Read November’s key insights from our business law experts

Insights - 04/11/2016

Please see below our corporate insights for November from our business law experts.

Brexit update: Impact on private M&A

By Greg Vincent

Yesterday, a UK court decided that the Government cannot trigger article 50 and begin the process of leaving the EU without parliamentary approval.  With an impending appeal to the Supreme Court and talks of a possible snap general election to ensure parliamentary support, Brexit remains high on the agenda for UK business.  With that in mind we consider some of the issues that Brexit raises for UK private M&A.

By way of reminder, the single market provides four freedoms: free movement of products, services, people and capital.  A requirement for access to this market is that UK domestic business complies with EU law.  This comprises Regulations (which will no longer have direct effect upon the UK’s departure) and Directives (which have been implemented into UK law and will remain in force, unless expressly repealed).

The good news is that the direct effects of Brexit on the legal aspects of UK private M&A transactions are unlikely to be wide-reaching as UK private M&A is not directly subject to much EU law.  Having said that, there is a shortlist of areas that will be impacted, including competition, the rules pertaining to employee rights on a business transfer and the cross border merger rules.  M&A agreements will also need to be reviewed to deal with warranties that address compliance with various aspects of EU legislation, along with clauses pertaining to jurisdiction and termination.

Notwithstanding this, Brexit will undoubtedly have an indirect impact on UK private M&A by virtue of its effect on businesses engaged in the M&A process.  Intellectual property, commercial agreements and database rights are all areas that underpin the value of an M&A target and these areas are subject to substantial amounts of EU law and regulation.  For instance, businesses holding Community intellectual property rights will have work to do in order to substitute them for national rights (which could incur significant additional fees).  The ability to transfer personal data to UK businesses will also be effected, as the UK will have no longer have the privileges afforded to EEA states. The EU Commission could be asked to make a finding of adequacy in relation to our existing data protection regime but there is no certainty that it would.  This would necessitate businesses entering into EU data transfer agreements to cover EU to UK transfers.

With regard to commercial agreements, contracts may be vulnerable to the deployment of Brexit as a cause for termination through force majeure or material adverse change provisions.  In any event, many commercial contracts will need to be revisited and amended to replace references to EU law, legislation and concepts. With regard to jurisdiction, the UK is currently a signatory to an EU Regulation which allows for determination of jurisdiction within the EU when a claim is made. This provides certainty and generally means that express jurisdiction provisions have primacy. In the absence of equivalent arrangements, the risk of undermining UK jurisdiction clauses is a very real one.

As Brexit takes form, these issues will obviously begin to clarify.  The message to those businesses looking towards their own exit is forward planning to ensure that they are sufficiently robust to withstand the legal M&A process.  Practical steps include careful thought when negotiating dispute resolution clauses with customers and suppliers, identifying additional IP registrations in order to give maximum protection and contingency planning on the most efficient structure of multi-national groups established across the UK and continental Europe.

If you would like advice or assistance on any of the issues raised in this article please contact Greg Vincent (email: greg.vincent[@]morrlaw.com or telephone: 0208 971 1033) or Alex Bishop (email: alexander.bishop[@]morrlaw.com or telephone: 0208 971 1054).

5 thing tenants should know about energy efficiency

By Edward Moseley & Lily Meyer

Under the Energy Act 2011, Minimum Energy Performance Standards (MEPS) are due to be brought in by April 2018 at the latest. This means that landlords who own buildings that fall within the lowest ‘F or G’ energy efficiency bands will not be able to let their property unless they take steps to improve the energy efficiency.

For tenants thinking of taking a new lease before these regulations are brought in, or for those in the process of negotiating a lease renewal, there are some important issues to consider:

1. A tenant’s obligation to keep the property in good repair – depending on the drafting of the repair covenant in the lease, this could extend to works of repair needed to bring the property up to the required MEPS minimum standard. This could be costly and disruptive for a tenant. To be on the safe side, a tenant should insist on a statement that it is not responsible for energy efficiency improvements (either in carrying them out or paying for them through service charge) and incorporate a schedule of condition in the lease.

2. Allowing access to the landlord – for F and G rated properties, landlords are likely to want sufficient access to the property during the term of the lease to carry out any works required to bring the energy rating up to the MEPS. Landlords may also want to incorporate a provision that allows them to carry out any of these improvements without the tenant’s consent. The rights of entry clause should be considered carefully to ensure any access and the carrying out of works causes as minimal disturbance as possible to the tenant’s business.

3. Alterations – where a property falls below the MEPS, landlords will want to stop tenants from carrying out any alterations that could reduce the efficiency even further. Refusing consent to alterations because they will cause a reduction in the energy efficiency of a property is usually considered a good reason for refusal. Tenants should, therefore, consider in advance whether the proposed alterations will have an adverse effect on the energy efficiency of the property. This might need to be done before taking the lease so as to avoid being refused consent for the proposed works at a later date.

4. Service Charge – Landlords may look to recover the cost of energy improvements via the service charge. Tenants should resist agreeing to energy improvement costs being covered by the service charge. Not only could they be costly but if being done at the end of a lease that is not being renewed, the tenant will not get the benefit of them. Only repairs should be covered under the service charge.

5. Assignment – before assigning or subletting a property, a tenant must comply with the EPC regulations. This includes providing a valid EPC for the property (or the part to be sublet). If there is no EPC on the register, the tenant will have to commission one at its own expense. Whilst the MEPS test does not currently apply to an assignment, preventing it from going ahead if below the MEPS, it is worth taking note a property with poor energy efficiency is likely to be less attractive to potential assignees.

In summary, a tenant entering into a new lease of a property that is not energy efficient should ensure the standard clauses in that lease take the MEPS into consideration, for example, avoiding any obligation to carry out works to improve the energy efficiency, or to pay, through the service charge, for the landlord to do that work.

If you would like to discuss your requirements further, please contact the Commercial Property Team on 020 8943 1441.  For more information on Commercial Property please visit our website https://www.morrlaw.com/commercial-property-2/

Re-using a company name following liquidation

By Michael Knights

Failure is a fact of business life, and nearly all entrepreneurs have been in the position of having a few business initiatives that didn’t work out.  What are the restrictions that apply if you have had to wind up a company due to insolvency?

A director of a failed company is permitted to become a director of a new company, unless he is subject to a disqualification order or is bankrupt. However, there are restrictions on the re-use of a failed company’s name or trading name.

If a company has gone into insolvent liquidation and you were a director or shadow director of that company within the 12 months prior to liquidation, you are prohibited from being a director or being involved in the business of a company with the same or a similar name as the liquidated company. This restriction lasts for a period of five years from the liquidation and is intended to prevent phoenix trading.

A person who acts in contravention of this prohibition is liable to imprisonment or a fine and may incur personal liability for the company’s debts incurred while using the prohibited name, so the potential sanctions are very serious.  There are some exceptions to this restriction:

1. If a company acquires all or most of the business of the insolvent company, sends notices to creditors and publishes a notice in the Gazette of that acquisition;

2. The restriction can be reduced to a period of up to 6 weeks, if the Court’s permission is obtained;

3. If the company’s name was used for at least 12 months before it failed.

A number of other conditions apply to each exception, so please contact us for advice before re-using a company name following liquidation.

Should you have any questions or require help or assistance in relation to these issues please feel free to contact Michael Knights (email: michael.knights[@]morrlaw.com or telephone: 020 8971 1027) or visit https://www.morrlaw.com/team/michael-knights/

Disclaimer:

Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.