What could 2012 offer you and your business? For many Thames Valley-based businesses, 2012 is a year for optimism, opportunity, growth and investment, writes Patrick Long, Banking & Finance Partner, Pitmans LLP.
 
Respondents to Pitmans “Funding your Business” Survey , conducted in December 2011, clearly felt the UK economy’s recovery would remain in recession for the majority of 2012, but it is against this backdrop that over 60% of Thames Valley based respondents said that they anticipate a year of steady growth in 2012. This is a marked contrast to respondents from businesses which lie outside of the Thames Valley region, who predominantly forecast trade at similar levels as 2011.

The Thames Valley has long been labelled the economic powerhouse of the UK, thanks largely to its diversity, strong skills based and excellent infrastructure – attracting top talent and global businesses from software, manufacturing, pharmaceutical, utility and construction sectors.

Click here to view the summary of Pitmans “Funding your Business” Survey.

For further information on the survey, please contact Pitmans Banking & Finance team.

Patrick Long
Partner
T: +44 (0) 118 957 0488
E: plong@pitmans.com

Network Rail pleaded guilty to two charges under The Management of Health and Safety at Work Regulations 1999, and guilty to one charge under the Health and Safety at Work etc. Act 1974. The court has committed Network Rail to Chelmsford Crown Court where a sentencing hearing will take place on 15 March 2012 and an update will follow when sentence is passed.

For further information, please contact:

Alan Davies
Partner, Defendant Insurance
T: +44 (0) 118 957 0300
E: alandavies@pitmans.com

Jonathan Durrant
Director, Dispute Resolution
T: +44 (0) 118 957 0270
E: jdurrant@pitmans.com

In the light of this decision, tenants will need to check carefully through all previous payments due under the lease,  whether rent or other sums, to ascertain whether the landlord could validly charge interest.

The High Court refused permission to appeal. However an application for permission to appeal is due to be heard in the Court of Appeal in March 2012.

Please note that the above is a summary only of the above case and its implications and is not intended to be fully comprehensive. Each matter will depend on its own particular circumstances and we therefore recommend that legal advice is sought on each occasion.

For further information regarding property matters, please contact Pitmans Real Estate team.

Sally Sharp
Partner
T: +44 (0) 118 957 0362
E: ssharp@pitmans.com

Edward Davey, Minister for Employment relations, consumers and postal affairs; Department for Business, innovation and skills

In March 2011 I announced that we would be taking steps to improve the transparency and confidence of pre-pack sales in insolvency.  We subsequently consulted interested parties on measures targeted at the sales of assets in insolvent companies where these are sold to connected parties (such as the directors or their close associates).

Pre-pack sales can offer a flexible and speedy means of business rescue and when used appropriately can be the best way of maximizing returns for creditors. However, everyone who is affected by insolvency is entitled to have confidence that insolvency procedures are used fairly and that insolvency practitioners deliver the best possible outcome for all creditors.

It is apparent that concerns remain about the use of pre-pack sales, particularly where the assets are sold to a connected party – something that is often referred to as ‘phoenix-ism’. I am concerned about the potential for sales to be effected at an undervalue, particularly in smaller-value asset sales, where unsecured creditors may receive less than they should.  I also believe that it is important to consider the effect of pre-pack sales on competitors in the market.

Following the announcement, BIS officials have discussed the merits and practical application of the proposed measures with a range of interested parties, including secured and unsecured creditors, insolvency practitioners, and business representatives.

Having taken account of all the issues, however, the Government is not convinced that the benefit of new legislative controls presently outweighs the overall benefit to business of adhering to the moratorium on regulations affecting micro-business which is an important plank of this Government’s deregulatory agenda. As much of the concern was related to small businesses, I do not consider that measures should be introduced just for businesses other than micro-businesses. It is for this reason that I am today announcing that the Government will not be seeking to introduce new legislative controls on pre-packs at this time. 

The Insolvency Service, an executive agency of BIS, already monitors compliance by insolvency practitioners with the professional standard Statement of Insolvency Practice 16 (Pre-packaged Sales in Administrations) which requires administrators to provide creditors with early post sale information on details of the sale and the justification for it.

I have asked BIS officials to now undertake an urgent review in conjunction with stakeholders of how the existing controls on pre-packs have been working and whether, in light of their experiences and the outcomes from the monitoring, more could be done within the existing regulatory framework to improve confidence and transparency.  The issues raised by pre-packs are important matters that affect a wide range of stakeholders including business interests, and I look forward to discussing the findings of the review with stakeholders in the spring. 

If you would like to discuss this statement further, please contact our Insolvency & Restructuring team.

Background

In recent years Contingent Assets have become an increasingly common method by which sponsoring employers have managed the cost of occupational pension schemes, the availability of a contingent asset to a scheme’s trustees usually resulting in a reduction in the Pension Protection Fund levy, a cut in the funding level a scheme needs to aim for or both.

To ensure that an existing contingent asset or a new contingent asset is recognised by the Pension Protection Fund (“PPF”) for the 2012/13 levy year Trustees need to recertify the existing contingent asset or certify the new contingent asset via the Pension Regulator’s online Exchange service by no later than 5 pm on 30 March 2012.

Before they commence this process both trustees and employers should be aware that the PPF has introduced a new requirement for certification with regard to Type A contingent asset (guarantees from other group companies) and has announced new proposals on how it intends in future to analyse the strength of guarantors in relation to the guarantees that they provide.

The Revised Contingent Asset Guidance 2012/13

The PPF Final Levy Determination for 2012/13 was published on the 13 December 2012 and includes a number of key changes on how the PPF shall approach Contingent Assets from 1 April 2012.

1. The Board of the PPF has introduced a new requirement for both the certification of new Type A contingent assets and the recertification of Type A contingent assets for the levy year 2012/13. For these assets certified on the Exchange no later than 5 pm on 30 March 2012 Trustees will now have to certify that they:
 
“have no reason to believe that each guarantor, as at the date of the certificate could not meet its full commitment under the contingent asset”.

The PPF guidance confirms that trustees will not usually be expected to conduct a covenant review for each certification. However, the PPF does expect the trustees to take “proportionate and reasonable steps” to reassure themselves as regards the guarantor’s financial standing “as at the date of the certificate”.

As a minimum we recommend that trustees should note this new requirement and make a formal decision on whether further information or advice is required with regard to the financial strength of the guarantor.

2. For the levy year 2012/13 trustees now have the option of certifying a lower amount than the face value of the Type A contingent asset, or of only reporting the most substantial guarantors if they do not feel that can provide the new certification as highlighted above.

This more flexible approach by the PPF recognises that the re-certification of contingent assets could be difficult in those circumstances where the guarantor’s position has changed. However, Trustees should approach this option with caution and seek advice if they consider this approach as the PPF retains the discretion to refuse the partial recognition of a contingent asset.

3. From 1 April 2012 the PPF will commence its own analysis of guarantor strength based on publicly available financial information, comparing it with the deemed value of a Type A contingent asset for levy purposes. If the PPF consider the guarantor to be of limited strength, it will seek additional evidence from the trustees, before deciding whether to reject a contingent asset.

In this first year the PPF will give the benefit of the doubt to schemes and their guarantors and will only challenge guarantees where the guarantor’s net assets are somewhat below the sum guaranteed. It is the PPF’s expectation that requirements for future years will be tightened.
 
4. The definition of “Employer’s Associate” has been amended so that an entity which satisfies the PPF Board of a sufficiently strong connection to an employer, independent of the existence of the contingent asset, would be recognised as an associate. This represents a relaxation of the PPF’s former requirement that the guarantor to a contingent asset must be an “associate” of a scheme employer as defined in section 435 of the Insolvency Act 1986 and will allow more companies to provide Type A contingent asset guarantees.  The new definition can be found at paragraph 4 of the Contingent Asset Appendix.
 
If you are preparing to recertify a Type A contingent asset or plan to enter in to a new Type A contingent asset for the levy year 2012/13 we would be happy to review the new PPF requirements in respect of your specific requirements. Please contact Pitmans Pensions team or your usual Pitmans contact.

David Hosford
Partner
T: +44 (0) 118 957 0363
E: dhosford@pitmans.com
 
David Loosemore
Solicitor
T: +44 (0) 118 957 0240
E: dloosemore@pitmans.com

The Supreme Court has held that employers who have shutdown periods can stipulate that annual leave be taken during those periods.

What does this mean?
Employers can insist on their employees taking their paid annual leave during periods when they are not required to work. This will be relevant to off-shore workers, teachers who are required to take their annual leave during non-term time, professional footballers, Parliamentary staff, and people who work full-time during the season in the tourist industry.

What should employers do?
Employers who have shut down periods are entitled to insist on their workers taking their annual leave during those periods. However, they should handle requests for annual leave fairly and consistently.

2. Marriage discrimination

The Employment Appeal Tribunal has held that an employer acted unlawfully when it treated an employee less favourably, not just because she was married, but because she was married to a particular man.

What does this mean?
Employees have the right not to be discriminated against by reason of their status, not only of being married, but also of being married to a particular person. The same applies to those in a civil partnership.

What should employers do?
Employers should avoid discriminating against married employees and those in a civil partnership.

3. Discrimination and Harassment

The Employment Appeal Tribunal has held that a culture of tolerance of racist banter which continues after established acts of racial harassment have taken place is capable of amounting to a continuing breach of mutual trust and confidence and, therefore, giving grounds for a claim for unfair constructive dismissal even if an employee resigns some time after the original incidents.

What does this mean?
Employers have a duty to prevent harassment in the workplace and can be liable to their employees if they do not take action.

What should employers do?
Employers should take steps to prevent discrimination and harassment in the workplace.  This may be by ensuring that clear written policies relating to discrimination and harassment are in place, by providing staff with training in these areas and by promoting a culture of compliance with such policies.

4. Bulgarian and Romanian workers

Restrictions on the rights of Bulgarian and Romanian workers to work in the UK have been extended until 31 December 2013.

What does this mean?
Bulgarian and Romanian nationals have no automatic right to work in the UK despite their countries being members of the EU. Those seeking to work in the UK are in most cases required to apply, before commencing work, for an ‘accession worker authorisation document’ and to work in accordance with the conditions in that document.

What should employers do?
Employers who wish to employ Bulgarian and Romanian workers should continue to comply with requirements such as work permits and, if necessary, take legal advice before doing so.

5. Equal pay

The Court of Appeal has held that claims for equal pay can be brought either through an Employment Tribunal or through ‘the ordinary courts’ (the County and High Courts) and that when an ordinary court exercises its discretion to strike out a case the fact that an employee would be deprived of their right to pursue a claim is a relevant factor which should be taken into account and given considerable weight in most cases.

What does this mean?
Employees only have six months to present an equal pay claim in an Employment Tribunal but six years to bring a claim through the ordinary courts. In most cases an employee will still be able to bring an equal pay claim through the ordinary courts even though the time for presenting a claim in a tribunal has expired.

What should employers do?
Businesses who acquire employees under TUPE should obtain appropriate indemnities to protect themselves against liability for any potential equal pay claims arising in the six years prior to the acquisition of the employees.

6. Equal Pay
The Employment Appeal Tribunal has held that a pay differential between employees at the time of their recruitment can justify the continuing differential in subsequent years.

What does this mean?
Employers are free to pay staff who are recruited into similar roles different amounts where there is good reason for it as long as the decision is not tainted by sex. It is, therefore, permissible to pay different amounts where one of the individuals has more experience than another. Having made the decision to pay different rates there is no obligation on the employer to harmonise the levels of pay at a later date.

What should employers do?
Employers should base decisions on pay on objective grounds and be prepared to justify their decisions should the need arise.

7 . National Minimum Wage: Live-in Domestic Staff

The Employment Appeal Tribunal has held that live-in housekeepers  may be  exempt from the National Minimum Wage  if  they live in their employer’s home and are treated as a member of their employer’s family.

What does this mean?
Domestic workers do not need to be paid the National Minimum Wage if they live in their employer’s home and are treated as a member of the family. As to whether a worker is integrated into a family there is no one factor that is decisive but particular regard will be had to the provision of accommodation and meals and the sharing of tasks and leisure activities. Other matters such as the general dignity with which the domestic worker is treated could be taken into account, as could the degree of privacy and autonomy they are afforded and the extent to which, if at all, they are exploited.

What should employers do?
Employers who employ live-in domestic staff and wish to pay them less than the National Minimum Wage should genuinely treat such workers as part of the family. Domestic workers who are exploited are unlikely to be regarded as being family members and would, therefore, be entitled to be paid the National Minimum Wage.

8. TUPE

The Court of Appeal has held that a transfer on an administration cannot be caught by TUPE rules, unlike on insolvency proceedings. As such administrations will not be “insolvency proceedings” for the purposes of the exemption to TUPE.

What does this mean?
Businesses who purchase companies who have been placed into administration will take on the liability under TUPE for the company’s employees. Employees will transfer under TUPE and  will be protected from transfer- connected dismissals.

What should employers do?
Businesses who are considering purchasing a company in administration should be aware of their potential liabilities in relation to staff and take specific legal advice where necessary.

9. TUPE
The Employment Appeal Tribunal has held that for there to be a service provision change under TUPE, the activities carried out by different providers before and after the transfer must be for the same client.

What does this mean?
There will be no service provision change where there is not only a change in contractors, but also a change of client.

What should employers do?
Businesses  who are considering selling should be aware that a change of client may mean TUPE rules do not apply and take specific legal advice as to their liabilities where necessary.

10. TUPE
The Employment Appeal Tribunal has held that there can be no service provision change under TUPE where the activities carried out by the subsequent contractor for the client are not fundamentally the same as those carried out by the first contractor.

What does this mean?
There will only be a service provision change where the activities carried out by an organised grouping of employees remain fundamentally the same. In Enterprise Management Services Ltd v Connect-Up Ltd and the Claimants, a company entered into a framework agreement with the Council which gave them preferred bidder status amongst certain schools. The result was that the Company ended up providing services to the local schools in the area. The contract came to an end and another company was awarded the contract. The crucial difference being that this contact excluded service cover in relation to a matter which had accounted for 15% of the work carried out by the original company. This company also lost 40% of the schools which the original company had provided services to. The EAT held that there were significant differences between the activities and so there was no transfer under TUPE.

What should employers do?
Businesses should be aware that TUPE may not apply where any service provided after transfer is fundamentally different from the one provided before transfer. If in doubt, specific legal advice should be sought.

11. TUPE

The Court of Appeal has held that a particular transfer does not need to be in contemplation at the time that a dismissal is effected in order for the dismissal to be caught by  TUPE.

What does this mean?
Dismissal of staff by an administrator in order to achieve a sale of a company at a future date is sufficient for TUPE to apply and such dismissals will be automatically unfair as they will be for a reason connected with the transfer.

What should employers do?
Businesses who are considering purchasing another business from an administrator should take specific legal advice as to their liabilities under TUPE and consider what indemnities to seek.

12. Employment Tribunal Awards Increase

From 1 February 2012 the limits for employment tribunal awards will increase. The maximum compensatory award for unfair dismissal will rise to £72,300. The maximum basic award for unfair dismissal will increase to £12,900 and the maximum week’s pay for basic award and redundancy pay purposes will rise to £430.

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

Mark Symons
Partner, Head of Employment
T: +44 (0)118 957 0340
E: msymons@pitmans.com

For our first Thames Valley meeting of 2012 we are delighted to welcome Michael Edginton of Acasta Consulting.

A Chartered Quantity Surveyor with over 30 years in construction and development, Michael has spent the last 13 of which providing specialist due diligence, corporate recovery and other services to Banks and Insolvency Practitioners.

Michael was articled as a Pupil Quantity Surveyor at John Laing Construction in 1980, rising to Senior Surveyor.  He has sector experience in pharmaceutical, civils, airport, industrial, regeneration, leisure, commercial and government contracts.  In 1989 Michael joined Balfour Beatty Specialist Homes Division, a development company with a 5 year predictive NSV of £500M, who were carrying out their own high quality residential schemes and also acting as partners in joint venture companies.  He was promoted to Managing Surveyor in October 1989 working on exit strategies.  From 1990 to 1993 he took on additional responsibilities as Managing Surveyor of Balfour Beatty Homes southern region in the house building sector.

Michael worked as a Consultant Project Manager for developers and contractors between 1993 and 1998 and happily was retained by KPMG, who were appointed receivers over a £14M turnover fit out company, to provide contract advice and final accounting services.  This formative insolvency experience was built on by working for surveyors specialising in corporate recovery, bank work and development risk. Having held positions as an Associate Director and Principal at two national corporate recovery / insolvency surveying practices between 1998 and 2008, he formed Acasta Consulting with Richard Winson in December 2008.

Acasta Consulting demonstrate construction and property lending risk, sharing their sector knowledge expertise and powerful forecasting tools in this interactive session where also delegates will be able to operate the financial risk models themselves after the presentation.

1. Introduction on the risks to stakeholders in Property Development and Construction
2. Demonstration of how the 4 “Dashboard” financial models work, all as below:-

• Eyebrow Test (simplistic “ready  reckoner” residual land value appraisal)
• Development Appraisal (sensitivity analysis of a development project)
• The Magic of Over-value (manipulating cashflow in the construction industry)
• Insolvency – The Dynamics of risk (the risk to stakeholders of contractor insolvency

Date:      Wednesday 22 February 2012

Time:      18.00 arrival for a 18.30 start
               19.30 refreshments and networking

Venue:   Pitmans LLP, The Anchorage
               34 Bridge Street, Reading, RG1 2LU
               (SatNav users, please use street name)
               Car parking is available at The Oracle RG1 2AG

CPD:       Attending can count towards your CPD requirement

Book your place with TMA

The transaction was led by Pitmans’ Corporate Partner Philip Weaver, Corporate Partner Adam Dowdney, Corporate solicitor Carolyn Butler, and Banking solicitor Mark Metcalfe.

Commenting on the transaction, David Macrae said “We were referred to Pitmans by an associate and were delighted with the speed and thorough handling of our time-sensitive purchase.”

Adam Dowdney, Pitmans’ Corporate Partner said: “We were delighted to assist David in this management buy-out of a business in which he has been involved for some time. The deal was completed in a very short time-frame, which reflects the flexibility and strength in depth of the Corporate and Banking teams we have here at Pitmans. We wish David every success for the future.”

1. Background:

1.1 In 2005, the Pensions Commission recommended abolishing the option for schemes to contract-out of the State Second Pension (‘S2P’) on the protected rights basis.  The reasons were the complexities caused by administering protected rights and the lack of member understanding.

1.2 The result is that protected rights will be abolished on 6 April 2012 and this applies to all pension schemes.   All rules and references to “protected rights” in pensions-related legislation will either be repealed, or where appropriate, amended.

1.3 On abolition, protected rights will cease to exist.  They will become ordinary money purchase scheme benefits.   

1.4 Contracting-out in final salary schemes on the reference scheme basis is not subject to change.

2. Why abolish contracting-out on the protected rights basis?

2.1 By removing the option of contracting-out of S2P, it is hoped that complexity in the pensions system will be removed.   There will no longer be the need to track protected rights separately and scheme administration will become more manageable, simplifying record keeping and the processing of benefits and transfers.

2.2 In addition, there are currently a number of restrictive rules applying to protected rights.  For example, the annuity bought with protected rights funds must include an attaching survivor’s pension of at least 50% of the member’s pension. These requirements will disappear from 6 April 2012, providing welcome flexibility for members.

3. Increased NI costs and impact on employer contributions

3.1 When contracting-out on the protected rights basis, employees and employers pay reduced NI contributions in exchange for giving up accrual of the S2P. The contracted-out scheme then invests the rebates on behalf of each employee. The current rebates mean that employees pay 1.6% lower NI contributions and employers pay 1.4% lower NI contributions. In addition, HMRC pays further age related rebates into the scheme.
 
3.2 With effect from 6 April 2012, NI contributions will revert to standard rates and the rebates from HMRC will cease. Employer and Employee contribution rates usually include the contracted-out rebate.

3.3 This means that contributions into DC schemes after 6 April 2012 will reduce, with a corresponding reduction in the rate at which funds accumulate.

3.4 For DB schemes, this which means that after 6 April 2012 employer contributions will increase. Employers are likely to wish schemes to continue contracting-out on the COSR basis after 6 April 2012 in order to maintain the rebate.

3.5 Employers may therefore wish to review contribution rates that apply to their scheme after 6 April 2012.

4. What will trustees need to do?

4.1 Where scheme rules have incorporated the protected rights provisions into the rules themselves rather than just referring to the relevant legislation, the scheme rules will have to be amended to remove any such references.  The DWP has issued draft regulations for consultation providing an amendment power under section 68 of the Pensions Act 1995 without the necessity to consider restrictions on changes affecting accrued rights under section 67 of the 1995 Act or the scheme amendment power. It is proposed that the amendment power to remove scheme rules relating to protected rights is exercised by the trustees by resolution. 

4.2 The draft amendment power is very wide but there might be cases where it is not sufficient to amend scheme rules.  Accordingly, scheme rules will need to be reviewed to determine if any changes are required, and if so, whether the statutory amendment power provided by the DWP will be sufficient.

4.3 The power provided is time limited; trustees will have until the end of a three year transitional period (6 April 2015) to make amendments to their rules.  The draft regulations permit the trustees’ resolution to be signed now or after 6 April 2012 – in each case the effective date can be 6 April 2012. 

4.4 The three year transitional period will allow for the payment of final year’s rebates and the late payment or recovery of recalculated rebates due to adjustments to individuals’ NI records.  At the end of this transitional period,  HMRC will no longer track protected rights, so trustees should ask their administrators to ensure that all records are correct prior to this date.

4.5 Under the amended Disclosure Regulations, trustees must inform members that the scheme is no longer contracted-out within one month after 6 April 2012.  Trustees will also have a period of four months following 6 April 2012 to inform members of the effect of the abolition of contracting-out, namely, the removal of protected rights and basis for future accrual of scheme benefits.  Alternatively, this information can be provided by the trustees within the year leading up to the abolition date.

4.6 Trustees may want to consider additional information to include in this announcement, for example, explaining in more detail why protected rights are no longer referred to.

4.7 Member booklets will also need to be reviewed to make sure they are appropriate following the abolition.

5. Do contracting-out certificates need to be varied or surrendered and how do schemes elect to contract-out on the COSR basis?    

5.1 For DB or DC schemes ceasing to contract-out on the COMP basis, there is no need for trustees to formally surrender their contracting-out certificate; they will all be cancelled automatically on 6 April 2012.

5.2 If a DB or DC scheme currently contracted-out on the COMP basis wants to become a COSR scheme, the normal “election” processes apply.

5.3 If a COMB scheme ceases to contract-out on a COMP basis, there is no need to surrender or vary the mixed benefit contracting-out certificate in relation to the DC section or to obtain a DB only contracting-out certificate. The existing certificate will remain valid for that section of the scheme which remains contracted-out on a COSR basis.

5.4 Practical assistance in managing the run-up to April 2012 is being publicised via HMRC’s series of ‘Countdown Bulletins’.

This note only applies to pension schemes that are currently contracted-out of the State Second Pension on the protected rights basis.

Summary and action points for trustees

• Protected rights in all schemes to be abolished from 6 April 2012; schemes will no longer be able to contract-out on a money purchase basis from that date.
• Seek legal advice as to whether the scheme rules need to be amended. If yes, pass trustees’ resolution to remove protected rights provisions from the scheme rules.
• For schemes ceasing to contract-out, inform members that the scheme will no longer be contracted-out after 6 April 2012, and the effect that this will have.
• Ask the scheme administrator to ensure that all records relating to protected rights benefits are up to date.  
• Consider the need to update the member booklet and other member literature.

We would be very happy to review your scheme rules on this issue. Please contact Pitmans Pensions team or your usual Pitmans contact.

David Hosford
Partner
T: +44 (0)118 957 0363
E: dhosford@pitmans.com

Symon Rowley
Director
T: +44 (0)118 957 0301
E: srowley@pitmans.com