Case law has established that wineries are agricultural uses for the purposes of planning. However, many vineyard owners and operators include ancillary uses such as visitor centres for wine tasting and restaurants. In a recent appeal decision it was these ancillary uses that caused adverse impacts and harm meaning the appeal was dismissed and planning permission was not granted.
The appeal scheme comprised a new access road, a 107 space car park and coach park, a winery building for grape processing, storage, bottling, a restaurant, cafe and retail. Wine tasting events would be held twice daily and it was anticipated that there would be around 300 visitors per day. The site is located in the green belt and in the Kent Downs AONB and is within the setting of the Upper Bush Conservation Area.
Given the amount of floorspace identified for agricultural use, the Inspector concluded that the appeal scheme was an agricultural use. Accordingly the proposed development fell within the exceptions set out in the NPPF and so the new buildings would not be considered inappropriate development in the green belt.
Whilst there was therefore no need to consider the impact of the development on the openness of the greenbelt, the Inspector still needed to consider whether the development complied with key Local Plan policies around conserving the natural beauty, wildlife and cultural heritage of the area, the impact of the development on the nearby conservation area and whether the harm of the proposals on the AONB was outweighed by exceptional circumstances.
The Inspector found that although the new access road and car park would seek to use the existing topography of the area to reduce the impact, both would introduce a degree of urbanisation into the landscape and would cause moderate adverse effects. The seasonal nature of viticulture would be supplemented by the year round ancillary activities. The visual impact of the constant activity from the ancillary uses would significantly detract from the site’s contribution to the landscape and scenic beauty of the AONB resulting in major adverse impacts. Similar concerns were raised about the ancillary uses in respect of the noise impacts and the adverse impact on the dark skies which were acknowledged as a high value component of the AONB.
The Inspector agreed that the setting of the Conservation Area was largely determined by its relationship to the surrounding farmland and concluded that the proposed major development would introduce activities unrelated to agricultural use. He therefore concluded that the appeal scheme would cause less than substantial harm to the significance of that heritage asset.
In accordance with paragraph 177 of the NPPF, the Inspector had to consider whether there were exceptional circumstances and whether the development would be in the public interest such that it would outweigh the presumption that major development in the AONB should be refused. Accordingly the Inspector considered the need and economic case for the proposed development, the cost of development outside the AONB and any detrimental impact on the environment. Whilst the appellant produced evidence in respect of each of these areas, the Inspector considered the evidence to be insufficient or too high level for any of these arguments to be made. The Inspector noted that expansion of the wine industry is not a national priority nor is it a local priority reflected in Local Plan policies. The Inspector considered the good design of the winery building, the investment, job creation and visitor experience were not sufficiently evidenced and therefore did not outweigh the harm of the development on the AONB and the conservation area. Accordingly he dismissed the appeal.
As the English wine industry continues to grow we are likely to see an expansion in vineyards which, due to the required soil type and typography, are often located in AONBs. Given the exceptional circumstances test for major development in AONBs set out paragraph 177 of the NPPF, vineyard owners would be advised to promote local plan policies that identify the importance of viticulture during local plan reviews to assist with the “need” argument and to establish robust evidence for the remaining tests. Many vineyards will include ancillary activities but the impact of those activities needs to be carefully considered and weighed up against the adverse impacts of the proposed development.
Forsters act on development of Newcastle student accommodation scheme
27 July 2023
News
Our Commercial Real Estate and Construction teams are delighted to have acted for HG Living on the forward funding of a new 350-bed student accommodation scheme by Q Investment Partners (QIP).
Situated at St James’ Boulevard, Newcastle-upon-Tyne, this new development will provide both studios and cluster flats, as well as a range of amenities such as a gym, an outdoor courtyard, study rooms and a cinema room.
Newcastle boasts a student community of more than 50,000 and continues to be a popular destination for new students. This new development, located in a vibrant urban district and found between four different university buildings, will play an important role in catering to the increasing demand for student accommodation from both domestic and international markets.
Commercial Real Estate Partner and Head of Forsters’ Student Accommodation Group, Ronan Ledwidge, said: “The paradox of strong fundamentals and viability challenges is a much discussed topic amongst those involved in the PBSA sector and this transaction is a great example of two parties working together to make it happen.”
HG Living Director Craig McPhail said: “This is an exciting opportunity to develop a best-in-class facility for the ever-growing student population in Newcastle. Not only is it one of the UK’s top university towns, Newcastle is also one of the most vibrant and inclusive cities for students to live in, offering a wide range of restaurants, bars, shops and facilities to enjoy. The sale is further evidence of the investment market returning and of the attractive investment and operational fundamentals offered by both the PBSA sector and by Newcastle as a city.”
Bryan Shacklady quoted in Law 360 article – Forex Ruling Signals ‘Permissive’ Approach to Class Actions
27 July 2023
Views
Dispute Resolution Counsel, Bryan Shacklady was quoted in Law 360’s recent article on the Court of Appeal’s recent decision to allow a £2.7 billion forex rigging claim to proceed as an opt-out collective action.
Appellate judges on Tuesday reversed a ruling by the Competition Appeal Tribunal, finding the specialist tribunal was too quick to block opt-out claims that would automatically enroll thousands of companies into mass litigation against a group of banks.
Bryan stated that “The Court of Appeal decided the CAT was wrong to take a view on the strength of that case because by definition, any view it took could only ever be provisional because the class representatives haven’t pleaded their final case.”
The full article can be read here, behind a paywall.
Industry reaction to Gove’s housing plan – Victoria Du Croz speaks to the Press
25 July 2023
Uncategorized
Partner and Head of Planning, Victoria Du Croz, has been quoted in numerous broadsheet and industry publications this week on the government’s response to the recent local elections.
Du Croz says that: “The Government and DLUHC appear to be having a knee jerk reaction to the results of last week’s local elections and the impending General Election in 2024, essentially seeking to demonstrate that action has been taken to deliver on housing and development in the current parliamentary term.
“A focus on inner cities makes sense, given the Conservative’s aversion to delivering development on the green belt, but the reality of bringing more homes to the cities will mean building high in order to reach the necessary density.
“Neither brownfield sites nor conversions of office to residential buildings have delivered the number of new homes that are needed across the country to date. Re-focusing on these planning mechanisms, by expanding permitted development rights to shop and commercial conversions, is unlikely to boost housing numbers to the levels that are needed.
“[Monday 24th July’s] announcement failed to recognise the vital importance of a cohesive vision for our towns and cities, that housing is just one element of growing the economy and supporting people. Housing is needed alongside job creation, space for warehousing and a retail and leisure strategy.”
A list of the publications featuring Du Croz’s comments is featured below:
Lifecycle of a Business – A Guide to Setting Up Business in England and Wales
25 July 2023
News
Setting up and running your own business is an amazing achievement. It requires vision, creativity, motivation and stamina.
On occasion, it can even bring you fame, riches and fortune. But it can also result in reams of paperwork and cause sleepless nights. And as someone once said to me about children “It doesn’t get easier, it just changes”, so the same can be said for your business throughout its lifecycle. From setting up to exit, it will force you to consider issues that you might not previously have known anything about and it will need you to make many decisions, sometimes very quickly. What it certainly is not is mundane.
With this in mind, the corporate team at Forsters, together with some of our specialist colleagues, has written a series of articles about the various issues and some of the key points that it may help you to know about at each stage of a business’s life. Not all of these will be relevant to you or your business endeavours, but we hope that you will find at least some of these guides interesting and useful, whether you just have the glimmer of an idea, are a start-up, a well-established enterprise or are considering your exit options. Do feel free to drop us a line or pick up the phone if you would like to discuss any of the issues raised further.
So, First Things First…..
A Guide to Setting Up Business in England and Wales
Setting up a business in a new jurisdiction can be both an exciting and daunting prospect. From getting to grips with the corporate requirements to considering the tax consequences to understanding the registration and filing requirements, there will be plenty to think about and many decisions to be made, but once you’ve determined on the best corporate structure and understand the tax position, what other issues need to be dealt with? Many of these will depend on the legislation and business practice in the country in question, as well as the type, sector and size of the business.
Here, we provide a guide to setting up a business in the UK. (For the purposes of this guide, we have assumed that your business will be set up as a private company limited by shares, but most of the points below will apply regardless of the type of business entity. For more information about the types of entity available, see here.
Lawyers
From the initial setting up of the business through to exit, you will require legal advice at all stages of the business’s lifecycle in the UK
Ensure that you instruct responsive, pragmatic UK lawyers with the correct expertise and experience to be able to assist you as you set up your business and going forward
Accountants / auditors
All UK companies must keep accounting records and, depending on the size and nature of your business, you may be required to file annual accounts with the Registrar of Companies. These accounts may also need to be audited
As a result, you may need to instruct accountants and auditors (although this will depend on the type of business entity and its size)
Banking and finance arrangements
You will require a business bank account in the UK and so will need to set this up with a bank of your choice
Consider too whether you will need to take on any third party financing in relation to your business and if so, whether this will be obtained from a UK bank or other finance provider. Remember also that various grants are available, such as R&D grants, which your business may be able to apply for
Bear in mind too that if your business borrows from UK non-residents, there may be withholding tax obligations that have to be considered and possible exemptions claimed
It may be possible to claim a tax deduction for interest paid but there are complex rules that will need to be considered, especially where the borrowing is from connected persons
Directors
Where a UK company has been incorporated to run the business, directors will need to be appointed. Under English law, a company must have at least one director although the company’s constitutional documents may specify a greater number. In addition, at least one director must be a natural person
While there is no requirement for directors to live in the UK, all directors must fully understand their duties under English law and there may be tax consequences if board meetings are not held in the UK. A general set of directors’ duties is set out in the Companies Act 2006, but directors’ duties can also arise under other legislation and at common law. Failure to comply with these duties can have serious consequences, including personal liability and disqualification as a director, and may also constitute a criminal offence. In addition, if the majority of directors don’t live in the UK, the company may become dual resident in another country for tax purposes
Tax
Without delving too much into tax legislation (our Tax team are happy to assist if further information is required), once you have decided what form your business will take you will need to ensure that the business is appropriately registered with HM Revenue & Customs, the UK’s tax authority, so that the appropriate tax returns are filed and taxes can be paid
You’ll also need to engage an advisor to ensure that you are compliant with all day-to-day tax requirements, such as VAT and PAYE. Your legal advisor or accountant should be able to assist here
Property
Do you need any office, factory or other premises? You will need to decide where you want to be located and whether you intend to purchase or lease the real estate. There are likely to be tax charges (VAT and stamp duty land tax (SDLT)) on the acquisition of any such premises
Intellectual property (IP)
Do you own any trade marks, design rights, domain names or other IP? Consider protecting these by registering them
Have you any inventions that require patent protection and which are not already so registered in the UK? Ensure that any patent application is made as soon as possible as it can be a lengthy process<?li>
Employment
You may need to hire staff so consider which recruitment agencies you would like to work with and the terms of employment you can offer. Once you have recruited, you will need to check an employee’s right to work and enter into appropriate employment contracts with your new employees. The terms of these may depend on factors such as their role, experience, responsibilities and so on
In addition, you will need to put in place various policies and possibly compile an employee handbook
Employment law in the UK is complex and there is a myriad of legislation surrounding the rights of workers and employees, covering matters such as health and safety, discrimination, dismissal, minimum wage and so on. You will need to take legal advice to ensure that you are in compliance
If you have set up a company in the UK, are any of the directors also employees? If so, the company will need to enter into service agreements with them
You may already have a successful business set up elsewhere in the world and wish to take advantage of the opportunity to second employees from that jurisdiction to your new business in the UK. There are various factors to consider here and you should take UK legal advice to ensure that immigration laws are complied with and that such arrangements are put in place correctly
Do you have any consultants or contractors working for the business? Ensure that adequate consultancy agreements have been entered into with them. In the UK, the line between a consultant/contractor role and employee can be very easily crossed and this will, among other things, result in different tax and national insurance contribution liabilities being taken on by the business. It is important that you take legal advice about this if you are intending to engage consultants or contractors
You will also need to choose suitable payroll software or engage a payroll services provider to deal with the payment of your workforce and ensure that the correct deductions for tax, national insurance contributions and pension payments are made. In addition, you will need to consider what, if any, insurance-backed employee benefits (such as private medical insurance and permanent health insurance) need to be introduced
Pensions
There is an obligation under UK employment law to automatically enrol most workers in a workplace pension scheme and so you will need to find a pension scheme provider and set this up
Workplace pensions also have their own set of laws and regulations, the applicability of which will depend on the size of your business, the number of employees, its structure and so on. You should obtain UK legal advice about this
Insurance
What insurance cover will you need? Certain insurance cover is required under English law for businesses, while other policies may be recommended or available but are not obligatory
You may want to speak to an insurance broker to find out more about the cover available, what the different policies offer and the premiums
Data Protection
Data protection is likely to affect various aspects of your business, including employment, suppliers and customers and your business will need to comply with the relevant UK laws, including the Data Protection Act 2018
Regulatory and compliance
Is your business regulated in any way under UK law, for example, does it fall within the financial services sector, energy or life sciences? You will need to apply for the appropriate licence or registration if this is so
The English legal framework also covers matters such as marketing and advertising standards, consumer protection laws and websites, some or all of which may apply to your business. You will need to ensure compliance where relevant and are likely to require legal advice to ensure that nothing slips through the net
Commercial arrangements
Assuming that new commercial arrangements will be entered into with, for example, suppliers, distributors and possibly, customers, you may need to establish relationships and discuss terms with various third parties
These commercial arrangements should be formalised in written contracts or terms and conditions. Bear in mind that even if intra-group arrangements are to be put in place, it is advisable to document these in writing
Forsters LLP is a full service law firm and has the length and breadth of experience to assist you with all of your corporate, business, employment, tax and real estate needs and queries. If you require any more information or would like to discuss your situation, please speak to your usual Forsters’ contact.
Disclaimer
This note reflects the law as at 25 July 2023. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.
BPF debate: “Should BTR be allocated its own Use Class?”
21 July 2023
News
On 12 July 2023, Commercial Real Estate Partner and Head of Forsters’ Build to Rent group, Helen Streeton, attended the BPF Build To Rent Committee Debate at CBRE’s Henrietta House.
The discussion focused on the question: “Should BTR be allocated its own Use Class?” Below are Helen’s key takeaways:
A key issue faced by BtR developers’ centres on viability, of which quantum of affordable housing to be provided is a major factor. There are cogent arguments for a lower delivery percentage in the BtR sector, when combined with other tenures which provide a discount to market product.
Traditionally, councils built housing and were funded partly by Government subsidy. For example, in the 1950s and 1960s, the increased development of high-rise blocks was linked to higher subsidy for those types of developments, which seemed the ideal solution to the housing problem in the post-war period. Right to Buy was introduced under The Housing Act 1980 and local authorities were then forced to sell stock. Nationally, over one million houses were sold within a 10-year period and many of these have not been replaced with new stock.
The idea of a Use Class separate from the general C3 Use Class was mooted some years ago in the NPPF. Following the Montagu Report in 2012, the BtR Sector has grown at pace both in terms of urban and suburban locations, however there remains a chronic shortfall in rental housing and the number of starts has slowed. In the planning system, we are only now getting a uniform approach to viability assessments in London and some other major cities, but not really elsewhere in the country. That leaves a lot of variation in the viability assessments submitted in support of application.
In addition, a lot of local authorities don’t have the skillset to properly review assessments, which can sometimes lead to a less than optimum level of affordable housing. Politicians at the local, regional, and national level tend to focus on the quantum of affordable housing provided and not how affordable the product is. Social rented housing “costs” the developer more than intermediate housing, so the developer will provide less in overall unit numbers.
Splitting the C3 Use Class in return for a lower percentage, or quantum, of affordable housing sounds attractive. However, it would likely result in perpetuity BtR units, which makes investors nervous regarding exit strategy. The current model can provide flexibility in terms of being able to provide for an either/or scheme through section 106 obligations, applying a different viability regime for BTR schemes. A reduced quantum of affordable housing for BtR schemes is workable, but only if accompanied by clawback provisions, which means if one then decides to sell on the open market within the stated period, one needs to pay back additional sums for affordable housing.
Beyond the planning system itself, from a market perspective, rental demand continues to outstrip supply. Demand continues to rise due to difficulties faced by, in particularly the younger generation, accessing mortgage products to buy homes.
The supply pipeline, although remaining strong, has been hampered by a combination of Covid-19 issues, higher cost of money and higher construction costs driven by inflationary pressure, and political uncertainty in the economy following Brexit. New legislation – the Building Safety Act (in particular, the London requirement for second staircases in tall buildings), the Infrastructure Levy, alongside potential rent control legislation and the Renters Reform Bill (which axes the Section 21 Notice Procedure), all impact on the decisions of developers and investors alike, to stay in the BtR sector.
The supply side issues outlined above can really only be addressed through lowering overall cost of delivery. This could be done by a lower affordable housing requirement, but there are other ways of incentivising on the supply side. If the government is serious about housing delivery it will look to address this and ease the burden on developers and investors grappling with the current planning regime, as well as the other changes outlined above.
When can a creditor get a piece of the pie? – Patricia Boon and Maryam Oghanna write for ThoughtLeaders4 Private Client Magazine
21 July 2023
Views
In an article entitled La Dolce Vita – When can a creditor get a piece of the pie? Private Client Partner, Patricia Boon and CTE Senior Associate, Maryam Oghanna examine the recent case of La Dolce Vita Fine Dining v Zhang Lan and others, where the High Court of Singapore held that funds in bank accounts within a family trust structure were the property of the settlor, and therefore capable of being recovered by creditors of the settlor. Patricia and Maryam consider the potential impact on trust establishment and management and what conclusions practitioners can draw from this case.
The article was first published in issue 11 of ThoughtLeaders4 Private Client Magazine – Offshore Edition and can be read in full below. A PDF version of the article can be found here.
La Dolce Vita – when can a creditor get a piece of the pie?
In the recent case of La Dolce Vita Fine Dining v Zhang Lan and others [2022] SGHC 278, the General Division of the High Court of Singapore (the ‘Court’) held that funds in bank accounts within a family trust structure were the property of the settlor, and therefore capable of being recovered by creditors of the settlor.
Understandably, any decision of a court to lift the curtain on a trust structure and allow creditors to access trust assets will raise concerns for private wealth practitioners and their clients. This article examines the Court’s decision in La Dolce Vita and considers the potential impact on trust establishment and management and what conclusions practitioners can draw from this case.
Background
The first defendant, Mdm Zhang Lan (‘Mdm Zhang’), was a highly successful businesswoman and founder of the South Beauty restaurant chain. She had sold a majority stake (83%) of the South Beauty business to CVC Capital in 2013 for the sum of US$254,419,156. These funds had been paid into Mdm Zhang’s personal account at Bank Safra Sarasin Hong Kong.
The fourth defendant, Success Elegant Trading Limited (‘SETL’), is a BVI company which had been wholly owned by Mdm Zhang until June 2014. At that point, Mdm Zhang established the Success Elegant Trust (the ‘Trust’), an irrevocable Cook Islands family trust that she settled for the benefit of her son, grandchildren and remoter issue. She then immediately transferred the sole share of SETL to the trustee of the Trust. She also transferred US$142,051,618 from her personal Safra Sarasin account to two bank accounts held in the name of SETL at Credit Suisse and Deutsche Bank (the ‘SETL Banks Accounts’).
Since then, Mdm Zhang has been embroiled in arbitration proceedings with La Dolce Vita Fine Dining Co Ltd (‘LDVL’), an investment vehicle of CVC Capital and the plaintiff in this case, over claims of fraudulent and negligent misrepresentation. In March 2015, LDVL was successful in obtaining a freezing order against Mdm Zhang in her personal capacity. Although the freezing order only named Mdm Zhang, Credit Suisse and Deutsche Bank froze the respective SETL Bank Accounts upon being served with the order.
In May 2020, LDVL succeeded in registering arbitral awards in its favour in the Hong Kong and Singapore courts. LDVL then proceeded to enforce its judgment debts, including through an application to the Court to appoint a receiver over the SETL Bank Accounts.
The Role of Receivers
The purpose of a receiver is to stand in the shoes of a debtor and do what the debtor should have done, in good conscience, to discharge the debt. In common law jurisdictions, the court has the power to appoint a receiver when it is just and equitable to do so.
Receivers usually appear in cases where alternative enforcement methods are ineffective or not possible. For example, receivers can be appointed to preserve property at risk of dissipation, such as in the high profile English Supreme Court case of JSC BTA Bank v Ablyazov [2015] UKSC 64, where a freezing order was thought to be inadequate in circumstances where the defendant’s disclosure of assets had been incomplete.
Further, a creditor may seek appointment of a receiver to pursue the equitable interests of a debtor, as seen in a few previous English High Court decisions. These include JSC VTB Bank v Pavel Skurikhin & Others [2015] EWHC 2131 (Comm), where the High Court appointed a receiver over trust assets over which the settlor had de facto control.
The Court’s Decision
LDVL sought an order from the Court appointing receivers over the SETL Bank Accounts on the basis that, notwithstanding SETL’s legal ownership of the funds within those accounts, either (i) Mdm Zhang was the beneficial owner of the funds in the SETL Bank Accounts by way of resulting trust; or (ii) Mdm Zhang exercised a level of control over the assets tantamount to ownership.
Mdm Zhang opposed the appointment, contending that the funds in the SETL Bank Accounts were held for the benefit of her son and his issue once they had been transferred from her Safra Sarasin account.
The Court was required to determine two issues:
Could receivers be appointed over property in which the debtor has effective control but no equitable interest; and
Were the funds in the SETL Bank Accounts beneficially owned by Mdm Zhang (by way of resulting trust or otherwise)?
On the first issue, the Court drew a distinction between the notion of de facto control and beneficial interest. The key point made by the Court was that even if a debtor had de facto control over an asset, the actions that a receiver may take would be limited by the rights of the debtor. Receivers are not able to compel third parties (such as trustees) to take certain actions if those third parties are not obliged to comply with the debtor’s instructions. If, as a matter of fact, that third party would have complied in any event, this is tantamount to a factual control which may not be reflected in the actual rights of the debtor. As LDVL did not contend that Mdm Zhang had rights over the SETL Bank Accounts other than via her beneficial ownership, the Court turned to the second issue.
On the second issue, the Court noted that a resulting trust arises where one party transfers property to another without the intention to benefit the other, and that it was required to assess Mdm Zhang’s intention at the time of transfer to the SETL Bank Accounts. The evidence before the Court included instances of Mdm Zhang interfering with the SETL Bank Accounts (such as the transfer of funds in November 2014 to purchase a property in New York) and a letter from her lawyers stating that she ‘maintained’ the Deutsche Bank account. The Court inferred that Mdm Zhang was motivated by a desire to protect her funds from potential claims by LDVL without giving up her ability to use those funds for her own benefit and held that she therefore retained a beneficial interest. The court subsequently made the order for appointment of receivers over the SETL Bank Accounts.
Comment
The judgment in favour of the plaintiff, whilst somewhat alarming to trust lawyers at first sight, is not particularly surprising in light of the facts of the case.. Rather than lifting the curtain on a trust, the decision held that the funds were not truly trust assets as they were still beneficially retained by the settlor. Therefore, it is our view that this case should not raise significant concerns about the viability of trusts in Singapore, or elsewhere.
Nevertheless, there are some practical points arising from this case which practitioners should bear in mind:
how much control a settlor may have over trust assets – as we have seen in recent years, courts are willing to find that a settlor’s beneficial interest has not been effectively alienated if they have retained too much control over a trust structure or its assets (see JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2017] EWHC 2426 (Ch)). While certain jurisdictions have reserved powers legislation which permits the reservation of certain powers to the settlor, La Dolce Vita is another reminder that it is always prudent to assess and limit the amount of control that a settlor has over the trust assets, particularly where the settlor is concerned about asset protection risks.
role of the trustee – the trustee of the trust should ensure that it exercises its powers and duties properly and independently and that it does not slavishly follow the wishes of the settlor.
ensuring that the settlor understands the purpose and function of the trust – it is important that the settlor should be properly advised when setting up a trust structure, so that they understand that they are relinquishing control and ownership of the assets to the trustee.
property comprised in the trust – as a matter of best practice, the trustee and settlor should keep an appropriate record of the property that is comprised in the trust and, if there is involvement from a third party in dealing with trust assets, there should be clarity over the capacity in which that third party is acting.
Trusts are still important vehicles for asset protection and wealth and succession planning. The judgment in La Dolce Vita is a salutary reminder of the importance of respecting the integrity of the trust and operating the trust appropriately to ensure that it offers robust protection to the settlor and beneficiaries.
The Chambers HNW Guide 2023 extends its recognition of Forsters’ Private Wealth practice with the elevation in Private Wealth Disputes and Family rankings
20 July 2023
News
The Chambers HNW Guide is seen as the definitive authority for best-in-class law firms, based on extensive market research conducted annually, the guide ranks the leading professional advisors to the Private Wealth market.
This year Chambers have elevated Forsters to Band 1 for Private Wealth Disputes and Band 2 for Family/ Matrimonial Finance: Ultra High Net worth, as well as maintaining our Band 1 status in Private Wealth Law and High Net Worth Residential Property. Our Art and Cultural Property team also maintains its Band 2 ranking. The rise in the rankings for our Contentious Trusts & Estates and Family teams demonstrates the breadth of quality of our Private Wealth practice and our ability to advise our clients on all aspects of their legal requirements.
The 2023 HNW Guide also recognises 23 individual lawyers at Forsters. Nick Jacob and Dan Ugur are recognised as ‘foreign experts’ in Singapore and our Family team’s mediation practice is acknowledged with Joanne Edwards‘ inclusion in the Spotlight Table for Family/Matrimonial: Mediators.
Chambers feedback: “Forsters has real strength in combining technical excellence with commercial awareness.”
Private Wealth Disputes – elevated to Band 1
The elevation to Band 1 follows the team’s success at the Chambers High Net Worth Awards where they were awarded Contentious Trusts & Estates Team of the Year. They were recognised for “having received especially strong feedback from its competitors in this market. The group, headed by Roberta Harvey, added Hannah Mantle to the partnership this year and brought in highly-rated litigator Alison Meek in 2022. The team can also celebrate a new ranking for associate Maryam Oghanna who is building a name for herself in this practice area.”
Chambers feedback: “I have been incredibly impressed. They are real specialists in this area and know their stuff. Communications are clear and prompt, but always polite and friendly. They have great depth in talent and are excellent at client management.”
Chambers notes: The art and cultural property practice at Forsters brings together lawyers from across the firm. It regularly advises collectors, galleries and auction houses, and is particularly notable for handling estate planning and commercial matters for artists.
No “real risk of prosecution” under Article 271 of the Swiss Criminal Code: Application to be excused from disclosure obligations fails
20 July 2023
News
It is well established that the English Court has discretion to excuse a party from performance of its procedural obligations in litigation where it considers that performing those obligations would give rise to an actual risk of prosecution in a foreign state: Bank Mellat v HM Treasury [2019] EWCA Civ 449.
In Public Institution for Social Security v Al Wazzan & Ors [2023] EWHC 1065, the defendants sought to be excused from their obligation to give disclosure on the basis that doing so would lead to a real risk of prosecution in Switzerland under Article 271 of the Swiss Criminal Code1. The Court was not persuaded by the defendants’ arguments and refused to grant the order sought.
The decision provides welcome guidance in a previously uncertain area, as well as a salutary warning to parties seeking to rely on Article 271 to excuse themselves from their disclosure obligations in English Court proceedings.
Article 271
Article 271 prohibits the performance on Swiss soil of “official” acts i.e. those which are properly the preserve of the state. The article was originally introduced during WWII in response to a German gestapo officer’s kidnapping of a Swiss Jewish citizen.
It is well established under Swiss law that Article 271 is engaged by examination of witnesses or the service of proceedings for the purposes of foreign litigation. It is less certain, however, whether Article 271 applies to the collection and/or review of documents for the purpose of satisfying a foreign Court’s disclosure order. This was the issue considered by the Court in Al Wazzan.
The decision in Al Wazzan
The applicants were the defendants to a claim brought by the Kuwaiti government regarding an alleged fraud committed against Kuwait’s social security system and state pension scheme. They sought to avoid giving disclosure of documents obtained from the Swiss criminal authorities and other documents originally obtained from Switzerland on the basis that doing so would give rise to a real risk of prosecution in Switzerland.
However, the Court was not persuaded that Article 271 was engaged by the giving of disclosure, having essentially accepted the respondents’/claimants’ Swiss law expert’s evidence on the point:
First, the Court was not persuaded that Article 271 was capable in principle of applying to compliance with a disclosure order; in Swiss litigation the submission of documents (unlike, for example, the examination of witnesses) is not restricted to the Court and it is not therefore clear that it is an “official” act.
Secondly, even if Article 271 could in theory apply to a disclosure order, it was accepted by the parties’ respective experts that (subject to the third party information point discussed below) it would not apply if the sanction for non-compliance with the order was procedural rather than criminal. In English litigation, the sanction for non-compliance with a disclosure order is generally procedural (eg, striking out relevant sections of the party’s pleading). Although contempt of court would in theory be available, crucially it would not be applied absent a penal notice on the face of the relevant order. There was no such notice on the face of the order at issue.
Thirdly, while the applicants had sought to rely on a recent Swiss case which had indicated that the disclosure of documents containing information belonging to third parties protected by Swiss public policy would fall within Article 271 (even where the sanction for breaching the order was only procedural), the third party information in that case had been subject to Swiss banking and fiduciary secrecy laws. There was no suggestion that any third party information in the present case raised any such issues.
Fourthly, Article 271 was not engaged by virtue of the fact that Kuwait had sought copies of the documents in the context of the Swiss criminal proceedings and this had been refused. Kuwait was not seeking to subvert this result and thereby perform an “official” function simply by exercising its rights as a party to civil litigation.
Fifthly, and in any event, the relevant documents were already in the possession of the defendants’ English lawyers. Giving disclosure would not therefore require any act to take place on Swiss soil and Article 271, which was clearly restricted to such acts, was not therefore engaged.
Accordingly, the Court was not persuaded that the applicants would be at a real risk of prosecution if they were to give disclosure. It therefore declined to excuse them from complying with their disclosure obligations.
Comment
The Court’s findings on the application of Article 271 (and the attendant risk of prosecution) were findings of fact based on its assessment of the expert evidence on Swiss law. They would not therefore technically bind another Court. That said, it seems likely that any party seeking to rely on Article 271 to justify failing to comply with its disclosure obligations will (absent materially different facts eg, as to the relevant third party information) face an uphill struggle.
The Court’s decision creates potential difficulties for parties insofar as it is not certain that the Swiss Courts would reach the same view of the application of Article 271. It therefore remains possible that giving disclosure might give rise to criminal liability in Switzerland. It is worth bearing in mind in this regard that the defendants’ expert was of the view that Article 271 was probably engaged (and this firm has also previously received Swiss law advice to similar effect).
In all cases where Article 271 is potentially engaged, Swiss law advice should be sought at an early stage. In addition, any party which ultimately concludes that there is a risk that Article 271 is engaged might consider applying to the Swiss Federal Office of Justice (“FOJ”) for a clarificatory opinion. Although this would not permit the party to give disclosure in contravention of Article 271 (as would the lengthier judicial assistance procedure under the Hague Convention), it would provide an authoritative opinion from the Swiss authorities relatively swiftly as to whether Article 271 was engaged. This should give the applicant either comfort that they are able to perform their disclosure obligations without fear of prosecution or (alternatively) persuasive material with which to justify to the English Court a request to be excused from those obligations.
1The defendants also sought the same order on various other bases which are beyond the scope of this article.
Forsters responds to UK government’s consultation on reforms to the Construction Industry Scheme
19 July 2023
News
Tax Partner, Heather Corben and Tax Associate, Oliver Claridge, responded this week to the UK government’s consultation on reforms to the Construction Industry Scheme (“CIS”), which was published on 27 April 2023 (the “Consultation”). The Consultation closes at 11:45pm on 20 July 2023.
What is the CIS?
The CIS was originally put in place in the early 1970s to protect taxation revenue in the construction industry, which then, as it does now, regularly employs a large number of mobile workers who are paid in cash.
Contractors have to determine the CIS status of their subcontractors and make deductions from payments to them accordingly:
30% deduction if the subcontractor is not HMRC-registered
20% deduction if the subcontractor is HMRC-registered
0% deduction if the subcontractor holds Gross Payment Status (“GPS”)
The withholding tax is then paid by the contractor to HMRC.
There is no exemption for contractors from registering for the CIS and any business which does not fall squarely within the construction sector but which spends over £3 million on construction operations annually also has to register.
In order to qualify for GPS, a subcontractor must satisfy three tests, namely, the compliance test (all direct taxes must be up-to-date with returns and payments made correctly and on time), the business test (the operating business carries out construction work and has a UK bank account) and the turnover test (the net 12-month turnover must exceed £30,000 per director or partner or £100,000 for the entire company or partnership).
If at any time, the subcontractor fails to satisfy any of the tests, its GPS can be cancelled by HMRC.
What is the Consultation about?
Strengthening GPS tests
Currently, only direct tax compliance is considered for the purposes of the GPS compliance test. The Consultation is therefore seeking views as to whether VAT should also be included to prevent businesses which have committed VAT (and potentially wider compliance) abuse from achieving GPS.
Annual checks of a business’s continuing compliance are undertaken by HMRC once the subcontractor has been registered for GPS. The Consultation covers whether the first check by HMRC should be brought forward to six months post-registration in order to detect businesses which become non-compliant soon after GPS registration.
The Consultation is also asking for opinions as to whether HMRC should be able to determine the medium by which an application for GPS is made, with the intention that this will become digitalised in the future. At present, applications can be made by telephone and the government is of the view that this may be “a less challenging route” and as such, is preferred by fraudulent entities.
Simplifying the treatment of landlord to tenant payments
Payments made by landlords to tenants (perhaps to encourage a tenant to enter into a lease) are classified in two different ways for the purposes of the CIS:
Category A payments, being payments for works that are the landlord’s responsibility (for example, structural work) – these fall within the CIS
Category B payments, being payments for works that benefit the tenant’s business (for example, internal cosmetic work) – these fall outside of the CIS
It is the landlord’s responsibility to determine which category a payment falls into and, simply put, this is causing a number of issues.
The Consultation is asking for views on the extent of these issues and on the government’s proposals to remove both categories from the CIS.
Reducing the administrative impact of operating the CIS
The CIS requires monthly reporting obligations with the ability to notify HMRC if monthly payments to subcontractors will not be made for up to six months. However, large groups of companies may not make such regular subcontractor payments and as a result, use a lot of resources to determine which companies within the group have made such a payment (which requires a return to be made) and which have not. “Nil returns” are often completed for those companies which have not made a payment to ensure that late filing penalties are not incurred, although strictly speaking a “nil return” is not actually required.
The Consultation is seeking views on whether the implementation of a “CIS grouping arrangement” would be beneficial, in a similar vein to corporation tax and VAT. This would allow one company within the group to submit a single monthly return on behalf of all the companies within the group.
Forsters’ response to the Consultation
Forsters welcomes the inclusion of VAT in the GPS compliance test, if this allows entities which may not have been in existence for long enough to file a corporation tax return to apply for GPS. However, we have also raised the concern that minor VAT errors are commonplace and should not prevent usually compliant entities from achieving GPS status. We have suggested that a minimum non-compliance threshold be put in place to counteract this potential problem.
We are not of the view that any landlord to tenant payments should fall within the CIS. In these cases, it is usual for the tenant to then pay a subcontractor, and so the arrangement will fall within the CIS regime anyway as the exemption does not continue to apply further along any contractual chain. Even in those cases where a tenant itself carries out the work, HMRC will have security in the form of the actual property asset.
Finally, we consider that a “CIS grouping arrangement” would be beneficial, provided that landlords as contractors or deemed contractors are able to benefit from such an arrangement and that the definition of “group” is clearly delineated.
Disclaimer
This note reflects our opinion and views as of 19 July 2023 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.
Lifecycle of a Business – Setting up a Family Investment Company
19 July 2023
News
Setting up and running your own business is an amazing achievement. It requires vision, creativity, motivation and stamina.
On occasion, it can even bring you fame, riches and fortune. But it can also result in reams of paperwork and cause sleepless nights. And as someone once said to me about children “It doesn’t get easier, it just changes”, so the same can be said for your business throughout its lifecycle. From setting up to exit, it will force you to consider issues that you might not previously have known anything about and it will need you to make many decisions, sometimes very quickly. What it certainly is not is mundane.
With this in mind, the corporate team at Forsters, together with some of our specialist colleagues, has written a series of articles about the various issues and some of the key points that it may help you to know about at each stage of a business’s life. Not all of these will be relevant to you or your business endeavours, but we hope that you will find at least some of these guides interesting and useful, whether you just have the glimmer of an idea, are a start-up, a well-established enterprise or are considering your exit options. Do feel free to drop us a line or pick up the phone if you would like to discuss any of the issues raised further.
So, First Things First…..
Setting up a Family Investment Company
Family investment companies, or “FICs” as they are commonly known, have become increasingly popular over recent years and are now widely used by wealthy individuals for succession planning purposes. They offer a number of tax advantages over trusts, and are also popular with international clients from jurisdictions that do not recognise trusts, and who may feel uncomfortable with involving a professional trustee company in their affairs.
From a legal perspective an FIC is just like any other private limited company. In April 2019 HMRC set up a unit to look into FICs and their use by wealthy families, which gave rise to concerns that HMRC was considering taxing FICs in a different manner to other companies. However, the unit was disbanded in the summer of 2021 having found no evidence that FICs were being used for tax avoidance purposes, and whilst future changes to how FICs are taxed and regulated cannot be ruled out, for the time being at least it seems that HMRC will continue to treat them in the same manner as other companies.
An FIC is simply a company that holds assets that would otherwise be held by family members personally. FICs can be used to hold a wide variety of assets, including cash, investments and property. Detailed tax advice needs to be taken before an FIC is established, but assuming the decision is made to use an FIC, set out below are some of their typical characteristics.
Funding the FIC – FICs can be funded either by way of shareholder loan or equity, but probably the most popular way is by using redeemable shares. The advantage of this is that it allows the individual setting up the FIC to extract funds from the company in a tax-efficient manner should the need arise.
Voting shares – In addition, the individual setting up the FIC will usually be granted voting shares. These tend not to carry any economic rights (such as rights to dividends or capital on a winding-up), but they give the individual complete control over all shareholder decisions, such as the appointment of directors, amendments to the company’s articles, and so on. The individual setting up the FIC will usually act as the company’s director (sometimes with his or her spouse acting as a second director), which gives him or her control over the company’s day-to-day decision making too, such as how funds should be invested and when dividends should be paid.
Alphabet shares – The final class of shares that are typically used are shares that carry economic rights but no voting rights. Each child of the individual setting up the FIC will usually be granted their own class of share (hence the term “alphabet shares”), but each of these classes tends to have identical rights. Crucially, however, having multiple classes of shares means that dividends can be declared on only one class of share at a time, thereby enabling the individual who set up the FIC to channel funds to whichever of his or her children might need them at the time (whether for a deposit to buy a house, set up a business, pay for school fees, and so on).
Transfers of shares – As its name suggests, an FIC is an investment company owned by, and established for the benefit of, the members of a family. As such, the articles of association of an FIC will normally contain very tight restrictions on the transfer of shares, which are designed to ensure that ownership of the company remains within the family. Typically, transfers of shares are only permitted to blood-line descendants of the individual setting up the FIC, or sometimes blood-line descendants of that individual and his or her spouse together. Great care needs to be taken in considering whether spouses of children, adopted children (and adopted grandchildren), illegitimate children (and illegitimate grandchildren), etc. should be able to hold shares – the answer will be slightly different depending on each family’s circumstances.
Pre-emption rights – Typically, pre-emption rights on the transfer of shares will not be included in an FIC’s articles. This is for two reasons – first, because the list of who can hold shares is usually very tightly defined (see above), and therefore there is no need to include further protection by including pre-emption rights; and secondly, because if an adult child of the individual who set up the FIC wishes to transfer their shares in the FIC to their own children (i.e. the grandchildren of the individual who set up the FIC), it wouldn’t be appropriate for other shareholders to be able to intervene and prevent that transfer by exercising pre-emption rights.
These are just some of the ways in which FICs differ from normal trading companies in the way they are set up, though there are many others and expert advice should be taken if you are considering using an FIC. Forsters has significant experience in establishing FICs, whether for nuclear families living in the UK or extended families living across the world. To find out if a family investment company is the right approach for passing on wealth to your family, please do get in touch.
Disclaimer
This note reflects the law as at 19 July 2023. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.
Residential SDLT – I am a private rental tenant, do I have to pay stamp duty land tax?
17 July 2023
News
Most people are aware of the need to pay stamp duty land tax (SDLT) when buying a house for a high enough purchase price.
With its myriad of rules (additional property surcharge, non-resident surcharge, flat rates for companies), SDLT has become increasingly complicated, however one group who rarely have to consider the Byzantine depths of the Finance Act 2003 are private renters. But is this something they should be thinking about?
What is SDLT?
SDLT is a transfer tax on the acquisition of property interests in England and Northern Ireland. Wales and Scotland have similar but slightly different regimes (Land Transfer Tax and Land and Building Transfer Tax respectively). SDLT is due whenever a relevant land interest is transferred, be that by sale or by grant of a lease, and chargeable consideration above the nil rate threshold is paid for this transfer. SDLT is taxed in a progressive banded system, much like income tax, such that the value of the chargeable consideration that falls into each band is taxed at the relevant rate for that band, for example the first £250,000 of a purchase price (assuming neither the additional property surcharge or non-resident surcharge applies) will always be taxed at 0%, regardless of whether the total purchase price is £300,000 or £2 million.
There is no difference for SDLT purposes between a “tenant” and a “leaseholder”. SDLT applies to any freehold or leasehold transfer (it does not apply to licences) subject to certain transactions that are exempt from the tax (primarily for being low in value). SDLT as a tax looks at the substance of a transaction, not the way it is described. One cannot define oneself out of an SDLT charge, for example by labelling a lease as a licence.
Chargeable consideration is the price paid for the transfer. For a purchase this is simply the price you pay. For rent it is the net present value (NPV) of all the rent across the term of the lease. This uses a discount value (3.5%) so future rent is not valued as highly as rent due immediately. For leases longer than five years it is only rent in the first five years that is used for the SDLT calculation, with the highest year’s rent in that five-year period being taken as the rent for every year above five; thus rental increases after the first five years are ignored. As such, the NPV will be less than just simply adding up all the rent over the term of the lease.
Does this apply to private rental tenants?
The short answer is “it can do”. The slightly longer answer is “it’s very unlikely that the average tenant will need to pay SDLT or file an SDLT return”.
For a lease of under seven years an SDLT return only needs to be filed if the chargeable consideration is above the nil rate threshold. This is currently set at £250,000, raised from £125,000 in 2022 by Liz Truss, although due to be cut back to £125,000 in March 2025.
It is highly unlikely that most residential rental leaseholders will be taking leases with a rental NPV above £250,000.
What if I renew my lease?
Some tenants may fear that by renewing their lease several times they may reach a stage where SDLT is due. This will, however, only be the case if the renewals are “linked” for SDLT purposes.
Linking is a grey area for SDLT, primarily designed to stop transactions being split to minimise tax, e.g rather than buying a house for £500,000, you buy the house for £250,000 and the garden for £250,000, and pay no tax as you have two transactions each under the nil rate threshold.
Renewing a lease is not traditional transaction splitting, however if it is done with an option to renew within the lease itself then this will be linked, i.e. if the lease includes a provision allowing the tenant to renew the lease at the end of the current term, and the tenant does so, the renewal will be deemed to be linked.
On the other hand, if, around the time of expiry of the term of the lease, the tenant and landlord agree they both want the tenancy to continue for a further term, with no requirement that both or either must agree to this, (probably with some degree of negotiation over any rental increase), then it is likely that the leases will not be linked.
Even if leases are linked, at the current nil rate threshold, a lease with a rental value of £2,000 a month will need to be renewed for an occupation of 14 years before SDLT is due on the rent. On that basis, even London renters are unlikely to be triggering SDLT obligations.
If a lease is renewed such that it lasts for over seven years, and each renewal is linked, then an SDLT return is likely to be required even if no SDLT is due.
What if I am non-resident?
For SDLT purposes you are generally non-resident at the time of a transaction if you have not spent 183 days in the UK in the 364 days before the transaction.
Unlike the “additional property” 3% surcharge, which only applies to the premium, the 2% non-resident surcharge can apply to rent in some circumstances, namely:
If there is also a premium value worth more than £40,000. This will trigger the non-resident surcharge, making the nil rate threshold for rent a 2% band, such that any level of rent will result in tax
Where the lease is for more than seven years and the annual rent is more than £1,000
If you are UK non-resident, then you may pay SDLT on your rent if you take a lease for seven years or your lease renews to be, in total, over seven years in length (and the renewal(s) are linked as above) or you pay a premium over £40,000 alongside your rent.
What if I am doing something unusual?
The risk of an average private rental tenant having to file an SDLT return or pay SDLT is low. The tax is most likely to be paid by someone doing something unexpected such as:
Paying a very high level of rent – the exact level will depend on the length of the lease but for a one-year lease, rent of over £21,000 a month would be needed to go over the current nil rate threshold
Renting where there was always an agreement that the leases would renew, especially to take the total term to over seven years
Renting from family on a non-arm’s length basis – this would make it more likely that renewal leases are linked (however the most obvious non-arm’s length basis is for under market rent which would mean the nil rate threshold would be less likely to be triggered!)
For the average renter, who has taken a lease from a third party landlord, even London rental rates will not trigger SDLT liabilities for a short term AST (assured shorthold tenancy) unless the lease contains an option to renew and this is triggered several times.
Summary
SDLT can apply to private rental tenancies, but typically only applies where rent values are very high or if something unusual is taking place. For the vast majority of renters, SDLT is not a tax that they will need to consider.
That said, renters should be careful if:
Their lease is granted for a term of seven years or more
Their lease contains an option to renew, and they take up this option (and the renewed lease has a further option to renew, etc.) such that the total length they occupy the property exceeds seven years (in which case an SDLT return will be due in the seventh year although depending on levels of rent there may still be no tax)
Their lease does not contain an option to renew but it was always intended that the lease would last more than seven years (in which case an SDLT return will be due in the seventh year although depending on levels of rent there may still be no tax)
They are non-resident for SDLT purposes and either pay a premium worth £40,000 or occupy for over seven years (with any renewals treated as linked)
Their lease has a very high level of rent
Disclaimer
This note reflects the law as at 11 July 2023. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.
Progress on energy use is essential – Edward Glass responds to Property Week Editor
14 July 2023
Views
Commercial Real Estate Senior Associate and member of our Sustainability group, Edward Glass, has written to the Editor of Property Week, Lem Bingley, agreeing with his latest leader column that the Climate Change Committee’s negative assessment of progress in decarbonising buildings is deeply worrying.
Glass says: “We need to see progress on the ground, where it really counts. Regulation has a role to play here and the Minimum Energy Efficiency Standards (MEES) regime, in which it is now unlawful to continue to let a commercial property with an ‘F’ or ‘G’ Energy Performance Certificate (EPC) rating (subject to exemptions), has focused attention.
“However, as the report identifies, we have not seen progress on occupational energy ratings or regulatory certainty on anticipated uplifts to MEES thresholds.
“Many are calling for mandatory disclosures on an annual basis, using the updated NABERS 2.0 rating, potentially with fiscal incentives resulting from achieving a top score. Surely this is the next logical legislative step to drive actual change on the ground. The relevant government consultation seems to be on the backburner and while the report identifies this, a response is not a key priority recommendation, in contrast to that on the ‘EPC C by 2028’ consultation for privately rented homes.
“There is no question that onsite renewable provision is acknowledged as an open goal in terms of opportunity for the industry. Owner and occupier collaboration is on the increase, but again, surely we need more legislative weight, for example mandatory photovoltaic panels on larger commercial buildings, as well as more attractive fiscal incentives? Plus of course, there is a notable limiting factor: grid capacity. Plenty of progress is surely needed here to realise the full potential.
“The committee’s chair Lord Deben has said that one of the government’s biggest failures was not putting net zero at the heart of the UK’s planning system. He will, no doubt, approve of the recent initiative from the UK Green Building Council, which organised for 100-plus companies, including Landsec, Grosvenor Property and Rockwool, to sign an open letter urging prime minister Rishi Sunak to make planning decisions take account of climate change by law.
“With the tide of green regulation turning the screws on the current building stock, it’s a natural next step to boost sustainability standards of new development from conception.”
This letter was originally published on 13 July 2023 by Property Week and can be read here (behind their paywall).
Jo Edwards quoted in the FT on the Government’s proposal to introduce mandatory mediation in family cases
14 July 2023
Views
Head of Family, Jo Edwards, has been quoted in the FT on her response to the UK government’s proposal to mandate mediation for separating couples before being able to make a court application, in an effort to ease the pressure on the justice system.
In the article, entitled ‘Plans to force separating couples into mediation in England and Wales attacked’, Jo explains that couples who plan to go to court face “horrific” waits for cases to conclude.
This was confirmed by the official data published last week which showed that the average duration of private law children cases has more than doubled since 2016 to 47 weeks. However, despite these statistics family justice professionals do not agree that mandating mediation is the solution.
A key area of concern is the risk this would pose for victims of domestic abuse. The Ministry of Justice have stressed that they would not be obliged to attend sessions with their former partner, but Jo questions whether the system would have enough resources to triage effectively.
People working in the family justice system make a broader case for public funding of advice and counselling at an early stage of separations. Such a system would make it “far less likely that agreements will break down later” and end in court, said Jo. More limited reforms may be more likely, however.
Jo gave oral evidence to the Justice Select Committee on 19 June about the Ministry of Justice’s recently concluded consultation on supporting earlier resolution of private family law arrangements. Read more here.
Forsters named Contentious Trusts & Estates Team of the Year at the Chambers High Net Worth Awards
14 July 2023
News
We are delighted to announce that Forsters has won the Contentious Trusts & Estates Team of the Year at the 2023 Chambers High Net Worth Awards.
The CTE team received the prestigious award at the ceremony that took place on 13 July 2023 at the Grand Hotel in London, in an evening that honoured the very best national and international law firms across the world based on the research for the recent edition of Chambers High Net Worth. The award recognises our CTE team’s pre-eminence in key jurisdictions and reflects the team’s achievements over the past 12 months including outstanding work, impressive strategic growth, and excellence in client service.
Roberta Harvey, Head of the CTE team at Forsters commented: “We are thrilled to have been recognised by Chambers HNW as CTE team of year. It marks an exceptional year for the team in which we have represented our clients on a wide range of complex cases. We are particularly proud of the supportive culture of the team which has enabled our team to grow at all levels.”
Individuals within the CTE team were also recognised at the awards with recently promoted Partner, Hannah Mantle shortlisted as a “Rising Star” and Senior Associate, Maryam Oghanna shortlisted as a “Star Associate”. The firm was also shortlisted for Private Client team of the Year.
Government action on short-term holiday lets – what could this mean?
11 July 2023
News
The Government has responded to mounting pressure to address the adverse impact of short-term rentals.
Over the years the significant increase in short-term lets and second homes have seen local authorities complaining about anti-social behaviour from “party” lets, local residents in holiday hot spots being priced out of the local housing market and hotel operators struggling in an already difficult market. The counter argument is that short-term rentals play an important role in the country’s tourism economy.
Last year the Government issued a call for evidence on how the sector could be further regulated. Out of the 4,000 responses, 60% indicated support for further regulation and control and 42% wanted a light touch, low-cost licencing scheme.
In response the Government is introducing, through the Levelling Up and Regeneration Bill, a statutory licensing scheme for all visitor accommodation providers. The scheme will be brought forward through regulations which can set out any conditions that must be satisfied for a short-term rental property to be registered and the circumstances in which the registration can be revoked. As with much of the Government’s current legislation agenda, the devil will be in the detail of the regulations.
Alongside the registration scheme, the Government has consulted on the introduction of a new use class C5 for short term lets. There will be permitted development rights to change from standard residential C3 use class to the new C5 use class. However local planning authorities will be able to apply for Article 4 Directions to remove those permitted development rights, thereby giving them control over the number of new short-term lets in their administrative area. The Secretary of State can direct a local planning authority to cancel or modify an Article 4 Direction and, anticipating a large number of applications for the Directions will be made, it will be interesting to see how many are made and where, and whether the Secretary of State intervenes.
It remains to be seen how effective the registration scheme and the introduction of the new C5 use class will be in reducing the adverse impact of short-term rentals. In practice, it is unlikely to significantly reduce the current number of short-term rentals meaning the adverse impacts may continue to be suffered. There is also the concern that already stretched local authorities will not have the resources to properly enforce the registration scheme or unlawful changes of use to short-term lets.
The challenge faced by the Older People’s Housing Taskforce – Amy France writes for Property Week
11 July 2023
Views
Commercial Real Estate Partner and Head of Later Living, Amy France, has written for Property Week on how the Older People’s Housing Taskforce will fare in tackling one of the UK’s biggest challenges: How can suitable housing options be provided for later life?
France notes that “Housing has always been intrinsically linked to life chances, and this is no different in later life. Housing that provides the right kind of support and adequate care, if required, can help people live well for longer.”
France writes how a lack of suitable later living options has had a significant impact on the NHS, resulting in a bottleneck whereby patients who no longer need treatment cannot be discharged as they don’t have a home which is suitable to be discharged to. As a result, in January 2023 “more than 19 in 20 beds were occupied across adult general and acute hospital wards, and more than 14,000 of these beds were taken up by patients who no longer required hospital care.”
With the Taskforce’s recommendations due in 12 months, the key message will be around the delivery of new homes, with France asking: “How else will the taskforce meet one of its central aims – providing older people with access to the right homes in the right places?”
This will be a significant challenge when viewed against the government’s scrapping of mandatory housing targets and the prediction of net additional homes each year dropping to 140,000. France writes that local authorities must commit to ensuring a certain proportion of these homes are suitable for older people.
The government has also proposed an increase in planning fees, which has industry support provided that it does actually result in a swifter approval of planning applications. “At the current pace, though, applications and the homes they propose to deliver will take months to materialise, while our population continues to age and our NHS and care system continue to buckle under the pressure.”
France concludes by writing: “Older people don’t want to have to move miles away from their existing home so that they can access retirement communities or sheltered housing. In later life, people want to have the option of moving to a more suitable type of accommodation close to their existing home – the only way that we can ensure this is possible is to support the development of later-living schemes all over the country, and in all different sorts of settings.
“The taskforce needs to take a truly holistic view of the solutions, and cross-department working will be essential in delivering these solutions. Let’s hope that this once-in-a-generation opportunity for meaningful and significant change in delivering housing for older people is seized and much positive change emerges from it.”
This article was originally published by Property Week on 6 July 2023 and can be read here in full (behind their paywall).
Lifecycle of a Business – Private or public company?
11 July 2023
News
Setting up and running your own business is an amazing achievement. It requires vision, creativity, motivation and stamina.
On occasion, it can even bring you fame, riches and fortune. But it can also result in reams of paperwork and cause sleepless nights. And as someone once said to me about children “It doesn’t get easier, it just changes”, so the same can be said for your business throughout its lifecycle. From setting up to exit, it will force you to consider issues that you might not previously have known anything about and it will need you to make many decisions, sometimes very quickly. What it certainly is not is mundane.
With this in mind, the corporate team at Forsters, together with some of our specialist colleagues, has written a series of articles about the various issues and some of the key points that it may help you to know about at each stage of a business’s life. Not all of these will be relevant to you or your business endeavours, but we hope that you will find at least some of these guides interesting and useful, whether you just have the glimmer of an idea, are a start-up, a well-established enterprise or are considering your exit options. Do feel free to drop us a line or pick up the phone if you would like to discuss any of the issues raised further.
So, First Things First…..
Private or public company?
When setting up a UK company limited by shares, a decision will need to be made about whether to incorporate as a private limited company or a public limited company (PLC). Most UK companies are incorporated as private companies. However, that is not to say once a private company always a private company. A private company can, subject to satisfying certain requirements at the relevant time, re-register as a public company under the Companies Act 2006 (Act).
The main reason why a public company is incorporated is for the ability to offer shares to the public, which a private company is prohibited from doing. If a company is seeking a listing of its shares on a stock exchange then a PLC will be required either by converting an existing private company into a PLC or setting up a new PLC holding company in the group structure which will list. However, there is no requirement for a PLC to have its shares listed on a stock exchange and a PLC can be unquoted and its shares not traded.
The main differences on incorporation of a private and public company in England and Wales are:
a PLC requires a company secretary and at least two directors whereas a private company only requires one director;
a PLC requires a trading certificate to commence business or trading or exercise borrowing powers whereas this is not required by a private company;
in order to obtain a trading certificate, a PLC must have a minimum allotted share capital of a nominal value of at least £50,000/EUR57,100; and
shares in a PLC must be paid up as to a quarter of their nominal value and the whole of any share premium. In effect, on incorporation a PLC must have £12,500 paid up in nominal value for its shares. Shares in a private company can be issued nil paid and a private company can be set up with a minimal amount of share capital, e.g. one share of £1 nil paid.
Previously, the minimum allotted share capital amount of £50,000 meant that there was certain comfort that one was dealing with a company of substance when dealing with a PLC. The amount of £50,000 was enacted in the Companies Act 1985 but has not increased over time and is not a barrier to setting up a PLC in today’s money terms.
Once incorporated there are several differences between an unquoted PLC and a private company. This article does not focus on the differences between a listed PLC and an unlisted PLC or private company nor does it address any tax considerations.
Key on-going differences between an unlisted PLC and a private company
In addition to requiring two directors and a company secretary on an on-going basis, some other key differences are:
Shareholder resolutions and meetings – A PLC is required to hold an Annual General Meeting (AGM) each year whereas a private company is only required to do so if required by its articles of association (Articles). A PLC must give 21 days’ notice of an AGM, unless all the members entitled to attend and vote agree to a shorter period. A private company must give 14 days’ notice of an AGM unless its Articles specify a longer period.
All meetings of a private company can be held on shorter notice than 14 days if agreed by a majority in number of the members entitled to attend and vote at the meeting and holding 90% (or a higher percentage specified in the Articles not exceeding 95%) of nominal value of the shares entitled to vote. PLCs have a higher threshold – general meetings of PLCs (not AGMs) may be held on shorter notice if agreed to by a majority in number of the members entitled to attend and vote at the meeting and holding 95% of nominal value of the shares entitled to vote.
Private companies can pass written resolutions of its members whereas PLCs cannot and must convene a meeting.
Share capital – The regime around share capital matters is more onerous for a PLC. As highlighted above a PLC’s shares must be paid up as to a quarter of their nominal value and all of any share premium (except for shares allotted pursuant to an employee share scheme).
Private companies, in addition to disapplying statutory pre-emption rights on the allotment of new shares, can exclude the operation of the same in relation to all or specific allotments of shares. PLCs can only disapply these statutory pre-emption rights. Furthermore, directors of private companies with a single class of shares, have the general power to allot shares whereas PLC directors require shareholder authority to do so.
There are strict rules for a PLC if it proposes to issue shares for non-cash consideration. An independent valuation of the consideration must be obtained in advance of the allotment and be sent to the allottee. Shares cannot be issued: (i) if the consideration is an undertaking for services to be performed or work to be done for the company or any other person; or (ii) otherwise than cash, if the consideration includes an undertaking which is or may be performed five years after the date of allotment.
PLCs are also limited in share reconstructions and re-organisations. Share buybacks and redemption of shares are not allowed out of capital, whereas these are permitted by private companies. Private companies are further permitted to reduce their share capital by means of the solvency statement procedure under the Act unlike PLCs.
The financial assistance regime, whereby a company is prohibited from giving financial assistance directly or indirectly for the purposes of the acquisition of its shares, no longer applies to private companies but is still applicable to PLCs.
On a serious loss of capital, directors of a PLC must convene a general meeting to discuss what steps must be taken within 28 days of one of them becoming aware of a PLC’s net assets falling to half or less of its called-up share capital. The meeting must take place no later than 56 days after the date of the director becoming aware.
Accounts and accounting records – A private company must file its accounts at Companies House within nine months after the end of the relevant accounting period, whereas a PLC must file accounts within six months. Accounting records must be maintained for three years by a private company and six years by a PLC.
A PLC must lay annual accounts and reports before a general meeting and is required to circulate the accounts 21 days before the meeting. Private companies are not required to lay accounts before a general meeting but are required to circulate copies to members no later than the date for filing of accounts or, if earlier, the date it files the accounts.
Takeover code – The UK Takeover Code applies to a PLC with its registered office in the UK and where its place of central management and control is considered by the Takeover Panel to be in the UK, Channel Islands and Isle of Man. Unless a private company has, in the previous ten years, had its shares listed/admitted to trading, issued a prospectus or otherwise had its securities subject to a marketing arrangement or prices quotes for a certain period, the Takeover Code will not apply.
The more onerous rules and obligations applicable to a PLC may have cost consequences and can affect a company’s ability to carry out certain share capital transactions. Given this, then unless a PLC is required at the time of incorporation or in anticipation of an offer of shares to the public or listing on a stock exchange, private companies are usually incorporated rather than setting up as a PLC.
Disclaimer
This note reflects the law as at 11 July 2023. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.
James Brockhurst named Top Recommended in Spear’s Cryptocurrency Index 2023
11 July 2023
News
Private Client Partner and Digital Assets specialist, James Brockhurst, has been listed as a Top Recommended advisor in the Spear’s Cryptocurrency Index 2023.
Recognising only the best cryptocurrency advisors for high net worth individuals, James has been listed for his extensive ability to advise his clients on the complexities of cryptocurrency by supporting them to harness the opportunities but also to navigate the risks.
In 2023, James authored the book ‘Cryptoassets for Private Clients‘ (published LexisNexis Butterworths, 2023). He advises a range of crypto clients, from early adopters to token issuers, and is recognised for being one of the first lawyers to develop expertise in this area of law.
Lifecycle of a Business – Which business structure should I choose?
4 July 2023
News
Setting up and running your own business is an amazing achievement. It requires vision, creativity, motivation and stamina.
On occasion, it can even bring you fame, riches and fortune. But it can also result in reams of paperwork and cause sleepless nights. And as someone once said to me about children “It doesn’t get easier, it just changes”, so the same can be said for your business throughout its lifecycle. From setting up to exit, it will force you to consider issues that you might not previously have known anything about and it will need you to make many decisions, sometimes very quickly. What it certainly is not is mundane.
With this in mind, the corporate team at Forsters, together with some of our specialist colleagues, has written a series of articles about the various issues and some of the key points that it may help you to know about at each stage of a business’s life. Not all of these will be relevant to you or your business endeavours, but we hope that you will find at least some of these guides interesting and useful, whether you just have the glimmer of an idea, are a start-up, a well-established enterprise or are considering your exit options. Do feel free to drop us a line or pick up the phone if you would like to discuss any of the issues raised further.
So, First Things First…..
Which business structure should I choose?
There are several options when it comes to choosing a business structure and the right one for your business will depend on a number of factors. Choosing the correct structure is an important decision as it will affect the way that your business is organised, your and your business’ legal obligations and tax position, filing requirements and your personal liability to third parties. It is therefore important to take professional advice about the best option for you and your business but it is also worthwhile to remember that the structure you choose is not set in stone and can be changed as the business develops.
When thinking about which business structure will work for you, it may be helpful to consider the following:
What type of business is it? For example, is it labour or capital intensive, is it involved just in the domestic market or internationally, does it undertake a regulated or non-regulated activity, is it innovative or established, etc.?
Who owns the business?
Who do you want to manage the business?
What is the tax position of each structure?
How risk averse are you? Is personal liability a potential issue?
What are the costs involved in setting up and running the structure?
What formalities do you want to deal with? Is a structure with increased formalities worthwhile at this point in your business’s lifecycle?
Are you happy for certain information to be made public?
Are exit strategies important to you, for example, are you likely to want to sell your business in the future?
Below are the most common forms of English business structure and their main characteristics. (It does not cover structures in other jurisdictions, including Scotland.) A table showing the main points is included at the end of the note for easy reference.
Sole Trader
A sole trader runs the business as an individual in their own name; the business is not a separate legal entity.
The individual receives 100% of any profit but also bears 100% of any loss and is responsible for all debts and liabilities of the business.
A sole trader makes all of the decisions relating to the business.
There are no incorporation or ongoing filing requirements although a sole trader will need to inform HMRC that they are self-employed and may have to register for PAYE. VAT registration may also be required. Note that some trades may require other regulatory obligations to be fulfilled.
A sole trader pays income tax and makes national insurance contributions through self-assessment and is individually responsible for paying these.
General Partnership
General partnerships are governed by the Partnership Act 1890 and any partnership agreement put in place between the partners.
Two or more persons own and run the business together with a view to making a profit.
A general partnership is not a separate legal entity to its owners.
Any profits will be shared between the partners and all of the partners are personally responsible for any losses, debts and liabilities of the business. As a result, a third party could reclaim the whole of any debt from one single partner.
To protect the partners, it is crucial that a partnership agreement is agreed and put in place setting out how the ownership, profits and liabilities are to be divided between the partners and how decisions are to be made. A mechanism for dealing with disagreements between the partners or deadlock situations should also be covered.
A general partnership has no incorporation or ongoing filing requirements, although it may be registered for VAT and, if it has employees, PAYE.
General partnerships are ‘transparent’ for tax purposes; tax liability falls on the partners who are taxed on their share of the profits or losses of the general partnership.
Limited Partnership
Although limited partnerships are primarily governed by the Limited Partnership Act 1907, the partners are generally free to agree a partnership agreement setting out their relationship to each other and how the business will be managed and administered. Putting in place a partnership agreement is highly recommended.
Two or more persons own and run the business together with a view to making a profit.
Two categories of partners are required – at least one general partner and at least one limited partner.
The general partner is responsible for managing the business and making any business-related decisions and will also have unlimited liability for any debts or liabilities of the limited partnership. As a result, it is common for the general partner to be a company with limited liability.
Limited partners provide the capital but cannot take an active role in the management of the business. As a result, their liability is limited up to the amount of capital that they have contributed (which is often nominal). Any limited partner who does take part in the management of the business will lose their limited liability status.
Registration of the limited partnership at Companies House is necessary and there are some ongoing filing requirements. Typically, the VAT registration of a limited partnership is achieved by the general partner being VAT registered.
Limited partnerships are tax transparent with the individual partners being charged income tax on any profits.
Due to the limited liability afforded to the limited partners, tax transparency and asset protection measures, limited partnerships are often used for fund investment purposes, particularly for real estate ventures, although a limited partnership may be a collective investment scheme (CIS) for regulatory purposes unless a relevant exemption applies.
Limited Liability Partnership (‘LLP’)
Although LLPs are primarily governed by the Limited Liability Partnership Act 2000, the partners or members can put in place an LLP agreement which can override many of the statutory provisions. Putting in place an LLP agreement is highly recommended.
Unlike the business structures discussed so far, an LLP is a legal entity separate from its owners. It can therefore enter into contracts in its own name and can sue and be sued. The partners or members have limited liability up to the amount of any capital contribution they have made.
At least two ‘designated partners’ must be appointed to deal with the LLP’s administrative obligations, including making any necessary filings at Companies House. Failure to appoint two designated members means that all of the partners will be deemed designated members.
LLPs must be incorporated at Companies House and comply with ongoing filing requirements. As a result, certain information about the LLP is publicly available, although the LLP agreement is a private document. An LLP can also be VAT registered and if an employer, will need to register for PAYE.
An LLP is transparent for tax purposes with the partners being individually liable for any tax charged on the income profits and gains.
Limited Companies
Limited companies are separate legal entities to their owners – the shareholders or members.
It is possible for one individual or entity to own 100% of the shares in a private limited company.
A limited company has limited liability either by shares (which is usual) or by guarantee (primarily used by not-for-profit organisations); each member’s liability is limited to the nominal value of their shares (plus any premium paid) or the guaranteed amount.
The rules for incorporating and running a company in England and Wales are primarily set out in the Companies Act 2006 (‘CA 2006’). A private company must be incorporated at Companies House and is subject to various ongoing filing requirements. As a result, a lot of information about a limited company is publicly available. A limited company can also be VAT registered.
A limited company’s articles of association, together with the CA 2006, set out its constitution and detail how it will be managed and run. Private limited companies may also have a shareholders’ agreement in place which provides further detail and protections for the shareholders, particularly for those holding a minority of the shares or where the shareholders have equal voting power. Shareholders’ agreements are usually private documents and are not publicly available.
Default model articles of association can apply although these can be amended by the shareholders to ensure that they reflect the true management and governance of the company.
Limited companies can be either private limited companies or public limited companies. Private limited companies cannot sell their shares publicly, for example, on a stock exchange, although a public limited company can. As a result, public limited companies have many more compliance requirements than private limited companies, but even private limited companies are heavily regulated compared to the other business structures referred to here.
The day-to day management decisions of a private company are made by its directors, who can also be shareholders. Directors have various duties and obligations, breach of which can lead to civil and/or criminal sanctions.
The CA 2006 provides that the shareholders are responsible for certain decisions and the shareholders’ agreement may also provide that certain matters require shareholder approval.
Any profits are kept by the company, which then declares a dividend to be paid to the shareholders.
Limited companies are ‘opaque’ for tax purposes; they are taxed separately from their shareholders. The company will itself be liable for corporation tax, while its shareholders who are UK tax resident individuals will pay income tax on any dividends they receive.
In terms of an exit strategy, selling a company or business is relatively straightforward compared to the other structures referred to. The assets and business of a company can be sold separately (an asset sale) or the entire company can be sold (a share sale). That said, exit strategies can be complex and have significant tax consequences and so legal advice should always be sought as soon as possible.
English business structures
Sole trader
General partnership
Limited partnership
LLP
Limited company
Separate legal entity?
No
No
No
Yes
Yes
Tax
Individual
Transparent
Transparent
Transparent
Opaque
Liability
Unlimited
Unlimited
Limited for limited partners
Unlimited for general partner, unless it is a limited company
Limited
Limited
Profit
100% to individual
100% to partners, subject to any partnership agreement
100% to partners, subject to any limited partnership agreement
100% to partners, subject to LLP agreement
100% to company, which pays dividends to shareholders
Management
Individual
Partners
General partner
As set out in the LLP agreement, although 2 designated members required
Directors deal with general management, subject to articles and shareholders’ agreement
Incorporation and filing requirements
None
None
Some filing requirements
Yes
Yes
Minimum number of owners
1
2
1 limited partner and 1 general partner
2
1
Primary legislation
None
Partnership Act 1890
Limited Partnership Act 1907
Limited Liability Partnership Act 2000
Companies Act 2006
Primary documents
None
Partnership agreement
Partnership agreement
LLP agreement
Articles of association
Shareholders’ agreement
DisclaimerThis note reflects the law as at 4 July 2023. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.
After FTX: What’s next for digital assets? Highlights from James Brockhurst’s panel session at Spear’s 500 Live
4 July 2023
News
Private Client Partner, James Brockhurst, was invited to join an expert panel session on digital assets at the Spear’s 500 Live Conference 2023.
In the session ‘After FTX: What’s next for digital assets?’, James joined Anatoly Crachilov, CEO and founding partner of Nickel Digital Asset Management; Richard Shade, COO of Archax and Chris Cox, VP of GSR Capital, to discuss how high net worths and family offices should approach these assets in 2023 and beyond.
The panel highlighted that where digital assets are concerned, there is much to learn. James confirmed that there is catching up to do from a legal perspective, with many firms still “grappling with the nature of blockchain”.
In the session James explained how he advises clients on their digital assets. When advising clients with assets over a certain threshold, a trust or foundation are the most frequently used solutions, however, this is not always an option for digital assets with many trusts weary to take on these assets and the associated counterparty risk.
He also reminded the audience that the clients themselves can also present a challenge; “A lot of the early adopters of digital assets are hostile to the idea of having a trustee: ‘Why should I hand over my assets to you?’ To that I would say, there are solutions – you can structure things through a foundation or a private trust company where you can sit on the board, so you do have that level of control.”
James is recognised for being one of the first lawyers to develop an expertise in cryptoassets and is the author of ‘Cryptoassets for Private Clients: A Practitioner’s Guide’, a book aimed at legal practitioners in the UK and other common law jurisdictions and covers the issues of cryptoassets and blockchain technology.
