SME Corner: Warranties and Indemnities – the tax consequences explained

In a Company Sale, a claim for breach of warranty depends on proof of loss and the purchaser must establish that the value of the shares has been diminished by the breach. They are also subject to the normal contractual constraints of foreseeability, remoteness, mitigation etc. Claims under an indemnity are for a specific amount reflecting the discovered shortfall (including depreciation of specific assets), and are not dependent on proof of damage in a general sense. They can be given by the purchaser as well as the sellers.

Example 1

P agrees to indemnify S to cover any costs of meeting redundancy or unfair dismissal claims of employees who are dismissed by P after the change of control of the business.

Example 2

S1 and S2 jointly and severally indemnify P against any environmental claim affecting the commercial property of the company, where pre-contract enquiries have exposed a difficulty but the likelihood of a claim or its quantum is unknown. This is more satisfactory for P than relying on a breach of warranty, although the indemnity will not (without very particular drafting) cover consequential loss of profits if the company is forced to shut down and it will depend on the financial standing of S1 and S2 post-completion.

Tax treatment

The tax treatment of sums recovered under an indemnity is very different from a warranty. Payments made for breach of warranty are regarded as a partial repayment of the purchase price with corresponding recalculations of the sellers' chargeable gain and the purchaser's base cost of the shares acquired. However, indemnity payments are chargeable to corporation tax in the recipient's hands (Zim Properties Ltd v Proctor [1985] STC 90). This has consequences including the following:

(a) the acquisition costs of the asset giving rise to the indemnity payment cannot be used to set off the capital gain;
(b) to neutralise the tax liability, the target would need to gross up the amount of the indemnity claim and this burden would fall on the sellers;
(c) the deed of indemnity could be abandoned and exclusive reliance placed on tax warranties, but to achieve the desired tax effect in the target would need an express provision that its actual liability to tax shall be treated as the purchaser's loss of value on his shareholding (which might otherwise not be the case);
(d) a payment to the purchaser should be pursuant to a covenant and may anyway need to be grossed up (extra-statutory concessions may be available);
(e) the target should be omitted as a party, the sellers covenanting direct with the purchaser to bear the target's loss instead.

If you need more information on this topic or any other on this blog please feel free to request it from me on 01992 558411 or at


Web site content note:
This is not legal advice; it is intended to provide information of general interest about current legal issues

SME Corner: When are Restraint Clauses in a Share Purchase Agreement Valid?

When buying a business it is important to ensure that the day after completion the seller(s) are prevented from immediately setting up in close proximity, damaging the revenue of the purchased business and harming the value of the investment. Thus it is standard for the buyer to insist on restrictions on the sellers for a period of time and within a territory.

Restraint of trade is contrary to public policy unless it is imposed to protect a legitimate interest of the beneficiary. Accordingly you cannot put in a blanket restraint of trade clause and expect it to work The restraint must be for the protection of a business being sold and no wider. Thus, a purchaser of a business is entitled to protect himself against competition on the part of the vendor but no more. So a parent company cannot impose restricted which would also protect its business from the competition of the vendor.

In an agreement for the sale of a business the reasonableness of a vendor's restrictive covenant is to be judged by the extent and circumstances of the business sold and not by those of any business of the purchaser of which, after transfer, the business sold is to form a part.

It is essential when purchasing a business that you identify the geographical locations from which business obtains its work so that this spread can be included in the covenant. Furthermore, you also need to be extremely careful about the length of time that the restraint will last. Putting harsh terms in the agreement may have the affect of stopping the vendor from competing but that does not make the clause valid. The courts are entitled to strike out certain provisions if they find that the clause or clauses are contrary to public policy. The outcome can be perverse as it will mean that the business actually has not protection from the vendor at all.

If this is of interest to you please contact Brendan O’Brien on 01992 558411 or at

SME Corner: Social Media Policy Issues Explained

By Brendan O’Brien, Head of Business Services

The fast shifting world of social media is creating new challenges for both employers and employees. Here, digital legal expert Breeze & Wyles Solicitors LLP provides an update on the latest issues to hit the courts and employment tribunals, both here and across the pond in the United States.

Keeping up with social media

Facebook has just announced its 901 millionth user; more than 500 million people are said to be tweeting; LinkedIn has over 100 million professionals connecting with each other; and every day more new applications arrive, vying for attention in the social media stratosphere.

Social media has made a big shift from the early days, when Facebook simply provided a route for people to interact with people they already knew. Now, more and more businesses are using the different platforms to raise their profile and to interact with customers.

But under the noise of this ever rising tide of social media, many of the boundaries are becoming blurred between business and private interactions and usage, causing problems in the workplace.

Whether employer or employee, it’s time to size up attitudes and approaches. Otherwise, employers stand to lose valuable intellectual property and employees need to take care of the merging between their private and working life.

Let’s take a look at some of the major issues that are facing social media users on both side of the work/home divide.

Can employers use Facebook to obtain information about employees?

Stories are emerging from America about employers asking job applicants to log onto Facebook during an interview, or asking existing employees to name their boss or line manager as a Facebook friend, so that the prospective employer can get an insight into the private life of the job applicant.

But this kind of action is dangerous because using the information available on a Facebook page may leave the employer open to an accusation of discrimination on the grounds of sexual orientation, religion, disability or age.

Employers taking this approach are arguing that they need to check whether employees are using Facebook to criticise their employer, or to assess the character of a prospective employee. It is also being used to monitor and investigate any accusations of employees using social media to bully or harass colleagues, as the employer has to investigate the matter if asked to do so.

In the USA, courts in California have taken the view that the right to privacy must be weighed against the reasons put forward by the employer for intruding into the private life of an employee, saying that the employer has to prove that the intrusion is necessary and proportionate. Legislation is being introduced in California, Maryland and other states to prevent employers from requiring employees to give them access to their social media pages.

Take aways: What happens in America is likely to be echoed over here, so it’s worth employers making a policy decision now about their approach to employees’ private social media accounts, to make sure that any request for access is “necessary and proportionate”. And for employees, don’t hand over access to your private social media accounts without getting a written explanation of why it’s being requested, and how it will be used.

Who owns social media information?

Social media such as Facebook, Twitter and LinkedIn are becoming important marketing tools for businesses, but as with any new development, this produces new challenges and questions.

Who owns the list of contacts in an employee’s account on professional social networking site LinkedIn? Who owns the log-in details of a social media account established by an employee for a company? Who owns the followers of a Twitter account set up for a company by an employee?

Once again, we have to look to America to guess what will happen next over here.

In one case, a former partner in a night club business left and set up his own competing night club. He took with him the log-in details for the original club’s MySpace page, which had over 10,000 friends. In a similar case, an employee who had set up a Twitter account to boost traffic to the employer’s website left the company, taking with him the Twitter account’s log-in details. He renamed the account, and kept the Twitter following.

In both of these cases, the US Courts have held that social media accounts, their log-in details and their ‘friends’ or ‘followers’ are capable of being trade secrets that are entitled to be protected.

In Ardis Health v Nankivell (SDNY 2011) an employee had been taken on to create and maintain her employer’s social media websites. When she was later dismissed, she took with her the log-in credentials for the websites, which were known only to her. When she refused to hand them over the company was locked out of its own social media accounts. As the employee’s contract stated that any work she created or developed in her employment belonged to the company, the court held that the log in details belonged to the company and ordered her to return them, but not before the company had already suffered from the halt to their online activity.

Take aways: Don’t leave one person in charge of online social media accounts and make sure you set online access and passwords at company level and change them regularly, especially when anyone responsible for social media leaves the company. And make sure employee contracts spell out who owns the accounts and the log-in credentials.

Can employers control what employees say on social media?

Whether it is a rude joke on their Facebook page or a grumble about someone at work, the extent to which it may be judged by the employer depends on a number of factors.

Firstly, the type of business and whether the business is referred to. An employee of a waste disposal company probably has more freedom to tweet than an employee of a large firm of London solicitors.

Secondly, the effect, or potential effect on the employer’s business.

Thirdly, the readership. If the tweet only reaches eight people, the potential damage to the employer business is less than if it reaches eight million people.

And finally, the seniority of the employee. Pictures of a drunken evening by employees of a well-known company will cause more harm to the employer if they are posted by the managing director than if they are posted by the office cleaner.

Outside work:

For many people, it doesn’t seem possible that what they write to friends on their Facebook wall, or tweet to their followers, outside work could get them into trouble with their employer, but there are grounds for employers taking disciplinary action over ‘inappropriate’ use of social media.

A recent example is the case of Swansea University student Liam Stacey, 21, from Pontypridd, who was sentenced to 56 days in jail after admitting inciting racial hatred over remarks made on Twitter about the Bolton Wanderers player Fabrice Muamba, who collapsed during a cup tie against Tottenham Hotspur. Not only did the remarks land him in jail, they have also cost him his place on Treorchy rugby team, and Swansea University has suspended him pending the conclusion of disciplinary proceedings.

But deciding whether behaviour is appropriate or not, can be tricky. John Flexman, a former employee of the British gas exploration company, BG Group, has just brought a constructive dismissal claim before a UK Employment Tribunal following a dispute with his employer over his use of LinkedIn. He was accused of “inappropriate use of social media” and found to be in breach of a company policy on conflicts of interest which prevents employees from ticking a ‘career opportunities’ box on the site. This is the first notable constructive dismissal claim involving a LinkedIn account and the outcome will be being watched carefully.

Criticising the company:

Employer should be able to take it for granted that employees will act in the best interests of the company and will not undermine it - just as an employee should be able to take it for granted that their employer will not try to undermine and diminish their abilities.

Public criticism of an employer on social media strikes at the root of this relationship, but even so, an employer needs to respond to criticism reasonably.

It’s unlikely to be a sacking matter if a teenage employee tweets that her job is boring as the complaint is about the job, not the employer. And as many teenagers would describe their jobs as boring, the complaint is unlikely to reflect badly on the employer. A better response by the employer might be to demonstrate to the employee how important her job is, how others rely on her doing it well and to show the level of responsibility it carries.

On the other hand, a recent incident where airline cabin staff wrote disparaging comments about passengers and the airline’s safety procedures was judged to be highly damaging to the employer and the guilty staff were dismissed.

Bullying and harassment :

Like the school classroom, the workplace is a place where friendships and enmities are formed. Nowadays, these personal dramas may be played out in public on social media sites, and an employer has a duty of care to protect employees from inappropriate or offensive conduct, bullying or harassment from other employees. It means that employers have to show they will not tolerate employees posting remarks of these kinds.


Careless use of social media could be a betrayal of confidential information. For example if an employee posts personal information like a date of birth that is also used for log-ins or passwords there could be a breach of security.

Or, in a business where client confidentiality is fundamental, like a solicitor’s firm or doctor’s surgery, a tweet by an employee that discloses the name of a client is likely to lead to instant dismissal.

This aspect also takes us back to the employment tribunal with Mr Flaxman, as his employer BG Group first raised the alarm in response to information he posted relating to the company’s human resources, which they say was confidential. They also disputed suggestions in Mr Flexman’s CV that he had brought about a reduction in staff attrition.

Take aways: Employers need to be very clear about what’s acceptable practice for employees when they are online. And if it’s you that’s going online, don’t write anything that you wouldn’t say out loud to a stranger. It’s too easy to forget that online chats and comments are not taking place over the phone or the kitchen table.

So what next?

For employers, the best strategy is an overall social media policy that’s regularly updated, rather than a piecemeal approach which may be hard to enforce. But it needs to be a set of rules that is sensible and reasonable, as oppressive rules are unlikely to be enforceable and will only serve to alienate staff.

What is important is to set out the policy clearly so that all employees know what the boundaries are and what is unacceptable. For example, unless it is clearly spelt out that employees must not, in any circumstances, post offensive remarks about another employee on social media sites, they may feel that they can post what they like outside office hours and that what they do in their own home is no concern of the boss.

Any policy also needs to be aligned with employment contracts, which should spell out that passwords and other login details are the property of the employer; and should also tackle attitudes to business network contacts made by virtue of the employee’s job with the employer.

It all needs to be backed up with practical attitudes to enforcement. So steps should be taken to ensure that the company has control over all the social media log-ins and passwords to ensure that a former employee will have no access after they have left – which is particularly important if there is any ill-feeling surrounding the employee’s departure.


Web site content note:
This is not legal advice; it is intended to provide information of general interest about current legal issues.

How can I enter the UK Business Market?

With a Corporate Department in Hertford (20 miles north of London) Breeze & Wyles Solicitors LLP is well placed to support any business looking to create a market share in the UK as a springboard to the larger prize of the European Business market.

However there are a number of things that you should consider before taking that leap. In the first of a number of blogs on this issue I discuss two of those items below.

Build Relationships with local business support networks

Entering a new market is like starting a new business. Before commencing operations any business owner will look to do a through investigation of the local market. Information such as employee rights, commercial property law, licensing and regulatory rules and corporate governance are key to your success. The starting point may be UK Trade and Investment or the British Chamber of Commerce as the source of this information. Breeze & Wyles Solicitors LLP is a Patron Member of Hertfordshire Chamber of Commerce and can draw on all of the relevant information necessary for any client looking to enter this market and provide introductions to professionals in any area that a new market entrant may require.

Globalisation does not mean harmonisation. Each country will have different laws in relation to types of business operations. You should understand these anomalies before you consider entering that market.

Get a personal view of the market

Come and see the location for yourself. Many business owners work on gut instinct. Come and meet our team and other professionals whose advice may be necessary to your deliberations and review the way that your operation is likely to work in the UK as this is sure to be different from the way the remainder of your business works.

As the UKTI says:

“Why the UK?

Rich and diverse market

The UK is a rich and diverse market ranging from Pharmaceuticals, Fashion and Advanced Manufacturing through to primary food production and including world leading businesses in Space Technologies Aerospace and Automotive engineering. Whatever market sector you operate in you will find the UK an attractive location with customers, product innovators, suppliers and partners easily accessible.

Creative and innovative

Every business needs good ideas and the UK is one of the most prolific sources of imaginative solutions and creative thinking in the world. From research in academia through companies innovating in new products to design for the high street and digital creativity for the games industry, the UK has an outstanding record of achievement.

UK labour market

The UK’s labour market is one of the worlds’ most flexible. This factor combined with its strong skills base in the UK is reflected in its excellent record of attracting major foreign investors from all over the world.”

If you have an interest in entering the UK Business Market contact Brendan O’Brien on or on 00 44 1992 558411

IFA: How to value and sell your business?

Financial planning is a young industry. But as the profession's first tier of advisers reaches maturity, the decisions that may be part of transition planning for their firms loom large. Moreover with the commencement of the outcomes of the RDR likely to be implemented at end of 2012 the pressures to stop practising are even greater. So which outcome is the right one: a sale, a joint owner buyout, a merger? Whatever you choose to do the success of the outcome depends on a number of issues:

  • what value can i get for my business
  • how should I sell it - by selling the company from which it trades or the investment portfolio
  • If i retain the company and sell the assets (invesment portfolio) what do I do with the potential claims against the company for issues arising before the sale?

Unfortunately, many advisers do not understand the value of their practice or how to influence it. We can help you find experts to aid you in a valuation of your business and to allow you to take steps to maximise the return.

Whichever vehicle is sold run off cover may be relevant to you. We will advise you on the steps necessary to deliver appropriate cover and may even be able to find the potential purchasers for you.

Breeze & Wyles Solcitors LLP have handled a significant number of these transactions in recent times and can assist you in the difficult path to sale. If this article interests you contact Brendan O'Brien on 01992 558411, 07985468101 or at for a confidential no-commitment discussion.

SME CORNER: Crunch time for cookie-users

The so called ‘cookie law’ will be enforced from 25th May, after the Information Commissioner gave UK businesses 12 months to get their websites operating in line with the new rules

The snappily-named Privacy and Electronic Communications Directive became law in England last May, but to the relief of most businesses, the Information Commissioner’s Office allowed a 12 month period of grace to allow website owners time to comply.

That period of grace expires on 25th May 2012 and businesses are being warned that there will be fierce penalties for non-compliance now that the new rules are in force.

The so-called ‘cookie law’ requires every website owner to obtain consent before installing cookies on the computer of a visitor to their site. In addition, websites using cookies must set out a clear description of how cookies are used on the site and, if cookies are used to obtain personal information on a customer, the website must publish a privacy policy.

Said commercial / digital law expert Brendan O’Brien from Breeze & Wyles Solicitors LLP : “Any business that has not yet taken action to comply must do so urgently. The 12-month period of grace means that the penalties for businesses that do not comply will be all the harsher. The Information Commissioner warned last year that ‘those who choose to do nothing will have their lack of action taken into account when we begin formal enforcement of the rules.’”

So what is a cookie?

It is a file that enables a website to store data relating to users. For example, a cookie will enable the website of an on-line store to record what is in your basket, or to know what scene you have reached if you are watching a television drama on-line.

Cookies do not act as viruses because they cannot perform functions, they can only read. However they can act as a sort of spy in your computer because they can record your browsing patterns and personal information without your knowledge. For this reason anti-virus and security software will normally flag them for deletion.

Who needs to act?

The owner of any website that operates within the EU must now ensure compliance with the rules. This includes any website that has a secure area where users log in, or one that has a shopping basket facility or runs advertisements from third parties.
Even if your website does none of these things it might be using cookies if it has software such as Google Analytics that collects statistical information about the use of the website or the number of viewings of particular pages on the site.
Brendan added: “Many smaller businesses have assumed it won’t apply to them if they don’t trade online or have complex websites, but most of them will be running site analytics.

“The message to those who are not yet compliant is that it is not too late to act but you must act fast. At the very least small businesses need to put a ‘consent to cookies’ clause in their terms and conditions and have a click to accept box for these terms if they do not have one already. Then pages must be added to the website to contain a description of how cookies are used and, if personal data is collected, to set out a privacy policy.”


Web site content note:

This is not legal advice; it is intended to provide information of general interest about current legal issues.

Why not try Commercial Property Rent Reduction before it makes you insolvent?

Following on from my previous blog entitled ‘Why is Retail suffering more in this recession?’ I referred to rent negotiations in my article. I feel that it is worthwhile examining the complexities of Administrator and Landlord negotiations when a retail business finally collapses.

With the commercial retail lease having been concluded in a very different rental environment unsustainable rents are being demanded and paid when turnover and protiability is under significant pressure. As mentioned in my article property overheads are one of the major costs that contribute to the business’s demise together with funding and staffing costs.

The primary property issues in an administration are twofold and are considered below: -

1. When a retail business enters administration it is subject to a moratorium on legal proceedings. The Landlord’s ability to recover rent arrears is limited and he will now need to fall back on some of the tools that his lawyers created from him at the time of the lease. Enforcement of the right to recover rent arrears using quasi proceedings such as sending in the bailiffs is stymied by the Moratorium. See paragraph 43(6) of Sch B1 Insolvency act 1986. The Landlord may also have no right to any rent deposit deed.

So what rights might exist? Among those rights will include recovery from former tenants, guarantors and subtenants.

a. Former Tenants – in order to take advantage of this option the Landlord must act quickly otherwise the recourse may be lost (see section 17 Landlord and Tenant (Covenants) Act 1995)
b. Guarantors
c. Sub-Tenants – section 6 of the Law of Property Amendment Act 1908 provides the Landlord the ability to serve notice and miss out the insolvent tenant and recover directly from subtenants up to the amount of the arrears outstanding.

2. What happens next with regard to the property?

The premise upon which an Administrator is appointed will be one of the following with a and b being the most likely reason: -
(a) rescuing the company as a going concern, or
(b) achieving a better result for the company's creditors as a whole than would be likely if the company were wound up (without first being in administration), or
(c) realising property in order to make a distribution to one or more secured or preferential creditors.

It is unlikely that this would be achieved since in the retail environment where the business is dependent on location for its goodwill, the administrator would not be able to achieve the outcomes a and b without the premises as part of an onward sale. This requires the Landlord and the Administrator to negotiate on the relationship and at this point the Landlord may be able to negotiate something in relation to the rent arrears. The rent arrears may be unlikely but it may be that the Landlord can negotiate with the incoming purchaser to ensure that its losses are reduced.

What can be acheived by early discussions?

There is no doubt that the fact of insolvency makes the outcome less certain. So start early.

All of this being said, the current economic environment does not lend itself to Landlords having a laissez faire attitude to empty premises. Before entering Insolvency retail companies are advised to see whether any form of alteration to the terms of the lease can be negotiated. All parties are losers in insolvency and Landlords know this better than most. With their exposure increasing three months after the tenant vacates as a result of empty rates the pressure is on them to find solutions to tenant insolvency.

The only fly in this ointment is that some Landlords do not have the flexibility to re-negotiate as they themselves may be leveraged to the hilt and finding it difficult to fund the interest on the bank loans secured on their properties.

If the content of this article interests you please contact me on 01992 558411 or e mail me at

Why is Retail suffering more in this recession?

So why Woolworths, Focus and Peacocks to name a few?

Many argue that internet competition has led to an increase in pressure on ‘real’ customers passing through the doors. There is little doubt that this has had an impact but does this mean that there is no room for traditional retail outlets? Perhaps the answer is that there is room but that the number of participants in each retail sector will diminish as there is increased competition for the ever decreasing number of consumers prepared to spend hard cash in store. So how do you become the survivor rather than the ‘bad news’ message?

The Internet Phenomenon

The received wisdom is that most people access goods on line due to the ease of purchase. Most consumers with money are ‘pedaling’ harder to retain their levels of discretionary spend. This means that they have less time to carry out their purchases and will necessarily gravitate to the more time and cost efficient solutions for their everyday needs including their purchases. The Internet meets those demands. Why? Well, the Buyer does not need to organise the family, drive to and park at the store, merely switch on the computer, log in to the website, browse and then purchase. The Seller does not need multiple sites at high rents with numerous staff to satisfy the demand of the Buyer. Overheads are reduced and pricing is positioned accordingly.

The Retail Store Challenge

Despite the demise of some retailers, others continue to prosper and there must be a reason. Certain types of purchase do require a touch and feel before the buy. Why? If you are buying staple grocery products you have selected a store and will probably buy online with delivery an added cost. The answer being that one bottle of maker brand bleach is identical to any other. On the other hand there are purchases with which the Buyer will have to live for 10 years or so and where the cost of purchase is high. Getting it wrong can be costly particularly if the Buyer would then be determined to replace it. More often than not it is this type of transaction where Buyers need to see the product and often buy at the store.

This leads to the second challenge. As mentioned the Internet Phenomenon has led to two issues arising namely: ease of access and reduced cost. In bigger ticket purchases ease of access become less relevant as outlined above. But Retail Stores cannot at present deal with the cost comparisons. A potential purchaser often goes to the store, decides on the item they wish to purchase. They go home access on the internet and carry out the purchase. The retail store has now become a shop window.

So how does a traditional retail store deal with these issues?


There are no set solutions for any particular retail organisation as the objectives that can be achieved are dependent on the sector in which they trade.

However, many commentators have opined on the demise of Woolworths. Putting it bluntly, little money had been spent on the stores giving the impression to the consumer that the business (and by this I mean the management) didn’t care for their trade. Poor working environments created low staff morale and engendered below par customer service. So when the recession hit a larger than average proportion of people stopped coming to the stores and as a result spending money at Woolworths. Based on this trend their demise was inevitable.

So what can the retail organizations to do face down and succeed despite this challenge?

1. Ensure that spending is focused on getting potential customers through their doors. This might not make them spend but every consumer coming into the store is a potential increase in turnover.

a. Continuously ensure that the product range fits the demands of the consumer;
b. When spending on stores ensure that it delivered to ensure an environment that enhances both the product and the working environment of your staff who are your ambassadors.

2. Review the overheads of your business to ensure that your sale price stands comparison against the relevant internet sale prices. Turn the window shopper into a buyer.

a. This can be achieved by renegotiation of your lease terms with the Landlords. Remember that as other businesses go into administration the rental costs of let commercial premises reduce. Any commercially savvy Landlord would rather have a let premises paying rent albeit at a reduced amount than empty premises;
b. Where an additional service forms part of your sale, such as installation, ensure that your margins are not to high. Whilst the Buyer may purchase from you the added margin that you might achieve from the added service may be lost and indeed it is often the case that the added service cost is factored by the purchaser into the overall price making your product uncompetitive;
c. Don’t keep excess stock on premises. By finding a central solution you will reduce the overall spend of each store and benefit from economies of scale. Make your stores a window to your products

If these issues are of interest to you and in particular in relation to rental reduction negotiations please contact me on 01992 558411 or

Reforms to the Regulation of Insolvency Practitioners

See Statement from Ed Davy which reads as follows

"I am today responding to the consultation published earlier this year on proposed reforms to the regulation of insolvency practitioners.

The present economic circumstances have increased the profile of insolvency professionals, and focused attention on the effectiveness of the insolvency regulatory regime. Everyone who is affected by insolvency is entitled to have confidence that the insolvency profession will deliver the best possible outcome in difficult and challenging circumstances.

I believe that confidence in the insolvency regulatory regime plays a vital role in ensuring that markets operate fairly and efficiently, by ensuring that in the event of insolvency as much is fairly returned to those extending credit as is possible. The fair and effective recycling of economic value through insolvency procedures is an important driver of economic growth.

It is for these reasons that earlier this year I published a consultation on a set of proposed reforms to the insolvency regulatory regime, following on from the earlier report published by the Office of Fair Trading. I am grateful to all those who responded to the consultation, and who have subsequently contributed to the debate about the nature and scope of possible reform.

The present regulatory regime is a complex one involving a number of different regulators. In addition, the Secretary of State currently plays a role both in the oversight of the various regulators and as a direct regulator of a small number of practitioners.

I am satisfied that this regime has worked reasonably well, and recognise that the vast majority of insolvency practitioners do a good job in difficult circumstances. The Government also recognises the benefits self-regulation provides, including its utilisation of the expertise of the profession.

However, evidence provided by the Office of Fair Trading suggests that unsecured creditors do not always get the returns they might expect. In the light of responses received to the consultation I am persuaded that a great deal more could be done to improve the effectiveness of, and confidence in, the insolvency regulatory regime.

My vision is to have a regulatory regime that is transparent, consistent, accessible, independent and accountable.

Responses to the consultation and subsequent discussions I have held with stakeholders have indicated strong support for an independent single regulator for insolvency practitioners as an effective and efficient way of achieving these aims. I can see the merits of this and we have not ruled out moving to this. However we wish to work with the profession and interested parties to see if there is a way to reform the system so that it delivers better against our objectives without such significant change.

The Government will explore with interested parties how best to strengthen and simplify processes for handling complaints, including on excessive fee charging, and achieving consistent and transparent sanctions.

We intend to bring forward proposals, when legislative time permits, to remove the Secretary of State from the direct authorisation of insolvency practitioners, to ensure that the powers of the Secretary of State as oversight regulator are appropriate, and to ensure that the objectives of the regulatory regime are clear.

We will also be looking, in the light of responses to our consultation, at the charging structure for oversight regulation, to ensure that it apportions the costs fairly between the different regulators.

The Government is grateful for the useful contributions made by the Insolvency Practices Council, but agrees with responses to the consultation which indicate that there is no longer a need for an additional body of this sort and its functions would be better placed elsewhere within the regulatory and policy structure.

We consulted on whether to change secondary legislation to improve the disclosure and transparency of fee charging, to modify court processes on challenges to fees, and allowing unsecured creditors to exercise greater influence over insolvency proceedings. Views were mixed on these, with creditors acknowledging that a balance needed to be struck between providing more power and information and increasing costs. We will consider further all these proposals in light of any new regime for complaints.

Responses to the consultation do not indicate strong support or evidence for making changes to the level of the ‘prescribed part’. Consequently, the Government does not intend to make changes on this at this time.

The Government welcomes the recent moves by the Joint Insolvency Committee to widen its membership and improve the timeliness and efficiency of its work.

I believe that by working with interested parties to address these issues, better outcomes could be achieved for creditors and the effectiveness and confidence in the insolvency regime would be improved. We recognise however that we may need to do more by way of legislation should it appear that these measures are unable to deliver the necessary outcomes."

A summary of the consultation responses, together with individual responses has today been placed on The Insolvency Service’s website at

Sales Teams: Improve your credit Control!

Fact Sheet 6; Simple steps to improve your account opening process – but will this help your internal credit control?

Many difficulties faced by businesses in their credit control procedure stem from defects in the initial account opening process. Where a business grows, it might be that the account opening process is not updated to reflect problems that are experienced by the credit controller when chasing debts. Below are some simple steps that might improve your account opening process and which will assist you should your customer fail to pay its invoice on time!

Account Opening Process

o Regardless of whether your business supplies goods or services and regardless of whether orders are placed in person, by phone, by email or online, you should have a standard set of questions that need to be answered by your customers before you open an account. Unless you take full payment from your customer upfront, you will be offering your client credit on the goods / services that you are to supply.

o You should ensure that you use a standard account opening form, which could be in a paper or electronic format. Examples of the information that you should take from your customer, to make life easier when addressing credit control, include;

o The full name of the business that will be liable for payment

This might sound obvious, but examples of difficulties that can occur include;

a) Where your customer trades through a different name to the actual business that sits behind. For example, if your client is a restaurant, pub or theatre (e.g. The Coopers), it might be that the name of the business that runs The Coopers, is Coopers ABC Limited. If the restaurant or pub fails to make payment, you would need to sue Coopers ABC Limited and therefore, if you do not know the name of the business behind the restaurant or pub, you will find it very difficult to issue proceedings in respect of an unpaid invoice.

b) Where your customer just gives its trading name but fails to indicate whether it is a Limited Company. For example, if your customer tells you its name is ABC, you should check if the Company is in fact ABC Limited. Limited Companies are a separate legal entity and therefore, if you issued proceedings against ABC when in fact, the customer is ABC Limited, the claim may well be struck out.

o The trading status of your customer

You should always ask whether your customer is a Limited Company, Limited Liability Partnership, Partnership or Sole Trader. Without this information, you will not know which legal entity to issue proceedings against, should your invoice be unpaid. This may mean that you are forced to write off valid debts purely because of lack of information.

o The address for delivery of goods / services

o The address for the Payee / Customer

This address might be different to the address for delivery of goods and services. Therefore, unless you take the address for the payee, you will send the invoice to the incorrect address and it might be that the Payee / Customer does not then receive the invoice.

o A contact name, in the accounts department, to whom your invoice should be sent.

Sending the invoice directly to the person who will arrange payment, will mean that there should not be any unnecessary delays in processing payment.

Maria Koureas-Jones

© Breeze & Wyles LLP 2012