what's in the news

Key Changes in 2013
by Mark Symons, Employment Partner

In 2012 there was a 5% growth in new car registrations in the UK which contrasted with falling sales in the four major European markets.  The Society of Motor Manufacturers and Traders (“SMMT”) predict that new car registrations will increase by 0.1% in 2013.  There is a concern about increased car production and over supply which is likely to lead to major problems for French manufacturers. The sale of used cars is likely to remain steady in 2013.

Getting cash to develop new cars will continue to be difficult and will result in car manufacturers joining together to develop new models.

Ingenious automotive designers and engineers will seek to achieve a tardis effect in smaller cars with the emphasis being on real fuel efficiency, green technologies and fuel technology.  Consumers are not yet ready for electric vehicles.

In-car connectivity, content and applications are likely to be a focus of 2013 with particular regard to younger consumers.

Areas of Growth in 2013

In excess of 87% of respondents to Ernst & Young’s survey (Automotive Confidence Barometer) believed the global economy is stable or improving and expect to maintain or increase their workforce over the next 12 months.

In the same period 23% expect to refinance loans or debt obligations, 22% to make an acquisition and 25% to make divestments.

Half of the respondents said growth was their company’s primary focus.

The current environment in which the major OEMs in the UK (such as Nissan, Jaguar Land Rover and General Motors) are investing heavily in their production facilities, R&D activities and supply chain provides a unique opportunity for the UK’s supply chain to expand to meet these significant opportunities for growth. The OEMs want to source more locally and can identify additional commodities that could now be produced in the UK, following the contraction after the 2008/9 crash. It has been estimated that up to 80% of the £7.4 billion automotive supply chain purchases in the UK could be sourced locally.

Legal Issues in 2013

In taking on new employees contracts should be reviewed and updated particularly with regard to protecting confidential information, intellectual property and supplier, client and employee relationships.

In respect of acquisitions and divestments if you are proceeding by way of an asset sale then care will need to be taken in relation to the obligations which arise under the Transfer of Undertakings (Protection of Employment) Regulations 2006.

Pensions
by David Loosemore, Pensions Solicitor

Auto-enrolment will mean all employers in the UK must automatically enrol eligible jobholders in a pension scheme from a date after 1 October 2012 under a five-and-a-half-year staging process. Employers must enrol eligible jobholders in a qualifying pension scheme or the National Employment Savings Trust (NEST), unless they are already members of a qualifying scheme.

Larger employers are affected before smaller employers and new businesses. From the date an employer becomes subject to the new duties – referred to as its “staging date” – the employer must automatically enrol its eligible jobholders in an automatic enrolment scheme, unless a jobholder is already an active member of the employer’s qualifying scheme. An employer can use an occupational or personal scheme as an automatic enrolment scheme if it meets certain quality requirements or else enrol jobholders in, the central government-established scheme.

Broadly, employers with between 50 and 249 workers have been assigned revised staging dates running from 1 April 2014 to 1 April 2015. Employers with fewer than 50 workers have been given staging dates between 1 June 2015 and 1 April 2017.
When checking whether a scheme can be used for auto-enrolment, different quality tests apply. If an employer auto-enrols its eligible jobholders in a qualifying scheme, it must pay contributions of 3% of band earnings each year, although this requirement will be phased in over five years. For 2012/13, the qualifying earnings band runs from £5,564 to £42,475.  Jobholders will be required to contribute 5% of band earnings, again to be phased in over five years.

Jobholders who have been automatically enrolled will have a statutory right to opt out of whichever scheme they have joined, within prescribed time limits. Jobholders who have opted out will be automatically re-enrolled every three years during a six-month window.
Employers will be required to provide information to jobholders (and other workers) about auto-enrolment, including details of the pension scheme that they are using and the right to opt out.

Employers will not be allowed to induce jobholders to opt out of scheme membership or make job offers conditional on opting out. These employment protection measures came into force on 30 June 2012 and apply to an employer even before it has reached its staging date.

The Pensions Regulator will police employer compliance. Employers that breach the new duties will face compliance notices and penalties that vary according to the employer’s size. Large employers that do not comply could be liable for escalating penalties of £10,000 a day. Criminal penalties could apply in the case of “wilful” failure to comply.

We are holding a free breakfast seminar entitled Pensions Auto Enrolment: are you really ready? on 13 February 2013 at The Anchorage, Reading from 8am. To register your place, visit our website. You and colleagues would be welcome.

Intellectual Property
by Sally Britton, IP Partner

Through 2012 and into 2013, automotive companies have been looking both to protect their revenue streams and create new ones by using their intellectual property. Most car manufacturers have a large portfolio of trade marks, design registrations and patents. Often, the existence of these is sufficient to dissuade third parties from copying them, however, infringements do happen and, for example, in August 2012, BMW successfully took action against a company selling wheels that were replicas of BMW’s designs.

Within motorsport, companies are increasingly looking to create extra revenue from their intellectual property rights. As the rules within Formula 1 move towards encouraging fuel efficiency and alternative power, teams are licensing their technologies to other companies, both within and outside the automotive industries. For example, Williams F1′s hybrid power technology is to be used in trams from 2014, having already been used in some London buses. This kind of diversification was quoted as being one of the main factors in Williams F1′s 57% increase in turnover for the first six months of 2012.

With new rules coming in 2014 encouraging even greater fuel efficiency, far exceeding the levels achieved by current road cars, it is likely that motorsport teams will find even more opportunities to increase revenues outside of the motorsport industry itself by using their intellectual property

Access to Finance
by Mark Metcalfe, Banking & Finance Solicitor

The Society of Motor Manufacturers and Traders (“SMMT”) held their first “Meet the Funder” event on 21 November 2012. This initiative, aimed at improving the two way dialogue between the financial sector and the UK automotive industry, is a response to recommendations outlined in a report commissioned by the SMMT entitled Give Them Some Credit (view the report here).  The Report outlined the main financial and growth constraints affecting the UK automotive supply chain and in particular highlighted the issues faced by SMEs in the sector.

The Report highlights problems faced by SMEs in financing growth and in particular the difficulties in securing finance for tooling development costs. The Report identified that SMEs looking to expand and invest in their operational capacity may well have a funding gap.

If we take an automotive supplier who receives a new lifecycle product order the supplier may have to invest in (1) new factory premises, (2) new plant and machinery and (3) will also require working capital. The Report’s findings suggest that whilst some funders who are ‘open for business’ try to provide an all encompassing package of funding the reality is that a blend of finance from a number of different sources (such as property finance, a sale and leaseback arrangement for the plant and machinery, invoice discounting to assist with working capital and possibly a government backed initiative such as the EFG scheme) is often required to secure finance for growth and reduce the funding gap.

Pitmans’ experience shows that securing adequate funding for automotive suppliers is difficult in the current marketplace. Clients are often seeking funding on top of traditional invoice discounting lines which assist with cash flow but do not provide the additional working capital required to invest in growth. Whilst we would agree with the Report that there is a lack of lenders who are offering all encompassing finance packages, we are currently acting on transactions where lenders are funding working capital on top of invoice discounting lines.

That small and medium sized businesses are struggling to obtain the finance required for growth is of course not a problem which is exclusive to the automotive industry. The pace at which the UK’s automotive industry is expanding however suggests that it is an area worth focusing on. One of the important findings of the Report is that an apparent lack of understanding of the automotive supply chain among the financial institutions is responsible. The SMMT are therefore rolling out their Meet the Funder initiative in order to improve understanding and build relationships between the sectors in the hope that they can increase access to finance.

Acquisitions and Divesments

Acquisitions and consolidations continue to be a feature of the sector with smaller entities being purchased by the bigger players although that has slowed. Trade buyers are selective but we have still had transactions involving trade buyers in the last few months. Private equity has become more prevalent especially as 2012 was a good year and 2013 is looking stable in the UK. The interest from private equity has meant prices have increased.

We have also been involved in transactions where clients have looked at securing finance from different lenders, however there are practical difficulties. Whilst a lender providing an invoice discounting line will take security over the book debts, this will be secured by a debenture over all of the assets and undertaking of the borrower. If the borrower then wishes to obtain a different form of funding from another lender the security position becomes more complex with ranking arrangements required to be put in place between the lenders and an added and often unwanted layer of complex to the transaction.

Restructuring
by Emily Garvey, Restructuring Solicitor

Frost & Sullivan has recently predicted that 4% of all sales (the equivalent of 4.5million units) of new cars will be online purchases by 2020.  This compares to 5,000 new cars sold solely online in 2011.  An implication of this, should they wish to avoid a similar fate to the likes of HMV, Jessops and Blockbuster, is that car retailers are going to have to make adjustments to their selling processes in order to avoid showrooms becoming mere browsing opportunities for customers to pick and chose but purchase online.  Car retailers should begin thinking about the current leases for their expansive showrooms and whether, should the trend proceed as predicted, less test drives will mean a decline or redundancy of the showroom luxury.

A common cause of business demise is supermarket giants muscling in on their trading territory.  Tesco and Sainsburys have already dipped their toes into the world of online car sales, albeit second hand cars. However, Tesco Cars (created after purchasing the existing dealership Carsite) closed its doors in April 2012 after just a year of trading claiming the issue was one of supply of cars, not a lack of customers.

It is, however, not all doom, gloom and panic.  There are signs emerging within the OEM sector of healthy change. Ford’s UK division already sells new cars through its website and Renault’s newly released Dacia has launched primarily in the UK market through online sales channels, with dealerships for back up.  There is also talk of General Motors providing a “shop-click-drive” website in partnership with Chevrolet.

If online is the way forward, car retailers will have to work hard at enhancing the dimensions of sales consumers will fear are unattainable online – emotional connection and physical touch.  However, the initial trends are encouraging and hopefully the remainder of the marketplace can quickly follow suit and learn from the collapsing models of HMV and others.

Motorsport
by Alex Morgan, Trainee Solicitor

2013 marks the start of a new lower-tier racing age in motorsport. Following a decline in competition numbers over recent years, and a number of high profile series drawing to a close, including the likes of the prestigious Formula Renault UK Championship (won by Kimi Raikkonen and Lewis Hamilton) and the F2 Championship, this newly structured racing tier may bring life back into the motorsport world.

Well renowned car manufacturer Caterham have targeted the grass roots of racing by introducing a low-cost yet high-value karting series aimed at drawing more youngsters into the sport. Formula Ford, which has long been the starting point for drivers making the jump to car racing, has a new car for the season hosting a raft of upgrades including front and rear wings. The evolution will bring the series back up to date and will accommodate the new talent breaking onto the car racing scene. A new Formula 4 series has also been unveiled and the championship looks set to take up the position of feeder series to the higher level championships (F3, WSR 3.5 and GP2).

In addition to the revised racing categories, a number of sponsorship initiatives have paved the way for fresh talent to progress up the motorsport ladder. Drinks company, KX energy, have announced a stable of 7 drivers it is supporting through various tin-top series under the watchful eye of Jason Plato (two-time BTCC Champion), whilst the Racing Steps Foundation continues to support several drivers from Karting all the way to GP2.

On the dawn of the 2013 season we can be sure of an action-packed year marking a sustainable motorsport resurgence from affordable lower tiers.

For further information, please contact Pitmans’ Automotive Team.

Mazda’s managing Director Jeremy Thompson recently announced plans which will see Mazda cut up to 20 Mazda dealerships in the UK in order to create a sustainable and profitable business for the entire Mazda network. Such a plan will see Mazda’s network in the UK reduce from 155 sites to 135 sites. This strategy will lead to mass redundancies across the Mazda network in a potentially short period of time. Whilst ensuring that a proper redundancy procedure must be followed, Mazda must be aware that this may also trigger the need for collective redundancy consultations.

Mazda, and any automotive manufacturers who find themselves in a similar position are reminded that if an employer proposes to make large scale redundancies of 20 or more employees at a single establishment within a period of 90 days or less (collective redundancies), it must consult on its proposal with representatives of the affected employees and also notify the Department for Business Innovation and Skills (“BIS”). Consultation must begin in good time, and at least 30 days before the first dismissal takes effect. Where 100 or more redundancies are proposed, consultation must begin at least 90 days before the first dismissal takes effect.

It is important to point out that if each of the dealership sites is a separate establishment and there are fewer than 20 redundancies proposed at each site, there may be no statutory duty to consult at all. Any duty to consult will only arise in respect of establishments where at least 20 redundancies are proposed.

In addition to the added requirement to consult with representatives of the affected employees and also notifying BIS, a fair redundancy procedure will need to be followed. Therefore Mazda will still be under an obligation to establish pools for redundancy and selection criteria, consult with the employees in danger of redundancy, score them according to the objective selection criteria that have been set and carry out further consultations. Additionally Mazda must also ensure that each consultation meeting is followed up in writing by way of a letter to the affected employees.

Mazda UK sold just over 31,000 cars last year down nearly 69% from the previous year’s sales of circa 45,000 cars. Mazda’s market share also dropped from 2.2% to 1.6%. Jeremy Thompson indicated that Japanese automotive manufacturer expected similar numbers for 2012. The average dealership only broke even with the top 25 dealerships recording profit margins of only 3%.

With such a downturn in sales becoming increasingly common amongst automotive dealerships, given the current economic crisis, it is unlikely that Mazda will be the last major manufacturer to have to resort to such measures. Any other such manufacturer should be aware of the risks in not following the advice stated above, as a failure to follow it may result in greater expense, by way of employment claims against them.

If you wish to discuss, in confidence, any Employment issue, please contact our Employment team:

Mark Symons
Partner, Head of Employment
T: 0118 957 0340
E: msymons@pitmans.com

Non-payment for goods supplied is an ever increasing risk for business. A validly drafted and effectively incorporated express clause providing for reservation of legal title to goods supplied is a useful method of protection for non-payment in solvent and distressed situations alike. A valid retention of title clause will:

(i) provide quasi security in the event of the buyer’s insolvency in respect of the goods supplied; and

(ii) absent insolvency allow the seller to recover the goods supplied if they have not been paid for.

Such clauses, if enforceable, can greatly increase a creditor’s bargaining position and, as such, prospects of payment.

Retention of Title clauses range from, a basic clause providing that legal title to particular goods sold (on an order-by-order basis) does not pass to the buyer until the goods have been paid for in full, to an “all monies” clause, which does not permit title to pass in any goods supplied at any time until all sums owed – for any goods that have been supplied by the seller – have been paid in full.

The addition of a mixed goods clause is advisable in situations where the goods supplied are to be subject to a manufacturing process (where they are combined with other goods owned by third parties) to create a new product. Such a clause is only effective in law where the goods supplied retain their identity and can be easily removed from the manufactured product without causing damage.

Similarly, it is often necessary to consider the effect of a valid retention of title clause where there is likely to be a sub-sale to an end user and, in particular, the frequently found addition of a clause which aims to attach a claim to the proceeds of sale paid on a sub-sale of the goods. Such a clause will often be drafted so widely as to create a charge which may be invalid if it is not registered as a legal charge.

Further, where it is intended that finished goods are to be supplied for the purpose of an immediate on-sale by the buyer to its customers it is possible that an “all monies clause” may be considered ineffective unless an express provision has been made for the re-sale of the goods.

A well drafted retention of title clause should provide for the seller to gain access to the buyer’s premises to repossess the goods. However, where the buyer is a company in administration, no steps can be taken to repossess any goods supplied without first obtaining the permission of the appointed Administrators’ or an Order of the Court.

The law relating to retention of title is constantly evolving and changing. It is, therefore, important that parties seeking to rely upon the terms of a retention of title clause ensure that such provisions are regularly reviewed and updated. The key is to ensure that such clauses are not drafted so widely so as to render them unenforceable in any moment of need.

If you have concerns or queries about any of the issues dealt with in this article please contact:

Adrian Wilmot
Director, Insolvency & Restructuring
T: 0118 957 0595
E: awilmot@pitmans.com

Suzanne Brooker
Partner
T: 0118 957 0516
E: sbrooker@pitmans.com

A joint venture is used when two (or more) businesses join their resources, expertise and skills together in order to achieve a particular goal or outcome. It is important to remember that in a joint venture the parties share not only the rewards but also any risks involved.

There are many reasons why you may wish to form a joint venture ranging from the opportunity to expand into new markets or geographical areas, the accessibility to new customers and the developments of products.

This article explores some of the key points you should consider before entering into a joint venture.

The Benefits

Businesses of any size can use joint ventures to strengthen long-term relationships or to collaborate on short term projects.

A successful joint venture can offer the following:

• access to new markets and distribution networks
• increased capacity
• sharing of risks and costs with a partner
• access to greater resources, including specialised staff, technology and finance.

A joint venture will usually allow for growth without having to go through the laborious task of having to borrow funds or look for outside investors.  At the same time you can also benefit from being able to join forces in research and development and possibly share your joint venture partner’s customer database to offer your product/service to potential new customers.

A joint venture can be particularly useful if you wish to expand your operations into different countries without having to set up in these countries. In this sense a joint venture can also be very flexible due to the fact that you can limit the life of the joint venture or have it so it only relates to a small part of your overall business.

The Risks

It is important to remember that partnering with another business can be complex and, like with most relationships, there will be times when you disagree. Problems are likely arise if:

• the objectives of the venture are not totally clear and communicated to everyone involved resulting in the partners having different objectives for the joint venture.
• there is an imbalance in levels of expertise, investment or assets brought into the venture by the different partners.
• different cultures and management styles result in poor integration and co-operation.
• the partners don’t provide sufficient leadership and support or investment in the early stages.

Therefore, thorough research and discussions on the objectives of the venture are paramount and it is important that the partners continue to communicate throughout the venture to help prevent these types of problems from occurring.

The structure

The way you set up a joint venture or partnership will depend on what you wish to achieve from partnering together.

You may wish to agree to co-operate in a specific and limited way. An example of this could be one company selling their product through a different company’s distribution network.  This would work in situations where one company wishes to try and sell their product in markets they currently are not involved in while the other company wishes to provide their clients with a new product they may not produce/sell.

A further option is to set up a separate joint venture business. This can be a limited company, simple partnership or a limited liability partnership. Each structure has different advantages and disadvantages which will need to be considered. However, setting up in this way means that each partner keeps their own business separate and uses the new business to pool together the resources they need. When deciding which structure to use you should consider, for example, how you want the new business to be managed and what risks there might be if the venture goes wrong.

The agreement

In any joint venture it is important to have a clear written agreement setting out how the joint venture will work and how any income will be shared (the form of the agreement will differ depending on what structure you choose for your joint venture). This will help reduce the likelihood of any problems occurring as previously mentioned above.

Basically, the written agreement should cover:

• the structure of the joint venture (as mentioned above)
• the objectives of the joint venture
• the financial contributions each party will make
• whether you will transfer any assets or employees to the joint venture
• ownership of intellectual property created by the joint venture
• management and control, e.g. respective responsibilities and processes to be followed
• how liabilities, profits and losses are share
• how any disputes between the partners will be resolved
• an exit strategy

Each one of these points need to be carefully considered before entering into a joint venture.

Know your partner

Choosing the correct partner is paramount for a successful joint venture. Ideally your chosen partner will have the resources, skills and assets to complement your own and also have the same commitment, culture and structure in order for both organisations to fit together to work successfully and efficiently.

Even if you are familiar with your potential partner, it is important to carry out the following checks:

• How are they financially?
• Do they have any credit problems?
• Do they already have joint venture partnerships with other businesses and will these affect you proposed joint venture?
• What kind of management team do they have in place and is it effective and compatible with your own?
• How are they performing?
• Have they had any problems in the past or are there any ongoing issues?
• What do their customers and suppliers say about their trustworthiness and reputation?

All these are important as they could affect the success of the joint venture and also increase your liabilities as you will be sharing not only the rewards but also the risks.

Carolyn Butler
Solicitor, Corporate
T: 0118 957 0234
E: cbutler@pitmans.com

In a development which may have connotations for firms in the retail motor industry, regulations were brought into force on 1st October 2011 which provide agency workers with increased employment rights.

The objective of the Agency Workers Regulations 2010 is to give agency workers the entitlement to the same basic employment and working conditions as a company’s permanent employees.

Who do the regulations apply to?

The Regulations apply to agency workers who are assigned to do temporary work for a company through temporary work agencies, they do not apply to recruitment consultancies that place individuals into permanent roles.

What rights apply from day one of an assignment?

1. Access to collective facilities

From 1 October 2011, all agency workers have had the right to be treated no less favourably than comparable permanent employees or workers in relation to ‘collective facilities and amenities’, unless the less favourable treatment can be objectively justified.

Collective facilities could include:

• Canteen or other similar facilities
• Childcare facilities
• Transport services
• Toilet or shower facilities
• Staff common room
• Food and drinks machines
• Car parking

The concept of collective facilities does not extend to any off site facilities or benefits in kind which are not provided by the company, such as subsidised access to an off site gym.

The right is to equal, not better, treatment. Agency workers should not therefore be given enhanced access rights when compared with permanent employees. For example, if there is a waiting list for access to childcare facilities an agency worker will be entitled to join the list but not to jump the queue.

2. Access to employment vacancies

From the start of their assignment, agency workers have the right to be told of any permanent vacancies of the company in order to be given the same opportunity as a comparable permanent employee to apply.

The company can inform the agency worker ‘by a general announcement in a suitable place in the hirer’s establishment’. A suitable place may be a notice board or on the company’s intranet. They must be informed as to where to find the information, which could be explained during a worker’s induction.

This provision does not curtail an employer’s freedom as to how to treat applications for jobs. Agency workers do not need to be given preferential treatment when compared with other internal candidates or external candidates when deciding who is the best person for the role.

Which rights apply after a qualifying period?

1. The right to equal treatment regarding terms and conditions

The right to equal treatment with regard to basic working and employment conditions does not apply until the agency worker has completed a qualifying period of 12 weeks.

Provided that an agency worker has worked in the same role, whether on one or more assignments, with the same company for 12 continuous weeks, they will be entitled to receive the same basic working and employment conditions as are ordinarily offered to permanent employees in relation to:

1. pay;
2. duration of working time;
3. night work;
4. rest periods;
5. rest breaks; and
6. annual leave.

If there is a break of over 6 weeks between assignments, continuity will be broken and the agency worker will have to start counting the 12 weeks again before they are entitled to the right to equal treatment regarding terms and conditions.

Specific provision is also made in the regulations in relation to pregnant and nursing mothers who must be provided with paid time off for antenatal appointments, to be paid by the temporary work agency.

Anti-avoidance provisions

The Regulations contain specific anti-avoidance provisions to prevent temporary work agencies and hirers from structuring assignments to prevent the worker from acquiring equal rights.

A prohibited structure of assignments can occur when an agency worker has:

• completed two or more assignments with the hirer; or
• completed at least one assignment with the hirer and one or more earlier assignments with hirers connected to their current hirer; or
• worked in more than two roles during an assignment with the same hirer and on at least two occasions has worked in a role that was not the ‘same role’ as the previous role.

The anti avoidance provisions will then kick in if the most likely explanation for the above scenario is that the hirer or temporary work agency intended to prevent the agency worker from being entitled to the right to equal treatment.

To decide whether there has been such a structure of assignments, the following factors will be taken into account by the Tribunal:

• Length of the assignments;
• Number of assignments with the hirer or any connected hirer;
• Number of times the agency worker has worked in a new role with the hirer; and
• The period of any break between assignments with the hirer or any connected hirer.

Tribunals can make an additional award of compensation of up to £5,000 where a hirer and/or agency are found to have breached the anti avoidance provisions.

Derogations from the equal treatment principle
(Swedish derogation agreement)

In limited circumstances a contract may be entered into between an agency and an agency worker where it is agreed that the right to equal treatment with regards to pay (only) will not apply.

However, this regulation only applies where:

• the agency worker has a permanent contract of employment with the agency; and
• the contract was entered into before the first assignment started; and
• in periods between assignments the agency pays the worker a minimum of 50% of their basic pay while on assignment, and this must not be less than the national minimum wage.

It is unusual for an agency worker to be permanently employed by an agency and to receive pay between assignments, and this is therefore likely to be rarely used.

Compensation

The compensation payable by an agency or hirer for breach of the Agency Workers Regulations 2010 is that which is ‘just and equitable’ having regard to the extent of their responsibility. The legislation states that the minimum amount awarded must be two weeks’ pay but there is no statutory cap on the maximum amount that can be awarded.

Complying with the regulations

Now that the Agency Workers Regulations are in force it will be important to consider, as soon as possible, the measures you will take to comply with, or avoid the Regulations.

You may wish to put in place a record keeping system to ensure that agency workers do not work beyond the 12 week qualifying period, for example.

It will also be important to keep in regular contact with any agencies that you use for the provision of temporary workers and ensure they are kept aware of your current standard terms and conditions.

For further information on this article, please contact Pitmans Employment Team.

It is looking increasingly likely that 2012 will be another difficult year for the automotive sector, leading to a decline, not only in vehicle sales, but also in goods and services supplied to the sector. As a result, businesses may experience cash flow problems and increased creditor pressure to pay invoices.

There are a number of ways in which a business may look to ring fence its existing unsecured debt. If the underlying business is sound, a company struggling to pay its creditors may propose a composition of its debts via a Company Voluntary Arrangement (“CVA”). A CVA is a legally binding agreement between a company and all of its unsecured creditors to pay off historic debt over a period of time, usually 3 to 5 years. Any CVA must offer a greater potential dividend return to creditors than would be achieved if the company were to enter into insolvent liquidation.

Once the CVA is approved by the requisite majority of creditors it becomes a contract between the company and its creditors and binds all unsecured creditors. However, the rights of secured or preferential creditors cannot be adversely affected without their express consent.

One of the fundamental issues with CVAs is that, for the majority of companies, there is no statutory moratorium to prevent creditor/s taking action to recover sums owed to them whilst the CVA is put to creditors. However, “small companies” can obtain the benefit of a statutory moratorium designed to prevent creditors taking action against the company whilst the CVA proposal is put to the creditors. A “small company” is defined as one whose turnover does not exceed £5.6 million; its balance sheet total does not exceed £2.8 million and has no more than 50 employees.

For companies that do not fall within the “small company” criteria it is possible to enter into a formal insolvency process, known as administration, with the intention of exiting it via a CVA once the CVA has been approved. The primary purpose of any administration is to try and rescue the company as a going concern. Administration allows time for a company’s affairs to be re-organised under the protective umbrella of a statutory moratorium.

If it is not possible to rescue the company as a going concern then the business/assets of the company may be sold to a third party via a “pre-pack.” A pre-pack involves the company entering into administration and immediately selling its business and/or assets to a third party under a sale the terms of which were negotiated before the administrators were appointed. It allows the business to continue trading via a new company and secures the employment (employees will transfer to the buyer) whilst leaving behind the burden of historic debt with the company in administration.

Pre-packs are frequently used where the core business is still viable, but the company carries significant historic debt that it can no longer service. Invariably there is no funding available for the business to continue to be traded by the administrators and, for whatever reason, any CVA proposals are not appropriate or have been rejected by a majority of the creditors.

If you have concerns or queries about any of the issues dealt with in this article or wish to explore confidentially the various methods of restructuring and/or refinancing your business please contact us and we will be happy to provide you with advice and assistance.

Adrian Wilmot
Director
T: 0118 957 0595
E: awilmot@pitmans.com

Suzanne Brooker
Partner
T: 0118 957 0516
E: sbrooker@pitmans.com

Introduction

The new Bribery Act, passed by parliament in 2010, was due to be implemented in April 2011.  However, at the end of January, a government spokesman said that the act would not come into force until three months after guidance to the act had been made available, which will be published “in due course”.

The Act is intended as a wholesale reform of the old bribery laws which were a complicated and confusing combination of statutory and common law offences from more than 100 years development of law in this area. The need for reform was widely acknowledged, however, the final result may have alarming consequences for corporate entities operating in the UK as many law abiding businesses could inadvertently break the new law if they are not careful.

Offences Under the Act

The Act re-classifies the basic bribery offences of bribing another person and receiving a bribe whilst also introducing two new offences. The first of these is in respect of bribery of a foreign public official. Additionally the Act also creates an offence for corporate entities of failing to prevent bribery occurring within their organisation. The only defence to this is if the corporate entity has put in place “adequate procedures” designed to stop incidences of corruption. This offence applies to any corporate entity that carries on its business, or even part of its business, within the U.K.

The penalties can be extremely severe.  Individuals could face a maximum penalty of ten years imprisonment and/or an unlimited fine if found guilty. Corporate entities may face an unlimited fine in respect of an offence under the Act.

Facilitation Payments and Corporate Hospitality

A facilitation payment is usually a payment to a government official to speed up a routine bureaucratic action. These are illegal under the Act. However the decision to prosecute will be at the prosecutor’s discretion and he/she will consider various factors including whether it is in the public interest to prosecute.

Most concerning however is that prosecutorial discretion will also have to be relied on in respect of corporate hospitality, which may fall foul of the Act. It has at present been stated that “routine and inexpensive hospitality” will be permitted however “lavish or extraordinary hospitality” will not. What remains unclear is where this distinction will be drawn. Will a box of chocolates and a bottle of wine be acceptable? Will tickets to a football match? The result is that corporate entities in the UK find themselves in the awkward position of having to guess what level of advantage provided by way of corporate hospitality is reasonable and what may result in prosecution.

Conclusion

In light of the Act, the need is now more urgent than ever for corporate entities to either commit to implementing systems to counter bribery or review their current anti- bribery procedures to ensure they will be effective in preventing bribery being committed on their behalf and to be able to rely on the “adequate procedures” defence in appropriate circumstances.

All corporate entities may wish to put in place staff training programmes and ensure they have written procedures that are readily available. It may additionally be worthwhile to incorporate such policies into employment contracts and allow the employer to terminate employment in the case of breach.

With such severe penalties under the Act, it has become crucial that the action that is taken does not merely have the effect of prohibiting bribery but that it actively seeks to prevent it where it might arise. For some businesses this will involve nothing more radical than an assessment of their existing policies however for others it could mean a complete overhaul.

If you would like further information on the Bribery Act 2010 from Pitmans please visit the Pitmans Corporate website, or contact our team direct.

Adam Dowdney
adowdney@pitmans.com
+44 (0) 118 957 0574

Due to the diversity of companies and industrial groups in the automotive sector, experiences of the recession have varied widely.  While some companies have succumbed to the tough conditions, the headline-grabbing bailout of General Motors by the US government being the archetype, others have identified opportunities – and capitalised on them.  In spite of the unpredictable nature of this particularly dynamic industry, a clear trend has emerged in recent years towards companies of all types forming joint ventures to spread the risk of new commercial strategies in these uncertain times.  Setting up a traditional joint venture (‘JV’), where a new entity is incorporated and the collaborating parties are stakeholders in the new entity, offers clear commercial advantages – namely, it creates formal legal relationships between the parties, affords certainty and isolates risk.  However, alternative JV structures are available to businesses that offer varying degrees of integration between the parties and an assortment of tax advantages.  This article explores the market conditions that are prompting companies to join forces and the legal considerations to bear in mind when embarking on a new JV.

New Technologies:

The increasing consumer appetite and regulatory requirements for vehicles that produce a smaller carbon footprint has spurred the development of new fuel technology, lighter materials and fuel efficiency solutions.  Increasingly, companies are collaborating with their suppliers and competitors to achieve efficiencies that allow them to bring innovative technologies to the market at the lowest possible cost.  For instance, Bosch, DEUTZ, an engine manufacturer, and Eberspächer, an exhaust system and component supplier, have together set up a JV for diesel exhaust after-treatment, which was approved by the European Commission (Diesel Exhaust System Joint Venture) in April.

Emission control and fuel economy requirements vary dramatically from jurisdiction to jurisdiction, and, while progress towards harmonising those requirements to a universal international standard is slow, car manufacturers have to struggle with the complexities – and constantly update their product portfolios in an effort to keep up.  Likewise, the broader regulatory landscape, for example the high tax imposed on fuel in Europe which, in turn, creates consumer demand for cars with smaller or diesel engines, exerts a meaningful influence on product specifications.  In order to diversify their product portfolios, companies are investing in strategic growth areas, and spreading the risk inherent in all investment, by pairing up with other companies pursuing similar goals.  The creation of JVs to deal with increased manufacturing costs, and to remain competitive in an increasing stringent global regulatory regime, is a commonly deployed tactic.

Car manufacturers are also gaining competitive advantage by teaming up with other businesses in foreign jurisdictions to capitalise on the government incentives available in those countries to produce cleaner technologies.  A prime example is the funding (Government Incentive Schemes) put up last year by the US government, to the tune of $2.4 billion, for new ventures concerning automotive batteries and electric vehicles.

Opportunism in the Recession:

Some car manufacturers are seizing on the chance to grow their business and expand into new markets by capitalising on those distressed companies keen to shed their assets.  While the most aggressive strategy to achieve this aim – acquiring distressed businesses that already occupy the target market niche – may also seem the most obvious, many companies both at home and abroad are instead seeking to strike joint venture deals with incumbent firms to avoid fuelling trade tensions.

The joint venture between Potenza Sports Cars (owner of Westfield Sportscars) and the Malaysian firm DRB-HICOM (which manufactures and distributes cars under well-known marques such as Audi, Mercedes Benz, Honda, Suzuki, Mitsubishi, Isuzu and Mahindra) is a recent example.  The JV intends to produce and distribute a new eco-friendly and affordable sports car in Malaysia and across South East Asia with production starting in 2012 (see Malaysian Joint Venture).

In addition, the JV will export complete-knock-down kits and components manufactured in Malaysia to Potenza for the assembly at its UK plant for the European market.

The Legal Considerations:

Creating a joint venture that will focus on a specific goal, such as the development of a new technological solution, product specification or to infiltrate a foreign market, enables businesses to generate opportunities, pool resources and share risks.  The key decision for the participating businesses to make is whether the new enterprise will be incorporated – in other words, whether the participants will establish and co-own a new company that is a separate legal entity distinct from its ‘parents’ – in order to carry on the business of the new venture.

The legal form the joint venture should take rest on factors as diverse as the size of the new enterprise, the location of the participants, their commercial and financial objectives, as well as tax and competition law considerations. While an incorporated structure is a tried and tested method that, in many jurisdictions, is underpinned by an established body of legal principles, it is a relatively permanent and formal structure that might not fit in with the participant’s profiles and objectives.  In an increasingly globalised industry where cross-border joint ventures are becoming common, the differences in legal systems between countries (such as common law jurisdictions like the UK civil law jurisdictions like France) can also prove problematic if not given due consideration at this stage.

Broadly speaking, the basic choices fall into two categories:

• Incorporated entities, such as limited liability companies and limited liability partnerships; and
• Unincorporated organisations, such as legal partnerships and consortiums.

Incorporated structures are advantageous because they allow the JV to own and deal in assets, bring actions and contract in its own right.  Most significantly, the liability of the participants for the losses and liabilities of the joint venture is generally limited to the amount unpaid on the shares they hold.  However, due to the JV’s status as a separate entity, there may be unwelcome implications for the participants in terms of their financial and accounting arrangements, and potential for a large corporation tax bill in respect of transactions between the participants and the JV.  Due to the disclosure obligations for companies registered in highly regulated jurisdictions, such as the UK, the activities of the JV will be subject to a level of public scrutiny that may be avoided if a more informal structure is used.  Further, like the Bosch, DEUTZ and Eberspächer JV mentioned above, the new enterprise may fall foul of local or European competition rules and require clearance from the domestic competition authority, and/or the European Commission.   

Legal partnerships are less commonly used as a structure for business ventures because they do not offer the practical advantages of limited liability partnerships or companies.  Further, because each partner is deemed at law to be an agent of all other members of the partnership, each partner is jointly liable for the actions of the others.  However, it may make sense to consider a partnership structure in situations where the participants wish to have a direct interest in the assets used and contracts formed in the business of the JV, or to achieve specific tax advantages.

More common, however, are simple co-operation agreements between participants. These have the effect of putting the participants’ relationships with one another on a legal (specifically contractual) basis without the degree of integration mandated by an incorporated JV.  There will be no direct tax implications for the participants, and corporation tax will simply be payable on the profit accruing to each participant directly. Unlike a partnership, the participants in a consortium formed by a co-operation agreement will not share the liabilities and obligations of the others, except to the extent provided for by the agreement.  Normally, an express declaration denying any intention to create a partnership is included in the agreement as evidence to counter any subsequent inference that a partnership actually subsists (and that the participants should therefore share liability).

Conclusion:

While the conditions that make collaborating with suppliers and competitors an appealing option for players in the industry pervade, no doubt new joint ventures will continue to proliferate.  The close interaction of suppliers and lead firms has been an important catalyst for the expansion of the industry, and especially in developing countries.  This interaction has evidently created opportunities for relative newcomers to the automotive sector to move up the value chain and allowed incumbents to expand into new markets and to expand their product offerings at decreased cost and risk.  In all cases, it is necessary to take the parties’ objectives into account when deciding how best to structure the JV.  Although a JV may not live or die by the legal form in which it is structured, those decisions may nevertheless severely impact the JV’s profit margin and operational functions, or have unintended consequences of the participants, if not considered wisely first.

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

Carolyn Butler
cbutler@pitmans.com
+44 (0) 118 957 0234

Rishi Sharma
rsharma@pitmans.com
+44 (0) 118 957 0271

In F1, Force India experienced a sinking feeling when its Chief Technology Officer, Mike Gascoyne, left to take up the same role at Lotus.  Force India issued UK civil proceedings against Gascoyne and others in June 2010 for “a very serious breach of intellectual property”.  In response, Gascoyne has stated:

“Obviously our wind-tunnel model was designed for us by Fondtech in Italy…It is based around a 2010 chassis, because there is a big fuel volume in it, it has a Cosworth engine, an Xtrac gearbox, our suspension, and other stuff designed by us.  The Fondmetal guys put some generic bodywork on….…Whereas you cannot copy anything or take anyone else’s IP you can use your expertise and you will base that on what you know and what directions you know have been happening.  That is what has happened.”

In the automotive industry where employees are likely to switch to a competitor, employers need to know what information ex-employees are allowed to take and how they can limit the potential damage to their business.

Identifying Different Types of Information:

There are four types of information used in a business.  These are (1) trade secrets, (2) other confidential information which is of such a high degree of confidentiality that it amounts to a trade secret, (3) employee’s skill and knowledge and (4) information in the public domain.

Information can be classified as a trade secret if it allows a business to obtain an economic advantage over its competitors and it is not in the public domain.  Examples of trade secrets can include secret processes of manufacture such as formulae, designs, special methods of construction, manufacturing processes, business plans and methods, financial or statistical information, customer lists and databases, computer source code, plans and technical drawings.

For public policy reasons, an employee is allowed to use all his acquired skill and knowledge no matter where he acquired it from and whether or not it was secret.  It is seldom an easy question to resolve what is and what is not an employee’s skill and knowledge.  The more complex the information, the more likely that it has not become part of an employee’s existing knowledge and skill. 

There has been a distinction between general background information and information deliberately memorised in order to be used elsewhere.  If evidence can be produced that the information had been deliberately memorised it will not come under the definition of an employee’s own skill and knowledge.

Breach of Post-Termination Restrictive Covenants and Breach of Confidentiality:

A claim for breach of confidentiality will usually be brought in addition to a claim for breach of restrictive covenants.

Trade secrets and other confidential information which is of such a high degree of confidentiality that it amounts to a trade secret can be protected by well drafted restrictive covenants in employment contracts and a claim for breach of confidential information.   Restrictive covenants protect trade connections and goodwill as well.  It is of the utmost importance that these are carefully drafted by an employment lawyer as they will be void and unenforceable if drafted too widely or for too long.

Information which forms part of an employee’s skill and knowledge and public domain information cannot be protected under these two actions.  The case of Faccenda Chicken v Fowler [1986] makes it clear that once an employee has left employment only trade secrets or similar highly confidential information is protectable.

Misuse of confidential information is the most difficult part of any breach of confidence action and this is one reason why pre-emptive strikes such as search and seizure orders, disclosure, delivery up and interim injunctions are commonly employed.  However, pre-emptive strikes are expensive and it is a commercial decision on the facts of each case as to whether they might be appropriate.

As the disclosure or continued misuse of confidential information can destroy the very thing a claimant is attempting to protect, the most practical remedy available to an employer is often to obtain a swift interim injunction that will last until the matter is dealt with by a court or resolved.

The scope of an interim injunction may be limited by time and place. It may restrict only certain activities and last only until the relevant information is no longer secret or until the conclusion of legal proceedings. However, if a claimant’s case is successful, they are also able to seek a permanent injunction to provide an ongoing prohibition on the misuse of the confidential information beyond the conclusion of the case.

Database Right Infringement:

As the above two actions give the ex-employer little protection, employers have started to use a new type of action to recover damage caused by leaked databases. 

The Database Directive (96/9/EC) introduced a database right which protects the compilation of information making up the database.  A database right will automatically exist where there has been a “substantial investment” in obtaining, verifying, or presenting the contents of the database.  At least one of the database makers must be from the EEA.

An employee is likely to infringe a database right if he takes customer lists with him when he leaves and subsequently uses the information for his own benefit (re-utilisation).  The fact that the employer does not have to prove that the contents of the database are confidential means that database right is a more straightforward and cheaper cause of action than breach of confidence.

In the case of Crowson Fabrics Ltd v Rider [2008] ex-employees copied and retained various documents belonging to their ex-employer including customer contact details and sales figures.  The high court held that the ex-employees had not acted in breach of confidence as the information was either in the public domain or within their gathered skills and expertise so that it was not confidential.  However, the ex-employees had infringed their ex-employer’s database rights by copying various customer sales figures and electronic files from its computer system.

Other Intellectual Property Right Claims:

The unauthorised use of patents, copyright, design right and trade mark rights will generally infringe the respective right.  This will potentially entitle the owner of the right to bring a claim seeking an injunction to prevent all further use and to recover compensation and costs.  In addition, rights may be lost as a result of leaks in confidential information.

Employers should review their contracts with consultants, employees, contractors and agents to ensure that the company owns all of the IP created by them under each agreement. Generally, in the absence of an appropriate agreement, IP created by a non-employee will not be owned by the company.

What Can A Business Do To Prevent A Leak of Confidential Information?

The nature of confidential information is such that misuse of it has the effect of destroying its value by compromising its confidentiality, so prevention is key.

Agreements:

A well drafted confidentiality agreement is particularly valuable in situations involving departing employees, customers and suppliers.  It is also worth ensuring that third parties such as suppliers and distributors have in place contracts expressly providing for some form of recourse if they disclose confidential information or trade secrets.

Employers should include effective clauses in employment contracts covering restrictive covenants, garden leave, confidentiality and ownership of Intellectual Property Rights.

Computer Security:

In the age where trade secrets and other confidential information of most businesses are held in digital form it is easy for employees who are leaving to join a competitor or set up a rival business to download vast quantities of data onto disks or memory sticks, and simply walk out the door. Or they may prefer to e-mail the information to a personal account and consider it at leisure in the comfort of their own home. 

Employers should try to use the computer systems to their advantage by planting seeds (fake entries) into databases and using a document management system to track records of when documents have been accessed, by whom and whether it has been copied.  Both of these will make tracking copying easier to evidence.

Keeping records considerably strengthens most claims as it is all based on evidence.  Recording evidence such as time and resources that go into creation of a database and of when and by whom copyright works are created will strengthen some of the above claims.  Forensic IT investigators can extract the relevant information however they come at a price and are usually part of the team once there is a good reason to believe that information has been taken.

Consider if your IT system can offer greater protection e.g. password access to documents or databases only.

Company Policies:

Employers should ensure that the company policy is up to date and deals with confidential information.  Make it clear what may be stored and who owns the information and emphasises that employees must keep their personal and business contacts separate.  In addition to this it may also be very worthwhile for organisations to provide training to staff and employees on the handling of confidential information and marking documents as confidential where this is the case.  In extreme cases it might be worthwhile considering setting up a management program in which the business’ key information, including trade secrets, are identified and then placed under in a highly secure location where only authorised personnel are able to access them.

Conclusion:

The digital world has led to an increase in the leak of confidential information.  The database right grants employers an exciting wider protection but ensuring you spend the time to put in place preventative measures is crucial.  If you are suspicious of a leak, an interim injunction may be able to stop full extent damage being done but you must contact your lawyer as soon as possible. 

In the busy automotive industry where time is precious, preventing a leak in confidential information will ensure that precious time is spent innovating new ways to out do competitors and not fighting a legal battle against an ex-employee.

Exactly what action Force India has brought against Mike Gascoyne is uncertain and it will be interesting to see if any further information is released in relation to this.  What is certain is that a vast amount of time will have been spent by employees at Force India in relation to various legal battles this year.  The costs of which will not be wholly recoverable.

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

Holly Strube
hstrube@pitmans.com
+44 (0)118 957 0571

The general “rule of thumb” calculation for the compensation payable for the loss of the use of a car is £10 per day.  The loss of use of a bus or a coach however is very different from the loss of use of a car and has significantly more seats than a car and the loss suffered from such a vehicle being unavailable for use is therefore significantly greater.  How can the operator of the bus or coach company be compensated correctly?

With a taxi or private hire vehicle, it is generally accepted across the insurance industry that the cost of hiring a replacement is the compensation payable, so why should a bus or coach be any different?  Third parties will seek to deflect claims brought by companies with a fleet of vehicles by arguing that the fleet operator could utilise one of the other vehicles from their fleet and if they did so then the fleet owner would, in the their argument, have suffered no loss from the relevant vehicle not being available for use.

It is certainly true that fleet operators frequently have standby vehicles for emergencies or to cover vehicles when they are being serviced or maintained and it has been established in the 1970 case of Birmingham v Sowsbery that the provision of a standby vehicles is reasonable and necessary and that they are to be taken as being in operation at any one time.  Not to have the use of a vehicle (a valuable chattel) as a result of a negligent third party would deprive the operator during the period their vehicle is off the road, for which they should be compensated for, regardless of whether there were other fleet vehicles available.  The judge stated that “where the Plaintiffs in a case such as this have had to hire a replacement vehicle, or where they are a profit making concern and can prove a financial detriment from the temporary loss of their vehicle, no difficulty arises.  The precise figure can be claimed as special damage and will be recovered if proved”.

The case went on to set out two alternative methods for calculating such a loss of use.  The first method is to take the cost of maintaining and operating the vehicle as the basis for calculation, on the assumption that this figure must represent approximately the value to the operators when the concern is non-profit making.  The second method is based on interest and capital and depreciation.

In the case of Beechwood Birmingham Limited – v – Hoyer Group UK Limited (Court of Appeal) earlier this year a Claimant was awarded loss of use damages rather than hire charges due to the number of vehicles that they had available to them and could have utilised from their fleet.  The principles established in Birmingham v Sowsbery were accepted as valid methods of claiming loss of use today, which have reinforced the existence of formulas for both small and large operators.

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

Jacqueline Forrester
jforrester@pitmans.com
+44 (0)118 957 0253