what's in the news

You may have read it in the news recently that the coalition government has announced legislation to cap redundancy pay for civil servants, with payments for compulsory redundancies being capped at 12 months pay, and voluntary redundancy at 15 months pay.  Even these caps go considerably beyond what is prevalent in the private sector.  At the moment redundancy arrangements can result in employees getting up to 6 years’ worth of pay in the civil service.

This legislation would override a recent decision where the Public and Commercial Services Union successfully challenged attempts to reduce the payouts on redundancies.

In the private sector one of the possible barriers to capping redundancy pay has been lifted.  In Kraft Foods UK Limited -v- Hastie it was decided that a cap on payments under a contractual redundancy scheme which was designed to ensure that employees would not receive more than they could have earned had they remained in employment to retirement age was a proportionate means of achieving a legitimate aim and therefore was not an act of age discrimination.

Where you are putting in place an enhanced redundancy scheme, or reviewing an existing enhanced redundancy scheme, it is worth ensuring that your scheme mirrors the statutory regime.  For example, if you use 4 weeks pay for each year of service it is worth designing the scheme so that you still apply the statutory age multipliers and the 20 year maximum multiplier because you do not have to worry about justifying the scheme if it is attacked as being discriminatory.

Claims Under a Year

Where an employee has less than a year’s service one will frequently find solicitors representing employees arguing that there has been discrimination, whistle blowing or an assertion of a statutory right in order to be able to pursue a claim under the year.  Now as a result of the Court of Appeal case of Edwards -v- Chesterfield Rural Hospital NHS Foundation Trust it has been decided in principle that an employee can recover damages when as a result of the breach of express contractual terms of disciplinary procedures findings of misconduct were made which would not have been made had the disciplinary procedure been properly followed resulting in dismissal.

As you may know, in the House of Lords decision in Johnson -v- Unisys Limited it was decided that an employee cannot claim damages for breach of the implied term of trust and confidence in relation to the manner of the dismissal, but other cases have shown that employees can pursue a claim for damages suffered as a result of pre-dismissal action such as suspension.

Now I look even more quickly for the disciplinary procedure to see if the policy is contractual.  In most disciplinary procedures these days they are expressly provided not to be contractual.  If you do not explicitly state that your disciplinary procedures are not contractual then it may well be worth adding wording such as the following to your disciplinary procedures such as:

“This procedure does not form part of any employee’s contract of employment and it may be amended at any time.”

This is quite common wording but this could have some disadvantages for an employer, and I prefer to say:

“This procedure does not create contractual rights enforceable by you against the Company but you must comply with it.”

I prefer this sort of wording because often there are provisions in the disciplinary procedure which an employer might want to enforce against the employee such as, for example, the right to suspend or provisions as to matters which amount to gross misconduct.

Of course if your existing procedures are contractual you will need to go through a proper process to amend the contractual provisions to make them non-contractual.

Equality Act – 1 October 2010

Despite uncertainty it has been announced that the first tranche of the Equality Act implementation will go ahead on 1 October 2010.  We will be holding a “Wake up to Pitmans” on this on 15 September 2010.

For any concerns or queries about any Employment related matter, please visit Pitmans Employment website or contact the team direct.

Mark Symons
msymons@pitmans.com
+44 (0) 118 957 0450

Richard Devall
rdevall@pitmans.com
+44 (0) 118 957 0602

Angela Shields
ashields@pitmans.com
+44 (0) 118 957 0478

Amanda Dorling
adorling@pitmans.com
+44 (0) 118 957 0407

Overview

In the June 2010 Budget, the Government announced that, with effect from April 2011, the Consumer Prices Index (“CPI”) will be used instead of the Retail Prices Index (“RPI”) for determining pension increases for public sector schemes.

The Pensions Minister, Steve Webb, subsequently issued a statement confirming that the Government also intends to use the CPI instead of the RPI to calculate increases and revaluation of deferred benefits in private sector final salary schemes.  The CPI will also be used to increase Guaranteed Minimum Pensions and compensation paid by the Pension Protection Fund and the Financial Assistance Scheme.

A second statement was issued by the Department for Work and Pensions on 12 July to clarify the proposals.  This confirms that a “statutory minimum requirement” will continue to apply to the revaluation and indexation of pension benefits (although the amount is not specified), and that the changes will apply to final salary rights and to certain money purchase rights in occupational schemes.

Why the CPI?

The RPI is intended to provide a general measure of prices across all household spending.  In contrast, the CPI does not include housing costs or Council Tax.  The Government therefore considers that the CPI provides a better index of inflation for pensioners.

The CPI has generally increased at a lower rate than the RPI, so over time this could have a detrimental effect on members’ benefits but a beneficial effect on a scheme’s funding position.  Some commentators have calculated that the change to the CPI could wipe 10% off private sector final salary scheme liabilities.

Implementing the Legislation

A revaluation order is made each year which sets out the minimum rate at which occupational pension schemes should revalue deferred benefits and increase pensions in payment.  The order uses data on price inflation up to 30 September of the previous year.  The July statement confirms that the order which will be in use in 2011 will use data on price inflation to the year ending 30 September 2010 based on the CPI.

The Government expects to publish the 2011 order in November or December 2010.  It also intends to bring forward legislation at the earliest opportunity to ensure that other references in pensions law are consistent with using the CPI.

The July statement gives some illustrative examples of how the change to the CPI might work in practice.  Although these are specified to affect future revaluation and indexation calculations only, they appear to provide for an automatic change to the CPI for existing deferred members and pensioners currently receiving benefits calculated by reference to the RPI.  Given the constraints of section 67 of the Pensions Act 1995 which prevents detrimental amendments to members’ accrued rights and any fetters on a scheme’s amendment power, any change to the CPI will generally only be possible for increases or benefits provided in respect of future pensionable service completed after April 2011.

It is, therefore, unclear how the Government intends to permit an automatic change to the CPI for existing pensioners and deferred members (if this is in fact what is intended).

Changes to Scheme Rules

Many final salary scheme rules require the RPI to be used to calculate pension increases and revaluation of deferred benefits.  The required rate has changed over recent years.  Since 6 April 2005, schemes have been able to reduce the rate of pension increases from the lower of 5% per annum or the RPI to the lower of 2.5% per annum or the RPI, and since 6 April 2009, schemes have been able to reduce the rate of revaluation of deferred benefits in a similar manner.  In both cases, any change can only apply to increases or benefits provided in respect of pensionable service completed after the relevant provisions came into force.

If scheme rules require the RPI to be used, they will need to be amended before any increases or revaluation can be calculated by reference to the CPI.  As noted above, because of section 67, unless the Government makes substantive amendments to pensions legislation, our view is that any change to the CPI will only be able to operate for benefits accrued in respect of future pensionable service after April 2011.  Additionally, it will be necessary to consider the terms of the scheme’s amendment power, as this may contain fetters preventing detrimental amendments to members’ accrued rights, and may also require the trustees’ consent.

Some schemes provide fixed rates of revaluation and indexation. It is not clear how these will be affected by the change to CPI.

Comment

Although some industry bodies and employers have welcomed the announcement in the light of the potential significant reduction for scheme deficits, other organisations have expressed concerns about the potential detrimental effect on some members’ benefits.

We advise trustees and employers to adopt a “wait and see” approach, pending further clarification and draft legislation.  In particular, it is not clear from the July statement how the Government intends to achieve an automatic change to the CPI for existing pensioners and deferred members.

When the position has been clarified, schemes will need to consider whether to adopt the migration to the CPI or to retain the more generous RPI.  Scheme rules will need to be reviewed to understand the impact of any changes and to be amended if necessary.

For more information relating to Pensions services please visit the Pitmans Pensions website or contact the team direct.

David Hosford
dhosford@pitmans.com
+44 (0) 118 957 0363

Symon Rowley
srowley@pitmans.com
+44 (0) 118 957 0301

Rosamund Lee
rlee@pitmans.com
+44 (0) 118 957 0261

On 22 June 2010 George Osborne delivered his first Budget under the new coalition government.  Below is a summary of the property-related measures we believe our website’s users may find of interest:

Value Added Tax – arguably the most important change – the rate will increase to 20% from 4 January 2011.  There is no rise in VAT on new build properties.

Capital Gains Tax – this increased to 28% for higher-rate taxpayers with immediate effect (23/06/10).

Income Tax – the personal allowance will increase to £7,475 from April 2011.

Insurance Premium Tax – the current standard 5% rate will increase to 6% and the higher rate from 17.5% to 20%, both from 4th January 2011

Home Information Packs – Although not strictly part of the Budget, the requirement for a seller to obtain a Home Information Pack (HIP) prior to the marketing of their property has been suspended with immediate effect from 21 May 2010.  The Energy Performance Certificate (EPC) will still be necessary.  Sellers will still be required to commission, but won’t need to have received an EPC before marketing their property.

Stamp Duty - again an earlier change introduced back in the March 2010 Budget but a reminder that from 6th April 2011 there will be a new 5% band of SDLT on all purchases of property worth over £1 million.  That March Budget also introduced a first-time buyer relief where the consideration is below £250,000 for a 2 year period between 25/03/10 and 25/03/12.

Business Rates – the Government has announced their intention to introduce legislation to cancel back-dated business rates bills eligible for the 8-year schedule of payments scheme for newly assessed properties that were split from a larger ratable property.  It is thought the Government also intends to repay those who have already met their back-dated liabilities.  The level of small business rate relief will temporarily increase for 1 year from 1st October 2010 giving full relief for eligible businesses occupying premises with a ratable value of up to £6000 and tapering relief to £12,000 (March 2010 Budget).

Council Tax – the Government has announced it will work with local authorities to “freeze” tax for 2011/2012.  Details have yet to be clarified.

Furnished Holiday Lets – the current favourable tax regime will not be repealed as was expected but rather the Government proposes to consult during the year to change the rules to ensure they comply with EU requirements and are fiscally responsible.  The likely changes will be to the eligibility thresholds and the circumstances for which relief for loses can be claimed but again the detail must be examined carefully once available.

Regional Development Agencies – will be abolished to be replaced by Local Enterprise Partnerships where demanded by business and locally-elected leaders.  A White Paper this Summer will consider options for business rate and council tax incentives that would allow local re-investment into communities and the introduction of a simplified planning consents process in specific areas targeted for business growth.

Major Transport Schemes – the upgrade of the Tyne & Wear Metro, extension of the Manchester Metrolink, redevelopment of Birmingham New Street station and improvements to the rail lines to Sheffield and between Leeds and Liverpool were all confirmed.  High Speed 1 (the Channel Tunnel rail link) will be sold.

A “Green Deal” will be launched for households through legislation in the Energy Security and Green Economy Bill to allow individuals to invest in home energy efficiency improvements paid for through savings in energy bills.

Landfill Tax – the standard rate will increase by £8 per tonne each year from 1st April 201 until at least 2014 and there will be a minimum rate of £80 per tonne from April 2014 until at least 2020.

Please note that the above is a summary only and is not intended to be fully comprehensive.  We recommend that specific legal advice is sought on any particular issue.

For further information relating to Property & Real Estate services, please visit the Pitmans Real Estate website or contact our team direct.

Katharine Marshall
Director
+44 (0) 118 957 0206

Leading Thames Valley & London based law firm Pitmans announces a new phase in the development of its Corporate Department with the promotion of Andrew Peddie to Head of Corporate and the appointment of Adam Dowdney to the role of Corporate Business Development Partner.

Andrew has more than 20 years’ experience of Corporate law, specialising in mergers and acquisitions and corporate finance. He trained and qualified at Linklaters, before becoming a Partner at Garretts / Andersen Legal in Reading in 2000 and then merging that office into Olswang in May 2002.  He joined Pitmans in April 2009.

Christopher Avery, Managing Partner of Pitmans, comments: “Since his arrival at the firm, Andrew has proven to be a lawyer of considerable expertise who is respected across the sector.  He has been an integral part of our Corporate Department’s continued success as the leading team in the Thames Valley region.

“His experience and skills make him ideally-suited to leading the department and I am sure, with the support of the rest of the Corporate team, he will drive it forward to future success.”

Adam has been a Partner at Pitmans since 2007, having also started his career with Linklaters before moving to Charles Russell.  As with Andrew, he is a high-profile figure in the Thames Valley professional services community and his focus is on mergers and acquisitions and Corporate finance work for a wide range of clients in the Thames Valley region.

Christopher Avery continues: “Adam’s abilities both in transaction work and business development are such that we wanted to formalise his role in continuing to drive forward much of the department’s marketing effort, particularly with other professional dealmakers in the Thames Valley among whom he is so well-known.”

Andrew’s promotion to Head of Corporate follows the standing down of John Hutchinson from the same role to concentrate more on his Epi-V private equity business.  John remains a Partner of Pitmans and will continue to represent the firm.

Christopher Avery adds: “John’s work with Epi-V has been undertaken with full support of the Pitmans senior management team and we understand his decision to focus more on this venture.  He remains a Partner of Pitmans and will continue to work with his existing client base to offer the very best levels of advice and representation.”

For further information relating to the Corporate services, please visit the Pitmans Corporate website or contact our team direct.

Watch or listen to nearly any news bulletin and the chances are there will be a piece on the threat of international terrorism, a rogue state or a new sanctions regime imposed by the UN of the West.  So what does this have to do with businesses operating in the Thames Valley?

Well, potentially rather a lot if you are a business which exports goods, technology or software to foreign countries.  The context for this connection is the control regime under UK law on the export of goods, technology or software which can be used for both civil and military purposes – known as ‘dual-use’ items.  The dual-use regime, governed by The Export Control Order 2008 and associated UK Strategic Export Control Lists extends to goods or technology applications which may have no obvious link with military use or uses which could be considered unwelcome.

So, even a business producing medical materials or engaged in technology for environmental research may, if it is exporting its product outside the EU (and in some cases within the EU) find that it needs to have an export licence.  Export can extend not only to trade in material goods or equipment but also to electonically transmitting software or information. There can be serious consequences for a business in breach of the export rules.  Non-compliance can lead not only to criminal sanctions including fines or imprisonment but crucially can cause massive corporate reputational damage which can have a lasting impact on the company’s trading position and ability to engage in future contracts.

The dual-use export policy and enforcement regime falls under the remit of the UK Government’s Export Control Organisation (ECO), part of the Department for Business, Innovation & Skills (BIS). ECO is responsible for licensing dual-use items and carrying out compliance audits on businesses.  It also acts as an information service providing advice, guidance and training on strategic export controls.  Practically therefore, any business which may believe that it is affected by the dual-use regime should at least familiarise itself with the functions and services of ECO.

Businesses which operate in conjunction with US owned companies or which utilise components of US origin in their products will also need to consider whether they are complying with the strict US export regulatory regime for dual-use items which can, in some cases, have extra-territorial reach.

In this global environment, companies operating in the Thames Valley should consider whether they need to add these issues to their roster of checks and risk-management procedures.

For further information relating to Defence & Security services, please visit the Pitmans Defence & Security website or contact our team direct.

Jonathan Durrant
jdurrant@pitmans.com
+44 (0) 118 957 0270

A business’s focus on its market and resources becomes more acute during a recession.  In deciding whether or not a business should continue trading, directors have to consider why they want to trade, are they able to, do the numbers add up, and is it worth it?

Directors facing possible company insolvency should remain mindful of their duties and obligations and take extra care to properly document decisions made, to maintain the company’s records, and to submit HMRC and Companies House returns on time.  Directors should not: incur further credit or issue cheques when there is little or no prospect of payment; take customer deposits when they know orders cannot be fulfilled; or attempt to pay certain creditors in preference to another.

In an ideal world it would be possible to secure the recovery and survival of all companies without recourse to formal recovery procedures.  Sometimes, however, this cannot be avoided and this article considers two insolvency procedures which deal with such an acute challenge.  They are Company Voluntary Arrangements (“CVAs”) and Pre-Packaged Administrations (“Pre-Packs”).

Company Voluntary Arrangements

A CVA is a legally binding agreement between a company and some or all of its creditors whereby the company makes a proposal to repay its liabilities. A CVA can be a quick, flexible way of saving a business and need not provide for full repayment of all liabilities, only more than could otherwise be expected were the company to enter liquidation.  It can be designed to target particular problem areas but also have a more general application. Crucially, the nominee (an insolvency practitioner) provides an independent check of the proposal’s viability in reviewing and recommending it to the creditors and to the court.

Creditors should generally be supportive of a CVA proposal. Secured creditors retain their rights and are often left with a client in better financial shape.  Unsecured creditors may also fare better since it is a pre-requisite that the CVA provides a better return to unsecured creditors than on liquidation.  There may also be scope to preserve a relationship with the CVA company.

Management and ownership can remain unchanged and once the CVA is in place, management can focus on driving the business forward whilst the CVA supervisor (an insolvency practitioner) deals with historic creditors.

Pre-Packs

A Pre-Pack is the process of selling the business and assets of a company which is negotiated with a purchaser prior to the appointment of an Administrator and effected immediately on, or shortly after, the appointment.  Pre-Packs are historically used where the value of a business is vulnerable to a trading insolvency process due to loss of customers, uncertainty of supply, loss of key employees, reduction in debtor recovery, lack of funding to trade in Administration, and a competitive environment.

Pre-Packs now account for approximately 30% of all Administrations. Often it is a director/shareholder who purchases the business back from an Administrator and this has led to criticism.  However, regulation in this area is increasing and the Statement of Insolvency Practice 16, effective since 1 January 2009, prescribes specific guidance to ensure that Pre-Packs are conducted more openly.  Detailed information about the sale and to show that a Pre-Pack is the best commercial solution must now be provided to creditors with notice of the Administrator’s appointment or soon after.  Such disclosure requires the Administrator to keep a detailed record of the reasoning behind the decision to undertake the Pre-Pack and to show the source of their initial introduction, any prior involvement, and the alternatives considered together with the possible financial outcomes.

Pre-Packs can be done with speed which is vital in maintaining the business’s value otherwise at risk of diminishing as word spreads and staff, customers and creditors lose confidence.  Pre-Packs can also safeguard jobs, achieve a better outcome for creditors, and may be the only alternative to liquidation in some circumstances.

The Current Climate

The latest recession differs in character from its predecessors and many more businesses have survived for longer in this downturn than in the past. Features of this downturn include the introduction of the Time To Pay Scheme, increasing flexibility from secured creditors and from landlords over rent terms, and a dogged determination by management to save business.

However, the pressure on companies to generate cash continues with limited options for improving performance.  While funding remains more difficult to obtain than in pre credit crunch days how, in reality, will companies trade out of this difficult position?

Perhaps the reassurance of an increasingly transparent procedure will dispel historic criticism of Pre-Packs and propel this frequently misunderstood insolvency tool back into the limelight.

Enter also the revival of the CVA. Although in the recent past the CVA has been a comparatively little used procedure in corporate insolvency, recent times have shown the CVA to be a formidable rescue tool when used in the right circumstances as in the cases of JJB Sports, Focus (DIY) and Blacks Leisure.

Pitmans Insolvency and Restructuring Department covers the Thames Valley with bases in Reading and London.  We are an experienced team dealing with all elements of Corporate and Personal Insolvency, Corporate Recovery, Refinancing and Restructuring assignments.

Nicola Kirk
nkirk@pitmans.com
+44 (0) 118 957 0226

Leading law firm Pitmans has acted on behalf of AIM broker Hybridan LLP in connection with its successful £2 million fundraising for niche sensor and monitoring developer Transense Technologies plc.

The fundraising completed on 1 July 2010 and saw the placing of 45,288,887 new Ordinary Shares on AIM at a price of 4.5 pence per share, raising £2,038,000 (before expenses) together with 1 warrant for every 1 new ordinary share placed.

Hybridan specialises in raising capital for companies in the most efficient manner possible, whether by straight equity or otherwise, with areas of expertise including equity placing, structured finance, private equity, management buy-outs and take privates.

Janice Wall, corporate partner and head of the London Office at Pitmans, comments: “It was a pleasure to work with Claire and Stephen again on their successful fundraising for Transense Technologies plc in what was a difficult market. Hybridan is a very accomplished, specialised small cap AIM broker successfully raising money for small and micro cap AIM-listed plcs.”

Listed on the Alternative Investment Market (AIM) of the London Stock Exchange, Transense Technologies is a technology transfer company that develops surface acoustic wave (SAW), wireless, batteryless, sensor systems for the automotive and industrial markets. Current applications including tyre pressure monitoring systems and torque systems for electrical power-assisted steering and driveline management.

Claire Noyce, joint managing partner of Hybridan LLP, comments: “Having worked with Pitmans on previous fundraisings, we knew that the firm had the expertise and experience to provide the service and advice we needed for this placing. With all placings it is absolutely imperative to assemble the best team possible and Pitmans was an integral part of the fundraising’s success.”

On 29th June 2010, the Pensions Regulator (tPR) published its first determination imposing a £5 million Contribution Notice (CN) against a company in relation to its defined benefit (or final salary) pension scheme obligations.

The determination to issue a CN was made against Belgium-based Michel Van De Wiele (VDW), which put its UK subsidiary Bonas UK into a “pre-pack” administration in December 2006 and bought back the business later without its pension liabilities. TPR found that VDW had not engaged openly with the pension scheme trustees or tPR.

Bonas UK Limited was the sponsoring employer of the Bonas Group Pension Scheme (the Scheme) and a wholly owned subsidiary of VDW. The Scheme entered the Pension Protection Fund (PPF) in November 2008. The PPF was established to provide compensation to members of defined benefit schemes where the employer has become insolvent and the scheme has insufficient assets to provide benefits at PPF levels of compensation. The PPF is funded by levies paid by employers of ongoing defined benefit schemes. One of the statutory functions of tPR is to protect the PPF by reducing the risk of calls on the PPF.

The Pensions Act 2004 gave tPR “moral hazard” powers to protect members and the PPF where employers avoid meeting their pension scheme liabilities. One of the sanctions is a CN which requires a specified amount of money to be paid into a pension scheme by an individual or a company. In this case, a determination to issue a CN was made because VDW’s main purpose of putting Bonas UK into administration was to prevent it having further liability to the Scheme and prevent the recovery of the whole or part of the statutory debt due from the employer under section 75 of the Pensions Act.

tPR found that:

- VDW avoided informing the trustees of the Scheme and tPR about the pre-pack which was driven by VDW as a result of the unsustainable Scheme liabilities,
- VDW was prepared to walk away from the Scheme taking a calculated risk of CN being sought by tPR later rather than have a CN imposed during any negotiations with the trustees and tPR before the pre-pack, and
- VDW retained the business while avoiding the pension liability.

The full deficit stood at some £23 million, however tPR made the determination of approximately £5 million as this represented the amount required to guarantee the PPF level of benefits.

It is understood that VDW is contesting this decision.

The Administration pre-packaged sale is a common method of achieving rescue of an insolvent business. This case shows that tPR is not willing to allow companies to simply walk away from their pension scheme liabilities whilst effectively allowing the PPF to foot the bill for providing members’ benefits. TPR’s attitude appears to be hardening, so great care should be taken to follow the proper processes with the scheme trustees and tPR if a pre pack or other insolvency is planned. In addition the tougher attitude may feed through to other corporate activity, and pensions implications of transactions involving employers which sponsor defined benefit pension schemes will need to be carefully considered. In particular tPR’s clearance procedure (in which it gives confirmation that it would not issue a CN) will need to be explored.

We regularly advise clients on pensions implications of this sort of activity and if these issues affect you, please contact one of our pension team members who would be delighted to assist.

For further information please contact Parminder Latimer, +44 (0) 118 957 0324 or platimer@pitmans.com.