The Family Business. In this issue. Welcome to the latest issue of The Family Business.

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1 The Family Business Welcome to the latest issue of The Family Business This edition covers a range of issues that impact family owned businesses which I hope that you find thought provoking. I would like to take this opportunity to introduce our new partnership with Family Business United (FBU). FBU, created by Paul Andrews, brings together the family business community and provides support, insight and research. We are pleased to be the official partners for East Anglia. The FBU 2015 Awards will take place in June and Birketts will be sponsoring the Award for Best Family Business in East Anglia. Working with Paul, we will also be commencing research to find the oldest family businesses in the region. We are very excited about this project and would urge you to get in contact if you would like to be involved. I would also like to thank the family business owners who joined us at Pea Porridge to discuss "what makes a family business successful?" A summary of our discussion is featured in the March edition of Bury & West Suffolk magazine on page 50. In this issue A cautionary divorce tale for family businesses Are you fattist? What can you learn from Gordon Ramsay? Our services LinkedIn Birketts' Family Owned Businesses Group Birketts is sponsoring the family business category of the EADT Business Awards again this year. Enter or nominate a business today: Finally, if you have a son or daughter who has joined or is thinking of joining the business our next event will be just for them - Directors responsibilities training and financial advice over a drink and a bite to eat. Please contact beth-gipson@birketts.co.uk to register your interest. James Austin james-austin@birketts.co.uk

2 A cautionary divorce tale for family businesses A recently reported case has shown how divorce can undermine the careful succession plans made a number of years before with the advice of lawyers and accountants. Richard and Susan S separated in 2012 after 43 years of marriage. By the date of their divorce the family business was worth 50m. Richard had voting control through his category A shares. In 2002, when the business came close to collapse, (Richard being quite traditional and paternalistic), they had invited their youngest child, Christopher, to move back home to help turn it round - which he did most successfully. Their older two daughters, so it transpired at court, were aggrieved by this feeling they had been overlooked. By the time of the divorce there were two clear camps: Richard and Christopher against Susan and the daughters - who resented their brother's success. When Christopher was invited back to the business it was re-organised with the assistance of accountants and tax barristers. Christopher ended up with 50.36% of the B shares. The advice however was that Richard should retain control until his death, to benefit from CGT business property relief and the so called "tax-free uplift on death". Richard stated at the time that he would leave his controlling shares to Christopher on his death, and both his and Susan's wills confirmed this. Unfortunately (for Christopher) it was divorce, not death, which upset the apple cart. He argued that Richard's shares were not available to meet Susan's claims, because of the agreement to leave by will, which he claimed created a trust of the shares in his favour. The High Court and the Court of Appeal did not agree. Richard's controlling shares were a matrimonial asset and Susan (and no doubt her daughters on her eventual demise) could claim at least a share in them. The law reports confirm that the tax advice and the structure achieved were impeccable - in so far as they went. What they did not do was envisage what might happen if the marriage ended on divorce instead. The moral is that, however happy a marriage members of your family owned business might have, consideration should be given to divorce when the "what if..." conversation turns to death or retirement. Plans can be made to mitigate the risk involving pre-nuptial agreements - for the younger generation before they can obtain an equity stake; post-nuptial agreements for the more mature as a condition of handing over power within the company; and shareholders agreements or pre-emption rights within the company structure. Oliver Gravell, Collaborative Lawyer & Family Law Arbitrator oliver-gravell@birketts.co.uk Unfortunately (for Christopher) it was divorce, not death, which upset the apple cart. It is our advice that you always bear divorce in mind when looking at succession or structural issues within your business.

3 Are you fattist? The recent European Court of Justice (ECJ) ruling in Karsten Kaltoft v Kommunernes Landsforening appears to have expanded the protection afforded by the Equality Act 2010 to include in certain circumstances protection for obese employees. As family businesses you are equally at risk of potentially costly mistakes regarding the protected characteristics of employees and obesity could be one of those protected characteristics. Background The Kaltoft case before the ECJ considered whether the Equal Treatment Framework Directive was wide enough such that obesity could be classified as a disability under that Directive or alternatively whether there was a stand-alone prohibition on discrimination of workers on the grounds of their obesity. Matthew Potter T: matthew-potter@birketts.co.uk Facts Mr Kaltoft was a child minder in Denmark and was dismissed after 15 years of employment fundamentally because of the fact that he had a BMI of 54. Decision The ECJ followed the Advocate General's opinion that there was no principle of European law which prohibits an employer from discriminating on the grounds of obesity. However, if the obesity of an employee is such that it amounts to a disability then potentially there is protection for that employee. Whether protection is afforded depends upon whether it can be said that the obese employee was suffering from a long-term limitation which was such that it resulted in either a physical or mental impairment which may in turn hinder that employee s full and effective participation in their professional life on an equal basis with other employees. In conclusion, obesity may be a disability. It is also significant that whether a person is disabled or not because of their obesity does not depend on the extent to which that individual employee may have contributed to that disability. Be sure to review your policies and procedures to ensure that you do not fall foul of this recent development. As an employer you therefore need to consider whether or not an employee is suffering from a physical, mental or psychological impairment which is long-term and may hinder their full and effective participation in professional life with other workers. Action points As employers therefore you need to be particularly mindful of the fact that when establishing whether or not an employee is disabled for the purposes of the Equality Act going forward, to remember the Kaltoft test above and ensure that reasonable adjustments are considered and in turn implemented to accommodate that employee within the workplace. That may include a new starter as well as existing staff. You should also take action to avoid harassment or bullying in the workplace based upon an individual s obesity as well as assisting with relevant working conditions or physical surroundings that allow them to perform their duties. Be sure also to review any existing policies or procedures to ensure that you do not fall foul of this development. Finally, consider introducing this development as part of any equality or diversity training. Recently we have worked with clients who have embarked upon healthy living regimes for all employees by introducing third party organisations to assist employees with exercise, diet and general wellbeing.

4 What can you learn from Gordon Ramsay? Generally there are lots of positive stories showing the advantages of working with members of your family. Normally, the idea of working with people who have similar ideals and aspirations and whom you know you can trust from the outset enables the family business to get off to a flying start. Perhaps Gordon Ramsay felt this way when he first allowed his father-in-law to become his business manager and the chief executive of the Ramsay Group of companies that is until he sacked him, and his brother-in-law, on the grounds of gross misconduct in Since then, the press has had a field day in exposing the rifts that have developed between Gordon Ramsay and his wife s family. Most recently, this culminated in a court case between Gordon Ramsay and the landlord of a London pub of which one of his companies was a tenant. The problem for Mr Ramsay was that he had allegedly signed a document which made him the personal guarantor for annual rent on the York & Albany Pub near Regent s Park - at 640,000 (significantly higher than the market rent) for a 25 year term, a fairly significant commitment. The chef claimed that he had never agreed to be a guarantor and that his father-in-law had used a ghost writer machine to forge his signature on the document. Apparently, machines such as these are often used by celebrities and sports stars for signing merchandise and Christmas cards, and can produce signatures at the rate of several hundred in an hour. Gordon Ramsay claimed that he thought that this father-in-law, Mr Hutcheson, was only using the machine for cards, books and merchandise and that this was the extent of his authority. The court did not accept this and held that, as his agent, Mr Hutcheson was generally allowed to act on his behalf without having to refer matters back to Gordon Ramsay and hence had the authority to bind him by using the signature writing machine. The lack of any clear guidelines as to the extent of Mr Hutcheson s authority made Gordon Ramsay s case much more difficult. As a consequence, apart from the guarantee remaining in place for the 25 years of the lease, Mr Ramsay is also expected to pick up legal costs of somewhere in the region of 1m. The moral of the story is that even when going into business with family members it is best to make sure that roles and responsibilities are clear from the start, and well documented. James Austin T: james-austin@birketts.co.uk... even when going into business with family members it is best to make sure that roles and responsibilities are clear from the start, and well documented.

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