may wish to consider serving it again (with the new prescribed form) in order to benefit from the reduced notice periods now available.

COVID-19 Update: Public Health (Coronavirus) (Protection from Eviction) (England) (No. 2) Regulations 2021

Thu, 25 Feb 2021 16:59:16 GMT

The Government has passed The Public Health (Coronavirus) (Protection from Eviction) (England) (No. 2) Regulations 2021 extending the temporary eviction ban in England.

Eviction notices cannot be served on residential tenants from 22 February 2021 until 31 March 2021 unless an exemption applies. Similarly, bailiffs cannot execute warrants of possession of land for the same period.

The exemptions remain unchanged from previous legislation and consist of the following:

eviction of occupants where ‘substantial’ rent arrears have accrued (minimum 6 months’ rent arrears);
eviction of trespassers;
eviction of occupants on the grounds of anti-social behaviour;
eviction of occupants on the grounds of nuisance or false statements; and
taking possession where a property is unoccupied following a tenant’s death.

Court proceedings to obtain a possession order are in session; however, no evictions can be enforced until April 2021 unless one or more of the above exemptions applies.

Restructuring Update: A Brief Consideration of CVA’s, CIGA, and the Potential Impact of the Reinstatement of the Crown Preference

Wed, 11 Nov 2020 21:32:22 GMT

CVA’s have been pursued by a number of struggling retail tenants, as these businesses have attempted to navigate through a particularly challenging time made even worse by the COVID pandemic. The UK Government passed the Corporate Insolvency and Governance Act 2020 to provide additional avenues to businesses struggling due to the pandemic and the attendant economic crisis. However, a change in law due to take effect on 1 December 2020 – affording HMRC preferred creditor status ahead of certain floating charge and unsecured creditors (the return of the so-called “Crown Preference”) – may have unintended consequences to the restructuring landscape.

CVA’s

A Company Voluntary Arrangement (“ CVA ”) is an informal (but binding) agreement between a company and its unsecured creditors pursuant to which the company’s debts are compromised. A CVA supplements (or can be used to avoid) insolvency procedures like administration or liquidation and is approved if 75 per cent (by debt value) of the creditors who vote agree. A CVA can be challenged by a creditor on grounds of unfair prejudice or material irregularity.

Retailers that have undergone CVA processes include House of Fraser, New Look and Toys R Us. Some CVAs in the retail and hospitality sectors have focused on the tenants’ obligations to their landlords and often included rental discounts and moratoriums. These CVAs tended not to affect the tenants’ obligations to other unsecured creditors. However, in response to the additional impact of COVID on their businesses’ already struggling operations, CVA’s have also been pursued by tenants seeking to compromise the claims of categories of unsecured creditors in addition to landlords. These additional unsecured creditors include HMRC, employees and some suppliers.

The level of the amendments and concessions sought to a lease often correlate to the particular store’s profitability. Landlords have in some cases been pressured to accept significant rental concessions. Additional concessions may be sought as a necessary measure in light of the material adverse impact the COVID pandemic has had on these businesses’ operations.

Two High Court decisions somewhat reinforced landlords’ negotiating hands during the CVA process, setting some limits on what can be forced upon them:

In Re Instant Cash Loans Ltd [2019] EWHC 2795 (Ch) , the High Court held that a scheme of arrangement cannot compel a landlord to accept a surrender of a lease. The court held that a landlord’s right to forfeiture is a proprietary interest and that imposing a surrender of lease provision in a scheme of arrangement was outside the scope of Part 26 of the Companies Act. (Importantly, the court ruled that there was no material difference between a scheme of arrangement and a CVA.) It was the landlord’s decision whether it would accept a lease surrender, particularly given that doing so could lead to the landlord being liable for business rates and other liabilities.
In Debenhams Retail Limited [2019] EWHC 2441 (Ch) , a number of principles underlying ‘landlord-only’ CVA’s were upheld (including that future rents can be included in a CVA and that rent reductions were not automatically unfair or prejudicial, particularly if they did not reduce rental levels below the market rate). However, the High Court ruled that a CVA cannot vary a landlord’s right to re-enter its premises, as the right constitutes a proprietary right, strengthening landlords’ negotiating positions during CVA processes.

CVA’s have remained prevalent despite coming under some criticism as failing to actually address some of the systemic and structural issues impacting the businesses, such as the trend away from the high street and towards on-line shopping. In addition, the management team remains in control following a CVA, which itself can be a barrier to turning around a business’s fortunes. It is perhaps because of these reasons that a significant proportion of retail-sector CVA’s have been unsuccessful.

Corporate Insolvency and Governance Act 2020 (CIGA)

The Government passed the Corporate Insolvency and Governance Act 2020 (CIGA) to provide additional options to rescue companies in financial distress. New restructuring processes for companies under CIGA include restructuring plans and a standalone moratorium. CIGA restructuring plans can be compared to a U.S. Chapter 11 bankruptcy; however, in practice may prove similar in effect to a CVA.

The standalone moratorium (intended for businesses that can be returned to going concern status) provides for a temporary stay on enforcement action by creditors, including landlords. Some restructuring practitioners expect that many moratoriums will be followed by either (i) a CVA, scheme of arrangement or restructuring plan or (ii) an insolvency process.

As commercial landlords are prohibited from serving statutory demands or presenting winding up petitions before the end of the year, there has been little need for tenants to avail themselves of the protections of a moratorium under CIGA; however, the impact of CIGA has the potential to be wide-reaching and to have a significant impact on the UK restructuring market.

Return of the ‘Crown Preference’

Another upcoming legislative change may undermine CIGA, make it more difficult to raise capital for businesses being restructured, and spur certain parties to take action.

On 1 December 2020, a change in a law will take effect making HMRC a secondary preferential creditor in respect to certain taxes, enabling it to collect certain debts before floating charge and unsecured creditors (a position known as the “ Crown Preference ”). The relevant taxes which will rank as a preferential debt are limited to tax collected on behalf of HMRC such as VAT, PAYE, and NIC; corporation tax will continue to rank as an unsecured (non-preferential) claims. The change is significant, particularly as floating charge holders were already impacted by the Insolvency Act 1986 (Prescribed Part) (Amendment) Order 2020, which came into force on 6 April 2020, and which increased the maximum amount of the ‘prescribed part’ – the monetary amount set aside for the benefit of unsecured creditors out of the floating charge realisations – from £600,000 to £800,000.

Floating charge funding is an important tool in business restructurings, and the recent changes with respect to the prescribed part and the Crown Preference may make it harder for businesses to access rescue finance. Lenders may insist on taking more fixed charge security or require personal guarantees. Some lenders may be pressed to take action in advance of the Crown Preference coming into effect. That would not have been the Government’s intention.

What Makes a Good General Counsel?

Fri, 31 Jul 2020 14:16:14 GMT

This post examines some keys to forging a successful general counsel career.

The scope and influence of general counsel can be significant, affording access to key decision makers and a seat at the table where important business and strategic decisions are made. Perhaps unsurprisingly, a general counsel position is a professional aspiration for many attorneys, either as a destination in its own right or as a foundation for a future executive or non-executive management role.

The following is a sampling of some abilities of effective general counsel, and areas a lawyer seeking to move into a general counsel seat may wish to give particular focus.

Understand the business . When a general counsel truly knows and understands a business, he or she will perform better as both a legal and a business advisor. Having significant legal experience in its specific industry is therefore often a prerequisite when a company is looking to identify its general counsel. A general counsel must strive to understand the evolving priorities of the business and how the legal department can help the business achieve its objectives. That understanding may be best cultivated in relevant in-house roles, which will require an attorney to adopt a different approach than when operating in a law firm and to interact with a myriad of different groups and individuals in a corporate environment.
Develop a breadth of experience . While specific industry knowledge is undoubtedly important, a general counsel will be expected to manage matters touching on a wide swath of areas, including corporate law, regulatory compliance, data protection, labour and employment, and litigation. In some businesses, knowledge of intellectual property and copyright laws may be also be valued, as may be experience with mergers and acquisitions or competition law. If one’s day-to-day role does not afford opportunities to develop expertise in these areas, volunteering for a complex project or initiative, potentially one involving a myriad of different disciplines and departments, may be an option, as may be seeking out external training. A general counsel may also need to have experience operating across multiple jurisdictions; therefore, having worked abroad may be beneficial, particularly for a general counsel of a multinational organisation. Of course, it is not realistic to be an expert in everything, and a general counsel will often need to rely on external experts, either from a subject-matter or local-law perspective. But sound judgment and decision-making ability (often on the basis of limited information and under tight deadlines) are defining characteristics of an effective general counsel.
Demonstrate business acumen . Any general counsel should be prepared to demonstrate that they bring more to the table than just strong legal skills. A lawyer seeking a general counsel position should ensure they have a grasp of finance and accounting concepts and know how to read balance sheets and profit and loss statements. General counsel will often be expected to manage the budget of the legal group, so knowledge of budgeting and forecasting is essential, as is an understanding of resource allocation and return-on-investment. Team-building and leadership skills are also critical, including an ability to select, manage, and develop internal resources in a global environment.
Build relationships . As a member of the senior management team, it is essential that a general counsel establish credibility with a myriad of different internal and external stakeholders and business leaders. A general counsel must be able to communicate effectively to both large and small audiences. The general counsel must collaborate effectively with leaders of other functions such as finance, human resources, information technology, marketing, and sales, as well as with the CEO and the board of directors. Those interactions may involve mundane matters, but invariably the general counsel will also be turned to in times of crisis. General counsel should focus on communicating key points, risks, and considerations as clearly and plainly as possible to better assist the management team or senior executive who is consuming that advice. A general counsel who identifies and articulates risks clearly, thinks strategically, and ultimately crafts creative solutions that mitigate risks in a way that advances the business, should help ensure they are seen as a valuable member of the executive team.

In summary, an effective general counsel needs to bring more than just specific legal expertise. A company will also expect its general counsel to be a strategic thinker and effective communicator, possess broad business experience and financial acumen, and be able to build relationships across a diverse group of internal and external stakeholders.

COVID-19: Considerations for General Counsel

Thu, 23 Jul 2020 16:13:06 GMT

In-house legal departments can play a critical role in helping their organisations not only address the immediate issues raised by the pandemic but also prepare for its aftermath.

COVID-19 has been extremely disruptive – and often devastating – for businesses around the world.

For many in-house lawyers, the COVID-19 pandemic has meant:

Responding to changes in government policy across multiple jurisdictions in real time and educating their businesses accordingly . For example, management may need guidance on the pay and benefits to which employees are entitled and the relief schemes available, as well as any applicable quarantine measures, travel bans, and operational restrictions. The general counsel should also be a key contributor to any return-to-work project team charged with evaluating how and when to re-open businesses that have been closed due to COVID-19. That will involve considering the legal issues attendant to steps taken by the business to protect its staff and customers. For example, implementing location tracking or screening processes may have privacy implications. And any decisions made to stagger employee returns or to implement shifts must be made in accordance with applicable employment laws to avoid charges of discrimination.
Managing contract disputes and negotiating changes to various commercial arrangements . There may be contracts with third parties that the business wants or needs to cancel or amend, or for which it wants to obtain forbearance. At the same time, the company may be the subject of similar actions or requests from its counterparties and suppliers. Time will have been spent reviewing force majeure clauses in contracts and material adverse change (MAC) clauses in financial and funding arrangements. And access to certain remedies like contract termination, foreclosure, asset seizure or eviction may be temporarily curtailed by government regulations and guidance.
Implementing difficult employment measures, such as furlough schemes or redundancies . It may be necessary to address employment claims resulting from actions taken in the face of the pandemic. And of course, staff will have concerns about their financial livelihood and on-going job security. Ideally these situations should be managed as empathetically as possible, while addressing the various financial, operational, legal and safety considerations at issue, including with respect to any return-to-work model implemented by the organisation.
Adapting to an increasingly virtual and remote environment and making changes to corporate controls and procedures . Hopefully the company already had access to virtual communication tools to allow for remote access to systems and video calls. It may have been necessary to ensure that directors can use electronic signatures to execute documents and that they could conduct board meetings digitally, as well as to ensure there were no disruptions to required Companies House and HMRC filings. The general counsel should consider what changes to the business’s operating model might mean for the demand for legal services generally and how those legal services can best be delivered going forward. The company should also examine its corporate governance model and its policies and procedures, to ensure the company’s risk prevention tools remain fit for purpose in the altered working environment.
Considering business continuity issues . The general counsel should work alongside the business partners to ensure the organisation is prepared in the event any decision-makers or functions are adversely affected by the virus or if there are potential issues in the supply chain. Key suppliers’ COVID-19 response readiness should be evaluated. Within the legal department itself, the general counsel should have a plan to deal with increased workload and/or reduced capacity within the team.

An effective general counsel can be invaluable to helping a business navigate an increasingly volatile business environment. It is more important than ever that organisations are supported by an in-house legal team that can add real business value.

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In-house legal departments can play a critical role in helping their organisations not only address the immediate issues raised by the pandemic but also prepare for its aftermath.

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Employers are facing a range of employment law issues related to COVID-19 vaccination requirements for new and existing employees.