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13 January 2017

In the admirable hit Netflix series “Stranger Things”, the principle conceit which gripped the viewers and help make it the most watched Netflix series ever was the terrifying creature lurking in the shadows.

In today’s high velocity business world, we are increasingly used to working in fully magnified open view. The temptation is to look for ways in which we can retreat back into the shadows. But particularly for those of us who have relatives, friends, or business associates who are company directors, or for professional advisors of companies or their directors, there can be significant jeopardy lurking in the shadows.

Anyone involved informally in the activities of a company may be surprised to learn that, despite not being officially appointed as a director, duties and personal responsibilities and liabilities similar to that of a director may arise. In particular the risks are:

  • a potential liability to contribute to the company’s assets following insolvency;
  • being disqualified from being a director following the company’s insolvency; and
  • criminal sanctions and personal liability for breaches of directors’ duties;

Under the Companies Act 2006, a shadow director is defined as a person in accordance with whose directions or instructions the directors of a company are accustomed to act. It is not an offence to be a shadow director but it does give rise to a number of onerous responsibilities and duties and can lead to those individuals unwittingly adopting significant personal liability. Shadow directors commonly owe fiduciary duties, and can reasonably be expected to assume responsibility for the company’s dealings and act in the company’s interests (rather than their own), when giving directions and instructions. Importantly, a shadow director can be liable for wrongful or fraudulent trading and is also subject to the threat of director disqualification. Typically you won’t be covered by the company’s directors and officers liability insurance (if any).

The clients I talk to often have the common misconception that they can only be a “shadow director” if they are the puppet master of the company, controlling a board from the sidelines. In fact, it is unnecessary for a shadow director to have any form of control. Instead the key factor is the influence that person has over the directors, namely to what extent the board is accustomed to acting in accordance with the person’s instructions.

Experienced business people and entrepreneurs are increasingly encouraged to see themselves as Dragons Den type advisors, providing informal advice to company boards, directors, family members and friends. Given their hard earned reputation for astute commercial acumen, such advice is more often likely to be followed leaving them most at risk.

Members of senior management, who are not directors, may have trusted views about the decisions which the company makes or may be the only person with expertise in a certain area (such as accountancy). Family members and friends, particularly if they are shareholders, may also routinely offer advice or have influence over the decisions which the directors take.

Although there are some additional safeguards for professional advisors, (particularly where retainers are in place) where a professional goes beyond that retainer as a trusted business advisor they may also find themselves at risk.

So what are the 6 things should anyone concerned about that their involvement with a company do now to protect their position?

  1. seek specialist legal advice from a commercial solicitor;
  2. confirm your role via a written consultancy agreement to clearly define roles and the basis of your involvement;
  3. be careful to stick within the confines of that agreement;
  4. record your advice in writing and the basis upon which you are being asked to help;
  5. consider asking the company to appoint you as a director to formalise your position and give you full visibility of the decisions they are taking and which you could become your responsibility
  6. ensure that you are covered by insurance against any potential personal liability, whether that is through any policy the company already has in place or by taking out your own policy

As the residents of Hawkins, Indiana found out, the creature lurking in the shadows can provide a terrifying and unwelcome surprise.

 

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11 January 2017

If you thought that the impending changes to inheritance tax law represented uncomplicated good news, you'd better think again.

This is because far from making the process of inheritance tax fairer and more straightforward as the government has promised, it is likely that the changes will, to some extent, only add to the confusion and, potentially, the liability of those who are not in receipt of good inheritance tax advice.

For example, as of April next year a new "family home allowance" will increase the tax-free liability of many families by adding £175,000 to the existing £325,000 tax-free threshold of each individual. However, the allowance will apply only to "direct descendants" and will be subject to a yearly phase-in, with the final stage to be implemented in 2020-21.

In fact, some media outlets have gone so far as to claim that the legal profession is "rubbing its hands in anticipation of a surge in fees". It is easy to see why some might gain this impression; a 2016 Legal Services Board survey found that only 16% of legal firms displayed their prices online. Of course, this is hardly a cardinal sin in itself and there are doubtless many good reasons why some lawyers don't, yet failing to display prices only adds to the consumer's experience of confusion and disempowerment.

06 January 2017

During the difficult time of a loved one passing away, the last thing anyone should want is an acrimonious dispute. Nevertheless, contested probate cases are becoming increasingly common and family feuds about inheritance are a rising mainstay of courtroom scheduling.

Here are just a few of the reasons why probate doesn't always run as smoothly as the decedent may have hoped.

03 January 2017

There are plenty of indications to suggest that the disruption of the legal market is already taking effect. Online platforms, apps and in-house legal technologies are proliferating at an astonishing rate and, it seems, their presence is becoming tangible.

Take as an example of this tangibility the latest survey by international banking and financial services holding company Wells Fargo. It reports that larger flagship firms are experiencing stagnation in demand – something that leading analysts and philosophers such as Richard Susskind and Jeremy Waldron have predicted for some time. This is a perspective supported by the most recent Thomson Reuters Peer Monitor survey, which found that the litigation work of 151 large firms fell by 1.1% in the first half of 2016.

23 November 2016

Employees in both the public and private sector who have customer-facing roles are will be expected to be able to speak fluent English to customers. However, how employers assess fluency can be controversial.

The government is planning to bring into force Part 7 of the Immigration Act 2016, which requires all public sector workers in customer-facing roles to speak fluent English. The stated intention is to increase standards in order to meet “the public’s reasonable expectation to be able to speak English when accessing public services”.

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