Why should you negotiate?

Who remembers the scene in “The Life of Brian” where the trader insists the proposed buyer must haggle, rather than pay the price being requested?  That scene reminds our own Gary Pettit of what it can be like in dispute resolution matters, whether that is in relation to a financial claim or a dispute in management.

Taking legal action is a risky business for various reasons but, more so these days as the courts are demonstrating their preference to disputing parties avoiding court intervention and resolving their issues by way of alternative dispute resolution (“ADR”).  It does not matter how strong you believe your position is; the failure to engage in ADR could lead to a pyrrhic victory as you may win, but that ADR failure results in you being on the wrong end of a costs award.  In one reported case, the respondent won (as they confidently (and, as it turned out, correctly) stated in pre-court correspondence their liability amounted to £10,000) but, because they refused to entertain ADR, the court ordered them to pay some £200,000 in adverse costs!

The stance adopted by the courts is understandable.  At every stage of a litigious matter there is an opportunity to reach a negotiated settlement.  Yet, all too often a dispute deteriorates into a war of words and accusations where (particularly in management disputes) the original cause of the dispute can be forgotten.

The real danger of management disputes is, almost without fail, warring directors focus on the emotions of the dispute and forget they still owe statutory duties toward the company.  That oversight can often lead to more serious consequences for those directors, including personal liability.

As a CEDR accredited mediator, Gary Pettit of PBC says.

“A key problem with any dispute is that the parties argue.  I appreciate that sounds like I am stating the obvious, but they argue rather than listen or look at the reality of the potential consequences of the failure to consider ADR may cause.  It cannot be a coincidence that when I ask parties what it is they actually want, together with getting them to understand the potential consequences of not reaching a negotiated settlement more often than not, the dispute gets resolved.”

If you require any advice or assistance on alternative dispute resolution or any insolvency-related issue, then please contact PBC Business Recovery & Insolvency to discuss and advise on your situation on 01604 212150 (Northampton),  01908 488653 (Milton Keynes) or email to enquiries@pbcbusinessrecovery.co.uk.  Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

Redundancy for Directors

At PBC we are often having directors express surprise when they are told they have employment rights and that it is possible to claim for their redundancy entitlements against the Redundancy Payments Service (“RPS”).

 

However, late last year the Government updated their guidelines for directors making redundancy claims.  While the guide looks “Innocent” and helpful, the practicalities are far from straight-forward.

 

The RPS introduced a painstaking questionnaire that directors must complete.  Cynics would say this questionnaire was designed to ensure directors cannot claim their legitimate entitlements, but directors are encouraged to grit their teeth and complete it all the same.  Questions you will be asked include:

 

  • Were you a shareholder of the company?
  • How much did you earn over the past 3 years?
  • Were you paid less than the minimum wage?
  • Were you responsible for starting company insolvency discussions with an insolvency practitioner?

 

These questions are designed to imply you made yourself “Voluntarily redundant,” so should not be entitled to your employment rights. This is an argument the RPS have previously lost in court where the court questioned the RPS on whether they support directors breaching their statutory duties and continue trading whilst insolvent or, to follow the law, cease trading and make all employees redundant.

 

Further, if you have an adverse loan account (i.e. you owe the company money) then the RPS will automatically claim a right of set off and not pay any entitlements.  This approach is woefully unsound but until challenged they will continue to apply it.

 

In essence, a director needs to prove they were an employee.  The view of the RPS is that an employee would not loan to (or borrow from) their employer, they merely fulfill their job role and are paid accordingly.  With this in mind, the RPS may also ask for evidence such as pay slips, P60s, details of any dividends paid, copy accounts and bank statements.

 

So, while the RPS have set out a procedure that seeks to reject employee claims from directors, it is still possible to claim nonetheless.  Who knows, one day a director will take such an exception, they may appeal a rejection and see this practice challenged in court again.

 

If you require any advice or assistance on mediation or any other insolvency-related issue, then please contact PBC Business Recovery & Insolvency to discuss and advise on your situation on 01604 212150 or email to enquiries@pbcbusinessrecovery.co.uk.  Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

 

Time equals money…and distraction

People Sitting around a table discussing

In business you can never be sure that you will ever go through life without encountering contractual disputes customers or suppliers, or disagreements within management teams or suppliers.

 

Solicitors will advise you on areas such as the merits of your case and while this may be encouraging, the other questions you, as the client, need to be asking include:

 

  • What is the likely cost exposure?
  • How long could this take?

 

The thorny issue surrounding costs can be a little bit like asking how long is a piece of string.  Clearly, if your dispute is resolved at an early stage then the costs will be far less than if the matter progressed to trial.  What often gets over-looked is the hidden cost.  How much of a distraction is long-term litigation to you, particularly when you are trying to run your business?  The stress and frustration must also play their part, particularly when your solicitor reminds you that nothing is a certainty when court intervention is sought.

 

In a recent study of 8,500 claims 6 out of every 10 cases were taking over 9 months to proceed from lodging your claim to the first case management hearing.  The longest recorded delay was 456 days, while the shortest was a mere 201 days.  Some commentary following this research added, “It might take five years, or more, to be paid!”  This was in the context of commencing the pre-court protocol to court proceedings if the pre-action negotiations fail.  Regardless, can you wait 5 years to get paid or, if you are the defendant, to see the matter concluded?

 

When drafting this editorial, I stopped and remembered the phrase, “The pen can be mightier than the sword.”  Can businesses afford to wield the sword, given what has already been said about ongoing costs etc?  The court encourage, “The pen” being Alternative Dispute Resolution (“ADR”) whether that is through without prejudice settlement negotiations or mediation.

 

ADR usually exposes the views of both parties (I have had it where the parties actually wanted the same thing but that message was lost in litigation) and can lead to a quicker resolution which, in turn, results in the costs overall being lower.  It is also probably as important to someone running a business to secure an early resolution as it shortens the time for distraction and constant worry over the ongoing dispute.  The price?  Well, the price is both parties need to pacify themselves with the settlement reached and accept compromise.

 

If you require any advice or assistance on mediation or any other insolvency-related issue, then please contact PBC Business Recovery & Insolvency to discuss and advise on your situation on 01604 212150 or email to enquiries@pbcbusinessrecovery.co.uk.

Alternatively, visit www.pbcbusinessrecovery.co.uk for further information.

Deal or no deal?

People Sitting around a table discussing

Are you a commercial tenant who has accrued rental arrears during the COVID-19 pandemic?  Alternatively, are you a landlord who is thinking about what action you can take against a non-paying tenant?

Since 21 March 2020 it has been reported that over £7 billion remains unpaid in respect of commercial property rents.  Landlords have been prevented from taking enforcement action under the Corporate Insolvency & Governance Act, where the moratorium against landlord enforcement has been extended to 25 March 2022.

The Government has been concerned of the post-pandemic debt enforcement bubble bursting to the detriment of the economy. As a result, various measures have been implemented to ease businesses back into some form of normality with the threat of debt enforcement being phased back in a more controlled manner.

One of these measures is the Commercial Rent (Coronavirus) Bill (“The Bill”) which is aimed to promote a swift resolution of commercial property rent arrears accrued during the pandemic and is currently going through Parliament with a view of becoming law on or before 25 March 2022.

There has been a steady promotion towards alternative dispute resolution in the UK, as opposed to litigating disputes through the courts.  The Bill is further demonstration of that drive to avoid court intervention and both tenants and landlords need to be aware of the mentality being adopted.

The Bill will only relate to rental arrears that fall between 21 March 2020 and the period when “The date when specific restrictions were last removed for the relevant sector” (“The Ringfenced debt”).  The Government code of practice in support of the Bill schedules the latter date for each industry sector and country within the UK.

Once the Bill becomes law it will introduce an arbitration facility where the decision is binding in law.  Both tenant and landlord are encouraged to reach a mutually acceptable resolution on how the ringfenced debt is to be repaid and whether that is paid in full or at a compromised figure.  If a settlement cannot be reached, then either party can unilaterally apply for an arbitration hearing.

Some of the key points recommended by the Bill include:

 

  1. The two parties are expected to share the pain by considering rent reductions or payment plans. However, no agreement can be made where it results in (or creates a real threat of) insolvency for either tenant or landlord.
  2. The parties will each need to provide evidence of viability in support of any offer (or counter-offer) put forward.
  3. Both can either agree to a public hearing or allow the appointed arbitrator to decide on the terms of resolution based upon the documentary evidence before the arbitrator.
  4. An application cannot be made for arbitration if either party is already subject to insolvency proceedings.
  5. The rent repayment agreement cannot exceed two years in duration.

 

The Government continues to urge businesses that can afford to pay their rent to do so.  Indeed, it would appear the conduct of the tenant (in terms of refuse to pay versus unable to pay) will be taken into consideration.  This draws up the key question of viability and some specific areas that can be expected to be considered, including:

 

  • If the inability to pay was due to the tenant adopting “Unjustifiable steps to alter the financial position” (e.g. the payment of excessive dividends) the arbitrator will have the option to disregard these transactions when assessing the award.
  • Where a tenant can prove the business is viable, but it is unable to pay all the rent arrears, the tenant should be entitled to a concession that does consider the balancing exercise between landlord and tenant.
  • Any concessions must be affordable to both tenant and landlord, in terms of financial impact on the landlord.
  • To assist determination of viability and affordability the arbitrator is expecting to receive relevant financial information.
  • It is not expected that tenant viability would include restructuring, borrowing, or the taking of further debts.

 

It is made clear in the Government guidance to the Bill that arbitration ought to be the last resort and that both tenant and landlord are encouraged to reach an agreement without arbitration. This does appear to suggest the arbitrator will look at the reasonableness (or otherwise) of any dissenting party, although that is only my assumption.

While it is likely the Bill will be subject to some minor revisions, the key message is clear whereby the Government are expecting both tenants and landlords to act in a manner that promotes the protection of businesses and their employees. A refusal to compromise or to approach this issue in a transparent and fair manner are not options on the agenda and are likely to expose the dissenting party to penalties, including cost consequences.

However, what is most likely to be the most difficult area for an arbitrator is the analysis of financial data and the reality check on viability of either tenant or landlord.  If a party to the arbitration get this information wrong or, if the message is unclear, it is likely to result in an award being made based upon a misinterpretation of the information available.  This could be damaging to the viability of the tenant or landlord, or both.

The message is clear for both tenant and landlord.  Be transparent, fair, reasonable but, most of all, take a commercial view that promotes saviour of the business and its employees.  The key area will be the viability check and PBC can provide such a report for either party of the negotiation surrounding the ringfenced debt (and non-ringfenced debt if applicable) as this will promote the chances of proposals being considered as both a fair and commercial compromise.

Should you have an insolvency-related issue then please contact Gary Pettit at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to garypettit@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk

Covid updates – Extension of temporary restrictions

“The government has announced that the temporary restrictions on winding-up petitions and statutory demands as set out in the Corporate Insolvency and Governance Act 2020 will be extended until 31 March 2021. The extension is made in line with an extension to the restrictions on commercial forfeiture and commercial rent arrears recovery, which have also been extended until to the end of March.

This extension will, no doubt, frustrate landlords or any party who feel normal debt recovery procedures have been exhausted (or of little value) and where commencing winding up proceedings appears to be the only realistic approach for enforcing payment.

 

For those caught up in a financial dispute or debt collection issue it is also further encouragement to consider settlement of any claim by way of mediation, being the principal recognised procedure under Alternative Dispute Resolution.  Should anyone wish to discuss mediation then please contact Gary Pettit at PBC who is a CEDR accredited mediator.“

Alternative Dispute Resolution – The cost of disagreement

 

How many readers can remember the Monty Python sketch where a client wants an argument?  The provider says that will cost £10.  The client pays the fee only for the provider to say that will cost £10 please.  Enraged, the client says he had just paid only for the provider to deny receipt and so the debate goes on.

While that sketch is highly amusing the cost of a real dispute can be far from funny.  Some key points with litigation include:

Actual cost

In a recent mediation, the Claimant was seeking damages of £200,000.  When I asked the Claimant’s solicitor about the costs to date, together with the potential adverse costs his client could face I was told the figure had been put at somewhere in the region of £250,000!  It is not the first time this scenario has occurred as all too often the red mist prevails over commerciality or, simply the litigating parties are so far down the dispute path they feel they must now see it through to the end.

“Hidden” cost

Many litigating parties get embroiled in dispute with part of their focus on actual cost, together with the risk of adverse costs awards.  However, how many consider the hidden costs?  This will include your time dealing with the case itself, reading/approving witness statements, endless correspondence, gathering the evidence or having to look back into original agreements.  All of this before even attending court where a trial could last for several days.  Litigation can become a distraction from your daily business operations and be a drain on you generally.

Uncertainty

Outside of costs there is the uncertainties that come with litigation.  Your solicitor will prepare you and your argument in a concise and professional manner that best presents your position.  Naturally, litigating parties both believe their argument represents the facts that should prevail.  However, a judge is not emotionally attached to either side and will generally look at the arguments on a legal, reasonable and practical basis.  This will also include the general conduct of both parties as this could sway decisions, both on the principal argument and cost implications.

Mediation

There is clear guidance coming from the courts that a litigating party who unreasonably refuses to consider Alternative Dispute Resolution, such as mediation, runs a significant risk to an adverse costs award.  In one case I heard about the claimant won £10,000 but, because they were so certain of winning, they refused mediation citing it was pointless because they had a “Cast iron” case where there can be no point of negotiation.  While they were awarded the full amount of their claim that refusal to mediate cost them £30,000 in adverse costs!  A harsh lesson indeed.

Gary Pettit, a CEDR accredited mediator at PBC, says,

“All too often the warring parties are guilty of not seeing the wood for the trees.  In those cases where I have acted as mediator (whether it is an insolvency-related or general commercial disputes) it has been proven the reality of their situation had been lost.  It is the task of the mediator to bring that reality back onto the table as part of facilitating a settlement.”

Should you have an insolvency-related issue or a corporate dispute then please contact Gary Pettit at PBC Business Recovery & Insolvency on (01604) 212150 (Northampton office) or (01234) 834886 (Bedford office). Alternatively, you may send an email to garypettit@pbcbusinessrecovery.co.uk or access our website at www.pbcbusinessrecovery.co.uk

What is mediation?

Alternative Dispute Resolution (ADR) is a very successful method of resolving financial and other business issues before they reach the stage of court action. In fact, the courts will often expect you to have tried ADR and may look unfavourably on you if you have not attempted to resolve your issues prior to legal action. One of the most common forms of ADR is to see an independent mediator who could resolve the problem at an earlier stage and save a considerable sum in legal fees and lost time. In this video, Gary Pettit, our in-house CEDR Accredited Mediator, explains more fully how mediation works, what the advantages are and how you could benefit from working with us to resolve your dispute.

 

Did you know PBC can offer mediation services?

gary-pettit

The philosophy behind Alternative Dispute Resolution is to encourage parties to consider resolution of their dispute by way of mediation rather than the (often) costly route of court intervention.

 

Insolvency is a highly specialised field that is constantly exposed to legal argument. At PBC, we say a dispute is most likely to be resolved if the mediator is equally specialised.  As a long-established and well-known appointment-taking insolvency practitioner, Gary Pettit is also an accredited mediator with CEDR and now offers to assist parties resolving dispute by way of mediation.

 

Indeed, Gary has recently received commendation from the chief executive of one of the country’s leading providers of finance to insolvency practitioners who said “I can recommend Gary very highly. He did a super and well balanced job on one of our cases recently. He is now on our shortlist for future cases”.

 

Should you be involved in an insolvency-related dispute where mediation has been (or is being) considered then we at PBC fail to see how the only known mediator who is also a current appointment-taking insolvency practitioner cannot be the right person for you.

 

For more information, see here or call Gary on 01604 212150.