Issues for consideration on a joint venture

When considering a joint venture there are various issues that the parties should iron out at the outset to avoid running into difficulties. We have listed a few of the points that we would expect parties to discuss before entering into a joint venture.

Preliminary points

The parties should consider whether there are any applicable competition rules, regulatory matters, licences and consents that they would need for the proposed transaction.

It follows that the parties should consider whether their objectives are consistent or complementary.

Identifying the structure

The structure of the joint venture should be considered. For example, is the joint venture to be carried out through a separate ‘organisation’ (eg joint venture company) or will it merely be a contractual arrangement between the parties (eg some form of collaboration, joint research and development (‘R&D’), supply, distribution agreement)?

In addition, the parties may wish to consider the form of the venture, such as a company limited by shares, a partnership, a limited liability partnership, to name just a few.

Financing of the joint venture

At the earliest opportunity, parties should consider the proportions and how, if at all, the parties will provide initial finance to the joint venture. How much will be provided from third party sources should also be considered.

We wold expect the parties to have further discussions about financing such as whether they will be requires to provide further finance later. If so, who will decide when and how it is to be put in. The parties should also discuss whether decisions on this can be blocked in the future by any party unwilling to finance its share as well as what will happen if one of the parties defaults.

Tax considerations

The structure and form of the joint venture is likely to affect how the joint venture will be taxed. Some of the points that the parties may wish to consider include:

(1) How the contributions to the joint venture from the parties will be taxed and whether any reliefs are available.

(2) Whether there are restrictions on the capital structure of the structure of the joint venture (eg thin capitalisation rules restricting the amount of debt finance)?

(3) How will payments from the joint venture to the parties be taxed? Can a structure e used to enable profits to be distributed more efficiently? are there withholding taxes etc?

(4) Whether there will be any ongoing supplies between the parties and the joint venture, such that VAT issues may arise. Is it possible or desirable to VAT group the joint venture with one of the other parties?

(5) What will be the tax impact if the joint venture succeeds? Will the parties be able to structure an exit which will avoid or reduce any capital gains tax charge?

(6) What is the tax impact if the joint venture fails? Will the parties obtain a tax deduction or loss if their investment diminishes in value in whole or in part?

Decision making and control

The control structure will impact on the status of the joint venture under a number of merger control regimes, including EU and UK merger controls.

Parties should consider how ownership interests in the joint venture will be held. Precisely what rights (and obligations) do such interest confer?

Contributions by the parties to the joint venture

Parties should consider whether any party will contribute any specific tangible or intangible property to the joint venture.

If there are contributions to the joint venture then how will contributed assets be valued. How will adjustments be made for any shortfall or excess in relation to any contributor’s proportionate funding obligations?

Consideration should be given to whether assets need to be valued under local law (eg if shares are issued in a joint venture company in consideration for the transfer of assets).

Parties should ask whether it is possible for all contributions of assets to be made contemporaneously if regulatory approvals or consents from third parties (including lessors, licensors and lenders) are required for any transfer. If not, should the availability of all or any particular assets be a condition to the establishment of the joint venture?

The parties should consider the effect to the assets or other rights leased by the joint venture if one party subsequently leaves the joint venture.

Intellectual property

The parties should consider who will own any new intellectual property rights developed by the joint venture and to what extent will the parties have access to, or rights over, confidential information, know-how and other intellectual property rights concerning or accruing or belonging to the joint venture itself.

Employment matters

We would expect the parties to consider whether there will be a TUPE transfer either at the outset or on the termination of the joint venture. If so, the employees who work in the undertaking that is the subject of the transfer may have additional legal rights (eg they will have rights in respect of consultation and to have access to certain information). A dismissal for a reason connected to the transfer may lead to an automatic liability for unfair dismissal.

Termination

Consideration should be given as to the duration of the joint venture. Is the joint venture for a fixed term or complete of a specific project, or is it indefinite in duration?

The parties could also agree that the joint venture will automatically terminate in certain circumstances. For example, the loss of any regulatory approval; the loss of destruction of a particular asset; the insolvency of any party or the transfer of any party’s interest.

The information above should not be taken as legal or professional advice. Please contact a member of our team for advice that is tailored to your circumstances.

Prescribed information relating to tenancy deposits

There are several requirements that a landlord must comply with when dealing with a tenancy deposit. Section 213 of the Housing Act 2004 sets out the requirements relating to tenancy deposits. Pursuant to s.213, where a landlord receives a deposit in relation to a tenancy the landlord must comply with the requirements of an authorised scheme within 30 days of receiving the deposit. In order to comply with the provisions of s.213 the landlord must register the deposit with an authorised scheme and give the tenant and any relevant person certain information relating to (1) the authorised scheme, (2) the landlord’s compliance with the requirements of the scheme, and (3) the operation of the law relating to deposits. 

It is important to note that s.213 requires a landlord to comply with the requirements of the authorised scheme and give the tenant and relevant persons “prescribed information” within 30 days from the date on which the deposit is received by the landlord. The prescribed information must be given to the tenant and relevant persons in a prescribed form or a form that is substantially the same. 

In addition to the requirement to give the tenant and relevant persons the information in a prescribed form, the landlord is also required to include certain information in the prescribed form given to the tenant. 

The following points must be included in the information given to the tenant and relevant persons about the tenancy deposit:-

(i) the amount of the deposit paid and the address of the property to which the tenancy relates;

(ii) the name, address, telephone number, and any email address or fax number of the landlord;

(iii) the name, address, telephone number, and any email address or fax number of the tenant, including such details that should be used by the landlord or scheme administrator to contact the tenant at the end of the tenancy;

(iv) the name, address, telephone number and any email address or fax number of any relevant person;

(v) a copy of the deposit certificate signed by the landlord. The landlord must give the tenant the opportunity to sign the certificate to confirm the accuracy of the information contained therein. 

(vi) the name, address, telephone number, email address and any fax number of the administrator of the authorised tenancy deposit scheme;

(vii) any information contained in a leaflet supplied to the landlord by the administrator of the scheme explains the operation of the tenancy deposit scheme;

(viii) the procedures that apply under the scheme by which the deposit or part of the deposit may be paid or repaid to the tenant at the end of the tenancy;

(ix) the procedures that apply under the scheme where either the landlord or the tenant is not contactable at the end of the tenancy;

(x) the circumstances when all or part of the deposit may be retained by the landlord, by reference to the terms of the tenancy;

(xi) the procedures that apply under the scheme where there is a dispute between the landlord and the tenant in relation to amount of the deposit to be paid or repaid to the tenant; and 

(xii) the facilities available under the scheme for enabling a dispute relating to the deposit to be resolved.

Royal Mail fined for breaking competition law

The Royal Mail was recently fined a record £50m for breaking competition law. The fine was levied by OFCOM after the communications regulator concluded that Royal Mail stifled competition by increasing the price of its wholesale service for competitors who used their own workers for delivery in certain areas and only used the Royal Mail for delivering letters in some areas. OFCOM concluded that by increasing the wholesale prices, Royal Mail was in effect compelling its competitors to use the Royal Mail in delivering letters in all the areas the competitors covered and not just in parts. Read more

Brief Overview of TUPE Regulations

The Transfer of Undertakings (Protection of Employment) Regulations [TUPE] preserves employees’ working terms and conditions when a business or part of a business is transferred to a new employer. Under the provisions of TUPE the incoming business steps in and assumes the rights, responsibilities, liabilities and duties of the outgoing business. The employees of the outgoing business become employed by the incoming business on the same or similar employment terms and conditions. Any dismissal of an employee as a result of the transfer of undertaking is automatically unfair unless the dismissal was due to economic, technical or organisational reasons that required changes in the workforce.

TUPE provides important protection for employees because without TUPE protection employees could easily be dismissed whenever a business or undertaking is transferred to another employer. The TUPE regulations apply to businesses the UK. The head office of a business or its country of origin is irrelevant provided the part of the business transferring ownership (the outgoing business) is in the UK. Although public sector employees have similar protections under a code of practice, TUPE does not generally apply to transfer of undertakings from public sector to private sector.

TUPE applies to two main types of transfers:-

  1. Business transfers — Whether or not a business transfer has occurred is not always apparent. There is a transfer where the ownership or control of a business or part of a business moves from one enterprise to another. A relevant transfer under TUPE can take various forms, including a merger or an acquisition. 
  1. Service provision transfers — These relate to transfers where services are being outsourced, in sourced or assigned by a current employer to a contractor, but only with regards to employees that can be clearly identified as providing the service being transferred. Services that could be protected by TUPE include such services as office cleaning, security guards and workplace catering.

In determining whether there is a relevant transfer, the following criteria may be considered:

  • The type of business 
  • Whether there is a transfer of tangible assets 
  • Whether there is a transfer of customers 
  • Whether the majority of staff were transferred 
  • Whether there are similarities between the business activities of the incoming and outgoing businesses
  • The degree of any interruption to the business  

TUPE protection 

Not every worker is protected by TUPE. Only employees are protected — this includes employees employed immediately before the transfer or those who would have been employed if they had not been unfairly dismissed due to the transfer. Employees working abroad are also protected by TUPE if the business they work for has assets or employees in the UK. Any employee who objects to employment under the incoming employer will not be transferred and the transfer will serve as a termination of their contract. 

Duty to inform and consult 

TUPE requires employers to inform the trade union or the employee representatives of the impending transfer. The employer must provide information about the transfer and explain why the transfer is happening. The employer must also inform the representatives of the legal, economic and social implications of the transfer for the employees affected and the steps that both the incoming and outgoing employers will take in relation to the affected employees.

Employers with less than 10 employees may inform and consult directly with employees if there are no representatives in place. Employers with more than 10 employees must consult with the employee representatives. If there are no representatives then new ones must be elected through a fair and transparent process.  

The role of an incoming employer 

The new employer that steps into the shoes of the outgoing employer takes over the employment contracts of the employees, including the rights, duties and liabilities under those contracts. The incoming employer will also assume the rights and duties of any collective agreement in place prior to the transfer. The new employer becomes liable for any failures of the outgoing employer, including any breach of employment contract that occurred prior to the transfer of undertaking. 

Although the incoming employer cannot change the terms and conditions of an employee’s contract simply due to the transfer of undertaking, the incoming employer has the power to change those terms and conditions for economic, technical or organisational reasons that required changes in the workforce or workplace. Employers also have the power to dismiss employees for economic, technical or organisational reasons — the normal rules of dismissal still apply.

Unfair Consumer Contract Terms

Consumer Rights Act 

The Consumer Rights Act 2015 is a very important piece of legislation that provides several levels of protection to consumers in the UK. The legislation came into force on 1st October 2015 and it consolidated consumer protection laws — it replaced the Sale of Goods Act 1979, Unfair Terms in Consumer Contracts Regulations 1999 and the Supply of Goods and Services Act 1982. The 2015 Act enhances and expands consumer protection that already existed under the Unfair Contract Terms Act 1977.

Consumer contracts 

The Consumer Rights Act deals extensively with the sale and supply of goods and services between traders and consumers. The sale of digital contents is also covered by the Act. The Consumer Rights Act applies to both written and oral contracts. This article focuses on unfair consumer contract terms as set out in Part Two of the Consumer Rights Act 2015. The primary purpose of this part of the legislation is to ensure that traders do not insert, into their consumer contracts, terms that are unfair in the eyes of the law. It is important to note that the Consumer Rights Act does not provide blanket protection to consumers. Although the law has provided an extensive (but non-exhaustive) list of terms that may be regarded as unfair, it is vitally important that you properly review any contract before agreeing to the terms because the law does not consider all disadvantageous contract terms as unfair. 

Meaning of unfairness 

Under the Consumer Rights Act, a consumer contract term is unfair if it causes significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer. Thus, if the term is “one-sided” in favour of the trader and to the detriment of the consumer then that term may be regarded as unfair under the Consumer Rights Act 2015. 

Having established that the Consumer Rights Act regards certain contract terms as unfair, the natural question that must follow is which contract terms are regarded by the law as unfair. Under the 2015 Act, there are two distinct types of unfair contract terms, contract terms that may be regarded as unfair and contract terms that must be regarded as unfair. 

Contract terms that must be regarded as unfair 

Any consumer contract term that places the burden of proof on the consumer with regards to compliance by a distance supplier or intermediary with an obligation under the Distance Marketing Directive must be regarded as unfair. Distance marketing relates to the sale of pensions, mortgages and other financial services products by email, telephone, fax, mail, or online. 

The law limits the types of consumer contract terms that must be regarded as unfair contract terms (only distance sale of financial products and services fall within this category). The vast majority of other consumer contract terms may be regarded as unfair, but they are by no means automatically unfair under the Consumer Rights Act. In fact, some contract terms will not be regarded as unfair regardless of how detrimental they may appear to the consumer if the detrimental terms relate to the fairness of the price payable under the contract in comparison to the goods or services supplied or if the term of the contract in question is transparent and prominent. 

Contract terms that may be regarded as unfair 

The following are some of the terms in a consumer contract that may be regarded as unfair if they relate to:

  1. Excluding or limiting the trader’s liability in the event of death or personal injury of the consumer as a result of the trader’s act or omission.
  1. A term which permits the trader to increase the price of goods and services without giving the consumer the right to cancel the contract if the final price is much higher than the price agreed when the contract was concluded.
  1. Requiring the consumer that breaches the contract to pay a disproportionately high sum in compensation.
  1. Irrevocably binding the consumer to terms of a contract if the consumer did not have a real opportunity of becoming acquainted with the terms before the conclusion of the contract.
  1. Permitting the trader to determine the characteristics of the subject matter of the contract after it has become binding on the consumer.
  1. Excluding or limiting the rights of a consumer in the event that the event of total or partial non-performance or inadequate performance of the contractual obligations by the trader.
  1. Permitting the trader to retain monies paid by the consumer where the consumer decides not to proceed with the contract without compensating the consumer if the trader cancelled the contract.
  1. A term that makes an agreement binding on a consumer where the provision of services by the trader under the agreement is subject to a condition that depends solely on the will of the trader for its realisation.
  1. Permitting the trader to transfer the trader’s rights and obligations under the contract where the transfer may reduce the guarantees for the consumer without the consumer’s agreement.
  1. A term requiring the consumer to fulfil all of the consumer’s obligations under the contract where the trader does not perform the trader’s obligation.

A more detailed list of consumer contract terms that may be regarded as unfair can be found here. The list is not exhaustive and other detrimental terms may also be regarded as unfair. 

Effects of unfair consumer contract terms 

Contract terms that are regarded as unfair will not be binding on the consumer. However, the remaining terms of the contract will remain binding insofar as they are practical.                         

GDPR

BACKGROUND

The General Data Protection Regulation (GDPR) is an EU regulation that comes into force in May 2018.

EU regulations are legally binding on all member states and automatically come into force on the specified date. There is a difference between regulations and directives — directives set standards and requirements which member states are free to decide how to transpose into national laws.

Article 5 of the GDPR sets out the key requirements for organisations processing personal and sensitive data of EU residents. The GDPR is a minimum threshold and member states may introduce more specific provisions.

The GDPR replaces the Data Protection Directive 1995. It has been adopted by the UK and replaces the Data Protection Act 1998.

Unlike the previous Data Protection Directive 1995, the GDPR seeks to harmonise data protection rules across the EU to further protect data and make it simpler for organisations to do business across the EU.

GDPR also applies to organisations outside the EU if those organisations collect data of an EU resident.

APPLICATION OF GDPR

The Regulation applies to controllers and processors. Controllers determine the purposes and means of processing personal data, while processors are responsible for actually processing personal data. The contracts between controllers and processors must also comply with the regulation.

The GDPR places certain legal obligations on processors of personal data. A processor will be legally liable if they are responsible for a breach of the regulation.

Data must be collected for specified, explicit and legitimate purposes. The lawful basis for processing data must be identified and highlighted to those whose personal data are being collected. Consent of the data subject is important to ensure that data collection is lawful.

Data must be processed in a manner to ensure the security of the personal data. Individuals whose data have been collected have the right to: be informed; access the data; amend; erase; object to the collection and storage of such data.

Data should be accurate and kept up-to-date and where possible inaccurate data should be erased. Data should be kept for no longer than necessary, but may be stored longer for archiving and research purposes.

Any firm that breaches the GDPR may be fined 4% of its annual global turnover or 20 million Euros, whichever is greater.

EXCEPTIONS TO GDPR

  • Data covered by the Law Enforcement Directive.
  • Data processed for national security purposes.
  • Data processed by individuals for personal use.

 

We offer training and advice on this subject. If you wish to learn more about GDPR then you can reach us at ask@penerley.com or call us on 0203 488 3078

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