July 2009: Director redundancies

Whilst pretty rare up until now, there has been a recent increase in the number of SMEs who are making directors redundant, and we expect this to continue. It can often make sense: if a company’s activities have shrunk, with fewer sales and a reduced workforce, a company may appear top heavy and underperforming directors might be at risk.

Managing a director redundancy is complicated by the fact that a director usually has several legal roles: he or she is usually an employee, an office holder, a creditor and a shareholder. Each needs to be looked at in turn.

The following is a brief abstract from the detailed Director Redundancies article on our website.

Director as Employee

A director can be made redundant as an employee in the same way as any other employee and fair procedures must be used.

Director as Office Holder

A director can usually be removed by the shareholders.

A common complication is that a director will usually have given personal guarantees. He cannot be released from these by an agreement between the directors or as part of a redundancy negotiation but only by the organisation he gave the guarantee to. Guarantees should be examined closely; they might extend to much more than you thought.

Director as Creditor

A director will often have a loan account. If there is no loan agreement, then the loan may be repayable on demand.

However, issues can arise if the company is insolvent or repaying the loan would make it insolvent. In these cases, the departing director might later have to repay the loan to the company if it goes into liquidation. For more details about this, see Directors’ Responsibilities in Times of Financial Trouble on our website.

Director as Shareholder

A director cannot usually be forced to sell his shares and a shareholding can often be used as an important bargaining tool.

Advice

Extreme care must be taken when a company is thinking of making a director redundant, both from the company’s point of view and the director’s point of view. Both should obtain legal advice from a solicitor specialising in Directors’ Duties. The company should take advice before the director is given notice and the director should seek advice before he agrees to anything.

If you or your business is facing this situation take advantage of the Cousins Business Law initial half-hour telephone consultation to assess your case. Contact Gary Cousins of Cousins Business Law on 0845 003 5639 or email Gary here.

The carbon reduction commitment (CRC), a mandatory cap and trade scheme that could have significant costs for firms or public sector bodies who fail to control their carbon emissions, starts in April 2010 across the UK. Research shows, however, that the vast majority of firms are unprepared while many don’t know about it at all.

Over 54 per cent of companies do not know if they are affected by the CRC scheme, while 50 per cent of firms do not currently measure their carbon emissions. The “polluter pays” principle of CRC works by making the energy user purchase allowances for the energy they consume. Everyone in the scheme is entered into a league table. At the start of the scheme those who perform well and use less energy than when the scheme started will rank at the top of the league table and will be awarded a payment that is calculated by reference to a 10 per cent bonus, while those who perform badly will rank at the bottom of the table and will receive a payment that is calculated by reference to a 10 per cent penalty. Those percentages will change over time and those who do badly could eventually end up with a 50 per cent penalty.

The major problem faced by property owners is that unlike other companies they often pay the bills on behalf of their tenants and then bill them back through service charges. But landlords have no legal right to walk into a retail tenant and demand they turn the lights off, meaning they could be out of pocket if shops waste energy.

The British Property Federation has launched a guide in conjunction with the British Retail Consortium, BCSC, British Council for Offices, the UK Green Building Council, Royal Institution of Chartered Surveyors and the Investment Property Forum. It explains what the CRC is and what firms must do to comply with the regulations and reduce emissions. It sets out:

• Key steps for landlords and tenants to consider
• Advice on how costs should be apportioned between landlords and tenants
• What should happen when a building is bought or sold to/from a party outside the scheme
• How landlords can use the CRC recycling payments to make their whole portfolio more energy efficient, for everyone's benefit

A copy of the Carbon Reduction Commitment guide can be downloaded here.

If you own commercial property, what your neighbours choose to do on their land could dramatically affect your business. If they decide to build close or onto your boundary, they could cause problems with light or change the outlook of your premises. If you have prestigious offices for example, this can be a considerable problem.

Even if they are just undertaking work or repairs to a party wall you could be affected by noise or your property could be damaged in the process. So what legal rights do you have in these circumstances and what can be done to avoid difficulties?

Check on planning permission

If construction work is proposed, you should receive written notice of a planning application from your local authority. This is your opportunity to write to the local authority expressing your concerns. You may be able to influence if and how a building or extension is constructed. Issues may include access and safety, and overlooking windows. Contact your neighbour and try to reach an agreement which satisfies your concerns.

If work has started that requires planning permission, but it has not been granted, or the work does not comply with the permission, contact the local authority immediately as they may take enforcement action.

If work has started, did you receive a notice under the Party Walls Act 1996? This Act provides a system for preventing and resolving disputes which involve party walls, party structures, boundary walls (not wooden fences), and excavations which are close to neighbouring buildings (within 3 or 6 metres depending on foundation depth).

If work has started without notice, or your property has suffered damage, or you have a right to light which is being affected, obtain urgent professional advice from a property litigation solicitor, and consider applying to the court for an injunction, if your reasonable demands are ignored.

Keep records

Take a photographic dated record of the land and buildings before during, during and after any works.

Insist on proper notification

For anything other than trivial work to a party wall, the owner or occupier who intends to carry out the work should give you formal written notice of any intended work.

There are some specific aspects of the notice – for example you should receive notice at least 2 months before works begin and the notice should provide details of the developer, along with proposals for the work, and the intended start date.

Again you should respond quickly as if you haven’t responded in writing within 14 days of receiving a Party Wall Act notice, your neighbour will have the right to build up to the boundary line anyway.

If you have concerns with the proposals make contact immediately and try to come to an agreement, which should be recorded in writing. If you cannot agree, set out your concerns in writing.

Resolving disputes

The Party Walls Act allows for a complex dispute resolution procedure which involves the appointment of joint or independent surveyors. It’s of course best if you can try and agree with your neighbour. Understanding your rights is therefore crucial so do take advice from an experience property litigation solicitor if you find your business facing any of these problems.

Nigel Musgrove of Cousins Business Law offers advice on party wall disputes. Contact Nigel on 01285 847001 or email nigel.musgrove@business-lawfirm.co.uk

Subscription

Cousins Business Law Update is published monthly.  An archive of back issues is held on our website – here.

If you no longer wish to receive Business Law Update you can unsubscribe here.

©2008 Cousins Business Law. All Rights Reserved. No unauthorised copying, extraction or other use is allowed except with our prior written permission.