Death of a sole director-shareholder – What happens next?

When a sole director shareholder dies, his or her shares automatically pass to their personal representatives (PR’s), being the executors (if there is a valid will) or the administrators of his or her estate (if the shareholder dies intestate), under section 773 of the Companies Act 2006. This makes the PR (or whomever they elect to hold the shares) the sole shareholder in the company.

However, the company will still be without a director and one must be appointed. Under the Companies Act 2006 Model Articles of Association, this isn’t a problem as they provide that:

where, as a result of death, the company has no shareholders and no
directors, the personal representatives of the last shareholder to have died
have the right, by notice in writing, to appoint a person to be a director’.

A problem does however occur where a company is operating under the Companies Act 1985 (or an earlier Act) prescribed Articles of Association (known as Table A Articles), or where a company is operating under outdated bespoke Articles of Association.

Under Table A Articles, in order to appoint a director, the shareholders of the company must vote on the appointment. A shareholder (in this case the PR) can only attend and vote at a meeting if they are registered as a member of the company.

However, the catch 22 is that only a director can amend the company’s register of members (thereby registering the PR as a member of the company). As the sole director shareholder has died, it is impossible for the PR to be added to the register of members, meaning the PR is unable to appoint a director.

How to avoid the catch 22

Where the Companies Act 2006 Model Articles of Association (or equivalent provisions included in a company’s bespoke Articles of Association) have not been adopted, the PR would need to apply to the court for the register of members to be amended, as in the recent case of Kings Court Trust Limited & Ors v Lancashire Cleaning Services Limited [2017] EWHC 1096. However, it should be noted that His Honour Judge Hodge QC emphasised that the exceptional circumstances surrounding this case, such as the company’s inability to function without the intervention of the court and the imminent failure to pay the wages of the employees, were crucial factors in his decision to allow the rectification of the register.

In order to prevent the uncertainty surrounding a discretionary court ruling, we would urge companies, especially those incorporated prior to 1 October 2009, to review their Articles of Association and, if necessary, update them in order to protect their future.

Hayley Blackburn

Hayley Blackburn
Paralegal
Corporate & Commercial Team
HBlackburn@LawBlacks.com
0113 207 1099

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Court Rules Settlement Is Final

Many disputes settle without the need for litigation and even when proceedings have been issued the majority of cases settle before they reach trial.  However, the recent case of Mionis -v- Democratic Press SA & Others highlights the need for care when agreeing a settlement so that it does not go beyond what you intend to settle for.

In November 2013 Mr Mionis settled a libel claim against Democratic Press, a claim which he brought following the publication of a series of articles in a Greek language newspaper concerning Greek citizens holding bank accounts in Geneva for tax evasion purposes.  The parties had resolved the proceedings by entering into a settlement agreement.  One of the terms of that agreement prevented Democratic Press from making any reference to Mr Mionis and his immediate family, either in print or online, in any jurisdiction.

However, Democratic Press subsequently published two newspaper articles which, according to Mr Mionis, provided clues to his identity and that of his brother.  Mr Mionis considered this to be in breach of the settlement agreement so he applied to the High Court for an injunction to enforce the terms of the settlement. The court rejected Mr Mionis’ application on the basis that the relevant clause in the settlement agreement was too vague and uncertain to be enforceable.  Mr Mionis appealed.

At the appeal Democratic Press said that the court should uphold the earlier decision because the terms of the relevant clause were too wide (rather than too vague) and that the effect of Section 12 of the Human Rights Act 1998 (enshrining the right to freedom of expression) meant that it would be disproportionate and contrary to public policy to allow Mr Mionis to enforce the terms of the settlement agreement.

The Court of Appeal disagreed.  In weighing up the right to freedom of expression against the contractual rights of the parties, it decided that there was nothing disproportionate on the facts in holding Democratic Press to their bargain and it granted the injunction sought by Mr Mionis.

The court’s view was that, although the parties had agreed contractual terms that were beyond the ambit of the dispute and even though the undertaking given by Democratic Press was very broad, this did not mean that those terms should not be enforced, particularly given that Democratic Press had entered into the settlement freely.  Further, the court confirmed that for public policy reasons there should be finality in settlements.

This case demonstrates that the courts will be reluctant to overturn an agreement which has been freely entered into by the parties even in circumstances where it affects the right to freedom of expression of one of the parties.

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Luke Patel

Luke Patel
Partner
Commercial Dispute Resolution Team
LPatel@LawBlacks.com
0113 227 9316
@LukeLawBlacks

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Will SMEs be shackled by the General Data Protection Regulation (GDPR)?

Data is increasingly becoming the most valuable commodity for businesses and as such, one of the most protected.

Considering the GDPR is an update to the Data Protection Act which first came into force in 1998, when one gigabyte of data cost one thousand times what it does today, the new regulation is seen by many as long overdue. There was some uncertainty as to whether SMEs would be subject to the GDPR, with earlier drafts of the regulation pointing towards ‘large scale’, but any ambiguity was dispelled when it was later confirmed by the Information Commissioner’s Office earlier this year that SMEs are most certainly not exempt. But will the comparative cost of complying with the GDPR be unfair to SMEs who may lack the time, resources and investment large businesses can afford?

On the face of it there appears to be some relief for SMEs, given that the GDPR excludes companies that employ fewer than 250 people from some of the additional data processing requirements. However, SMEs will still need to figure out where they stand with the GDPR and which exemptions may apply based on the type of data being processed. With fines of up to €20 million or 4% of global turnover, it should make any business sit up and take notice.

Among the important changes is the need to gain explicit consent (consent will no longer be inferred from silence such as leaving a pre-ticked box) by an individual for their information to be used, including all information previously held if such consent was not given at the time. Individuals will need to be informed of these changes through new privacy policies and the GDPR permits individuals to withhold consent and request all held data on them be deleted, the so-called ‘right to be forgotten’. Businesses will need to comply with the obligation to erase personal data ‘without undue delay’, which could become a time consuming task should a large group of individuals invoke the right all at once. There are some exemptions to this however and businesses will be able to refuse a request when personal data is processed for specific reasons, such as the exercise of legal claims or when it is in the public interest.

The more rigorous consent threshold will also mean that any third parties using the information will need to be named when an individual is asked for their consent. A potential impact of this being that if an individual sees their information is to be used by a third party, with no direct benefit to them, the chances are that they won’t consent. Third parties who process data on behalf of other parties will also be subject to a higher responsibility when it comes to handling data and any contracts with third parties will need to be re-visited.

Ultimately, the biggest determining factor as to which businesses will be affected the most is not so much the size or type of business, but how well a business has kept record of its data until now. The major changes brought by the GDPR require knowledge of the data which is controlled and processed by a business. So if this has already been logged and recorded effectively then the transition should be more streamlined. Yet the GDPR will widen the definition of what ‘personal data’ can be, extending its reach to online identifiers such as IP addresses and covers both automated personal data and paper records where personal data is accessible according to specific criteria. Thus any affected business, regardless of size, will now need to compile a definitive catalogue of the data they have on record, check that it is processed in compliance with the GDPR and, if necessary, overhaul the way information is stored, collected and transferred to be ready for May 2018.

Whilst for now it would appear that the GDPR does not in a material way disadvantage SMEs, they do make up 99% of the UK’s businesses and may well find themselves under the spotlight when it comes to compliance.

Tate Chakrabarty

Tate Chakrabarty                                            
Associate Solicitor
Corporate and Commercial Team            
TChakrabarty@LawBlacks.com                
0113 227 9260  

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Another Bright Spark

Developing land is one way of increasing its value.  However, not all landowners have the expertise or the finance to do that.  Landowners can, however, sell their land to a developer and benefit from the increase in the value of the land under an Overage Agreement.  An Overage Agreement requires the developer to make a payment to the landowner if they secure planning permission and subsequently develop the land thereby enabling the landowner to benefit from the increase in the value as a result of the development.  Typically, under an Overage Agreement the landowner will receive a percentage of the increase in the value of the land as a result of it having been developed and sold.

The recent High Court case of Sparks v Biden highlights the need for Overage Agreements to be carefully drafted.  In that case Mr Sparks owned some land with development potential.  Mr Biden agreed to purchase the land and then proceeded to develop it.  Under the Overage Agreement Mr Sparks was to be paid a purchase price of £600,000 for the land together with an overage equating to 33.3% of the sale price of each newly constructed house.  Mr Biden eventually constructed eight houses on the land but rather than sell them Mr Biden proceeded to occupy one and rented out the rest.  The Overage Agreement did not contain any express term obliging Mr Biden to sell the houses and therefore Mr Biden contended that there was no overage payment due to Mr Sparks.  Mr Sparks disagreed, arguing that a term should be implied into the sale contract that the properties, once constructed, should be sold thereby triggering the overage payment.

The courts are generally reluctant to imply a missing term into a contract and will only do so where they are satisfied that:

  • it is reasonable and equitable;
  • it is necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
  • it is so obvious that it “goes without saying”;
  • it is capable of clear expression;
  • it does not contradict any express term of the contract.

The Judge decided that in order to give the original sale contract business efficacy, a clause should be implied into the Overage Agreement obliging Mr Biden to sell the houses once constructed.

Mr Sparks was lucky in this case that the Court intervened to rescue the overage provision but there is no guarantee that a court would imply a similar term in another case.  This case illustrates the need for agreements to be drafted very carefully so that they anticipate all possible eventualities and to cover those eventualities as far as possible in the drafting.

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Luke Patel

Luke Patel
Partner
Commercial Dispute Resolution Team
LPatel@LawBlacks.com
0113 227 9316
@LukeLawBlacks

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Fire safety on mobile home parks

Following recent tragic events it would be prudent for park owners and operators to take steps to review their fire safety practices and procedures. With most things prevention is always better than the cure and a robust assessment of potential risks together with the implementation of adequate safety measures can save a park a lot of time, expense and potential adverse publicity if the worst occurs.

The following helpful tips outline areas to consider when assessing fire risk at a park:

  1. Spacing – Ensure that you consider what spacing distance is appropriate between homes. Historic site licences will dictate required separation spaces and such provisions should be complied with not least as the density between homes is designed to reduce the ability of a fire to spread.
  2. Roads, Gateways & Footpaths – Ensuring that there is an accessible and clear means of escape in the event of a fire is vital, as is the communication/signposting of an escape route. You should ensure that any safety or emergency lighting is working and the functionality of such lighting should be checked regularly.
  3. Firefighting equipment – Training a responsible member of staff to safely use firefighting equipment on site, including: extinguishers, fire hoses etc. is essential. Keep records of the staff training provided and ensure appropriate refresher training is issued where needed.
  4. Fire warning – If a fire occurs on site the alarm will need to be raised. Consider how you will raise the alarm now rather than when faced with the need to do so. It is likely that the size and nature of the park will dictate the most appropriate method of raising the alarm (this could be through a manually operated siren or sounder). Consider conducting a fire drill to test the effectiveness of the chosen method.
  5. Maintenance – Make sure all alarms and firefighting equipment is installed, tested and maintained by a competent person and available for inspection where necessary. A logbook should be kept to record all tests and any remedial action taken. If you need any assistance you can contact your local Fire and Rescue Service.
  6. Notices – Designated fire points on site should have a clearly written notice to indicate the action to be taken in case of fire.
  7. Hazards – Keep an eye out for hazards on site. For example, has an occupier started using the underneath of a home for storage or is a contractor not adhering to health and safety standards when conducting work on site. If you spot a hazard, record it and take steps to eliminate it by, for example, writing to the occupier requesting that they clear the underneath of their home and refrain from using it for storage.
  8. Emergency telephone – On some sites an immediately accessible telephone is required to be available for calling the emergency services and on others it is advisable to have such a facility in place. A notice by the telephone should include the address of the site.
  9. Storing Liquefied Petroleum Gas (LPG) – LPG cylinders should be located outside and comply with the LP Gas Association’s Code of Practice. Ensure that occupiers are storing cylinders accurately.
  10. Fire Risk Assessments –Carry out Fire Risk Assessments to identify hazards and ensure that they are regularly reviewed and updated. Any hazards identified should be managed by the implementation of any necessary fire safety measures.

The appropriate/required steps to take will vary depending on park type, park size and site licence conditions. Nevertheless it remains pressing to take steps now to implement adequate safety measures as the consequences of failing to do so could be serious.

Aimee Hutchinson

Aimee Hutchinson

Aimee Hutchinson
Associate Solicitor
Holiday and Home Parks Team
AHutchinson@LawBlacks.com
0113 2279 203
@AimeeLawBlacks

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Beware Of Using Work Computers For Personal Matters

The perils of using your work computer for personal matters was recently highlighted in the High Court case of Simpkin v The Berkeley Group Holdings PLC. 

In that case the Mr Simpkin was the Finance Director of The Berkeley Group.  Berkeley terminated his employment, removed him as a director and decided that he would not be treated as a “good leaver”.  As a result Mr Simpkin would not receive the substantial financial benefits of a long term incentive plan and bonus scheme of which he was a part.  He therefore issued proceedings against Berkeley.

During Mr Simpkin’s employment with Berkeley he had sent an email from his work email account to his personal email account with an attachment containing an analysis of his expectations under Berkeley’s long-term incentive plan.  He had then forwarded the email from his personal account to his solicitor who was dealing with his divorce.

Berkeley wanted to use the email and attachment in the context of its employment dispute with Mr Simpkin but he argued that they should be prevented from doing so as the documents were protected by legal privilege – broadly speaking communications between a client and their solicitor are protected from use in proceedings by privilege.  However, Berkeley contended that Mr Simpkin was not entitled to claim privilege in relation to those documents because when a privileged document came into the hands of an opposing party in litigation there was nothing to prevent that party from using that document.  They also argued that the document was not confidential as far as it related to Berkeley – it was accepted by both parties that confidentiality was a pre-condition to privilege.

The court decided that the documents were not confidential because:

  • Mr Simpkin had signed Berkeley’s IT policy which provided that emails sent and received on Berkeley’s IT system were the property of Berkeley.
  • Berkeley’s IT department had full access to all emails sent and received by Mr Simpkin.
  • The document was created by Mr Simpkin during the course of his employment with Berkeley and by using its IT system.

It was therefore impossible for Mr Simpkin to have any reasonable expectation of privacy as regard the preparation of those documents as he should have been aware that they would be stored on Berkeley’s servers.  The judge found that the documents in question were never confidential in relation to Berkeley or, if they were, they lost their confidentiality when they were processed on Berkeley’s IT system.

This case highlights one of a number of risks for employees who use work IT systems for private communications.  It is also a reminder to employers to ensure that their IT policies are as watertight as possible to avoid complications such as this arising both during the employment relationship and after it has ended.

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Luke Patel

Luke Patel
Partner
Commercial Dispute Resolution Team
LPatel@LawBlacks.com
0113 227 9316
@LukeLawBlacks

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Unjustified Threats

Intellectual property owners have always had to tread carefully when it comes to enforcing their rights.  Until recently, part of the law known as the unjustified threats provisions meant that it was possible for someone on the receiving end of threatened proceedings for patent, design right or trade mark infringement to issue their own proceedings to ask the court to issue a declaration that the threats lacked justification, to make an award of damages and to issue an injunction to prevent further threats being made.  For obvious reasons, this could act as a powerful disincentive to trying to stop what might be seen as infringement where the position was not absolutely clear.  Added to that was the fact that lawyers sending a letter alleging infringement could also be separately liable for doing so – the playing field was far from level.

The provisions were meant to stop innocent consumers and retailers, known as secondary infringers, from being faced with infringement claims.  The idea was a good one but over the years the unjustified threats provisions have been used by primary infringers (i.e. those making or importing the infringing goods) trying to obtain a tactical advantage.  To make matters more difficult, the regime was an unwieldy mix of various legal concepts and remedies which led to a lot of uncertainty amongst lawyers and businesses alike.

The Intellectual Property (Unjustified Threats) Act 2017, which came into force last week, is meant to address these issues.  It provides some much-needed clarity.

No longer can an intellectual property rights owner be considered to be making a potentially unjustified threat simply by telling someone that they own a particular trade mark, which could have been the case before.  That is now specifically permitted, as is giving another party notice that you have rights under a certain mark.  The Act also means that a trade mark owner, for example, can demand that a primary infringer (i.e. someone who is importing goods which infringe a trade mark) does not sell those goods.  Slightly bizarrely, before the Act came into force that was something which could land a trade mark owner in hot water.

Just as importantly, especially for the lawyers, a threats action cannot be brought against a legal adviser acting on instructions where the identity of the client has been included in correspondence.

The aim of those who drafted the Act was to encourage parties to try to resolve disputes before issuing proceedings.  It has been a long time in the pipeline but at first glance, it seems that it may well have that effect.

Phil Gorski

Phil Gorski

Phil Gorski
Solicitor
Commercial Dispute Resolution
PGorski@LawBlacks.com
0113 227 9318
@PhilLawBlacks

Posted in Intellectual Property | Leave a comment