Commercial Brief market insights - December 2020
A summary of recent developments, including a brief overview of supply chain management issues in light of the government consultation into transparency in supply chains response, the rise in personal guarantees being called upon in the current economic climate, the impact of the current introduction of joint liability notices by the HMRC on directors and shareholders and the recent judicial review decision impacting the changes to the Use Classes Order and permitted development rights.
Modern slavery and supply chain management
Boohoo’s recent attempts to make amends for their poor oversight of supply chain management is evident through their appointment of Sir Brian Leveson QC announced in November. His brief includes his chairmanship of an independent review of the company’s supply chain ethics, and publishing reports of the progress made under the company’s Agenda for Change programme.
Boohoo’s story is a reflection of the fact that supply chains are becoming ever more complex in today’s globalised world. The number and form of investment vehicles, new markets, territories and outsourcing create challenges in reporting and producing statements in accordance with the Modern Slavery Act (the Act) . It may not be in the interest of a supplier to disclose information relating to modern slavery and many smaller businesses have struggled to fully appreciate or understand their obligations under the Act. Nevertheless, the Act can be seen as an opportunity to re-review procurement and risk management processes, not just in terms of modern slavery but other legal, commercial and reputational risks in operations and supply chains.
The reporting requirements enable the public, consumers and investors to make more informed decisions as to which organisations they do business with but there is still a long way to go. Businesses should re-evaluate their procurement policies, analyse purchasing decisions, investor expectations and procedures relating to social risks arising through business relationships. The damage to business reputation and competitive disadvantage for failing to take the issue seriously could be significant.
Contacts: Alison Loveday and Abigail Hague
Related item: Slave labour and supply chains
Always read before you sign
Personal guarantees can be crucial for businesses, allowing them to expand and improve cash flow where they otherwise would not be able to. Guarantors are often aware of the risks attached to the provision of such a guarantee. However, in some cases clauses can be misleading, making it unclear what is required under the contract and/or guarantee.
Unfortunately, we have seen an increased number of cases where deceit has played a part in obtaining the personal guarantee. Businesses sometimes mislead guarantors to ensure they can secure loans. The recent restrictions implemented following the coronavirus outbreak have resulted in insolvency and bankruptcy becoming more pressing concerns for a number of businesses. Personal guarantors may be left footing the bill for these businesses outstanding costs and liabilities. In the prevailing economic climate, more businesses are struggling to remain afloat, which will “shine a light on” a number of problems. Personal guarantees that were agreed with assurances that they would “never be called upon” will have been affected by the pandemic and may no longer be in the same financially secure position, forcing them into insolvency. Businesses convincing guarantors of a diminished risk are often equally as likely to become insolvent.
For individuals, if you are asked to sign a personal guarantee you should always consider taking independent legal advice and consider what the terms mean and how it may impact you, your finances and your family. Always read the small print as if you sign a personal guarantee without checking the terms, the agreement is still enforceable against you and your personal assets.
Related item: Personal guarantees: always read before you sign
Joint Liability Notice – a new weapon in the HMRC armoury
In the last few years, HMRC has attempted to introduce measures to “pierce the corporate veil”, namely the “veil” that shields shareholders from personal responsibility for the debts of the businesses they own. The latest policy initiative in this area is the Joint Liability Notice (JLN), legislated at Schedule 13 of the Finance Act 2020 in July.
The JLN creates shared responsibility tax liabilities between the company and the director, shareholder or equivalent. Where the company no longer exists, the liability transfers to the individual entirely. Hence, an individual who receives a JLN is jointly and severally liable with the company and can be held personally liable for company tax where (a) the company has engaged in tax avoidance or evasion (b) the individual has been involved in repeated insolvency of companies (phoenixism) or (c) a penalty has been issued for facilitating avoidance or evasion.
Bearing in mind the considerable powers conferred by these new provisions and the wide range of circumstances where HMRC apparently intends to use them, we can expect directors, officers and shareholders to be confronted with these notices frequently and individuals need to be aware of the statutory safeguards available.
Contact: Laura Smith
- Joint Liability Notice – a new weapon in the HMRC armoury
- Not so limited liability…a quiet warning on directors’ personal liability for company tax
Judicial review of the changes to the Use Classes Order and permitted development rights
In September, the government introduced significant reforms to the planning regime and, in particular, to the Town and Country Planning (Use Classes) Order 1987 and the Town and Country Planning (General Permitted Development) Order 2015. The changes and introduction of new use classes (in particular) allowed a greater degree of flexibility for landowners and occupiers to diversify the use of their properties as planning permission will not now be needed for some use changes.
Yet, these changes were not welcomed by all. A coalition of campaigners, lawyers, planners, facilitators, writers and scientists known as the Rights: Community: Action group (RCA) issued a judicial review claim which was heard in October. RCA requested that the new statutory instruments be quashed on the basis, amongst other things, that due legal processes had not been followed. Judgment was handed down in November in which the court dismissed the RCA’s claim and found that the reforms had been implemented correctly. For now, there is greater certainty for those wishing to rely on the new planning reforms.
However, the RCA intend to seek permission to appeal the decision on the basis the planning reforms constituted a plan which ought to have been the subject of prior environmental assessment. Hence, the judicial review, it seems, is far from over for the RCA. The intention of the reforms was to help kick start the economic recovery following the COVID-19 lockdown yet here, there appears to be a disconnect between the government green recovery policies and RCA’s environmental arguments. It will therefore be interesting to follow the appeal judgment in the event RCA pursue an appeal.
Contacts: Angela Bhaseen and Tom Higgins
- Judicial review of the changes to the Use Classes Order and permitted development rights set for 14-15 October 2020
- The planning reforms are here to stay – legal challenge dismissed