Spring Contents. In Brief. Small Business, Enterprise And Employment Bill. Litigation. Insolvency. Commercial Finance

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1 Contents In Brief Small Business, Enterprise And Employment Bill Nullification of Ban on Invoice Assignment Clauses...2 Company Law and Register of persons with significant control...3 Litigation Court fees...7 Interim costs...9 Insolvency Insolvency Litigation Funding Continues... 9 Trading insolvencies: essential supplies...10 Insolvency Practitioner Fees and Reporting Information and record keeping...12 A practical point: Disposing of freeholds subject to residential long leases...12 Commercial Finance Bills of Sale Registration...13 Welcome to the FWJ INFORMER. We are committed to excellence and aim to provide the highest possible quality of legal services to our clients. The FWJ INFORMER explains some of the recent legal developments that are relevant to professionals working in the asset based lending industry and how they affect the conduct of your business. The Small Business, Enterprise and Employment Bill first published last year has been advancing through Parliament and now looks like being one of the last pieces of legislation to be entered onto the statute book under this government. In the style of modern legislation, much of it is of an enabling nature and will require secondary legislation at a later stage before the intended changes can be implemented. This edition of the FWJ INFORMER looks at the parts of this Bill that propose a nullification of the ban of invoice assignment clauses; introduce changes to company law designed to improve transparency of the ownership of English companies, including the creation of registers of people with significant control over UK companies, and some changes to the filing and corporate record requirements which are intended to streamline the administrative burden. FWJ s litigation team considers some alternative tactics to deliver good results for you in commercial claims without suffering the impact of the recent substantial increases to court fees. It also looks at an early indication of how the costs budgeting regime is impacting on interim cost orders.

2 The last few months have seen several changes for the insolvency world. FWJ s insolvency team summarises some of the biggest recent developments for Insolvency Practitioners, including the reprieve for insolvency litigation funding, the introduction of new reporting and fee information obligations for IPs and new laws intended to protect the supply of vital services to insolvent companies. For IPs dealing with the proposed disposal of freehold interests in premises subject to residential leases, there is a reminder of the need to give the qualifying tenants a right of first refusal before a disposal can be validly concluded. If the proposed changes for assignment of invoices were not enough, the Law Commission considers the abolition of bills of sale registration. If you want to know more about any of these topics, or have any questions, please contact us on: Small Business, Enterprise And Employment Bill Nullification of Ban on Invoice Assignment Clauses When considering the financing of small and medium sized businesses ( SME ), two statements are frequently made: firstly, that SMEs have restricted access to funds and secondly, that invoice finance is ideally suited to funding SMEs. What links the two statements? One answer could be the use of contractual clauses which prohibit the assignment of the benefit of the contract, namely the right to be paid, the debts. Even the most cursory contract review can identify a ban on assignment, which may mean the level of funding offered to an SME is reduced or the cost of the facility is increased to reflect the additional provisions that have to be made to deal with such a prohibition. The solution to this problem contained in the Small Business, Enterprise and Employment Bill ( Bill ) is to give the Secretary of State power to introduce regulations prohibiting or nullifying contract provisions that ban the assignment of invoices. The, very brief, draft Business Contract Terms (Restrictions on Assignments of Receivables) Regulations 2015 ( Regulations ) which the Bill anticipates to give effect to this proposal have been published and the consultation on them has been concluded. It may come as a surprise to financiers, who have seen the ban on assignments as a barrier to their business growth, to learn that the Regulations have not been universally welcomed. The main objection to the proposal would appear to be that it is a legislative limitation on the freedom of businesses to agree the terms of their contract: a deeply rooted principal of English law. This argument overlooks the inequality of bargaining power between many SMEs and their customers and that many contractual terms are imposed on SMEs when they deal on their customer s standard terms. Amongst the members of ABFA (the Asset Based Financiers Association) there is a broad consensus welcoming the proposal, but not without some significant concerns about the detail of the Regulations in their current form. The Regulations are stated to apply to all contracts for the supply of goods, services or intangible assets, other than excluded contracts. Excluded contracts are listed as ones for prescribed financial services, which include consumer credit contracts and debt purchase agreements, tenancy agreements or contracts creating an interest in land or where a party is acting outside his 2

3 trade, profession or business. What is not stated is whether the Regulations would apply to all government contracts, which have long been seen as a lost opportunity for SMEs. The Regulations state that any term, other than an excepted term, which prohibits or imposes a condition or other restriction on the assignment of a receivable by a party to the contract is to have no effect. In its response to the consultation on the Regulations, ABFA has objected to the listed excepted terms, as these exceptions are wide and could be easily open to misuse by any company who does not want to deal with financiers. The excepted terms are: a term which provides that the receivable may only be assigned to a supply chain finance provider pursuant to an agreement the debtor has entered into with that provider or a term giving rise to a duty of confidentiality. Whilst there can often be a genuine commercial interest that needs protecting, it is not hard to foresee that every set of terms and conditions in the future will contain a duty to keep the contract confidential and therefore take it outside the scope of the Regulations. Those financiers who offer supply chain finance may welcome the protected position the Regulations offer to their contracts, but overall the sector could suffer from this exception. The Regulations are currently 3 clauses long. If all the comments in ABFA s responses to the consultation are accepted, the final version could be longer: a nullification of clauses banning charges over debts or declaring them subject to a trust was also suggested in the consultation, together with a clarification that the Regulations would apply to invoice discounting as well as factoring. There will be little progress now until after the General Election. The initial projected date for the implementation of the Regulations was October 2015; it remains to be seen what terms they will finally contain. Company Law and Register of persons with significant control As the Bill moves closer to becoming law, we have a clearer idea of the latest changes to company law it contains. Always welcome will be the provisions contained in Part 8, aimed at simplifying company filing requirements to reduce duplication and improve flexibility in companies dealings with the Registrar. The biggest changes are contained in Part 7 which sets out measures aimed at removing the corporate veil and increasing the transparency of who controls UK companies. A staged implementation of the relevant provisions is planned through until May see fig 1 (pg4) Person with significant control ( PSC ) and the PSC Register The PSC Register is to become one of the statutory books of a company that must be kept available for inspection at the company s registered office. Alternatively, for private companies, this may be held in the public register at Companies House, subject to no PSC raising an objection. There will be a right to inspect and obtain a copy of the PSC register subject to payment of a fee. A statement of significant control will be required on the registration of each new company. A person with significant control will be an individual who directly or indirectly holds more than 25% of the shares or voting rights of a company or who can appoint or remove the majority of the board or who exercises significant influence or control over the company. Every registrable person will have to indicate which of the conditions they satisfy to be a PSC. There will be only limited circumstances allowing the suppression of information on the PSC Register from public disclosure to protect those individuals at serious risk of violence or intimidation arising from the company s activities. 3

4 fig 1 Implementation date Changes Two months after Royal Assent Prohibition on issuing new bearer shares. This will override any provision in a company s articles. Companies will be given nine months to convert existing bearer shares into registered shares after which a company may apply to court to cancel any remaining bearer shares. Prohibition on corporate directors. All directors must be natural persons. Any corporate directors remaining one year later will cease to be directors. October 2015 Changes to information held by Companies House relating to registered office and directors' dates of birth to take effect. Reduction of the period to strike off a company from 6 to 4 months. January 2016 The requirement for all companies to keep a public Register of persons with significant control (see below). Changes to the statement of capital; it will not be necessary to include the amount paid and unpaid on each share. This will be replaced by an aggregate of the amount unpaid on the total number of shares. April 2016 The confirmation statement replaces the annual return. The confirmation statement will confirm that a company has delivered all the information it was required to file with Companies House over the preceding 12 months. This information will include: changes of registered office, details of directors, secretary and PSC registers, location of company records, changes to business activities, changes to share capital and changes to and details of shareholders. Obligation to file information from the PSC register at Companies House. Private companies will be able to opt to keep information in their registers (of members, directors, directors residential addresses and secretaries) on the public register at Companies House instead of maintaining their own registers. May 2017 Electronic registration of a company at Companies House and registration for taxes at HMRC. 4

5 Each individual PSC will be required to supply his name, a service address, country of residence, nationality, date of birth and usual residential address. It will be possible to protect a PSC s residential address from public disclosure. If a PSC is a legal person, it must supply its corporate or firm name, registered office, legal form, governing law, the name of the register of companies where it is registered and its registered number. The date when a person became a PSC must also appear on the register. These new transparency provisions are being taken very seriously. The Bill contains active obligations on every company to investigate, obtain and update information about its registrable persons and to require any person it identifies as a PSC or any person it thinks knows a PSC to supply the relevant information for registration. Failure to comply with these obligations will be an offence committed by the company or its officers punishable by a fine or imprisonment. There are similar proactive disclosure obligations on any person who is a registrable PSC to supply the required information to the company and a range of sanctions that can be applied by a company to any PSC who fails to comply with these rules. These sanctions can include suspending the PSC s ability to deal with his shares or receive any dividends and acting in breach of any warning notice given by a company will be an offence. For anyone grappling with regulations requiring them to identify the beneficial ownership of potential corporate clients, the PSC Register will be a welcome assistance but they do add a further administrative burden to every company s appointed officers. If you have any questions on how the changes to company law will affect you and what steps you will need to take to comply, please contact a member of FWJ s corporate services team. Director Disqualification, directors and shadow directors Disqualification: Part 9 of the Bill introduces amendments to the directors disqualification regime to strengthen the rules that prevent an individual from acting as a director where that individual has committed misconduct by extending the scope of the legislation to business activity abroad. A new section 5A is to be introduced to the Company Directors Disqualification Act 1986 permitting an application for a disqualification order on the grounds that the director has committed offences overseas in connection with the promotion, formation, management or liquidation of a company. The matters that the court will take into account in connection with any disqualification application will also be expanded to include the extent to which a person was responsible for any material contravention of an overseas law or causes of the company s insolvency and the nature or extent of any harm or loss or potential harm or loss caused by the person s conduct. Director s appointment: The director s consent to act currently filed with a notice of appointment will be replaced by a mandatory statement by the company that the person has consented to act. The Bill introduces a duty on the Registrar of Companies to send a notice to new directors containing information about the role and duties of a director. It could be hoped that this may lead to an improvement in director performance. Shadow directors: Whilst the Bill extends the application of general duties of directors contained in the Companies Act 2006 to shadow directors, it does add welcome clarification and protection to those persons, such as insolvency office holders or others exercising a legislative function in relation to a company, who fear they 5

6 may be held to be a shadow director. The giving of directions or instructions by such a person will not make him a shadow director for the purposes of the Companies Act 2006, Insolvency Act 1986 and Company Directors Disqualification Act If you have any questions about the duties or conduct of a director, including applications for disqualification, please contact FWJ s directors advice team. Costs Litigation 1. Court fees increase: 9 March 2015 This month saw the early introduction of very substantial court fee increases which will have a significant impact on civil litigation costs. There are now 2 main monetary bands: 1. Claims less than 10,000 The good news is that there is no change to the Court fees to issue claims where the value of the claim is less than 10,000. This accounts for approximately 70 80% of all claims issued in England and Wales. The bad news is that such claims fall within the ambit of the Small Claims Track and consequently the general rule is that a successful party is unable to recover its costs from the losing party. Whilst this may remain a factor in any decision to issue proceedings in respect of the majority of claims, it is not likely to be affected by the cost of the issue fee. SAVING MONEY WITH FWJ: There is a flat 10% reduction on all Court issue fees for these claims if they are issued through the HM Courts & Tribunals Service internet based service for claimants and defendants, Money Claim Online ( MCOL ). FWJ is one of the few firms who have a current registration to use the MCOL system. 2. Claims over 10,000 For these claims, as can be seen below, there is significant change: the Court issue fee for claims in excess of 10,000 will be based on 5% of the value of the claim. The 5% fee is capped for all claims over 200,000 at a maximum of 10,000. In addition, the fee for any interim applications has increased by up to 70 per application. see fig 2 (pg 7) What can you do to avoid the worst of the proposed increases? For larger claims (those in excess of 10,000), where the prospect of recoveries remains unclear, the new Court fees mean careful thought will need to be given as to whether to issue proceedings at all. Prospective claimants may want to explore more carefully instead the prospect of a settlement without recourse to the Court, even in circumstances where the relationship between the parties appears to have broken down. SAVING MONEY WITH FWJ: We have links to many good mediators, some of whom will charge only 850 for a full day mediation on claims up to 50,000 to see whether a sensible compromise can be reached. Our dispute resolution team, which includes in-house Counsel Jacob Aston, is becoming more involved in settlements pre-issue and delivering good results for clients. In collect out scenarios where there are multiple debtors with varying amounts owed, alternative options such as: mediation, alternative dispute resolution and/ or without prejudice meetings may be more cost effective than commencing multiple proceedings. 6

7 fig 2 Value of claim up to Old Court Fee (paper) Proposed Fee at 5% Increase in Fee % Increase Discount through MCOL 20, , % , , , % , , , % , , , , % , , , , % , , , , % 1, , , , , % 1, How may this increase affect decision making/ risk and recovery strategy? Whilst no-one plans to fail, financiers funding larger debts will need to incorporate the risk of increased costs in their credit underwriting process and their exit/ recovery strategy on both the debts and any personal/ corporate security required. What value is to be attributed to personal security taken in support of a facility? If the limit placed upon any guarantee and/ or indemnity is in excess of 10,000, then the upfront legal costs that will need to be paid in order to recover the outstanding balance owed also need to be provided for. Will the surety be able to pay this additional amount? Any well drafted personal security should contain a provision entitling the financier to recover the costs of any action from the guarantor/ indemnifier in addition to the value of the guarantee limit. Financiers should also check that their standard facility and security documentation enables them to pass on, and more importantly recover, Court fees from clients or make appropriate retentions/ reserves to ensure they are not left exposed by the cost of litigation. Now it is more expensive to issue civil proceedings to recover debts from debtors, more steps will need to be taken by a financier at the outset to request, review and document the terms and conditions of trade that it may need to rely on in any claim for payment. As ever, the key points in any contract are that: 1. the claimant, or its financier, has good and unencumbered title to the debt; 2. the contract precludes, where possible, any potential defences to a claim for payment; and 3. the contract includes provisions which allow the claimant to recover litigation costs on an indemnity basis (i.e. costs need not be proportionate to the value of the claim and recovered from the debtor in full) to maximise recoveries. Financiers may also be able to reduce the risk of unpaid debts accruing by monitoring facilities 7

8 more closely to ensure that bad debts are not being incurred, any issues (credit notes, poor workmanship, defects etc.) are identified at an earlier stage and that contractual terms are being used (and, more importantly, are validly incorporated) in their clients dealings with customers. Insolvency based recovery routes If debt recovery proceedings appear unavoidable, different forms of proceedings such as winding up petitions (for companies) or bankruptcy proceedings (for individuals) may be worth considering as a first line of recovery. In the right circumstances, such an action can be a highly effective method of debt recovery. The current issue fee is 1,040 for a bankruptcy petition and 1,540 for a winding up petition. However this route can only be used if the underlying debt is not disputed or the claimant may be penalised. If the individual/ company is able to pay the debt claimed, then the costs incurred are generally recovered as part of the settlement process. There are more changes on the way here as well from 1 October The Insolvency Service has announced plans to increase the threshold amount for a creditor to petition for an individual s bankruptcy to debts of at least 5,000, from the current amount of 750 which has been in force since This increase is well above inflation and reflects an intention to dissuade creditors from using bankruptcy to collect relatively low levels of debt. If you would like any further information regarding these changes, have any claims that you wish to issue via the Money Claim Online system, or you wish to consider an alternative form of dispute resolution or to undertake a more formal review of your risk and recovery procedures then please do not hesitate to contact the FWJ litigation team. Andrew Bowden-Brown, Partner 2. Interim costs As everyone starts to get used to the new costs budgeting regime, it might be worth highlighting a recent case on costs which could be an indication of how the courts will approach the assessment of costs in future. In Thomas Pink Ltd v Victoria s Secret UK Ltd [2014] EWHC 3258 (Ch), the High Court made an order for 90% of the claimant s budgeted costs to be met by way of an interim payment on account of costs. The court felt that this figure represented the irreducible minimum amount of costs to be recovered. Previous guidelines have been that the so-called irreducible minimum was a figure in the region of 50% of the amount claimed. In arriving at this much higher amount, the court acknowledged that the impact of costs budgeting on the determination of a sum for a payment on account of costs is very significant and that unless there is good reason to depart from the budget, the budget will not be departed from. The defendant was lucky not to have to pay more, only the vagaries of litigation and the fact that it was still possible that the assessed costs might be less than the budget (although no good reason for that was advanced) meant the judge only awarded 90% of the claimant s budget figure. This judgment could have significant ramifications in both interim costs and security for costs orders in future. One benefit could be that we see speeded up payment of costs and a reduction in the need for detailed assessment, overall a costs saving. However, what this case particularly emphasises is the importance of accurate costs budgeting and complying fully with the new regime. 8

9 Insolvency Insolvency Litigation Funding Continues After a long period of sustained lobbying, the temporary exemption from the prohibition of no win no fee conditional fee arrangements that was granted to insolvency litigation funding until April 2015 has been extended. For a currently unlimited period, insolvency practitioners will be able to continue with their current regimes for funding actions against fraudulent or negligent directors or third parties to recover funds into the insolvent estate for the benefit for creditors. With the hike in court fees just announced, this is welcome news. The extension means that proceedings brought by liquidators, administrators and trustees in bankruptcy to recover the assets of the insolvent estate will continue to be excluded from the effects of: Section 44 of Legal Aid, Sentencing and Punishment of Offenders Act 2012, which removed the recoverability of success fees in conditional fee agreements, and Section 46 of LASPO, which abolished the recoverability of after the event insurance premiums, with the result that any conditional fee agreement success fees and after the event insurance premiums remain recoverable from the losing party for the time being, protecting much needed value in the insolvent estate. It would seem that the battle is not over yet, however. The original exemption was granted in respect of insolvency litigation to give insolvency practitioners extra time to explore funding alternatives. It has been acknowledged that still more time is required to find appropriate solutions. The government has said it will be revisiting this issue later this year and further details are expected to follow. In the meantime, it might be expected that potential claims that were being accelerated towards issue before the April 2015 deadline may proceed differently for now. If you would like to know more about your options for commencing and funding claims against directors of insolvent companies or bankrupts, please contact a member of the FWJ contentious insolvency team. Trading insolvencies: essential supplies As every office holder will know, the maintenance of supplies and services to a business is crucial to any future success. Some suppliers can seek to exploit this fact by demanding ransom payments in preference to other creditors in order to ensure a continued supply. To prevent suppliers of essential services from using the critical nature of their services to negotiate an unfair advantage when a business enters administration or a voluntary arrangement, or where a sole trader enters an individual insolvency process, the Insolvency (Protection of Essential Supplies) Order 2015 has been introduced. This Order comes into effect on 1 October 2015 and will apply to contracts entered into on or after that date. The change to the present position is that the Order applies to supplies of IT-related goods and services in an insolvency, such as hardware and software, server providers, data storage and website hosting facilities, as well as the supplies of gas, electricity, water and telecommunications previously provided for. The Order makes void contract terms that allow suppliers to withdraw their supply or demand additional payments or the payment of arrears before supplies can be 9

10 continued. Suppliers of card payment services are excluded from the scope of the Order. However the usefulness of the Order to distressed businesses may be limited. It permits that, instead of terminating supply or requiring additional payments, suppliers can ask the appointed insolvency practitioner to personally guarantee payments of charges incurred after the start of the administration or voluntary arrangement as a condition of continuing supply, which is unlikely to be an attractive option. Alternatively the supplier may apply to court for permission to terminate the contract on the grounds that its continuation would cause the supplier hardship. Suppliers can also terminate the contract in any event if postinsolvency supplies are not paid for within 28 days of falling due. ukdsi/2015/ /pdfs/ ukdsi_ _en.pdf Insolvency Practitioner Fees and Reporting 1. Written fee estimates The rules for the payment of Insolvency Practitioners ( IP ) fees on a time cost basis have been tightened. Under the new Insolvency (Amendment) Rules 2015, IPs (where they act as an administrator, liquidator or trustee in bankruptcy) who propose to charge all or part of their fees on a time cost basis are required to provide the following information: a written fees estimate, and details of the expenses the IP considers will or are likely to be incurred, to each creditor of whose claim and address they are aware, before asking creditors (or the court) to fix the basis of their remuneration on a time cost basis. The fees estimate must specify: details of the work the IP and his staff propose to undertake, the hourly rate or rates the IP and his staff propose to charge for each part of that work, the time the IP anticipates each part of that work will take, whether the IP anticipates the fees estimate will be exceeded so that further approval of the excess will be necessary (and why). IPs must also include in their periodic progress reports to creditors a statement setting out whether, at the date of the report, their fees or expenses have exceeded or are likely to exceed the fees or expenses estimates they gave before the basis of their remuneration was set, and if so why. If an IP predicts that their fees will exceed the estimate, then they must account to the creditors the reasons for the increase and obtain their approval in the same way the fees estimate was originally approved. If the IP proposes that he is paid by a fixed fee or as a proportion of asset realisations, instead of a fees estimate, the IP must still provide to each creditor details of expected expenses. No creditor approval of these details is needed, but the IP will need to refer to them in subsequent progress reports. The requirement to obtain creditor approval for the payment of IP fees is not new, but these rules impose a much greater burden of information supply and accountability on IPs. The provisions concerning IPs fees will come into force on 1 October The Amendment Rules also make provision for winding-up cases to be transferred, from 6 April 2015, to the Central London County Court, which until now had no jurisdiction to hear transferred cases. Apparently CLCC has extra resources and the ability 10

11 to deal with winding-up cases. It remains to be seen if this capability will be used and what impact it will have on the time it takes to wind up a company. uksi_ _en.pdf 2. Reporting on Pre-pack sales: SIP 16 again The issue of pre-packs and, in particular sales to connected parties, continues to attract a high level of public and business interest. It is therefore not entirely surprising to see another revised version of Statement of Insolvency Practice (SIP) 16 being published for consultation. The question this time is whether it will be practical for an insolvency practitioner acting on a pre-packaged sale to comply with requirements for an independent pool of experienced business people to be appointed to examine any sale to a connected party before the sale is concluded. The latest consultation draft SIP 16 includes the following changes: It will be important that the administrator is seen to be acting in the interests of the company s creditors as a whole and is able to demonstrate this clearly. Following the sale, the administrator must provide creditors with a statement that would enable a reasonable and informed third party to conclude that the pre-pack was appropriate and that the administrator has acted with due regard for creditors interests. The administrator should send out his proposals for the administration to creditors together with the notification of the sale to avoid a lengthy delay between the sale and receipt of the administrator s proposals. An administrator must make it clear that his role is not to advise any parties connected with the company, in relation to the prepack. This goes further than the current requirement to make this statement in respect of directors. The administrator s records of the reasoning behind the pre-pack sale should also include a record of all alternatives considered. Any valuations of the sale assets should be conducted by appropriate independent valuers and/or advisors with adequate professional indemnity insurance. If the administrator relies on another type of valuation, he will have to disclose this together with the reason why he was satisfied with the valuation. The draft SIP sets out the marketing 'essentials' proposed by the Graham review and states that marketing of the sale assets should conform to these. The marketing essentials are set out in detail in an annex to SIP 16 under the following categories: > > justify the media used; > > independence; > > publicise rather than simply publish; > > connectivity; and > > comply or explain. The revised SIP does not appear to include the expanded definition of connected party proposed in the Graham review, nor an express safe harbour for lenders conducting normal business activities. The issue of pre-pack sales does not appear to be one that is easily resolved; this is the second revision of SIP 16 since the Graham review and it can be assumed that it will not be the last. ce6b-4646-ac cace0e0/sip%2016%20-%20 final%20for%20consultation.pdf 11

12 If you have any questions about interpreting your duties when considering a proposed pre-pack sale or require assistance in preparing a SIP 16 report, please contact the FWJ insolvency team. Ambuja Bose, Partner 3. Information and record keeping As the reporting and disclosure burden increases for IPs, in the case of fees and pre-pack sales, the simplification of IP s record keeping requirements contained in the Insolvency Practitioners (Amendment) Regulations 2015, that come into force on 1 October 2015, are to be welcomed. These regulations replace the existing requirement that IPs maintain specific records relating to an insolvency appointment. Instead of keeping prescribed information on file, with the frequent consequence of duplication of records, IPs will only be required to maintain records sufficient to show and explain: the work they and their staff undertake in the course of the administration of an insolvency appointment, and the decisions that materially affect the appointment. The Regulations also remove the obligation on IPs to notify their recognised professional body of the whereabouts of their records in each case. uksi_ _en.pdf A practical point: Disposing of freeholds subject to residential long leases Recent instructions at FWJ have seen insolvency office holders appointed in respect of either solvent or insolvent property development or property management businesses looking to realise freehold interests in land to enjoy the current favourable market. Where the freehold interest is subject to residential leases, there is an important first step that must not be overlooked: there can be no disposal of the freehold unless all the qualifying tenants have first been served with an offer notice: a right of first refusal [Section 1(1) Landlord and Tenant Act 1987)]. The offer notice must set out the terms on which the freeholder/landlord wishes to dispose of the interest and give qualifying tenants the right to acquire the freehold interest on the same terms. No disposal can proceed until the requisite majority of qualifying tenants have either accepted the offer (in which case the freehold must be sold to them) or rejected it (in which case, the freeholder/ landlord has a period of time in which to dispose of the freehold to a third party). Inevitably this right of first refusal introduces a delay of several months into any proposed sale. The rules are complex but, in brief, the issue of whether there is a right of first refusal which must be exercised before any disposal can be validly completed, should always be considered when negotiating a contract for the transfer (which could include a distribution in specie in a members voluntary liquidation) or considering the auction of premises, meaning a building containing two or more flats held by qualifying tenants. Qualifying tenants are the tenants of the premises but not business tenants or assured shorthold tenants. If you are dealing with freehold property that is subject to residential interests and need advice on whether the right of first refusal applies or need assistance with complying with the offer notice procedure, please contact a member of the FWJ property team. 12

13 Commercial Finance Bills of Sale Registration Caught in the Law Commission 12th Programme of law reform announced in 2014 was a proposed review of the law relating to bills of sale. Whilst the existing legislation, the Bills of Sale Act 1878 and the Bills of Sale Act (1878) Amendment Act 1882, is complex and unpopular with their clients, it is still used by the financiers of sole traders and partnerships as protection in the event of the client s bankruptcy, as it is the only way for individuals and non-corporate debtors to use their personal goods as security for the finance facility. The Law Commission has been reviewing the existing legislation and registration regime with a view to modernising and simplifying the law. The arguments against continuing with bills of sale registration include: that it imposes unnecessary costs on businesses, without providing the protections available to other types of debtors and that the system for registering bills of sale is paper-based and inefficient. The Law Commission aims to publish its recommendations for reform and a draft Bill in the summer of Whether it will be ready to propose that factoring and invoice finance agreements become registrable as security instead, remains to be seen. Andrew Bowden-Brown Ambuja Bose Sally Bradshaw Sally Bradshaw Senior Associate FWJ Legal Limited 6 Coldbath Square London EC1R 5HL Tel: Fax: DX No Clerkenwell 13

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