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Archive for March, 2015

Insolvency Legislation Changes

30/03/2015 | Kathryn Griffin and Simon Walton
On 26 March 2015, the Small Business Enterprise and Employment Act 2015 (the “Act”) received Royal Assent. A number of important changes to insolvency legislation will come into force in May 2015

On 26 March 2015, the Small Business Enterprise and Employment Act 2015 (the “Act”) received Royal Assent. A number of important changes to insolvency legislation will come into force in May 2015. Generally speaking, the changes are mostly procedural in nature, designed to streamline the formal insolvency process and to improve its effectiveness in rescuing businesses whilst generating returns for creditors.

Here is a brief summary of the relevant provisions which will be effective on 26 May 2015:

Procedural changes

  • Liquidators and Trustees in Bankruptcy no longer require prior sanction of either the court or creditors to exercise any/all powers contained in Schedules 4 and 5 of the Insolvency Act 1986 (namely (i) the powers of a liquidator in a winding up and (ii) the powers of a trustee in bankruptcy)
  • ‘Small Debt’ will be a defined term in future amendments of Insolvency Act 1986 so that creditors owed a ‘small debt’ no longer have to submit a proof of debt in order to participate in a distribution.
  • Creditors will be able to consent to extend the term of an administration for up to 12 months (increased from six months).
  • Administrators will now permitted to distribute the Prescribed Part (as defined in the Insolvency Act 1986, being the ring-fenced fund which has to be used to pay a dividend to unsecured creditors) without first obtaining a court order. As a result, administrators will be prohibited from moving a company into Creditors’ Voluntary Liquidation if the only funds available for unsecured creditors are those comprised in the prescribed part.
  • Previously, if a voluntary liquidation continued for more than one year, the liquidator had to produce a progress report for each period of one year from the date of appointment. From May 2015, it will be necessary to issue a progress report in a voluntary liquidation even if the liquidator changes in the first year.
  • The 28 day period for challenging an Individual Voluntary Arrangement (IVA) will run from the date of the meeting called to consider the proposal (rather than the date of the chairman’s report).
  • Fast track IVAs (FTIVAs) were introduced by the Enterprise Act 2002 from 1 April 2004 and allowed an undischarged bankrupt to enter a voluntary arrangement in order to have their bankruptcy annulled. Due to the very small number of FTIVAs actually used since 2002, they will be abolished from 26 May 2015. This change will not affect any FTIVAs approved prior to that date and so there will be a period of time in which FTIVAs will continue. The abolition will not prevent undischarged bankrupts from seeking to enter into a voluntary arrangement with their creditors – they will not have to propose an arrangement which complies with the rules for IVAs and involve an insolvency practitioner in the usual way.

Regulatory changes

  • The Act contains an enabling provision which allows for the introduction of new regulations to deal with administration sales to connected persons which are conducted without the prior consent of creditors. This enabling provision will expire at the end of five years beginning on 26 May 2015. We will keep a close eye on any developments and will update you as and when.

The changes introduced by the Act will apply to all formal insolvency proceedings, on-going as well as new insolvencies from the effective date for the relevant provisions, which in the case of the above, is 26 May 2015.  In addition to the above changes, further provisions are anticipated to come into force on 1 April 2016. These include new powers allowing administrators to pursue claims which previously only liquidators could pursue, and for administrators and liquidators to assign a variety of further claims under existing insolvency legislation. We will be producing a further note on these changes as we approach 1 April 2016.

This article should not be taken as definitive legal advice on any of the subjects covered. If you do require legal advice in relation to any of the above, please contact Simon Walton on 020 7955 1455.

 

Employment Law – A Look forward to 2015

24/03/2015
The direction of Employment Law in 2015 and thereafter rests somewhat in the hands of the general public when it’s decided who will form the next Government following the General Election on 7 May.

The direction of Employment Law in 2015 and thereafter rests somewhat in the hands of the general public when it’s decided who will form the next Government following the General Election on 7 May. However the combination of existing Bills in Parliament and current cases for which decisions are expected this year already provides some interesting material which employers should be aware of in 2015.

Collective Redundancy Consultation

The EAT in USDAW v Ethel Austin Ltd, or the ‘Woolworths case’ as it is better known, held that the words ‘at one establishment’ in S.188 of Trade Union and Labour Relations (Consolidation) Act 1992 (“TULRCA”) were incompatible with the relevant European Directive and should therefore be disregarded for the purposes of any collective redundancy (i.e. a redundancy involving 20 or more employees). Accordingly, there was a duty to collectively consult with all Woolworth employees and not just those based at stores where there were 20 or more employees facing redundancy.

The EAT granted the Secretary of State (as any additional protective awards would be paid out of the National Insurance Fund (“NIF”)) leave to appeal to the Court of Appeal. The Secretary of State requested that the case be stayed pending the Court of Justice of the European Union (“ECJ”) ruling on a Northern Ireland case (Lyttle v Bluebird UK Bidco 2) which had referred three questions to the ECJ for determination on domestic legislation that is in substantially the same terms as S.188 TULRCA. However the Court of Appeal declined to stay the case and instead referred it to the ECJ, suggesting that it be heard with Lyttle so the ECJ had the benefit of hearing claims from legally represented employees (the employees in Lyttle do not have the benefit of legal representation in the ECJ).

Should the EAT’s decision ultimately be upheld, there are huge potential ramifications not only in respect of the protective awards that would need to be paid out of the NIF but also in respect of future redundancies carried out by employers at various locations. Accordingly the ECJ’s decision is one that is hotly anticipated by employers who engage employees at various locations.

Employers can take some comfort from the Advocate General’s Opinion regarding the Woolworths case, Lyttle and a similar Spanish case Canas v Nexea which was delivered on the 5 February 2015. Somewhat surprisingly, this opined that the relevant European Directive does not require employers to aggregate the number of dismissals across all of their establishments when determining whether the threshold for collective redundancy consultation is met. Whilst the decision of the ECJ is still awaited it is expected that it will follow the opinion of the Advocate General, meaning employers will be able to continue to base their calculations for the purposes of collective consultation on the number of employees it proposes to dismiss as redundant at each shop, office, warehouse etc. rather than aggregating them.

Judicial Review of Unfair Dismissal Compensation Cap

From 29 July 2013 the cap on Unfair Dismissal compensation was reformed so that the maximum award that can be made to a Claimant for a claim of ‘ordinary’ Unfair Dismissal (as opposed to a claim which removes the cap completely such as whistleblowing or discriminatory dismissal) is the lower of 52 weeks’ actual pay or the numerical cap (currently £76,574). This cap was challenged by a small firm of solicitors on the basis that it indirectly discriminated against older people as they were more likely to have difficulties finding new employment following dismissal and therefore should be eligible for more compensation without the statutory cap.

This application was dismissed by the High Court on the grounds that it did not have reasonable prospects of success and was refused leave to appeal. Instead the Claimant applied to the Court of Appeal for permission to appeal the High Court’s decision and that application was heard between 25 July and 24 October 2014. The outcome is expected to be published ‘sometime’ in 2015.

Even if the application to the Court of Appeal is successful it appears that there will be a long uphill struggle to successfully argue that this cap should be removed entirely. It remains to be seen however whether a Labour Government, should there be one after May 2015, would look to revert to simply having a numerical cap only.

Holiday Pay

The Working Time Regulations 1998 (the “WTR”), which are derived from the Working Time Directive (“WTD”) provide that workers are entitled to be paid during statutory annual leave at a rate of a week’s pay for a week’s leave calculated in accordance with the Employment Rights Act 1996. Having previously held that workers must continue to receive their normal remuneration during their annual leave, the ECJ, in Williams and others v British Airways plc held that ‘normal remuneration’ covered not only basic salary but also remuneration which is intrinsically linked to the performance of tasks which a worker is contractually obliged to perform and payments that relate to that worker’s professional or personal status.

Whilst this case was concerned with the Aviation Directive and not the WTD, the ECJ held that the same principles applied to both.

In the subsequent case of Lock v British Gas Trading Ltd the ECJ applied the decision in Williams to the WTD. It held that pay under the WTD cannot be calculated based on basic salary alone, where a worker’s normal remuneration includes commission determined with reference to sales achieved. Lock has been returned to the Employment Tribunal where it will be decided how much holiday pay Mr Lock was entitled to.

The EAT has subsequently considered similar matters; such as whether holiday pay should include an amount in respect of a worker’s overtime in a number of conjoined appeals including Bear Scotland v Fulton and another. The EAT in that case held that the workers in question should be regarded as having no normal working hours and therefore their holiday pay should be calculated on the basis of average earnings within the last 12 weeks (including query non-guaranteed overtime). The outcome of this decision was considered in a previous ebulletin (http://rosenblatt-law.co.uk/bulletins/employment-law-review-2014/).

These decisions have raised serious questions about whether payments in respect of basic pay alone are sufficient to satisfy an employer’s obligation of paying employees holiday pay. The situation remains very unclear. Accordingly the Employment Tribunal has been, and will likely continue to be, faced with a variety of cases challenging employers’ calculations of holiday pay and querying what other aspects of remuneration should be included in the calculation. What can be said with some certainty is that if an employee’s remuneration consistently and regularly contains sums in excess of their basic salary entitlement then their employer should seriously and carefully consider what constitutes a normal week’s pay for the purposes of calculating appropriate holiday pay.

Shared Parental Leave

Shared parental leave and pay came into force 1 December 2014 but only becomes available to employees in respect of children expected or due on or after 5 April 2015 or who have a child placed with them for adoption after this date. Eligible employees will be entitled to share a maximum of 52 weeks’ leave and 39 weeks’ statutory pay.

Zero Hours Contracts

Zero hours contracts do not guarantee workers any work but can currently prohibit them from working elsewhere. Following significant coverage in the media there has been a proposal to ban such exclusivity clauses in zero hours contracts and this proposal is contained in the Small Business, Enterprise and Employment Bill 2014-2015 (the “Bill”). The Bill is expected to complete its legislative passage before Parliament dissolves on 30 March 2015 but Commencement Orders (and therefore effective legislation) are unlikely to be in place until shortly after the General Election at the earliest.

Under the current proposals, the legislation will give the Secretary of State the power to create anti-avoidance measures regarding exclusivity clauses in zero hours contracts. These ‘anti-avoidance’ measures are currently contained in draft regulations which propose to protect zero hours workers, and workers who work under a ‘prescribed contract’, from suffering a detriment as a result of performing work under another contract.

The draft regulations define a ‘prescribed contract’ as a contract which guarantees less than a certain level of weekly income. This minimum income will be calculated by reference to an agreed number of hours multiplied by the minimum wage. Exclusivity clauses contained in ‘prescribed contracts’ would therefore be unenforceable in the same way as exclusivity clauses in zero hours contracts. However, any individual who receives basic pay above £20/hour under their contract will be exempt from the prohibition.

Caste Discrimination

Section 9(1) of the Equality Act 2010 provides a non-exhaustive definition of the protected characteristic of race and includes (a) colour; (b) nationality; and (c) ethnic or national origins. At present ‘caste’ is not specifically included.

However, the EAT in Chandhok and another v Tirkey held that the definition of race in the Equality Act is wide enough to cover a claim for caste discrimination as it fell under the ‘ethnic’ or ‘national origin’ limb of race discrimination.

Obesity as a disability

In the European case of FOA, acting on behalf of Kaltoft v Kommunernes Landsforening, acting on behalf of the Municipality of Billund C-354/13 the ECJ held that there is no general stand-alone principle prohibiting discrimination on the ground of obesity under EU law. However, severe or morbid obesity which hinders an individual’s full and effective participation in professional life on an equal basis with other workers can in certain circumstances amount to a disability. Therefore, depending on the severity of the condition and whether it creates limitations for the individual, it is possible that obesity can satisfy the definition of disability and thereby provide protection from discrimination under EU law.

The Northern Ireland Industrial Tribunal applied this decision in Bickerstaff v Butcher NIIT/92/14. A claim of harassment related to a disability was upheld on the basis that the Claimant’s morbid obesity condition constituted a disability. However, for those concerned that this decision may lead to an avalanche of successful obesity-based disability discrimination claims it is important to note (i) this claim was against an individual Respondent only (following settlement of the claims against the Claimant’s former employer) and (ii) that no response to the claim by the Respondent was even presented to the Tribunal.

 

Please note that this summary is not intended to be exhaustive and should not be taken as legal advice on any of the subjects covered. If however you do require legal advice on the subjects covered or any employment law matters please contact Richard Freedman on 020 7955 1513 or richardf@rosenblatt-law.co.uk

 

No place to hide – The FCA’s new approach to Non-Executive Directors

19/03/2015
  The recent recession hit the UK’s financial services industry (the “Industry”) particularly hard. Financial institutions were seen as the cause of the crash, the now defunct regulator

 

The recent recession hit the UK’s financial services industry (the “Industry”) particularly hard. Financial institutions were seen as the cause of the crash, the now defunct regulator (the FSA) was seen as ineffectual and the Government was accused of being slow to respond. New scandals continue to emerge, seemingly on a daily basis, involving systemic abuse within the Industry, whether it be, the mis-selling of PPI, the manipulation of the LIBOR or the recent rigging of foreign exchange markets.[1]

It must be said, institutions have paid a heavy price for these scandals both in terms of their balance sheets and their reputations.[2] However, a pervasive perception has emerged, that individuals in charge of these institutions, did not and continue to not, face the same level of scrutiny and ultimately, regulatory action.[3] Set against this back drop is a regulator prompted to flex its muscles in order to prevent further malpractice in the Industry.[4]

One area the FCA and the PRA have identified as needing tighter controls is that of corporate governance. More specifically, the role of the Non-Executive Director (“NED”) has come under the FCA and PRA’s microscope.

Following a lengthy consultation with stakeholders within the Industry, the FCA and PRA have implemented a new approach to NEDs.[5] Under the new approach NEDs who have been appointed to particular roles such as Chairman or Senior Independent Director within UK banks, building societies, credit unions and other financial institutions (“Applicable Firms”) will fall within the FCA’s ‘Senior Managers Regime (“SMR”). The FCA and PRA believe that broadening the application of the SMR to cover NEDs will ensure more effective regulation because at its heart will be individual accountability.[6]

What are NEDs? 

The FCA defines NEDs as a director who has no responsibility for implementing the decisions or policies of the governing body of a firm.[7] Although the FCA’s definition recognises the limited scope NEDs have in the decision making of Applicable Firms, their role in scrutinising the performance of management is a key aspect of the UK Corporate Governance Code.[8] By including NEDs in the SMR it is hoped individuals will “behave appropriately and accept greater responsibility for their actions”.[9]

The Senior Managers Regime 

The Financial Services (Banking Reform) Act 2013 (the “Act”) significantly altered the regime surrounding management of Applicable Firms. The Act replaced the concept of a ‘Significant Influence Function’ found in the Financial Services and Markets Act 2000 (“FSMA”) with the concept of a Senior Management Function (SMF) covering: a function that will require the person performing it to be responsible for managing one or more aspects of the relevant firm’s affairs, as far as relating to regulated activities, and those aspects involve, or might involve, a risk of serious consequences for the authorised person, or for the business or other interests in the UK.[10]

The Act also granted the FCA the power to specify a function as requiring regulatory approval under the new SMR if they were satisfied that function fell within the statutory definition of a SMF as provided for above. All individuals holding a SMF require approval from the relevant regulator.

The FCA and PRA differ in the scope of their SMFs. The PRA’s designated SMFs cover considerably more roles than the FCA’s. The PRA has included NEDs appointed as Chairman, Chair of the Risk, Audit and Remuneration Committee and Senior Independent Directors within their SMR[11]. On the other hand, the FCA’s SMR only includes NEDs appointed as NEDs or Chair of the Nominations Committee.[12] Examples of key SMFs identified by the FCA include safeguarding and administration of client assets, incentive schemes for Applicable Firm’s staff and establishing and operating systems and controls in relation to financial crime.[13] What is clear from the list of functions identified by the FCA and PRA, is the intention that all key decision making functions should be held by individuals subject to their jurisdiction.

The practical effect of the SMR 

The SMR is likely to lead to further compliance costs for Applicable Firms both in terms of pecuniary cost and lost management time.

Under the SMR, all senior managers will be required to have a statement of responsibility and this statement must be kept up to date. A statement of responsibility is a statement by an Applicable Firm setting out the areas of the firm which the prospective individual will be responsible for managing.[14] These statements will be used by the relevant regulator in its initial assessment of an individual’s application for regulatory approval, during its supervision of Applicable Firms and during any enforcement action taken.[15]

Management maps will also need to be submitted to the relevant regulator setting out in detail, the Applicable Firm’s governance arrangements, individuals involved in the firm’s governance and those individual’s responsibilities. The FCA and PRA hope that these maps will provide the entire approval picture of an Applicable Firm and will ensure that all areas requiring accountability have been allocated effectively.

The SMR, as a result of the Act also reverses the burden of proof upon senior managers. Under the SMR it will be for senior managers to prove they took ‘reasonable steps’ to prevent, stop or remedy regulatory breaches by the firm which took place in their areas of responsibility.[16] Therefore it will be for the senior manager to prove they took ‘reasonable steps’ instead of the FCA and PRA having to prove that they did not. It is not yet known what reasonable steps will be. The FCA and PRA have said that such steps will be considered on a case-by-case basis.[17] Nonetheless, this is a significant departure from the previous regime whereby the burden was on the relevant regulator.

Conclusion 

In line with the FCA’s three objectives of protecting consumers, upholding market integrity and promoting effective competition one can see why the FCA and PRA have focused so heavily on senior management. By ensuring that both directors and NEDs fall within the SMR, the FCA and PRA hope to prevent a repeat of what happened during the financial crash and subsequent Industry scandals. It remains to be seen how effective the new approach will be.

This bulletin should not be taken as definitive legal advice on any of the subjects covered. If you require legal advice on any of the subjects covered or on any other regulatory matters, please contact Peter Price on 0207 955 1435 or peterp@rosenblatt-law.co.uk

Footnotes 

  1. The FCA and PRA’s Consultation Paper published in July 2014 “Strengthening accountability in banking: a new regulatory framework for individuals” pages 5, 8, 12, 14, 20 and 52.
  2. The FCA’s press release “FCA sets out approach to Non-Executive Directors and the Senior Managers Regime”, published on the FCA website on 23/02/2015.
  3. The Glossary of the Financial Conduct Authority’s Handbook.
  4. The UK Corporate Governance Code as published by the Financial Reporting Council in September 2014 found here: https://www.frc.org.uk/Our-Work/Publications/Corporate-Governance/UK-Corporate-Governance-Code-2014.pdf.
  5. “UK financial regulation overhaul”, the overhaul of the UK’s financial services regulatory regime as expressed on the BBC News website on 1 April 2013 found here: http://www.bbc.co.uk/news/business-21987829.
  6. “Why have so few bankers gone to jail”? An article by The Economist published on 13 May 2013, found here: http://www.economist.com/blogs/economist-explains/2013/05/economist-explains-why-few-bankers-gone-to-jail.
  7. “Citigroup, JPMorgan Pay Most in $4.3 Billion FX Rig Cases”. An article published by the Bloomberg Business website and written by Suzi Ring and Liam Vaughan on 12 November 2014 found here: http://www.bloomberg.com/news/articles/2014-11-12/banks-to-pay-3-3-billion-in-fx-manipulation-probe.
[1] http://www.fca.org.uk/static/documents/consultation-papers/cp14-13.pdf (page 5)

[2] http://www.bloomberg.com/news/articles/2014-11-12/banks-to-pay-3-3-billion-in-fx-manipulation-probe

[3] http://www.economist.com/blogs/economist-explains/2013/05/economist-explains-why-few-bankers-gone-to-jail

[4] http://www.bbc.co.uk/news/business-21987829

[5] http://www.fca.org.uk/news/fca-sets-out-approach-to-neds-and-the-smr

[6] http://www.fca.org.uk/static/documents/consultation-papers/cp14-13.pdf (page 5)

[7] http://fshandbook.info/FS/glossary-html/handbook/Glossary/N?definition=G762 (Glossary of FCA Handbook)

[8] http://www.frc.org.uk/Our-Work/Publications/Corporate-Governance/UK-Corporate-Governance-Code-2014.pdf

[9] http://www.fca.org.uk/static/documents/consultation-papers/cp14-13.pdf (page 8)

[10] http://www.fca.org.uk/static/documents/consultation-papers/cp14-13.pdf (page 12)

[11] http://www.fca.org.uk/static/documents/consultation-papers/cp14-13.pdf (page 14)

[12] http://www.fca.org.uk/static/documents/consultation-papers/cp14-13.pdf (page 20)

[13] http://www.fca.org.uk/static/documents/consultation-papers/cp14-13.pdf (page 22)

[14] http://www.fca.org.uk/static/documents/consultation-papers/cp14-13.pdf (page 8)

[15] http://www.fca.org.uk/static/documents/consultation-papers/cp14-13.pdf (page 56)

[16] http://www.fca.org.uk/static/documents/consultation-papers/cp14-13.pdf (page 52)

[17] http://www.fca.org.uk/static/documents/consultation-papers/cp14-13.pdf (page 52)

Retention accounts for warranty and indemnity claims: protect your money from the outset

11/03/2015 | Jon Lovitt
For any party buying or selling a company, the negotiation of warranties and indemnities in the sale and purchase agreement (“SPA”) is understandably a high priority. The purpose of warranty and

For any party buying or selling a company, the negotiation of warranties and indemnities in the sale and purchase agreement (“SPA”) is understandably a high priority. The purpose of warranty and indemnity provisions is to create certainty for buyers about the state of the company being purchased. As well as forcing disclosure of information about the company by the seller, they provide a mechanism by which the buyer can claim for compensation if the seller is in breach of the provisions in the SPA.

Often an account is set up by the buyer in which an agreed sum is held to cover relevant claims by the buyer under the warranties and indemnities in the SPA. The seller will not, however, want the buyer to have unfettered access to the money retained in this account. As highlighted by the recent High Court case Bir Holdings v Balraj Mehta, sellers must ensure that carefully drafted provisions are included in the SPA setting out the circumstances in which the buyer can deduct sums from the retention account.

Background

Warranties and indemnities

Warranties and indemnities are statements given by sellers to buyers in relation to the state and affairs of the company being sold. If a seller is in breach of a warranty, the buyer is entitled to be returned to the position he would have been in had the warranty been true. In practice, this means that the buyer can claim damages for an amount representing the reduction in value of the shares purchased as a result of the breach. A breach of an indemnity, however, entitles the buyer to claim on a pound for pound basis for any loss accruing from the seller’s breach. Whereas a seller can limit his exposure under warranties by disclosing against them, indemnities are not disclosed against. An indemnity would usually be given instead of a warranty where, for instance, the buyer knows of a specific problem that may arise and expects the seller to compensate him if the event does occur.

Escrow accounts

The most expedient way for a buyer to claim compensation for a seller’s breach of the warranties and/or indemnities in an SPA is by making a direct deduction from an account already set up to deal with such claims. SPAs usually make provision for escrow accounts to be set up at completion. The buyer places an agreed sum into the account and the buyer is then able to make deductions from this sum in accordance with the terms of the SPA.

The amount to be held in escrow pending any warranty or indemnity claims will usually depend on the size of the transaction and the relative bargaining power of the parties. Sellers will understandably want to receive as much of the consideration as possible at the time of completion, particularly where other sums are being retained by the buyer, such as any money held back pending certain trading or profit targets being hit in the future. Buyers on the other hand are likely to want the escrow pot to be as large as possible and to be held for as long as possible to ensure that, if the seller is in breach of any of any warranties and/or indemnities, there is money readily available to compensate the buyer for loss suffered as a result of the breach.

Bir Holdings v Balraj Mehta [2014] EWHC 3903 (Ch)

 Facts of the case

Bir Holdings v Mehta involved the sale of shares in a company which ran a nursing home. Under the SPA, £687,000 was payable to the sellers on completion and £250,000 was to be placed into an escrow account. This account was available for a set period after the sale of the company, after which time any remaining balance was to be transferred back to the seller.

Under the terms of the SPA, the buyer could deduct money from the account for any “relevant” claims. The buyer made six claims under the SPA amounting to a sum total of £293,159. As a result, all the money in the escrow account was deducted by the buyer.

No implied term of accuracy

The seller disputed these payments, alleging that although the SPA provided that deductions could be made from the escrow account for any “relevant” claims, there was an implied term that any deductions had to be “accurately calculated and based on factual substance”.

Judgment

The court rejected this argument and held that the terms of the SPA did not provide that the buyer had to explain the merits of any claim. Nor did it give the seller any rights to object to the substance or the value of such claims. The provisions of the SPA relating to the escrow account were clearly intended to be favourable to the buyer and the court was unwilling to interpret the SPA any differently.

Comment

The underlying message for sellers is that protections must be built into the SPA which clarify the circumstances in which a buyer can deduct money from an escrow account. Sellers will want to ensure that buyers can only deduct money for claims that have been “substantiated”. The definition of a substantiated claim will be a matter for negotiation, but may include circumstances in which the seller agrees that the buyer is entitled to deduct money from the escrow account, or where a court or appointed adjudicator decides that the deduction is permissible under the terms of the SPA.

Although it is often reasonable for buyers to demand that money be retained in an escrow account to cover claims under the SPA, sellers should be alert to the potential dangers of buyers obtaining unfettered access to the retained monies. Protections should therefore be built into the SPA from the outset to avoid unreasonably frivolous deductions.

 

This bulletin should not be taken as definitive legal advice. Please contact Jon Lovitt on 020 7955 0880 or jonl@rosenblatt-law.co.uk for further advice.

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