Legal sector had a change in the types of case brought to them when the economic downturn disrupted businesses across the globe. In this TV show Doug Hall discusses the increase in breach of contract cases.

Legal Sector: The impact of the recession on commercial disputes

Very simply, it may be a cliché but the recession meant that pretty much overnight in some sectors the world changed and the example of the ship building is a prime example of that, in 2007 manufacturers in the far east can’t make enough ships, in 2008 suddenly people operating ships don’t want to buy them anymore, so suddenly the world changes overnight. That creates an impetus for all kinds of breaches to take place, because the world has changed simply. So what we saw after the recession or after the recession started was a big increase in the number of breaches of contract cases, we’ve seen a higher incidence of shareholder disputes and that’s simply there may be longstanding issues between shareholders but when there’s strife, when you’re operating in a difficult environment, maybe those tensions are amplified and they fall out, the same with partnerships, including professional partnerships. We’ve seen actions against professionals which for example arise out of insolvency, so a company goes down because times are tough, and in the lead up to the company going down there’s been issues with what advisors, professionals, auditors have done, there may have been issues with what the directors had done, they were doing their best to save the company but maybe they end up committing a breach of fiduciary duty or selling assets at under value, or getting confused about what’s their money and what’s the companies. Keep browsing the fantastic TV shows on Inside Finance to hear more about how the legal sector deal with business disputes. Look out for more form Doug Hall.

Informed financial planning advisors pass on their wisdom to clients. If a company fails they will naturally look at back at this advice. In this TV show Doug Hall discuses throwing the spotlight on professional advice.

Informed financial planning advisors

For example auditors, we are dealing with a number of cases, where a company has failed, and if the company had not failed there wouldn’t be an issue. But in the company going into administration for example, major creditors had lost and they may say that they have relied for example on audited accounts to make decisions, to lend money or to support the company and in the cold light of day the company having failed, that’s an example where you may go back and look at what the auditor said in earlier years.  So we have situations arising from insolvent companies where the spotlight is thrown onto a whole range of professional advice that they were given before the company failed. Which never would have come under that spotlight if the company hadn’t gone into administration for example.  It's not an area that we get involved in but valuers have seen a big increase in the number of actions against them very simple because the banks relied on valuations of properties for example, and then when the company has gone into administration and the bank has lost out, they then go back and look again at the professional opinions that they relied upon, in making their original lending decisions.

Inside Finance will continue to produce great videos on informed financial planning advisors and similar subjects.

Strategy development is necessary when starting a business in a new environment. In this TV show Stephen Drew discusses typical issues for entrepreneurs who move into the UK.

International strategy development

I think what’s quite interesting is we see a lot of business coming in from a variety of different countries arriving in the UK and often the mind set is understanding their own markets and how things operate, and there can be a bit of an adjustment to understand what they need to do in a new country like the UK. For somebody that’s used to operating and running a business in the UK they often don’t think about some of the smaller detail, because it’s quite easy to deal with and they know where the answers are, but for an inbound business that can actually be quite daunting and quite difficult to deal with. So an example would be you’re bringing in some workers from your host country to get the business up and running and established and you need to put them on the payroll, but how do you get somebody a National Insurance number so they can be properly registered to go through the UK payroll system? Now, again, when you know the answer that’s relatively easy to deal with, when you don’t know the answer you need to know where to go to to be able to make that happen, so that you don’t fall into compliance holes, you don’t create difficulties with the authorities, and actually you can just deal with that level of detail efficiently and actually focus on the prime reason for being there and for growing the business.

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Business assets that are being bought or sold should only be valuated by a professional. Ignoring this may lead to huge losses or even liability. In this TV show John Rugman discusses getting the right valuation advice.

Getting professional advice for business assets valuations

It’s important to get some professional help. The area is quite technical, there’s a lot of judgement involved and it’s important that the end number is sound, it can be cross checked against experience of valuations and other assets and companies. There’s something around the expertise in this area, because it’s an area where quite often people have a go. So there’s quite a lot of unprofessionalism if you like, people have a go at doing a valuation, anyone can calculate a number, yeah that’s the easy bit. So I think there is something around specialists who do evaluation work all day every day, I think there’s something around the fact that I’ve seen people get it really badly wrong and get sued, so. So there are a variety of different sources from where you can see a valuation. I think the key thing to note is there is usually a lot of money at stake and the discipline itself is quite subjective. So it’s important to go to specialists who are familiar with the circumstance, used to doing valuations, understand the methodologies, so they can reach a conclusion which is right.

Inside Finance will continue to share comments on areas of risk for business and business assets. There are more TV shows to come from John Rugman.

The legal sector now has less resources to pursue action for business disputes, as Doug Hall discusses in this TV show.

Legal Sector changes

So basically this whole arena that the commercial world changed overnight caused tension and caused a whole range of drivers for more commercial disputes.  However in more difficult times, parties or potential parties to commercial disputes were wary about committing funds to pursuing them.  So that’s the irony, that there were more disputes but less resources to pursue them and what we saw for a number of years is that cases would start and be settled very early, they’d be front end loaded and it required a different sort of input from forensic accountants for example and for the lawyers, that they would do a much more high level exercise to establish damages for example early on and then go for an early settlement.  I had a few years where I went to more mediations than I went to trials and we had to produce a different sort of report for a mediation to what we produce for a trail, a different purpose.  One really gives a less balanced view, a report, a WP report for a mediation, an experts repot for a trial needs to be very balanced and because an expert has a duty to the court. So the symptom we saw was there was definitely an increase in those sort of disputes for those sorts of reasons, but less of them actually went through towards the trial, which is really to do with cash flow and to do with companies under pressure and litigation was not a priority.  And this is the sort of picture that we had from all the lawyers we know, because we spend quite a lot of time talking to litigators, they’re the people we work with.

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Analysing data to show profit and loss is more complicated than it may first seem, and will be done best by a forensic accountant. Doug Hall of Smith and Williamson says it’s about presenting the right information in court.

Analysing data forensically

Probably the best way of illustrating that is a lot of cases that we get involved in, we get involved at a later stage, so the case has been running for some time. Because parties to litigation tend to focus because they’re guided by the lawyers, firstly on liability and quantum is left as a second stage. And we’re often involved in cases where the quantum has been estimated by the in house accountant, it’s the first time they’ve done it and may seem simple to actually work out that you’ve lost this much in sales and this is the profit on it, but there’s all kinds of nuances and techniques that are used and really what a good forensic accountant should be doing is to anticipate how, if you’re acting for a claimant, to anticipate how it would be defended.  For example you may say that my sales have been growing at 5% a year, year on year out, and if you hadn’t caused by business to fail then I would have got another 5% in growth, but that doesn’t necessarily follow, you need to look behind the headline evidence and to look at it from every angle. There is no single right answer and the key thing in my practice is whatever opinion I come up with I need to be thinking ‘There is a counter argument to this’, because ultimately the decision by the court or the tribunal is based on the balance of probability. There’s been some sort of breach, so therefore the claimant wants to be put back in the position they would have been, but for that breach and of course that position didn’t happen, so it’s what might have been. So the short answer is there’s lots of different ways of analysing the data and there’s lots of different ways of presenting it, there’s no single right answer but an experienced forensic accountant knows what works with a court and what doesn’t. And of course there is various conceptual issues, that you can be technically wrong in how you calculate damages and we’ve seen that many times.

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Informed financial planning will help businesses avoid mistakes but can be rushed in initial set up. In this TV show Stephen Drew discusses common mistakes that foreign businesses make.

Informed financial planning takes time

The sort of mistakes you see from inbound businesses is often around either misconceptions in terms of what the market opportunity really is, or just trying to do things in the wrong order. So like all investment programmes, whether it’s in your host country or whether it’s in a new market, it’s all about planning, you need to make sure you’ve thought about what the opportunities are, you’ve carried out your market appraisals, you’ve worked out what resources you need, you’ve carried out your readiness assessment. So all the initial phases of any sort of investment decision need to be made, regardless of where you’re going to make that investment. And for me, when people are struggling to get the sort of traction they’re looking for as quickly as they would like, it’s often because they just haven’t properly thought-through and properly planned their approach to the market on arrival.

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In this business growth show Stephen Drew discusses how structures in the UK make it a reasonably easy place to set up a business.

Business growth show: Setting up shop in 24 hours

it’s very easy for people that want to use the UK as a starting position, either because they see the UK as a good market for their services or products that they want to sell into, or because they see it as a good natural position to build a platform for expansion into the rest of Europe, then the UK offers a very friendly environment to do so. Why would that be? Because it’s very easy to actually get a business established in the UK. If there’s a legal structure, an inbound business wants to set up as a limited company and often that can be formed within 24 hours. There are other structures they may wish to use, which again are quite easy to get into place. The employment position and the regulations around that are fairly easily-understood, now there are certain requirements that people have to go through and often the law is different to their home territory. But with a little bit of advice and guidance it’s relatively straightforward to make sure you have appropriate structures around how you can build your people and your teams. Operating a bank account, again, subject to going through the initial take-on procedures, is relatively straightforward to get that into place. And the other matters that a business that’s coming to the UK that needs to sort out, again with the right sort of guidance and advice, is relatively straightforward, and it’s for those reasons that the UK ranks quite well in the league table in terms of their ease of doing business in that territory compared to other jurisdictions. So for a business that’s spotted an opportunity in their chosen market within the UK, really they can have a fast track approach to getting that business up and running fairly quickly, so they can actually start to concentrate on what matters in terms of building revenues and growing profits.

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In this business growth show Stephen Drew discusses the increase in businesses flocking to the UK.

Business Growth Show UK

It’s quite interesting to see how there’s been a change in the inflow of businesses coming into the UK over the last few years. If you look at the reports produced by the UKTI, for example, you will see that there’s been an increase in inbound business coming into the UK from a variety of different sources, but by comparison to that sort of in inward investment into the rest of Europe, for example, there’s been a marked increase in the number of businesses that are interested in the UK. There are probably a variety of reasons as to why that is happening. Certainly the UK has positioned itself well as being somewhere where it’s easy to do business for either home-grown business or for inbound business. There’s definitely been an increase in the amount of investment that foreign businesses are looking to make into the UK, either through expanding existing operations they have and therefore investing in plant or machinery or investing in the labour force, but also through businesses looking to start afresh in the UK and using it as a springboard to trade into Europe.

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Merger and acquisition can happen across industries and across borders. In this TV show Giles Murphy goes through the typical merger process.

Merger and acquisition in reality

In theory it should be a simple project management exercise. Unfortunately, in our experience, most people prepare very poorly for such an event and in practice spend a lot of time focusing on the merger transaction itself and forget to put effort into the integration process that should happen afterwards. Much would depend upon whether it is a simple domestic merger or whether there’s international firms coming together, but if we take a simple domestic merger, our view is, in terms of the negotiations, really a period of six to eight weeks should be enough for the negotiations to identify whether there are any key deal breakers that one might have to consider. As I say, what often happens is that people focus on that element of negotiation. They then breathe a sigh of relief when the deal actually gets done, and yet what we would say is that’s when the difficult work happens where firms need to prepare much better for the post-deal integration because that ultimately determines how successful the merger will be.

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