Forsters shortlisted in three categories at the Legal Cheek Awards 2023
24 January 2023
News
Forsters are delighted to announce that we have been shortlisted in three categories at the upcoming Legal Cheek Awards.
Forsters has this year been shortlisted in the following categories:
Best law firm for quality of work 2023
Best law firm for peer support 2023
Best law firm for work/life balance 2023
The Legal Cheek Awards are held annually to celebrate the law firms providing the best training opportunities and experiences and are based on the Legal Cheek Trainee and Junior lawyers Survey 2022-2023 of over 2,000 trainees and junior lawyers at nearly 100 of the leading UK-based law firms.
This year’s awards ceremony will take place in-person at The Banking Hall on the evening of Tuesday 14 March 2023.
Learn more about Graduate Recruitment at Forsters here.
ConTrA is a community of over 800 members, from the majority of top-tier onshore and offshore firms and Chancery chambers. The organisation was founded in 2015 by Jessica Henson and Simon Goldring, with the aim of bringing together up-and-coming solicitors and counsel specialising in trust disputes. Today, ConTrA runs an international conference, a summer school, seminars and social events each calendar year.
Ashleigh is a Senior Associate in our Dispute Resolution team, specialising in contentious trusts and estates disputes. She is highly qualified in this area, with significant experience acting in relation to high value and/or complex intra-familial disputes. Ashleigh acts for professionals and private individuals, based both nationally and internationally.
Why Family Governance is Important – Patricia Boon speaks to Jersey Finance
23 January 2023
Views
Private Client Partner, Patricia Boon, speaks to Jersey Finance about what Family Governance means and why it is so important for wealthy families in Asia.
Speaking to Business Development Consultant, Maria McDermott, Patricia explains the concept of family governance and shares why it is so important in succession planning, particularly in times of divorce or conflict.
Continued recognition for Forsters’ Lawyers in the Spear’s 500 Directory 2023
23 January 2023
News
22 Forsters lawyers have been listed in the Spear’s 500 Directory, a complete guide to the HNW market.
In its eighth year, the Spear’s 500 is one of the leading guides to the top private client advisers, wealth managers, lawyers and service providers for high net worth individuals.
This year, the following Partners, Consultants and Senior Associates have been recognised:
The later living sector needs a boost – Amy France speaks to Property Week
20 January 2023
Views
Commercial Real Estate Partner and Head of Later Living, Amy France, has spoken to Property Week about the International Longevity Centre’s research into Later Living and how this can trigger progress by tackling issues that have held back growth and innovation in the sector.
With the number of over-65s set to reach 17 million by 2040, the research suggests that the number of older people’s housing units constructed per year will need to rise from 7,000 to 50,000.
A considerable boost in production is therefore necessary and France outlines several steps that can be taken to facilitate this. She specifically mentions sector-specific legislation, local authority targets and widespread planning exceptions as methods to increase clarity, accountability and viability of developments. She also references flexible tenure options, such as shared ownership agreements and stamp duty land tax removals.
France says: “There is no lack of good ideas for how we can get the sector motoring. We need the public and private sectors to work together to escalate delivery. This means putting some meaningful incentives in place for later-living development to thrive.”
This article was first published in Property Week on 19 January 2023 and is available to read in full here, behind their paywall.
Non-court dispute resolution offers alternatives to separating couples that can reduce the financial, time and emotional burdens often associated with going to court.
Among the many types of non-court dispute resolution in family cases, mediation is particularly effective in a broad range of cases. Because of this and the huge burdens on the courts at present, some are now considering policy options to require couples to mediate, or otherwise more forcibly be required to consider it. There are risks, however, that mandating couples to participate in mediation would undermine a fundamental plank of the process, its voluntary nature, and in doing so lead to outcomes that are less likely to ‘stick’. Is encouraging voluntary participation in mediation the better way forward?
The problem
Everyone agrees that the family courts are overburdened with cases that (in many instances) should be resolved via non-court processes. Policy makers are looking at ever more innovative ways to provide – and perhaps even enforce – the potential for non-court dispute resolution processes to resolve family disputes faster, with less acrimony and lower costs. Although this has been a clarion call for many years in the family justice system, leading to the advent of the MIAM in 2011, the sweeping cuts to Legal Aid 10 years ago as a result of LASPO brought new impetus to the calls for mediation to be brought front and centre in the family justice system. With the traditional gateway to mediation (via funded initial legal advice) gone, mediation stats plummeted and applications to court sky-rocketed. The Family Solutions Group report, ‘What About Me’ (published in November 2020) highlighted the void this has left where there is a lack of public awareness of mediation and poor signposting towards it or any other non-court dispute resolution. Whilst some said recommendations (focused on public education and practitioner training, among other things) were made, the dial hasn’t moved on.
In November 2021 the Justice Minister, Dominic Raab said that “we ought to be much, much better at using ADR, mediation in particular“. In June 2022 he added that he believes that “Mediation protects children, by removing the bitterness of parental disputes from the amplifying court room“. Sir Andrew McFarlane (President of the Family Division), meanwhile, has spoken extensively on this topic, most notably in various speeches in September and October 2022 announcing the ‘Relaunching family mediation’ project. Speaking on BBC Radio 4 in November 2022, he opined that as many as one-fifth of divorce cases are going to court when not required. Family court judges have also contributed to the discourse, most significantly HHJ Wildblood, who has criticised parents vocally for going to court over non-legal parenting decisions and encouraged parents to use mediation instead. It is increasingly common to see family judges voicing their frustration at couples who are over-burdening the court with superfluous applications.
Although there is no ‘one size fits all’ in family law, some leading judges and policy-makers are pinpointing mediation as a process that (almost) all couples should use. A stronger uptake in mediation could ease the demand on the over-stretched Family Court system and lessen the ever-lengthening delays that couples with more complex disputes experience when going through the Family Court.
Over the last decade, some ‘carrots’ have been implemented by policy makers to entice couples to use mediation to resolve their dispute. For example, since 2014 most separating couples who wish to use the court process to resolve their family disputes must show that they attended a MIAM (a Mediation Information and Assessment Meeting). During a MIAM couples will be educated about mediation and assessed for whether it might be suited to their case, with the aim of encouraging awareness and participation. Pursuing mediation following the MIAM is voluntary, and some blockers to couples doing so have been (a) how easy it is for people to circumvent the MIAM requirement, without any checks and (b) how difficult it is to engage the respondent. Another initiative, which has had some success in increasing participation in mediation is the voucher scheme. Any couple who attended their MIAM after March 2021 is offered a ‘mediation voucher’, which pays up to £500 of the couple’s mediation costs, should they pursue this route.
However, despite these ‘carrots’, the number of couples using mediation to resolve family disputes has not risen in the way hoped (the real litmus test being the family courts, which have seen a 5 week increase in private law cases being resolved in the last year alone, and an overall doubling in case length times in only 6 years).
So, how could more ‘sticks’ be deployed to encourage family disputes to be resolved out of court? And is this appropriate?
Recent commentary has suggested that a stricter approach to participate in family non-court dispute resolution could be on the cards. One such option would make attending a mediation session compulsory for all couples before they can even apply to court to resolve their dispute. Another is paving the way for the making of costs orders, to be imposed upon those who (in the view of the court) refuse unreasonably to engage in non-court dispute resolution processes. But both options seek to force couples away from the court without fully guiding them as to what their other options are and what could help them most effectively.
Compulsory mediation
It is clear that compulsory mediation is of great interest to policy makers as an option. This would likely require, as it does in other jurisdictions, couples to attend at least one mediation session before they can make a court application. Exceptions would be built in where there is a serious concern about the individual couple mediating, for example if there was a history of domestic abuse. Such an approach has already been adopted in Australia, where couples in a parenting or child arrangements dispute must attend a one-hour mediation session before they can apply to the court. Sir Andrew McFarlane has openly displayed interest in the Australian system; if it continues to be seen as a success it is possible English legislators could adopt this approach also.
Despite the allure of a mechanism for fast and effective dispute resolution, there are also risks associated with compulsory mediation. Making mediation compulsory may help some couples resolve their dispute sooner, but it also may have a negative impact on others. Many family law commentators agree that mediation is as a process that works best if the parties come to it voluntarily and willing to mediate. In fact, if either party is unwilling to engage, mediation can worsen the situation as parties create harder lines, and anger and resentment is stoked. Secondly, compulsory mediation would delay many couples getting to a conclusion, likely causing unnecessary stress along the way and potentially enabling one party to exploit the process and even benefit from delay (except where used during a natural gap in a court process). Thirdly, to build and maintain a system that can provide high-quality mediation to the thousands of couples who presently pass through the family courts each year will need recruitment and training of additional mediators to build up capacity. To maintain the integrity of the family justice system, extensive checks will need to be in place to ensure that mediators are adequately qualified and are executing their role correctly. How would all that be funded?
Costs orders
The use of costs orders is another route that could force some couples to think more closely about mediation. The court may be given powers to order that a party pay an element of the other party’s costs if the person against whom the costs sanction is imposed refused unreasonably (in the view of the court) to engage in non-court dispute resolution earlier in the process/at all. This practice is commonplace in PI claims where the use of Ungley Orders, which require a party who has been unwilling to use non-court dispute resolution to justify their reasons for doing so at the end of the court process. If the court does not accept their justification as reasonable, they may be ordered to pay a proportion of the other party’s costs. Arguably, there are family cases where this could be done already, for example if there is deemed litigation misconduct. However, this has rarely been exercised. One issue with this deterrent is that it is retrospective, and so doesn’t save the emotional trauma and cost of going through litigation for the parties. For others who really do need the court’s assistance, they may be deterred so much by fear of a costs order against them that they settle prematurely and on the wrong terms. This can be particularly dangerous in relationships where there is an imbalance of power. Another issue it could raise is one of child welfare in cases where making a costs order against one party could have an adverse impact on any children of that party. Further, it could also risk breaching mediation privilege if attitudes to mediation are unpicked and examined by the court (especially where mediation has been attempted by the couple).
Are there more ‘carrots’ that could be used to increase the uptake in non-court solutions?
Early intervention is key. One of the issues with the current MIAM system is that it occurs at a very late stage, when issues have already escalated and positions often hardened. It can be much more difficult to entice parties into effective mediation at this stage, though skilled mediators would say (rightly) that it’s never too late. Early intervention could take the form of access to free or subsidised legal advice at early stages of separation, and/or the option posited by Resolution and the Family Solutions Group of an IAM (Information and Assessment Meeting). An IAM would aim to inform and signpost couples to their court and non-court options as soon as possible post-separation/relationship breakdown when they would likely be more amenable and willing to mediate, and would focus on all forms of non-court dispute resolution. Policy makers must move away from the notion of one size fits all.
Rather than the use of an Ungley Order, which is deployed at the end of court proceedings, earlier mechanisms could be more effective whereby the party refusing to mediate (or use other forms of dispute resolution) has to justify that position before being able to progress through the court system. This requirement could make mediation/other dispute resolution seem more enticing and would encourage the parties to think seriously about non-court resolution before positions are more entrenched.
Additionally, a public awareness campaign that clearly sets out the dispute resolution routes available to couples and how to take those routes could attract more people to use these options. This, coupled with funded initial advice and signposting, may make it even less likely that court is viewed as the default system for resolving family disputes.
Carrot or Stick?
Although encouraging couples to use non-court dispute resolution processes is necessary to help each couple resolve their dispute in the best way that suits them, making it compulsory risks the process losing its effectiveness for some couples. Before the more drastic ‘stick’ approach is taken, which could serve to delay and worsen parties’ positions and relationship, it might be worth policy makers re-thinking their ‘carrots’ to bring more couples to resolve their issues on divorce/separation willingly, rather than being forced into it.
Instruction by MoD listed in The Lawyer’s Top 20 Cases of 2023
19 January 2023
News
Our Property Litigation team is pleased to note that its instruction by the Secretary of State for Defence in regard to ‘R (Annington Property & others) v Secretary of State for Defence’ has been included in The Lawyer’s ‘Top 20 Cases of 2023’.
Senior Partner, Natasha Rees, and Property Litigation Partner, Julia Tobbell, are leading on this high profile and ground-breaking case.
The Lawyer describes the case as one of the most prominent judicial reviews of 2023. It concerns the MoD’s proposed repurchasing of homes from Annington Homes using enfranchisement legislation. Forsters are advising on the property law aspects of the proceedings.
The Lawyer has reported on this case as part of its annual report, ‘The Top Cases of 2023’. A copy of the report can be purchased here.
Sotheby’s and Forsters – An Owner’s Guide to Art – Part 4
18 January 2023
News
Buying and owning art can be one of life’s greatest joys. But while the drive to own art is often fuelled by an emotional connection with a piece or the prospect of holding a lucrative investment, it is important for buyers and owners of art to keep their wits about them, from both a legal and practical perspective.
Felix Hale (Sotheby’s Tax, Heritage and UK Museums Team) and Jo Thompson (Forsters LLP’s Art Group) aim to point those wanting to buy, sell, and hold works of art in the right direction. This five-part mini-series will cover the following key areas:
This piece is aimed primarily at private individuals with a UK tax exposure.
Part 4 -Passing on your art to the next generation
It is important that art is not seen as a “static” asset, even if a work or collection is a long-term hold. You should ensure that you have discussions with your family about the future of your collection. It is important to know whether your family wishes to keep specific artworks or a collection within the family or not. If your intention is to pass artwork to the next generation, make sure you do so in the most tax efficient way possible. Alternatively, if future generations do not want to keep and maintain the artwork or collection, you might decide to sell all or part of it to raise funds for other purposes. Agreeing a strategy in respect of an artwork or collection can help to reduce the chances of a destructive post-death dispute arising.
No family situation or collection is ever quite the same, so it is certainly worth discussing your position with your advisors and putting appropriate long-term planning in place.
Gifts to the next generation
UK capital gains tax (CGT)
If you are a UK resident and do not claim or are not eligible for the remittance basis of taxation, there may be CGT to pay if your artwork has increased in value between the date on which you acquired the work and the date on which you give it away. Currently, CGT is charged at 10% at the basic rate and 20% at the higher rate.
Certain exemptions from CGT would be available on a gift to your children. For example, so-called ‘wasting assets’, which include clocks and watches, are exempt from CGT, as are any individual objects valued at £6,000 or less. In addition, each individual has an annual CGT-free allowance, which is currently £12,300 per year. This will be reduced to £6,000 for disposals made between 6 April 2023 and 5 April 2024 and to £3,000 for disposals made between 6 April 2024 and 5 April 2025.
Any capital gains tax charge arising on the gift would be a “dry” charge, as the transaction would not provide you with any funds from which to pay the tax due, so it is important that you reserve sufficient funds for the purpose of footing the capital gains charge that will be due and reportable in your self-assessment UK tax return in the tax year after you transferred the asset.
If you claim the remittance basis of taxation then it may be possible to gift free of tax if you make the gift outside the UK, if the intention is for the artwork to remain offshore. We recommend that if you claim the remittance basis of taxation and wish to transfer artwork, you should seek advice on the options available to you.
A UK resident with tax exposure in other jurisdictions should be mindful of CGT liabilities that may arise in these jurisdictions as a result of the gift and whether any tax treaties between the UK and the jurisdiction in question would protect against the risk of double taxation.
UK inheritance tax (IHT)
You will have an IHT exposure if you are UK domiciled (broadly, you intend to remain in the UK permanently) or “deemed domiciled” in the UK for tax purposes (because you have been UK tax resident for 15 of the last 20 UK tax years). If you are not UK domiciled or deemed domiciled, then you will only be exposed to IHT to the extent that you hold assets that are situated in the UK. For more detail on this, please see Part 1 of this series or contact Forsters for more tailored advice.
If you own an artwork or collection which has a significant IHT exposure, you may wish to contemplate making a lifetime gift of the work to the next generation to help mitigate the IHT exposure of your personal estate.
Outright gifts
Outright gifts to individuals do not attract IHT immediately. A gift of a piece of art to a child, for example, would be a “potentially exempt transfer”, meaning that the gift would be free of IHT, provided that the gift is absolute (in other words, you do not reserve a benefit in the artwork once the gift is made) and you survive seven years from the date on which the gift is made. If you died within this seven-year period, this would trigger a charge to inheritance tax at up to 40% of the value of the painting, subject to the availability of your inheritance tax-free allowance (“nil rate band”) of £325,000. If you survived beyond three years, the rate of IHT on the gift reduces, tapering to 0% if you survived the gift by the full seven years.
You can also make gifts of £3,000 in each tax year, which will be exempt from IHT, even if you die within seven years. You can carry forward one year’s exemption, so if you did not make any gifts last tax year, then in this one, you could give away £6,000 without any IHT consequences.
If you decide to make a gift, we recommend that the gift (including the date on which it is made) is formally recorded by deed. It avoids any argument about whether the recipient has taken physical ownership and the gift is therefore effective and it will be helpful for the executors of your estate to have this sort of documentation when it comes to administering your estate and working out the IHT due.
Gifts to trusts
A lifetime gift to a trust will, in many situations, attract an immediate charge of 20% to the extent that it exceeds the nil rate band. If you were to make a gift to a trust and then die within seven years, an IHT charge of an additional 20% could arise.
If you decide to make any lifetime gifts, you may wish to consider obtaining insurance to cover the risk of the potential IHT exposure while the seven-year clock is ticking. This might be particularly important when it comes to making outright gifts to individuals, who will be primarily liable for meeting the IHT charge.
Rental agreements
To ensure that the seven-year clock starts ticking for IHT purposes, it is essential that the gift is absolute. However (and as is often the case), you may wish to keep enjoying those works of art on the walls (or your collection of furniture, books, ceramics, or anything else!). If so, you can consider entering into a gift and leaseback arrangement whereby you would make a gift of artwork to the next generation and then lease the artwork back from the recipient of the gift at a commercial rate.
Rental arrangements can be an effective way of mitigating IHT and enabling you to continue to enjoy the item or work in question, but before one is entered into, it is important to consider the costs involved in valuing the objects and negotiating the rents. The rental arrangements also need to be in place consistently for seven years before the donor’s death and continue to reflect a market rent at any point in time during that period in order to eliminate completely any exposure to IHT. Clearly, then, the amount of rent that would need to be paid under a rental agreement should be compared against the IHT exposure.
Where artwork is held in trust and enjoyed by a beneficiary of the trust, then in certain circumstances, rental agreements can help to ensure that adverse tax implications do not arise as a result of the benefit conferred on the beneficiary. For further guidance on this, please get in touch with Forsters, who can liaise with Sotheby’s regarding valuations and negotiation of a rental figure (either on behalf of the owner or the borrower).
Artwork passing on death
Succession
The most effective way to ensure that your artwork ends up in the right place after your death is to put a will in place that governs the succession of your artwork (and, ideally, the rest of your personal estate).
Those with assets in different jurisdictions should ensure that any wills address the succession of those assets according to the relevant local laws. Forsters would be happy to advise on this.
Tax considerations
As mentioned above, if you are UK domiciled IHT will be charged on your worldwide assets at 40% on your death, subject to the availability of your inheritance tax free allowance of £325,000 and applicable exemptions, such as the spouse exemption. If you are not UK domiciled, but die owning assets in the UK, these assets will be subject to IHT in the same way.
Conditional Exemption
In order to mitigate your inheritance tax liability, you may wish to take advantage of a tax incentive that exists in the UK for owners of important works of art. It is designed to indefinitely defer tax arising on ‘pre-eminent’ works in return for allowing a degree of public access to them.
It is hard to overstate the importance of this scheme, which has been going strong since 1896 and is one of the main reasons why the UK has so many amazing objects and collections still in private hands but on public display. The scheme allows owners of ‘pre-eminent’ works of art and other objects (including land and buildings) to pass them down to the next generation and retain them in private ownership by conditionally exempting them from inheritance tax. In exchange, the owner agrees to grant public access to the object. Public access can be given to an object either by putting it on display in a house that is open to the public or placing it on loan at a UK museum. HMRC usually expect the object to be on public display for at least 28 days per year (25 days in Scotland) unless for example you are exempting archives or other manuscript material where public access can be given ‘by appointment’ only.
To qualify as ‘pre-eminent’ the object must be considered of either national, scientific, historic, or artistic importance. Works of art and other objects don’t necessarily have to be of high value to meet this threshold. Exemption can also be claimed on groups of items or sometimes an entire collection. In certain cases, it is possible to exempt a collection that might not necessarily meet the pre-eminence threshold on the basis of their association with a particular historic building.
If the owner no longer wants to put the object on public display or would like to sell the work, then the tax that would have been due becomes payable. If owners are contemplating selling an exempt object they should consider a ‘Private Treaty Sale’ to a qualifying UK museum as there can be significant tax advantages in doing so, as outlined in Part 5 (coming soon).
How we can helpâ¦
For further guidance on your UK residence or domicile status, or on the tax implications of making a gift or leaving a legacy in your will to the next generation, please get in touch with Forsters.
Sotheby’s is delighted to discuss passing on your art collection to the next generation. Sotheby’s frequently assist owners with claims for Conditional Exemptions ranging from a single painting to large country house collections, advising on the likelihood of the work meeting the threshold required for exemption and providing supporting evidence for this. Forsters can advise on the associated tax reporting.
In the next and final part of the mini-series, we will be looking at philanthropic initiatives relating to art, as well as the tax benefits that incentivise owners to take advantage of these.
Felix Hale is a Deputy Director in Sotheby’s Tax, Heritage & UK Museums department. He works with some of the most significant estates and collections in the UK, working with clients on valuations, sales, offers in lieu of tax, and claims for Conditional Exemption. He is a member of PAIAM (Professional Advisors to the International Art Market, Vice-Chair of the next generation board) and a member of STEP (Society of Trust and Estate Practitioners).
If you would like to contact Felix, you can email him on [email protected].
Jo Thompson is an associate in Forsters’ Private Client team and part of Forsters’ Art and Cultural Property Group. She acts for UK and international clients, advising high net worth individuals, families, landed estates, family offices, trustees and beneficiaries on a range of estate, trust and tax planning matters. Her work includes succession planning for a number of living artists and advising on heritage property matters. She also acts for high net worth individuals and trustees holding significant art collections.
If you would like to contact Jo, you can email her on [email protected].
Private Client Partners to attend STEP Cayman Conference 2023
17 January 2023
News
Private Client Partners, James Brockhurst and George Mitchell will be attending the STEP Cayman Conference 2023.
James Brockhurst will also be speaking at the session entitled ‘Digital assets, artificial intelligence, and the tech world – challenges for trustees in the Cayman Islands’ alongside Petri Basson of Hash Data, Chris Duncan TEP of Carey Olsen and Zoe Wyatt of Andersen LLP.
This international wealth structuring forum takes place from 19-20 January and aims to explore a range of topical issues pertinent to the trust industry with a special focus on wealth structuring.
You can find out more about the event and register here.
The role of grandparents: Ellen Jones writes for Family Law Journal
17 January 2023
Views
Family Trainee Solicitor, Ellen Jones, has authored an article for the Family Law Journal entitled ‘The role of grandparents’.
Many grandparents play important roles in the lives of their grandchildren, often devoting significant amounts of time and financial resources to their grandchildren’s upbringing. However, irrespective of the commitments grandparents make, they do not have an automatic right to have contact with their grandchildren. Ellen addresses various topics including the definition of ‘grandparent’, the obligations of grandparents, what happens if a grandparent is denied contact with their grandchild and what would happen if a parent dies.
Reference to the full article can be found below:
Family Law (journal) > 2022 > December > In Practice > The role of grandparents – [2022] Fam Law 1548 (behind a paywall)
For further information on this topic, please contact our Family team.
Jo Edwards recognised as one of the ’50 Most Influential 2023′ in eprivateclient
16 January 2023
News
Head of Family, Jo Edwards has been included in eprivateclient’s ‘2023 50 Most Influential’ – a shortlist of the most highly regarded figures in the UK and global offshore private client world, selected by judges based on achievements in the last 12 months considered alongside broader reputation and standing in the market.
The only family lawyer to feature in the list, Jo is specifically recognised for both her expertise in her practice, where she acts for a wide range of clients in relation to separation and divorce, predominantly high net worth and ultra-high net worth individuals from various backgrounds; but also for her work in campaigning for law reform and featuring in the media.
eprivateclient’s “50 Most Influential” aims to identify leaders within the private client profession – promoting talent and highlighting the best within the field.
The full list can be viewed here, behind the paywall.
Mind The Step: Simon Blain and Ellen Jones write for Family Law Journal
16 January 2023
Views
Family Partner, Simon Blain, and Family Trainee Solicitor, Ellen Jones, have authored an article for the Family Law Journal entitled ‘Mind The Step: rights and obligations of the step-parent.
Despite step-parents being a common feature in modern families, their rights, obligations and legal relationship with the children of the family are often misunderstood. Simon and Ellen discuss various elements including who constitutes a step-parent, whether then can acquire PR, what happens if a step-parent dies and what happens if a parent and step-parent separate.
Reference to the full article can be found below:
Family Law (journal) > 2022 > November > In Practice > Mind The Step: rights and obligations of the step-parent – [2022] Fam Law 1422 (behind a paywall)
For further information on this topic, please contact our Family team.
A Balancing Act – when do directors owe a duty to creditors?
13 January 2023
News
On 5 October 2022, the Supreme Court handed down its long-awaited judgment in the case of BTI v Sequana. The decision, described as “momentous” for company law, has provided much-needed clarification on the duty owed by company directors to creditors.
Understanding your duties as a director is a precondition of the role (for a general overview of your general duties, see here), but being aware of the transition between acting for the benefit of a company’s members and its creditors is even more significant given the current economic uncertainties.
In summary, the key points to come out of the recent decision are:
The creditors’ duty is engaged later in the insolvency process than previously thought.
Directors should weigh the interests of the company’s creditors against those of its shareholders, engaging in a balancing exercise where these interests come into conflict.
The closer a company is to insolvency, the more significant the interests of its creditors become.
It remains crucial that directors continue to keep themselves fully informed and up to date with company affairs, documenting the reasons for significant decisions affecting the company.
As soon as it becomes apparent that a company is facing financial difficulties, the directors should seek independent legal advice.
Background
In 2009 the directors of a company called AWA paid a dividend of EUR 135 million to its sole shareholder, Sequana SA (“Sequana“).
At the time the dividend was paid, AWA was solvent on both a balance sheet and cash flow basis but had a contingent liability of an uncertain amount which related to the clean-up costs of a Wisconsin river. Consequently, there was a real risk that AWA might become insolvent in the future, although insolvency was not imminent, or even probable, at the time.
The clean-up costs were much higher than anticipated and AWA entered insolvent administration, albeit almost ten years after the payment of the dividend. BTI (as assignee of AWA’s claims) sought to recover the dividend from AWA’s directors on the grounds that they had made the payment in breach of their common law duty to have regard to the interests of the company’s creditors.
Both the High Court and the Court of Appeal rejected this claim. The Court of Appeal found that the creditor duty was not triggered until a company was either insolvent, on the brink of insolvency or probably headed for insolvency. Since AWA was not insolvent or on the brink of insolvency in 2009, BTI’s claim failed.
BTI appealed this decision to the Supreme Court, arguing that the real risk of AWA’s future insolvency triggered the directors’ duty to act in the interests of the company’s creditors rather than its shareholders. They lost (again).
The Supreme Court considered whether such a creditor duty exists, the point at which the duty is engaged and how the duty operates once the trigger point has been reached.
What is the creditor duty?
Directors are subject to various statutory and common law duties, with the main statutory duties being set out in the Companies Act 2006 (CA 2006). Generally, these duties are owed to the company, and not to the shareholders. Possibly the most over-arching of the statutory duties is the duty for directors to promote the success of the company; directors must act in the way that they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.
So, where does the creditor duty come in? The creditor duty actually stems from a common law rule that a director’s duty to promote the success of the company is modified where the company is facing insolvency, such that the interest of the company’s creditors must be considered rather than the interest of its shareholders.
This common law duty is reflected in section 172(3) CA 2006, which states that a director’s duty to promote the success of the company is subject to any enactment or rule of law requiring directors to consider or act in the interests of the company’s creditors, i.e. in an insolvency situation, the directors must consider the creditors’ interests rather than just the shareholders’.
Although the existence of the creditors’ duty is not in doubt, uncertainty has arisen in the past as to when the creditor duty would be triggered and how this duty interplays with the duty to members. The Supreme Court has now shed some light…
When is the creditor duty triggered?
The majority decision of the Supreme Court found that the creditor duty arises when the directors know or ought to know that the company is:
actually insolvent (either on a balance sheet or cash flow basis);
bordering on insolvency, i.e. insolvency is both imminent AND inevitable; or
likely to go into insolvent liquidation or administration.
The Supreme Court held that, upon the occurrence of one of these trigger events, the board should become mindful of the interests of the company’s creditors alongside the interests of the shareholders. Prior to the judgment, it had been suggested that the duty to creditors, once engaged, would completely override the interests of the shareholders, i.e. the interests of the shareholders and creditors were mutually exclusive. The Supreme Court however did not consider this to be the case; instead, the interests of the creditors should be weighed against the interests of the shareholders, with the directors engaging in a balancing exercise where these interests come into conflict. However, the nearer towards insolvency the company tips, the more significant the interests of the creditors become.
This creates, in effect, a sliding scale following the point of engagement of the creditor duty. The more serious a company’s financial difficulties become, the more weight the directors should place on the interests of the creditors until such time as insolvency becomes inevitable and the creditors’ interests override those of the shareholders entirely.
Practical implications
The Supreme Court’s judgment makes clear that the creditors’ duty is engaged later in the insolvency process than previously thought, i.e. when insolvency is imminent AND inevitable, not simply likely to happen. Given this later point of engagement, the board must continue to focus on the shareholder interest and even when the creditors’ interest comes into play, the shareholders’ interest may still be of relevance on the sliding scale basis. Directors should remain mindful of the need to reasonably consider the interests of both creditors and shareholders and undertake a balancing exercise where they begin to differ.
Such a balancing act will need to be undertaken throughout the insolvency process. One can envisage, for example, that when the creditor duty first kicks in near the start of the process, that the interests of creditors and shareholders may well be fairly equally aligned, whereas the nearer the company moves to actual insolvency, the wider apart they may become. What may be a sensible and reasonable step for all stakeholders early on, may not be so further down the insolvency line.
The judgment also raises an important issue in relation to the significance of a directors’ knowledge at the point of insolvency. Although refusing to reach a definitive conclusion as to whether directors are to be judged on whether they knew (or ought to have known) that the threshold for engaging the creditor duty has been reached, it was observed that directors are obliged to keep themselves fully informed and up to date with company affairs. This should not come as a surprise to any director, but a gentle reminder is always worthwhile. While directors cannot run a business single-handedly and will need to delegate certain aspects, this is not an excuse for a director to deny all knowledge.
The Supreme Court also acknowledged that insolvency is not a straightforward process and that the financial position of a company can fluctuate significantly before insolvency becomes inevitable. It is advisable to make and retain a written record of decisions made and why, including any key points of debate and the conclusions reached. This should be standard protocol at any board or board committee meeting, including when the financial position of the company is strong, but becomes even more important when times for the business are not so good.
Further considerations:
Ratification – Shareholders, acting unanimously, can usually ratify the directors’ breach of duty but they cannot do so if the company is insolvent. As such, shareholders cannot ratify a breach of the creditor duty.
Groups of creditors – The Supreme Court emphasised that it is the general body of creditors whose interests must be considered by the directors. How this will pan out where there are different creditor groups (e.g. secured and unsecured creditors) remains to be seen and further case law may be needed to resolve the potential conflict here.
Start-ups – Often, start-ups will be balance sheet insolvent simply because they need to spend a lot of capital. Although it is arguable that the creditor duty will apply to this type of technical insolvency, the balancing act concept should help here. We consider it unlikely that the courts will view the test as meaning that start-ups can’t take risks, always assuming that decisions have been made properly.
Summary:
Although the Supreme Court decision clarifies that the duty to creditors kicks in later down the line than previously thought and potentially enables directors to try and “rescue” the company without having to be too cautious about falling foul of the creditor duty, the practical implications for company directors do not appear to have changed too much. It remains the case that directors should:
continue to pay close attention to the operation, including the financial position, of the business
document significant decisions made by the company and the reasons for them
obtain independent legal advice as soon as it becomes apparent that the company is facing financial difficulties
Disclaimer
This note reflects our opinion and views as of 13 January 2023 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.
Historic England’s General Counsel, Andrew Wiseman and Commercial Real Estate partner Victoria Towers join host Miri Stickland to unpick what a historic building is and how can they be developed and adapted for future generations, with a particular eye on the challenges around introducing energy efficiency measures into historic buildings.
Sotheby’s and Forsters – An Owner’s Guide to Art – Part 3
11 January 2023
News
Buying and owning art can be one of life’s greatest joys. But while the drive to own art is often fuelled by an emotional connection with a piece or the prospect of holding a lucrative investment, it is important for buyers and owners of art to keep their wits about them, from both a legal and practical perspective.
Felix Hale (Sotheby’s Tax, Heritage and UK Museums Team) and Jo Thompson (Forsters LLP’s Art Group) aim to point those wanting to buy, sell, and hold works of art in the right direction. This five-part mini-series will cover the following key areas:
This part of the mini-series is designed to equip you with practical tips on how to maintain, insure, and keep track of the works of art in your collection.
Insurance
Insurance values should be reviewed regularly to avoid either underinsuring your collection or paying premiums that are too high. Generally, we recommend updating insurance values every 5 years or so. Depending on the nature of your collection, you may want to consider a specialist art insurer.
If you would like to discuss a valuation, please get in touch with Sotheby’s.
Inventories
If you have a large collection, you might want to consider managing it using collection management software such as ‘Collector Systems’. This is a useful way to monitor your collection as it enables you to store information regarding the purchase (invoices etc.), insurance and valuations, as well as up-to-date records on the condition and maintenance of works. Reviewing the collection every few years is important to keep track of works that are damaged, lost, or stolen, especially if any of the works are conditionally exempt from inheritance tax (where their loss would trigger a substantial charge).
Environment
Although it is often impossible to try to replicate museum-like environments in your home, there are some simple things to consider to keep your collection in good condition.
Ideally, you should try to maintain a stable temperature and humidity in the rooms housing your collection. Some items, such as watercolours, are particularly sensitive to light, so you should try to reduce the amount of direct sunlight these works get and consider either rotating your displays and/or protecting works with UV resistant glass.
As part of a collections review or valuation, Sotheby’s would be delighted to discuss any concerns you might have about how your collection is being maintained and displayed. General guidance can also be obtained from the English Heritage website.
If a work of art is particularly difficult to display in your home, you may want to think about keeping it in specialised fine art storage or lending the work to a museum.
Loans
You may wish to consider lending pieces from your collection to a museum, either for an exhibition or on a long-term basis. A loan to an important museum has the potential to increase a work’s value: its display is testament to its art-historical significance and can bring the work to wider international attention. Sotheby’s is able to draw on its global network of museum contacts to help you find the most suitable museum in which to display your work of art.
Regardless of the duration of the loan, it should always be underpinned by a loan agreement. In particular, this agreement should set out which party is responsible for insurance, the costs of transport, and any other conditions for display. Usually, under the terms of a loan agreement the museum will be responsible for insuring the work, whether that is with a commercial insurer, or more commonly, with the government backed Government Indemnity Scheme (GIS), which provides owners with ‘nail to nail cover’, including when the work is being transported to and from the museum. Forsters can assist you with negotiating the terms of a loan agreement.
Holding vehicle
If an individual is UK resident but non-UK domiciled, and holding art in the UK, it may be worth considering holding the art via an offshore structure, such as a company, so as to shield the artwork from UK inheritance tax. This is particularly the case if the intention is for the artwork to be a long-term hold. There may, in addition, be succession considerations, for example, staying outside of certain succession and tax regimes, that point toward ownership through a trust. Matters regarding succession will be considered in further detail in Part 4.
If the intention is to hold art in an offshore structure (be it a company and/or a trust), then the tax implications of the transfer to the structure need to be considered (for this reason, and as outlined in Part 1, it is preferable to think about the asset’s use and future before going ahead with the original purchase, so that the structure is right from the outset). There are also other considerations that come into play here, which relate to the ongoing management and use of the offshore structure. If you would like advice on the most effective way to hold your artwork, both from a tax and succession perspective, please contact Forsters.
In the next part of the mini-series, we will be looking at the implications of passing on your art to the next generation.
Felix Hale is a Deputy Director in Sotheby’s Tax, Heritage & UK Museums department. He works with some of the most significant estates and collections in the UK, working with clients on valuations, sales, offers in lieu of tax, and claims for Conditional Exemption. He is a member of PAIAM (Professional Advisors to the International Art Market, Vice-Chair of the next generation board) and a member of STEP (Society of Trust and Estate Practitioners).
If you would like to contact Felix, you can email him on [email protected].
Jo Thompson is an associate in Forsters’ Private Client team and part of Forsters’ Art and Cultural Property Group. She acts for UK and international clients, advising high net worth individuals, families, landed estates, family offices, trustees and beneficiaries on a range of estate, trust and tax planning matters. Her work includes succession planning for a number of living artists and advising on heritage property matters. She also acts for high net worth individuals and trustees holding significant art collections.
If you would like to contact Jo, you can email her on [email protected].
Design codes: a thing of beauty, or else… – Victoria Du Croz writes for EG
11 January 2023
Views
Partner and Head of Planning, Victoria Du Croz, has written for EG on Michael Gove’s recent statement to the Centre for Policy Studies that the government will do everything in its power to prevent the development of homes that are “not aesthetically of high quality”.
This includes, Du Croz says, a threat to call in planning applications that are “not beautiful”.
The creation of new design codes is one tool that the government plans to use to prevent “ugliness” being imposed on communities. But there are fundamental issues with design codes, not least that design by its very nature is subjective.
Local authority-wide v granular
The National Planning Policy Framework has outlined that the new design codes should be set at the local authority level. However, borough-wide design codes fail to recognise the different street level vernacular. Walk down three to four roads in most local areas and you will see a mix of architectural styles, from Georgian townhouses to listed 1960s council housing and everything in between.
Borough-wide design codes will either lack enough specific detail, rendering them meaningless, or be so generic that they will contribute to the creation of identikit housing – a criticism already volleyed at new build schemes. If local authorities try to make them more granular to better reflect specific areas, it will be an incredible burden and at considerable cost, at a time when local authority budgets are seeing below inflationary increases over the next two years, before falling further to just 1% real term increases from 2025.
Many London local authorities already consult design review panels – impartial experts including architects and urban designers alongside engineers, sustainability specialists and built heritage experts – who provide advice in relation to the design of new schemes and public realm.
As well as having panels that can be called on to provide guidance, there are standards and policies to ensure new homes are built to a suitable standard in terms of space, light and quality. At the application stage, design and access statements, submitted alongside applications, go into detail on the design response to the local area and reasons for the proposed material palette.
Given that all these existing checks and balances are in place and are factored into a local authority’s decision, why should central government step in to alter that decision? Especially when call-ins can slow down delivery, running counter to the need for new homes.
Community Perspective
Part of the impetus for implementing design codes is to bring communities onboard with new development. And while you can go through planning portals and see people commenting on the design of schemes, most nimbyism stems from concerns about additional strain on public services and infrastructure.
The frequent refrain at public consultations is about the difficulty in getting a doctor’s appointment, concern about securing a place at the local school or the state of the local roads – all things that the community infrastructure levy is supposed to be allocated towards.
The problem with CIL in its current guise is that it is not ringfenced to deliver these improvements in the same part of a town or city as the development is happening in, meaning that local residents cannot see new infrastructure being delivered alongside the new development to alleviate pressure on services in their local area. All they see is new homes and the challenges that come with this.
Reform CIL, force local authorities to spend the money and spend it in the local area where housing is being delivered and you could remove some of these objections. Ultimately, local communities do not rail against new developments just because of how they look, it runs much deeper than that.
Poundbury (pictured, above) – often held up as the exemplar on the use of design codes (the Duchy of Cornwall created a Poundbury Design and Community Code) – not only divides opinion, it also has wider cost implications. Replicating Poundbury fails to recognise the importance of having a range of housing products on the market to cater to different needs.
This does not mean bringing forward sub-standard accommodation, but it does mean recognising that sourcing specific materials and bringing forward a range of housing designs can affect both the price for the buyer and the viability of a scheme – meaning less affordable housing is delivered.
It would also be a mistake to think that Poundbury has “worked” because of the design of the homes, when in fact there is a lot to be learnt from the integration of shops, business and even factories alongside the new homes. It is this interaction between uses that makes for successful development, especially the consideration and incorporation of employment land.
Getting the priorities right
New home delivery continues to be a priority across the country, though the specific mechanism for deciding how many homes we deliver and where is currently a topic of debate. What everyone should be able to agree on is that the priority is delivering a range of high-quality homes.
This can be done while still respecting listed buildings, conservation areas and even local design palettes. What the UK planning system does not need is another layer of complexity adding cost and time to new home applications.
The government can surely use its power and resources to better effect than overturning decisions made by local planning authority committees – especially when beauty is in the eye of the beholder.
This article was originally published in EG (10 January 2023) and is also available to read here behind their paywall.
Now that the sale of Channel 4 is off, what does that mean for its property strategy? – Owen Spencer speaks for React News
10 January 2023
Views
Commercial Real Estate Senior Associate and member of our Film & TV Studios Group, Owen Spencer, has written for React News on the ongoing ownership saga surrounding Channel 4, and how staying in public ownership – in addition the departure from its role as “publisher-broadcaster” – may result in greater investment in regional production facilities.
In an unexpected change to the Media Bill Channel 4 will for the first time be able to make and own original content itself. “This is a key plank in the strategy to move the broadcaster away from its resilience on advertising revenue: by allowing it to monetise its content.”
With the specifics of these new freedoms yet to be finalised, Channel 4 will be keen to understand this new remit as any money spent on Channel 4 original content instead of on independently produced content “is a conflict of interest that will need to be managed.”
The broadcaster is also to double its regional headcount from 300 to 600 by 2025. While some of these jobs will be based at existing sites, reference to jobs being created ‘potentially elsewhere’ will catch the eye of the property agents.
Any plan to employ staff at new regional sites is in line with the ‘Levelling Up’ agenda, however the government may be missing a trick when it comes to growing the regional studios sector, since the broadcaster’s regional programme-making quota remains unchanged.
“If there are 300 extra jobs going North, does this mean a corresponding reduction in the numbers employed in its recently refitted London office?”
If this is the case, alongside a new statutory duty on the corporation’s board for financial sustainability, the potential sale of its London office – a £100m asset – will be an option. Such a shift would give Channel 4 the chance to become a “national champion” by helping catalyse the dispersal of skilled crews around the country.
This article was originally published by React News on 9 January 2023 and is available here in full (behind their paywall).
Special guest on ITV’s Lorraine – Jo Edwards speaks about the importance of taking your time when considering a divorce
9 January 2023
News
Head of Family, Jo Edwards, joined Lorraine to stress the importance of considering all options and taking your time to decide whether a divorce is right for you.
Although Jo has extensive experience of taking cases to court where needed, she is well-known for her conciliatory, pragmatic approach and desire to settle even the most complex of cases where possible, which could be another option if you do decide to split.
As a trained mediator and collaborative lawyer, Jo is one of only a handful of lawyers in London qualified to consult with children in mediation.
Forsters’ Family team were named ‘Family Law Firm of the Year (London)’ at the Family Law Awards 2021 and its Private Client practice is top ranked in the latest edition of The Chambers HNW Guide (High Net Worth Guide).
Jo is a previous winner of Chambers HNW Guide’s Family Partner of the Year.
Lights, Camera, Action! Film Studios Demand Creating Massive UK Opportunity – Owen Spencer writes for CoStar
5 January 2023
Views
Commercial Real Estate Senior Associate and member of our Film & TV Studios Group, Owen Spencer, has written for CoStar about how both the government and real estate industry should be alive to a major opportunity which could drive the ‘Levelling Up’ agenda.
With the film and television industry set to require an extra 6 million square feet of space by 2026, Spencer writes how the continued development of sites around London and the M25 may not be possible due to greenbelt protection. As such, the industry could be forced to look to new locations across the country.
What this growth industry also needs is additional crew – all trained and highly skilled. Currently, studio workers tend to live and work around the South East – where the largest studios are located.
The 2023 revaluation list for commercial buildings increased business rates for film studios. Spencer questions if this may also favour regional studios with a lower cost base.
Spencer suggests there is scope for the government to drive its much-publicised ‘Levelling Up’ agenda off the back of the industry’s dispersal across the country by facilitating the training of studio professionals outside of the South East.
He concludes by writing: “While there are many challenges, there is an opportunity for the government to place the UK’s expertise in the studio sector centre stage in its levelling up agenda and give the regions a starring role in this growth industry.”
This article was first published on 4 January 2023 by CoStar and can be read here in full (behind their paywall).
STEP honours exceptional service with Emeritus membership for Nick Jacob
3 January 2023
News
Private Client partner, Nick Jacob, TEP and former worldwide STEP Deputy Chair, has been honoured as an Emeritus member of the global professional membership body.
This prestigious membership is awarded in recognition of ‘exceptional service and of eminence within STEP itself, at the highest global level’ for a full Member of STEP who has made a significant and high-level contribution across the organisation.
By way of response, Nick said: “I am deeply honoured to have been appointed an Emeritus Member of STEP; it means an enormous amount to me. It has been wonderful to be a part of its growth and development from day one in 1991. Nobody would have believed then that it would become what it is today.”
Nick is a Partner in our Private Client team. He advises on sophisticated private wealth planning, family succession plans, protection of the family business and avoidance of family disputes, and all aspects of international family governance.
He is a trusted adviser to a number of globally significant families with a particular focus on acting for families in Asia and is well recognised for his understanding of family governance psychology.
Click here to find out more about Nick’s practice.
Having private outdoor space is now seen as a necessity by many more people living in an urban environment, where once it was only within reach of those city dwellers fortunate enough to afford spacious surroundings.
This has resulted in many cases to the much-publicised move to the countryside. It may well mean for many that they are now, for the first time, the custodians of a property of special architectural or historical interest: a listed building.
Owning a listed building is not for the faint hearted, but it can also be a source of much joy and fulfilment. Here are five crucial things to know for those thinking of purchasing, or already owning, a listed building:
1. Special attention needs to be paid when considering any repairs, maintenance or alterations.
It is an offence to extend, demolish or carry out internal or external alterations which would affect the character of the property without Listed Building Consent, whether or not the owner is aware of that being the case. Replacing windows, fitting a new kitchen and even painting the exterior of the property could all require Listed Building Consent.
2. The listing does not just include the building itself.
It includes any item or structure fixed to it and any item or structure within the curtilage, provided the latter has formed part of the land since before July 1948. This might include anything from an outbuilding to a boundary wall, a fountain or, in some cases, statues.
3. Failure to obtain Listed Building Consent has consequences.
If consent has not been correctly obtained for works which require it the person carrying out the works will face a possible maximum penalty of two years’ imprisonment and an unlimited fine.
4. A new owner may inherit works carried out without Listed Building Consent.
It is not uncommon for works to have been carried out by a previous owner which required Listed Building Consent, but for which no Consent was obtained, or that the works were not carried out in strict adherence to the approved plans or the conditions of the Consent.
In these situations, the current owner has not committed an offence by simply owning the property. However, the local planning authority may issue an enforcement notice requiring the building to be restored to its former state or for further works to be undertaken to alleviate the effect of the works carried out without Listed Building Consent. Should the owner of the building fail to comply with the enforcement notice they will then commit an offence, for which the maximum penalty is an unlimited fine that will take into account any financial gain.
5. Seek professional advice.
It is crucial when considering purchasing a listed building, and throughout one’s ownership of it, that professional advice is sought from solicitors, architects, agents, surveyors and builders who specialise in listed buildings to ensure that potentially costly mistakes are avoided and the heritage asset of which you are a custodian can continue to be appreciated in the future.
Victoria Salter-Galbraith is Counsel in our Landed Estates team and has a passion for listed and historic buildings. She has been instructed in relation to Grade I, Grade II* and Grade II listed buildings, some with secret rooms, follies and one with a carving dating from around the time of Christ.
