Hillyer McKeown Blog

How will the Budget affect your business?

The Chancellor of the Exchequer delivered his Budget statement on 22nd June 2010.
Employers

The Budget announces the following measures for employers:

National Insurance Contributions

* Cutting national insurance making it cheaper for companies to employ people. The threshold at which employers start to pay National Insurance will be raised by £21 per week above indexation in April 2011.
* A new tax scheme to help create new jobs in parts of Britain outside the Greater South East by exempting new businesses from up to £5,000 of employer National Insurance Contributions payments for each of their first 10 employees hired.

Income Tax

* The personal allowance for under 65s will be increased by £1,000 in April 2011, with gains limited to basic rate taxpayers.

Enterprise

The Chancellor said a long-lasting economic recovery must have its foundations in the private sector, not the public sector, and businesses across all regions need the right conditions to be able to grow.

The Budget announces the following measures for enterprise and growth:

* A reduction in corporation tax from 28 to 24 per cent over the course of four financial years from April 2011.
* A reduction in the small profits rate of corporation tax to 20 per cent from April 2011, instead of the planned increase to 22 per cent.
* An increase in Capital Gains Tax from 18 to 28 per cent for higher rate taxpayers, while the entrepreneurs’ relief life time limit will rise from £2 million to £5 million.
* To ensure that more small firms have access to credit, the Enterprise Finance Guarantee (EFG) will be increased by £200 million to support £700 million of additional lending until 31 March 2011. The EFG supports lending to small businesses that find it difficult to access the normal commercial loans.

VAT

* VAT will increase from 17.5 per cent to 20 per cent from 4 January 2011, but items such as food, children’s clothes and books will remain zero-rated for VAT purposes.

Find more information about how the Budget impacts individuals at the Directgov website.

See more detailed information about the Budget at the HM Treasury website.

There aren’t many people who can claim to have spent the best part of two months under a rhino. Fewer still have lived to tell the tale and I suspect even less have managed to get close enough to paint one.

For 3 months I have been plagued with queries of “how’s your rhino?” – a question that is not as random as it first seems.  But I’m sensing I’ve lost you already, so let me go back to the beginning.

Rhino Mania is an event that is due to hit the streets of Chester on 5th July 2010.  For 10 weeks, the City will be littered with herds of brightly coloured rhino sculptures, designed and painted by all manner of regional and local artists.  You might have already seen something similar in Liverpool (Lambananas/Go Penguin), London (Elephant Parade) or Edinburgh (Cow Parade).  It’s intended to do one of two things, firstly to celebrate Chester’s cultural identity, and secondly to raise awareness about the plight of the black rhino which has been pushed to the brink of extinction.

As I am a lawyer, you’re probably wondering why on earth I’d be writing about this – the closest I must surely get to expressing my artistic creativity at work is deciding what colour shirt I should wear to the office.  Well apart from the fact that I work in Chester, I do have a vested interest in the event because I was lucky enough to design and paint two of the rhinos myself.  You can see them both below.

I guess here is where I go on to explain the motivation and inspiration behind each piece.  Being a lawyer, as opposed to an artist, there wasn’t really any ‘process’ to talk of – I literally took the brief to heart and tried to produce thought provoking but fun designs.  My hope is that I’ve managed to achieve both.
Let me talk you through the designs.

I have thoroughly enjoyed having the opportunity to take part in this event and have been honoured to work alongside such talented people. I can only express my heartfelt thanks to all those involved in putting Rhino Mania together and hope that I’ve shown that there is more at least to this lawyer than meets the eye.

Don’t forget the Rhinos will be out on the 5th July 2010 and having seen some of them, you’re in for a treat.

Once Known Never Forgotten

When a Trust comes to an end the Trustees have to pay off creditors and their own administration costs and thereafter pay any assets to the beneficiaries according to the terms of the Trust.

However there can be situations when Trustees are not aware of beneficiaries and/or creditors. In order to gain protection there are essentially two steps that Trustees can take, they can obtain insurance and/or advertise under Section 27 of the Trustee Act. An advertisement essentially allows Trustees to advertise for any creditors or beneficiaries of which the Trustees have no notice. If no-one responds the Trustees can distribute.

It is a useful provision that Trustees engaged in the winding up of a Trust will utilise. A difficult question however is what is “notice”.

In a recent case the Court had to consider the winding up of the Maxwell Pension Scheme. The Trustees had advertised for missing beneficiaries before purchasing insurance and using the surplus to provide increased benefits to the known members. However, after the distribution, the Trustees discovered that there were another 30 or so members who had been lost off the records. The insurers paid out those “lost” members and are now pursuing the Trustees in negligence.

The Court had to consider as a preliminary issue whether or not the Trustees had any liability because the Trustees had advertised and the missing beneficiaries had not responded.

The Court found that “notice” is not the same as knowledge. If a trustee forgets that a beneficiary exists this does not remove the fact that the Trustee had notice of that beneficiary. In other words if a Trustee ever knew of a beneficiary then simply forgetting about them will not allow the Trustees to claim protection under Section 27.

This decision emphasises the need for Trustees to maintain well administered records. Pension schemes can last for substantial periods and can have potentially thousands of members and so the importance of keeping records throughout the scheme and certainly at the end of a scheme is crucial for the Trustees’ protection.

Congratulations go to Jane Hillyer from our Employment team who managed to complete the London Marathon in an impressive 4 hours and 21 minutes and 6 seconds. She has managed to raise over £2000 for Claire House and we are very proud of her. Well done Jane!

The Highway Authority’s Duty of Care… to speeding motorists
The case of Russell v West Sussex CC makes it clear that a Highway Authority must maintain the highway so as it free of dangers for ALL users. The relying on the test set out by Sachs LJ in Rider v Rider, the Court held that the Highway Authority’s duty is;
“…reasonably to maintain and repair the highway so that it is free of danger to all users the highway in a way normally to be expected of them…the Highway Authority must provide not merely for model drivers, but for the normal run of drivers to be found on their highways and that includes those who make the mistakes which experience and common sense teaches are likely to occur”.
The Court’s decision in this case to some may seem surprising however, it reiterates the extent to which the Highway Authority owes a duty of care even to those who may not necessarily be complying with the provisions of the Highway Code and applicable laws.

Case Law Update –Enviroco Limited v Sartad Supply A/S –The meaning of “Subsidiary”
Considered by many as a shock decision, the Court of Appeal have handed down Judgment on the meaning of a subsidiary under sections 736 and 736A of the Companies Act 1985 (now section 1159 of the Companies Act 2006).
Facts
The case was concerned about whether a subsidiary company remained a subsidiary for the purposes of the Act after a parent company charged its shares in the subsidiary (“Enviroco”) to a bank.
The shares were registered in the name of the Lender’s nominee.
Enviroco argued that it was still a subsidiary of the parent company as its parent company was a member of it and controlled a majority of the voting rights in it.
Decision
The Court of Appeal rejected this argument holding that by virtue of registering its shares to a bank and putting it into the name of the bank’s nominee by way of security, Enviroco was no longer a subsidiary of the parent company for the purposes of the Act.
Impact
Whilst it is anticipated that an appeal will be made to the Supreme Court on this case, the potential impact of the Court of Appeal’s decision is likely to be substantial. In particular;
The provision of any contract by a company whose status as a holding company or subsidiary (for the purposes of the Act), and where it has sought to define concepts such as ‘subsidiary’, ‘affiliate’, ‘group’ and ‘holding company’ should be carefully scrutinised.
Clients are advised to err on the side of caution and seek advice as to whether or not the definition of subsidiary and holding company in the documents will need to be amended and redefined. Clients may also wish to obtain legal advice as to the best way in which alternative forms of security may be granted and to obtain further information as to the possible risks and implications of granting security by way of legal mortgage over shares. Clients are accordingly best advised to consult with our Corporate Department for further advice in his regard and how you may better protect your position moving forward.

Warning – Even long outstanding rent reviews can be actioned
The case of Bello v Ideal View provides a stark reminder that rent review provisions can still be exercised by a Landlord even after a very long delay.
Facts
The case relates to a 50 year Lease with the provision for a rent review at year 25 (exercisable in 1994). Mr Bello, acquired the Tenant’s interest under the Lease in 2005 and Ideal View brought the Landlord’s interest in the Lease in 2006. Some 14 years after the right became exercisable, the Landlord initiated the rent review procedure.
The rent was increased significantly from £60 per annum to £1,700 per annum in 2007. The Landlord also claimed payment of the back dated uplift in rent from 1994. Mr Bello did not discharge the arrears and possession proceedings were issued and granted in favour of the Landlord.
On appeal, the Court again found in favour of the Landlord stating that if the rent review provisions do not put a time limit on initiating the rent review process (as most invariably don’t), then even in cases of a substantial delay, such as to be unreasonable or even causing prejudice or hardship to the tenant, this did not in itself negate the Landlord’s contractual right to implement a review. The only exception to this is where the Landlord is said to act in some way so as to equate to a waiver of his right to review the rent and the tenant then acts in reliance upon it.
This is perhaps a surprising outcome for some but in any event drives home the notion that both landlords and tenants should be alive to the extent of their obligations and rights under a lease and the need to carry out careful due diligence, particularly if acquiring a leasehold interest by way of assignment. It also reminds landlords and tenants alike as to the importance of careful drafting when composing their Leases.

CHANGES TO SMALL BUSINESS RELIEF IN WALES FROM 1st APRIL 2010
SBR can provide certain businesses with a welcome reduction in their rates. Currently, SBR of:
• 50% is available for non-domestic properties with a rateable value of not more than £2,000.
• 25% is available for non-domestic properties with a rateable value of not more than £6,500.
• 25% is available for retail purposes with a rateable value of more than £6,5000 but not more than £9,000.
On 22nd December 2009, the Minister for Social Justice and Local Government wrote to Assembly members informing them that he proposed to amend the Non-Domestic Rating (Small Business Relief) (Wales) Order 2008 to increase the rateable value thresholds from:
• £2,000 to £2,400 for the general 50% relief.
• £6,500 to 7,800 for the general 25% relief.
• £9,000 to £11,000 for the 25% retail relief.
These changes have come into effect from 1st April 2010.

Apple sues mobile phone giant HTC over iPhone patents
Apple is suing Taiwanese mobile phone manufacturer HTC, claiming it has infringed 20 patents relating to “the iPhone’s user interface, underlying architecture and hardware”.
The key element believed to have triggered the lawsuit is that HTC released handsets in February which used ‘pinch to zoom’ functionality resembling that of the iPhone.
Apple’s chief executive, Steve Robs issued a statement saying; “we can sit by and watch competitors steal our patented inventions, or we can do something about it. We’ve decided to do something about it. We think competition is healthy, but competitors should create their own original technology, not steal ours”.
If successful, Apple’s action would result in HTC being banned from selling phones with the contentious features in the USA.
In its response to legal action, HTC said it had only just learned about the allegations and was investigating the matter.

The Duty to Mitigate

The Court of Appeal recently considered an innocent party’s duty to mitigate its loss and confirmed that it was for a party in breach of contract to demonstrate that there has been a failure to mitigate but that the duty to mitigate was not a demanding one.

Lombard North Central Plc provided finance for the Defendant (“the Purchaser”) to purchase a Mercedes Benz X600 Pullman with a basic price of £194,000.00. The Purchaser paid a £24,000.00 deposit, and agreed to pay 60 instalments of £3,061.28 with a final instalment of £60,000.00, a total purchase price of £267,678.80.

The Purchaser fell in default and Lombard eventually repossessed the vehicle, which was sold at auction realising a net sale proceeds of £50,829.72. The balance therefore due under the contract was £204,713.31 and proceedings were commenced to recover that amount.

The Purchase argued that there had been a failure to mitigate as the car had not been sold for an appropriate amount. The seller had not appreciated the nature of the car that had been repossessed, it was a rare car and should have been properly marketed with specialist dealers.

The Court rejected the argument because it accepted the evidence of the seller that he was aware of the car he was dealing with and he explained why he was prepared to accept the relatively low offer. Additionally the Purchaser did not adduce any expert evidence regarding the appropriate value that should have been obtained and the Judge properly found that ordinarily in a case that turns on valuation expert evidence as to the inadequacy of the price obtained should be adduced.

The Court of Appeal has accordingly reaffirmed that the duty to mitigate was not a demanding one and that the innocent party merely has to do what is reasonable in the circumstances. It was up to party in breach of contract to prove that this standard has not been met, not an easy task.