Food for thought

Under the Bonnet – What is the Political Declaration?

By | Food for thought

So… what is the Political Declaration?

The declaration is part of the EU withdrawal treaty negotiated by the government – an agreement between the UK and the EU which sets out their understanding of the framework for the future relationship between the two.

What does it say?

It acknowledges that the UK and the EU share the same core values and will remain committed to The European Convention on Human Rights (signed by the UK in 1951 – the convention arose from the horrors and injustices of the Second World War).

Both the UK and the EU are committed to high levels of personal data protection to facilitate data flows between the two.

The parties aim to include in any agreement the UK’s continuing participation in various EU programs for science and innovation, space, overseas development, defence capabilities and so on.

It envisages a UK/EU trading relationship of goods on the basis of a free trade agreement, like the one between Canada and the EU.

Both parties are looking to establish administrative cooperation in regard to customs, VAT, exchange of information to combat fraud, going beyond World Trade Organisation requirements so that we can continue to trade very closely.

Each will also seek to establish a close security cooperation. For example, we are looking to be able to exchange data regarding DNA, fingerprints, vehicle registration, cooperate on exchange of information to tackle crime and money laundering and counter-terrorism and to end the anonymity associated with the use of virtual currencies.

In terms of a future co-operation, the political declaration envisages the possibility of the UK and the EU forming an association agreement. This type of agreement is defined in the European treaties and it provides for the European Union and a non-EU country (which the UK will be after withdrawal) to have “an association involving reciprocal rights and obligations, common action and special procedures.”

At the moment the EU has at least 20 association agreements with its neighbours. For example, there is an association agreement between the EU and Ukraine. The EU sees an association agreement as a privilege for the non-EU member. They were originally created by the EU to prepare non-member countries for accessions. These association agreements typically contain a free trade agreement, access to the single market (with the non-EU country sharing the relevant EU regulations) and opportunities to cooperate in areas of mutual interest.

Insolvency Concerns for Company Directors

By | Criminal, Employment law, Food for thought

This week’s post covers a multitude of issues surrounding Insolvency Concerns for Company Directors – each addressing a new topic of concern to ensure that you’re ‘clued up’ on the risks involved and the responsibilities you need to be mindful of…

Wrongful Trading.

As a Company Director, you have a duty of care to act in the best interest of the Company. If a Director continues to run the company – taking orders and supplies – at a time when they knew (or ought to have known) that there was no reasonable prospect the company could avoid becoming insolvent, after insolvency they may be asked to make a contribution to the company’s assets.

“Director” is widely defined and so it’s worth noting that these rules also apply to a “de facto” Director (one who acts as a Director before appointment) or a “shadow” Director (a person whose instructions the legally appointed Directors are used to following).

It is a defence for a Director accused of wrongful trading to show they took every possible step to minimise the loss to the company’s creditors.

If the Court decides there has been such “wrongful trading” it will measure the increase in the company’s deficit between the time the Director knew (or ought to have known) of the impending insolvency and the time the company went into liquidation. The increase in that deficit is the amount the Director may be asked to contribute.

Fraudulent Trading.

If a company is being wound up and it seems to the insolvency practitioner that the business had continued with the intent to defraud creditors, they can seek a declaration from the Court that the Director who has arranged the fraud make a contribution to the company’s assets.

The difference between fraudulent and wrongful trading is that the Directors have carried on business with the DELIBERATE PURPOSE of deceiving and defrauding creditors.

An example of this would be Directors setting up a company and taking orders and deposits for a product which did not exist.

A Court can order the Director to make whatever contribution the Court thinks is appropriate in the circumstances.

A Director held liable for fraudulent trading is almost bound to be disqualified from acting as a Company Director in the future.

Reviewable Transactions.

This is a common area of Director default coming to light on an insolvency – commercial pressure may cause Directors to treat third parties preferentially, or transact with them at an under value.

“Reviewable transactions” may be generated by:-

– Granting security to a previously unsecured supplier;

– Paying some unsecured creditors while leaving others unpaid;

– Making severance payments to Directors or senior employees;

– Getting the company to re-pay monies guaranteed by a Director;

– Making a gift;

– Entering into a transaction which is not genuinely third party.

In most cases, the insolvency practitioner will make an application to the Court which has a wide discretion and can order the Director to pay sums back to the company.

Investors in the company can also make an application to the Court.

Unlawful Distributions.

A Director who authorises (usually pays themselves) dividends which exceed the company’s distributable profits are probably in breach of their statutory common law duties and are personally liable to repay the company.

It’s not just whether the Director knows: it’s whether they ought to have known, as a reasonably competent and diligent Director, that the company did not have sufficient profits to make the dividend payment.

These things tend to come to light on insolvency.

If a company becomes insolvent the insolvency practitioner will always be looking back to see what dividends were paid and when, and whether that payment was unlawful at the time.

What is the Disability Discrimination Act

Disability Discrimination – Be Aware

By | Employment law, Food for thought

What is Section 15 of the Equality Act 2010?

It’s always important to know where you stand; whether in life or, in a legal situation, with people. We are still regularly finding that clients are being caught out by Section 15 of the Equality Act 2010 aka The Disability Discrimination Act.

Here is what it says (bear with me a minute – this is important and could save you in the long run!):

A treats B unfavourably because of something arising in consequence of B’s disability; and 

A cannot show that the treatment is a proportion of means of achieving a legitimate aim 

In the Equality Human Rights Commission Employment Statutory Code of Practice ( an example given explains how this may be applicable in a working scenario. It reads:

    An employer dismisses a worker because she has had three months’ sick leave. The employer is aware that the worker has multiple sclerosis and most of her sick leave is disability-related. The employer’s decision to dismiss is not because of the worker’s disability itself (so not direct discrimination). However, the worker has been treated unfavourably because of something arising in consequence of her disability (namely, the need to take a period of disability-related sick leave). (Paragraph 5.3, EHRC Code.)

What is Meant by Discrimination ‘Arising from’ Disability

“Arising from…” can easily be missed. The second example given in the code shows this:

    A woman is disciplined for losing her temper at work. However, this behaviour was out of character and is a result of severe pain caused by cancer, of which her employer is aware. The disciplinary action is unfavourable treatment. This treatment is because of something which arises in consequence of the worker’s disability, namely her loss of temper. There is a connection between the ‘something’ (that is, the loss of temper) that led to the treatment and her disability. It will be discrimination arising from disability if the employer cannot objectively justify the decision to discipline the worker. (Paragraph 5.9, EHRC Code.)

What is “Objectively Justified” or a “Proportionate Means of Achieving a Legitimate Aim”?

A legitimate aim is the reason behind your decision. It must be genuine. Proportionate means the action must be appropriate and necessary in the circumstance.

Example of Disability Discrimination in the Workplace

For example – dismissing a lorry driver who becomes blind might be objectively justified, as it is necessary for the safety of the driver as well as others on the road. Therefore, it is a proportionate means of achieving a legitimate aim.

In summary, if you are an employer, be courteous and careful at all times, and remember: disabled employees may also be protected from consequences arising from…


Need advice on disability discrimination? Check out how we can help you with Employment Law.

Directors Duties Company Act 2006

Company Directors – Be Aware of the Companies Act 2006

By | Food for thought

Companies Act 2006 and Cato Solicitors

Here at Cato Solicitors, we are no strangers to working with Company Directors and many we have spoken to believe they are the company and the company is them, considering themselves to be the “owner.” Although commendable, this is not the case in law.

In law, a company is considered a separate legal “person” and can do things as any other “person” does, such as:

  • Enter into agreements
  • Bring court proceedings
  • Own property

The Company Directors Duties – Companies Act 2006

Directors have a “fiduciary” relationship with a company. “Fiduciary” means a special relationship of trust. For example, looking after the savings of an elderly parent, making sure the money is only spent on their best interests.

So a good way of relating to the duties of a Director is to imagine the company you “own” is like a disabled relative whose finances and business you manage because they are unable to do it themselves.

In a broad sense the statutory rules are based on this understanding, and the relevant sections in the Companies Act 2006 say that Directors must:

171: act within their powers
172: promote the success of the company
173: exercise independent judgement
174: exercise reasonable care, skill and diligence
175: avoid conflicts of interest
176: not accept benefits from third parties
177: declare an interest in any proposed transaction or arrangement with the company

So: take great pride in what you do, but be mindful of how you carry it out!


Need assistance with Directors Liability? Here at Cato Solicitors we provide expert Corporate Crime and Criminal Allegations assistance. See how we can help you today.

Food for thought -prorogation of parliament

Under the Bonnet – What’s all this fuss about the Prorogation of Parliament?

By | Criminal, Food for thought, Travel

The decision of the Supreme Court to suspend the prorogation of Parliament seems to be a trespass by the judges on the constitution. It will have wide-ranging and extensive consequences. I expect it will be corrected when Parliament resumes after the next general election.

Here is why…

The Government won its case in the High Court (Gina Miller & Others v the Prime Minister- link here) on the following basis:

In our constitution, “Parliamentary Sovereignty” means that the Queen in Parliament is sovereign in the sense that it may enact whatever it wishes by way of primary legislation, subject to its own self-imposed restraints.

Miller advanced a new interpretation of “Parliamentary Sovereignty”; she said the principle of Parliamentary Sovereignty must also include the ability to conduct its business unimpeded.

The Courts should intervene if Parliament was impeded.

The High Court disagreed:

‘….alongside the principle of Parliamentary Sovereignty, the separation of powers….. [between]…..the courts, the Executive and Parliament, is also a fundamental principle of our unwritten constitution.

As we have said earlier, the line of separation is set by the courts in the present context by reference to whether the issue is one of “high policy” or “political” or both.

In the circumstances and on the facts of the present case the decision was political for the reasons we have given.

Secondly, the purpose of the power of prorogation is not confined to preparations for the Queen’s Speech. It may be used for a number of different reasons, as, on the evidence, it has been in the present case. Such reasons may, depending upon the precise facts and circumstances, extend to obtaining a political advantage.

Thirdly, again as we have already said, even if the prorogation in the present case must be justified as being to enable preparations for the Queen’s Speech, the decision how much time to spend and what decisions to take for such preparations is not something the court can judge by any measurable standard.’

The Court thus held the Prime Ministers decision to prorogue Parliament was not justiciable – in other words, it was not capable of legal challenge. It was a political decision.

The Supreme Court found differently:

It said:

‘The sovereignty of Parliament would …be undermined as the foundational principle of our constitution if the executive could, through the use of the prerogative, prevent Parliament from exercising its legislative authority for as long as it pleased. That, however, would be the position if there was no legal limit upon the power to prorogue Parliament (subject to a few exceptional circumstances in which, under statute, Parliament can meet while it stands prorogued). An unlimited power of prorogation would therefore be incompatible with the legal principle of Parliamentary sovereignty.’

It must therefore follow, as a concomitant of Parliamentary sovereignty, that the power to prorogue cannot be unlimited.

The first question, therefore, is whether the Prime Minister’s action had the effect of frustrating or preventing the constitutional role of Parliament in holding the Government to account.

The answer is that of course it did.

The next question is whether there is a reasonable justification for taking action which had such an extreme effect upon the fundamentals of our democracy.

The Supreme Court decided no justification had been put forward.

This judgement puts the judicial cart firmly in front of the Parliamentary horse.

Firstly, the argument on which the judgement seems to be based is illogical. If Parliament is supreme, the voice of the people, and can make any law it wants, it makes no sense to conclude that it is necessary for the Court to limit and define the governments prerogative power.

It is for Parliament to limit the prerogative power if it wants to, not for the courts to intervene in political struggles in Parliament. (Parliament passed the Benn Act (or Surrender Act – depending which side of the fence you fall) with lightning speed).

Secondly, our constitution depends on the separation of powers – Government, Parliament, Courts. It is essential this separation is maintained.

What might happen now this principle of separation has been so egregiously eroded?

Perhaps we, the people vote for a Parliament that supports a government which, in accordance with its manifesto promise, brings forward legislation introducing a trade deal with the United States whereby amongst other goodies, they can sell us their chlorinated chicken – something to go with the chlorinated (“washed”) salad you already eat. I can now make an application to the Supreme Court to hold that it is unreasonable for a minister to put forward such a Bill to Parliament. It would lead to people ingesting poison. The minister making the decision to put forward the bill was not “in Parliament”, so the court has jurisdiction to decide my petition.

Ok… perhaps a silly argument, but you get the point.

The problem with the argument is in this presupposition:

‘The sovereignty of Parliament would ……be undermined as the foundational principle of our constitution if the executive could, through the use of the prerogative, prevent Parliament from exercising its legislative authority for as long as it pleased.’

…Because the executive can only do that if Parliament allows it to.

Parliament does not need the Court to look after it.


Read more from Behind the News and our Food for Thought articles around topics seriously worth thinking about.

Co-Director Dispute and No Agreement

By | Food for thought, news, Problem Solved

Quite regularly, a company will end up in a situation where directors no longer see eye to eye and reach a level of “deadlock”.

And unfortunately, with lots of companies not having shareholders agreements, it can be difficult to know where to go from there.

Generally speaking, if there’s a deadlock and no shareholders agreement, the best outcome is usually a negotiated settlement which avoids expensive litigation.

Both of the parties can be encouraged by the Solicitors to make a hard and positive effort to come up with pragmatic solutions, perhaps with the help of a mediator through Alternative Dispute Resolution, to avoid ending up in court.

If a settlement cannot be reached there are several options, including winding-up, a buyout by one side or the other, or a solvent liquidation.

Who can help you reach a settlement?

Well firstly, a solicitor…

In my opinion, it’s vital you instruct a solicitor to assist you negotiate a settlement – you need to understand your legal entitlements and alternatives, so you can negotiate from a position of strength.

Also, there are various ways a party’s minority or majority shareholding can be valued and it’s vital to know what your shares are worth before you commence any negotiations.

And secondly, a mediator…

As stated above, employing the services of a mediator is a good alternative to all-out war.

Mediation is a process where a trained mediator, as a third party, tries to knock the parties’ heads together (and sometimes knocks their Solicitors’ head together as well!) to explore a mutual resolution to the dispute.

We can arrange a mediation with a skilled mediator in this area at very short notice, so if you are ever in need, please get in touch.

Mediation often ends up with binding legal agreements, and in our experience, if both parties are competently advised, and know their real weaknesses and strengths, mediation is often successful.

What if all negotiation fails and mediation fares no better?

 You’re then in the realm of litigation:

Your litigation options include:

  1. Claim or injunction for a breach of another Director’s statutory duties;
  2. A derivative action by minority shareholder (see blog post 3 weeks ago);
  3. An unfair prejudice petition (we will deal with this in more detail next week!).

The court has significant discretions in making decisions in all of these areas and it is vital to take competent advice from Solicitors who understand how judges approach these matters before starting.


When shareholders cannot agree – Texas Shootout or Russian Roulette?

By | Food for thought, news, Problem Solved

As promised, this week we’re focusing on what happens when there’s an irresolvable deadlock between a company’s shareholders who have an agreement with one of these provisions.

When shareholders simply cannot agree, and the conflict is deemed irresolvable, one of the parties may serve a notice offering to purchase or sell at a specified price.

For example, A and B each hold 50 shares in Comp Ltd. They fall out.

Russian Roulette

A serves notice on B offering to transfer all A’s shares in the company to B at a price specified by A.

B must accept A’s offer and buy A’s shares at the stated price or must sell all his shares to A at the same price per share.

Texas Shootout

Also called a Mexican shoot out. It is a variation of a Russian roulette provision where typically A and B submit sealed bids to an “auctioneer” and the party who makes the higher bid buys the company at that price.

Both Russian Roulette and Texas Shootout only really operate fairly if the parties are of approximately equal financial strength, the shares of the other are affordable, and neither has a unique role in the company.

If Russian Roulette or Texas Shootout are not going to be appropriate mechanisms, a shareholders agreement can also provide for a valuation of the shares and a sale to the remaining shareholder(s), or to the outside world.

But what if A and B don’t have a shareholders agreement? We’ll explore that next week.

Lord Hain – A Speech Too Far. A Cato Solicitors Behind the News Special

By | Criminal, Food for thought, news

If you cast your mind back a couple of weeks, you’ll remember Lord Hain exercising his “parliamentary privilege” to name a businessman who’d been granted an injunction, preventing the Telegraph from publishing a story about him.

And, to be honest, Lord Hain’s words were less like a speech, and more like an elephant blundering about in the rose garden of our constitution.

We give our Judges, not politically appointed Lords, the power to make these decisions.

And, lest we forget, these Judges’ decisions are made not just after hearing all the details of the case argued, but also after many years of study and discipline in law, striving to make fair, legally sound decisions.

Imagine I have told you I am going to publish an article which falsely accuses you of being a thief.

I put it around everywhere that an article about a thief is going to be published soon and many people are looking forward to reading it.

They do not know you are my victim. You go to court to stop me.

At the first Hearing, the Judge decides it is not clear whether what I have written is justified and grants you an injunction until a full decision about the case has been made.

Parliamentary Privileges

Is it fair to you if a Lord or an MP uses Parliamentary Privilege to name you?

There has been no in-depth comment from the media about whether Lord Hain gets away with this playing the supposed “trump card” of “Parliamentary Privilege.” (Who would think the BBC has a ££multi-million news organisation to look into these matters?)

Let’s look at things a little more closely…

“Parliamentary Privilege” is based on the 1688 Bill of Rights which says:

The Freedome of Speech and Debates or Proceedings in Parlyament ought not to be impeached or questioned in any Court or Place out of Parlyament.

Note it says “ought not”, not “shall not”, so not a complete exemption to say whatever you want.

Is Hain as above the Law as he thinks?

Firstly: contempt of court.

There are many different types of contempt of court. They are sometimes grouped together into the following two main categories:

  1. Contempt by disobedience. For example, disobeying or breaching a court order or judgment, or breaking an undertaking given to the court.
  2. Contempt by interference. For example, disrupting court proceedings or the court process itself (known as “contempt in the face of the court”) and interference with the due administration of justice.

An intentional act in breach of a court injunction by one of the parties to those proceedings who is bound by that order constitutes a civil contempt, which is punishable by the court.

In a case called Attorney General v Times Newspapers Ltd and another in 1992 the Court distinguished that type of breach from a prohibited act by a third party, who may be a stranger to the litigation.

Criminal Contempt

If somebody who is not involved in the proceedings breaches an order they may be acting with criminal contempt because that act constitutes a wilful interference with the administration of justice.

I am not aware of any law which states Parliamentary Privilege definitely gives immunity from criminal contempt.

Secondly: the House’s own Rules.

You can find the relevant Rule here:

and it says (my emphasis):

The privilege of freedom of speech in Parliament places a corresponding duty on members to use the freedom responsibly. This is the basis of the sub judice rule. Under the rule both Houses abstain from discussing the merits of disputes about to be tried and decided in the courts of law

In this case proceedings were before the court and interfering with its decision to grant an injunction without the permission of Speaker is a breach of the Rules.

Hopefully Hain’s conduct will be referred to the House and the Court that made the order he breached, as a criminal contempt, and to the Attorney General.

We enjoy living under the rule of law – no person should abrogate to themselves the power to make decisions which we have agreed lie with the Judges. Hain’s conduct is not righteous; in reality it tramples on the constitution and thus on our hard-won freedoms and privileges.

What do you think about it all?


Shareholder agreements – the often unknown effects

By | Food for thought, news

As my father once told me as I was growing up, “strong fences make good neighbours.” Even if you lived in the house next door to your brother or sister, you would probably want a fence between you to mark the boundary. And in a company context, a shareholder agreement performs much of the same function.

Many boardroom disputes arise from one party or another believing that they are putting more time and effort into the business.

A clear written understanding of what is expected from each director/shareholder, together with an ADR resolution framework, can help to resolve these problems – in other words, a “shareholders agreement”.

Here are just some of the things worth including in your shareholder agreement:

  1. Regulating investment
    Quite often one person puts in more money than another. Failure to agree expectations regarding investment can be fatal to a company’s long-term future.
  2. Pre-emption rights
    A shareholder agreement can provide that shareholders have to offer their shares to each other first and prevent people ending up working with somebody they do not know.
  3. Exit
    Shareholders agreement can clarify the vision everyone has for the company and build a consensus, but also provide for an exit procedure which does not involve litigation lawyers 🙁
  4. Deadlock
    If a majority doesn’t exist – e.g. a company run by two people on a 50-50 basis – then deadlock provision in a shareholder agreement can prevent catastrophe.
  5. Deadlock provisions
    Texas Shootout and Russian Roulette, which we’ll look at next week.

Disagreements and personal differences

By | Food for thought, news, Problem Solved

A good company board is one of the keys to a well-run business, and if it’s doing its job, it should identify key issues that need to be resolved for development to take place, generate a constant flow of ideas and engage in regulated decision making.

That all sounds beautiful, positive and progressive, but as we all know, it doesn’t always turn out that way.

The personal dynamism that the board relies upon can turn into disagreements which, if left to fester, can crystallise into acrimonious disputes.

Pushing disagreements under the carpet

If left underneath the surface these disagreements can undermine the smooth functioning of the board and thus the company’s performance and, ultimately, could threaten the company.

In the infinitely variable play of human conduct, disagreements can arise over strategy, financing of the company and remuneration, conflicts between Directors’ interest in the company and outside interests.

Most of these conflicts are underlined by:-

  1. Lack of a shareholders agreement;
  2. Personal differences.

So, what can you do about these conflicts?

Well, as they say, prevention is better than cure, so it would be my suggestion to work extremely hard to create a culture that minimises the two things that cause most conflicts.

Here are just a few ways to do that:

  1. Clarifying authority, roles and responsibilities;
  2. Establishing regular board meetings with an orderly process;
  3. Meeting outside the business – combining meetings with team activities;
  4. Ensuring the flow of full information to all board members;
  5. The Chairman being wise enough to draw out disputes between parties and drawing the poison (chair needs to be able to encourage Directors to reach a consensus during this process);
  6. Incorporating Alternative Dispute Resolution into the company’s culture.

Our next blog will look at how having a shareholders agreement, although it sounds dull and legalistic, can be an enormous help in preventing and resolving disputes.


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