Debbie King considers the drafting of side letters, charitable incorporated organisations, the increasing number of women on boards and the government’s loan scheme for young entrepreneurs
Side letters are sometimes used in commercial transactions to provide clarification on certain terms of the main contract. The case of Barbudev v Eurocom Cable Management Bulgaria EOOD and others  EWCA Civ 548 illustrates the importance of ensuring the side letter is drafted properly in order to be a separate enforceable contract.
In Barbudev the Court of Appeal held that a side letter used to negotiate the terms of a future investment by the claimant and the terms of a shareholders’ agreement did not constitute a legally enforceable contract, as its provisions were uncertain and drafted subject to further good-faith negotiations.
The side letter provided for the parties to later negotiate the terms of a future investment by the claimant and gave him the “opportunity to invest”, but it was held that the side letter constituted nothing more than an “agreement to agree” and therefore did not create a legally enforceable contract. It was held that although the side letter contained some of the proposed terms to be included in the investment agreement, the parties had not actually reached a conclusive agreement, and its terms were not specific enough for it to be legally binding on these points.
However, as the side letter was drafted by lawyers and contained boilerplate provisions and the language of legal relations, the CoA held that it had created legal relations between the parties. But the CoA held that this was not enough to create a legally enforceable contract. Therefore, the claimant could not enforce its terms to invest in the company or claim damages because the investment was not permitted.
Female board representation
Over a year has now passed since Lord Davies published his report which included a series of recommendations aimed at increasing the number of female directors in UK public companies.
A recent report undertaken by Cranfield University indicates that since Lord Davies’ report was published in February 2011, the number of women on the boards of:
FTSE 100 companies has increased from 12.5 per cent to 15.6 per cent and the number of all-male boards has decreased from 21 to 11; and
FTSE 250 companies have increased from 7.8 per cent to 9.6 per cent and the number of all-male boards has decreased from 52.5 per cent to 44.8 per cent.
In his report of February 2011, Lord Davies recommended a target of 25 per cent for female representation on the boards of all UK FTSE companies by 2015. If the current increases in the rates were to continue, the recommended target of 25 per cent would be achieved by 2015 but Lord Davies has expressed the need to keep working towards this target: “Over the last year some excellent progress has been made. We’ve seen a significant increase in the percentage of female board appointments and the number of all-male boards has halved. I believe we’re on a steady journey towards our 25 per cent target, but the reality is that a lot more still needs to be done.”
The increase in the proportion of female directors in a single annual period is the biggest ever achieved and has been attained without the government introducing any mandatory quotas on companies
The progress has been hailed by home secretary and minister for women and equalities Theresa May, who said: “I’m delighted by this unprecedented progress. While there’s still much to be done, today we should celebrate just how far we have come. It is particularly encouraging that this progress has been led by businesses. Government has put in place the framework, but it’s companies themselves who are seeing that they simply cannot afford to ignore the skills and talent of half the population.”
Loan scheme for young entrepreneurs
A new £82.5m loan scheme has been launched by the government in the last month designed to encourage young people to set up their own business.
The StartUp loan scheme is available to 18 to 24 year olds who will receive loans of up to £2,500 if their application is successful. The loan will be repayable within five years and interest will be charged at the level of the retail price index plus three per cent. There will be an initial pot of £10m available, which may rise by a further £72.5m over the next two years if the scheme is judged to be a success.
The scheme will be chaired by ex-Dragons’ Den panellist James Caan, who, along with a selected board of experienced entrepreneurial advisers, will offer guidance to the new entrepreneurs to ensure they maximise their loans.
It is hoped that the scheme will create 30,000 new businesses and generate new jobs for a further 25,000 people.
David Cameron said: “StartUp loans are a fantastic opportunity for young people not only to get the financial support they need but also to give them the confidence to believe they can do it, that they can turn that spark of an idea into the next global brand.”
This announcement should give young people coming out of education, and without any money behind them, the opportunity to start their own business. By utilising this scheme, there will be no immediate need for them to resort to obtaining bank finance, which may not be readily available to them, until they have a proven track record and they will get invaluable support when they need it most.
Charitable incorporated organisations
A charitable incorporated organisation (CIO) is a new legal form of charity that is proposed to be implemented at some point during 2012.
The CIO was created in response to requests from charities for a new structure which could provide some of the benefits of being a company, but without some of the burdens. CIOs will be governed solely as a charity without having the added complexity of also being governed as a company under the Companies Acts. Some of the key benefits of a CIO over other forms of charities are:
the CIO will have separate legal personality – therefore, in the same way as a company, the CIO will be able to enter into contracts in its own right and the members and trustees will in the main be personally safeguarded from the financial liabilities the charity incurs;
they will be governed as a charity only, which means there are less burdens, e.g. only one set of annual accounts to prepare; and
they will be easy, cheap and quick to set up.
The regulations to complete the legal framework for CIOs have yet to be debated by parliament but once the legal framework is agreed it is anticipated that CIOs will be implemented in phases.
Stock transfer forms
The stock transfer form has been replaced with a new one which includes a new certificate at the back of the form to be completed whenever a share transfer is ‘otherwise’ exempt from stamp duty or no chargeable consideration is given for the transfer.
There were concerns raised with the wording of the previous stock transfer form as the wording did not require completion of the certificate and therefore did not give the registrars sufficient information to accept the form on occasions.
HMRC has stated that the old form will still be accepted until 5 September 2012 but they recommend that the new form is used with immediate effect.
Companies Act: section 22
Despite the bulk of the Companies Act 2006 having been in force for almost three years now, section 22 is still not in force and there is currently no indication of when/if it will be implemented.
Section 22 was introduced to enable a company’s shareholders to entrench certain provisions contained in the company’s articles of association so that more than the usual special resolution (passed by shareholders holding not less than 75 per cent of the company’s issued share capital) would be required before the entrenched provisions could be changed.
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