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In a time of great economic uncertainty, everyone is looking for a sense of clarity and stability.

When it comes to buying or selling a property, the idea of removing some element of risk from the process might seem appealing.

Pre-emption agreements can give a buyer exclusive access to buying a property putting them in a stronger position and ensuring that a seller gets some sense of who is going to be buying the property.

However, a pre-emption agreement is not a magic bullet to solve all your commercial property woes.

Such agreements require careful consideration and planning to be utilised effectively.

Types of pre-emption agreement

There are three main types of pre-emption agreements, each of which has a different degree of utility and suitability.

• First refusal: These agreements ensure that the potential buyer is approached before the property is put on the market to determine whether a sale can be made. The buyer has the right to refuse the sale if they wish and this will cause the property to become commercially available. The seller should not approach any other potential buyers until the person with whom they have made the agreement has refused the sale.
• Last refusal: This type of pre-emption agreement gives the buyer the right to match any offer made by a third party. If the offer is matched, the seller must accept this offer as per the terms of the agreement.
• Third party: This type of pre-emption agreement involves the property being sold for a price determined by a third party.

As the main trigger for a pre-emption agreement is the owner wishing to sell the property, pre-emption agreements can remain in place for a significant length of time.

Although pre-emption agreements my sound like a strong prospect, there are certain challenges they can present if you are uninformed.

Always seek professional legal advice when establishing a pre-emption agreement to ensure that it will work for you.

What are the risks?

As pre-emption agreements operate on an amount of goodwill, it is important to ensure that the particulars of the process are well defined within the contract to ensure both parties get a fair deal.

There is no definite end period for pre-emption contracts as default by law.

This is beneficial in the sense that pre-emption agreements can provide a degree of flexibility in when they are triggered.

However, if you do not wish the contract to run indefinitely, it may be necessary to impose your own time restrictions when establishing the contract.

In terms of timing, ensuring that the buyer has a set amount of time to accept or refuse the sale can help avoid the lengthy sale process that the contract was aiming to circumvent in the first place.

A buyer will need adequate time to consider their options but not so long that the seller is left in a state of uncertainty concerning whether the sale is proceeding.

A clear definition of the property is essential and should consider what to do if the owner wishes to gift part of or all of the property.

Facilitating how to handle disputes can also be a vital part of a pre-emption agreement.

It is worth remembering that a pre-emption agreement is designed to be of benefit to both buyer and seller and any agreement that fails to do this may cause problems in the long run.

Legal advice is essential for ensuring that your pre-emption agreements are making the buying and selling process as smooth as possible.

For further advice about pre-emption agreements, get in touch with our team today.

The prospect of having to deal with redundancy situations can be daunting for employers.

The law provides employees with a number of rights in a redundancy situation and, in order to avoid expensive mistakes, it is essential that employers and managers understand those rights.

Employees who are dismissed by reason of redundancy may be entitled to a statutory redundancy payment and may also be able to challenge the termination of their employment as an unfair dismissal. A successful claim for unfair dismissal means that you might be liable for costly compensation payments.

Here’s what you need to know about redundancy.

When is there a “redundancy” situation?

The legal definition of “redundancy” covers three types of situation:

• Actual or intended business closure.
• Actual or intended workplace closure.
• Reduction of workforce.

If fewer than 20 employees are being made redundant at one undertaking (work site) within a 90-day period, this is treated as a number of individual redundancy processes.

If more than 20 redundancies are proposed, this would be a collective redundancy situation.

In the latter situation, an employer must:

• Inform and consult appropriate representatives (these may be trade union representatives or, where no union is recognised, elected employee representatives).
• Notify the Secretary of State on form HR1.

This is called “collective consultation.”

It is important that the requirement for this is observed because a tribunal may award up to 90 days’ gross pay in respect of each affected employee where there has been a failure to collectively consult.

You may also be fined if you fail to notify the Secretary of State.

Redundancy and unfair dismissal

An employee who has sufficient qualifying service has the right not to be unfairly dismissed.

Redundancy is a potentially fair reason for dismissal, but whether it is fair or unfair to dismiss for that reason will depend on whether you (the employer) act followed a fair redundancy selection/ consultation process.

The process to be followed will vary based on the circumstances.

For a fair redundancy process, you will typically need to:

• Inform potentially affected employees of the business case for making redundancies and why their roles are at risk.
• Consider how to fairly select those to be made redundant, which typically involves putting employees with similar skillsets in a selection pool and applying measurable selection criteria to score employees.
• Consult with those at risk about the business case for redundancies and any ways they might think of whereby redundancies might be avoided.
• Consider whether the criteria or scores should be adjusted in response to any points raised in consultation.
• Give notice of redundancy to those employees with the lowest scores if no way of avoiding their redundancies has been identified (e.g. a suitable alternate role).
• Offer a right of appeal.

You are advised to take step-by-step guidance on adopting a fair procedure and to manage the risk of resulting employment tribunal claims.

In certain circumstances, selection of an employee for dismissal on grounds of redundancy will be automatically unfair, such as selecting an employee for a reason connected to pregnancy.

Indeed, pregnant employees, mothers on maternity leave and some recent pregnancy returners are entitled to be offered any suitable alternate roles even if they may not be the best candidate for the role or where others in the same redundancy selection pool have higher redundancy selection scores.

Section 105 of the Employment Rights Act 1996 prescribes various grounds that will make a redundancy dismissal automatically unfair and you should seek specific legal advice to minimise the risk of employees making redundancy selections any of these grounds.

Careful consideration should be given to any redundancy selection criteria used to ensure they are not discriminatory.

For example, using attendance as a criterion could discriminate against those on maternity leave or who have disabilities.

Offering voluntary redundancy only to employees whose age makes them eligible for early retirement could give rise to age discrimination claims.

However, a voluntary redundancy offer made to all employees could include an early retirement package for certain age groups.

Alternatives to redundancy

A redundancy should never be a foregone conclusion.

You should always consider at the outset whether compulsory redundancies can be avoided.

As a first step, you should consider restrictions on recruitment, overtime, hours given to staff whose hours are not guaranteed, and the use of contractors/agency workers.

Some employment contracts allow for workers to be laid off/put on short-time working where there has been a diminution in work with a guaranteed fall-back rate of pay.

If these avenues are not available or sufficient, you might consider inviting employees to:

• Apply for alternative vacancies.
• Volunteer for redundancy.
• Consider early retirement under the pension scheme, if applicable.

Alternatively, where contractual terms allow, it may be appropriate to temporarily lay off employees or reduce their working hours, for example where there is a diminution in work which it is hoped might be very temporary. Such employees may be contractually entitled to a guaranteed fall-back rate of pay.

However, you must be aware that this, in itself, could quite quickly entitle employees to claim a redundancy payment.

Redundancy payments

Employees with at least two years’ service are entitled to a statutory redundancy payment if they are dismissed by reason of redundancy.

Statutory redundancy pay is calculated according to a formula set out in section 162 of the Employment Rights Act 1996, which is based on age, length of service (a maximum of 20 years’ service can be taken into account) and pay (there is an upper limit on the amount of a ‘week’s pay’ that changes annually in line with the Retail Prices Index).

In addition to a statutory redundancy payment, employers should consider whether or not employees are entitled to an enhanced redundancy payment.

This entitlement could be expressly included in contracts of employment or incorporated by being set out in another document, such as a redundancy policy in a staff handbook.

Employment law advice with Palmers Solicitors

The specialist employment team at Palmers Solicitors can, at an early stage, assist you in mapping out a fair redundancy process and provide assistance with implementing that process, including providing template letters where required.

With our help, you can embark on a redundancy process with confidence, knowing that you have taken steps to effectively manage the risks and to put your business in the best possible position to swim through the mire of procedure, legislation and case law.

For tailored advice on redundancy law, contact us today.

Becoming a company director for the first time is an exciting step, but one that must be taken with caution.

Directors carry a heavy responsibility – running a company involves key decision-making that must take into account the long-term consequences of decisions, the interests of employees, the interests of the shareholders, the company’s relationships with its suppliers and customers, and the impact of decisions on the community and the environment.

With corporate social responsibility becoming increasingly important, directors often have to balance what may be conflicting factors in making a decision, such as an environmental consideration that is at odds with shareholders’ interests.

Here’s what you need to know about the role of a company director and what your legal duties are towards the company.

What is a company director?

The director/s run the company on behalf of the shareholders and have a number of legal duties towards the company.

All private limited companies must have at least one director.

The role of the director is defined by case law and confirmed by the Companies Act 2006.

Effectively, a director should always act in good faith and in the interests of the company as a whole by declaring any conflicts of interest and not making personal profits at the expense of the company.

Apart from making business decisions, the directors are responsible for preparing and delivering documents on behalf of the company to Companies House and HM Revenue & Customs (HMRC), such as the company’s accounts and the annual return.

Directors’ duties

Since directors have the power to take important business decisions on behalf of the companies they control, they have duties imposed on them to protect the interest of these companies.

The directors’ duties are designed to ensure that the company comes first. Directors must act in the interests of the company and not in the interests of any other party, including shareholders.

The Companies Act 2006 codifies the seven duties of a director:

1. Promote the success of the company: ‘Success’ is not defined in the Act, but Government guidance suggests that for a commercial company, success would be a long-term increase in value.
2. Avoid conflicts of interest: This duty makes it easier for a director to enter into a transaction with third parties by allowing directors who are not subject to any conflict to authorise the transaction, provided that certain requirements are met.
3. Act within powers: A director must only act in accordance with their powers, which normally originate from the company’s constitution, i.e. its memorandum and articles of association.
4. Do not accept benefits from third parties: This means a director cannot accept a benefit from a third party that arises because they are a director or because they take, or do not take, a particular action as a director.
5. Exercise independent judgement: This duty is not infringed if a director acts in accordance with an agreement entered into by the company or in a way that is authorised by the company’s constitution.
6. Declare an interest in a proposed transaction or arrangement: When a director has a direct or indirect interest in a proposed transaction, they must disclose the nature and the extent of this interest to the board, before the company enters into the transaction.
7. Exercise reasonable care, skill and diligence: Directors must exercise reasonable care, skill and diligence using the general knowledge, skill and experience reasonably expected of a person carrying out a director’s functions (the “objective” standard) and their own general knowledge, skill experience (the “subjective” standard). The effect of the subjective test is that a director who has more experience, knowledge and skill must use a level of diligence in carrying out their duties that reflects their more advanced expertise.

Who can be a director?

A director must be 16 or over and not be disqualified from being a director. Directors do not have to live in the UK, but companies must have a UK registered office address.

At Palmers, our company and commercial solicitors can help you understand your duties as director, and ensure you remain compliant with the law.

For help with all aspects of company governance, contact our company and commercial law specialists today for expert advice.

Very few people go into business expecting things to go wrong.

However, sometimes life gets in the way and business partners fall out or personal circumstances change. What happens then in the context of a company?

The absence of an agreement between shareholders often results in costly disputes over what rights each person has and how the company is run, valued or funded.

Failure to document arrangements properly can hamper growth, and problems can arise if one party wants to exit the company or on the death of a shareholder.

A shareholders’ agreement provides clarity and peace of mind to all shareholders about what can and cannot be done and what happens when things go wrong.

What is a shareholders’ agreement?

A shareholders’ agreement is exactly that – an agreement between the shareholders of a company.

It sets out the relationship between the shareholders, how the business will be run and what happens if difficulties arise.

Shareholders’ agreements supplement the Articles of Association.

Unlike the Articles of Association which are governed by corporate law, they are governed by contract law and may be amended and ended by simple agreement. Also, unlike the Articles of Association, the shareholders’ agreement is a private document, so does not need to be registered with Companies House or made public.

Why should you have a shareholders’ agreement?

Shareholder deadlock (particularly if accompanied by director deadlock) can paralyse a business.

How shareholder disputes and deadlocks are dealt with can often be resolved and negotiated by careful review and consideration of the Company’s Articles of Association or a written shareholders’ agreement, provided that (i) the Articles have properly been considered and drafted at the start of the relationship and (ii) a shareholders’ agreement exists.

A well-drafted shareholders’ agreement can set out strategies to help resolve shareholder deadlock or deal with the issues that arise when a shareholder decides to sell their interest in the business.

When there is no shareholders’ agreement, contentious scenarios are more likely to arise.

Additionally, there are many situations where the shareholders will not be happy with the standard voting rights in accordance with shareholdings.

For example, a company may be reliant on the skills and knowledge of a minority shareholder, or that shareholder may have lent money to the company.

A shareholders’ agreement provides a more equal distribution of power and protects minority shareholders.

What should be contained in a shareholders’ agreement?

A shareholders’ agreement sets out detailed and practical rules for the company and its shareholders, and should cover:

• Purpose of the company: What is the company’s business plan and what are the expectations of the shareholders?
• Matters requiring unanimous consent: A shareholders’ agreement should explain clearly which decisions can only be made with unanimous consent and in which matters minority shareholders will have veto rights.
• Shares: What are the terms regarding the distribution of any new shares? Consider also what will happen if a shareholder dies, sells their shares or becomes incapacitated.
• Directors: Decide who can appoint and remove directors to the company, as well as which rights of management are delegated to the directors.
• Finance: Set out how the company will be funded and whether there will be an allotment of new shares to raise capital.
• Exit strategies: It is important to outline what provisions will be made when a shareholder wishes to exit, such as whether existing shareholders will have first right of refusal on the shares.
• Dispute resolution: How will disputes be resolved? Will a third party be appointed to arbitrate? Make sure you have clear strategies in place to help to minimise animosity during a dispute.
• Defining the power of shareholders: To what level can individual shareholders act on behalf of the company without consultation and agreement? How can shareholders be prevented from competing with the company and poaching clients or staff?

An understanding of the statutory provisions, the common law provisions and the company’s Articles are all required when drafting such an agreement, along with a clear understanding of the common issues that could arise within the company and the range of possible solutions that could be included.

Prepare for future disputes with a shareholders’ agreement

Disputes internally within a business can be challenging and even have the potential to destroy a good business if not properly dealt with.

At Palmers, we can advise you on how your company might benefit from a shareholders’ agreement and can draft an agreement appropriate to the needs of your company.

If a dispute arises, we can help you implement the dispute resolution strategies laid out in the shareholders’ agreement, ensuring you can resolve matters amicably and get back to running your business.

A shareholders’ agreement is essential for managing future business disputes and protecting the value of your business interests.

For tailored advice on shareholders’ agreements and dispute resolution, contact our company and commercial law specialists today.