Spring 2022 Consumer Finance Update

Eddie Flanagan discusses the latest updates from the consumer finance world

Share This

Now is a key time for both consumer protection and the effective use of regulatory bodies to protect everyday consumers

Key factors affecting consumers

  • Amid the cost of living crisis, and the surges in energy bills, what do we know about the impact on consumer financial behaviour?

  • What can consumers expect in the upcoming months?

  • How can consumers prepare for further forced tightening of their own and lenders purse strings?

Klarna is Reporting Consumer Activity to Credit Bureaus

What seemed to be a light touch and easily accessible form of finance could prove to have more negative long term effects on perceived credit worthiness. From 1st June 2022, FinTech organisation Klarna started reporting customer data to credit bureaus in the United Kingdom. This move was in preparation for BNPL sector regulations that will come into force shortly to try and quell the amount of debt owned by younger consumers. With 16 million people using Klarna within the UK, with options to pay in 30 days or split the payments into three, there is a perception that this is fuelling unaffordable spending and that regulatory intervention is now due.

TransUnion and Experian are two of the bureaus that are receiving Klarna’s data. This then influences individuals’ credit reports, and could have unforeseen consequences on the likes of mortgage applications.
Ryan Browne, writer for CNBC, says: “BNPL companies face a reckoning in the U.K. and other countries, as regulators look to crack down on such services amid worries they are encouraging consumers — Gen Z and millennials, in particular — to spend more than they can afford” (CNBC).

However, these regulatory interventions may leave unexpected adverse credit foot prints. This raises the question that the lead time for same should have been extended.

Credit Card Debt on the Rise amid Cost of Living Crisis

According to a report by Creditspring, the UK is forecasted to borrow a further £9bn on credit cards within the next six months, due to the cost of living crisis.

Bank of England figures give a breakdown of how lending currently looks:

  • UK individuals currently borrowing £1.5bn every month on credit cards;

  • This will increase by 18% to £68.9bn;

  • Monthly debt repayments have increased by 9% YoY;

  • Total balance of unsecured loans has increased by 13% YoY.

27% of UK households are feeling “financially unstable” due to rising costs. Only 10% felt this way during the pandemic, which speaks volumes about the worrying state the UK’s economy. Theodora Hadjimichael, the CE of Responsible Finance, says “Any one of the cost of living crisis, recovering from the financial impact of the pandemic, or the explosion of unregulated Buy Now Pay Later products would have sent shockwaves through society. All three together are causing a seismic shift in the consumer credit market” (Credit-Connect).

Cost of Bills to Overtake Wages by 2024

According to Credit Strategy, a new report from Yorkshire Building Society and the Centre for Economics and Business Research has found that monthly outgoings could overtake incomes, by £100 a month in two years.

Younger generations looking to start on the property ladder could face increasing interest rates, and a potential need to dip into savings just to “get by”.

With the adverse effect of Covid, the unprecedented rise in fuel costs, together with inflation at such rates that is unknown to many, consumers we are now facing a perfect storm.

It has been noted that many consumers are now starting to challenge energy companies for hiking up their monthly instalments.

Regulatory measures must be applied effectively to ensure that consumers are protected. Transparency, fairness and the good behaviour of creditors is key to the resolution of financial issues in this time of considerable uncertainty.

Get In Contact

Eddie and his team advise clients on a wide range of issues concerning leasing, hire, consumer credit, the FCA source book and the regulatory landscape affecting the UK finance and leasing sector.

Banking & Financial Services

Now, more than ever, contingency planning has never been more essential. Our full-service team can offer technical expertise, commercial acumen and unrivalled eye for detail around your business options, funding arrangements or any other challenges you may currently be facing.

Our Thoughts

All the latest thoughts and insights from our team

NFT’s as legacy gifts

6 Jul

For the individual

NFT’s as legacy gifts

NFTs or non-fungible assets have become the latest buzzword in the new age of […]

Read article Right Arrow

Long COVID and disability discrimination

4 Jul

Corporate & Commercial

Long COVID and disability discrimination

The employment tribunal has determined that an employee was disabled for the purposes of […]

Read article Right Arrow

SHMA® On Demand

All the latest on-demand content

Agriculture: diversifying or leasing your land to create habitat banks

6 Jul

Peter Snodgrass, Partner & Head of Agriculture

Agriculture: diversifying or leasing your land to create habitat banks

We know that biodiversity net gains provide a significant opportunity for landowners to diversify […]

Register Right Arrow

Teachers’ Pension Scheme – strategic issues independent schools need to think about

20 Jul

Esther Maxwell, Legal Director | Emma Glazzard, Solicitor

Teachers’ Pension Scheme – strategic issues independent schools need to think about

Webinar Teachers’ Pension Scheme – strategic issues independent schools need to think about In […]

Register Right Arrow

Director liable for fraudulent trading for not investigating VAT fraud - ignore HMRC at your peril

Blog | Banking & Financial Services

Share This

A recent High Court decision (JD Group Ltd [2022] EWHC 202 (Ch)) has found a director liable for fraudulent trading when he was aware that the company was participating in VAT fraud and deliberately failed to investigate.   This decision has ramifications for directors and companies.

Background to the case

The company started trading in baby clothes, and later in mobile phones. When HMRC assessed its 2005/2006 tax return it declined its claim for tax relief in respect of a series of related import and export transactions, the effect of which was VAT fraud. HMRC suggested that the company undertake various steps to avoid this, such as investigating counterparties.

The liquidator subsequently brought a claim against the director for fraudulent trading (sec. 213 Insolvency Act 1986). The liquidator relied on HMRC’s analysis of the VAT fraud.

The court confirmed that the liquidator had to satisfy a two-stage test. First, to demonstrate the director's subjective state of knowledge; and then to show that the director's conduct was dishonest based on the objective standards of ordinary decent people (Bilta (UK) Ltd (In Liquidation) v Natwest Markets Plc [2020] EWHC 546 (Ch)).

The director argued that he did not know the company was participating in a VAT fraud. He claimed the company had robust pre-transaction due diligence processes and, as a result, he believed the transactions were genuine.

The outcome

The court held that the director's defence was not credible. There was no evidence that due diligence was being carried out, the transactions were back-to-back and often entered into before payment was received. The evidence showed that the transactions were uncommercial.

The court concluded that the director was, therefore, aware that the company was participating in a fraud, and that the director deliberately decided not to carry out due diligence and other steps suggested by HMRC. The director's conduct was dishonest by the objective standards of ordinary decent people and he was, therefore, liable for fraudulent trading.

The court ordered the director to contribute an amount equal to HMRC's claims in the liquidation for unpaid VAT to the company’s assets, plus a misdirection penalty (for misdeclaration in the company's 2005/2006 tax return). This was on the basis that, had the VAT fraud not occurred, the company would not have been liable to HMRC.

Our advice?

Our advice to directors facing a similar situation would be to implement (and never ignore) measures suggested by HMRC to mitigate the risks of companies being implicated in tax fraud, and consequently mitigate a director's risk of finding themselves subject to a similar claim.

Get In Contact

Frank specialise in providing managed solutions in financially distressed scenarios to assist OMBs, companies, directors, lenders, investors and other stakeholders, as well as insolvency office holders.

Banking & Financial Services

Now, more than ever, contingency planning has never been more essential. Our full-service team can offer technical expertise, commercial acumen and unrivalled eye for detail around your business options, funding arrangements or any other challenges you may currently be facing.

Our Thoughts

All the latest thoughts and insights from our team

NFT’s as legacy gifts

6 Jul

For the individual

NFT’s as legacy gifts

NFTs or non-fungible assets have become the latest buzzword in the new age of […]

Read article Right Arrow

Long COVID and disability discrimination

4 Jul

Corporate & Commercial

Long COVID and disability discrimination

The employment tribunal has determined that an employee was disabled for the purposes of […]

Read article Right Arrow

SHMA® On Demand

All the latest on-demand content

Agriculture: diversifying or leasing your land to create habitat banks

6 Jul

Peter Snodgrass, Partner & Head of Agriculture

Agriculture: diversifying or leasing your land to create habitat banks

We know that biodiversity net gains provide a significant opportunity for landowners to diversify […]

Register Right Arrow

Teachers’ Pension Scheme – strategic issues independent schools need to think about

20 Jul

Esther Maxwell, Legal Director | Emma Glazzard, Solicitor

Teachers’ Pension Scheme – strategic issues independent schools need to think about

Webinar Teachers’ Pension Scheme – strategic issues independent schools need to think about In […]

Register Right Arrow

How to get your start-up investment-ready

Blog | Fast growth & Start-Ups

Share This

With the pandemic creating a wave of entrepreneurialism, many new businesses may now be seeking cash injections. But what do start-ups need to do to make sure they’re ready for investment?

Product innovation, market size and strong financial forecasts will all peak an investor’s interest in your business. However, when ploughing money into a company, investors will want to know their outlay is a safe bet.

With this in mind, there are multiple steps start-ups can take to make sure they have the best chance of securing the cash they need on their scale-up journey after they’ve attracted an investor through their doors.

Corporate structure

It’s very unlikely an investor will give money to an individual, so it’s important to have a corporate structure in place. Having a good idea is a great place to start, but most growing business are operated through a corporate vehicle that enables you to contract with other people – as well as eliminate personal liability for damages. Limited companies or limited liability partnerships (LLPs) are often used.

Contractual arrangements

Investors will need to see that you’ve got proper contractual arrangements established, so that everything you think applies to that relationship is agreed in writing. Supplier and customer arrangements should be governed by some sort of contract that covers important things like limitation of liability, termination, price and deliverables, for example.

Confidential information – which is protected when someone owes an obligation of confidence to someone else – is also something that needs to be thought about. While an obligation may sometimes be owed under common law, it is better if it arises formally under a contractual arrangement with a non-disclosure agreement in place.

Ownership of intellectual property

Intellectual property (IP) – which might be, for example, copyright that exists in source code for software, patents that protect inventions or trade marks to safeguard brands – is a really important factor that people miss all the time. IP is usually the most valuable asset of a start-up business, so it is crucial to get advice on what rights may be registered to get the best protection, particularly as investors will want to see this.  Investors will also want to make sure that any IP is owned by the corporate vehicle into which they are investing, and that third parties do not have conflicting rights.

Employment contracts

While not all start-ups employ people, if you do, make sure there are contracts in place so employees know the scope of their roles, their obligations to the company and that anything they create belongs to the business.

Regulatory

Even if you’re only holding customer or employee details, almost all companies will need to comply with data protection law, so it’s important to make sure you know your obligations. Depending on which sector you’re in, there will be other regulations you need to be aware of.

The financial penalties for non-compliance can be significant. If an investor discovers your business is not complying with the necessary regulations during their due diligence checks, they may back out of the deal as the risk of severe fines is simply too large.

Consequences

While an investor is unlikely to pull their cash straight away if none of the above actions are in place, it may negatively affect the investment in some way as the risk profile will have changed. Therefore, carrying out your due diligence checks upfront is key to ensuring you secure the investment you need for future growth.

Get In Contact

Kerry specialises in intellectual property infringement disputes, non-contentious intellectual property exploitation and advertising law, working with both private and public sector clients.

Start-ups & Fast Growth Companies

Our Thoughts

All the latest thoughts and insights from our team

NFT’s as legacy gifts

6 Jul

For the individual

NFT’s as legacy gifts

NFTs or non-fungible assets have become the latest buzzword in the new age of […]

Read article Right Arrow

Long COVID and disability discrimination

4 Jul

Corporate & Commercial

Long COVID and disability discrimination

The employment tribunal has determined that an employee was disabled for the purposes of […]

Read article Right Arrow

SHMA® On Demand

All the latest on-demand content

Agriculture: diversifying or leasing your land to create habitat banks

6 Jul

Peter Snodgrass, Partner & Head of Agriculture

Agriculture: diversifying or leasing your land to create habitat banks

We know that biodiversity net gains provide a significant opportunity for landowners to diversify […]

Register Right Arrow

Teachers’ Pension Scheme – strategic issues independent schools need to think about

20 Jul

Esther Maxwell, Legal Director | Emma Glazzard, Solicitor

Teachers’ Pension Scheme – strategic issues independent schools need to think about

Webinar Teachers’ Pension Scheme – strategic issues independent schools need to think about In […]

Register Right Arrow

FCA Considering Regulatory Changes to Consumer Investment Landscape

Guides & Advice

Share This

The need for regulation

The FCA has announced that a large part of its 2021/2022 commercial strategy is to help consumers with their investment decisions and in particular, what safeguards and controls should influence consumers in their choice of funds and investment schemes they invest their money in. They are concerned that many consumers invest in products that are high risk, unsuitable in terms of risk, or are just plain scams.

While a consumer may complain about such an investment, many of the promoters of these investment schemes would be out of business at the point the complaint is made.  The FCA has noted that the Financial Services Compensation Scheme has recently paid £833 million to successful complainants. That, in turn, leads to complaints from those well-respected providers and advisors, as their businesses are facing ever-increasing levies. Ahead of the strategy’s full publication in 2022, the FCA has already given details as to how this support will be provided and how the process will work.

Fund valuation issues

But why the need for this element of the FCA’s strategy? For some time it has been concerned about how fund values are promoted by investment companies to consumers and whether investors are being given a true representation of what it is they are investing in.

Call for input

In September 2020, the FCA called for input on the consumer investment market, in a bid to gain further understanding on how certain issues could be resolved.

In July 2021 the FCA looked at 18 unnamed investment firms and expressed concerns as to how such fund values were arrived at. The FCA was also troubled as to the role of Non-Executive Directors (NEDs). The view was that many were inexperienced in this sector and did not give sufficient challenge to the main board. Equally, it was noted that administration expenses were often monitored very carefully in what was thought to be delivering the best value to investors. The FCA took the opposite view and thought greater expense should be spent on analysing value and investor communications throughout the investment life cycle.

What is the FCA’s Plan?

The FCA will take a multi-pronged approach to helping consumers with their investment portfolios. Sections of the plan include:

  • Creating a better environment for investments

  • Considering how the investment market looks today

  • Considering what the current threats are to the investment market

  • Considering what the current risks are that the investment market faces

  • A deeper dive into scam culture and the harm it causes to consumers

  • A strategic road map for delivery of long-term and short-term actions

What else does the FCA propose?

The FCA is mindful of the fact that many investors are now administering their own investment portfolios that can consist of either ISA’s or SIPPS. These same investors will target the funds that meet their personal requirements, be that growth or environmental and at present as we are seeing a huge rise in ESGs. In light of this investor freedom and the variety of products available, the FCA proposes;

  • £11m “Investment Harm” campaign to bolster the impact of its strategic road map

  • Reviewing FSCS compensation framework

  • Providing a new level of assistance to consumers, giving them transparency and clarity

Self-discipline versus imposed regulation

The FCA is urging the investment sector to improve best practices. Those with good management and effective systems have nothing to fear, others may wish to embark on a process of self-improvement, failing which, increased regulation will become the constant narrative within the sector.

For further information on the FCA and its proposed regulatory changes, contact Edward Flanagan.

Get In Contact

Eddie and his team advise clients on a wide range of issues concerning leasing, hire, consumer credit, the FCA source book and the regulatory landscape affecting the UK finance and leasing sector.

Banking & Financial Services

Technical and commercial expertise, delivered on time, every time

Our Thoughts

All the latest thoughts and insights from our team

NFT’s as legacy gifts

6 Jul

For the individual

NFT’s as legacy gifts

NFTs or non-fungible assets have become the latest buzzword in the new age of […]

Read article Right Arrow

Long COVID and disability discrimination

4 Jul

Corporate & Commercial

Long COVID and disability discrimination

The employment tribunal has determined that an employee was disabled for the purposes of […]

Read article Right Arrow

SHMA® On Demand

All the latest on-demand content

Agriculture: diversifying or leasing your land to create habitat banks

6 Jul

Peter Snodgrass, Partner & Head of Agriculture

Agriculture: diversifying or leasing your land to create habitat banks

We know that biodiversity net gains provide a significant opportunity for landowners to diversify […]

Register Right Arrow

Teachers’ Pension Scheme – strategic issues independent schools need to think about

20 Jul

Esther Maxwell, Legal Director | Emma Glazzard, Solicitor

Teachers’ Pension Scheme – strategic issues independent schools need to think about

Webinar Teachers’ Pension Scheme – strategic issues independent schools need to think about In […]

Register Right Arrow

Protecting the vulnerable investor

Blog

Share This

Protecting investors

As the marketplace continues to evolve at a rapid speed, investing is becoming easier than ever, particularly for younger people. However, this increasing simplicity when it comes to making gains and losses has led to experts asking whether more needs to be done to protect this ‘vulnerable’ demographic.

Recognising a vulnerable investor

The Financial Conduct Authority (FCA) defines a vulnerable investor as ‘someone who, due to their personal circumstances, is particularly susceptible to harm, particularly when a firm is not acting with appropriate levels of care’.

While this has previously been regarded as older people, the rise in young investors is prompting the question of whether this definition needs to be expanded further.

The role of the FCA

Cryptocurrency and trading success stories are often covered widely by the press, so it is no surprise that young people are lured into the world of investing. However, with less financial resilience, making a loss could have significant consequences for them.

While the FCA is taking measures to provide greater protection, due to only regulating specific sections of the wider investment market, it is somewhat limited in terms of what it can control. Many of the cryptocurrency trading platforms that are popular with younger people, fall outside of the FCA’s control.

Protecting young investors

Protecting a younger demographic of investors is an industry wide issue. FCA-regulated or not, it should fall to the society to protect the most vulnerable by raising awareness of the risks involved with investing. Rather than introducing new regulation, which could stifle innovation within the industry, the FCA should be more focused on promoting awareness.

Regulated providers should continue to assess who they regard as vulnerable and focus on producing products that take that risk into account, as well as offering advice on how best to protect new investors.

To help reach the wider market, it would be wise to get larger, well-known advisers on board to help protect and inform younger, more vulnerable investors. As influential voices in the market, sharing their approaches and advice is highly likely to get noticed by smaller businesses.

Unregulated investment product providers could consider crafting a set of principle-based rules. These could offer advice around what should and shouldn’t be said when promoting the product. Although these rules would only be advisory, the more involved they are in promoting them, the greater the impact they would have.

Working together

While there will always be some reckless businesses that expose their customers to greater risk, the vast majority of those operating outside of regulation intend no harm.

With a high appetite for risk and a lack of resilience, the industry must work together to raise awareness and offer advice in a bid to protect young investors.

Get in touch with our  investment funds  team to find out how they can help.

Get In Contact

Kavita is Regional Head for our South region and also Head of our Investment Funds sector. She has a formidable reputation amongst her clients for technical excellence.

She specialises in a broad range of corporate finance transactions, both for public and private companies, including acquisitions, disposals, joint ventures, funding arrangements, restructurings and cross-border transactions.

Our depth and breadth of expertise in the investment funds marketplace means we can help you navigate through what can be a complex arena. Whether you’re a fund manager or an investor, we can advise you how and where to invest, how to establish and structure a new fund, build a portfolio and ultimately, realise value from your investments.

 

Our Thoughts

All the latest thoughts and insights from our team

NFT’s as legacy gifts

6 Jul

For the individual

NFT’s as legacy gifts

NFTs or non-fungible assets have become the latest buzzword in the new age of […]

Read article Right Arrow

Long COVID and disability discrimination

4 Jul

Corporate & Commercial

Long COVID and disability discrimination

The employment tribunal has determined that an employee was disabled for the purposes of […]

Read article Right Arrow

SHMA® On Demand

All the latest on-demand content

Agriculture: diversifying or leasing your land to create habitat banks

6 Jul

Peter Snodgrass, Partner & Head of Agriculture

Agriculture: diversifying or leasing your land to create habitat banks

We know that biodiversity net gains provide a significant opportunity for landowners to diversify […]

Register Right Arrow

Teachers’ Pension Scheme – strategic issues independent schools need to think about

20 Jul

Esther Maxwell, Legal Director | Emma Glazzard, Solicitor

Teachers’ Pension Scheme – strategic issues independent schools need to think about

Webinar Teachers’ Pension Scheme – strategic issues independent schools need to think about In […]

Register Right Arrow

Guides & Advice

Your summer guide to recovery and resilience in COVID-19

Your updated summer guide to recovery and resilience

As the UK takes its first steps to ease the current national restrictions and looks forward to an increase in economic activity and recovery it is vital that businesses are prepared in every aspect.

To support businesses and people navigate their way out of the last year and the current national restrictions, unlock their potential and drive for a brighter future, we have updated our guide to recovery and resilience.

From financial considerations, employees, leadership and premises, to supply chain implications, health and safety and protecting your private wealth, our guide highlights what organisations and individuals should consider when moving from survival to recovery to thrive.

Financial considerations

Whether a large corporate with a highly structured board, an SME or an owner-managed business, the financial viability of a business is key to its future success.   However, as the thoughts turn to the roadmap out of lockdown once again, and what the future may look like, businesses that have got through the last year should consider a range of measures to enable them to cope with what is likely be a recession for some industry sectors of the UK. Prudent business owners will be well aware of the predictions and while there will be a bounce back it may take some time for confidence and stability to return from customers and suppliers.

Your employees

Managing a workforce of any size can have its challenges, let alone one that is recovering from a global crisis. Many businesses will have furloughed employees or made the difficult decision to make a number of their workforce redundant. For those businesses that haven’t, it’s highly likely they will still face having to make difficult choices, albeit further down the line.

The knock-on effects of the COVID-19 outbreak have changed the way employers engage with and effectively manage, their employees. The processes, policies and guidelines that worked previously may no longer be fit for purpose for your business, or for your workforce, in the new working landscape. With the rollout of the COVID vaccine facilitating the gradual return of employees back into the physical workplace, this in itself will bring a host of new opportunities and challenges.

Buildings, workspaces and leases

As the world and economy move forward out of lockdown, owners and investors of real estate as well as occupying tenants will have to consider the adjustments they now need to make whilst the restrictions around social distancing continue.
They will need to find new ways of working and inevitably different ways to use their space over the coming months and, at the same time, consider how to manage the cost of premises in these changed circumstances.

Suppliers and supply chain

Many businesses have struggled to comply with their contractual obligations as a result of the COVID-19 pandemic and may have been forced to rethink their supply chains. A focus in recent years on minimising costs, reducing inventories and maximising asset utilisation has often resulted in a reduced ability to cope with disruption. Whilst the impact of the COVID-19 pandemic is unprecedented in modern times, disruption to the global economy is an increasing risk, whether due to political events such as Brexit, US-China trade tensions, or climate change.

Private wealth, family businesses and family

The effects of COVID-19 will undoubtedly have a huge impact on our economy for years to come, with many businesses collapsing under the strain and the level of unemployment set to rise significantly. However, what is less widely reported on is the effect it is having and will continue to have, on families and personal wealth. We’ve already seen that the pandemic has led to an increase in people looking at how they may pass on their wealth to the next generation –and even more so for those that own family businesses.

Compliance – Health and safety

Employers have clear duties under existing health and safety legislation. Obligations to comply with health and safety at work, and to manage and control workplace risks, includes protecting workers and others from the risk of COVID-19 infection in the workplace. That duty is to do everything “reasonably practicable” to manage these risks. The onus of demonstrating that everything reasonably practicable has been done falls to the employer. The best way to demonstrate compliance with the law is usually to follow government and industry-led guidance wherever possible.

Leadership

Strong leadership is a cocktail of authenticity, collaboration, passion, compassion, and a great deal of bravery. We all know the best results occur when we are pushed out of our comfort zones and the ingredients are shaken up, and COVID-19 has done exactly that. With government guidance signalling the UK’s route out of current national restrictions, the time for positive leadership is now. It’s time to take control of what we can and create an environment with enough certainty where people can feel safe enough to flourish centre stage.

We are here to help

The team here at Shakespeare Martineau remain committed to supporting our clients and our communities throughout these challenging times, with

the depth of experience, collaborative ethos and the creative know-how to lead positively to the future.  We are able to offer advice and solutions on a range of subjects for life and business - from employment and general business matters, through to director’s responsibilities, insolvency, restructuring, funding and disputes to issues affecting family businesses, personal wealth planning and family law. Do contact us on 03300 240 333

 

SHMA® ON DEMAND

Listen to our SHMA® ON DEMAND content covering a broad range of topics to help support you and your business.

How can Higher Education Institutions prevent COVID-19 insurance claims?

14 Sep

Ravinder Johal, Partner
How can Higher Education Institutions prevent COVID-19 insurance claims?

In this webinar, our partner Rav Johal will look into how higher education institutions […]

Alternatives to Redundancy

30 Sep

Michael Hibbs, Partner
Alternatives to Redundancy

As many companies face serious cash flow issues following Covid disruption, how do you […]

Redundancies – How to Apply Best Practice

16 Sep

Jon Heuvel, Partner
Redundancies – How to Apply Best Practice

Sadly, few businesses will have escaped the impact of coronavirus on their bottom line, […]

What happens after Furlough? – Live Q & A

13 Aug

,
What happens after Furlough? – Live Q & A

In this webinar, we look at the following and also answer some of the […]

Our thoughts

All the latest views and insights on current topics.

A return to “hybrid working”? – What would this mean for staff wellbeing?

2 Feb

Employment

A return to “hybrid working”? – What would this mean for staff wellbeing?

The Government had previously re-introduced a number of measures to tackle the outbreak of […]

Read article Right Arrow

Compulsory vaccination for care home staff

18 Oct

Corporate & Commercial

Compulsory vaccination for care home staff

The Health and Social Care Act 2008 (Regulated Activities) (Amendment) (Coronavirus) Regulations 2021 will […]

Read article Right Arrow

Preparing for the COVID-19 vaccination

1 Sep

Employment

Preparing for the COVID-19 vaccination

Read article Right Arrow

Enhancing the hybrid working experience with home workspace loans

17 Aug

Future working

Enhancing the hybrid working experience with home workspace loans

Read article Right Arrow

Home workspace loans 

16 Jul

Coronavirus

Home workspace loans 

Read article Right Arrow

Guide to Commercial Landlord and Tenant Dispute Resolution

15 Jul

Rent Dispute - Landlords

Guide to Commercial Landlord and Tenant Dispute Resolution

Read article Right Arrow

What will working arrangements look like in a post-pandemic future?

21 Jun

Corporate & Commercial

What will working arrangements look like in a post-pandemic future?

Read article Right Arrow

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

Blog

Changes to takeovers and the introduction of a more restrictive approach to foreign direct investment: what is the impact on UK businesses?

From the second half of 2021, there will be substantial changes to UK public company takeover practice and procedures.

As a result these will create, within the UK regime, a more uniform framework - less EU-centric in its treatment of regulatory authorisations and clearances, and designed to create a more transparent timetable within which to manage key conditions to takeovers and mergers than that currently set out in the UK Takeover Code.

Above all, the changes are designed to simplify the timetable and enable official authorisations and regulatory clearances (including those required by the UK’s National Security and Investment Bill) to be managed within the timetable for an offer.

Although some of the proposed changes will make some corporate transactions easier, the uncertainties associated with the impact, and the tactical deployment of some of the facets of the new regime (for instance, “acceleration statements” and “acceptance condition invocation notices”), could make the outcome of other transactions more difficult to predict.

Meanwhile, in tandem with the changes to takeover timetables, the introduction of UK’s National Security and Investment Bill (NS&I Bill) - likely to be made law in Autumn 2021 - will create an additional set of conditions to be satisfied for transactions in the sectors to which it applies.

Its introduction, enabling the UK Government to look back five years and potentially to declare a transaction void, is already having an impact on deals with overseas bidders where precautionary pre-notifications are being made.  Although many developed countries around the world, such as Australia and the US, have adopted similar regimes protecting critical national infrastructure and sensitive sectors from external interests, it is the notification and investigatory requirements of the proposed new regime (and its potentially punitive impact) which will most immediately cause concerns for those advising on transactions.

Changes to the Takeover Code

The current Takeover Code creates a relatively flexible takeover regime that can be tailored to the needs of a transaction on consultation with the Takeover Panel.  Although it used to provide special treatment to UK and EU Merger control regimes, the Takeover Code is less helpful where a transaction triggered overseas merger and antitrust and foreign direct investment notifications and filings and the resultant conditionality had to be factored into the UK timetable.

Consequently, the revisions to the Takeover Code (which have been widely consulted on before publication of the Takeover Panel’s consultation paper (PCP 2020/1)) aim to improve this, accommodating official authorisation and regulatory clearance requirements into a simplified, and more transparent, timetable for contractual offers enabling them to be suspended to enable clearance conditions to be satisfied.  Allowing an offer timetable to be suspended within a clear framework to enable a national security reference such as that required under the NS&I Bill is helpful.

Should an official authorisation or regulatory filing be required for a transaction under the new regime, the takeover timetable will be suspended at Day 37 (if both parties agree). Once a clearance has been received (or the relevant condition waived), the timetable will restart at Day 32.  If the parties do not agree to a suspension, the Takeover Panel will determine whether the official authorisation or regulatory filing is material in the context of the offer and then allow, or reject, the suspension.  This will enable certainty of timetable alignment at the outset of every transaction, and therefore less chance a deal could fall through.

An offer must be open for acceptance until the later of ‘Day 21’ and the date on which the offer becomes, is declared unconditional or lapses.  Once an offer becomes or is declared unconditional, it must remain open for not less than 14 days.  Shareholders accepting the offer will now have withdrawal rights from the date of the announcement.

There is to be one single date for the satisfaction of all conditions for a takeover which the bidder will specify.  Unless the Panel has consented otherwise, all offer conditions must either be satisfied, or waived, or the offer must lapse by midnight on Day 60.

The bidder may, by making an “acceleration statement”, bring forward the unconditional date.  In this case, the bidder will be required to waive all of its regulatory conditions and the requirements which are normally imposed on ‘Day 39’ and ‘ Day 53’ will not be applied.

A bidder can seek to invoke the acceptance condition (typically set at 50%) and lapse its offer by serving an “acceptance condition invocation notice” although an offer must still be open to acceptances for a minimum of 21 days.

NS&I Bill

The NS&I Bill is due to be made law in Autumn 2021, further impacting deals with overseas bidders. Countries around the world, such as Australia and the US have adopted similar regimes protecting critical national infrastructure and sensitive sectors from external interests but such major changes tend to imbue mergers and acquisitions with a more cautious tenor until established practices emerge.

The NS&I Bill will protect against investment activities by overseas buyers in 17 key sectors, including civil nuclear, communications, energy, AI and data infrastructure where the Secretary of State reasonably suspects that there is, or could be, a risk to national security as a result of that acquisition of control. A broad range of asset types will be caught including land, moveable property and IP. There will also be a set of trigger events, which enable the Government to scrutinize a broad range of transactions, even at low levels of minority shareholding interest, to determine whether there is a national security risk in that acquisition.

The regime is mandatory for transactions occurring within the 17 key sectors and precautionary notification is encouraged for deals with national security elements; there are no minimum turnover or share of supply thresholds. Proposed acquirers of shares or voting rights in entities operating within any of the sensitive sectors must seek prior authorisation from the new Investment Security Unit within the BEIS. Once the Government has been notified of a transaction that falls within the 17 key sectors, or, an event triggering control, it has six weeks in which to issue a ‘call-in’ notice. The Government then has six weeks to undertake a detailed national security assessment, extendable by nine weeks.

Review

For five years after completion of a deal, the Government has the ability to ‘call in’ a deal for review and to impose substantial sanctions for non-compliance.  The Bill affects deals which completed on or after 12 November 2020 and we are already aware of transactions for which informal representations have had to be made because they fall within the regime’s broad scope.

Practical tips

Although the changes to the Takeover Code have been designed to simplify procedures and respond to the impact of more complex domestic and overseas regulatory regimes, companies and their advisers, and funders, have still to work through the commercial implications of the new timetable, and the risks of the NS&I Bill, and similar regimes, before launching new transactions.

To avoid deals falling through at the last moment, companies should identify the authorisations required and regulatory implications of a transaction with their lawyers, economists and financiers before announcing them.  Meantime, they must also bring their funders with them through this process highlighting the impact of a suspension on a transaction.  Funders, too, will need to price into their bid finance the risks of providing available financing for what could turn out to be a protracted period.

In short, the additional scrutiny of the NS&I Bill (and its overseas equivalents) will bring a more cautious approach to deal-making, as the ramifications of failing to make a notification (with potential fines, imprisonment and the unwinding of concluded transactions amongst a range of penalties) affect not only companies themselves but the availability of financing.

Contact us

For any further information contact Catherine Moss or Keith Spedding for assistance.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

SHMA® ON DEMAND

Listen to our SHMA® ON DEMAND content covering a broad range of topics to help support you and your business.

Agriculture: diversifying or leasing your land to create habitat banks

6 Jul

Peter Snodgrass, Partner & Head of Agriculture
Agriculture: diversifying or leasing your land to create habitat banks

We know that biodiversity net gains provide a significant opportunity for landowners to diversify […]

Teachers’ Pension Scheme – strategic issues independent schools need to think about

20 Jul

Esther Maxwell, Legal Director | Emma Glazzard, Solicitor
Teachers’ Pension Scheme – strategic issues independent schools need to think about

Webinar Teachers’ Pension Scheme – strategic issues independent schools need to think about In […]

Misconduct outside the workplace and business disrepute

8 Sep

Michael Hibbs, Partner | Danielle Humphries, Solicitor
Misconduct outside the workplace and business disrepute

In this webinar, Mike Hibbs – Partner and Robin Gronbech - Solicitor in our […]

Agriculture: diversifying or leasing your land to create habitat banks

6 Jul

Peter Snodgrass, Partner & Head of Agriculture
Agriculture: diversifying or leasing your land to create habitat banks

We know that biodiversity net gains provide a significant opportunity for landowners to diversify […]

Our Latest Thoughts

All the latest views and insights on current topics.

Long COVID and disability discrimination

4 Jul

Corporate & Commercial

Long COVID and disability discrimination

Read article Right Arrow

Six things for Indian businesses to consider before expanding to the UK

4 Jul

Corporate & Commercial

Six things for Indian businesses to consider before expanding to the UK

Read article Right Arrow

Employment Contracts Vs Consultancy Agreements

27 Jun

Employment Contracts

Employment Contracts Vs Consultancy Agreements

Read article Right Arrow

Shakespeare Martineau appoints expert director to company secretary team

20 Jun

Corporate & Commercial

Shakespeare Martineau appoints expert director to company secretary team

Read article Right Arrow

Spring 2022 Consumer Finance Update

17 Jun

For the individual

Spring 2022 Consumer Finance Update

Read article Right Arrow

Guides & Advice

Financial challenges and opportunities ahead for the FE/HE sector

2020 was quite the year. COVID-19 has had so many impacts and continues to do so. Coronavirus and measures taken to contain it have undoubtedly impacted the FE and HE sectors both operationally and financially. The costs of re-opening – and keeping open – clean and COVID-secure campuses are significant.
This post explores HE and FE challenges, discussing the implications for providers in these sectors.

There remain uncertainties as to what the future holds which come on top of many years of financial challenge for the HE and FE sector. This has several accounting ramifications that each sector is having to carefully consider in preparing their 2020 financial statements. Some accounting issues will directly impact the numbers in the 2020 financial statements, whilst others will have more of an impact for the next financial year and will therefore need to be considered when looking at going concerns.

 

Recognition of HE and FE challenges

The OfS and ESFA have formally recognised the challenges providers may face in finalising their audited accounts this year and have extended the submission deadlines (31 January for FE and an additional two months for HE). We are working with institutions on new/amended banking facilities needing to be completed to allow the sign off of their accounts.

 

Adhering to loan covenants

There are then risks of a breach of one of the bank loan covenants (in particular the ratio of Earnings Before Interest, Depreciation and Amortisation (EBITDA) to total debt servicing costs). The implications of this could be significant and proactive management is recommended given the potential impact on an institution’s financial health and its relationship with its current lender.

Adhering to loan covenants is likely to be an area of concern for both this financial year and for future periods and needs to be taken into account when assessing going concern. If forecasts predict loan covenants are likely to be breached then if not already done, ideally take this up with the lender as soon as possible to address whether waivers can be obtained by the reporting date, and if not assess whether the loan classification and going concern assumption remains appropriate.

In this context, consideration may also need to be given as to whether any financing or refinancing will be impacted, and if so, what impact this may have on the accounts in terms of loan disclosures, the potential impact of any debt modifications and also the knock-on impact on any capital commitments which are dependent on finance from external sources.

 

FCA phasing out LIBOR agreements

In addition, if not already on the agenda with the lender, FE/HE providers should also be aware that the Financial Conduct Authority has encouraged participants in financial markets to work to a target date to phase out new LIBOR linked facility agreements by the end of Q1 2021 in the knowledge that LIBOR will no longer be published after 2021.  Any new facility documents that mature after the end of 2021 should include appropriate wording to deal with the transition from LIBOR to new RFRs (Risk Free Rates), which are overnight rates derived from real transactions.

Many lenders are actively working with borrowers now to amend existing facility documents maturing after the end of 2021.  Additionally, borrowers should remember that if the benchmark interest rate in a facility agreement is to change from LIBOR to a RFR, then any related hedging documents should also be amended to ensure that there is no mismatch in payments.

Time is running out so if the process has not already started, borrowers need to consider taking action to prepare their business including seeking advice from their independent financial and/or legal advisers if they are unsure. For more information, they should take this up with their lender where the existing debt facility is tied to LIBOR.

Contact us

For more information on any of these issues, please contact Chris Gayle or John Rice.

Learn more about our education team and how we work alongside institutions to support the delivery of their business plans, every step of the way.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

 

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

SHMA® ON DEMAND

Listen to our SHMA® ON DEMAND content covering a broad range of topics to help support you and your business.

Agriculture: diversifying or leasing your land to create habitat banks

6 Jul

Peter Snodgrass, Partner & Head of Agriculture
Agriculture: diversifying or leasing your land to create habitat banks

We know that biodiversity net gains provide a significant opportunity for landowners to diversify […]

Teachers’ Pension Scheme – strategic issues independent schools need to think about

20 Jul

Esther Maxwell, Legal Director | Emma Glazzard, Solicitor
Teachers’ Pension Scheme – strategic issues independent schools need to think about

Webinar Teachers’ Pension Scheme – strategic issues independent schools need to think about In […]

Misconduct outside the workplace and business disrepute

8 Sep

Michael Hibbs, Partner | Danielle Humphries, Solicitor
Misconduct outside the workplace and business disrepute

In this webinar, Mike Hibbs – Partner and Robin Gronbech - Solicitor in our […]

Agriculture: diversifying or leasing your land to create habitat banks

6 Jul

Peter Snodgrass, Partner & Head of Agriculture
Agriculture: diversifying or leasing your land to create habitat banks

We know that biodiversity net gains provide a significant opportunity for landowners to diversify […]

Our Latest Thoughts

All the latest views and insights on current topics.

Guides & Advice

Fund managers: playing a vital role in the UK’s recovery

2020 has been a challenging year for all areas of the economy, but businesses and individuals in the investment industry shouldn’t lose hope, with transactions still going ahead even in these difficult times.

However, that isn’t to say there isn’t a level of uncertainty to contend with. Going forward, fund managers have a host of new considerations to make when it comes to investments.

Managing risk with investments

A balance between understanding and managing risk is always required to succeed in the investment industry. Caution is key, and this has become even more true during the pandemic.

To adapt to this unstable environment, strategies have had to be altered, with institutional investors favouring debt over equity, and individual investors turning to capital protection, ESG and markets perceived to be more stable.

Deals must continue, and investment professionals need to do what they can to ensure this.

The impacts of recession on investment

A sustained recession may be on the cards, which will affect investment behaviour further. Now is the time to apply the lessons learned from the 2008 recession, including diversifying portfolios and giving more thought to long-term rather than short-term decisions.

Longevity is the goal and fund managers will have to change their behaviours to achieve this.

Which sectors are safe bets?

Depending on the geopolitical climate, which sectors are most popular to invest in can change. At present, and largely as a result of the coronavirus pandemic and the continued focus by governments around the world on the environment, investors seem to be favouring the following:

  • Technology
  • Medtech and life sciences
  • Renewables, energy efficiency and sustainability
  • Social impact and infrastructure
  • Logistics and consumables

Although consumables are usually seen as ‘recession-proof’, now that PPE has become part of daily life, businesses that operate in this area have become a more solid prospect for investors.

What will 2021 look like?

Now that the first batch of COVID-19 vaccines have started being rolled out, and Brexit (with or without a deal!) is set for 1 January, a level of certainty is being regained. As such, financially holding back further could create more problems. Particularly after the widespread financial relief offered by the Government in recent months, there will be an expectation for the investment industry to pull its weight in driving the country’s economic revival.

Many investors have funds ready to be deployed and with cash drag starting to take effect, it’s time for them to put their feet back on the accelerator, especially with change on the horizon in the form of capital gains tax changes, for example.

In what has been a difficult year for many, the investment market has battled through valiantly, emerging much better than it would have done 20 years ago. There are a number of reasons to be optimistic about the future, and fund managers will undoubtedly be a core part of the UK’s recovery.

Helping you find an investment funds strategy in an ever-changing market

No matter whether you’re a fund manager, family office, investor or company looking to raise capital, our investment funds team can help – contact Kavita Patel for guidance and support.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.  

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

SHMA® ON DEMAND

Listen to our SHMA® ON DEMAND content covering a broad range of topics to help support you and your business.

Agriculture: diversifying or leasing your land to create habitat banks

6 Jul

Peter Snodgrass, Partner & Head of Agriculture
Agriculture: diversifying or leasing your land to create habitat banks

We know that biodiversity net gains provide a significant opportunity for landowners to diversify […]

Teachers’ Pension Scheme – strategic issues independent schools need to think about

20 Jul

Esther Maxwell, Legal Director | Emma Glazzard, Solicitor
Teachers’ Pension Scheme – strategic issues independent schools need to think about

Webinar Teachers’ Pension Scheme – strategic issues independent schools need to think about In […]

Misconduct outside the workplace and business disrepute

8 Sep

Michael Hibbs, Partner | Danielle Humphries, Solicitor
Misconduct outside the workplace and business disrepute

In this webinar, Mike Hibbs – Partner and Robin Gronbech - Solicitor in our […]

Agriculture: diversifying or leasing your land to create habitat banks

6 Jul

Peter Snodgrass, Partner & Head of Agriculture
Agriculture: diversifying or leasing your land to create habitat banks

We know that biodiversity net gains provide a significant opportunity for landowners to diversify […]

Our Latest Thoughts

All the latest views and insights on current topics.

Spring 2022 Consumer Finance Update

17 Jun

For the individual

Spring 2022 Consumer Finance Update

Read article Right Arrow

Director liable for fraudulent trading for not investigating VAT fraud – ignore HMRC at your peril

3 Mar

Corporate & Commercial

Director liable for fraudulent trading for not investigating VAT fraud – ignore HMRC at your peril

Read article Right Arrow

How to get your start-up investment-ready

17 Feb

Corporate & Commercial

How to get your start-up investment-ready

Read article Right Arrow

FCA Considering Regulatory Changes to Consumer Investment Landscape

19 Oct

Corporate & Commercial

FCA Considering Regulatory Changes to Consumer Investment Landscape

Read article Right Arrow

Protecting the vulnerable investor

2 Sep

Corporate & Commercial

Protecting the vulnerable investor

Read article Right Arrow

Blog

Meet the team behind £1 billion worth of deals

Our banking and finance team has seen a surge in transactions since the start of summer 2020, across a variety of sectors; including, education, healthcare, manufacturing, business services, leisure, transport and logistics, property development, and telecoms.

In total the team have supported more than £1 billion worth of transactions - find out more about our specialists and how they could support your next project.

Naomi Tudor

Specialisms: Banking and financial services, corporate banking, real estate finance

Latest transaction:

“We acted for one of the main clearing banks on a £4.5m CBIL advance to an existing customer, secured by a charge over their main premises, which had to the dealt with in a very short space of time.

“The borrower is a large scale supplier into the hospitality sector which has been materially affected by COVID.”

Contact: naomi.tudor@shma.co.uk

Specialisms: Banking and financial services, corporate recovery and insolvency, healthcare

Latest transaction:

We acted for a clearing bank in connection with the restructuring and subsequent disposal of the leading firm of global expansion advisors, who offer HR tax and financial compliance services to overseas companies setting up in the UK.”

Chris Gayle

Specialisms: Banking and financial services, corporate banking, corporate finance, real estate finance

Latest transaction:

“Agreed on a security structure which safeguarded the bank’s position in relation to various loan facilities to the bank’s customer. Timing was critical to meet existing loan maturity dates. Total facilities exceeded £40 million.”

Contact: christopher.gayle@shma.co.uk

Specialisms: Banking and financial services, Islamic finance and inward investment, mergers and acquisitions, real estate finance

Latest transaction:

“Recently acted for a large corporate client based in North America and a number of other jurisdictions on a $35m dollar credit facility.”

For more information contact our banking and finance team. For support with deals contact our corporate team.

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

SHMA® ON DEMAND

Listen to our SHMA® ON DEMAND content covering a broad range of topics to help support you and your business.

Agriculture: diversifying or leasing your land to create habitat banks

6 Jul

Peter Snodgrass, Partner & Head of Agriculture
Agriculture: diversifying or leasing your land to create habitat banks

We know that biodiversity net gains provide a significant opportunity for landowners to diversify […]

Teachers’ Pension Scheme – strategic issues independent schools need to think about

20 Jul

Esther Maxwell, Legal Director | Emma Glazzard, Solicitor
Teachers’ Pension Scheme – strategic issues independent schools need to think about

Webinar Teachers’ Pension Scheme – strategic issues independent schools need to think about In […]

Misconduct outside the workplace and business disrepute

8 Sep

Michael Hibbs, Partner | Danielle Humphries, Solicitor
Misconduct outside the workplace and business disrepute

In this webinar, Mike Hibbs – Partner and Robin Gronbech - Solicitor in our […]

Agriculture: diversifying or leasing your land to create habitat banks

6 Jul

Peter Snodgrass, Partner & Head of Agriculture
Agriculture: diversifying or leasing your land to create habitat banks

We know that biodiversity net gains provide a significant opportunity for landowners to diversify […]

Our Latest Thoughts

All the latest views and insights on current topics.

Long COVID and disability discrimination

4 Jul

Corporate & Commercial

Long COVID and disability discrimination

Read article Right Arrow

Six things for Indian businesses to consider before expanding to the UK

4 Jul

Corporate & Commercial

Six things for Indian businesses to consider before expanding to the UK

Read article Right Arrow

Employment Contracts Vs Consultancy Agreements

27 Jun

Employment Contracts

Employment Contracts Vs Consultancy Agreements

Read article Right Arrow

Shakespeare Martineau appoints expert director to company secretary team

20 Jun

Corporate & Commercial

Shakespeare Martineau appoints expert director to company secretary team

Read article Right Arrow

Spring 2022 Consumer Finance Update

17 Jun

For the individual

Spring 2022 Consumer Finance Update

Read article Right Arrow

Guides & Advice

HMRC As a Preferential Creditor - What Goes Around Comes Around

A small change in the law at the start of December will have big consequences for lenders and corporate borrowers.

Lenders enforcing floating charges after 1 December 2020 will rank behind unpaid VAT, PAYE, Employee NICs and certain other government payments including Student Loan deductions and Construction Industry Scheme deductions.  

This means that money previously available for creditors in an insolvency will now go to HMRC instead. This will be a significant concern to lenders looking at the value of their security. 

Importantly, the new rules will apply to all debentures and not just those entered into after 1 December 2020. 

The Government describes the rationale for this change in the law as:  

“When a business enters insolvency more of the taxes paid in good faith by its employees and customers, and temporarily held by the business, will go to fund public services rather than being distributed to other creditors.  

In many ways (excluding Student Loans which did not exist at the time), this is similar to how the law operated before the Enterprise Act 2002 took away the old Crown Preference, but there are some important changes.  

Interestingly, there is no limit on how far back HMRC can claim for payment. It is not just the taxes in the run up to the insolvency that are captured by the crown, but all taxes that the business may not have paid. Under the old rules, there was a limit. 

In further bad news for floating charge holders, the amount of the prescribed part (which is the money set aside for unsecured creditors) has been increased by £200,000 to £800,000, which further reduces the money available for the floating charge holder. 

These changes do not affect fixed charges and so, wherever possible, well-advised lenders will be looking to put documents and processes in place to improve the chances of their security being classified as fixed rather than floating. 

Lenders should also be taking a close look at financial covenants and closely monitoring the borrower’s payments to HMRC. Lenders may also take the opportunity to look at the rest of their security package, including possibly personal guarantees, to reduce their reliance on the floating charge element of their security. 

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

SHMA® ON DEMAND

Listen to our SHMA® ON DEMAND content covering a broad range of topics to help support you and your business.

Agriculture: diversifying or leasing your land to create habitat banks

6 Jul

Peter Snodgrass, Partner & Head of Agriculture
Agriculture: diversifying or leasing your land to create habitat banks

We know that biodiversity net gains provide a significant opportunity for landowners to diversify […]

Teachers’ Pension Scheme – strategic issues independent schools need to think about

20 Jul

Esther Maxwell, Legal Director | Emma Glazzard, Solicitor
Teachers’ Pension Scheme – strategic issues independent schools need to think about

Webinar Teachers’ Pension Scheme – strategic issues independent schools need to think about In […]

Misconduct outside the workplace and business disrepute

8 Sep

Michael Hibbs, Partner | Danielle Humphries, Solicitor
Misconduct outside the workplace and business disrepute

In this webinar, Mike Hibbs – Partner and Robin Gronbech - Solicitor in our […]

Agriculture: diversifying or leasing your land to create habitat banks

6 Jul

Peter Snodgrass, Partner & Head of Agriculture
Agriculture: diversifying or leasing your land to create habitat banks

We know that biodiversity net gains provide a significant opportunity for landowners to diversify […]

Our Latest Thoughts

All the latest views and insights on current topics.

Long COVID and disability discrimination

4 Jul

Corporate & Commercial

Long COVID and disability discrimination

Read article Right Arrow

Six things for Indian businesses to consider before expanding to the UK

4 Jul

Corporate & Commercial

Six things for Indian businesses to consider before expanding to the UK

Read article Right Arrow

Employment Contracts Vs Consultancy Agreements

27 Jun

Employment Contracts

Employment Contracts Vs Consultancy Agreements

Read article Right Arrow

Shakespeare Martineau appoints expert director to company secretary team

20 Jun

Corporate & Commercial

Shakespeare Martineau appoints expert director to company secretary team

Read article Right Arrow

Spring 2022 Consumer Finance Update

17 Jun

For the individual

Spring 2022 Consumer Finance Update

Read article Right Arrow

Guides & Advice

The UK officially enters recessions | what does it means for your sector?

The UK officially enters recessions | what does it means for your sector?

On 12 August, the UK officially entered recession after the economy suffered its worst months on record between April and June

Although largely inevitable after the restrictions that lockdown placed on the country, it is still not the news that any sector wanted to hear. So, what could the impacts of the UK’s first recession in 11 years be?

From general business and investment funds to energy and education, our experts provide their thoughts on what the future has in store.

General business

Over the last few months, there has been a considerable rise in the number of insolvencies. The high street was struggling even before the pandemic, with the closure of restaurants and the forced move to online shopping having been the very last things that many businesses needed.

Andrew Taylor, one of our insolvency partners, said:

“The insolvencies and job cuts we’ve seen over recent weeks have been leading up to this point – now an official recession is here and the economy has bitten back with GDP tumbling by a record 20 percent.

“Cue suffocation of cash flow, with businesses paying more slowly while asking their clients to pay quicker. Those that aren’t struggling should make sure they are paid before their debtors run into deeper financial difficulty.

“Where possible, businesses will want to pay their suppliers on 30 to 60-day terms if their clients are doing the same. It’s also wise to have alternative suppliers on standby, just in case they withdraw from the market, become too expensive, or go bust.

“While the horse has indeed bolted, it’s not too late for businesses to plan for what’s to come. Directors must not bury their heads in the sand. The sooner they seek professional advice and act, the more options will be available, and the quicker they can protect their company’s creditors, the business, and most importantly, themselves.

“This is only the start and, while the wider economy will bounce back, only those businesses that have a healthy balance sheet and have adapted to ‘the new normal’ and changes in consumer habits will survive this recession.”

Investment funds

As an increasing number of businesses struggle due to the financial pressure put on them by COVID-19, it has become difficult for investors to know where it is safe to put their money. However, continued investment is vital to the UK surviving this recession.

Kavita Patel, our head of investment funds, said:

“Private investment has played a pivotal role in the UK economy and this will need to continue as we head into a recession and during the recovery as we come out the other side.

“While existing investment portfolios may continue to see further valuation reductions, the normal ups and downs of economic cycles should mean that this will recover if investors can hang on long enough.

“Continuing to support good businesses will help them manage through the crisis and give them the best platform to grow. Whilst it may remain tough for many for some time, history has shown that there are always good investment opportunities in any market. What’s clear is that with interest rates likely to remain low, investment in UK businesses continues to provide an important route for wealth creation which, in turn, will support economic recovery.”

Energy

There are two sides to the coin when it comes to the energy sector during the recession. To meet the country’s climate change goals, the Government must continue to invest in renewable energy, ensuring a level of stability in this area. However, it could be a different story for those in the retail supply sector.

Andrew Whitehead, our head of energy, said:

“The energy sector’s fortunes in many ways are aligned with the Government’s climate change ambitions (and obligations), and it is crucial that spending our way out of recession benefits the green economy, including continued investment and support for energy efficiency, renewable energy and electric vehicle charging infrastructure. This is especially important with the UK hosting the next round of global climate change talks in Glasgow next year.

“Elsewhere, the retail supply sector, already in some turmoil as a result of a combination of price caps and volatile wholesale energy prices, has been struggling to react to the change in consumption patterns and a mandated go slow on household debt recovery. Those suppliers serving industrial and commercial customers have been exposed to the downturn in consumption as shops and factories have closed, and a spate of corporate customer insolvencies looks set to increase in coming months. In such a volatile environment, we can expect to see increased transaction and M&A activity.”

Education

In past recessions, the education sector has benefitted from increased funding, but this may not be the case this time around. Will the UK see a structural change in higher education?

Smita Jamdar, our head of education, said:

“Ordinarily higher and further education are counter-cyclical when it comes to recessions because governments tend to invest in education and training. This government has made it clear that it wants to invest in technical and vocational skills which it sees as key to the levelling-up agenda.

“So far, that has been reflected in lots of warm words and some money for FE, but the investment gap is potentially still huge, especially to compensate for cuts to funding since 2010 and so I hope to see more.

“The Government seems less keen on higher education and there have been numerous alarming comments about too many people going to university and that widening HE participation may no longer be a priority. Universities have been hit hard by COVID-19 and Brexit and it remains to be seen whether securing the future of universities will become a focus for the Government, or whether this is seen as an opportunity to allow some to reduce in size, and possibly merge with other institutions.”

The recent pandemic has proven just how innovative we are as a nation.

The last six months in particular have been difficult for organisations across all sectors, with some industries being affected harder than others.

Recession is never a term that businesses or people want to hear, but the country has recovered before and it will again. Business will continue, even if it has to take a slightly different form.

Contact us

If you need support from any of our sector specialists, don’t hesitate to get in touch.

We have launched our guide to recovery and resilience, helping to support businesses and individuals unlock their potential and make way for a better and brighter future.

From inspirational SHMA Talks to informative webinars, we also have lots of educational content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

SHMA® ON DEMAND

Listen to our SHMA® ON DEMAND content covering a broad range of topics to help support you and your business.

How is Nutrient Neutrality impacting developments and housing supply?

23 Jun

Andrew Gore, Partner
How is Nutrient Neutrality impacting developments and housing supply?

On 16 March 2022, the Government announced that an additional 27 catchment areas, affecting […]

Keeping court bundles safe from the dark web

26 May

Clive Read, Partner & Head of Birmingham
Keeping court bundles safe from the dark web

It is vital that chambers and their barristers have strong cyber security measures in […]

Charities Act 2022 – revolution or evolution?

24 May

Andrew Wilkinson, Partner
Charities Act 2022 – revolution or evolution?

On 24 February 2022, the long-anticipated Charities Bill received Royal Assent becoming the Charities […]

Registered Providers: the challenges of acquiring larger sites and associated planning and legal issues with development land

5 May

Registered Providers: the challenges of acquiring larger sites and associated planning and legal issues with development land

With the Government's mandate to 'build, build, build', the pressure is on for those […]

Our thoughts

All the latest views and insights on current topics.

Long COVID and disability discrimination

4 Jul

Corporate & Commercial

Long COVID and disability discrimination

The employment tribunal has determined that an employee was disabled for the purposes of […]

Read article Right Arrow

Six things for Indian businesses to consider before expanding to the UK

4 Jul

Corporate & Commercial

Six things for Indian businesses to consider before expanding to the UK

According to the UK’s Department for International Trade the proposed trade arrangement between India […]

Read article Right Arrow

Abbey Healthcare (Mill Hill) Ltd v Simply Construct (UK) Llp

29 Jun

Education

Abbey Healthcare (Mill Hill) Ltd v Simply Construct (UK) Llp

Read article Right Arrow

Don’t waste money on space you don’t use! Re-gear

29 Jun

Real Estate & Planning

Don’t waste money on space you don’t use! Re-gear

Read article Right Arrow

Employment Contracts Vs Consultancy Agreements

27 Jun

Employment Contracts

Employment Contracts Vs Consultancy Agreements

Read article Right Arrow

Shakespeare Martineau appoints expert director to company secretary team

20 Jun

Corporate & Commercial

Shakespeare Martineau appoints expert director to company secretary team

Read article Right Arrow

Spring 2022 Consumer Finance Update

17 Jun

For the individual

Spring 2022 Consumer Finance Update

Read article Right Arrow

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

Your guide to recovery and resilience

Financial considerations

Your guide to recovery & resilience | Financial considerations

Screenshot 2020-05-27 at 11.17.17

Whether you are a large corporate with a highly structured board, an SME or an owner managed business, the financial viability and success of your business is key to your own future, your family’s future and that of your employees. No business has experienced, or traded through a crisis such as this before, which is being played out on a local, national and international stage.

However, as thoughts turn to the future and what that may look like, businesses that have got through the immediate situation should start making plans and consider a range of measures to enable them to cope with what is likely be a deep recession for some industry sectors of the UK. Prudent business owners will be well aware of the predictions and while there will be a bounce back it is likely to take some time for confidence and stability to return from customers and suppliers.

The main talking point before the coronavirus pandemic was Brexit. This has not gone away and may present further challenges for UK businesses later in the year once the current pandemic is under better management.

Government assistance

If you haven’t done so already, assess your eligibility for government support – you may be eligible for coronavirus financial assistance – in the form of a one of a number of business interruption loans (several different types available), business rates holiday or VAT deferral for example. The package of measures continues to evolve so we recommend reviewing what is available on a regular basis. Some parts of the package of support will be available for longer than others so it’s sensible to keep an eye on closing dates for the various schemes that are available.

Keep up to date

Continue to monitor and review all applicable government grants and economic incentives that may be introduced later this year. Review R&D claims to make sure all eligible costs are identified.

Income tax

On a personal level consider taking advantage of the deferral of the income tax instalment due on 31 July to assist with personal cashflow.

Talk to your lenders

Keep the communication lines open. A lender cannot help with financial support if they are unaware of your situation and do this sooner rather than later while there is still some flexibility in the business.

Review your banking covenants

If you are likely to breach these, be prepared to have an early conversation with a proposed plan.

Business planning should ideally be a continuous process

Now is the time to review your plans, revise your forecasts and draw up new plans and be in a position to implement changes quickly. Adapt your management information in line with this.

Manage all change carefully

Ensure any changes you make now are essential for the future of the business. Introduce internal spending reviews to see where you can make immediate savings, cut costs, and move spending away from non-crucial areas. Now is the time to take stock of savings that can be made as a result of new working practices enforced on businesses by the coronavirus. Some of these may be beneficial and save costs.

Credit terms

These should be revisited and recommunicated to all customers. Strict payment terms should be encouraged as cash is king and will ensure cash flow and working capital for the future.

Check your insurance

Most policies do not cover coronavirus but the government has stated that policies for both pandemics and governmentordered closures should be covered. If unsure talk to your insurer.

Look at the detail

Review your financial control measures and look to make them more robust if required. Review expenses policies, review sign off limits, ensure audit trails are in place.

Communication

Keep talking
Communicate with your key customers and keep them informed of the measures you are taking for your business. If they are in difficulty, be supportive where you can and agree action plans with them.

Be on the front foot
Have upfront conversations with your suppliers. Consider changes to credit terms – being more flexible to support suppliers if possible.

Contact suppliers
Where you may have difficulties in paying, approach with a prepared action plan and be prepared to negotiate. If you have longer term contracts consider whether there is any room for renegotiation of any of the key terms whether immediately or in the coming months.

Internal communication
It’s often appreciated by employees if they are taken along on the journey rather than being kept in the dark. There may well be measures required, such as shorter hours and potential pay cuts in the future, that will become necessary, so having a workforce who understand and appreciate the challenges and the reasons behind any decisions helps any action required.

Opportunities

Bigger picture
Stay abreast of all opportunities that may assist your business – e.g. online activities and be alert to acquisition opportunities and possible investments.

Consider new possibilities
In these difficult times be alert to the possibility of working in new or different/flexible ways to make yourself stand out from the crowd. Consider new avenues to develop new products or services that meet the changing needs of your customers or new areas of demand that have opened up because of the crisis.

Contact us
In response to the pandemic we created our coronavirus hub which includes advice, guidance and insight to help you navigate through these uncertain times. As we all begin to adapt and prepare for the future, our hub will evolve to provide you with further help and resources for surviving, reviving and beginning to thrive in life and business, throughout the challenging times ahead.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

For legal support in relation to the coronavirus or any other matter, get in touch with your team today.

From inspirational SHMA Talks to informative webinars, we have lots of educational and entertaining content for life and business visit SHMA® ON DEMAND.

More guides to recovery & resilience

We are here to help in your business and personal life - contact us today to find out more.

Compliance | Health and Safety
Suppliers & supply chain 

SHMA® ON DEMAND

Listen to our SHMA® ON DEMAND content covering a broad range of topics to help support you and your business.

Agriculture: diversifying or leasing your land to create habitat banks

6 Jul

Peter Snodgrass, Partner & Head of Agriculture
Agriculture: diversifying or leasing your land to create habitat banks

We know that biodiversity net gains provide a significant opportunity for landowners to diversify […]

Teachers’ Pension Scheme – strategic issues independent schools need to think about

20 Jul

Esther Maxwell, Legal Director | Emma Glazzard, Solicitor
Teachers’ Pension Scheme – strategic issues independent schools need to think about

Webinar Teachers’ Pension Scheme – strategic issues independent schools need to think about In […]

Misconduct outside the workplace and business disrepute

8 Sep

Michael Hibbs, Partner | Danielle Humphries, Solicitor
Misconduct outside the workplace and business disrepute

In this webinar, Mike Hibbs – Partner and Robin Gronbech - Solicitor in our […]

Our thoughts

All the latest views and insights on current topics.

A return to “hybrid working”? – What would this mean for staff wellbeing?

2 Feb

Employment

A return to “hybrid working”? – What would this mean for staff wellbeing?

The Government had previously re-introduced a number of measures to tackle the outbreak of […]

Read article Right Arrow

Compulsory vaccination for care home staff

18 Oct

Corporate & Commercial

Compulsory vaccination for care home staff

The Health and Social Care Act 2008 (Regulated Activities) (Amendment) (Coronavirus) Regulations 2021 will […]

Read article Right Arrow

Preparing for the COVID-19 vaccination

1 Sep

Employment

Preparing for the COVID-19 vaccination

Read article Right Arrow

Enhancing the hybrid working experience with home workspace loans

17 Aug

Future working

Enhancing the hybrid working experience with home workspace loans

Read article Right Arrow

Home workspace loans 

16 Jul

Coronavirus

Home workspace loans 

Read article Right Arrow

Guide to Commercial Landlord and Tenant Dispute Resolution

15 Jul

Rent Dispute - Landlords

Guide to Commercial Landlord and Tenant Dispute Resolution

Read article Right Arrow

What will working arrangements look like in a post-pandemic future?

21 Jun

Corporate & Commercial

What will working arrangements look like in a post-pandemic future?

Read article Right Arrow

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

The electric vehicle market in the UK is currently worth over £3 billion with nearly 38,000 new electric cars being sold in the last 12 months, more than double the previous year. 1 in 10 of the new cars now sold in the UK is an electric vehicle.  Advances in technology, such as the availability of public high speed charging points and the increase in battery capacity meaning cars can go further without needing to be recharge, will continue to speed this up.  The government’s recent announcement that it is to consult to bring forward the date at which no more diesel cars will be sold in the UK will only add to the pace of change.  All of which is good news to help meet the government’s commitment to net zero carbon emissions by 2050 but it could leave the consumers exposed to potential poor practices.

From now on, consumers wanting to install a home charge point can look for the EVCC logo to ensure that they are using an installer that follows best practice in sales and installation.  The scheme is voluntary which domestic charge point installers can sign up to, identifying them as reputable. The code is an extension of the Renewable Energy Consumer Code (RECC) which sets and enforces high standards giving consumers wanted to install home energy generating systems such as solar panels and battery storage.

This code should be monitored very carefully by vehicle manufacturers, retailers (dealerships) leasing companies and now of course energy companies who provide electric vehicles as part of their services. Whilst the code is not primary legislation it is very well crafted in that it seeks to deliver Consumer protection across a range of areas.

Those of you who are familiar with consumer credit will see that the requirement for transparent paperwork, clarity of cost and the clear provision of cancellation procedures, mirrors the behaviours required by the Financial Conduct Authority.

Of equal importance from a consumer perspective, is the insistence that goods and services supplied are of satisfactory quality and so we can see the provisions of the Consumer Rights Act 2015 form a cornerstone of the protection required for the public.

What effect will the code have?

We have seen previously that codes can often influence subsequent primary legislation. Equally where a court considers evidence as to the rights and obligations of parties they will look to the codes to see if they govern the relationship of those involved. Where one party does not comply with the code the court can still look to it as an indicator of how a supplier should proceed.

What to do now?

For those involved in the provision of electric vehicles and or their chargers, now is the time to review your contracts, policies and procedures to ensure that you limit risk, deliver maximum customer satisfaction and ensure you proceed in a manner that complies with the multifaceted regulatory

This a fast moving area of law which affects a new landscape concerning energy efficient modes of transport. For further details please contact Eddie Flanagan or another member of the energy team.

For advice or guidance on any other legal issue, a member of our team can help – please click here to discuss.

The headline is clearly the new Coronavirus Jobs Retention Scheme where the government will pay 80% of salaries up to a maximum of £2,500 per month. The scheme will be effective from 1 March and will run for three months with the ability to extend the scheme.

We will need to see the detail of the scheme and what, if any, qualifications apply. We will be advising clients on this as soon as details are available.

The Coronavirus Business Interruption Loan Scheme (CBILS) announced just a couple of days ago is going to be amended so that it is interest free for 12 months and not the six months as originally announced.

Importantly, the Chancellor made a comment that further support measures for mid-sized business will be announced on Monday. This is very important because at the moment there seems to be a gap between those businesses that are too big for the SME scheme but not big enough to set up a commercial paper scheme. This will be an important development to follow on Monday.

Other measures announced included the deferral of tax and VAT payments.

We continue to have concerns about the deliverability of the CBILS scheme. In particular, the government is only guaranteeing 80% of the loans which means that the banks will have to engage credit control processes which will take time and add to the administrative burden. But, provided delivery of the Coronavirus Jobs Retention Scheme is consistent with the announcement then this is a major relief for business and workers.

For more information, please contact Adam McGiveron or another member of the Corporate & Commercial in your local office.

For advice, guidance and legal support in relation to the coronavirus or any other matter; speak to your team and for more general business advice in relation to coronavirus visit our dedicated resource hub.

All the latest views and insights on COVID-19 (coronavirus)

There is currently little specific detail on how this will operate. Having spoken to contacts at commercial banks we understand that the assistance programme will be operated through these banks, although they are still waiting for more details themselves. We think there will be better information available by Monday 23 March 2020.

We understand that the government will guarantee 80% of the new debt which means that the banks will still be applying commercial credit risk criteria to applications. We don’t know how the credit process will operate given the volume and urgency of applications.

Our advice to clients is that they should make contact with their bank managers now so that businesses can be in the best possible position when further details become known. Each bank is likely to have its own criteria and clients need to understand their own bank’s position as soon as possible.

The team here is monitoring the situation carefully and will provide updates as soon as more detail is known.  In the meantime do not hesitate to contact a member of your local corporate or banking team.

All the latest views and insights on coronavirus.

The economic impact for many businesses however is an unknown entity, albeit this morning a number of businesses put out profit warnings to the market. We are entering a period where there is no real precedent for what happens next.  With many promising, as much as they can, for the status quo to be ‘business as usual’, contingency planning has never been more essential.

If you haven’t done so already, the single most important recommendation is to develop your contingency plan and make sure you share this, as early as possible, with your funders. Make sure your plan includes impact analysis of a number of scenarios, rather than trying to be too exact about the details, which are currently unknown. We are increasingly seeing the same message coming from both borrowers and lenders – things are uncertain but it’s imperative to keep in touch.

So what do you need to think about and be prepared for?

Working capital

What would the implications be on your cash flow if you need to invest in additional stock to protect against a shortage of supply? If your debtors take an extra five days to pay because their cash flow has tightened, what will happen to your overdraft? The Chancellor announced a raft of new measures yesterday to help businesses – do read these and consider if any are applicable to your business.

Your employees

As the virus spreads and more people are beginning to stay at home and self-isolate, will your business manage if a number of your employees are either unwell or go into self-isolation? New regulations that came into force on 13 March state that employees with symptoms of coronavirus, who self-isolate in accordance with published guidance, are now entitled to claim statutory sick pay. Although it looks likely that the government will refund these payments, the time lag before reimbursement could be significant. What impact could this have on your cash flow, especially if you also need to recruit temporary employees to cover absence?

As the coronavirus spreads throughout the UK, it’s likely that some of your employees will want to, or need to, work from home. If this isn’t usual practice within your company, you may have to provide them with suitable IT equipment, such as laptops and mobile phones, to enable them to work outside of the office and keep your business running. This is likely to have an impact on cash flow as funding the purchase of this additional equipment kicks in.

Funding agreements

If you are working with various banking covenants that attach to your funding agreements, is there any danger of an unintended consequence causing a breach? For example, some finance agreements will sometimes contain a ‘clean down’ condition requiring you to keep your account in credit for so many days each month. If cash flow tightens, you may find yourself in a situation where achieving this may be difficult.

Other covenants may be around leverage and your debt servicing ability. If you expect your profits to be impacted, is this going to trigger a breach of this type of borrowing condition?

There may be other issues in terms of ‘certain funds’, conditions subsequent and general reporting requirements which may also not be met.

In all cases, the message from lenders is clear – pick up the phone and speak to them as quickly as you can.

Act fast. Preparation is key

It pays to be prepared and, of course, banks will want to be seen to be helpful. Whilst this situation is unprecedented, it will not last forever. Last week, UK banks came out with a list of emergency measures, including suspending loan repayments and fee free emergency loans to help businesses overcome some of the current challenges they’re facing.  Various lenders have already announced the availability of fee free loans for businesses that are hit by the coronavirus outbreak and it’s likely others will follow.

Banks hate surprises and they won’t know what you don’t tell them. Make contact with your funders at the earliest opportunity and don’t be afraid to tell them exactly how it is. They will be having many similar conversations with other businesses, so you are not alone.

Be reactive

Plan and plan again and when your circumstances change, change your plan. Don’t fall victim of the ‘ostrich approach’ and bury your head in the sand. Set up groups of employees to talk through and share your thought process – It’s well-known that a business’ leadership team doesn’t have a monopoly on good ideas!

Once you’ve made your contingency plans, share them with your bank and keep them informed as your situation changes so they can then work with you to support you where they can.

If you require any advice around your business options, funding arrangements, employee issues or any other challenges, contact Chris von Strandmann or another member of your local banking team.

For general business advice, you can visit our dedicated coronavirus resource hub or sign up to one of our latest webinars that covers ‘the impact of coronavirus on your business.

All the latest views and insights on coronavirus.

The country’s current pragmatic approach to investment in Islamic finance is a good basis for this, as Islamic finance partner Mohammed Saqub and real estate finance solicitor Ishteyak Hannan explains:

The UK as a global hub

At a Sukuk conference in 2018, it was stated that the UK has potential, post-Brexit, to become an attractive destination for Islamic finance and future investment. According to the president of the Saudi Arabia-based IDB, London has the financial, regulatory and legal experts needed to develop the UK into a successful global hub for Islamic finance.

Issuing sovereign Sukuk

After strong demand, 2014 saw the UK become the first European country to issue sovereign Sukuk. The demand for Sukuk was 10 times oversubscribed, showing a solid market in Britain for Islamic finance. Therefore, a Treasury spokesman has claimed they intend to reissue the bonds when they mature later in 2019. This reissuing could attract attention from investors overseas, adding much needed stability to the UK’s economy.

Shariah compliant banks

In the UK, there are currently five fully Shariah-compliant banks and over 20 others that offer a level of Islamic banking. There are approximately £500 million worth of Islamic funds, which between them have hosted 65 Sukuk worth £35 billion.

Maintaining ambition

Brexit must not hinder the development of the UK’s Islamic finance ambitions. Instead, it is essential that the country takes an open-minded stance and acts on the opportunities that Islamic finance brings.

Investors in the Middle East are still keen on UK real estate and our robust legal system means investing here is a safe option. Many aim to hold onto their assets in the UK, and are still hopeful that these assets will perform well, even after Brexit.

Utilising Islamic finance during this period of uncertainty could be a positive move for Britain. Building strong relationships outside of the EU will be vital to maintaining some form of stability for our economy.

Naomi Tudor, our head of corporate banking, explains the threats and processes that banks must be aware of:

Threats

• Funds being transferred directly out of individual accounts
• Customer information being sold on to other criminals
• Customer information being used to hold institutions hostage
All these threats lead to business disruption in various ways, with banks having to put their time and resources into resolving the breaches.

Cyberattack methods

• Direct attacks to computer systems and IT infrastructure
• Approaching customers pretending to be their bank in order to gain personal data

The latter method catches out many people every year. Once the money is sent to the criminal and the funds are cleared, it is usually too late to recover them.

Security approaches

Investing in IT infrastructure – Even before the introduction of the new GDPR regulations, businesses were encouraged to improve their data protection policies. In house systems need to be secure to lessen the risk of direct attacks succeeding.
Ensuring third party suppliers have secure IT infrastructure – Criminals can use the weaknesses in third-party systems to access the main bank. Before engaging in a commercial arrangement, businesses must be vetted for suitability and checked for compliance.
Educating the public – Having an awareness of the details that should never be given out, such as account or pin numbers, is vital to tackling customer scams. The methods fraudsters use are constantly evolving, but the public having this knowledge will hinder their attempts.
Training internal staff – Data protection and information security courses are an effective way to ensure staff know the risks, warning signs and processes of cyberattacks. This way, they can be more proactive in the fight against cyber criminals.

Minimising damage

No matter the level of precautions put in place, banks can still become victim to cyberattacks. There are processes that should be followed if this is to occur:

Alerting customers – Customers should be informed of breaches as soon as possible if their personal data has been compromised, whether large-scale or not. However, it must be done in a way that does not trigger mass panic. Many institutions have processes in place to ensure this happens.
Alerting the ICO – There are certain incidents that need to be reported to the ICO such as, personal data breaches. Incidents should be logged promptly, and no later than 72 hours after the breach. Failing to comply with the new GDPR reporting requirements can see business facing fines of up to €10 million, or 2% of annual global turnover, whichever is highest.
Early action – Junior staff are often the first port of call for customers who have been tricked by fraudsters. Training is vital for situations such as these, as it allows the next steps to be taken correctly and quickly, increasing the chance that stolen funds can be returned.

Cyberattacks alone can damage the reputation of a bank, but the management of a breach can make or break them. Reputation and trust are what banks rely on to gain and keep customers, so the correct response is important for the continued success of the institution.

Founded in 2014, Access Commercial Finance is a Leeds-based commercial finance provider and publicly-listed company, offering a range of finance options to businesses of all sizes. Options include small business loans, asset finance, and crowdfunding. The business is led by Nick King, as managing director, and Ali Keyhani, as operations director.

The decision to list a bond on the Cyprus stock exchange comes from a wider finance-raising exercise in the form of a new special purpose vehicle for directly issuing debt to borrowers on behalf of the business.

Our corporate team acted as legal advisers on the deal, alongside EGR Broking Limited, the corporate brokers for the transaction and Sharelink Securities in Cyprus as nominated advisers.

Keith Spedding, our corporate partner, said: “The bond listing is a considerable step for Access Commercial Finance that will create the opportunity for the business to extend its financial support offering. It is unusual for a UK company to list a bond on the Cyprus stock exchange, although it does follow the growing trend of finding alternative routes to raising capital overseas, as well as in the UK.”

Jonathan Hall, MD, Corporate Broking at EGR Broking Limited, said: “Access Commercial Finance is a fast-growing business and we are delighted to add a new route to funding for its activities.  Cyprus listed bonds can be held in CREST by UK shareholders and can form part of a stock and shares ISAs.”

The conference enabled many parties to come together to discuss their shared values and mutual interests to help to promote democracy and stability, and to overcome the tension and polarisation between the Muslim world and Western nations.

The event was hosted by ECR Group and senior MEPs Syed Kamal and Amjad Bashir.

Here are Mohammed’s top five takeaways:

  1. Although an Islamic finance specialist, this is more about inclusivity than anything. At Shakespeare Martineau, Mohammed’s team has completed well over £2 billion worth of Islamic finance transactions in the UK and the main driver is to ensure that financial opportunities and inclusion is available for all communities. There is no doubt that the uncertainty around trading with Europe is presenting even more opportunity to solidify commerce connections with the Middle East.
  2. There is a pent-up demand in the UK for more inward investment from the Middle East. By removing, or at least relaxing, the complex tax hurdles that unfairly affected Islamic finance transactions, valuable commercial partnerships have been able to flourish.
  3. Islam prohibits price controls and discourages barriers to trade, meaning that if such partnerships are embraced, the opportunities can be limitless. Islam states that prices are governed by the hand of God and a principle not a million miles away from the later Adam Smith’s ‘invisible hand’. Free market capitalism is reconcilable with Islam.
  4. With the UK leaving Europe, the Government has to continue to work on trade agreements with counties outside of the EU with more focus than ever.
  5. The outlook for this sector is particularly strong. A growing feeling in Muslim countries about the need to return to traditionalism, coupled with young populations in counties that are displaying GDP growth, is likely to fuel growth. The key to reaching successful trade deals with European and the Muslim world is ensuring that they are just fair and free.

In this article we explore the detail of the ruling and what it means to companies which have listed bonds and other instruments which are subject to MAR.

The back story

Tejoori had two major investments, one of which (Bekon Holding AG) was the subject to a drag-along mechanism. This would have effectively required Tejoori to sell its shares to the bidding company, in a squeeze out by share purchase agreement for no initial payment. There was the possibility that the deferred payment would be significantly less than Tejoori’s valuation of $3.35 million. Tejoori had a mistaken understanding of the effect of the sale and purchase agreement and when it would be paid.

The FCA penalised Tejoori because it failed to release an announcement as soon as possible after being notified that the drag-along would occur. Tejoori’s misapprehension was highlighted by the fact that, once the takeover had been announced, there was a lot of speculation, mostly on bulletin boards, as to how much Tejoori would have received for its holding, with the Tejoori share price rising by 38% in two days. When it finally announced the details of the sale, however, its share price closed down 13%.

Details of the case

The BEKON shareholders’ agreement contained a drag-along provision that could be used by majority shareholders to require other shareholders to sell their BEKON Holding AG shares in the event of a takeover. In July 2016, Tejoori was notified that several major shareholders of BEKON had indicated that they would issue a drag-along notice to the other shareholders that would require them to sell their shares in BEKON as part of a takeover by Eggersmann Gruppe GmbH & Co. KG (Eggersmann). The drag-along notice would require Tejoori to sign a share purchase agreement (SPA) with Eggersmann.

Under the SPA, Tejoori would sell its BEKON shares to Eggersmann for no initial consideration with the possibility of receiving deferred consideration that was significantly less than Tejoori’s then known valuation of its investment in BEKON. Tejoori received the signed drag-along notice in July and its shares in BEKON were transferred to Eggersmann in August. Both BEKON and Eggersman issued press releases regarding Eggersmann’s acquisition of BEKON. The press releases did not refer to Tejoori and Tejoori did not release an announcement at that time.

Under MAR, companies are required to release information which is likely to affect the price of their shares or bonds or other tradeable instruments as soon as possible. The online bulletin boards contained clear evidence of speculation that the news would be good for Tejoori’s investment. Tejoori’s share price then rose by 38% over just two days after investors heard of the Eggersman buy-out of BEKON, not realising Tejoori had already had sold its shares. The failure came to light after the London Stock Exchange queried the quick rise in share price with Tejoori in August, however, the FCA found there had been “a misunderstanding of the legal effect of the SPA”, which meant Tejoori did not understand it had in fact sold its entire holding in BEKON. Tejoori, which first listed on AIM in March 2006, did not inform shareholders or the public about the sale despite it being classed as inside information.

Tejoori cancelled its admission to trading on AIM in December and co-operated fully with the FCA investigation, settling at an early stage in order to secure a 30% discount on the fine which would have otherwise been £100,000.

How does this affect businesses?

This is the first ruling since MAR came into force in 2016. It is very likely that the FCA will continue to impose further fines on companies in breach of MAR regardless of whether they act, or don’t act, recklessly or deliberately but, as with Tejoori, mistakenly. In addition to any financial penalty the reputational damage potentially caused by a breach could impact your business.

It is imperative that all companies with publicly traded shares, bonds or other instruments should have the appropriate processes in place to identify inside information and make such disclosures as are necessary.