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A cross border mergers does not only involve 2 firms but 2 countries. In this TV show Giles Murphy explains why English law is often preferred for the contract.
I think English law is still considered to be a key factor in business transactions, and we do see scenarios where you have businesses from two countries engaging with each other, but the contact will be written under English law because the businesses trust the English courts to resolve any differences.
So there’s a great opportunity to export English law, but to do so it does require firms to have a presence in these other territories, and of course a merger is one way of achieving that.
Inside Finance will continue to look at issues around cross border mergers. Look out for more from Giles Murphy.
Tax Law has changed and this affects professional practices. Pamela Sayers from Smith & Williamson discusses some of these changes in this TV show:
I think this year we’ve seen some huge changes in the taxation of professional practices, and perhaps the first greatest change for perhaps sixteen years, primarily as a result of the issue of a partnership consultation document in May this year, and we expect to receive a final version of that around about the time of the autumn statement, which is on 4th December (2013).
There is an attack on service companies where many of our professional practices clients have a service company running alongside, and also the government have asked the office of tax to review ways of simplifying taxation of partnerships, so a lot of changes.
They’re looking to really tackle avoidance of tax, so it comes under the whole ambit of the new guard, the general anti-abuse rule that was effective from July 2013. So in the context of partnerships where there has perhaps been some perceived abuse following the Limited Liability Partnership Act in 2000, so they are looking at ways of preventing sort of the avoidance of tax within those firms.
And one of the main ones being that if you are a member of an LLP it can no longer just be assumed that you are self-employed for tax purposes. And depending on the outcome of the partnership consultation document, this could lead to significantly more revenue for HMRC by the collection of employers’ NI at 13.8%.
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Under the Companies Act itself probably not, because we’ve already had the, you know, the big overhaul of company legislation for this generation I hope.
There is as always more law and regulation emanating out of Europe.
At the end of last year the European Commission put out their company law and corporate governance action plan listing areas they wish to review so to the extent which Europe has more to say on all of this, things like the Listing Prospectus Disclosure and Transparency Rules, you know, may have to be changed to comply with the various European directives.
They’re certainly getting better because governance is so much more prominent.
And I think governance goes hand in hand with risk management and compliance generally. And both of those topics are fairly high up the agenda now. And obviously in times of economic crisis where more companies might be underperforming, that tends to focus directors minds on risk management compliance and governance issues and obviously investors and shareholders are looking at those topics more carefully as well.
But I think generally there is compliance and I think it’s getting better because I think there are more resources out there certainly to help directors understand what they need to do.
The current hot topic is corporate governance, so moving on from the Companies Act, the black letter law which everybody is now, you know, we’re all familiar with what’s in the 2006 Act now.
But there is an increasing focus on corporate governance so the Corporate Governance Code itself but also various bodies such as ICSA, such as the FRC, the ABI, NAPF issuing more and more guidance papers, there’s a lot more out there for directors and it’s just, it’s fascinating trying to piece it all together.
I’m not sure there’s been a culture change because I’m not convinced that there was necessarily anything that broken.
I think with the codification of directors duties in the Companies Act 2006, all directors stopped and thought again about how to be good directors and to promote the success of their company for their benefit of the members as a whole.
I’m not as convinced as perhaps some of our national press are that short-termism is such a problem.
If you look at the way a lot of directors remuneration packages for example are structured, there are longer term incentives and share schemes that require them to actually invest some time and effort going forward in their businesses.
There is a definite sense that we need to bring back trust that was lost. There is … there’s mixed views on it really, certainly the financial services industry and that is my background. So I understand financial services. They are looking at being very heavily regulated in the future.
And it’s getting the balance right in terms of regulation. So there is that that’s happening. People who work in banking for instance, it’s almost like people are embarrassed to say they work in banking now, which is a shame, because it’s important and it’s, you know, it’s a good industry. I mean there’s no denying that the UK needs financial services.
We have to have financial services, it’s a huge part of our economy and the city of London is something we should be proud of. I think it’s really … there is a question mark over rebuilding that trust, how people view the financial services and the banking industry etc, going forward. But the city of London has always been in the past the centre of that, you know, and we … we wouldn’t want to lose that.
I think it’s important that we move forward and we build that trust and use financial services to build our economy because we need it.
We have the Corporate Governance Code, we have the Listing Rules and we have a whole raft of best practice guidelines. So you can say the structure is already there and therefore why do we need anything different? But I think perhaps in line with the general comply or explain principle perhaps people have been less careful about complying with the codes
And also there’s no real shareholder break on non-compliance which I think is something that has been missing.
But the new legislation is obviously moving towards greater empowerment of shareholders which I think will enhance and make the existing governance code and regime more effective.
I think there’s a combination of things. The first thing you’ve got to do unfortunately is invest some time in getting to understand what FRS 102 is all about.
And it may be the easiest route is to talk to us and we’ll give you the overview.
You then need to do a more forensic examination to go into individual accounts account codes and understand precisely what the repercussions will be.
Then you’ve got to map out in quite some detail, exactly how you’re going to move from where you are at the moment to where you need to be in the future and then finally you’ll need a process that gives you assurance that you’ve picked everything up and that what you’ve done works.
The implementation of FRS 102 is probably the largest single change to an accounting framework for the majority of companies in a generation. Not only that, it will also impact on profitability of businesses, the way their accounts looks and because of the impacts on tax, it means that there will be proper real money effects as well.
The way that tax is accounted for in the UK, is that the tax payments often, under many situations follow the accounting rules. When the accounting rules change, therefore the amount of tax you have to pay also changes. This means that when you dot the new FRS 102, you will be paying more or possibly less tax, depending on the effect that it has on your profit and loss.
I think people have heard about it. They heard it’s coming, lots of people haven’t really understood the impact it’s going to have on their accounts. And lots of people don’t realise that it’s going to have that real money effect that we were talking about. It is a huge change and the devil is in the detail.
When you throw out all the current accounting standards and replace them with one, that is going to have a huge effect.
The transition date for a December year end is effectively 31st of December 2013.
So to the extent that there are these options that you can deal with earlier, you really need to give now a clear picture before that date.
And that will be quite challenging if you’re starting now.
It’s going to be a drain on resources.
It’s going to be a drain on resources for finance directors and finance teams, there’s absolutely no doubt about that.
In terms of the changes, whilst they are mostly taking effect or will have to be adopted by 30th of December … sorry, 31st of December 2015 year end, there will be a transition date and you will have to prepare comparatives.
That brings it forward effectively to the 31st of December 2013, which as we know isn’t that far off.
Well, it’s very fundamental because although a lot of the terminology is similar, in practice it’s a bit like learning a language and having completely new grammar.
There’s a whole series of series of changes which are quite fundamental, some of which could mean that the financial statements look completely different, profitable businesses suddenly look loss making and vice versa. But there’s a whole stream of things that previously you did not even have to recognise in the financial statement which you now will need to recognise, particularly financial instruments.Well primarily because UK GAAP is on its own. And the world is moving in an IFRS - International Financial Reporting Standards direction. And the thought process is, that if everybody in the whole world applies broadly a consistent accounting framework then there’ll be spinoff benefits, so that investors in Thailand can invest in England or any other country.
There is a risk for directors personally that they could be found liable personally for their company's liabilities. Many directors aren’t aware of that. If they carry on trading in business beyond the point that they know or ought to know that it's not going to avoid insolvency, then a subsequently appointed liquidator could apply to court to have them found personally liable.
That is a big risk for directors and one that not many are aware of. Another thing for directors to watch out for when they have businesses that are in financial difficulty is the question of preferences.
So for example if they have given a personal guarantee to a bank, and they arrange, in the period leading up to the appointment of a liquidator or administrator for that loan to be repaid, so to take away their personal guarantee liability, then that's something that can be overturned by the liquidator of the company subsequently.
So they're not avoiding that liability. That also applies to director's loans account, if they have taken loans from the company... sorry if they have given loans to the company and either arranged for those to be repaid just before the company goes into liquidation or administration, then that's a transaction that can be overturned by the liquidator or administrator.
So that also applies where directors have given loans to their companies and in the period leading up to the company going into some form of insolvency process, whether that's administration or liquidation, they arrange for those loans to be repaid by the company to themselves. That's a transaction that a subsequently appointed liquidator would certainly seek to return and would be successful in doing so.
For more information on the personal liabilities of company directors as well as other types of risk, you can watch more videos from Henry Shinners here.