UK: Corporate Briefing - April 2011

Last Updated: 13 April 2011
Article by Bruce Jones, Peter McLoughlin and John Turnbull

The Bribery Act 2010 – Update

After a lengthy delay, the Government's guidance to business on the new Act was finally published on 30 March 2011 and it was announced that the Bribery Act will come into force on 1 July 2011.

On publishing the guidance, Justice Secretary Kenneth Clarke was at pains to stress that 'combating the risks of bribery is largely about common sense, not burdensome procedures'. While that may sound good as a political soundbite, it is not reflected in the guidance itself, which clearly envisages that where there is a risk of bribery businesses should adopt appropriate procedures. How burdensome those may turn out to be will probably vary, depending upon the type of business being conducted, where and how that business operates and the level of risk that a bribery offence might be committed.

In the run up to publication of the guidance, the principal areas of concern for business were that the Act did not provide any form of exemption for corporate hospitality or for facilitation payments. While the guidance states that Government does not intend normal corporate hospitality to constitute a bribery offence, the fact remains that each situation will be judged on its own facts if it comes to Court. The Government could see the law of unintended consequences applying here. The lack of any safe harbour for facilitation payments will be of concern to businesses and the guidance here will need careful study.

The new Act will undoubtedly have an impact on businesses of all sizes and the first challenge for owners and managers is to understand the new regime and formulate policy to address the new risks.

Bircham Dyson Bell is giving a seminar on the Bribery Act on 6 May 2011. If you would like to attend please follow this link:
http://www.bdb-law.co.uk/events/bribery-act-2010-bungs-backhandersand-brown-envelopes-what-bribery-act-does-and-how-comply

Private limited companies: lifting the veil of incorporation

A recent High Court decision has highlighted a circumstance in which the 'veil of incorporation' can be lifted and an agent of a limited company can be held personally liable. Vintage Bentley dealer Stanley Mann was held to be personally liable for losses incurred by a purchaser of a mis-described car, even though the sale contract was formed with Mr Mann's company, Stanley Mann Racing Limited (SMRL).

In holding Mr Mann personally liable, Judge Anthony Thornton QC took into account the fact that SMRL's name was only used by Mr Mann on his invoices and official letters, and then only in small letters at the foot of the page. SMRL's name was not referred to on Mr Mann's website or advertisements. Instead Mr Mann used his trading name, Stanley Mann Racing.

The purchaser (who was buying the car through a hire purchase arrangement with a leasing company, which was held to be jointly and severally liable with Mr Mann and SMRL) was herself a solicitor. However, Judge Thornton rejected the defendant's submission that she should have been aware, through her professional qualification, that Stanley Mann Racing was the trading name of a limited company and not an individual: he observed that many specialised businesses are still run by individuals.

Judge Thornton accepted that the purchaser had understood that Mr Mann had given warranties as to the condition of the car in his personal capacity and held that Mr Mann remained liable under those warranties, even though the contract for the sale of the car was made in the name of SMRL.

The case highlights the risk, particularly in relation to small businesses, of individuals 'holding themselves out' as acting in their personal capacity. If you are trading through a private limited company, be sure to make it clear to any prospective contractor that you are acting as agent for a company and to disclose the name of that company. To remove the possibility of any confusion, the name of the company, including the suffix 'Limited', should appear clearly on the website (particularly on the homepage), as well as on official letterhead, email sign-off and promotional material.

Getting rid of a company name 'squatter': legal and practical solutions

If your company plans to change its name, and its intended new name is announced or leaked in advance of the change, there is a risk that someone may decide to register the new name before you, thus preventing your company's intended name change from taking place. Indeed, anecdotal evidence suggests that there are operators, commonly known as 'name squatters', who monitor public company announcements and, as soon as an intended change of name is announced, immediately apply to register the name.

The practice of registering a company name purely to prevent another from registering it, or in order to obtain money (or other consideration) from another person who wants to register the name is now outlawed by section 69 of the Companies Act 2006 (s.69 CA06).

Companies House takes all name-change applications in good faith and will not get involved in any dispute. The formal procedure for making a complaint under s.69 CA06 involves bringing a claim in the Company Names Tribunal (the Tribunal). Making an application costs £400, but that will be only the beginning of the legal expense if the claim is defended.

The burden is on the applicant to show that the holder of your intended company name registered the name for the main purpose of obtaining money from you. Gathering and presenting the evidence takes time and costs money, and after several months following the Tribunal procedure you may find that your costs are not recoverable and, worse still, that you have not managed to prove your case.

There is a temptation, therefore, to attempt to settle a dispute outside the official forum, and of course name squatters are well aware that, below a certain threshold, they can demand money in return for the release of a company name. Although what they are doing is unlawful it will often make economic sense for a person who wants the name to meet the name squatter's demand, rather than go to the trouble and expense of bringing a claim in the Tribunal.

However, care needs to be taken if you find yourself in the awkward position of having to barter for your chosen company name with a name squatter. Making an offer to pay a sum of, say, £500 in return for a special resolution and a Companies House form NM01 is not without its difficulties and legal advice should be sought on the correct way to approach such a dilemma. If a payment is agreed, it should not be made until the name changes are effected at Companies House: and don't forget to factor in the two same-day change of name fees of £50 each!

Of course, the most effective way to avoid these problems is to register the intended new company name yourself, by establishing a shelf company before making any public announcement. The name can then be easily transferred to the intended company when you are ready to make the change.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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