Managing legal advice

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Managing legal advice

• Andrew Pickin, Partner and
• Peter Duff, Head of Employment and Pensions
• Shoosmiths

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Outline

• Priorities for businesses
• Be aware of the key relationships you have
• Ensure those relationships are healthy
• This will be the best way for you to obtain
  flexibility should you need it
• Your relationships
• With customers
• With suppliers
• With other stakeholders
• Directors Duties
• Relationships with Staff

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Relationships with Customers

• Your business is at the centre of a web
  of relationships underpinned by contracts written
  or unwritten. The content not the form of these
  contracts is key.
• Debtor management
• In the current climate debtor days will
  deteriorate unless you work very hard
• Action you can take to improve debtor days
• Dont resort to legal avenues unless this is
  essential
• Check the customer does not have a justifiable
  grievance
• Problem cases
• Traditional proceedings may be appropriate, but
  will take at least 40 days to obtain judgment
  even in a simple undefended case.
• Use of winding up petitions some creditors are
  using these remedies regularly, but beware
• this is likely to destroy the relationship
• if there is any dispute over the debt these
  proceedings are not appropriate
• you could be penalised by having your petition
  thrown out and a costs order made against you
• This will crystallise the position but is likely
  to push the company under
• Dont give Customers the excuse not to pay
• Check before you send the invoice

4
Relationships with Customers

• Are your contracts fit for purpose
• Use the checklist to conduct a review of your
  sales risk
• Be sure you get the simple things right (e.g. you
  know who the customer is and on whose terms and
  conditions you are trading)
• Retention of title and other considerations
• Do you include a clause which states that
  ownership of goods supplied does not pass to the
  customer until payment is received?
• Withdrawal of Credit Insurance should you trade
  on?
• Credit insurance withdrawal is a serious matter.
• If this occurs respond. You may need to
• demand cash up front
• put the customer on stop
• ask for guarantees
• adjust volumes etc
• What if a Customer becomes insolvent..
• In that event
• Find out all you can
• Is the business continuing to trade?

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Relationships with Suppliers

• Dealing with pressure from suppliers
• Credit periods
• Look at your contract before you accept a demand
  to shorten credit periods
• Consider change of supplier
• Consider the impact of a change
• Demands for payments
• If faced with a winding up threat
• React quickly and provide information
• Offer a payment instalment plan if you can
• Get advice to help you in your negotiations
• How secure are your suppliers?
• It pays to know
• The failure of a key supplier could be fatal so
  stay up to date
• Future planning are your contracts still
  appropriate?
• Consider the renegotiation of contracts which are
  onerous
• The supplier may be amenable to a discussion in
  this climate

6
Relationships with Staff

• Do tough times have to mean redundancies?
• Change staff patterns/reduce hours?
• Cut agency staff/temps?
• Any early termination fees?
• Temporary lay offs, with guarantee of job?
• Altering salary or benefits salary sacrifice,
  holidays, pension holiday, reduce benefit
  packages, cars and IT equipment?
• Need consent of employees?
• All employees have contract (oral or written).
  Can you make changes under that contract (such as
  change hours)? If not, and in any event for
  changes such as reduction of salary, you need
  informed consent of each employee.
• If not consent there is the ultimate option of
  dismissing all affected staff and offering new
  contracts with revised terms. But is still a
  dismissal with possibility of claims so seek
  advice first.
• Importance of consultation with staff
• Consultation is required to get an employees
  informed consent and,, in any event hard to get
  buy in without it. Must be, and seen to be,
  consistent, fair and open. Staff would also
  expect it to be part of overall cost savings,
  including owners profits! Staff are unlikely to
  consent to reductions merely to protect the
  owners money.

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Relationships with Staff

• If redundancies are unavoidable
• Is it redundancy?
• Not poor performance, sickness etc. These may be
  factors in selecting someone for redundancy, but
  is not redundancy itself. Redundancy can only be
  the need for less staff due to a diminution or
  cessation of work.
• Who is affected?
• Is it all your staff or specific area?
• Fair selection
• If need to reduce staff in an area (e.g. pick one
  person from three) ensure you use fair selection
  criteria such as performance review score,
  attendance, sickness. But take care not to be
  discriminatory care if disabled employee and
  also if using Last In First Out (LIFO) which is
  potentially age discriminatory
• Proper process
• Statutory process invite in writing to meeting,
  hold consultation meeting and if dismissed
  employee is given right to appeal. Always
  requirement to consider alternative positions.
• Consultation (required by law and common sense)
• The costs of getting it wrong
• Possible unfair dismissal claim if you do not
  select fairly or it is not a genuine redundancy
• Automatically unfair dismissal if not follow
  statutory process (with 50 uplift)
• If use discriminatory criteria then possible
  uncapped discrimination claim
• If you have to act then act swiftly
• Morale issues worse if drip drip scenario
• Take advice (Business Link or ACAS)

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Relationships with Other Stakeholders

• Landlords
• Negotiation strategies it may be possible to
  negotiate to move to monthly instead of quarterly
  rental payments
• Landlords remedies
• You need your landlord, but the landlord needs
  you
• Your flexibility will depend on the kind of lease
  you have
• Understand your options (if you need to downsize)
  and dont be afraid to approach a landlord to see
  if there is flexibility
• Be aware of the special rights (e.g. distraint)
  which landlords can exercise, so stay up to date
  with rental payments
• The Taxman
• Importance of Crown Debt
• Dont delay payment without agreement
• Be aware of the dangers of failure to pay Crown
  Debt this can give rise to Directors
  Disqualification proceedings
• Special remedies
• Like landlords, HMRC and the VAT authorities have
  special rights to recover sums due to them
• Shareholders investment opportunities?
• Keep investors in your business up to date
• Consider injections of capital from existing
  shareholders or perhaps from members of the
  management team etc

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Directors Duties

• These duties are owed by all Directors (including
  Non-Executive Directors)
• What are the core directors duties?
• For solvent companies to promote the success of
  the company for the benefit of members as a whole
• For insolvent companies to consider the
  interests of creditors
• Why do they matter?
• Personal liability Directors guilty of wrongful
  trading may have to contribute personally to meet
  losses suffered by creditors
• Directors disqualification proceedings
  insolvency reports are filed by Insolvency
  Practitioners on directors who fail to meet he
  required standards this could lead to the making
  of disqualification order against you
• How to avoid problems
• Look ahead dont make rash assumptions
• Have good, up to date information available
• Take advice this is likely to mitigate the
  risks you face

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Questions for your business

• How can you collect cash more quickly?
• Are your contracts with customers and suppliers
  what you need in the current climate?
• What actions might you take to reduce employment
  costs?
• If it is necessary, do you understand how to
  manage a redundancy?
• How can you maximise your relationship with other
  stakeholders?

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Survive and Thrive

• Support for businesses in tough times