clarkewillmott.com
Retail Briefing
New Year Edition 2014
Clarke Willmott LLP
Retail Line
Welcome
My word is my bond:
should retailers consider different ways of raising
funds?
Andrew Beedham (Corporate Partner at Clarke
Willmott) and Debbie Clarke (Head of Corporate
Finance at CV Capital) look at the opportunities for
privately owned retail businesses to raise loan capital
by bond issues.
The popularity of private company bond issues and
debt private placements is growing and a number
of high profile names have started to use them to
raise debt capital. King of Shaves, Hotel Chocolat
and Mr & Mrs Smith Hotels, to name a few, have
successfully used bonds to raise money from the
public over the last few years.
Listed plcs have been issuing corporate bonds to
the public for some time now, but larger private
companies did not start to use these instruments
until about five years ago.
What are private bonds?
Private bonds are debt instruments used to raise
money, the proceeds of which are used by a
private company, often for working capital or to
fund acquisitions. Typically they are secured on the
revenues of the company rather than its assets, but
this can vary. Larger private companies are starting
to look at this route as an alternative to bank
funding but we usually suggest that it should not be
seen as a substitute.
Private bonds can be seen as complicated to put in
place and this might seem daunting, but in reality it
is not significantly different to raising equity capital
privately and a competent team of advisers with
experience in this market can guide you through
the process. Private bonds can also be cost
effective compared with typical bank debt if the
company is of a size and financial standing that
would attract a good external credit rating.
How do private bonds work?
Retailers looking to raise capital can issue a fixed
term bond (typically three to five years) to a fixed
number of potential investors, paying them a fixed
rate of interest. The coupon is usually higher than a
private company would have to pay to a bank for a
senior loan facility, but lower than an equity investor
may require. A number of private bond issues
in the retail market have included other benefits
or incentives for the investor, such as discounts,
which can be attractive to wealthy private investors.
Traditional bank debt normally requires borrowers
to comply with strict covenant restrictions and
companies offering private bonds will need to
attach similar restrictions to this debt instrument to
give potential investors comfort that the borrower
will not over trade or take on significantly more debt
until the private bond is paid back.
What are the risks?
to the New Year
edition of Retail
Line
One of the frustrating issues for retail
businesses over the last few years has been
the difficulty in finding suitable investment or
funding opportunities. But perhaps the ONS
report of strong sales across the sector in
December and increasing confidence in the
economy will lead to greater prospects for
retailers in 2014.
In this edition of Retail Line we look at
some of the options that our clients are
considering and we begin by looking at the
potential for raising capital through bond
issues. We also look at how retailers can
expand their businesses through franchising,
or by offering new and diverse stock
imported from overseas.
Debbie Clarke, head of Corporate Finance at CV
Capital, makes the point that bonds are not suitable
for everyone. She comments that “before issuing
a private bond the advising accountants will insist
that the directors of the company issuing the bond
carry out a solvency review to ensure that it has the
ability to fund the business and pay the interest and
capital back over the period of the bond issue. The
board must be comfortable that the company can
pay the interest and capital on the bond since the
reputation of the company is at risk if investors call
in any guarantees and talk about their experience.”
Our experts also advise on the following
issues:
CV Capital LLP are corporate finance specialists
and part of national accountancy firm Chantrey
Vellacott DFK.
Counterfeiting and piracy: the new EU
enforcement database
For further information about private company bond
issues or debt private placings, please contact:
Directors’ duties: the steps businesses
can take to avoid damage to the company
reputation
Health and safety: changes to liability for
accidents at work
Construction contracts: ensuring that the
details are correct
Graham McIntyre
Head of Retail
0845 209 1471
[email protected]
Andrew Beedham
Partner
0845 209 1040
[email protected]
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Directors behaving badly…
The recent scandal rocking the Co-operative Group has shown that the
reputation of any business may be seriously tarnished by the conduct of just
one director. While it is difficult for businesses to control the activities of their
staff, steps can be taken to enable a quick response when those activities
result in damage to the company.
In a monochrome corporate environment, a charismatic leader
undoubtedly contributes to an organisation’s success - witness Sir
Richard Branson at Virgin and Steve Jobs at Apple - but what happens
when a business is publicly embarrassed by one of its directors
behaving badly? The spiral of bad publicity takes hold very quickly
and can be extremely difficult to check. Gerald Ratner’s departure
from H Samuel and Fred Goodwin’s behaviour at RBS demonstrated
how extensive the damage can be. Faced with this situation a board
of directors will want to act decisively but must consider both the
employment and corporate law implications.
ordinary resolution, but twenty eight days’ notice of this is required and
so is something of a last resort.
Specific wording can, however, be included in the director’s service
agreement enabling the company to operate an “attorney clause” in the
event that a director refuses to resign for tactical reasons.
When things go wrong they do so quickly, so before a situation arises,
businesses should:•
The dismissal of any employee requires careful management; it must
be seen to be fair and follow correct procedures. In the case of a senior
executive, balancing good employment practice against commercial
sensitivities and the need to act quickly is often difficult. No business
wants a protracted, public dispute.
Gross misconduct may permit the summary termination of an
employment contract, but if proper procedures are not followed an
unfair dismissal claim may result. A director’s poor performance or a
clash of personalities is unlikely to justify summary dismissal; instead a
company will usually negotiate a settlement package which reflects an
individual’s potential claims and offers both sides a speedy resolution.
However, unless a specific exemption applies, the Companies Act 2006
prohibits any payment to a director for loss of office without shareholder
approval. Moreover no employer wants to be seen rewarding poor
performance and for listed companies, under close scrutiny from
shareholders and the financial press, this is a real issue.
An important distinction must be made between terminating a
director’s service agreement and his office as director. As part of any
negotiations, obtaining the resignation as director of the company (and
any subsidiaries) is crucial. Until his resignation or removal, a director
is entitled to attend board meetings and has access to board papers.
Any attempt by the company to exclude or limit this may affect the
validity of board decisions. The company’s constitution rarely provides
for the automatic removal from office of a director if his employment is
terminated. Legislation does provide for the removal of a director by
•
ensure that all directors understand their duties and
responsibilities to the company with education updates and
regular peer reviews at board level; and
review existing service agreements and contracts of employment
to ensure that all employees have properly drafted arrangements.
For further information about directors duties or any other corporate
issues, please contact:
Simon Thomas
Partner
0845 209 1359
[email protected]
For information about employment issues, please contact:
Sharon Latham
Partner
0845 209 1332
[email protected]
Marc Long
Partner
0845 209 1581
[email protected]
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Focus on: Franchising
Many business owners who have survived the recession with an established
and successful business model, are beginning to consider investment or
expansion, but are wary of overstretching themselves financially or exposing
their business to an uncertain marketplace.
In these circumstances, franchising provides opportunities for the
business to expand fairly quickly, while allowing the owner to retain
control of their brand, image and product. For someone starting their
first business, investing in the franchise of an existing brand can provide
support and a competitive advantage that might otherwise take many
years to establish.
Clarke Willmott has significant experience working for both franchisees
and franchisors. A franchise is subject to the same laws that govern
all businesses but as well as being experts in their own legal fields, our
franchise specialists understand the commercial impact that decisions
made at the outset will have on the long term success of the business.
Ed Foulkes, a partner in our corporate team, has advised franchisors in
the retail, recruitment and financial services sectors and recognises that
this sector-specific approach is important.
“When acting for a franchisor, it’s important to understand the value
of the brand, while advising on the nature of rights being granted or
acquired. The franchise agreement is the key document and it is
particularly important to concentrate on the obligations of the parties,
the restrictions to which they are subject and any exit provisions.
Above all, however, a franchisor wishes to retain control of the brand,
so it is vital to have protectable (and if possible registered) IP rights to
prevent infringement destroying the value.”
law. Recent instructions have come from ECCO shoe shops, Esquires
Coffee Shops and Burger King.
Ed’s own recent experience includes:
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advising franchisors in the recruitment sector (where he assisted
with introduction and commission agreements, and the terms and
conditions of trading to be used by franchisees);
advising a franchisor within the financial advisory sector, where
FCA regulation formed a key part of the advice;
advising on the acquisition and disposal of franchised businesses
within the franchise structure. Sectors include sports coaching,
fast food outlets and heath care.
The nature of a franchise often makes international expansion an
appealing prospect and the Clarke Willmott team is used to dealing
with cross-border applications; for example, Ed is currently dealing
with the disposal of a master-franchise covering the UK, Ireland and
Southern Europe to its US-based principal, the consideration being in
excess of £10 million.
If you would like further information about franchising or any other
corporate issue, please contact:
Ed Foulkes
Partner
0845 209 1877
[email protected]
The Clarke Willmott franchise team includes experts in IP and IT,
corporate and commercial issues, property, employment and regulatory
Health and safety:
changes to liability for accidents at work
Earlier this year we reported on Government proposals to reform civil liability
in health and safety cases. Legislation has now been introduced to implement
some of those changes.
Previously, an employer could be liable to pay compensation to
someone injured at work on the basis that there had been a breach
of health and safety duties, even where the employer had taken all
sensible steps to prevent injury.
For retail employers and their insurers, the removal of strict liability in
health and safety claims is significant because it allows them to defend
claims of a breach of duty and makes it more difficult for workers to
bring speculative claims for compensation.
Since 1 October 2013, people injured at work must prove that their
employers have been negligent before they can succeed in a claim for
compensation.
For further information about any health and safety issues, please
contact:
An employer still has a statutory duty to ensure the safety of their staff
and workers are entitled to claim compensation when their employer, or
somebody who owes them a duty under a regulation, has fallen below
the standard required by that rule, but the new changes radically alter a
worker’s right to compensation for injury.
Lee Hart
Partner
0845 209 1465
[email protected]
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Importing goods for sale in the UK
Importing goods for sale in the UK allows retailers to offer a varied and
competitive stock, but it can be a financially risky business which requires
careful planning. Understanding how the operation will work and the risks
and potential pitfalls that are involved, can help you avoid some expensive
mistakes.
Contracts
Ensure that your contracts with overseas suppliers are properly drawn
up and clearly establish your rights and responsibilities.
For example, you need to know which court will have jurisdiction in the
event of a dispute. If a contract provides that the laws of an overseas
country will apply, it is important you understand how the laws in that
country will apply and operate in your particular circumstances. If you
have any doubts, insist that English law and the jurisdiction of the
English courts will apply so that you can sue in your home court. This
will give you advantages in terms of cost and convenience, although
problems can arise in enforcing a Judgment made in England if the
supplier is based exclusively in another jurisdiction.
The structure of your contract will therefore involve a careful balancing
act, but by taking appropriate legal advice at the outset you can avoid
considerable inconvenience and cost in the long term.
Other practical considerations:
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Payment. When and how will you make payment for your goods?
Exchange rates may vary after an order has been placed, which
will ultimately influence the amount you have to pay.
Transportation. How will the goods be transported and,
importantly, who is going to pay for the transport? It is important
to consider who will carry the risk if something should go wrong
while the goods are in transit and whether some form of insurance
is necessary.
Regulatory issues. Do the goods comply with all the relevant
UK legislative requirements? Who will make the relevant
customs declarations for you to that effect? Checking for safety
compliance is especially important and can help avoid unwanted
visits from your local trading standards officers. Are the goods
subject to import quotas? Do you need a licence for the goods
you wish to import?
As an importer, it is your legal responsibility to pay any import duty
that may apply to the goods, so check carefully what this will be
before you agree to buy. It is essential to make the appropriate
declarations to HM Revenue & Customs and bear in mind that it is
necessary to complete a declaration if your purchases from an EU
state total more than £600,000 per annum.
Intellectual property issues. The threat of IP crime
(counterfeiting and piracy) is substantial and increasing. To protect
your organisation you should take all necessary steps to ensure
the provenance of the goods you are importing. Be vigilant in your
dealings and regularly review the supply chain to identify potential
weak links.
Managing the risk
natural disasters can cause chaos and language barriers can create
misunderstandings.
If you are importing goods in substantial quantities or which carry
a higher value, insurance is recommended to ensure that your
interests are protected against destruction, delay, loss or damage.
Decide whether the obligation to insure will be yours or the supplier’s
responsibility and agree who will pay the cost.
Undertake proper market research. Local knowledge can be
invaluable, whether you are importing a modest supply of goods,
or considering a larger, long-term venture. Particular long-term
contractual commitments, such as in relation to minimum quantities
and price, are best avoided and it is always sensible to have a
contingency plan in case something goes wrong.
If you have any concerns about your supply chain or contractual issues,
please contact:
Stuart Farr
Partner
0845 209 1051
[email protected]
For advice about counterfeiting or piracy issues, please contact:
Roy Crozier
Partner
0845 209 1900
[email protected]
The economy, business culture, commercial and political environments
of the exporting country may be very different from those in the UK. For
instance, a country can impose export controls almost without warning;
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Construction: The little details that make a difference
Incorrect information in a contract, even if it is an innocent error, can lead to
huge losses. In two recent cases on construction contracts the Courts have
refused to correct the names of contracting parties which had been entered
incorrectly into contracts/insurance policies.
In Liberty Mercian Limited v Cuddy Civil Engineering Limited & Anor,
Liberty Mercian contracted with a company trading as Cuddy Group.
Liberty’s solicitor asked for the contracting party name to be changed
to Cuddy Civil Engineering Limited (“CCEL”). CCEL, however, was a
dormant group company and the company which should have entered
into the contract was Cuddy Demolition and Dismantling Limited
(“CDDL”). When Liberty attempted to terminate the contract, it sought
a declaration that the contract was entered into with CDDL rather than
CCEL.
The High Court decided that the signing of the contract between
Liberty and CCEL could not be viewed as a mistake and could not be
corrected. Where a contract is clear on its face and reflects the parties’
expectations at the time it was entered into, the Courts remain reluctant
to interfere.
In the second case, Genesis Housing v Liberty Syndicate Management
the claimant housing association had engaged a contractor who
became insolvent before the project completed. Genesis made a claim
under its insurance policy issued by the defendant, Liberty. Liberty
refused to pay out when it discovered that the contractor’s name
had been incorrectly entered on insurance forms as “Time and Tide
Construction Ltd” rather than “Time and Tide (Bedford) Ltd”.
Genesis took its case to the Court of Appeal in an attempt to force
Liberty to make payment. The Court found that the policy was void
due to the error because cover was being provided against the risk of
insolvency or defective work of an identified builder. What had seemed
to be a minor error on the insurance form ultimately cost Genesis
£460,000.
Once you have identified the correct company/entity:
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make sure that all correspondence in relation to the contract is
with the correct company/entity
check that the party named in the contract and the company/
entity signing the contract are correct (we have seen a contract
with one company name shown as a party and a different
company name in the execution clause)
check that all insurance forms and evidence of insurance are in
the correct company/entity name
It is also important for parties to ensure that their own name is correctly
entered on a contract. Only the company entering into the contract can
sue upon the contract. For example, if the wrong company name is
entered on any joint All Risks insurance policy, that company may have
difficulty making a claim under the contract or the insurance.
It may seem obvious but, as Liberty and Genesis both discovered,
taking a few minutes to check that the names of the parties entering
into a contract are accurate, can save a great deal of time, money and
embarrassment in the long term.
For further information, please contact:
Emma Wiltshire
Partner
0845 209 1439
[email protected]
Retail developers may be entering into building contracts, refurbishment
contracts, fit out contracts, consultants’ appointments and other
associated documents with contractors and consultants who may
have multiple companies within a group and often trade under different
names. Any party to a construction contract should ask which
company (or other entity) will be entering into the contract and carry
out credit checks on them - if Liberty had done this they should have
discovered that CCEL was a dormant company. These cases apply to
construction contracts, but the point is valid for all contracts.
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Clarke Willmott case studies:
acquisition of motorway service areas
Extra MSA Group is a motorway services area group based in Peterborough.
Clarke Willmott was instructed in relation to the acquisition of 18 motorway
service area sites across the UK. The total transaction value was in excess of
£600m.
“Extra and I are pleased to have worked with Clarke Willmott on this
important and strategic transaction. This expands Extra’s investment
ownership of substantial Motorway Service Areas to 18 key locations in
the UK Motorway Network.” Andrew Long, CEO of Extra Group.
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Instructions
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We were instructed to acquire two portfolios of motorway service
area sites.
The first acquisition involved buying a group of companies that
owned eight operational sites plus a development site on the M25
at Cobham.
The second acquisition involved the purchase of nine sites let to a
well known motorway services operator.
Extra paid in excess of £300m for each portfolio funded by a
combination of off-shore equity investment and bank debt.
Each portfolio was sold by administrators as part of a competitive
process with very tight timescales.
Solution
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The project was co-ordinated by lead partner Andrew Beedham
(Corporate and Private Equity) with banking partner Kelvin
Balmont handling the bank funding and real estate partner William
Juckes leading the property team.
We put together a team of lawyers from across our offices, with
expertise in corporate, commercial, banking, real estate, property
litigation, construction, employment, planning and environmental
law.
Important aspects of our work included:
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Carrying out extensive due diligence on the sites and the
companies that owned them to satisfy our client and their funders
in relation to these complex retail assets.
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This included running an electronic data room and setting up
a dedicated client extranet so that our client had direct on-line
access to the substantial volume of documents.
Negotiating complex acquisition documents, including provisions
for additional payments which were dependent on the timing
and cost of opening the development site and underlying trading
performance at certain other sites.
Setting up ownership structures that were commercially effective
for our client and its equity backers.
Negotiating complex loan facility agreements with the syndicate
of bank funders and completing the detailed list of conditions
precedent required to be satisfied before the banks would release
the acquisition funds.
Benefit
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We delivered both acquisitions on time and on budget. The
funders were comfortable with the individual portfolios and our
client was very happy. The client continues to instruct us on ongoing matters including future acquisitions.
For information about corporate and private equity issues, please
contact:
Andrew Beedham
Partner
0845 209 1040
[email protected]
For information about commercial property issues, please contact:
William Juckes
Partner
0845 209 1340
[email protected]
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The fight against counterfeiting and
piracy in the EU: the new Enforcement Database
The new system works by brand owners ‘uploading’ to the database details
of their trade marks and those goods the trade marks are applied to, all of
which will be accessible by enforcement agencies searching for counterfeit
goods.
Uploads can include information such as pictures, packaging/product
identifiers or details about prior counterfeit cases. The database is free
to use, however, brand owners must have a registered trade mark
within the EU to be able to do so.
The database integrates with both the customs and police internal
networks. Any information uploaded to the database will be translated
into the official languages of the EU and held centrally for use by
customs/border officials across all EU member states. Where an IP
owner so chooses, there are options to modify viewing rights attached
to the Enforcement Database so that certain information is not available
to specific enforcement agencies.
Roy Crozier, joint head of the Intellectual Property Group at Clarke
Willmott LLP states “It is hoped that IP infringement identification will be
better coordinated and more readily picked up by the implementation of
such features. Much of the success of the new system will undoubtedly
depend on the numbers of IP owners that register, but it has the
potential to be a valuable asset to both brand owners and enforcement
authorities”.
For further information, please contact:
Roy Crozier
Partner
0845 209 1900
[email protected]
Furthermore, IP owners will be able to file Applications for Action
electronically directly into the customs system.
Clarke Willmott’s forthcoming events
Bristol Property Forum (BPF)
Established in 1999 BPF is a quarterly early-morning session for all
those involved in the property sector, whether occupiers, investors,
regulators or professional advisers. It is intended as a non-exclusive
group for those interested in the continuing success of Bristol as the
regional capital for the provision of high quality property services.
In addition to providing a useful networking opportunity (delegates
currently average 80) the meetings offer presentations by experts
in their field with an opportunity for questions and discussion.
The presentations are intended to give a thought-provoking wider
perspective on the world of property and the possible changes and
challenges for the future.
2014 dates:
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27 March (topic TBC)
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12 June (topic TBC)
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18 September (topic TBC)
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27 November (topic TBC)
For further information, please contact [email protected].
Bristol 10k 2014
Clarke Willmott is proud to sponsor the 7th Bristol 10k Business
Challenge 2014 taking place on Sunday 11 May 2014. This ‘race
within a race’ is aimed exclusively at businesses.
Prizes will be awarded in the following categories:
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Fastest team
The Bristol 10k is now one of the most popular races of its kind in the
UK, with the ambition to grow even more. This is a great opportunity
to promote a healthy workforce, build a strong team spirit and cultivate
links with other businesses whilst raising money for charity.
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Fastest man
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Fastest woman
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Fastest male veteran (over 40)
•
Fastest female verteran (over 35)
For further information, please contact [email protected].
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Birmingham Office
Bristol Office
138 Edmund Street, Birmingham, B3 2ES
1 Georges Square, Bath Street, Bristol, BS1 6BA
T: 0845 209 1000 F: 0845 209 2001
T: 0845 209 1000 F: 0845 209 2002
T: +44 117 305 6000 F: +44 117 305 6001
T: +44 117 305 6000 F: +44 117 305 6001
London Office
Southampton Office
1 Chancery Lane, London
Burlington House Botleigh Grange
WC2A 1LF
Business Park, Hedge End, Southampton, SO30 2AF
T: 0845 209 1000 F: 0845 209 2514
T: 0845 209 1000 F: 0845 209 2003
T: +44 117 305 6000 F: +44 117 305 6001
T: +44 117 305 6000 F: +44 117 305 6001
Taunton Office
Manchester Office
Blackbrook Gate Blackbrook Park Avenue,
2nd Floor, 19 Spring Gardens
Taunton TA1 2PG
Manchester, M2 1FB
T: 0845 209 1000 F: 0845 209 2004
T: 0845 209 1000 F: 0845 209 2005
T: +44 117 305 6000 F: +44 117 305 6001
T: +44 117 305 6000 F: +44 117 305 6001
If you would like to receive future editions of Retail Line
by email please email [email protected]
Disclaimer: This briefing is intended to highlight issues only for the purposes of general interest and is not intended to be a comprehensive
statement of the law. Although we have taken care over the information, you should not rely on it as legal advice. We do not accept any liability to
anyone who does rely on its content.
Clarke Willmott LLP is a limited liability partnership registered in England and Wales with registration number OC344818. Authorised and regulated
by the Solicitors Regulation Authority (SRA number: 510689), whose rules can be found at www.sra.org.uk/handbook. Its registered office and
principal place of business is 138 Edmund Street, Birmingham, West Midlands, B3 2ES. Any reference to a ‘partner’ is to a member of Clarke
Willmott LLP or an employee who is a lawyer with equivalent standing and qualifications and is not a reference to a partner in a partnership.
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