Whose art is it anyway?

Charity | Webinar

About This Webinar

Thursday 3 February 2022, 09:30 - 10:15 BST

Museums, galleries and other cultural institutions can find themselves in the situation where they have objects of great value (culturally and/or financially) but where there is a dispute as to the ownership of that object.

In this webinar, we looked at:

  • The often tricky legal issues that arise

  • How those disputes can be resolved

Andrew Wilkinson, our head of charities and contentious probate, was joined by Luke Harris, barrister at Five Stone Buildings. Luke has acted in a variety of arts and cultural property disputes, including disputes in relation to paintings by Matisse, Winslow Homer and Monet.

Questions

This is a live event and there will be an opportunity for questions and answers on the day; if you wish, you may also forward your questions in advance to events@shma.co.uk

Cost

There is no cost for attending this event.

Our Speaker

Barrister, 5 Stone Buildings

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Operating in the charity and not for profit sector has never been more challenging or more stimulating with social, economic and political upheavals, scarce resources and mounting needs and expectations

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0:07

 

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Webinar transcript

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1:30
Welcome to today's webinar the latest in our series on the impacts of the coronavirus on your business this afternoon. I look at minimizing Financial Risk to business. I'm Sean Moran a partner in the restructuring and insolvency team here at Shakespeare Martineau.
1:49
You will see on your screen that you're able to ask questions. So, please do raise these along the way and I can answer as many as I can at the end. The coronavirus pandemic is having a devastating effect on individuals and businesses across the globe for companies in this country.
2:05
The outbreak comes against a background of concerns across all sectors caused by uncertainty surrounding brexit and the risk of a no deal at the end of this year as well as a General downturn in markets across the world The immediate effect of the outbreak has been A disruption to supply chains with a lack of availability or delays to supplies where supplies are sourced from the Far East and just-in-time deliveries are critical for some sectors such as retail or Automotive. The consequences are already having a major impact on trading projections for the first two quarters of 2020 and Beyond.
2:49
Many businesses have found themselves unprepared for this situation without appropriate contingency plans to deal with major disruption events.
3:00
It is important to realize that this does not just affect companies who do business with China the spread of the pandemic around the world has led to restrictions on the movement of people which presents challenges to all businesses these restrictions of cause further problems for struggling operators in specific sectors already facing trading difficulties in particular the travel and Leisure sector.
3:25
The recent demise of Airline flybe shows how quickly an adverse situation can develop with widespread disruption leading to a cessation of trading and the appointment of Administrators to the company.
3:42
Restrictions on public Gatherings by many European governments with the UK shorter follow shortly or mean that restaurants hotels and other businesses in the Leisure sector will continue to struggle with the less robust being forced to fold even buoyant businesses with strong order book and secure Supply chains. May face challenges as a result of the virus.
4:09
Companies do have a duty to ensure the health and safety of their employees and many are now being forced to adapt working patterns, which may lead to a loss or reduction of production causing further strains on the balance sheet.
4:25
Against this background directors must be increasingly aware of their duties and responsibilities with a heightened risk of insolvency for many businesses. So what are the immediate steps directors should take to minimize risk to their business? Well first it's important to note that directors have a duty under the companies act to promote the success of a company for the benefit of its shareholders.
4:51
But when a company is faced with challenges to its operations placing it in an insolvent position those duties change and the interests of the companies creditors become Paramount.
5:04
Perhaps the most fundamental fundamental thing to bear in mind is that directors must have the availability of relevant financial information directors should ensure that they have access to management accounts for the company on a regular basis.
5:24
This will enable them to make key decisions on a properly informed basis for the benefit of the company and its creditors directors should also ensure that the company does not continue trading when there is no realistic Prospect of avoiding a formal insolvency process.
5:44
The particular risk here in terms of ongoing trading would be claims against the directors by a liquidator for wrongful Trading.
5:54
Now a claim for wrongful trading if successfully proved could result in the directors having to make significant compensation payments to the company acting by its Liquidator.
6:09
where a company is in financial distress directors should take particular care to avoid entering into transactions which involves specific dispositions of a company's assets any transfer of an asset at less than its full value or any payment made exclusively to a specific creditor where other creditors are excluded from payments may be subject to a challenge by Liquidator or an administrator if the company Subsequently goes into a formal insolvency procedure. This could lead to a transaction being set aside and potentially action being taken against the director or directors personally to compensate the company.
6:55
It is important that the board of directors meets on a regular basis. So the important judgment calls can be made and that the directors ensure that all decisions made at these meetings are carefully minuted to create a paper trail.
7:13
Where appropriate the board should take professional advice.
7:17
Specifically before entering into any significant transactions, which may later be set aside.
7:24
Or in connection with continuing the company's operations bearing in mind the risk of a later claim for wrongful Trading.
7:34
So what steps are there that you can take to protect your business? But it's important that directors engage early with key stakeholders in particular the company's Bankers who may have the right to appoint administrators if they hold a debenture and there is a breach of the terms of that debenture.
7:57
Or it may be specific creditors of the company who provide key supplies.
8:03
And place the company at risk by present presenting a winding up petition in the event of non-payment.
8:12
It's important that constructive discussions take place to reassure lenders and creditors and where appropriate to renegotiate terms for payment or any terms for Lending.
8:25
Again, however, it's important to provide lenders in particular with up-to-date financial information to give appropriate reassurance maintaining an ongoing dialogue with key stakeholders is vital many banks will have their own business contingency plans and we'll expect their customers to make early contact. It's always better to be proactive in this regard.
8:53
Early discussion should take place regarding any need for additional Finance if required. However, once again, the directors will have an important judgment call to make here. They have to be sure that any lending does not overstretch the company's position and place it at greater risk of insolvency.
9:18
directors should take all appropriate steps to maintain insurance cover for the business obviously to protect both its existing assets, but also To protect the directors themselves against potential claims. If there is a relevant directors and officers insurance policy something that's often forgotten in the midst of financial difficulties and a difficult trading environment for a company.
9:51
Difficult decisions will have to be made in the course of any restructuring and reorganization of a business affected by a financial downturn reduction in staff numbers and other significant overheads is an important part of any restructuring exercise. John Heuvel has given advice on employment issues in an earlier webinar in this series.
10:14
Discussions with key creditors as I've mentioned will be required and if it's necessary payments rescheduled so that necessary arrangements can be made regarding the company's debts, but importantly taking care of all times that arrangements are not subject to a later challenge potentially as a preference.
10:39
Once the decision is made that a company cannot continue trading. The directors will have to take professional advice in relation to the appropriate formal insolvency procedure.
10:53
At all times it's important to minute all decisions made and where appropriate to take professional advice on the necessary route for the company to follow whether that be liquidation which will involve a complete cessation of trade.
11:12
Administration which may involve some ongoing trading under the management of an administrator or a company voluntary Arrangement where the directors of the company retain management control over the business, but subject to an agreed set of proposals over a period of time to pay creditors.
11:36
An agreed sum under the supervision of an insolvency practitioner.
11:43
Depending on the process to be adopted the timing of any cessation of trading will have to be decided by the board.
11:51
if that's appropriate and close liaison will be made with any insolvency practitioner who is to be appointed so that critical payments during any Hiatus period can be identified and made and in particular how you deal with key overheads specifically staff and any leased property staff for a key component to any business but also an expensive overhead It is important for directors to remember that although they will lose management Powers. Once a company goes into liquidation or Administration. They remain subject to statutory obligations as directors as long as they're registered at companies house.
12:41
A recent decision in the high court confirmed that a directors fiduciary duties can continue after the company has entered into an insolvency procedure as a result directors should take particular care when acquiring assets under a pre-practice transaction from an administrator.
13:03
So that they ensure full disclosure of that transaction is made and a proper value is paid for those assets.
13:11
To guard against any potential challenge by Liquidator the might be appointed at a later date.
13:21
Now most recently. The chancellor has announced some important insolvency related changes in last week's budget.
13:32
As ever with this government, it's a carrot and stick approach. First of all the carrot.
13:39
The government is launching a 30 billion pound fiscal stimulus package to help businesses and individuals through the core over coronavirus outbreak.
13:49
Although it would appear only 12 billion pounds of that is Coronavirus specific the headline elements of that package our support for businesses, including a scaled-up time to pay scheme a new coronavirus business in Corruption loan scheme, which will see loans of up to 1.2 million pounds supported by an 80% government guarantee and also a business rates holiday period for businesses and business rates as many of you will be aware.
14:26
It's a particular sensitive issue for a number of retail businesses.
14:39
the stick approach Is that hmrc will have the power from the 6th of April 20 22 make directors and others personally liable for corporate tax debts in certain situations and those situations are where hmrc suspect the director of abusing the insolvency framework in order to avoid paying taxes hmrc a looking at Phoenix situations here.
15:12
We're directors acquire their existing businesses from an insolvency practitioner, perhaps under a pre-pack or similar transaction. And where those directors are linked to a company and have a track record of insolvency. Now, there are a number of issues that need to be looked at there. We don't have time for that today.
15:35
But this is certainly something that directors need to be aware of and need to take particular care when managing companies who are struggling financially.
15:52
Well, thank you for listening to today's webinar on minimizing Financial Risk to business.
15:58
We've had a few questions come in. So I'll answer a couple now and then send a follow-up of the others along with the recording of the webinar.
16:08
The first question concerns wrongful trading. How do you reduce the risk of a claim for wrongful Trading?
16:18
We'll just to remind you the wrongful trading will occur.
16:22
When the directors know or should know that the company is likely to become insolvent and they continue to trade nonetheless and the effect of that continuing to trade is that it increases the deficit to creditors and in appropriate circumstances. If there is a finding of wrongful trading a court can order that the directors have to pay compensation.
16:50
Relating to that deficit to the company acting by its liquidator.
16:58
Now how you determine whether you should continue to trade?
17:02
In financial when the company is in financial difficulty will be a matter of fact in every case. It's an important judgment call and one that should be taken with reference to specific up-to-date financial information and professional advice.
17:19
It may be appropriate in certain circumstances to continue trading where the benefit Of doing so it's for for the good of the creditors of the company as a whole.
17:33
But professional advice must be taken at all times.
17:39
The second question if a company is in financial distress, are there any circumstances when you can pay certain creditors ahead of others?
17:49
Well, that's an interesting point. And again here you'll remember that. I covered the issue of preference payments in my presentation now in certain circumstances, it is permissible for a company authorized by its directors to make payments to certain creditors and not others without those payments being subject to a claim by way of a preference.
18:18
No circumstances will be where the particular creditor in question is a key supplier or a landlord and where the payment is necessary to enable the company to continue trading for the benefit of its creditors as a whole each situation will depend on its own facts. And again any decision made by the directors in this regard will have to be supported by both up-to-date financial information and appropriate.
18:48
Will advise properly minuted. Well, thank you for all the great questions, which I'll follow up after the session and share these with you.
18:58
The next webinar in our series is tomorrow on business and Banking and that will be given by my colleague Christopher Von stranden.
19:07
for further advice and guidance on the coronavirus outbreak, please contact our dedicated resource Hub at shma.co.uk-- Thank you very much.

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Webinar transcript

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1:30
Hello and welcome. I'm Justine ball a legal director here at Shakespeare Martineau and welcome to today's webinar on the impact of coronavirus on business leases. You will see on your screen that you are able to ask questions. So, please do get in touch along the way and I can answer as many as I can at the end.
1:50
Many landlords and tenants will be paying close attention to how the continuing spread of coronavirus over the coming months may affect their business and in particular their leased premises in the wake of the 2020 budget and the World Health Organization now declaring the coronavirus as a pandemic we can expect the government to introduce recommendations and restrictions to now delay the spread of the virus.
2:14
Knowing the parameters of your lease and good planning may help minimize the impact of any restrictions or recommendations imposed by the government. So today we will explore some of the concerns you may have as landlords and tenants.
2:30
So starting with tenants all businesses are likely to feel the effects of the virus travel and Leisure are being hard hit as a result of countries seeking to contain the outbreak with flight cancellations travel bans and tourist hotspots being closed businesses with office premises will also be affected as employees may need to work remotely which may put pressure on production levels.
2:56
As businesses start to feel the downward effects of the virus. You will be considering how you can support the payment of rent and other sums under your lease. So tenants will be considering whether there is any entitlement to a rent holiday are in suspension or rent reduction as a result of the sudden effects of the virus.
3:15
Unfortunately, this is very unlikely to be the case tenants will be unable to unilaterally withhold rent. However, you could seek to reach a negotiated position with your landlord tenant could seek to liaise with their landlords to explain and evidence the effects of the virus on their business to explore whether the landlords would be willing to agree a rent reduction rent holiday or even a payment plan. So rent can be broken down into more manageable payments.
3:43
However this It would be entirely at the landlord's discretion.
3:48
Another way of trying to get rent covered is through insurance. If you have insurance, you should review your policies to consider whether the effects of the virus could be covered the type of insurance you need to look for is business Interruption insurance. If you have a policy which includes business Interruption, you will also need to look at whether such insurance covers property damage only whether it also includes non property damage.
4:14
The latter is more unusual, but policies should nevertheless be checked as tenants may be able to claim rent. It is unable to pay as well as other losses if it has business Interruption Insurance, there may be a way for tenants to pay a reduced rent, but this will only be the case if tenants pay a turnover rent.
4:34
So if you pay a rent in accordance with a turnover Clause, then you may expect a reduction in the amount of turnover rent you pay if you see a decline in your taking Tenants will be contractually obliged to pay the base rent in accordance with the turnover rent Provisions, but tenants could see a reduction in the amount of additional turnover rent paid to the landlord at the end of the rental period as this is usually calculated on the basis of a business's turnover.
5:03
Whilst this won't result in an immediate rent reduction. There may be some relief for tenants at the end of the rental period which may be welcome. If businesses have been struggling up to that point whether or not a turnover Clause will apply will depend on the terms of the provision in your lease and whether there are any other lease requirements on the tenant to keep open and maintain active trading throughout the period this is usually a condition of some turnover rent provisions.
5:30
But also need to consider whether any forced cessation of trading would be affected on a slightly separate note. If it is the case that you consider that you're unable to trade at all from the premises check your lease for a tenant break laws whilst this will not result in you being able to immediately cease paying rent. Once you have served the break notice and any break conditions have been met and the number of months notice have expired you would then escaped the liability to pay.
6:00
Rent for the remainder of the term. But of course you would still have any dilapidation liabilities to consider.
6:07
So moving on you, maybe the tenant of the Morty let building or a shopping center If a landlord closes the center then arguably the landlord has breached its lease obligations to you to not derogate from Grant and to allow you to quietly. Enjoy the premises.
6:24
The strength of this argument will depend on the circumstances around the closure if the landlord has unilaterally decided to close the building and no such guidance has been issued by health and safety executive Public Health England or the government then your claim is likely to be stronger.
6:43
However, if the landlord is following guidance from regulatory bodies all the government, then it may be more difficult to make that claim.
6:51
In any event tenants should take steps now to preserve evidence in order to raise any claim for damages against landlords as necessary at a later date.
7:01
For example, you should track and retain full records of the takings of your business loss of profits footfall and any other direct costs, which you have incurred over the affected period tenants can then seek to use this information to try and negotiate a rent suspension of rent reduction or rent holiday as well as other songs you pay The nice if the landlord isn't willing to agree a reasonable soon as I set off you can then assess your position with the available evidence. You have collected and consider at that point whether it is necessary to threaten a breach of quiet enjoyment claim. So thirdly if it becomes necessary for tenants to close their business premises, they will need to consider whether this will be a breach of Covenant in their lease to keep trading and to keep the premises open.
7:52
This is likely to be a major cause of dispute between landlords and tenants particularly since a keep open Clause can be linked turnover rents and breach of that covenant could result in forfeiture of the lease a damages claim being brought against you or a claim to force a tenant to reopen its business.
8:12
However, it is extremely difficult for a landlord to succeed in forcing a tenant to reopen its business. Should it choose to close the same this would be even more difficult to achieve if tenants have closed businesses because of government and Regulatory bodies guidance.
8:29
If you are looking to close the business temporarily for other reasons, these should be explained in detail to the landlord before closure. If possible. In order in order that you can then seek to reach an agreed position on the period of closure with the landlord to try and avoid any potential action from them. So now turning to landlords.
8:50
Landlords are likely to face claims by some tenants that they cannot survive as a business without full access to and use of their premises and an adequate number of Staff tenants May. Therefore try to argue that their leash should be brought to an end all together as a result of the football restrictions reductions in takings and the effects to supply chains as a result of the virus.
9:11
So on that basis tenants could seek to argue that their lease has been frustrated by the outbreak of the virus.
9:18
However, it is extremely difficult to argue that Elise has been frustrated as the case of Canary Wharf The p41 Limited versus European medicines agency highlights in 2019. In this case. The tenant European medicines agency failed to persuade the court that brexit was an event capable of frustrating the purposes of the lease. The bar has been set very high by the court and tenants are unlikely to be able to successfully argue that their leashes should be.
9:48
Brought to an end by frustration due to the virus given that it is transient and temporary in nature the frustration to be a credible argument tenants would arguably need to prove longer-term and significantly damaging effects of the virus on the premises and their businesses.
10:07
They must prove either that it is impossible for them to perform their obligations as a result of the virus or their obligations are drastically different than was first envisaged tenants could could be assisted by any guidance from the government that must be followed. However, even this may not be sufficient as arguably the outbreak of public disease is within the contemplation of the parties given previous events.
10:32
Landlords should therefore be ready to resist any challenges by their tenants on this basis.
10:39
I'll also slightly touch upon force majeure Clauses which are well known in commercial and construction contracts. However, they are rarely found in commercial leases. Although granted.
10:49
Some older leases may contain these If there is a force majeure clause in your lease whether the virus can be seated as force majeure event will depend on the wording of the Clause. However disease such as a pandemic is unlikely to be considered as a specific act or event given its evolving nature nevertheless. If there are government impose restrictions that may give rise to an event such as a quarantine and a lockdown. It may well fall within the force majeure provisions and the lease could be brought to an end.
11:22
Only if it contains such a provision. So moving on to insurance with the mounting pressure on tenants being required to pay out various sums tax rates utilities with the reduced some coming into their business. They may seek to invoke the rent suspension clause in their lease.
11:42
Standard uninsured and insured risk provisions of unlikely to cover losses as a result of the effect of the virus.
11:50
It is worth considering though, whether the possible consequences of disease such as civil commotion would be caught by insured or uninsured risks. You must check your lease.
12:00
In particular rent suspension is only likely to occur where an uninsured risk has caused damaged or has destroyed the premises the virus is unlikely to cause such physical damage, but we can query where the contamination of the premises by the virus could equate to damage particularly since premises are likely to be shut while the damage has been remedied.
12:22
It is worth checking your risk Provisions as depending on the drafting. It may well extend to premises that have been closed and not just being damaged or destroyed.
12:34
But looking at standard uninsured and insured risk Clauses that you see in modern laces. It is unlikely to include such caveats and on balance. It's unlikely that tenants will be able to rely on those Provisions for rent suspension. So looking at service charge now as the government is looking to step up its efforts to delay the spread of the virus. It is likely that we will see the government imposing requirements for building owners or landlords or even tenants to undertake extra cleaning services.
13:03
Has and deep cleaning of their premises whilst there is unlikely to be any explicit obligation in your lease to require you to provide additional services to prevent disease any in positions by the government will need to be undertaken quickly.
13:18
Supplying these additional services will come at a cost and depending on the wording of your service charge Claus. It is likely that you will be able to recover the cost of any additional cleaning from your tenants. Therefore you should give notice to your tenants of the additional cleaning and maintenance required and recharge this to them in the usual way the provisions you should look out for which would cover these costs are any relating to hygiene management and cleaning security and the general Provisions allowing.
13:48
Free of costs in line with the principles of good Estate Management, which is usually a sweep up clause.
13:54
It is also often a provision which requires costs to be incurred reasonably, but in the circumstances, it appears unlikely that tenants could argue that the provision of additional security or additional cleaning could be unreasonable in these circumstances. We've also had a number of queries as to where the landlord should improve controls of access to premises such as forcing visitors to utilize hand sanitizer.
14:17
Services included in the model commercial lease for office premises allows landlords to recover costs for the provision of facilities for visitors of the building. So this would cover eventuality and such costs could be handed down to tenants. So it is key for landlords to check the extent of their service charge Provisions to understand what is and isn't covered.
14:40
So the top action points both landlords and tenants need to undertake as the threat of the coronavirus evolves are check your lease Provisions understand your rights and obligations in order that you can formulate a tailored plan for your business.
14:57
Keep yourself up to date with guidelines from the government World Health Organization and Regulatory Agencies such as the health and safety executive and public health England. This guidance is key and will help you plan ahead for your business and understand your legal position.
15:13
Keep records book for turnover staff absences profits losses supply chain interruptions. This will help justify any action. You may need to take to minimize the impact of the virus. So the more evidence you can collate and keep the better.
15:33
Keep your tenants or landlords updated as to the current position of your business. If you feel it necessary communicate the effects of the virus on your business or the plans you wish to take to tackle the same with your landlord or tenant Paper Trails are important.
15:48
Also engaging and negotiating with landlords and tenants be willing to engage with them on the issues. You are facing you may find that your landlord or tenant understand your position which could result in a negotiated resolution that benefits both parties. So, how can we help here at Shakespeare Martineau? If you sent offshore lease we can help you understand your rights and obligations. If you are renewing your lease, we can consider what additional protections you should be seeking.
16:17
Going to contain there in.
16:20
We can also lead you in the right direction as the type of information you should be collating at this time to ensure you are keeping appropriate and necessary records. We can also help you formulate a strategy to cope with the effects of the virus on your business premises and leases.
16:35
So thanks to all of you who have joined us today. And listen to this webinar about the impact of coronavirus on business leases. I can see that I've had a few questions come through. So I will answer a couple now, so let's take one for tenants and one for landlords.
16:53
So tenants, you've asked me what you should do. If you have to cease trading temporarily due to coronavirus. So as I touched upon earlier on it depends on the circumstances, but if there are no requirements for your business, too close by the government, then you should consider why you are seeking to close the premises and whether it is absolutely necessary to do so.
17:16
As mentioned earlier if your lease has a keep open Clause you could be liable for breach of this Covenant.
17:22
However, if it is the case that you have no or minimal staff due to self-isolation or you can produce strong evidence that the coronavirus has shut your business and trading then it may be worth liaison your landlord now to confirm the position and state that it is necessary for you to close the premises temporarily you can then try and agree with your landlord a period of closure and request confirmation. The landlord will not bring a claim against you for breach of that Covenant in the circumstances.
17:50
And the second question will take from the landlord side. What a my obligations to my tenants in relation to the coronavirus. Do I need to be doing more to look after their care? So landlords will have a duty of care for the health and safety of its tenants as well as visitors contractors and employees and this Duty will include the risks posed by infectious diseases.
18:13
You should therefore carefully consider the current threat in light of the most up-to-date news on the outbreak and take into account the following advice. You should obtain health and safety recommendations from your health and safety advisors. You should put in place any further preventative measures that need to be taken in relation to the building itself such as additional cleaning security provision of hand sanitizer Etc.
18:41
You should also be Consulting and liaison with your employees about any risks and any measures that they need to take both inside and side of the premises So that concludes the session thank you for listening. And for your questions. I will follow up those. I haven't been able to answer today after the session the next webinar in our coronavirus series is tomorrow at 12:30 on minimizing Financial risks to businesses with Shaun Moran. So if you'd like to get in touch with us, please do so you'll see the details shown up in front of you.
19:19
You can call O 3 3 3 0 0 2 4 0 3 3 3 and ask to speak to me or another member of the real estate disputes team or you can visit our coronavirus hub for advice and guidance.

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Preparing for the recession

Preparing for the recession

The true economic impact of COVID-19 will be felt worldwide by businesses and individuals for many years to come, with the Bank of England warning that the UK economy is heading towards its sharpest recession on record.

This webinar will look at the lessons learnt from the 2008 financial crisis and what businesses should be doing now to prepare to survive the next recession.

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Webinar transcript

(Please note this is auto-generated and un-edited)

 

 

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COVID-19 | How business and retail tenants can manage their quarter rent?

COVID-19 | How business and retail tenants can manage their quarter rent?

With a threat of even tighter government restrictions on the movement of people, this is having a major impact on tenants, especially retailers, generating income from a non-existent footfall.

The next quarter rent date is looming, and the impact of coronavirus has been severe. In this webinar, we’ll discuss what tenants can do with their landlords over the next few crucial days to try to save this expenditure.

Further information on how to manage the impact of coronavirus can also be found on our coronavirus resource hub and you can view past webinars at SHMA®ON DEMAND.

Please do let us know of future topics that you are interested in, or for more information about our webinars please contact us.

This webinar was recorded back in March 2020 and whilst all the guidance is still relevant the government since the recording has new introduced new measures restricting the use of some recovery options for landlords including the use of stat demands and the use of CRAR. These restrictions are in place until 30th June.

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Webinar transcript

(Please note this is auto-generated and un-edited)

0:33
Hi, I'm Justine Ball a Legal Director here at Shakespeare Martineau. Welcome to today's webinar on how business and Retail tenants can manage the March quarter rent, which is approaching within the next couple of days.
0:48
This is a follow up on my first webinar on the impact of the coronavirus on business leases, which if you miss this, you can still listen to on our dedicated resource Hub. Shm a DOT Co dot u k or just contact me directly and I'll send you the link you will see on your screen the you are able to ask questions. So please do get in touch along the way and I can answer as many questions as I can at the end.
1:13
Following the government setting out even tighter restrictions on the movement of people and the strongest recommendation of social distancing.
1:20
We are seeing less and less people in public places pubs clubs restaurants and gyms are now all closed and many shops and retail outlets are beginning to close all so it's understandably a worrying time for all UK businesses and in particular the Leisure retail events and Hospitality sectors as fall is reduced to near zero and takings are being significantly affected as businesses rely on install spending for income generation even with the sweeping measures that were introduced by the government last week in response to the impact of the coronavirus cash flow is imperative for tenants in this crucial time to stay afloat for the longer term preservation of their businesses the March quarter day is around the corner so this webinar will provide tenants with advice on what they need to be considering now in order to seek to avoid paying the March quarter rent so that they can redirect these much-needed funds to other areas of their business so how can you avoid paying the March quarter rent for many tenants payment of the March quarter rent and the June quarter rent will significantly harm their business at a time when they are seeking long-term viability as a result of this book Shock to the economy as set out in my previous webinar. It is key that tendency to make contact with their landlords immediately in relation to the payment of the March quarter rent. This should be done in writing or initially a call which should then be followed up in writing so that you can evidence a paper trail down the line.
2:57
In the first instance tenant should be requesting a rent-free period or a 100% rent concession or rent waiver for at least one quarter to offset the sudden impact of the coronavirus on your businesses. You can then assess the further impacts of the virus over the next quarter to then consider whether you should be requesting the rent free periods.
3:17
Be extended to the June quarter asking for a longer 6 to 12 months rent-free period at the outset is unlikely to encourage collaboration, but it's Aspirate a negotiation tenant should be putting forward a proposal that is both reasonable and credible to encourage an agreement.
3:36
If the landlord is willing to agree a rent-free period or a hundred percent Renkin session, then this can be documented in a memorandum or side letter. There is a risk to landlord receiving adverse publicity. Should they fail to support tenants at this crucial time? And this may be why we are already seeing landlords agreeing to rent free periods. You may have heard of Argent. There is therefore a real possibility of tens being able to negotiate something similar with landlords if you act now.
4:07
Landlords understand the potential alternatives to the refusal of a rent concession at a time where there is a genuine need by their tenants. Laura Ashley has been the first casualty of the retail sector since the coronavirus hit our Shores with it heading for administration if landlords fail to listen to you, then there is a huge risk to them of rising numbers of tenants falling into a form of insolvency, including liquidations administration's and the proposal of cvas.
4:36
I do not recommend threatening insolvency If a landlord does not agree to a rent concession, but tenants should highlight there being a risk of this if landlords fail to work with you during this uncertain and dare. I say the word unprecedented time.
4:53
Should tenants propose a CVA not only could this negate the payment of any arrears, but the level of future rent also in the event of insolvency landlords are likely to lose money given the likelihood of receiving nothing from the insolvent tenant company the additional time and cost incurred in dealing with insolvency practitioners, the logistics of emptying premises and the effects of having empty promises as I will mention below.
5:21
So if landlords want to avoid this and preserve their long-term income, they should be working with you to reach an agreed position and this should be highlighted to them.
5:31
It may be that some of your landlords refused to Grant a rent-free period or a hundred percent concession as they themselves may be small businesses. If this is the case an alternative would be to negotiate a partial rent concession or even a rental holiday. This could be where rent is not paid for the next one or two quarters. And then it is amortized over the remaining term of the lease.
5:56
Whilst this won't be the ideal position for tenants as businesses will not know when the impact of the coronavirus will return to normal levels. It could be an agreed way forward to provide some immediate much-needed relief for tenants and a way for tenants to work with landlords, which are small businesses themselves.
6:15
If you are unable to reach agreement with your landlord either for a rent-free period or rent concession, and the landlord is nevertheless requiring you to The rent on the 25th of March then you should consider the following. Don't pay you could simply not pay the March quarter rent.
6:37
This carries the obvious risk of the landlord forfeiting your lease and bringing it to an end by Peaceable re-entry or by Court proceedings. However in the current climate, it seems unlikely that landlords will take full action to terminate your lease.
6:54
This is because the landlord would have surrendered the rent that would otherwise be payable for the remaining term of the lease. It would also be required to pay business rates for whatever period the premises remains vacant after any empty promises relief that have been reduced by the government.
7:12
after any empty premises relief introduced by the government Depending on the location of the premises it may well be very difficult to read let the premises to another tenant. So landlords could be denying themselves future income further. The valuation of larger assets are affected by the number of empty units. So should there be higher numbers of empty units or premises in centers parades and Outlets this could damage the value of landlords portfolios.
7:44
Looking at the risk of litigation against tenants or even guarantors. This will also be lowered a landlord would be unable to effectively utilize cry which is the commercial rent arrears recovery process as the premises in which they could take control of goods are likely to be closed any litigation that is commenced is likely to be delayed further by many months and by which time landlords could be at greater risk of tenant insolvency such as CVS and liquidations.
8:13
In light of all this tenant should consider whether they should actually pay the March quarter rent. There is still a risk of action, but it is a balancing exercise and tenants may consider that this risk has been reduced by the impact of the coronavirus of course tenant should consider whether their landlords have any intention to redevelop or take up occupation themselves. So has there been any discussions or suspicions about this in the past? It may be their opportunity to see possession of the premises.
8:43
If rent has not been paid, so each of your premises will need to be considered individually.
8:50
But what about if you have paid the March quarter rent already tenants, you should still approach your landlords and see if you can get a refund of the rent paid do not just assume because you have already paid the rent. You should let this lie get in touch with your landlord and landlords agents and see whether you can negotiate a payment back to you to cover any essential outgoings. See if any other tenants in your sensor or parade with the same landlord has been granted relief for the March quarter.
9:20
Because if so, you should receive a refund like they have been granted a rent waiver.
9:26
If a landlord is not willing to refund the rent then kick start negotiations for the June quarter particularly since you've already paid the March quarter And looking at tenant termination you should review your agreements and see whether you are holding over on a business lays that has expired whether it's about to expire or consider license arrangements or if your lease or license contains a tenant break laws. If so tenants could unilaterally seek to serve notice to terminate your agreements and avoid payment of future and you will not need landlords concerned.
10:01
However, if you terminate by serving a break no, This it may well have conditions that will need to be strictly met in order to terminate the lease. These will need to be considered further. You may have a liability for dilapidation, 's once the license or lease has been terminated which will also need to be considered. But at least by serving notice you are bringing an end to future liabilities under your lease.
10:28
So in a nutshell what do tenants need to do now, and how can we help?
10:33
My top action points for tenants now are make immediate contact with your landlord and propose a rent-free period to avoid paying the March quarter rent or if you have paid seek a refund also put it in writing if the initial answer from the landlord is no be persistent and negotiate set out some of the points made in this webinar today and see if you can persuade your landlord to reach an agreement.
10:59
Consider all the circumstances and the risks and consider not paying the March quarter end. There will be a period of time before the landlord can physically re-enter or issue proceedings to Forfeit the lease. So there is time to capture the attention of your landlord and you can recommence negotiations to see if an agreed position can be reached.
11:21
Check your laces. You may have a tenant break option or be able to terminate the lease or license.
11:28
And finally, keep yourself up to date with schemes that are being introduced by the government. The government have already introduced 25,000 pound grants to retail hospitality and Leisure businesses operating from smaller premises with a rateable value of over 15,000 pounds and Below fifty one thousand pounds as well as the coronavirus business Interruption loan scheme.
11:52
All UK businesses are currently looking over the precipice into the unknown and now More than ever is the time for landlords and tenants to collaborate in order to preserve the value of their businesses and their working relationships.
12:07
So how can we help our real estate disputes team have the scale and expertise to assist your negotiations and make formal approaches to your landlords. But the time to act is now sent to Offshore leases or licenses and we can help you formulate a proposal to your landlords. We can advise you on your termination Provisions how to meet your brake conditions and how to manage any of your applications liability.
12:32
If you find that a landlord is taking enforcement action or commencing litigation we can help just get in touch. Thanks to all of you who have joined us today and listen to this webinar about how business and Retail tenants can manage the rent core today. I can see that I have ever had a few questions come through. So I'll answer a couple now.
12:52
So the first question is what if a landlord for fits my lease by peaceful re-entry because I failed to pay the March quarter Ren. What should I do?
13:02
If the landlord peaceably re-enters you have options to get back into your occupation of the premises, of course, this will depend on whether you actually want to go back into occupation or whether you are happy to accept the forfeiture to avoid having to recommence occupation and continue paying sums pursuant to your lease for the remaining term. However, if it is the case that you do want to get back into occupation, then you can issue Court proceedings for relief from forfeiture.
13:30
This means that you can make an application to the court for an order to reinstate your lease. But in order to obtain relief from forfeiture, you will be required to pay the rent sewing and the cost. The landlord has incurred in the relief from forfeiture proceedings. It can take a few months to get back into occupation as the court will need to order relief from forfeiture at a hearing and it could take some months for this to be listed in the current climate.
13:58
Alternatively you could seek to engage with the landlord to agree to enter into a new lease on the same terms of the previous lease, but this would be subject to negotiation.
14:09
So the final question I have time for is I have a business lease which expires next month and I do not want to remain in the premises. Do I need to serve notice now to vacate? That's a good question. No, you do not need to serve notice to vacate. You can just vacate by the contractual expiry date of your lease as a matter of courtesy you should inform the landlord that you are vacating, but you do not need to give the landlord any set period of notice.
14:39
Can just cease trading remove your goods and leave the premises as long as it's before the contractual expiry date. However, if it was the case that your business leads had just expired and you remained an occupation after the contractual expiry date, then you would need to give a period of notice to terminate your lease. But please feel free to contact me to discuss this further. So that concludes the session thank you for listening and for your questions. I will follow up with those I haven't been able to answer today after the session for all.

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COVID-19 | Avoiding claims for breach of contract

COVID-19 | Avoiding claims for breach of contract

During these strange and difficult times, many affected businesses will be concerned about whether or not they can continue to comply with contracts they have signed up to.

If a business cannot comply with its contractual obligations, or expects that it will not be able to in the near future, it should consider the contract to see whether or not this may provide relief (through termination or force majeure clauses) and if not, consider whether the law of frustration may come to its aid.

This webinar will give an insight into how businesses can treat contracts when they are unable to comply with them and what the consequences may be.

Further information on how to manage the impact of coronavirus can also be found on our coronavirus resource hub and you can view past webinars at SHMA® ON DEMAND.

Please do let us know of future topics that you are interested in, or for more information about our webinars please contact us.

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SHMA® ON DEMAND

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Webinar transcript

(Please note this is auto-generated and un-edited)

0:02
Hi, I'm Alex Ryan an Associate in the dispute resolution team here at Shakespeare Martin a welcome to today's webinar on coronavirus and contract termination force majeure and frustration. You will see on your screen that you're able to ask questions. So, please do so along the way and I'll answer as many as I can in the end. I will also share some of your questions with everyone after the webinar.
0:24
This webinar is going to look at the impact that coronavirus may have on businesses and And that contracts what the position is if they're struggling to comply with their contractual obligations and what actions they can take.
0:40
Coronavirus and its potential impact on contracts. So the first thing to do is to look at the contracts in place and see what they say. I'll be focusing in this webinar on inter business contracts. Now the starting position for contracts is that it's assumed they are freely entered into by both sides with equal bargaining power the position in law. Is that both sides know what they're signing up for For Better or For Worse as such if a party fails to perform its obligations, it's would be liable to the other.
1:10
For damages now in some cases contracts will have been drafted in a way that for see circumstances where if one of the parties has a problem performing their obligations, they may suspend performance of some or all of their obligations or terminate a contract or together, but the contract needs to expressly deal with this and I'll speak about this a bit later on during this webinar.
1:34
If the contract doesn't include those Clauses there are situations where the law will akin to give the party a power to terminate the contract and then the current climate is likely that many businesses will be struggling or will struggle at some point in the near future so comply with contracts.
1:54
So they may be concerned about complying with their contractual obligations because of coronavirus if parties can't comply with their contractual obligations, then they will be in breach of those contracts that may lead to a claim being brought against them for damages, which could be Can particularly where fixed time long-term contracts are concerned. And so this webinar looks into what the legal remedies are to help those businesses and provide relief for any breaches. What businesses need to know about their contracts. If businesses are struggling to meet their contractual obligations due to the impact of coronavirus and maybe Clauses in the contract that can help and allow those businesses.
2:40
To either suspend performance of their obligations or terminate the contract all together to save them from being on the receiving end of a clue. That is if that is a step that the business wants to take given that this might result in termination of the contract and businesses should think carefully about doing that because it is such a final step so generally contracts will allow parties to terminate the contract in certain circumstances.
3:08
It's important however to Not all breaches entitle a party to terminate a contract. So it's vital to look carefully at the wording of each and every contract and to take advice if in any doubt as to what they mean, you may see wording in contract such as material boot, which may not be defined in the contract. But which has been the basis of a number of Court claims over the years and so caution is advised certain Clauses may be defined as conditions or warranties both of which have different meanings. There may be a general no fault.
3:40
Termination clause which enables one or more of the parties to terminate the contract where there's not been a bridge but it's important to follow the procedure set out in the contract in these circumstances to make sure termination is effective and that you don't end up wrongfully terminating the contract and facing the claim yourself. Ultimately you need to check each contract carefully to see what it says. If a party's ability to comply with the contract is affected due to Coronavirus.
4:11
And general termination Clauses don't Supply then there's may be covered in the contract by force majeure Clause not all contracts have force majeure Clauses as it has to have been specifically agreed and the wording will vary between Clauses and contracts and so each case needs to be considered separately. Now the effective force majeure Clause maybe then certain circumstances where there's been an extraordinary event outside with parties control.
4:40
Then either prevents hinders or delays it from being able to comply with some or all of its obligations under the contract. It's permitted to suspend some or all of its obligations or to terminate the contract typical examples include things like acts of God including floods droughts earthquakes. Terrorism Wars plagues Etc. Now if a contract contains the force majeure Clause, this will need to be considered.
5:10
See whether or not it's expressly covers coronavirus as an event, which may be covered by commonly included events such as epidemics or pandemics or it might be covered under more general terms again. It all depends on the wording of the contract that we're looking at. If a contract does contain such a clause and it's likely to cover coronavirus that doesn't mean that it automatically applies and allows a party to suspend performance of its obligations.
5:36
For example until the lockdown has subsided or to terminate the contract clause may also refer to an active government as a force majeure. And so even if the word pandemic or epidemic is not used it may be that a party can rely on the recent decision of the government to close down non-vital business premises or for people to stay at home ultimately much will depend on the circumstances of the parties and the wording of the Clause, but often these Clauses only apply where a party is prevented significantly.
6:07
If not totally from performing its obligations under the Tracked due solely to that event and then its obligations have not just become slightly more difficult or impossible.
6:18
Parties are also often required to take all these and more steps to mitigate their losses. So for example taking steps to find an alternative supplier or hiring temporary or Locum staff if they don't take those steps and they're unlikely to be able to rely on a force majeure Clause the contract may also contain obligations regarding force majeure such as giving notice to the other side of the force Majora's of events effect on its ability to perform any of its obligations under the contract.
6:48
Which is why it's important to consider the contract from an early stage.
6:53
Now if contracts don't contain force majeure Clauses the law office tration May assist but needs to be pointed out that it's much much harder to rely on than force majeure.
7:04
The law office trajan comes into play when unforeseeable event makes compliance with the contract impossible or transforms the obligation to perform into a totally different obligation from that which the party originally signed up to do if applies it allows the contract to be Automatically terminated so that the parties aren't required to perform the obligations under the contract unlike force me draw. It does not allow for suspension. And so it's very much a final measure and a final step as to whether or not the law frustration applies to coronavirus.
7:41
It would totally depend on the facts of each case and the nature of each business and contract frustration is notoriously difficult to show is a party seeking to rely on it has to show that it would be in possible not just very difficult either physically or commercially for them to perform an obligation. That's absolutely cool to the contract as such making one or more non-essential obligations more difficult isn't enough normal delays or extra expense.
8:12
For example, it's not easy to apply for an event company that can no longer host an event because the venue has been closed the station is very unlikely to apply where for example the parties have To provision for such an event already such as the force majeure clause which mentions a pandemic or where the event could have been foreseen. For example, if a contract was entered into recently it may be arguable that an event such as coronavirus was foreseeable given recent predictions by the scientific community.
8:45
An equally it wounds apply where an alternative method of performance as possible. So for example, finding another supplier for stock if it applies when the contract is terminated from the time of the event the effect of this is that any existing obligations up to that point continue to be in play. The contract is not wiped out as though it never existed.
9:08
What is this is can do we're growing advisors impact in their contracts businesses should have their fingers on the pulse and recognize if they are currently or likely to struggle to comply with any of their contractual obligations due to coronavirus businesses should check their contracts at the earliest opportunity to see what they say. And if they contain any Clauses that may allow them to suspend performance of any or all obligations under a contract or two.
9:37
Terminate the contract to save it being in breach of contract. I'm depending on the existence of the wording of those Clauses in this is Gigi because it's going to change from case to case the parties will be expected to have taken all reasonable steps to comply with their obligations.
9:52
So for example to of salt up Financial packages to have employed agents to a found alternative suppliers Etc if those steps have been taken and they don't work and there are clauses in the contract that may assist then businesses can Look into exercising their rights under those Clauses to either suspend performance or tablet contracts all together. If there aren't any Clauses parties might be able to argue that the contract is frustrated. But as I've said this isn't straightforward and the party claiming. It must be in a position where coronavirus has made it impossible for them to comply with the contract. Also, it should be a last resort particularly where one is dealing with a long-term contract, which the company May.
10:37
Ultimately want to come back to after coronavirus has hopefully passed also remember the other Contracting party or parties may also be struggling and they might actually welcomed a suspension of the contract or way out of the contract. And so it may be appropriate to discuss the situation with them before taking any drastic action.
11:01
And importantly you should take legal advice.
11:03
If you're in any doubt, if businesses don't do the above, they could find themselves in breach of contract and facing games equally they have to balance that against the need to have contracts in play for when coronavirus passes conclusion as I've said above businesses need to keep their finger on the port. They need to check their contracts to see if they might help in the event a business can't comply with the contract anymore because of coronavirus.
11:32
They should also be taken all reasonable steps to comply and to think of ways that they can comply with their contract when exercising is termination clause Force majeure clause or arguing frustration.
11:47
It is a serious move and should not be taken lightly particularly as at the wrongful exercise of this and the Downing of tools may result in a breach of contract which can ultimately result in the other party terminate the contracts and claiming damages against you Exercise caution and if in any doubt take advice, hopefully the circumstances in which we find ourselves will change for the better sooner rather than later and if they do it's important not to tear up contracts in haste, but these are unprecedented times. So it's important that businesses are aware of their position and what options they have moving forward to safeguard themselves. I think this is likely to be an area subject to much Court action over the coming months.
12:32
Thanks for listening to this webinar, which I hope you found useful and relevant in the circumstances. I'll answer a couple questions now and we'll also send a note of all the questions and answers I've had along with the recording of the webinar. So the first question I've got here is can the parties agree to terminate a contract if they're both in difficulty as I searched on?
12:55
Yes, they can the parties can mutually agree to either suspend or terminate the This is why it's worth having open dialogue in some circumstances with other parties to the contract to see if such an agreement can be reached and if an agreement is reached in principle, the parties will need to check the terms of the particular contract to see what this says about how we amendment should be carried out to make sure that they're effective moving forward.
13:25
I've got another question here, which is what if I entered into a contract around the time that coronavirus started being reported. Can I rely on force majeure frustration? So split answer really for force majeure. The answer is most likely yes as there's not a strict requirement that the extraordinary event must have been unforeseeable. Hence, why force majeure events are specified in the contract.
13:52
There are events that the parties anticipated might have The answer for frustration is no you would not be able to show frustration of a contract if coronavirus was reported at the time.
14:03
The contract was entered into this is because frustration only applies where the event was unforeseeable and if it was reporting at the time it was clearly for Seattle what arguably say and I think one more question, which is I have a conditional contract which does not come into Force until the conditions precedent to have been met kind of rely on force majeure in the main body of the contract. So I think the answer to this is it's going to depend on the wording of the contract and each contract will be different but it seems unlikely from what's being said there is as the contracts including the force majeure Clause is not yet informed.
14:48
Until such time as the conditions presidents have been met and so the force majeure clause in the main body couldn't be triggered. So thanks so much for all of the great questions our follow up on these after the session and share these with you the further advice and guidance on coronavirus.
15:07
Please contact our dedicated resource Hub at shma.co.uk-- if you would like further information or like to discuss a specific query, Is it more detail then? Please do get in touch? Thank you very much.

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Webinar

COVID-19 | Working with debtors and debtor forbearance in the current economic crisis

COVID-19 | Working with debtors and debtor forbearance in the current economic crisis

The government, FCA and PRA have urged that certain measures be in place to support small businesses and consumers with regard to credit facilities, but more guidance is still needed in regard to hire agreements, hire purchase, conditional sale, and the multi-billion pounds worth of PCP car loans in the UK.

In this webinar, we will discuss what banks, leasing companies, asset based lenders and other funders should be mindful of when dealing with customers. The different approaches to take when reviewing regulated and non-regulated contracts, and an overview of payment, payment holidays, forbearance and modifying agreements. We’ll highlight how to avoid the regulatory pitfalls and at the same time seek to safeguard debtor credit ratings.

Further information on how to manage the impact of coronavirus can also be found on our coronavirus resource hub and you can view past webinars at SHMA®ON DEMAND.

Please do let us know of future topics that you are interested in, or for more information about our webinars please contact us.

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Webinar transcript

(Please note this is auto-generated and un-edited)

0:00
Afternoon, everybody. Welcome to this afternoon's webinar on debtor forbearance.
0:06
This webinar seeks to debate how creditors can interact and support debtors as a result of this financial emergency caused by the global covid-19 pandemic. My name is Eddie Flanagan and I'm a partner in the debt and asset recovery team. Our team handles all aspects of financial services work including both contentious and non-contentious business acting for manufacturers Banks captive and non captive lenders.
0:36
Leasing companies Brokers and funders. The team also has particular experience of the UK asset based lending automotive and energy sectors.
0:48
I'll be happy to answer questions at the end of this discussions initial considerations that we have to keep in mind turning firstly to housekeeping. Please note that this webinar does not constitute legal advice. The topic discussed is for guidance and information purposes. Only we are happy to assist people fought once we are formally instructed.
1:15
The covid-19 global outbreak has brought unprecedented uncertainty to both the UK and Global economies. We are seeing unforeseen disruption to every part of our economy and our daily livelihoods not to mention the suffering of those affected directly or indirectly by this virus.
1:38
Many people are now in certain as to how they will pay their mortgages or rent loans credit cards and even their food bills. This uncertainty has affected business greatly and has led to the widespread furloughing of Staff without which we would have seen the imminent collapse of many businesses across all sectors. The government has made its intentions known that creditor should creditors should act with leniency towards debtors.
2:08
In addition, they are very quickly made it apparent but they wanted the banks to retain their annual dividends in order to increase their liquidity ratios for this very crisis together with lenders. The government stated that the following release should apply eminently lenders should be willing to agree mortgage holidays of up to three months with customers who are not in arrears prior to this issue renters should be given similar holidays.
2:37
up to 3 months landlords cannot evict tenants for a period of at least three months possession proceedings will be limited during the next three months.
2:50
And in terms of tax self-assessments are delayed.
2:56
In addition business rates relief of up to 12 months for certain categories of business. Most notably retail can be sought the FCA is finishing consultation into Consumer Finance, which can usually take between six months and a year to complete but in this instance in light of the current emergency, one of the shortest consultations ever probably lasting no more than week has called for the immediate.
3:25
lamentation of the following creditors should allow payment holidays of three months for personal loans and credit cards that said what now happens to hire purchase conditional sale operating leases and of course the immense business of personal contract purchase, which amounts to a hundred and ten billion pounds in the UK creditors should allow immediate interest-free loans of up to 500 pounds.
3:59
And there should be no adverse credit rating entry made in terms of the delayed payments. Now that is fine for personal loans and credit cards. But as we've seen there are many other Financial products that need to be considered. So how do we as businesses deal with customers that are in difficulty? There are two categories of customers. We need to be mindful of they are determined by the following groups firstly is this a regulated contract?
4:28
If so, It is covered by the provisions of the consumer credit act 1974 and Associated legislation together with the requirements of the FCA that being the financial conduct Authority or in the in the alternative. Is it unregulated business to simplify this it is essentially business with limited companies or larger Partnerships these entities do not have the protection of the regulatory framework.
4:59
So we will start with the second category first as that is the easier to address. So this is unregulated business.
5:09
With an unregulated customer if they are seeking for Barons you can deal with the particular merits of the case as you see fit if the factual Matrix shows that the customer should be entitled to your forbearance. Then you should consider the contract that is in place between the two of you however, an act of kindness or commercial forbearance on your behalf must not lead to contractual uncertainty.
5:38
It is likely that your terms and conditions or the agreed contract contains an on variations Clause such a clause only permits an agreement variation that is signed by both parties. Therefore such a variation needs to be carefully drafted so that it complies with this failure to do this could undermine the veracity of the underlying contract and create uncertainty between the parties.
6:08
So many times we've seen litigation around this subject, whereby any advisor then needs to look at both the documents concerned and the factual Matrix that occurred at the time. The forbearance was granted.
6:23
Turning now to regulated business regulated business can consist of loans credit cards regulated higher higher purchase conditional sale agreements and a variety of Lisa's. The immediate point that arises is that amongst the regulated businesses listed much of same does not appear to benefit from the reliefs mentioned above. However, the following considerations are key to navigate the current issues affecting.
6:53
Related contracts and business firstly we have treating customers fairly.
7:00
This is a Cornerstone of current day.
7:03
Regulatory procedures funders are obliged to interact with their customers in a manner that is set out in the FCA handbook being the consumer credit sourcebook charmingly referred to as conch principle six of this requires that creditors must treat customers fairly the requirements of this principle are wide-ranging and could be the subject of Webinar that said engagement with customers is Paramount one needs to be aware of the pressures. They are facing.
7:39
Thomas Samuels of God Square Chambers stated in his excellent article that many customers may now be deemed vulnerable because of the unique circumstances initiated by covid-19 in that they are now physically or financially rendered vulnerable.
8:00
We now need to look at the principles of conch 7 this deals with the rears default and recoveries conch seven sets out how these arrays default recoveries should be undertaken in light of the extremity of the current financial situation greater understanding of debtors and their circumstances needs to be attended to and evidence for the creditors supervisory requirements with the FCA.
8:29
As they regulator creditors therefore need to exhibit unemployment a high level of commercial agility into handling such inquiries.
8:40
We now need to look at requests for assistance.
8:43
Many funders have received requests for an automatic suspension or holiday for a period of three months.
8:51
each matter should be looked at on its merits as stated previously we have seen that the FCA is urgently Consulting on loans and credit cards and indeed has drafted an initial statutory instrument that will allow the Creditor for the purposes of covid to relax certain requirements contained at conch 6 in the coming weeks further relief may be granted in respect of leasing personal contract purchase and Purchase products generally, it is needed very urgently till that point creditors are left with the following predicament.
9:33
Forbearance or modifying agreement we have seen that many creditors have had to act in what they believe to be the best interest of the consumer. They have very quickly entered into informal Arrangements Arrangements where no interest or other charges are added they argue that the term for example, 24 months Remains the Same or be it there is a small holiday forward ever period in the interim being one two or three months.
10:04
Some are actively stating that they are extending the period making a two-year agreement into a three-year agreement or they are restructuring the payment profile off the agreement.
10:15
The problem is some of the above suggestions and I do stress it is some of them is that it may distort the transparency of the contract. Does your consumer really understand what has been agreed section 82 of the consumer credit act 1974 states that parties May and indeed should use a modifying agreement where certain changes are made. Normally.
10:40
They are those that have an effect on the total sum payable interest and other charges or Kerr or of course, if it greatly extends the term modifying agreements in the processes that run alongside them are complex and a highly prescriptive. There is very little room for error and if mistakes occur, they can affect the whole of the underlying agreement. Now we have to look at notices and the credit ratings of borrowers or consumers a variety of notices that are used with regular.
11:15
Related contracts and have to be issued at certain procedural points. For example, the notice of sums in arrears or nausea as it is charmingly called. Normally you should win two installments have been missed. This can be followed by a notice of default and thereafter by a termination notice. This is not an exhaustive list of such notices. There are others that exist. However, if you are assisting your customer then to issue such notices and to damage their credit rating.
11:46
Is in fact counterintuitive of what you are trying to achieve this will not bring about the desired effect between you and your customer careful consideration needs to be given to this issue. Clearly legislative help is urgently required on this point if the Creditor chooses to work with the customer, then it may also decide not to issue such notices presuming the holidays allowed passes without incidents and the contract is full.
12:16
Failed all well and good. However, if the customer does not reinstate the payments the procedure including the statutory limits will need to be adhered to before any enforcement action can be taken to take action without the notices would be a matter of conduct on behalf of the credit that may be open to sanction.
12:39
So how should creditors proceed there is an opening here for creditors government and debtors to to work together and create a system that will deal with demands created by the covid crisis. Some creditors are intent on shutting that door and enforcing that contractual rights in a desperate attempt to maintain their own Financial well-being.
13:02
However, we have seen that the FCA is working at some speed to create a statutory instrument that will relax procedures for creditors and allow forbearance without prohibitive cost in Tons of time and documentation however present that is only there for credit cards and loans and is still not completed in that regard these Provisions must be replicated For Hire purchase personal contract purchase conditional sale agreements and other Financial products that help is urgently needed. Now, let's look at some other considerations that we have to bear in mind that in the current emergency any creditor muster all times.
13:46
Main solvent in order to protect all stakeholders including consumers. If not such creditors face sanctions from the FCA whilst considering forbearance creditors should map out the effect. The granting of same will have on their own Financial resilience.
14:06
They must remain solvent throughout Soft training is also essential can the creditors show the FCA evidence that they have trained their staff to cope with this crisis.
14:19
How is consumer need measured managed and reported on all the creditors policies up-to-date arrears and credit worthiness default vulnerability and sadly death of the consumer all have to be considered all of the problems are real concerns, but many funders will Out of this stronger and it is those with commercial agility and financial resilience that will survive this current crisis.
14:51
In summary, therefore it is imperative that businesses seek advice and that they structure their forbearance accordingly.
15:00
Whilst there may not be a perfect fit for every situation any agreement reached with a creditor must not breached the principles and outcomes set out in the FCA handbook. I would urge you therefore to seeking advice and proceed with realistic empathy and compassion towards your debtors. This will show that you and your business can be proud of how they have got through these difficult circumstances.
15:30
And we'll find that you can Prevail in these current difficulties.
15:35
Now just to summarize we have had a couple of questions whilst we've been talking. The first question is can any agreement be concluded over the phone? Well the answer to that differs as to whether we're talking about regulated business under the consumer credit act or non-regulated business. So looking at non-regulated business, you can agree something over the phone, but I would urge.
16:05
To consider the terms of your contract because if it has one of those non variation Clauses, you need to agree something in writing. Now I appreciate that needs to be done quickly, but depending and again take advice on the contract if the if you have a written request from your consumer and you agree to that in your correspondence providing that is allowed by the contract you can have a written agreement, but it is very important that it's very straightforward.
16:35
And that there's no room for error in regards to interpretation.
16:43
The second question that we've had is can we devise a letter that seeks to modify an agreement? And again the answer to that is very different depending as to whether if it's regulated or unregulated business. You can't have a letter with regulated business that seeks to modify the agreement. You can have a letter of forbearance.
17:10
It's and that needs to be very carefully drafted and it needs to be careful in its content as to what it seeks to forbear on within the terms of the contract but really should have a a modifying agreement under the ACT. If you are actually modifying a regulated agreement with unregulated business again, it depends on the contract, but you can have variation letters with unregulated business.
17:40
It's but I would urge you to seek advice and you could very quickly get that it with either of these questions, and I'm sure that would save you a lot of pain in the long run, please if and if you've got any further questions, please feel free to send these through and we'd be delighted to get back to you. There are a whole list of resources available on our coronavirus resource hub.
18:11
Please Avail yourselves of these. I hope they'll be of interest to you. And which Shakespeare Martineau are here to help you get through this crisis the best that you can and in that regard. I wish you all a very good fortune. Thank you very much.

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Webinar

COVID-19 | Preserving your business and avoiding insolvency

COVID-19 | Preserving your business and avoiding insolvency

Business survival at the best of times is challenging, but how you react to the current crisis and what actions you take now, can help avoid an insolvency situation.

In this webinar, we will focus on 5 key steps you can take to help your business withstand the effects of the COVID-19 crisis, and how being proactive in restructuring your business and taking available opportunities, can help survival and promote growth for the future.

Further information on how to manage the impact of coronavirus can also be found on our coronavirus resource hub and you can view past webinars at SHMA®ON DEMAND.

Please do let us know of future topics that you are interested in, or for more information about our webinars please contact us.

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All the latest views and insights on coronavirus.

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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 […]

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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 […]

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Webinar transcript

(Please note this is auto-generated and un-edited)

0:00
I'm Shaun Moran a partner in the restructuring and insolvency team here at Shakespeare Martineau. Welcome to today's webinar the latest in our series dealing with the impact of coronavirus on your business. You will see on your screen that you are able to ask questions. So, please do raise these along the way and I can answer as many as I can at the end.
0:22
We are now into the second full month of the government lockdown and the effect upon individuals and businesses has been predictably far-reaching.
0:32
Nevertheless many Business Leaders have come out quickly and publicly to say that the crisis has shown companies to be admirably resilient and was concerns understandably remain about the return from the lockdown many are positive about what they view as The New Normal and how they can protect their business going forward.
0:53
In this presentation, I'm going to provide a brief reminder of directors duties outlined some important changes, which have been introduced as a result of covid before focusing on key issues, which I consider to be crucial to the survival of your business.
1:09
I will conclude with the review of the options directors have available. Should they find that their business is not able to meet the challenges ahead first, then a brief overview of the key duties of a director, which come into focus at this challenging time for business with a warning of the risks faced. If there is a breach of these duties consistent with the entrepreneurial spirit that drove you to create and grow your business is the overriding duty to promote the success of the company for the benefit of its shareholders.
1:42
This puts the company at the Forefront of your priorities and interests faced with the present situation directors must use their skill and care to ensure that their business adapts to the challenge faced and shows resilience in the face of adversity. Now more than ever directors have to consider the overall picture and make tough decisions avoiding wherever possible any conflict of interest this may mean making financial decisions for the benefit of the company.
2:11
employees and other key stakeholders when those decisions may have an adverse effect on the directors personal position where the financially or otherwise should the directors of a company conclude that the business is insolvent or risks going into insolvency the priorities change and the directors must consider the effects and the interests of creditors of the company Above All Else, of course, one of the benefits of incorporating your business is that an owner director is protected personally in relation to the liabilities of that business.
2:47
But that protection May however be lost in the event of insolvency where directors could face personal claims for breach of Duty or to repay unlawful dividends or possibly to reverse transaction seem to be preferences all those conducted to Sun undervalue and occasionally in the most extreme cases. They may face claims for compensation for fraudulent or wrongful trading the government acted quickly to announce some interim relief measures for businesses as well as proposed.
3:17
changes to UK insolvency laws I'm sure that you will all be aware of the pressures faced by the retail sector even before covid hit the devastating effect of the lockdown on business tenant prompted changes under the coronavirus act 2020 which came into force on the 25th of March.
3:37
This legislation provides that a right of re-entry or forfeiture under a business tenancy may not be enforced by reason of non-payment of rent During the period 26th march to 30th June 2020 or such later date as is decided by further legislation.
3:57
This may help tenant cash flow in the short term. Although there will be nothing to stop a landlord from taking action after the relevant period bearing in mind. Of course that many landlords have been adversely affected by the covid outbreak as with other legislation brought in in response to this outbreak. This is not a straightforward waiver of liability for tenants the legislation provides interim protection only and directors of those companies must focus on ensuring their businesses able to observe.
4:26
the terms of the lease other legislation which has been announced but which is not yet in force is intended to give companies time to adapt to the present crisis and provide some breathing space to restructure where possible short of entering into the formal insolvency models that already exist.
4:47
For example company voluntary arrangements and administration a suspension of the wrongful trading Provisions currently for three months from the first of March 20 20 Has received perhaps the most national publicity of the three measures. I'm looking at here.
5:06
You remember the test for wrongful trading where the director knew or ought reasonably to have known that there was no Prospect of the company avoiding going into insolvent liquidation or Administration that director May face liability for a financial contribution to the assets of the company. It is important to remember that as with the suspension of enforcement action in relation to commercial leases. I've just mentioned this is only a temporary measure.
5:36
You should give come for only to essentially honest directors operating in difficult circumstances and not those whose motives are less honorable.
5:47
The other proposed changes in fact originated from the government's 2018 insolvency proposals announced in August of that year.
5:56
These measures are not yet in force. The first is a new moratorium for an initial 28-day period triggered by a court filing. This can be extended to 56 days in order to provide short-term protection for a struggling business. This process will be overseen by a monitor. Although the company would remain under the control of its directors.
6:21
The other change is a restructuring plan, which would operate in a similar way to and alongside existing schemes of arrangement.
6:31
Although the details are not finalized this proposal appears to be a more complex initiative and the wrongful trading suspension and short-term moratorium. I've mentioned unlike those procedures. It looks slightly out of step with the spirit of much of the covid related changes, which focus on temporary relief for businesses hit by the pandemic and it remains to be seen how far this is pushed as a matter of urgency later this year.
6:58
I'm not going to look at five steps you can take to protect and Safeguard your business.
7:04
First your workers the key to most businesses. The lockdown has forced employers to reorganize staff to adapt to a new working environment following the reopening of business premises. There will be an obligation to ensure a safe working environment. So review your workplace needs and consider flexible working where possible or perhaps even shift patterns at all times. Make sure that you communicate regularly.
7:34
Lee and effectively with your staff Secondly make use of the readily available Public Funding. The government has responded to the pandemic with a raft of schemes and assistance. I'm sure you'll be familiar with these by now. They include the small business grant fund the retail hospitality and Leisure Grant fund aimed at protecting a sector particularly badly hit by the outbreak as well as the business Interruption loan scheme. And of course the job retention or furlough scheme.
8:11
The treasury is also making plans to expand this assistance to larger companies and fast growing startups with Russia soon acts saying last week. I want to ensure that no viable business falls through our safety net of support as we protect jobs and the economy.
8:29
I appreciate that many of you may have experienced difficulties in accessing funds this way as the institutions set up to manage the schemes struggle with the weight of claims. This should not deter you if you consider your company qualifies and can benefit from assistance then you should proceed.
8:48
It is however worth remembering that as with all the measures introduced in response to the outbreak the schemes and assistants are intended for businesses. That would be viable were it not for the pandemic the government promotes the support of businesses dealing with covid related issues and this funding should not be seen as a sticking plaster or temporary relief for a business that was struggling before the third key factor to perfect protect the ongoing viability.
9:18
If your business is to focus on finance specifically undertake a continual review of your cash flow and working capital requirements.
9:28
Challenges caused by supply chain disruption or a loss of customers due to the lockdown will affect income and your ability to meet essential outgoings. Therefore. It's fundamental that you take the following steps first prioritize cash collection in the covid era cash is King your customers and clients may find every excuse for refusing or delaying payment but cash is key to the survival of any business.
9:59
Second Monitor and prioritize outgoings treat this as an ongoing emergency and restrict non-essential spending remember though that investment remains key to growth. So it's a careful balance here.
10:17
Third avoid breaching Financial covenants by keeping a close scrutiny on asset values which may affect your balance sheet.
10:26
Fourthly re-review Capital spending for example leases bearing in mind my comments before on agile working and finally under Finance consider options to inject new funds into your business beyond the short-term made. I've just mentioned this will ensure your business remains viable now is the time to communicate with your lender remembering that an open dialogue is always vital to engender confidence in your business.
10:54
The fourth issue that you have to bear in mind in this situation is regular interaction with other key stakeholders. This is vital whether that be landlords or creditors customers and suppliers as mentioned before or indeed. Hm Revenue & customs.
11:15
It's important to seek to negotiate terms with suppliers many of whom will be facing the same situation as your business.
11:22
It's all about working together now to meet the challenges of adapting to a new working environment, of course hmrc can be the most challenging of these stakeholders where you are a struggling business and any concessions that they may now make available in the form of that deferral or time to pay will no doubt be closely monitored against the risk of potential abuse so beware, We've looked at for issues in this part of the presentation people Public Funding Finance generally and communication with key stakeholders the fifth point for any business that expects to prosper following the challenge of covid-19 is to ensure that you have a viable business continuity plan.
12:06
This will deal with the challenges necessitated by reorganizing teams remote working and relationships with other key stakeholders in particular lenders and suppliers.
12:18
When other two men one other matter to mention now, but which is a fundamental importance to any continuity plan is protection for your company against cyber fraud. It's essential to have this in place in order to meet the threats of the pandemic provides for criminals to infiltrate your systems. I conclude today with a look at the options as businesses emerge from the first phase of the outbreak.
12:42
Is your business resilient and able to survive is it back to business as usual somehow? I very much doubt that it may instead be an appropriate time for you to consider a formal restructuring of your business involving perhaps new lending or other options as part of a fresh beginning remember hear what I said about maintaining a regular dialogue with financial stakeholders in your business.
13:08
Alternatively, you may think the ones the dust settles. This is an appropriate time for a sale at the business as the markets recover.
13:16
Will that be a conventional sale and what will that mean for The New Normal or will you be better suited to an accelerated merger and acquisition process working with a specialist turnaround advisor albeit outside of formal insolvency scenario.
13:33
The last option for a business that cannot recover is of course a formal insolvency whether that be a company voluntary Arrangement the appointment of Administrators or liquidation you may be able to take advantage of the proposed 28-day moratorium period under the supervision of a monitor or the restructuring plan both of which I mentioned earlier, but do remember that these Provisions are not yet in place. We will of course keep you updated.
14:02
With any legislative changes so that you remain aware of all potential options for your business.
14:10
Which of these scenarios your company will face will depend upon how strong it was going into the crisis and how you react now applying the five steps. I've outlined today. These have indeed been unprecedented times and we know the ride is far from over. We look forward to working with you as you deal with the exciting challenges ahead. We have had a few questions come in. So I'll answer a couple now and then send a follow-up of the others along with the recording of the webinar.
14:36
First question. Do you think that Rogue businesses will take advantage of the changes you have mentioned to the insolvency legislation, perhaps to the detriment of their creditors.
14:47
Well, I assume here that you're referring to the suspension of the wrongful trading provisions.
14:53
It's important to remember that this and the other proposed measures are not intended to be a get out of jail free card for those zombie businesses, which should proceed into formal insolvency Arrangements rather than trading on to the detriment of creditors. It is only a three-month period at this stage and also even during that period directors could still face liability for fraudulent Trading.
15:19
Or potentially claims for breach of fiduciary duty that I mentioned earlier in the section dealing with directors duties second question.
15:29
Which one of the five key steps you've mentioned do you think is the most important for businesses at this time?
15:37
Well this very much depends on the type of business you have if it is labor intensive, you'll focus on staff perhaps to a greater extent but I think that all five matters are closely intertwined what Arrangements you make for flexible and safe working will impact on your capital outlay and cash flow for the business. You may need funding to promote agile working, but you'll also need to ensure your systems are robust against attack. So really I think it is the case that all five are important.
16:07
And each is in some way dependent on the other. Thank you for participating today in the next of our seminars tomorrow. Jon Heuvel and Tijen Ahmet who will look at the issues of furlough for international employees working in the UK.

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