The Family Business July 2015
The Family Business
Welcome to the latest issue of
The Family Business
The last couple of months have been hectic for the team having
completed numerous corporate transactions with a ‘family
twist’. Keeping the interests of the family at the focus of major
deals adds a very rewarding dimension to our work and we
really get to know our clients well. As well as transactional
work the team have been very busy supporting awards for the
family business. We have judged almost 100 businesses during
May and early June in connection with awards run by the East
Anglian Daily Times and Family Business United. We see this as
a vital opportunity to listen and understand more about what
our services to the family business need to provide.
Contributors to this edition include Susan Young, a solicitor in our
Chelmsford office. Susan advises businesses in relation to family charters
and succession. While a family charter isn’t always the preferred route for
a family, Susan’s article raises issues which are not always easy to tackle.
Emma Brunning reports on a case which, perhaps had there been some
kind of family charter, the Davies family concerned would not now be faced
with realising some £1.3m in assets to settle a family dispute.
I am very pleased that our award winning health and safety team are not
only making a contribution to this newsletter but have also agreed to speak
at our family business event for directors (young and old!) in September at
the Suffolk Food Hall. Do join us if you can, please email
[email protected] for more details.
In this issue
We have told our daughter
that the farm will be hers one
day. She cannot rely on this,
can she?
The Generation Game
We’ve always done it this way
Finalists and winners
Finding the oldest family
business in East Anglia
A call to family businesses in
the Great Yarmouth area
LinkedIn
Birketts LLP
Twitter
@Birketts_FamBiz
Enjoy the read and make the best of the sunshine.
James Austin
Partner
01473 406212
[email protected]
Clear Legal Advice
Cambridge Chelmsford Ipswich Norwich
www.birketts.co.uk/familybiz
The Family Business July 2015
We have told our daughter that the farm will be
hers one day. She cannot rely on this, can she?
This was the situation faced by Mr and Mrs Davies. Their daughter
worked on the farm and in 1985 they told her that the farm would
be hers one day. She stopped working on the farm between 1989
and 1991 when the family fell out as her parents did not approve
of her fiancé. There followed years of Ms Davies living at and/or
working on the farm, and then leaving again when she and her
parents argued.
In 1997, the family discussed making Ms Davies a partner in the family business.
She signed a Partnership Agreement in March 1998, although it subsequently
transpired her parents did not sign it due to an ongoing financial dispute
involving the farm. In 2007 Mr Davies told Ms Davies she would have a home
at the farm, rent free, for life. In 2008 it was agreed that she would become a
director and shareholder of the family farming company but the shares were not
transferred to her because her husband was seeking funds through their divorce.
In 2009 Ms Davies was told that the farm would be left to her on two occasions.
In 2012 the family fell out again, and Ms Davies’ employment at the firm was
terminated. The arguments lead to Mr and Mrs Davies trying to evict their
daughter from the farmhouse. Although Ms Davies did receive some payment
during her periods at the firm, she could have earned more elsewhere.
The question faced by the court was did this course of events provide Ms Davies
with some entitlement to the farm, for example ownership of the farm now
or later or a right to live there for life? The court decided that the assurances
given to Ms Davies about her future inheritance were tied to her working on the
farm. She worked for around £1 per hour for a number of years because she
thought that the farm would be hers one day. If she had continued with other
employment she could have earned more, worked shorter hours and have been
“free of the difficult working relationship she had with her parents.” The court
concluded, under the legal principle of Proprietary Estoppel, Ms Davies did either
have a right to ownership of the farm to some extent or a right to live at the
property for life arising from her parents words to her and her relying on those
assurances to her detriment.
Emma Brunning
Senior Associate and
Collaborative Lawyer
01245 211330
[email protected]
“This case sends out
a clear message to
the owners of family
businesses. ”
The parties were encouraged to settle the value of Ms Davies claim without
further court involvement due to the costs involved. They were unable to do
so and the matter returned to court in January 2015 for a further hearing over
four days. The farm and farming business were valued at £4.4m, less capital
gains tax. Ms Davies sought the transfer of the farm and farming business to
her. Her parents indicated that she should receive £350,000 representing her
unpaid hours work and a fair share of the profits. The court disagreed with both
approaches. They indicated that their approach “.... may well mean that the farm
and business or a substantial part of it will have to be sold. Neither side is likely to
welcome that, but in view of their poor relationship the options are very limited”.
The court ordered that Ms Davies receive £1.3m, representing just over or under
a third of the farm and farming business, depending on the amount of capital
gains tax payable.
This case sends out a clear message to the owners of family businesses.
Whenever possible pay your children properly for the time they spend working
in the business and be very careful what comments you may make to them
regarding succession of the family business, they might just be able to hold you
to it.
At Birketts our teams of experienced lawyers can advise you on the best course
of action if you find yourself in this situation.
Clear Legal Advice
Cambridge Chelmsford Ipswich Norwich
www.birketts.co.uk/familybiz
The Family Business July 2015
The Generation Game
As family businesses grow they can become complex, in terms of
family relationships and the business structure. Often there are no
documents or even discussions to aid the younger generation’s
understanding of the organisation or vision of the business.
Statistics show the likelihood of future generations being involved in a family
business decreases with each generational layer and this can be avoided by
careful succession planning, including the preparation of a family constitution.
What is a family constitution?
A family constitution can outline the business’ plans and ambitions for the future,
setting out an express, agreed strategy to achieve these. It can help:
Susan Young
Solicitor
01245 211260
[email protected]
• the founding or senior members engage with the next generation
• record the business’ values and principles
• set out how decisions should be made, in relation to particular scenarios
or circumstances
• set out the business’ objectives beyond the immediate commercial imperatives
• prevent internal conflicts, by providing an agreed method to resolve issues
as they arise
• set out the division, if any, between ownership and management
• set out each member’s role and responsibilities
“A family constitution
provides a clear
framework within
which to engage and
run the business. ”
• assist with smooth transitions as the business passes from the older, or
founding members, to younger generations
• set out a framework and criteria required for family members to progress
within the business
• provide guidance and clarity on other issues that the business may face.
Our business has managed without one so far, why should we create
one now?
A family constitution provides a clear framework within which to engage and
run the business. Many of the family business difficulties we encounter arise
initially from small misunderstandings. A family constitution, and the process of
creating it, can enable views and expectations to be articulated in an objective
manner that accommodates the needs of the business and family members and
sets appropriate boundaries. Once it exists there is greater confidence for family
members to hold each other to account.
While a business may have survived without having a formal constitution, this
may be for a number of reasons, for instance, the older generations remain
involved in the business or no issues may have arisen, such as, a death or divorce
in the family. A family constitution allows the family to consider these issues
and other potential points of conflict before they arise in practice and creates
a structure for how they should be dealt with. This enables the business to
continue to run with minimal disruption, enabling continued success.
Even where issues do not arise, a family constitution is beneficial to set out a
timetable for the planned growth of the business, or training of its members,
to ensure all members are working towards a unified goal.
Clear Legal Advice
Cambridge Chelmsford Ipswich Norwich
www.birketts.co.uk/familybiz
The Family Business July 2015
How do we create one?
It is important when creating a family constitution to consider various situations
that may arise in the running of the business with all of the members.
Initially, a meeting might be held with all of the family members to gain an
understanding of what the constitution is seeking to achieve. Following the
initial meeting, individual meetings can be held with family members to settle
any individual queries or concerns and to try and reach a consensus of opinion,
before a draft is prepared for discussion and agreement.
“... they are considered
legally significant
should a dispute arise,
as it is intended to set
out the family’s agreed
understanding of the
aims of the business
and what should
happen in various
situations. ”
Just as the family business changes as each new generation takes over, the
constitution is a flexible document and should be reviewed on a regular basis,
with updates made as necessary.
Is a family constitution binding?
Usually, a family constitution will be expressed to be non-binding. However, they
are considered legally significant should a dispute arise, as it is intended to set
out the family’s agreed understanding of the aims of the business and what
should happen in various situations.
How can Birketts help?
We appreciate that every family business is unique, shaped by its own set of
distinctive personalities, objectives and relationships and we will work with you
to create a constitution to fit your business. We will draw on knowledge from
our corporate, agriculture and private client teams, where relevant, to ensure all
business and personal aspects are considered and provided for.
Don’t let a lack of succession planning cause your family business to grind to
a halt, let us assist you in preserving the legacy of your family business for
generations to come, so you can look back at the ‘Generation Game’ and say
‘Didn’t they do well?’
We’ve always done it this way
With the advent of the digital revolution, and against the
background of ever increasing competition in these times of
economic austerity, many family businesses have taken steps to
update their systems, streamlining where appropriate, and hiring in
the skills they need to operate more effectively.
However on occasion it is not just the business that needs updating but
the personalities behind it; many such businesses have employees of longstanding, not to mention the family members themselves who may have had an
involvement, in one way or another, for decades. The culture/attitudes of those
individuals may take longer to change than the outdated computer system.
If the business is involved in a high risk activity the simple laws of probability
dictate that sooner rather than later there will be an incident; the fact that it has
not yet happened does not necessarily mean that the systems in place to reduce
risk are fit for purpose in the modern age, it may be just luck!
Matthew Gowen
Barrister
01473 299118
[email protected]
There is a continual need to identify risk, address it, and make sure that there are
the required resources to monitor and improve the systems that are put in place.
Within some of these businesses the attitudes towards health and safety do
seem too entrenched in the past, but times have changed; after all we no longer
send children up chimneys!
So as a director or owner of a family business are you confident you have got it
right in relation to risk?
Clear Legal Advice
Cambridge Chelmsford Ipswich Norwich
www.birketts.co.uk/familybiz
The Family Business July 2015
Finalists and winners
It has also been a busy time working with Family Business United
as one of the sponsors of the national Family Business of the Year
Awards 2015.
The Awards evening was on 11 June at the Mayfair Hotel in London and James
Austin and Adam Jones were very pleased to crown Phillips Bros as East Anglia’s
Family Business of the Year 2015. Congratulations also to Aspall as winners of
the national food and drink category.
The East Anglian Daily Times Business Awards 2015 were presented last night
at a glittering event at Trinity Park. Birketts sponsored the family business
category again this year and were joined by our three finalists, The Cake Shop
Bakery, MEL Aviation Limited and Claydon Drills Limited, all very worthy finalists.
The quality of entrants this year was outstanding and the team visited a very
diverse range of entrants which made deciding our finalists quite difficult.
Congratulations to MEL Aviation who won this category. In fact, it was a terrific
night for family businesses across the categories, Guy Taylor of The Granary
Estates winning Young Business Person and Des Smith of Aspall winning Director
of the Year. The winner of the large business category was Muntons who went
on to win the Business of the Year 2015 with MEL as runner up.
Finding the oldest family business in East Anglia
In association with Family Business United, we are delighted to be
sponsoring a project to uncover the 10 oldest family businesses in
East Anglia.
Contenders so far include Aspall 1728, D Gurteen & Co 1784, The Jarrold Group
1770, C T Baker Ltd 1770, Start-Rite Shoes 1792, W & H Marriage & Sons 1824
and Swiss Laundry 1904. If you are interested in seeing the complete listings to
date visit www.familybusinessunited.com/resources/oldest-family-business/. The
results of our research will be announced in September.
A call to family businesses in the Great Yarmouth area
We are delighted to be sponsoring the ‘Great Family Owned
Business Award’ category in The Spirit of Enterprise Awards 2015.
The Spirit of Enterprise Awards is organised by enterpriseGY, which is funded
by Great Yarmouth Borough Council to promote enterprise in the borough and
support business start-up and growth. If you are interested in entering your
business and are based in the Gt Yarmouth area please enter online by visiting
www.soea.co.uk.
Clear Legal Advice
Cambridge Chelmsford Ipswich Norwich
www.birketts.co.uk/familybiz