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Applying for finance? – Check the loan agreement beforehand

Palmers Solicitors Article Left, Business News, Corporate Finance, Covid update, Library 22 April 202023 September 2021

Thousands of businesses are likely to apply for finance as they attempt to deal with cash flow issues related to the coronavirus pandemic, including via the Government-backed Coronavirus Business Loan Scheme (CBILS), Large Business Loan Scheme (CLBILS) and COVID-19 Corporate Financing Facility (CFF).

These loans, although backed by the Government, are not without risk and businesses will remain 100 per cent liable for the finance they take out.

The commercial terms on these loans are likely to differ drastically as they are being provided by different accredited lenders via the British Business Bank.

As a result, the loan agreements that you are required to agree to may vary depending on the requirements of each lender and your financial position.

Loan agreements will typically include the following points, which should be carefully reviewed:

Conditions Precedent – conditions a lender needs to be met by a borrower before agreeing to release the funds.

Interest – the agreement should clearly set out whether interest is payable on the loan being made and if so, at what rate.

Repayment – the loan agreement should set out how the loan is to be repaid and whether additional voluntary payments can be made to settle the debt early. Be careful as early repayment could result in additional fees being charged.

Indemnities – lenders may require indemnities that promise to pay to the lender on a pound-for-pound basis on a particular type of loss arising, such as in the event of a default on the loan.

Representations or warranties – lenders may use representations and warranties to limit their lending risk.

Financial covenants – in a commercial loan these define the parameters within which a borrower may operate its business and can include:

How a lender monitors a borrower’s financial position during the loan;
Early warning requirements of financial difficulty; and/or
Means to enforce financial discipline.

Default Events – the agreement should specify under what circumstances would give a lender the right to demand early payment. These should be tailored and negotiated as appropriate and in light of the current crisis.

Securities – lenders may ask for security against the loan they are making, this is usually an asset that can be sold to recover debts. The Government has already stepped in to prevent the requirement for personal guarantees for loans of £250,000 or less, but it is important to check whether any securities are listed.

Loan agreements can be complex and very onerous, and so it is important that they are checked thoroughly beforehand by a legal professional to ensure you aren’t obligating yourself to a condition you aren’t comfortable with or cannot meet in future. Speak to our team to find out how we can help.

Raising a glass to a bumper M&A year for the licensed sector

Palmers Solicitors Article Right, Business News, Corporate Finance, Library 31 January 2020

Merger and acquisition (M&A) activity in the pub and licenced premises sector reached an all-time high in 2019, new research has revealed.

The study, published by market specialists Fleurets, shows that the sector remains buoyant despite economic and political headwinds.

According to the report, an estimated £8.15 billion was invested in pub transactions in 2019, rising to £10 billion when leisure property investments and brewery transactions are included.

Likewise, the average freehold sale price increased by 19 per cent to £589,262 over the same period.

The report authors suggest that despite concerns over the Pub Code, fears of a staffing shortage, minimum wage rises and increasing purchase and operational costs, the sector continues to attract investors.

“The pub market is not struggling. The significant benefits of asset-backed cash flow have attracted new overseas investors, established investment funds and existing trade buyers. They have all drawn the conclusion that the pub market offers sound investment fundamentals,” said Fleurets.

They added: “There are no signs that M&A activity will stop in 2020.”

In total, the six largest deals – accounting for 7,400 individual pub transactions – were led by major groups Heineken, Young’s, Stonegate, Ei Group, Fullers, and Robinsons.

By comparison, fewer than 600 pubs were sold in the 14 largest deals throughout the whole of 2018.

The study also reveals that around 65 per cent of freehold transactions are sold for “continued use”, with the remaining sites most commonly repurposed for residential, restaurant, or retail use.

BJ Chong, a Partner with Palmers, said: “These figures are welcome news for the licensed sector and it appears that the confident momentum will continue throughout 2020 for entrepreneurs with experience of the hospitality industry.

“As with all M&A opportunities, due diligence is vital in the early stages so it is important to enlist expert support from legal advisors who can ensure the deal stacks up.”

Palmers Solicitors has a resourceful and experienced Corporate Finance Department and a proven track record of providing legal expertise in company sales and purchases.

If you need help and advice raising capital or support with due diligence, please get in touch with our expert team.

Understanding a director’s duties

Palmers Solicitors Business News, Company Law, Corporate Finance, Library 25 February 2019

The position of company director holds a certain amount of prestige and kudos. But with the title comes significant responsibility, including numerous legal duties which may trip up the unwary businessperson.

Here, Matthew Johnson, an Associate Solicitor with Palmers, explains what every company director needs to know:

Directors owe numerous duties to a company. These duties were developed by the courts over a long period of time before some were enshrined in the Companies Act 2006 (CA 2006). The duties of a director set out in the CA 2006 sections 171-177 are often known as the general duties.

The general duties include the duty to promote the success of the company, the duty to exercise independent judgment, the duty to exercise reasonable care, skill and diligence, the duty to avoid conflicts of interest, the duty not to accept benefits from third parties and the duty to declare interests in proposed transactions or arrangements. It is a criminal offence to fail to declare an interest in existing transactions or arrangements.

The general duties are not exhaustive and directors should be aware of other legislation that may apply, such as in an insolvency situation where liability can arise for wrongful trading, fraudulent trading and transactions carried out at an undervalue or where a preference is given.

Potential liability arises for a director under sector-specific legislation, e.g. unsolicited marketing communications where the Information Commissioner’s Office has the power to fine directors in addition to companies for nuisance calls and messages.

If a director breaches one or more of the general duties he may leave himself open to a civil action from the company with the possible consequences of damages or compensation, restoration of the company’s profits and an account of profits made by the director.

For advice on Directors’ Duties and all aspects of business law, please contact us.

Fears that prices will go up as speeds go down

Palmers Solicitors Business News, Corporate Finance 23 November 201531 July 2017Corporate Finance

Increases to journey times will result in additional costs to the freight industry and be passed onto shoppers, the Freight Transport Association (FTA) says.

The statement follows FTA’s assessment of statistics published by the Department for Transport (DfT).

The data suggests that the average speed on ‘A’ road networks during the morning rush-hour has slowed to 23.6mph – a 0.5 per cent decrease.

Amid the slowdown, HGV traffic has increased by 1.2 per cent, the figures say. It equates to 16.1 billion vehicle miles and represents 5.1 per cent of total motor vehicle traffic.

Malcolm Bingham, FTA’s head of road network management, said: “The DfT statistics show that journey times have increased yet again, which is a worrying reflection of the lack of road capacity across the UK.

“Longer journeys mean additional costs to the freight and logistics industry, which are inevitably passed on to the shopper and the price of goods on shelves goes up as a result.”

He added: “With current motorway improvements still to be implemented, these figures show that our ‘A’ road network is also showing the strain and we need to have investment in that network as well.

“It is therefore vital that the Government and local highway authorities keep roads-spending as a priority and look to provide the capacity needed for an improving UK economy.”

Amid rising costs, businesses may well be thinking of a change in strategy, but they should not proceed without expert advice. Palmers offers a range of services giving invaluable insight into company, commercial and corporate finance issues. For more information, please contact BJ Chong.

More drivers needed to help industry keep on trucking

Palmers Solicitors Business News, Corporate Finance 23 November 201531 July 2017Corporate Finance

National Lorry Week highlighted a shortfall in drivers and the need for emergency government funds to deliver driver training.

The event, which ran at the end of October, was designed to raise the profile of what organisers called ‘the nation’s essential service provider’.

A wave of media coverage followed, prompting the Road Haulage Association to declare in November that the event would be repeated in 2016.

Richard Burnett, RHA chief executive, said the programme ‘really was a week to remember and clearly met our twin aims of raising the profile of our industry and getting our message across to politicians’.

A ‘critical driver shortage’ was among the topics discussed, along with the broader suggestion that the industry did an ‘incredible job’ in ‘delivering daily life’.

The industry estimates that it is between 45,000 and 50,000 drivers short. The RHA has called for a recognised LGV apprenticeship and emergency government funds to support driver training.

Mr Burnett added: “Members parked their HGVs in busy town centres, took them to schools and turned up at sporting events.

“This gave thousands of supporters a great opportunity to get up close and personal with trucks and hear about the industry first hand.”

RHA reports that the project has helped generate ‘a lot of enquiries from people keen to pursue a driving career’.

Palmers can assist firms with a range of commercial issues, along with corporate finance matters including company sales and acquisitions. For more information, please contact BJ Chong.

Ofsted needs to clean up its attitude, BCC says

Palmers Solicitors Business News, Corporate Finance, Library 20 November 201531 July 2017

Ofsted’s claims that cleaning should not be offered as part of an apprenticeship have been dismissed by the British Cleaning Council (BCC).

Ofsted chief Michael Wilshaw says ‘low level skills’ are potentially devaluing the apprenticeship brand, but BCC has reacted angrily to the term, pointing out that the industry contributes more than £8 billion to the UK economy annually.

Stan Atkins, deputy chair of BCC said: “It is imperative the cleaning industry has recognised apprenticeships such as window and facade cleaning, and we need to make sure young people learn technical skills. Some skills can be covered using on-the-job training, others, however, require learning and the application of that knowledge.”

The BCC says cleaners’ jobs have ‘changed enormously over the last few years’ and require a wide set of skills, in addition to offering supervisory and management opportunities.

Backing the stance, Chris James, CEO of the Waste Management Industry Training and Advisory Board (Wamitab), said: “A narrow stigmatized view of cleaning or cleaning apprenticeships is a reflection of the paucity of understanding purveyed by the authors, rather than the reality of environmental, conservation and enhancement that is cleaning today.”

Palmers recognises not only the many success stories within the industry but also its huge contribution to the economy. We are experienced in supporting firms through a range of commercial issues. For more information about our expert advice, please contact BJ Chong.

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