Corporate Solutions

Introduction

We have the knowledge and experience of local and national business and the larger economy that clients require.

Our Corporate and Commercial Department delivers high quality, cost effective and innovative solutions to the legal challenges that face the business community. We aim to provide a pro-active, pragmatic and efficient service which meets our clients' requirements.

We have the knowledge and experience of local and national business and the larger economy that clients require. Only by getting to understand our clients' businesses, can we provide what our clients need, to their complete satisfaction. Our desire to exceed expectations, and provide added value, enables us to provide the right solutions.

We can offer expertise in the following areas:

  • Business start-ups
  • Contract
  • Joint Ventures
  • Energy Law
  • Fishing Vessel Mortgages, Quota and Licence Work
  • Intellectual Property
  • Insolvency
  • Company Secretarial
  • Contentious Issues

If you would like further information on the services that our Corporate and Commercial Department can provide please contact Laura Clark on 01224 428210 or alternatively refer to the relevant section on this website.

Acquisitions and Disposals

This can be a complex area, particularly for the uninitiated. Some of the key issues are as follows:-

Consents and Approvals

Before entering into any commitment to buy or sell a business, it is worth considering what consents and approvals may be required. For example:

the articles of association of the target company may contain restrictions on the transfer of its shares which have to be over-ridden to allow the sale and purchase transaction to proceed. This will be a formality where the sale is agreed to by all the shareholders.

The articles of association of the purchaser may impose relevant restrictions, eg upon the issue of consideration shares or in relation to borrowing powers.

Regulatory consent: to the extent that the parties or the target (or any subsidiary of the target) operate within a regulated environment, consent to the transaction may be required from the regulatory authority concerned. For example, if the purchaser is a listed company, the approval of the Stock Exchange may be required to admit any consideration shares to the Official List. Another example is in the case of a target that carries on investment business, where consent to a change of control is generally required.

"Substantial property transactions": where the seller is (or is "connected with") a director of the purchaser, or of a holding company of the purchaser, the transaction will generally require to be approved by the shareholders of the purchaser, unless the consideration falls below certain statutory limits.

The Listing Rules require certain transactions (Reverse takeovers, Class 1, and related party transactions) by a company to be approved by the shareholders in general meeting.

Contracts such as loan agreements and joint venture agreements often contain provisions restricting the purchase and sale of assets, including subsidiary companies. The terms of any relevant documents should therefore be reviewed. Beware also of any change of control provisions affecting a target company, ie in a third party agreement.

Powers: the powers of the contracting parties should be checked, in the case of a corporate body, trustee, receiver, etc.

Buyer Beware

The law affords almost no automatic protection to the purchaser of a business. It is of critical importance, therefore, for the purchaser to conduct its own assessment of the company or assets in question and to obtain comprehensive warranties and representations from the seller. This is referred to as due diligence. Because of the inherent difficulties associated with the pursuit of warranty claims, the more information that can be verified in advance the better.

The areas to be covered by a due diligence investigation will include:

  • legal
  • financial
  • environmental
  • taxation

Particularly in the case of large scale acquisitions, the due diligence process requires careful management. The scope of the exercise should be agreed between the purchaser and the lawyers and other professional advisers involved. This should cover the matters to be investigated, the degree of detail, the commercial rationale of the transaction and the lines of communication to be maintained.

Wherever possible, the due diligence investigation should include discussion with the management of the target company and their auditors and professional advisers. Where more than one jurisdiction is involved, the lead advisers should co-ordinate the efforts of the local advisers and ensure that the reports are prepared on a uniform basis. In all cases, it is essential that one person takes responsibility for understanding the whole due diligence exercise

Conclusion

The sale or purchase of even small businesses is complex. The current legislative framework, while affording some protection against fraudulent or dishonest conduct by the devious, also contains traps for the unwary. Thus parties acting in good faith can, without good advice, find themselves doing deals that may variously be unlawful, unenforceable and/or simply commercially unwise. Where other regulators are also involved, especially the Stock Exchange, the number of matters to be considered increases significantly. Bigger sales and purchases tend, in any case, to become more complex simply because of the amount of detail that is involved and a very methodical approach becomes more and more important. Getting the right legal advice is therefore essential.

Tax Issues When Selling a Business

One of the principal issues when dealing with the acquisition or disposal of a business is how the deal should be structured from a tax perspective. This article will examine the key tax issues to be considered when a business is purchased. Please note that all rates of tax and thresholds below are for the 2011/2012 tax year.

There are essentially two formats which a business acquisition could fall into:

  • Share Purchase
  • Asset (or Business) Purchase

Generally, a share purchase is more favourable to a seller and an asset purchase is more favourable to a buyer from a tax perspective.

Share Purchase

Advantages for sellers

Substantial Shareholding exemption (SSE)

SSE is available in certain circumstances to companies which dispose of shares. The SSE allows any capital gain on the disposal of shares to be exempt from tax.

"To qualify for SSE the company must have held at least 10% of the issued capital of "target" for a 12 month period beginning not more than 2 years prior to the disposal."Target" must be a trading company."

If SSE does not apply then any gain on the disposal will be subject to Corporation Tax.

Roll over relief

If SSE does not apply or the seller is an individual then it may be possible to defer paying tax on the disposal of shares. "Instead of receiving cash for the shares the consideration could be in the form of loan notes or shares in the buyer." This will enable the seller to defer paying tax until the disposal of the shares or loan notes.

Entrepreneur's relief

Entrepreneur's relief is available to individuals on the disposal of their shares in a trading company (or in a holding company of a trading company)."To qualify, an individual must have held the shares for at least the 12 months prior to the disposal, the shares must have been no less than 5% of the issued capital of the company and the individual could exercise at least 5% of the voting power of the company." The individual must also have been an employee or officer of the company for 12 months prior to the disposal.

Entrepreneur's Relief allows individuals to benefit from capital gains tax at a rate of 10% for the first "10 million of qualifying lifetime gains." The normal rate of capital gains tax is 18% for incomes up to the basic income tax rate (37,400 in 2011/2012) and 28% for incomes over this rate.

Advantages for buyers

Tax Assets

If the target company has valuable "tax assets" such as trading losses and capital losses then a share purchase can, in the right circumstances, be attractive to the buyer."The tax assets can be set off against future tax liabilities of the target." However, it is common for valuable tax assets to be reflected in the consideration, typically being paid for if/when utilised.

Stamp Duty

The transfer of shares attracts stamp duty at 0.5% of the total consideration (if the total consideration is more than "1,000 otherwise no stamp duty is payable)." If there are any land or buildings being transferred under an asset purchase they would attract stamp duty land tax of up to 4% of the consideration for the property.

VAT

Share purchases are exempt from VAT.Asset purchases may not be exempt if the business is not transferred as a "going concern?", i.e. if the buyer will not continue to operate the same kind of business as the seller post transfer.

Asset Purchase

Advantages for sellers

Allowable Losses

If the capital assets are sold at a loss then the allowable loss can be set off against capital gains."If trading stock is sold for less than cost then this will be a trading loss which is tax deductible." If there was a share sale at a loss then it would not be possible to set off any loss on the value of the shares.

Balancing allowances

If an asset has depreciated in value more than the written down value for tax purposes then the difference can be set off against income or any capital gains. The difference shall be treated as a trading loss.

Advantages for buyers

Corporation Tax: intangible assets

The buyer should be entitled to tax relief for accounting amortisation on goodwill, intellectual property and other intangible assets provided it acquires them from an unrelated third party.

Capital Allowances

Businesses are entitled to claim capital allowances on expenditure on plant and machinery."Capital allowances are available on the first" 100,000 each year (reducing to first 25,000 from April 2012) spent on qualifying plant and machinery. The main rate of writing down plant and machinery is 20% per annum (18% from April 2012) on a reducing balance basis.

Rollover Relief: chargeable gains

If qualifying assets are acquired, including land and buildings and plant and machinery then the buyer can defer chargeable gains on the disposal of other qualifying assets in the 3 year period before the disposal and for any that may be disposed for in the year following the disposal by way of roll over relief until the replacement assets are disposed of.

Rollover Relief: income gains

If the proceeds of the disposal of intangible assets are reinvested in replacement intangible assets then rollover relief can apply.

Higher base cost

The buyer will obtain a new market base cost on the assets."This means that if the buyer were to subsequently sell the assets at an increased price then the capital gain will be the difference between what it paid for the assets and what they were sold at." If a share transfer took place and then the assets were sold then the capital gain would be based on the historic base price which may be significantly lower.

Tax Liabilities

The tax liabilities of the seller will generally not transfer in an asset sale.? They would transfer in a share sale.

Please note that specialist tax advice should be sought prior to the acquisition or disposal of a business. "This article is to be treated as a guideline only." If you are considering acquiring or disposing of a business and would like to discuss further please contact Colin Howie in Peterkins Corporate & Commercial Department at cnh@peterkins.com or 01224 428210.

Business Startup

Most frequently, the choice will be between setting up a private company limited by shares and operating in partnership (or as a "sole trader", in the case of a one-man business). Certain circumstances, however, will dictate that a public limited company, a private company limited by guarantee, an unlimited company or a limited partnership should be considered. The decision will be based on a combination of the following factors:

  • taxation
  • costs
  • the importance of limited liability
  • the requirement for bank borrowings
  • the anticipated growth of the business
  • the need for confidentiality

Points to Consider

It is important from the outset to establish the basis on which the ownership of the business will be shared. It is quite common for the participants to speak of forming a "partnership", albeit this may be through the medium of a limited company. Except where the ownership is going to be exactly 50:50, the result may not be as intended. For example, ownership of 10% of the share capital of a private limited company could represent a much smaller proportion of the value of the company and could be unrealisable. Also, two 30% minority holdings could, when aggregated, represent a controlling interest in a company. The 50:50 situation brings its own problems, of course, when it comes to resolving a deadlock!

As well as the division of the shareholdings, you should consider:-

  • the rights and obligations attaching to the shares in relation to: dividends, voting, return of capital, conversion, etc
  • the value of shares which are going to be transferred and the price at which any new shares will be issued
  • the conditions applying to any transfer of the shares
  • any other contractual considerations, such as provisions contained in a shareholders' agreement

Raising funds

A new business will generally begin with a combination of owners' funding, whether debt or equity, and bank debt. Loans may be secured or unsecured. The security may be provided from the assets of the business, other assets of the owners, or other third party assets. Shareholder loans may have to be postponed to the bank loans, to ensure that the bank has a better claim on the assets of the company. If the owners are unable to provide sufficient equity to finance the business directly or to enable it to raise any loan funding required, it may be possible to raise third party equity finance. Although some venture capital funds operate at the lower end of the market, there is a tendency for institutions to move to larger transactions, in order to maximise their return on investment. We have contacts with venture capitalists prepared to back smaller ventures as well as large ones, and have assisted numerous clients to meet their financing requirements.

Management

In the case of many small business start-ups, the same individuals will be the owners and the managers. This is particularly so in the case of a traditional partnership. In a limited company, however, it is important to distinguish clearly between the role of shareholder and the position of director. Where there are one or more external investors, it is common for the relevant shareholders to have the power to appoint (and remove) individual directors, to represent their interests on the board. The directors have control of the day to day affairs of the company. It is important that the voting rights that apply within the board of directors reflect the balance of the ownership of the company. So, apart from the usual provisions for a quorum, it is common to require certain directors to be present, or even an affirmative vote by those directors, before a vaild decision can be taken. In law, the board of directors act together as a unit, although it is common for the directors to delegate day to day control to a managing director, assisted by other executive directors.

Private Limited Company, Limited Liability Partnership or Partnership

Which structure to choose?

When forming a new business entity one of the fundamental decisions to be made is what legal structure the business should take. Below is an overview of three of the most common business entities: Private Company Limited by Shares; Limited Liability Partnership and an Unincorporated Partnership.

Private Company Limited by Shares

A Private Company Limited by Shares (Ltd Company) is the most common form of incorporated business structure. The Ltd Company is managed by the directors and owned by the shareholders.

The key features of a Ltd Company are:

  • Its members have limited liability.
  • It is a separate legal entity from its members (shareholders).
  • It is managed by its directors who are its agents.
  • It is bound by the decisions of any of its directors, unless he has no authority to act and the person he is dealing with knows he has no authority.
  • Directors do not need to be shareholders and shareholders do not need to be directors (although they often are in small companies).
  • It pays corporation tax on its profits.
  • Members are taxed individually on any dividends.
  • Directors' salaries are subject to income tax.
  • It can amend the issued share capital.
  • Shareholdings can be tailored.
  • Different classes of share can be created which have different rights attached to them.
  • Articles of Association contain the rules of the Ltd Company.
  • Articles can be amended by special resolution of the shareholders.
  • Its must file accounts and an annual return each year.
  • It must notify Companies House of any changes like the appointment of a new director, change of name or allotment of shares.
  • It can create securities, including floating charges, over its assets.
  • It can be a "non-profit" organisation (a charity, although charities often adopt a "limited by guarantee" status).

Limited Liability Partnership

Limited Liability Partnerships (LLPs) were created by Limited Liability Partnerships Act 2000 as amended by the Limited Liability Partnerships (Scotland) Regulations 2001. The legislation was introduced as a result of pressure from professional firms, such as accountants and solicitors, to ensure their members could enjoy limited liability without losing the flexibility and tax advantages of being a partnership.

The key features of an LLP are:

  • Its members have limited liability.
  • It is a separate legal entity from its members.
  • LLP is managed by its members who are its agents.
  • LLP is bound by the decisions of any of its members, unless he has no authority to act and the person he is dealing with knows he has no authority.
  • It is taxed as a partnership.
  • Members are taxed individually on their share of the profits of the LLP.
  • It has the flexibility of a partnership.
  • There is no share capital.
  • Generally if an issue is put to a vote the partners would be entitled to one vote each. (The provisions of the LLP Agreement may alter this).
  • The rules of the LLP are contained in an LLP Agreement.
  • The LLP Agreement is a private document.
  • The terms of the LLP Agreement will be agreed between the members.
  • Its accounting and filing requirements are similar to that of a company.
  • It must prepare and file accounts.
  • Notify Companies House when a member is appointed, when someone ceases to be a member and when a members details change.
  • Register mortgages and charges at Companies House.
  • Notify Companies House of a change of registered office.
  • File an Annual Return with Companies House.
  • It has the ability to create floating charges.
  • It must be a "for profit" business.
  • It cannot be a charity.

Unincorporated Partnership

A partnership is very simply, two or more people running a business together with a view to making a profit. If there are less than two people running the business then it will be a sole trader business. Partnerships are not incorporated and do not have a separate legal personality.

The key features of a Partnership are:

  • The members/owners are known as Partners.
  • Its Partners have unlimited liability.
  • Each partner is jointly and severally liable for the liabilities of the Partnership.
  • Each partner is liable for the decisions of every other partner.
  • It is not a separate legal entity from its members.
  • It is managed by the partners who are its agents.
  • It is bound by the decisions of any of its partners, unless he has no authority to act and the person he is dealing with knows he has no authority.
  • It is not subject to corporation tax.
  • Partners are taxed individually on their share of the profits of the Partnership on what is known as a preceding year basis.
  • It has a flexible structure.
  • There is no share capital.
  • Generally if an issue is put to a vote the partners would be entitled to one vote each. (The provisions of the Partnership Agreement may alter this).
  • The rules of the Partnership are normally contained in a written Partnership Agreement. (A Partnership can be run based on an oral agreement or even a course of conduct but this is not advised.)
  • The Partnership Agreement is a private document.
  • The terms of the Partnership Agreement will be agreed between the partners.
  • It does not need to file accounts or an annual return.
  • It does not have the ability to create floating charges.
  • It must be a "for profit" business.
  • It cannot be a charity.

If you are considering setting up a new business and would like to discuss further please contact Colin Howie in Peterkins? Corporate & Commercial Department at cnh@peterkins.com or 01224 428210.

Employment

Employment law is an area of constant change, not simply as a result of new statutes but primarily because of a continual flow of Employment Appeal Tribunal decisions, court cases and tax changes.

We advise both employers and employees. Indeed, employees increasingly seek legal advice, not just as a result of acrimonious partings but when negotiating or renegotiating contracts of employment and service agreements.

The firm can provide a full employment law service:

  • Drafting Service Agreements for executives and directors
  • "Template" Contracts for employees
  • Advice on stock-options and other elements of remuneration
  • Confidentiality agreements and restrictive covenants
  • Advising on dismissals, grievance procedures, disciplinary measures
  • Redundancy
  • Court and Tribunal appearances

Personal Service Companies: IR35

HM Revenue & Customs, motivated by a desire to maximise tax revenue, deemed contractors working through personal service companies to be employees where they work for just one employer. That raises particular issues: must employers put such former contractors on the payroll; can contracts be phrased to protect some of the flexibility that employers (and employees) previously enjoyed; in which circumstances could a contractual rather than an employment situation be preserved.

Sea Fishing

The sea fishing industry remains a very significant economic sector in Scotland, and Peterkins expects to be serving it long after the last drop of oil has been extracted from Scottish waters. We have specialised in this sector for more than 25 years and represent clients engaged in all aspects of the industry from the catching sector and fish salesmen through to processors and hauliers.

Vessel Owners

We represent many fishing vessels owners and deal with a whole range of contentious and non-contentious matters for them in one of the most heavily regulated sectors of UK industry:

  1. Sale, purchase and lease of licences and quotas.
  2. Sale, purchase and charter of vessels.
  3. Partnership formation, dissolution, and dispute resolution.
  4. Incorporation of partnerships.
  5. Disputes with SEERAD, DEFRA and Producer Organisations.
  6. Civil litigation and criminal defence work in respect of, for example, log-book and mis-reporting offences.
  7. Advising on an increasingly complex burden of regulation such as satellite monitoring, and tonnage and engine power regulations.

Lenders

Representing one major lender providing finance for the fishing industry, particularly for loans to acquire fishing boats, and acting for others from time to time, we offer an excellent standard of service and level of technical competence.

Vessel Managing Agents

The role of the managing agent has traditionally been at the heart of all the on-shore business activities for those connected with the catching sector. In addition to carrying out many of the above activities, on the instructions of agents, we are also able to put our general corporate, commercial and employment services at their disposal.

Fish Producer Organisations

The firm has represented a number of Fish Producer Organisations, advised interest groups on setting up new producer organisations and has been involved in drafting constitutional documentation for others. Work includes internal dispute resolution and international quota swaps and joint ventures.

Fish Processors

Apart from general commercial and commercial property matters, work for fish processors tends to focus on employment law related matters. Advising on law and regulation concerning food production, hygiene and environmental compliance are assuming ever greater importance.

Insolvency

Insolvency: inability to pay debts as they fall due

Insolvency is a prospect that strikes fear into the heart of any businessman. Seen as a distant threat for many large established businesses it is one that can re-emerge with frightening speed even for the grandest of blue-chips. Insolvency may be, or have been, a day to day prospect for smaller companies battling against adverse market conditions or trying to establish a new product with limited resources.

Many companies fight through this stage to go on to greater things - as a former President of the Board of Trade famously observed from personal experience! Matters are being made easier by the gradual change in British business culture towards the American model where business failure is seen more as a "rite of passage" than a lifelong stigma. Creditors are increasingly prepared to meet struggling companies half-way, and Corporate Recovery is most successful where creditors are approached early and voluntary arrangements are negotiated before the company is forced into receivership.

We are experienced in setting up voluntary arrangements, managing employment issues that arise when downsizing becomes part of the recovery plan, and setting in place Corporate Finance as authorised financial advisors.

Case Study

A country hotel ceased trading when it emerged that the owner of the operating company had acquired and financed it with funds stolen from a public body. Acting on behalf of a third party that wished to acquire the assets and undertaking of the operating company we entered into negotiations with all affected parties. These included the representative of the public body that had frozen the assets, numerous trade creditors owed substantial sums and also a UK clearing bank, which ultimately agreed to fund the purchaser. After seven months of negotiation we achieved a voluntary arrangement that permitted the third party purchaser to acquire the assets on a discounted basis subject to having to take over a portion of the liabilities, the remainder being written off.

We are also accustomed to advising insolvency practitioners in the conduct of insolvency processes.

Intellectual Property

Rights to intellectual property have been recognised for more than a century as a means of ensuring that "inventors" may enjoy a monopoly to exploit their work for a set period of time, depending on what was created or invented.

Information Technology is one of the most important areas of IP. In an age when even CDs can readily be copied on cheap equipment, the whole value of software is lost if rights to it as intellectual property cannot be established.

A wide variety of means are available to protect IP, ranging from the assertion copyright, seeking a patent, or registering a design, trade- or service- mark and, increasingly, a domain name. It is important to consider whether it is adequate to protect the invention in the UK only, in Europe or the rest of the world as well.

We can advise on exploitation of IP before formal registration and has considerable experience in representing both the inventors of new IP and those who exploit it and of working with Chartered Patent Agents and other non-legal specialists in the field.

IP Licensing

If you grant someone an IP licence you give that person permission to use your IP. Without the licence, such use would be an infringement of your IP. The person who grants the licence is usually called the licensor, and the person who benefits the licensee.

A common example of an IP licence is the one you receive whenever you buy a copy of software.

Why might I license my IP or take a licence of IP?

Some examples are:

To generate revenue: An owner of IP may commercialise the IP itself and may obtain additional income by licensing the IP to someone else to commercialise it in a different field.

To increase market penetration: An owner of IP may license another business to sell in territories that the owner cannot cover.

To reduce costs: A business may get its products or services to market more quickly by acquiring a licence to use existing IP, instead of re-inventing the wheel.

Joint Ventures

Joint ventures are popular where two or more existing businesses want to work together to combine different but complementary strengths, usually to attack a specific market more effectively. A joint venture gives access to more skills, greater critical mass and more financial resources than the venturers might enjoy on their own. In recent years Peterkins has assisted Aberdeen and overseas companies to combine to bid for major projects with multi-national oil companies.

While offering advantages to the venturers, joint-ventures, whether constituted as partnerships or as limited liability companies, have inherent instabilities. They may be brought together quickly for specific reasons in rapidly changing situations. If successful, one of the venturers may gain in knowledge and strength so that it feels confident to "go it alone". Equally, the opportunity that led to the creation of the JV may vanish as quickly as it appeared.

Lawyers will draft the joint venture agreement so that it may be terminated fairly and equitably at the end of its life. Termination costs must be minimised, and the venturers should be left feeling happy to embark on a similar venture with the same partners again if a similar opportunity arises.

This is not always as straightforward as it might sound. Employment issues for staff seconded to the joint-venture may be complex but are routine. Provision for passing on indemnities given by the joint venture to the separating venturers, especially where these were given to a much larger business entity like an oil industry multi-national, may be much more complex.

Partnerships

Partnership: Where two or more persons collaborate for the purpose of making a profit.

The benefit of limited liability for shareholders and directors has seen the private limited company eclipse the partnership for most multi-owner (and many single owner) businesses. Where this benefit is not of over-riding importance, however, partnerships may be preferred for the other advantages they offer:

  • Partners may in some circumstances enjoy tax and national insurance advantages compared to the shareholders and directors of similar incorporated businesses.
  • They avoid some of the set-up and running costs of limited companies.
  • Unlike limited companies there is absolutely no requirement to publish financial details of your business; these are private between partners and HM Revenue & Customs!

In short, a partnership is often still most cost effective for many businesses with a relatively small number of owner/managers. It is also the preferred structure within the professions, where partnerships may comprise tens or even hundreds of partners. Moreover, because partnership is presumed to exist as soon as two or more persons enter into a business in the pursuit of profit, partnerships are often started "by default" - but this is the path into partnership that leads to most difficulties!

The biggest problems in partnership law tend to arise when there is no partnership agreement in writing. In the absence of a partnership agreement it may prove impossible to expel a partner, and where a partner does resign it may prove very difficult to reach an agreement over such issues as the valuation of the business and in particular the goodwill that may have been built up over years of trading.

Partnership agreement will cover:

  • Sharing of profits and losses
  • Rules for decision making
  • Formula for termination of the partnership, especially the valuation of assets
  • Retirement, resignation and death in service of partners

We have significant experience in advising on whether partnership represents a sensible approach when starting a company, in drafting comprehensive agreements, helping to resolve problems as they crop up and, ultimately, in incorporating or dissolving partnerships when they no longer represent the best solution to a business requirement.

Stock Exchange

There are various reasons why a company may decide to secure a quotation for its shares on the Stock Market. It could be to enable the company to raise large amounts of capital or to enable the promoters to realise capital, but in any event the company will render itself subject to the Listing Rules. The Financial Conduct Authority assumed responsibility for most listing issues in 2000 but the London Stock Exchange remains responsible for the admission of securities to trading.

The Listing Rules contain a comprehensive code of regulations that govern admission of securities to listing, the continuing obligations of issuers, the enforcement of these obligations and suspension and cancellation of listing. There are also a number of provisions relative to specific types of entity, such as overseas companies and venture capital trusts, and of security, eg eurobonds.

Peterkins is experienced in Stock Exchange work. As well as dealing with compliance and continuing obligations, we have advised clients in relation to the following transactions:

  • reverse take-over of a listed company
  • Class 1 disposal
  • placing and open offer
  • introduction

Verification

The Financial Conduct Authority does not itself investigate or verify the accuracy or completeness of listing particulars, nor does it check the sources to verify the information. In general the following parties will be responsible under the Financial Services Act for the accuracy and completeness of the document:

  • the issuer of the securities, i.e. the listed company
  • the directors of the issuer
  • any person who has agreed to be named as a director of the issuer or who has agreed to become a director of the issuer
  • any person who accepts, and is stated in the document as accepting responsibility for any part of the document
  • any other person who has authorised any part of the contents of the document

Several penalties, both criminal, and civil, apply to any breach. "Verification" is the process by which statements in the document are checked to ensure that they are accurate and that no material information is omitted. Although the process of verification has no legal significance, it should enable the parties concerned to avoid a mis-statement or omission, or at least provide a defence to a claim under the Financial Services & Markets Act 2002.

Typically, "verification notes" are prepared, containing each material statement in the document, the parties who are responsible for checking the statement, the supporting evidence, and the fact that the statement has been checked. The intention is to separate out each individual statement and consider it objectively in isolation. This process will often cause a (seemingly innocent) statement to be modified or even removed from the document altogether!

As well as verifying the statements contained in the documents, there is often a need to check the underlying information about the operations of the company concerned. Examples include the question of title to assets such as land and buildings, the adequacy of insurance, and the terms and conditions of major contracts.

Rapid Responses

Strict deadlines are imposed for the submission of information under the Listing Rules. For example, a listed company is required to notify the Company Announcements Office of the Stock Exchange (as the "information dissemination provider" approved by the UK Listing Authority) of any information that is disclosed to the company in relation to the dealing of its directors in the listed securities of the company. Such notifications must be made "without delay (by the end of the business day following the receipt of the information by the company)".

Market sensitivity

In disclosing information to the Company Announcements Office of the Stock Exchange, it should be borne in mind that the information will, or may be, released by the Exchange to the market immediately, subject to the overriding obligations of accuracy and completeness. Therefore, the information should be expressed in such a way that it does not appear to contradict information previously made available to the market, or raise further unanswered questions in the minds of the investors or analysts.

In many cases, it will be appropriate for the lawyer involved to allow the company's stockbrokers and merchant bankers to review a draft of any proposed release or notification, in order to assess the likely market response.

Where, in the context of any particular situation the Listing Rules are unclear, a direct approach should be made to the UK Listing Authority for assistance.