There is an established, but growing, trend for wealthy private individuals (known as “angels”) investing in young and small private businesses in return for shares in the company. This is a form of equity finance, as opposed to the more usual debt finance provided by lenders.
After the heads of terms have been agreed, the investor’s lawyers will be asked to conduct legal due diligence on the target company. The extent of this will depend on the trading history of the target and the investor’s appetite for information about the target. The scope of due diligence usually covers the constitution and structure of the board and shareholders, employment contracts, existing financing arrangements, existing licence, research and development and other collaboration agreements, property arrangements and key commercial contracts.
Timings and documentation
The target company is likely to require shareholder approval as part of the investment process in order for new shares to be issued to the investor, new articles of association to be adopted, the subscription and shareholders agreement (also referred to as an investment agreement) executed, the appointment of the investor director approved and the existing rights of pre-emption in relation to the issue of shares waived. These shareholder resolutions can either be passed by convening a general meeting or by passing shareholders’ written resolutions remotely.
If the target company has existing equity or debt investors, their consent may also be required as a result of any right of veto they have in any existing investment or loan agreement. This will normally become evident from the due diligence exercise, although it is more expedient if the target company obtains letters of consent beforehand.
If the incoming investor subscribes for more than 50 per cent of the share capital of the company, the share issue may result in the target company breaching any change of control clauses in its commercial contracts. If this is the case, the target company will need to seek consent to the investment round from the relevant third party before completion.
The legal advisers involved will need to agree that all conditions have been satisfied and decide on the precise mechanism for completion and the sequence of events. In practice, the execution pages are normally circulated by email and exchange will be agreed on the basis of electronic signatures, before funds are transferred.
Do you work in a civilised environment? Surrounded by an atmosphere of sweetness and light, with cheerful colleagues merrily pulling together to achieve the organisation’s aims? Does everyone share tea-making - and often offer you a biscuit? Thought not.
You’re not alone. Conflict at work is a big problem and there is now a plethora of legislation and procedures designed to prevent it. And as a recent article in the British Medical Journal pointed out, rudeness at work can be a major problem. They cite an incident on board a Northwest Airlines flight last year where the pilot and co-pilot became involved in a heated argument, “lost situational awareness” and overshot the airport by 150 miles. A member of the cabin crew had to bring them back to earth (almost literally).
According to the BMJ, disputes between health staff are commonplace. That worries me more. Aircraft have autopilots and, ahem, cabin crew, to point out when the pilot has lost the plot (or the plane). If the surgeon removing my ingrowing toenail is in a strop, who will stop him from whipping off another part of my anatomy by mistake? The BMJ survey reported that “disagreements” between nurses and surgeons were reported by 63 per cent of respondents.
According to research, being the victim of rudeness can impair your cognitive skills. If someone is rude to you at work or you witness insults being traded you are more likely to make mistakes, says study author Rhona Flin. In most workplaces, the consequences of a loss of concentration might not be so dramatic, but it can still present a problem.
Workplaces have become, on the surface, more informal environments yet the type of conduct that is acceptable is much more restricted. Just think about how we all love “Life on Mars” and “Ashes to Ashes”. Man or woman, who doesn’t secretly want to be Gene Hunt for a day? Try it – you’ll get “grieved” to Kingdom Come. We often see cases where a client complains of unacceptable behaviour, be it sexist, racist, homophobic or just cruel, which is then dismissed by the perpetrator as “banter”, “having a laugh”, with the victim further made miserable by accusations they “can’t take a joke”. It’s not on. So where is the dividing line between what’s acceptable and what’s not? You can’t draw it so easily.
Maybe rudeness at work has had a more dramatic effect. Here in the City, dealing rooms are notorious for being high-pressure, stressed and obnoxious environments. Perhaps if they had all been well behaved and courteous to each other they wouldn’t have caused the biggest recession since the 1930s? Just a thought.
One of the lesser-known changes to the law in the Equality Act is that businesses must stop using pay “gagging” clauses to keep their affairs discreet. The new law is pretty straightforward - employees who suspect a gender pay gap is afoot can no longer be disciplined for revealing, or discussing, pay with each other.
If you grumble at or discipline your staff for talking about their wages and benefits, you could be liable to claims for victimisation – possibly resulting in an employment tribunal, no joke for you or the firm. But is the threat of a court case OTT for a boss trying to ban staff gossip?
Many people think so. Writing in the Daily Mail, Duncan Bannatyne points out the original Equal Pay Act of 1970 improved lives, but chunters: “This 2010 update will not”. He maintains that this particular tweak to equality law will “damage the morale of a workplace” and suggests that: “Any difference [in pay] is immediately cast as ‘unfairness’, with the employer as the abuser and the employee the victim.”
It’s easy to understand, and sympathise with, employers’ concern for Political Correctness Gone Mad. Especially when, like Bannatyne, you believe in automatic equal rights and have been a highly successful employer for years. As staff numbers trooping to tribunals increase yearly, the creeping fear of an employee springing a trumped-up case will hardly be soothed by the news that in, another legal add-on, staff can now claim discrimination even though there may be no one to compare them against.
Yet maybe what Bannatyne calls “lunatic legislation” is not so unreasonable. These days over half the UK’s workforce are women. For full-timers, the equal pay gap is currently over 16 per cent. Women get paid 35 per cent less for part-time work.
Forty years on from the Equal Pay Act, that’s something of a surprise, and not in a good way. Yet Bannatyne hints that the new law “could be enough for some business owners to take a look at this brave new working environment and say: ‘I’m out.’”
In the UK, the most notable career legacy most women leave from their working lives is the six figures in cash they never get paid. Despite the risky life of an entrepreneur, that’s not a problem Bannatyne or his fellow business owners are liable to face.
According to The Guardian this week, one in three of us is estimated to face a problem that involves the law every year – and less than a third of us will get legal aid.
Legal aid is about to be ‘reformed’ – most likely shrunk – again, so for many people access to legal advice looks to get even more difficult and expensive through 2011. But if you need an employment lawyer, don’t be put off: there are several ways you can get legal advice and representation that won’t cost precious savings or, worse, a non-existent salary.
For a start, Legal Aid only pays up if your household disposable income is a scanty £733 a month. If you’re recently unemployed, being this poor may not exactly be a problem, but savings and home equity could disqualify you too unless you’re on benefits. Even if you do get it, Legal Aid only funds advice, not a lawyer to represent you at the tribunal.
Free sources of employment law know-how are, however, surprisingly easy to find in person and online. Run by the TUC, the Worksmart website offers employees advice on their rights. If you have checked out the factsheets and still think you have a case, try the Citizens’ Advice Bureau, or a local law centre run by the Legal Services Commission, who will provide you with a face to face meeting with an employment lawyer free.
If you do need to take things further, you could get free representation in an employment tribunal from the Free Representation Unit (FRU). Varying from newbie barristers to heavyweight QCs, their volunteers take up your cause and fight for you in court. You need to be referred by a law centre, but at the moment they have many representatives available for one-day tribunal cases, among others.
Last – and definitely not least - several highly reputable law firms offer a fixed-fee – or free – first meeting too, where you can explore your options with a specialist. While a good lawyer would be the first to urge you not to be hasty in leaping into court, you can feel more reassured that you may not lose financially if you do end up there.
Businesses have had to deal with a number of external disruptions this year. Starting with the snow, we’ve had airport closures and now a 24 hour London Underground Tube strike, with only limited services running on the Northern and Dockland lines.
Some employees do go to extraordinary lengths to get into work despite having a journey of several hours and experience considerable delays with a Dunkirk style spirit. Others take the opportunity to have longer under the duvet and take it as a good enough reason to stay at home.
Many businesses have taken the view that they will pay employees if they are satisfied that the employees concerned genuinely could not get into work without considerable delay and an excessively long journey.
Other employers try to arrange for people to drive to work sharing lifts or arrange for taxis to collect key employees.
However, many businesses have not paid employees who, for whatever reason, don’t make it into work. They also have asked the employee to take the time as unpaid leave or annual leave (which would be paid).
In the absence of an agreement to the contrary - yes.
At first sight, this may not seem right. Is it fair that employees who take emergency time off for dependents must take that time unpaid, but employees who cannot make it in to work because of the tube strike get paid?
Surely, consistency is the key. If employees cannot get into work, the general principle is that they do not receive pay for those days.
Employers could treat staff on a case by case basis but if you, as an employer chose to do so, beware of any potential arguments of discrimination or less favourable treatment. For example, do not pay all full time staff that couldn't make it in to work, but withhold pay from your part time staff! It’s far better to treat all employees in the same way.
Sue Evans, Partner, Lester Aldridge LLP