The Red Tape Challenge is a website-based project aimed at identifying – and scrapping – unnecessary regulations. Over the past few months, the Government has been asking interested parties to submit a response on the website, suggesting which regulations across various sectors should be scrapped, merged with other regulations, simplified, or improved. The focus is now on company law regulations. Further details on the Red Tape Challenge are here.

The Department for Business, Innovation and Skills (BIS) has invited comments on how it might reduce the administrative burden placed on UK businesses, whilst continuing to provide adequate protection for creditors, customers and suppliers. It highlights approximately 120 pieces of company legislation for review, under four headings: The Workings of Companies and Partnerships; Accounts and Returns; Business Names; and Disclosing Information about your Business. Comments can be made here.

BIS has also published a Discussion Paper, Providing a flexible framework which allows companies to compete and grow, which seeks views on how the company law framework can be improved in all areas. The Discussion Paper poses a number of questions in relation to the possible improvement in the following further areas of company law. These include:

1. Company names. BIS asks for views on whether the law on company names causes problems and delay;

2. Company filings. BIS asks whether it would be beneficial to be able to file an annual return and accounts together and how the system should change to best accommodate that;

3. Rights to inspect company registers. BIS asks for suggestions to improve, in practice, how registers may be inspected;

4. Penalties and enforcement. BIS asks whether the existing UK system of setting of fines and penalties is the most appropriate method for achieving compliance with the law; and

5. Employee share schemes. BIS asks whether existing company law as regards the design and operation of company share ownership schemes requires amendment or simplification.

The Red Tape Challenge is focusing on company law until 16 February 2012, but comments on UK regulation can be made after this date (although it is not clear to what extent the Government will take account of comments it receives after 16 February.) The Discussion Paper does not specify a date by which the Government must receive responses to the specific questions posed.

One opportunity has been seized by big Pharma company, Bristol-Myers Squibb, through its recent acquisition of Inhibitex, a biopharmaceutical company, at a cost of US$2.5 billion. Inhibitex is currently developing a promising new hepatitis C drug, which though currently only in Phase II development has shown great potential. With over 150 million people worldwide suffering from hepatitis C and over 75% of liver disease being attributed to the illness, producing an effective drug to combat or manage the disease is foremost in the mind of the Pharma industry today; and Bristol-Myers Squibb is not alone. Only last November, Gilead Sciences, Inc agreed to pay US$11 billion for Pharmasset, Inc, another company refocusing on the development of further hepatitis C treatments and with Merck, Vertex and Johnson & Johnson also rumoured to be targeting the hepatitis C market, we can see that big Pharma are on the hunt.

Laura Mole, a member of MAB’s Pharmaceutical and Life Sciences Sector team says, “This latest acquisition by Bristol-Myers Squibb is living proof that the industry is changing and big Pharma are almost panic buying in order to build and diversify their portfolios. This is shown by the acquisition of not only market ready products but also drugs still in the development stages. It is clear that with the Patent Cliff threatening, and with Bristol-Myers Squibb itself to fall victim with its soon-to-expire patent protection on blockbuster drug Plavix, any opportunity to grow and protect will be taken. Small/mid sized Pharma had better be ready for the bidding war to come.”

India and China both have an established and successful generics based pharmaceutical industry and as tens of billions of pounds of  patent protected drugs come off patent soon (known as the “patent cliff”), they look set to benefit by releasing cheaper generic  alternatives – making themselves a small fortune in the process. Both the Wall Street Journal and BBC News have reported on the most recent victim of the patent cliff in which India-based firm Ranbaxy Laboratories Limited confirmed the release of an FDA-approved generic version of the 10 billion dollar a year drug “Lipitor” owned by the global pharmaceutical company, Pfizer. The new generic drug will be called “Atorvastatin” and with Lipitor’s patent having now expired, there is nothing Pfizer can do about it – except try to develop itself or buy in the next big thing from another research and developer.

With such a Robin Hood approach to pharmaceuticals there are mixed opinions about the impact the patent cliff is having on the pharmaceutical industry as a whole. The large pharmaceutical companies claim that the patent cliff is affecting their ability to raise funds for research and development which in turn is inhibiting advances in new and improved pharmaceuticals, to the detriment of patients. The smaller generic based companies and some consumer groups however are hailing the patent cliff as an opportunity to offer a wider-ranging and affordable selection of medicines to both the public and private sectors.

Laura Mole, from Matthew Arnold and Baldwin LLP’s Pharmaceutical and Life Sciences Sector Group Team, says, “Whilst I appreciate continued research and development in the pharmaceutical industry as a whole is vital for the production of new, more advanced drugs to combat human illness, I cannot help but see good quality, affordable alternative medicines as a good thing for the consumer and the NHS in these difficult financial times. More drugs will cost less so more patients will benefit. The important thing in the long-term, though, is that there is sufficient funding in the industry to incentivise continued research and development so that patients continue to benefit with further medical advances. More of the early-stage development is being done by start-up companies, with big pharma companies stepping in if the prospects look good.”

The High Court has sided with the previous owners of the pharma business. Applying the principles from landlord and tenant cases in relation to interpretation of the phrase “not to be unreasonably withheld”, it said:

• The burden had been on 3M UK to prove that the refusal of consent was unreasonable.
• The sellers did not have to show that their consent was justified – only what someone in his position would reasonably have done in the circumstances. It was no surprise that the sellers had viewed 3M UK’s statements and profit projections with scepticism and it was reasonable for them to expect far clearer evidence of future figures.
• In deciding what was reasonable, the sellers only had to consider their own interests in earning as large a payment as possible. This was the case unless the benefit to one party was so disproportionate to the detriment of the other.
• The sellers did not have to balance their interests with anyone else’s in coming to that conclusion.

When a buyer purchases a business, it usually wishes to ensure that the seller cannot compete with the business of the target post-sale. We therefore recommend that restrictive covenants are included in any sale and purchase agreement.

Facts of the case

In this case the restrictive covenants in the sale and purchase agreement included a non-solicitation clause which prohibited the defendant from soliciting, canvassing or enticing away the customers of the target business for three years following completion. Before that three year period ended, the claimant noticed that some of its clients were moving to the firm where the defendant now worked. Clients had never moved to that firm before and the claimant issued proceedings for breach of restrictive covenant by the defendant.

Decision

The High Court ruled that the restrictive covenant had been breached due to the defendant’s actions and intentions on the following ground that the evidence showed that:

- there was a secret intention between the defendant and his new employer of an intention to acquire the claimant’s client base and a clear intention of the defendant to solicit the claimant’s clients for his new employer; and

- there were a number of clear actions by the defendant which solicited the clients for his new employer, including calling and meeting clients and encouraging them to follow his move.

The High Court considered that no client could have been guaranteed to stay with the claimant firm for more than one year but ruled that damages should be payable to reflect that one year’s revenue, such that the defendant was liable to pay damages of £31,875.

Comment

This case shows the importance of putting restrictive covenants into a sale and purchase agreement. Restrictive covenants must be very carefully drafted so as to be reasonable when considering their length, geographical effect and scope, and are interpreted on a case-by-case basis by the court, but this case highlights that time spent drafting such provisions can be time well spent.

Baldwins (Ashby) Ltd v Maidstone

SGC owns two other UK-based gaming and amusement machine operators – The Global Draw and Games Media. Global Draw is estimated to have a 43% share of the gaming and amusement machine market.

How difficult is it to gift a share? This was the question asked by Lady Justice Arden in her judgment in Shah v Shah [2010] EWCA Civ 140. The case considered whether or not a letter accompanied by an incomplete stock transfer form manifested an intention to make a gift or an intention to create a trust.

Until a transfer of shares is registered in the statutory books of a company, the transferor remains the legal owner of the shares. Therefore, a gift of the legal interest in a share is not complete until registration has taken place. However, a transferor can transfer the beneficial interest in a share prior to the transfer of the legal interest by declaring that they are holding that share on trust for the transferee.

Facts of the case

After a family feud and successive litigation two brothers (D and R) executed and delivered identical letters and stock transfer forms each purporting to dispose of 4,000 shares in a company in favour of their brother (M). However, the stock transfer forms were left undated and the consideration (being the money or monies worth provided in exchange for the transfer) was left blank. The company subsequently completed the stock transfer forms and registered the shares in M’s name. The case went back to court because D challenged his disposition to M on the basis that the letter he signed constituted a gift and as the gift was not completely constituted, it was of no effect.

The letter stated:

“This letter is to confirm that out of my shareholding of current 12,500.00 in the above company I am as from today holding 4,000 shares in the above company for you subject to you being responsible for all tax consequences and liabilities [arising] from this declaration and letter.”

Decision

The Court considered the words used in the letter in the context of all of the relevant facts rather than the alleged subjective intentions of D. On that basis, the Court found that there was no question that the words demonstrated an intention to dispose of the shares immediately by the use of the words “as from today”. However, the effect of the words “as from today” in law was to dispose of the beneficial interest only at that point as legal title did not pass until registration. The use of words “I am holding” as opposed to “I am assigning” or “I am giving” and the concept that D held the shares for M until he lost that status on registration could only be given effect in law by the imposition of a trust. On that basis the court found that D must be taken in law to have intended a trust and not a gift. The Court went on to find that D had intended that registration of the transfer would take place in due course otherwise why would he have also executed and delivered a signed but undated stock transfer form?

Comment

Returning to the original question in her judgment, Lady Justice Arden concluded that it is not difficult to make a gift of shares but it may take time to complete the gift by registration of the shares in the name of the transferee. If you want to make an immediate gift, one way of doing so is to declare a trust.

Where, as in this case, the fundamental motivation for the transfer was a fear on the part of the director that he was going to be subject to a major claim against him arising out of his misappropriation of funds in a bank account in respect of which he had fiduciary obligations, the director could not of his own volition tranfer some of his shares in the company by way of a gift to his daughter and wife.  The company had not authorised the director to issue share certificates to his wife or daughter or to record them as shareholders in the company’s register of members. Accordingly, legal title had not been effectively transferred.  In effecting the gifts, the director had tried, without success, to realise an immediate and outright transfer of his beneficial interest. However, no amount of benevolent construction of those transactions could lead to a conclusion that the director was intending to declare himself a trustee in respect of  his shareholding. Moreover, the director had failed to take the necessary steps sufficient to enable his wife and daughter to obtain a transfer of the shareholding without further recourse to assistance from him. All they received were documents purporting to be new share certificates in their names which the director had created without the company’s authority. The result was that, without the director’s assistance in making available the duly completed stock transfer forms, neither his wife nor his daughter could perfect the intended gifts. Accordingly, no beneficial interest had been transferred.

This case highlights once again that people trying to put their personal assets (in this case shares) beyond the reach of creditors will come unstuck if their motivation is to defeat the interests of those creditors. Furthermore, the case also highlights the importance of company board meetings approving share transfers. A proper transfer of shares requires: (i) the transfer to be approved by the directors passing the requisite resolution (usually at a duly convened board meeting, but as an alternative, the resolution could be passed by directors’ unanimous written resolution); and (2) the directors also resolving to approve a person (normally another director or the company secretary) to deal with the mechanics of recording the transfer in the company’s statutory records, and to issue new share certificates. Furthermore, if a transferee only wishes to transfer the beneficial and not the legal title, then he or she should enter into an appropriate trust instrument, for example, a Declaration of Trust over the shares, clearly setting out who the beneficiaries are and the exact details of the shares which are the subject the trust. Otherwise, as this case highlights, going forward there could be be serious question marks over the validity of the share transfer as well as the the validity of any purported transfer of the legal and/or beneficial title to the shares.

The EC’s decision shows that there were serious competition concerns in relation to the merger, in particular with regards to the potential bundling of CPUs from Intel with the security products produced by McAfee, if such bundling did not allow for interoperability of the McAfee security products with the CPUs manufactured by Intel’s competitors and vice versa.

As a result, the EC gave its conditional approval to the acquisition under the EC Merger Regulation, the conditions being that such interoperability be possible and all necessary information for interoperability be made available to Intel’s, and McAfee’s, competitors.

These Regulations will implement in the UK the 2009 EU Directive on reporting and documentation requirements in the case of mergers and divisions, which must be done by 30 June 2011. This Directive makes various deregulatory amendments to several other EU directives, with the aim of simplifying some of the processes on public company mergers, the formation and capital of public companies, and cross-border mergers, by enabling companies to make use of new technology, removing over-regulation and protecting creditors.

The Regulations will amend Parts 17 (A company’s share capital) and 27 (Mergers and Divisions of public companies) of the Companies Act 2006, and also the Companies (Cross-Border Mergers) Regulations 2007.

It is hoped that the Regulations will reduce the administrative burden on companies. This includes, amongst other things:

1. Taking advantage of technology. Companies will be able to make use of electronic communications for the circulation of certain documents that would previously have had to be made available, or filed, in hard copy format. For example, documents will be able to be published on a company’s website or sent to shareholders electronically; and

2. Removing overregulation. A reduction in the need for companies to produce certain reports or statements (for example, expert’s reports, share valuation reports, directors’ reports, or other financial reports), where to do so might duplicate existing information.

BIS has not proposed changes in the area of strengthening creditor protection, as it considers the existing UK regime to already meet the 2009 Directive’s requirements.

BIS invites comments on the draft Regulations by 13 March 2011. Full details are here (Word doc) and here.

The LSE is concerned that the FRC will not be able to deal with the real-time monitoring and response required by the UKLA’s functions and this will put London at a disadvantage compared to other markets.

The Association of Investment Companies (AIC) has recently published guidance for directors of investment companies to help investment company boards obtain the most appropriate D&O policy. Whilst aimed at investment companies, the guidance highlights principles that directors of other types of company may find useful.

Key points of the guidance worth noting include:

• The board of directors should always remain responsible for arranging their own D&O policies so that they are aware of what is and what is not covered. This is particularly important when subsidiary companies are involved under a group company structure.
• If the board is made responsible for putting in place the D&O cover this will help to ensure that all directors on the board are aware of what losses can and cannot be claimed against.
• Directors should receive advice on the D&O policy before making a claim as inaccurate reporting may lead to insufficient recoveries under the policy.
• Any new directors should be provided with a copy of the D&O policy.
• Consideration should be given as to what effect a merger or acquisition may have on the D&O policy.

If you would like further information on D&O policies, or to see the AIC’s guide in full, please do not hesitate to contact Emma Cameron, or another member of the corporate team at Matthew Arnold & Baldwin LLP.

Wenta is the Enterprise Agency for Hertfordshire and Bedfordshire, and plays a significant role in supporting the local economy. It recently created two business incubation centres at Stevenage and Luton, which are designed to assist entrepreneurs, help create successful businesses and act as a source of support to new start-up companies across the two counties. Following the creation of these two centres, Wenta has been looking to strengthen its Board of Directors with accomplished professionals from the local business community.

Wenta’s Chief Executive, Chris Pichon, commented on Wenta’s website that the Agency is “constantly sourcing new ways to support, train and advise those involved in running start-ups and small businesses. Richard, [Steve and Julie] will be instrumental in steering the organisation forward as well as being our ambassadors in the community. We believe their experience, knowledge and skill set will help Wenta build on its successes and create new ones in the future.”

Richard commented: “I’m delighted to be involved, given the support Wenta offers to the local business community. As a stakeholder in local business (being a significant employer and given the wealth of businesses and owners of business that Matthew Arnold & Baldwin advises), the firm has always considered the support given to growing businesses at their early stage by Wenta and other like bodies as absolutely crucial. Matthew Arnold & Baldwin has been involved with Wenta since its inception and I am enthused to be able to play my part and help it continue to develop across the region.”

• Acceptance condition thresholds

The Committee considers that changing the threshold at which conditions can be accepted could better reflect the views of longer term shareholders which, in turn, should (theoretically) better reflect the best interests of the company. However, the Committee also notes several issues to be considered if such changes are made, including the imposition of buying restrictions during the offer period.

• The “disenfranchisement” of shares acquired during an offer period

The Committee suggests discounting votes made by those shareholders whose shares are acquired during the offer period. This could again be seen to reflect the interests of longer term shareholders, as well as reducing share trading during the offer period and thereby stabilising the share price.  The Committee also recognises the numerous potential difficulties with this proposal. For example, if an offer turns out to be unsuccessful, at which point should voting rights be reinstated?

• Disclosures in relation to shares and other securities

One of the Code’s aims is to provide as much transparency in the takeover process as possible.  To this end the Committee suggests reducing the threshold at which large shareholders must disclose their interests to small shareholders with less than a 1% shareholding, as well as introducing an obligation to disclose acceptances and voting decisions. However, the Committee notes that the 1% threshold is already well below requirements contained within other codes of practice, and that a substantial increase in disclosure may result in ‘over-disclosure’ which could ultimately cause confusion.

• Advice, advisers and advisory fees

In keeping with the principle of transparency, the Committee proposes that the Code should require public disclosure of advisers’ fees and costs although opponents argue that sensitive information may be disclosed as a result. 

• The “put up or shut up” regime, “virtual bids” and the offer timetable.

The concept of ‘Put up or Shut Up’ relates to an offeree company’s ability to request the Takeover Panel to impose an offer deadline on an offeror company.  It has been suggested that such a deadline be reduced to a standard period. Critics believe that this may not be in the interests of the offeree’s shareholders as the offeree’s board may not have sufficient time to fully consider an offer.

• Substantial acquisitions of shares

Following the abolition of the rules against speedy acquisitions of a company’s shares, there are arguments to reintroduce time limits under which a specified proportion of shares can be acquired. However, in response to this the Committee states that ‘market raids’ are relatively rare and it is not the role of the Takeover Panel to decide who can acquire shares.

The Committee has requested comments on the consultation by 27 July 2010 after which it will decide whether any reform of the Code is required.

The issue in question surrounded Cadbury Plc’s facility at Somerdale which, in 2007, Cadbury had announced would be the subject of a phased closure scheme during 2009 and 2010.  In several offer documents, Kraft stated its belief that the facility could remain open.

These statements fell foul of the two part test contained within rule 19.1 of the Takeover Code.  This rule relates to the bidder and target upholding standards of care during the takeover process, particularly in conjunction with rule 24 of the Takeover Code, which governs the information required in the bidder’s offer documents.  In this instance, the Takeover Panel found that when declaring that the facility could remain open, Kraft should not only have honestly and genuinely believed this to be true, but should also have had a reasonable basis for making such a declaration.  Kraft failed on the second part of the test.

Kraft’s leading financial advisers, Lazard & Co, can count themselves lucky to escape the public criticism levelled at Kraft.  Whilst the Takeover Panel deemed them to be partly responsible for failing to provide the information on which Kraft needed to rely when making the relevant statements, it did not consider it necessary to publicly criticise Lazard in the same manner as Kraft.

This decision by the Takeover Panel is a helpful reminder that financial advisers, as well as bidders, must at all times carefully follow the rules of the Takeover Code and should be alert to the repercussions of failing to do so.

“Tail-gunner” clauses are often used by corporate finance advisers in their terms of engagement so that if a transaction completes within a certain period after the termination of their engagement, a success fee is payable to the adviser despite the fact that they are no longer engaged at the date of completion.  The clause is so-called as it refers to the parting shot of a bomber finishing his sortie.  A recent case has upheld the use of such a clause.

Facts of the case

Grandtop International Holdings Limited (Grandtop) engaged Seymour Pierce Limited (Seymour Pierce) in June 2007 to advise on its acquisition of Birmingham City Football Club (club). It was initially envisaged that the transaction would proceed by way of a recommended takeover. The terms of engagement provided for a £2.2 million success fee and stated:

“In the event the engagement pursuant to this letter of engagement is terminated by the Company and an Offer for the Target is declared or becomes wholly unconditional as the result of any offer made by or in association with the Company within a period of 12 months after the effective date of termination the Company shall pay to Seymour Pierce the Success Fee in full.”

The transaction did not proceed in the manner which had been envisaged and Seymour Pierce’s involvement declined, resulting in their engagement being formally terminated in May 2009. Grandtop eventually completed (with input from another corporate finance adviser) its acquisition of the club in September 2009, 4 months into the “tail-gunner” period. Seymour Pierce sued for the success fee.

Decision

Grandtop argued that Seymour Pierce had not been the effective cause, or even one of the effective causes, of the final transaction and did not deserve the success fee. However, the court held that the terms of engagement clearly stated that the success fee was payable irrespective of whether Seymour Pierce had been responsible for completion of the transaction in its final form.

Comment

The case turned on the wording used in Seymour Pierce’s terms of engagement and therefore highlights the importance of careful drafting. In hindsight, Seymour Pierce’s terms seemed uncommercial and unreasonable as they resulted in Grandtop having to pay the fees of two sets of corporate finance advisers. Nonetheless, the court found in favour of Seymour Pierce. This is good news for corporate finance advisers but not for their clients who should, despite such a clause often being non-negotiable, try at least to limit its duration.

Seymour Pierce Limited v Grandtop International Holdings Limited [2010] EWHC 676 (QB)

1. Tackle ‘red tape’

Before the election, both the Conservatives and Liberal Democrats promised to tackle red tape, including imposing a “one-in-one-out rule” for new regulations. This rule will now be implemented. They have also agreed to scrap the culture of “tick-box regulation” enforcement and will introduce “sunset clauses” (a Liberal Democrat policy), so that rules will expire if they are not reviewed. Finally, the Government will scrap the “gold-plating” of European legislation (i.e the transposition of EU legislation, which goes beyond what is required by that legislation.)

2. Businesses

The Government aims to encourage new start-ups by reducing the number of forms needed to register a new business, so that Britain becomes the fastest place in the world to start a business (Conservative policy). It will also end the ban on social tenants starting businesses in their own homes (Conservative policy.)

3. Takeovers

The Government “will review the range of factors that can be considered by regulators when takeovers are proposed.” There are currently no further details. The Conservatives’ manifesto did not explicitly deal with takeovers, but the Liberal Democrats promised to ensure that the takeover rules restored a public interest test, so that a broader range of factors, other than competition, would be considered by regulators when takeovers are proposed.

4. Operating and Financial Reviews

The Government will reinstate Operating and Financial Reviews “to ensure that directors’ social and environmental duties have to be covered in company reporting, and investigate further ways of improving corporate accountability and transparency.” (Liberal Democrat policy). These Reviews were originally proposed, but then dropped, by the Labour Party in 2006.

It is currently early days for the Government, and their recently-published ‘Coalition Agreement’ will be implemented over the next five years. Many of the proposals lack sufficient detail at the moment, but this will surely become clearer over time. The emergency budget, which will be heard on 22 June, will be a starting point. From a small business perspective, look out for the capital gains tax changes.

1. Corporate governance

The main political parties’ proposals were made in the aftermath of the Walker Review, an independent review of corporate governance in the UK banking industry, in November 2009.

Labour

The Labour Government welcomed the Walker Review, with Lord Myners, the Financial Secretary to the Treasury, commenting that the Government had to address “the weaknesses in board practice, risk management, control of remuneration and exercise of ownership rights identified by the Review…” In its manifesto, the Labour Party states that it will:

• Strengthen the Companies Act 2006 “where necessary” in order to create strong businesses comprising of skilled managers, accountable boards, and committed shareholders with long-term commitment;
• Strengthen the UK’s Stewardship Code for Institutional Shareholders, requiring institutional shareholders to declare how they vote, and for bank remuneration policies to be approved by shareholders.

Conservatives

The Conservative Party also welcomed the Walker Review, but criticised it for not going far enough. The Party’s manifesto says that it will: 

• Abolish the current tripartite system of regulation – abolish the FSA and put the Bank of England in charge of prudential supervision.

Liberal Democrats

The Liberal Democrats also supported the Walker Review, but, like the Conservative Party, did not believe it went far enough. Vince Cable, the Party’s Treasury spokesman, commented at the time that the recommendations should be compulsory, not voluntary.  

2. Takeovers

The recent controversial Kraft/Cadbury takeover has brought the subject of takeovers back into the political sphere.

Labour

Although at the time, the Business Secretary, Lord Mandelson, said the takeover was something that had to be decided by Cadbury’s shareholders, he has now changed his position and in the last couple of months has called for a wide-ranging review of UK takeover law. The Party’s manifesto includes some proposed reforms which would have a huge impact on takeovers: 

• Raise the threshold of shareholder support for company takeovers to a two-thirds majority, rather than the existing 50 per cent plus one share majority;
• Examine the possibility of “limiting votes” to those on the voting register before the bid is announced;
• Ensure that bidding companies are “more transparent” about their long-term plans for the business they want to takeover and their advisers’ fees;
• Require bidding companies to set out how they will finance their bids;
• More disclosure of who owns shares in the companies;
• Extend the “public interest” test in UK merger control so that it is applied to potential takeovers of infrastructure and utility companies.

Conservatives

The Conservative Party’s manifesto does not explicitly deal with takeovers. However, Shadow Business Secretary, Kenneth Clarke, commented that the Cadbury takeover was a matter for its shareholders.

Liberal Democrats

At the time of the Cadbury takeover, the Liberal Democrats were critical of the Government’s willingness to allow a state-controlled bank, Royal Bank of Scotland, to finance Kraft’s bid. Its manifesto proposes to: 

• Ensure that “takeover rules serve the UK economy” by restoring a public interest test, so that a broader range of factors, other than competition, can be considered by regulators when takeovers are proposed;
• Ensure that the outcome of takeover bids are determined by the long-term shareholder base.

3. Small and medium-sized businesses

Labour 

• New UK Finance for Growth, which will use £4bn billion of public and private funds to help businesses looking to develop and grow, in exchange for an equity stake in the company;
• Growth Capital Fund, announced in the last Budget, will inject money into, small and medium-sized companies in businesses with turnovers of between £1m and £25m.

Conservatives

Although there are no direct manifesto commitments, the Conservative Party recently commissioned a report by the American entrepreneur Doug Richard (an ex-‘dragon’ on the BBC’s Dragon’s Den television programme). His report, Small Business and Government: the Richard Report, proposed, amongst other things, the extension of the Enterprise Investment Scheme, which helps smaller trading companies to raise money by offering tax reliefs to investors who purchase shares in the companies.

Liberal Democrats

Establish Local Enterprise Funds and Regional Stock Exchanges. Local Enterprise Funds will help local investors put money into growing businesses in their own locality. Regional Stock Exchanges will allow businesses to access equity without the heavy regulatory requirements of a London listing;

• Reintroduce the Operating and Financial Review to ensure that directors’ social and environmental duties will be covered in company reporting.

3. Regulatory burden

Labour 

• Seek to reduce the costs of regulation by more than £6bn by 2015.

Conservatives

The Conservative Party policy document Regulation in the Post-Bureaucratic Age, published in October 2009, criticises the rise in regulation since Labour came to power in 1997, and proposes to: 

• Reduce the burden of red tape on business with a ‘one in one out’ rule for new regulation;
• Force each government department to reduce the regulatory burden by 5 per cent each year by eradicating costly and inefficient regulation.

The Conservative manifesto reiterates the need to cut the regulatory burden, and also to: 

• Reduce the number of forms that need to be completed to register a new business. It aims to create a ‘one-click’ registration model, so that Britain becomes the fastest place in the world to start a business;
• End restrictions on tenants in social housing starting a business from their homes.

Liberal Democrats 

• Cut regulation by assessing the cost and effectiveness of regulations before and after they are introduced;
• Operate a ‘one in one out’ system so that for every regulation introduced, another one is scrapped;
• Change the ‘culture’ of regulators to help, not hinder, business.

Comment

The election manifestos and policy statements of the three main parties have revealed some common ground and one big difference between them.

All the parties have welcomed the recommendations of the Walker Review (even if they don’t all think it has gone far enough), put forward plans to financially help small and medium-sized businesses, and made commitments to cut regulatory burden.

However, differences emerge on the issue of takeovers – a sensitive subject in the wake of the Cadbury takeover by Kraft. Labour has promised to bring in a ‘Cadbury law’ to protect British companies from foreign takeovers, whilst the Liberal Democrats want to create a ‘public interest’ test to ensure that issues other than just competition are taken into account when deciding whether a takeover should be allowed. The Conservatives, on the other hand, have rejected calls to change the UK takeover rules at all.

The proposed changes by Labour and the Liberal Democrats, if brought in, would have a big impact on how takeovers are conducted and potentially make it more difficult for bidders to succeed. Consequently, business leaders, as well as lawyers, are awaiting the outcome of the election with even greater interest than usual.

The High Court ruled that account of profits could sometimes be claimed for breach of confidentiality, but not in this case. It all depended on the circumstances. Duties of confidentiality related to a big range of possible situations. As to whether an account of profits was available as a remedy depended on the particular type of situation and whether it would be just and equitable that the defendant should retain absolutely no profit from that particular type of situation. The nature of a duty of confidentiality could apply in the following big variety of situations:

• Akin to a fiduciary duty.
• Akin to an intellectual property right.
• Arising out of a contractual duty.
• In relation to use of private information obtained from a stranger, and therefore a situation similar to tort.

In this case, there was no fiduciary relationship or intellectual property right type situation and so an account of profits was not appropriate. The relationship was based on a contractual relationship. Therefore, damages was the appropriate remedy rather than V&P having the right to claim an account of profits.

Peter Mandelson (the Business Secretary) has since proposed various reforms to takeover laws including:

• raising the voting threshold required to approve a hostile bid
• denying short-term shareholders such as hedge funds the right to vote during a bid period
• giving bidders less time to formally commit to their offer (“put up or shut up”) so as to reduce the length of time a takeover bid takes to complete
• requiring bidders to set out publicly how they intend to finance their bids over the long term and how they intend to make cost savings

The proposals have, however, received a mixed response. Some commentators are in favour of protecting companies from hostile bids but others would prefer takeover laws to remain the same so as to allow a company’s shareholders (rather than its board of directors) to determine the outcome of a takeover bid.

The justification of this is that the programme will raise awareness among small businesses that they need to keep good records. The show will aim to help Britain’s small businesses improve their all round business knowledge and direction, cash flow, marketing strategy and in some cases even their enthusiasm.

The show will start in March, but if you can’t wait until then the good news is that here at MAB we have a business health check product which might prove even more useful than a TV show….Click here for info on our Business Healthcheck