IntroductionThe introduction of a new statutory procedure for bringing a derivative claim under the 2006 act immediately generated substantial speculation. Permitting a derivative claim to proceed was no longer to be confined to the application of the rule in Foss v Harbottle  2 Hare 461 and its exceptions. Both academic and professional commentators were quick to point to the wider ambit of the derivative claim and consequently to speculate that the new legislation would facilitate a rise in the number of such actions, or at least an enhanced prospect of launching a derivative claim. An assortment of other reasons were also put forward; hasty conclusions drawn. For example, certain analyses pointed to the twin effect of a new statutory statement of directors’ duties instituted by part 10 of the 2006 act and the new procedure contained in part 11. In so doing, they echoed concerns expressed during the bill’s passage through the House of Lords that this combination would lead to ‘a double whammy’ for litigants (679 HL Official Report (5th Series) col GC2 (27 February 2006)). Such prophecies have not (or not yet) been borne out by events. Certainly the statutory procedure will alert interested parties to the existence of the provision. The ambit of the derivative claim is also now wider than at common law; it covers any cause of action falling within the four categories of ‘wrongs’ listed in section 260(3) of the 2006 act. And the limiting requirements of fraud on the minority and control by alleged wrongdoers no longer operate (cf Prudential Assurance Co Ltd v Newman Industries Ltd (No 2)  Ch 204). However, part 11 came into effect on 1 October 2007. The past 18 months have seen only two reported decisions in which permission to continue a derivative claim under the new regime has been the subject of determination; in neither case has the court acceded to the application. In a third case, Fanmailuk.com Ltd v Cooper and others  BCC 877, an application for permission to continue a derivative claim was adjourned for consideration, if necessary, after the trial of a preliminary issue. There is thus not yet reason to suggest that the position under the previous regime – whereby derivative claims were seldom brought and those which were brought were seldom successful – will be modified. Certainly both Mission Capital Plc and Franbar Holdings Ltd were concerned with an analysis of the facts at issue. The very nature of the substantive criteria according to which the court will now determine whether a derivative claim may proceed, as prescribed by section 263 of the 2006 act, means that each case will, on analysis, invariably concern questions of fact individual to that case. That notwithstanding, these two recent cases call for comment as they provide an (and the first) insight for putative litigant shareholders of a company as to how the courts will approach the new legislation. In particular, the cases are instructive in indicating the courts’ application thus far of the ‘hypothetical’ director test. Franbar Holdings Ltd was decided on 2 July 2008. The applicant company (Franbar) was a minority shareholder in Medicentres (UK) Ltd. Franbar sought permission to continue a derivative claim against the directors of Medicentres (the Respondents), on behalf of that company. Franbar claimed negligence, default and various breaches of duty of care owed by the respondents to Medicentres. The same substantive allegations founded a claim against the majority shareholder in Medicentres (Casualty Plus Ltd) for breach of a shareholders’ agreement it had entered into with Franbar and an unfair prejudice petition under section 994 against the respondents and Casualty Plus. First applying the hypothetical director test in section 263(2)(a), William Trower QC, sitting as a deputy judge of the High Court, summarised the different stances which could be adopted by the hypothetical director (at ). The discussion then focused on whether there were circumstances which, if made out at trial, may give rise to a cause of action. The case was judged to be one where there was ‘sufficient material for the hypothetical director to conclude that the conduct of Medicentres’ business by those in control of it had given rise to actionable breaches of duty’, leading to the conclusion that ‘I cannot be satisfied that a hypothetical director acting in accordance with section 172 would conclude that the case advanced was insufficiently cogent to justify continuation of the claim’. However, the balancing exercise carried out with regard to the factors at section 263(3) resulted in the refusal of permission. Applying the hypothetical director test in section 263(3)(b), Trower QC went on to set out certain of the considerations such a person would take into account (at ): ‘the prospects of success of the claim, the ability of the company to make a recovery on any award of damages, the disruption which would be caused to the development of the company’s business by having to concentrate on the proceedings, the costs of the proceedings and any damage to the company’s reputation and business if the proceedings were to fail. A director will often be in the position of having to make what is no more than a partially informed decision on continuation without any very clear idea of how the proceedings might turn out’. It was held that the hypothetical director would not presently attach great importance to continuation of the claim, as there was work still to be done in formulating a clear claim for breaches of duty which had caused actionable loss to Medicentres. This did not preclude the hypothetical director from attaching importance to its continuation at some future stage (that is when the complaints were in a form tending to that conclusion). It was also considered that the hypothetical director would be more inclined to regard its pursuit as less important in light of the fact that several of the complaints were more naturally formulated as breaches of the shareholders’ agreement and acts of unfair prejudice. In a similar vein, the availability (and use) of both the section 994 petition and shareholders’ action was attributed considerable weight, in a determination under section 263(3)(f). On an analysis of the facts, both the allegations of breach of duty to Medicentres and the losses it might have sustained were held likely to be relevant, respectively, to Franbar’s complaint of unfair prejudice as well as to the fair value of Franbar’s shares and attendant questions arising on the valuation. Consideration was also devoted to section 263(3)(d). In determining that certain of the conduct alleged may prove to be incapable of ratification, Trower QC construed section 239(7) of the 2006 act, which preserves any rule of law as to acts incapable of ratification, as including not only acts which are ultra vires the company in the strict sense, but also acts which, pursuant to any rule of law, are incapable of ratification for some other reason. He concluded that the proposition in North-West Transportation Company v Beatty  12 App Cas 589, 594 (that a company cannot ratify breaches of duty by its directors where it is oppressive towards those shareholders who oppose it) remained good law. Consequently, that where the question of ratification arises in the context of an application to continue a derivative claim, the court must still ask itself the question whether ratification has the effect that the claimant is being improperly prevented from bringing the claim (cf Smith v Croft (No. 2)  Ch 144, 185B). Future consequences Mission Capital and Franbar Holdings illustrate that certain of the criteria listed in section 263 will involve similar considerations to those given to derivative claims under the previous regime. As such, for those factors assistance may be derived from decided case law in anticipating how the tests will operate in practice. For example, in relation to the issue of whether there is a personal claim that could be pursued without involving the company arising under section 263(3)(f) (cf Konamaneni v Rolls-Royce  1 WLR 1269; Jafari-Fini v Skillglass  BCC 842; Mumbray v Lapper  BCC 990). Or indeed under section 263(3)(d), as illustrated by Franbar Holdings. Anticipating judicial determination of the hypothetical director test will, it is suggested, present greater difficulty when advising a prospective litigant on risk. The usual uncertainties of litigation will inevitably bear on a court’s determination of what such a person would decide in known circumstances. The considerations attributed to the hypothetical directors discernable in the decisions above, despite reflecting the facts at issue, reveal a similarity of approach and constitute broader commercial considerations militating against continuation. To that extent the cases afford an insight as to how the test will operate in practice. The hypothetical director deciding whether to continue the claim would, in Mission Capital, consider whether it had a ‘real purpose’, and in Franbar Holdings, consider whether there was ‘sufficient material’ or a sufficiently cogent case to substantiate a cause of action. The hypothetical director deciding how much importance to attach to its continuation would, in Mission Capital, consider the availability of an alternative course of action which did not involve litigation as well as the extent to which it could be said that the company will suffer loss, and in Franbar Holdings, consider the facts that the complaints were not in a form supporting a clear claim for breaches of duty causing actionable loss and more naturally fell within other types of claims already being pursued. Of contrast is the position under section 172 of the 2006 act. Section 172 grants a discretion to directors to act in the way they consider, in good faith, would be most likely to promote the success of the company. Although the factors listed in section 172 will be relevant to the balancing exercises conducted under both that section and on an analysis under subsections 263(2)(a) and (3)(b), at common law the duty now contained in section 172 was held to be a subjective one. The question was not what a court may consider was in the interests of the company (cf Re Smith and Fawcett Ltd  Ch 304; Re Regentcrest plc v Cohen  2 BCLC 80). This contrast in approach may, it is suggested, be explained on two bases. First, an act or omission challenged on an allegation of breach of the duty now contained in section 172 is conduct capable of subjective assessment – a judgment on past conduct rather than on a hypothetical. Second, the hypothetical director test is central to a permission application as the effect of permission being granted is to override the rights of a company’s directors to determine whether litigation should be commenced to enforce the company’s rights. That determination being displaced, the court steps into the shoes of a director to substitute its – hypothetical – view. The case lawThe first of the two cases in which permission to continue was refused was Mission Capital Plc, decided on 17 March 2008. Mission Capital’s former directors (the applicants) constituted a minority on its board. The board purported to terminate their employment and required them to resign from the board. Mission Capital obtained an interim injunction against the applicants, who: (i) counterclaimed for injunctive relief equating to specific performance of service contracts and reinstatement to the board; and (ii) brought a derivative claim against the remaining directors (a) contending that Mission Capital would suffer damage from their wrongful dismissal and the replacement director would act improperly and (b) claiming the same heads of relief as in the counterclaim. On the application for permission to continue the derivative claim, Mr Justice Floyd first addressed his mind to section 263(2)(a) of the 2006 act and the question whether a notional director would not seek to continue the claim. (The grounds for permission at sections 263(2)(a) and 263(3)(b) both require the court to apply the standard of the objective, reasonable director under section 172 of the 2006 act: see the 2006 act for the precise terms of the provisions). The debate focused on whether the derivative action was purely duplicative of the counterclaim. ‘Nobody brings a claim just for the sake of it’ (at ). Hence his conclusion that he could not be satisfied, negatively, that such a person would not seek to continue the claim, was premised on the finding that the derivative action was not duplicative of the counterclaim. Specifically, that: (i) the derivative claim might succeed where the counterclaim failed; and (ii) Mission Capital would be able to claim damages against the directors for damage it had suffered as a result of the applicants’ wrongful dismissal, not available to the applicants’ as shareholders. As such, there was ‘real purpose’ (at ) in bringing the claim. Floyd J went on to consider how to exercise his discretion under section 263(3) of the 2006 act. His refusal of permission was largely based on his judgment as to how important the hypothetical director would regard continuation of the claim within the meaning of section 263(3)(b). He held (at ) that, although he could not be satisfied that the notional section 172 director would not continue the claim, he did not believe that he would attach that much importance to it. His reasons were twofold: ‘Would a company which had wrongfully dismissed a director normally take action against those responsible for the damage that it has suffered? It would depend, but I suspect that the action it would take in preference would be to replace the directors. Moreover, on the evidence before me the damage… [Mission Capital] will suffer is somewhat speculative – another reason why the section 172 director would not attach great weight to it”. A second ground for Floyd J’s refusal seems to have been his brief consideration of section 263(3)(f), although not expressly cited (at ). He was not satisfied that there was anything sought by the applicants which they could not recover by means of an unfair prejudice petition under section 994 of the 2006 act. Georgina Peters is a barrister at 3-4 South Square and has contributed to The EC Regulation on Insolvency Proceedings: A Commentary and Annotated Guide and Company Directors: Duties, Liabilities, and Remedies, both published by Oxford University Press and available via the Law Society Online Bookshop (http://www.lawsocietyshop.org.uk). This article is abbreviated from an article which first appeared in the quarterly 3-4 South Square Digest. If you wish to be added to the circulation list please send an email to email@example.com Two interesting questions have emerged as relevant since the institution of part 11, chapter 1, sections 260-264 of the Companies Act 2006 (the 2006 act). They concern: (i) whether derivative claims will now have a better prospect of obtaining permission to continue; and (ii) how the courts will approach the ‘hypothetical’ or ‘objective’ director test established under those provisions. As to the first question of whether such claims will have a greater prospect of successfully proceeding to a hearing on the substantive merits of the claim, it is too early to tell. To observe otherwise would be frivolous. During the 18-month period since the provisions came into force, there have been only two reported decisions in which permission to continue a derivative claim under the 2006 act has been sought and determined: Mission Capital Plc v Sinclair and another  BCC 866 and Franbar Holdings Ltd v Patel and others  BCC 885. The second question, however, has been the subject of judicial consideration on both those occasions.
I am not an uncritical admirer of the US, but full marks to states which are passing laws enabling their courts to refuse to enforce English libel judgments. It is no cause for pride that our courts attract libel claimants. English defamation laws, including the strange reversal of the burden of proof onto the defendant, are too easily a tool for the wealthy and powerful to gag criticism of their behaviour. It is time to reassert freedom of expression in this country. John Ball, Falmouth, Cornwall
The appellant (O) appealed against a decision ( EWHC 610 (QB), (2009) Lloyd’s Rep FC 375) making a civil recovery order against him and a decision ( EWHC 822 (QB)), granting the respondent Serious Organised Crime Agency an order for possession in respect of his property. It was alleged that O had been engaged in mortgage frauds and other deceptions. The judge found in favour of SOCA in respect of all the assets which were said to be recoverable property, including O’s home, and ordered that O deliver up possession of those assets to the trustee for civil recovery. In relation to O’s home, the judge reasoned that, as a result of the recovery order, the property vested in the trustee, so the trustee had the right to possession of it; if O remained in possession, he would continue to profit from crime. Accordingly, on a true construction of the Proceeds of Crime Act 2002, a recovery order could include an order to deliver up possession of the recoverable property. O had been convicted on various counts of deception in relation to the mortgage fraud, but the Court of Appeal set aside his conviction on the basis that the officer who arrested him did not have the necessary suspicion of fraud, so his arrest and the interview and searches that followed from it were unlawful. O argued that (1) given that the appeal court had decided that the evidence obtained following his unlawful arrest ought not to be admitted, it was an abuse of process for it to be admitted in a civil trial in which the same factual issues fell to be decided; (2) the judge had been wrong to find that his winnings from spread betting funded by recoverable property were themselves recoverable. Section 305 of the Proceeds of Crime Act 2002 could not apply, because no property was acquired in place of deposits or payments made by him. Section 307 of the act provided that the ‘further property’ obtained must be ‘profits accruing’, which did not extend to property acquired as a result of effort, skill or knowledge; (3) the High Court had no jurisdiction to make an order for possession; alternatively, if it did have jurisdiction, it should not have exercised it. Held: (1) Section 240(2) provided that the court’s powers to make a recovery order were exercisable in relation to any property, whether or not any proceedings had been brought for an offence in connection with it. The question of admissibility had to focus on the particular proceedings in hand; the fact that evidence was ruled inadmissible in an earlier criminal trial was nothing to the point when considering its admissibility under the act, Director of the Assets Recovery Agency v Olupitan  EWCA Civ 104, (2008) CP Rep 24 applied and Marcel v Commissioner of Police of the Metropolis  Ch 225 CA (Civ Div) considered. The judge’s overriding consideration was that the proceedings should be fair, pursuant to article 6 of the European Convention on Human Rights 1950, and dealt with justly, in accordance with the overriding objective in the CPR, Jones v University of Warwick  EWCA Civ 151,  1 WLR 954 applied. There were reasonable grounds for suspecting O of criminal offences justifying arrest: the only criticism was that the police officer carrying out the arrest did not have personal knowledge of those grounds. (2) Section 305 could apply: O opened an account with spread betting syndicates and used recoverable property to do so. He then placed further recoverable property on deposit with the syndicates. Once the money was deposited, it became the property of the spread betting company and gave rise to a set of rights in O. The profits for any sums won and paid to O at any given time were ‘profits accruing in respect of recoverable property’: the words ‘in respect of’ in section 307(1) were broad, and were intended to cover circumstances where otherwise it would have been necessary to use the tracing provisions in section 305. The money was recoverable either by sections 305 or 307. (3) The act contained no express power to make a possession order, and the court should not imply such a power. The act made no provision for the possession of property as opposed to a recovery order. The purpose of a recovery order was to vest the property to be recovered in the trustee. Once the property was vested in the trustee, he could decide to apply for an order for possession, under the provisions of part 55 of the CPR. It would be quite wrong to use any inherent jurisdiction of the court as a vehicle to obtain a possession order in a case like the instant case. The judge’s order was unlawful because it was made in favour of SOCA when an application for a possession order should have been made by the trustee, and because it was made without recourse to the provisions of part 55 of the CPR. Appeals allowed in part. Ivan Krolick (instructed by MJP Justice Ltd) for the appellant; Kennedy Talbot (instructed by in-house solicitor) for the respondent. Admissibility – Civil recovery proceedings – Proceeds of crime Ronald Olden v Serious Organised Crime Agency: CA (Civ Div) (Lords Justice Rix, Wilson, Sir Scott Baker): 26 February 2010
It was no coincidence that the Ministry of Justice chose to release details of the highest-paid legal aid barristers and firms at the same time as it unveiled its latest plans for a tendering system for legal aid work. The unsubtle message is, ‘we’re tightening our grip on what we will shell out on legal aid, and if you want to know why, just look at how much some of these lawyers are trousering’. It is ironic, then, that the firms the MoJ has chosen to spotlight as high earners are following precisely the model that it favours – increasing in size, taking on high volumes of work and operating with maximum efficiency. Legal aid minister Lord Bach has made it clear that he wants to rid the market of small players to create just 500 firms. Small firms have been voicing concern for some time that the government has been seeking to do a deal with the bigger practices. And as the saying goes, just because you’re paranoid, that doesn’t mean they’re not out to get you. The smaller players will face hard choices in respect of how to succeed under the new tender process, with many forced to merge. As for the process itself, there are some welcome signs of a more practical approach – with minimum bid levels, for example. Let us at least hope the MoJ has paid close attention to the lessons to be learned from the debacle that was best-value tendering.
The Law Society welcomed the new coalition government’s pledge to seek a better balance between state surveillance and privacy this week, while legal aid lawyers said they hoped Kenneth Clarke’s appointment as justice secretary will spell good news for access to justice. Among the proposals set out in the coalition agreement between the Conservatives and Liberal Democrats, the parties agreed to implement a programme of measures designed to ‘reverse the substantial erosion of civil liberties under the Labour government and roll back state intrusion’. The government said it intended to create a Freedom or Great Repeal bill designed to scrap superfluous legislation. Other policies include dumping the ID card scheme; a review of the libel laws; extending the Freedom of Information Act; and the introduction of a new mechanism to prevent the proliferation of unnecessary new criminal offences. Law Society president Robert Heslett said: ‘In respect of its manifesto proposals on seeking a proper balance between state surveillance and the reasonable expectation of privacy, the Society welcomes the coalition’s plans to scrap ID cards, the national identity register, the next generation of biometric passports and the storage of internet and email records without good reason. ‘It is very pleased to note further proposals to regulate CCTV, provide safeguards against the misuse of anti-terrorism legislation and adopt the protections of the Scottish model for the DNA database.’ Heslett said Chancery Lane also supported the coalition’s commitment to law reform, in particular the repeal bill, and moves to limit the creation of new criminal offences. Meanwhile, the surprise appointment of Kenneth Clarke appears to have proved popular with legal aid lawyers, who hope that having a political heavyweight with financial and business knowledge will assist in battles with the Treasury. Ian Kelcey, chairman of the Law Society’s criminal law committee, said: ‘If anyone can negotiate with the Treasury, he should be able to.’ Legal Aid Practitioners Group director Carol Storer said: ‘We hope he will not just look at the legal aid budget in a vacuum, but consider the impact on clients and lawyers of the recent, and any future, budget cuts.’
A Crown Prosecution Service lawyer has admitted taking a share of a £20,000 bribe to drop a case. Sarfraz Ibrahim, a barrister who was the head of the advocacy unit at Gwent CPS, yesterday (Monday) admitted corruption, perverting the course of justice and misconduct in public office. Swansea Crown Court heard he was caught in a police sting operation mounted by anti-corruption detectives following a tip-off that he might accept bribes. Saifur Khan, who is not a CPS employee, has pleaded not guilty to aiding and abetting misconduct in public office and attempting to pervert the course of justice. His trial is expected to last several weeks, but the judge lifted restrictions on the reporting of Ibrahim’s case. A CPS spokeswoman said it was not appropriate to comment at this stage.
Typical. Even a celebrity England football team manage to blow it from the penalty spot. Worse, they lose with the winning penalty taken by a Yank. Captained by crooner Robbie Williams (pictured), this Soccer Aid England team, also comprising boxer Ricky Hatton, X Factor something-or-other Olly Murs and a good few retired ex-England fringe players, lost to a rest-of-the-world squad captained by actor Michael Sheen. Woody Harrelson scored the winning penalty. Woody Harrelson! England wept. Some kindly souls in the London office of US firm Weil Gotshal gave pro bono advice on drafting the agreement between UNICEF UK, Endemol and ITV for the broadcast of the Soccer Aid game. The good news is that the money raised – currently more than £2m – is going to help children across the world, including those affected by the Haiti earthquake.
The appellant (T) appealed against a decision ( EWCA Civ 66,  HLR 1) upholding a ruling rejecting his application to be appointed to represent the estate of his deceased brother (D) in possession proceedings which had been brought by the respondent local authority in 1986. D had occupied a house under a secure tenancy. An order for possession was made against him in February 1987 after he fell into arrears with his rent. The order provided that it was not to be enforced so long as he paid the arrears by 4 March 1987. D failed to comply with the terms of the order, so that on 4 March it became enforceable. However, he remained in the premises, paying rent plus amounts towards the arrears, until his death in 2005. T asserted that he had moved in to the property in 2003 to care for D. In 2006, the local authority served a notice to quit on him and issued possession proceedings against him. The issues were: (i) whether, under section 82(2) of the Housing Act 1985, a secure tenancy ended on a breach of the conditions of a suspended possession order, being the position as the law stood, or whether it endured until the order for possession was executed; (ii) whether the former tenant’s right under section 85(2)(b) of the 1985 act to apply to postpone the date of possession, and thus revive the secure tenancy, survived his death and passed to his estate. Held: (1) In Knowsley Housing Trust v White  UKHL 70,  1 AC 636, Lord Neuberger had said that there was a powerful case for saying that ‘the date on which the tenant is to give up possession in pursuance of the order’ in section 82(2) could and should mean the date specified in a warrant of possession which was duly executed. However, he also said that it would be wrong for the House of Lords to hold that the decision of the Court of Appeal in Thompson v Elmbridge BC  1 WLR 1425 CA (Civ Div), to the effect that a secure tenancy ended on a breach of the conditions of a suspended possession order, was wrongly decided; equally, he said that it would be wrong for the house to go back on its previous approval of Thompson in Burrows v Brent LBC  1 WLR 1448 HL. There was much to be said for Lord Neuberger’s interpretation of section 82(2). Nevertheless, it would not be appropriate to depart from the decision which the house took in Knowsley that the view expressed about Thompson in Burrows should not be reconsidered and departed from. The law was regarded as having been settled by Thompson and the effects of reversing that decision now were incalculable. It had been assumed to be right and had been acted on in many tens of thousands of cases. Of greatest concern was the effect that a retrospective reversal would have on social landlords who for so long had assumed that those who had failed to comply with the conditions in a suspended possession order were no longer tenants with a right to enforce the implementation of repairing covenants. It was a reasonable assumption that the consequences of reviving these covenants and the opportunity that this would give for claiming damages for breach of these obligations was one of the factors that led to the decision that the law should be amended by the Housing and Regeneration Act 2008 only prospectively. Further, declaring that Thompsonwas no longer good law would undermine the system created by the 2008 act, Knowsley, Thompson, Burrows and Knuller (Publishing, Printing and Promotions) Ltd v DPP  AC 435 HL considered. (2) The fact that the secure tenant had died did not deprive the court of its jurisdiction to exercise the power conferred on it by section 85(2)(b) to postpone the date of possession under a possession order. There would seem to be no reason why the deceased’s personal representative should not be able to seek the exercise of the power to postpone, for example to enable the deceased’s affairs to be put in order and any licensee or sub-tenant to be rehoused. Another example would be where the deceased tenant, having made good a previous default, had applied for the date for possession to be postponed but died the day before his application was to be heard. The wording of the subsection did not compel a reading that would deny the jurisdiction of the court to exercise its powers in such circumstances. It followed that it was open to T, who sought to represent the estate of a person who had been served with a claim for possession, to apply for the date of possession to be postponed, Brent LBC v Knightley  2 FLR 1 CA (Civ Div) overruled. Appeal allowed. Austin (FC) (appellant) v Southwark London Borough Council (respondent): SC (Lords Hope, Walker, Brown, Kerr, Lady Hale): 23 June 2010 Local government – Date of termination – Death – Tolerated trespass Jan Luba QC, Desmond Rutledge (instructed by Anthony Gold) for the appellant; Richard Drabble QC, Shaw Kelly (instructed by in-house solicitor) for the respondent.
The date 31 January is usually a firm’s tightest cashflow point, with partners’ tax, a quarter’s VAT and quarter’s rent all payable within five weeks of each other in most cases. Exacerbated by the fact that cash in-flows are usually very quiet in December and January, firms often face a serious cashflow crunch come late January. For those firms that have a 30 April year-end, it is not this year’s position that will be the big crunch, it is that in a year’s time. Firms should not only be looking at a temporary cashflow fix to meet this year’s crunch point, but partners should commit now to addressing potential cashflow problems that may come up in January 2012. Louis Baker is head of the professional practices group at Crowe Clark Whitehill New Year, new tax ratesThe tax year 2010/11 will see several tax changes which will affect many firms and partners, leading to potentially severe cashflow issues in January 2012. First of all, partners with an income in excess of £100,000 will have their personal allowance abated by £1 for every £2 of additional income. Secondly, the 50% rate for those earning over £150,000 a year (which came into effect on 6 April 2010) will make a noticeable dent in many partners’ post-tax incomes. To take one example, a partner earning £450,000 will have to pay an additional 10% tax on income over £150,000. This results in an additional £30,000 tax being payable, to which the loss of his personal allowance at 50% (that is, £3,238) must be added. This means a total increase in tax liability to £33,238. Taking into account the effects of Class 4 national insurance contributions, the partner will need to have an additional profit share of £67,832 just to stand still in terms of profit after tax (that is, an increase of 15% in this example). Although some firms have reported an increase of at least this level in profits per equity partner, many have not. Bear in mind that this affects all partners – not just equity partners. Adding to the potential cashflow problem is the fact that interim tax payments (which come before the year-end reconciliation and are intended to spread the tax burden across the year) are calculated by reference to the previous year’s tax liability. So, 2009/10 earnings, still affected by the recession, are likely to be lower than those of 2010/11. This means comparatively low tax liabilities for 2009/10 and, hence, low interim payments on account for 2010/11. Thus, at 31 January 2012, firms will have to be prepared to make up the difference. Additionally, the first interim installment for 2011/12 is due on the same date – and this is calculated as 50% of the high 2010/11 bill. The combination of these two tax payments may be a nasty shock to firms and their bank balances. Law firms really do need to be looking now at extending their cashflow forecasts through to 31 January 2012 to identify if they are likely to have a funding gap. It is never too early to identify if extra external funding will be required. Visit the Gazette’s blogs page for more In Business blogs
The Supreme Court has today given the ‘green light’ to allow people to ‘tweet’ from inside the courtroom. It has issued guidance on the use of live text-based communication by legal teams, journalists and members of the public of what is going on in court. The Supreme Court said it had allowed the practice because the cases before it do not involve interaction with witnesses or jurors, so there is no reason why what is said in court should not be put in the public domain immediately. There are some exceptions where it will not be permitted, including cases where there are formal reporting restrictions, family cases involving the welfare of a child, and cases where publication of proceedings might prejudice a pending jury trial. The guidance is limited to the Supreme Court. Different considerations apply to other courts. President of the Supreme Court Lord Phillips said the rapid development of communications technology brings both opportunities and challenges for the justice system. He said: ‘An undoubted benefit is that regular updates can be shared with many people outside the court, in real time, which can enhance public interest in the progress of a case and keep those who are interested better informed. ‘We are fortunate that, by the time a case reaches the Supreme Court there is very seldom any reason for any degree of confidentiality, so that questions about what should and should not be shared with those outside the courtroom do not usually arise. ‘This means that we can offer a green light to tweeting and other forms of communication, as long as this does not disrupt the smooth running of the court,’ said Phillips. The Supreme Court policy on the use of live text-based communications can be found on its website.