Depending on who you talk to, the record breaking bad weather we have experienced so far this summer means we will either enjoy a sun soaked Indian summer or will be forced to endure yet more misery.  Let’s hope for the former.

In this newsletter we consider the gradual process of bringing the Companies Act 2006 into force, recent changes to the Civil Procedures Rules and the late payment of commercial debts.

Late payment of commercial debts – Good news for creditors! 

The Late Payment of Commercial Debts (Interest) Act 1988 entitles all businesses (and public sector suppliers) irrespective of size to claim statutory interest for the late payment of commercial debts from any other business. 

Where a supplier has agreed, either in writing or orally, a credit agreement, a payment is late if it is made after the last day of the credit period.  If there is no agreement, then the Act sets a default period of 30 days after which the interest can run. 

The rate of late payment interest is 8% above base rate.  The base rate is calculated by reference to the Bank of England’s base rate on 31 December and 30 June, depending on the date when the debt falls due.  If the debt falls due in the first half of the year, the base rate published on 31 December is used.  For debts falling due in second half of the year, the base rate published on 30 June is applied. 

Whilst recent rises in interest rates may be of concern to homeowners, it is good news for creditors.  On 10 May 2007, the Bank of England raised the base rate by 0.2% to 5.5%.  Only 2 months later on 5 July 2007 the rate was again increased by 0.25% to 5.75%.  The rate of late payment interest is therefore 13.75%.

What does this mean for your business?

The interest owed on your late payment is known as simple interest and is calculated as follows:

debt x interest rate x (number of late days divided by 365)

If the base rate was 5.75% (as it currently is) then the rate of interest you would charge would be 5.75% + 8% (13.75% altogether).

Conclusion

A claim for debts (and interest) does not need to be made straight away.  A creditor has 6 years under UK limitation law to bring a claim.

Therefore, Debtors who wish to avoid future claims for interest need to pay bills on time. 

Maitland Walker has a dedicated Debt Recovery Department. For further information about recovering debt, please contact Jonathon Kenwright (Jonathan.kenwright@maitlandwalker.com)

Companies Act 2006

The Companies Act 2006 is the single largest piece of company legislation ever passed.  It replaces most of the Company Law provisions contained within the 1985, 1989 and 2004 Companies Acts.  The 2006 Act introduces sweeping changes in an attempt to simplify and improve company law making it easier to understand and more flexible. 

The Government claims that the 2006 Act will bring the following principal benefits for private companies: -

• There will be separate and simpler model Articles of Association for private companies, reflecting the way smaller companies operate
• Companies will be able to lodge a number of documents electronically at Companies House
• A comprehensive “code” of director’s duties and accounting and reporting requirements will be introduced
• Private companies will not be required to have a company secretary
• Private companies will not need to hold an annual general meeting unless they positively opt to do so it will be easier for private companies to take decisions by written resolutions
• Private companies will no longer be prohibited from providing financial assistance for the purchase of their own shares
• There will be simpler rules on the maintenance of share capital, removing provisions that are largely irrelevant to the vast majority of private companies and their creditors

The implementation of the 2006 Act began in November 2006 with further provisions, notably relating to the use of electronic communications with Companies House, coming into force earlier this year. The remaining provisions of the 2006 Act not yet in force will be implemented in phases over the coming year, with the entire act effective by October 2008.  The staggered timetable is intended to give companies sufficient time to prepare for the new regime under the Act, rather than implement the 1,300 sections on one day.

With large parts of the 2006 Act already in force, companies would be well advised to consider any relevant changes to their Articles of Association or board procedures now.  

For further information on the impact and implementation of the Companies Act 2006, please contact Rupert Croft (rupert.croft@maitlandwalker.com).

Top tips for avoiding litigation

 i) Identify the problem early

Apparently innocuous problems may evolve into difficult situations by failing to identify the issue in the first instance.  While companies need not adopt a crisis management position for each minor problem that may potentially involve litigation, there should be a reporting system which encourages potentially litigious issues to be reviewed.   

Minor Complaints without merit can often escalate when the issue is not dealt with proactively - for example when a complainant is ignored or treated with disrespect.  Whether the pro-active solution involves either a monetary or non-monetary appeasement of the complainant, the time, effort and expense in dealing with the issue will often be minimal compared with litigation. 

ii) Arbitrate/mediate not litigate

Litigation in the normal course can be not only expensive and time consuming, but can have potentially damaging results – wasted resources and legal costs, destroyed business relationships, negative publicity, stress and financial constraints on company growth.

Mediation is a form of assisted negotiation that can take over when direct negotiation has broken down.  It is a voluntary (unless mandated by court or a contract), non-binding, dispute resolution process in which an independent person helps parties reach a negotiated settlement.  It is one of the alternative dispute resolution (ADR) techniques that have grown in popularity over the last 10 years. 

Whilst not every dispute is suited to mediation – for example, sometimes a clear legal precedent may be needed – success rates of around 85% are not unusual. 

iii) The best defence can be a strong offence

For a relatively small filing fee, anyone can start proceedings which may require the disclosure of confidential documents and require the dedication of significant resources.  A number of preliminary applications are available to stop an action in its tracks. 

One such application is for “security for costs” which, provide that in certain circumstances a court may order that a Claimant, at the price of continuing with the action, gives “security for costs”, usually by paying a substantial sum of money into court.  This guarantees that the Claimant will be able to meet any costs order eventually made against them.  Other interim applications include striking out the claim, summary dismissal of all or part of the claim.  Interim applications can sometimes dismiss or entirely dismiss a claim in the early stages. 

iv) Proper documentation

The lack of proper documentation of agreements, occurrences and negotiations often creates ammunition for an opponent to allege a contrary version of events which may escalate into litigation.  Proper documentation can sometimes nullify complaints which could otherwise become claims. 

Inadequate follow up on complaints or threats of litigation, evidenced by gaps in documentation, will be used by litigants to demonstrate that a proper investigation did not occur, was not comprehensive or was managed half heartedly.  In employment cases, for example, the failure to fully investigate a complaint of harassment or bullying in accordance with the company’s internal policies, even if the complaint is without merit, can be used by the litigant to demonstrate failure to protect an employee and to maintain a safe work environment.

v) An ounce of prevention

Too often there is a reluctance to contact lawyers before a matter has actually become litigious.  One early phone call may save a hundred worried calls later.  Typically, parties are reluctant to contact lawyers early because they are concerned that the complexity of the matter will require too much time to explain, or result in substantial legal costs and that the circumstances are not that urgent in any event.  However, very often the contractual, tortious or other principles of law that apply are not themselves complex.  Whilst there is not a substitute for a firmly grounded formal opinion, very often an early enquiry can avoid creating a monster.

As this information has been prepared by Maitland Walker Solicitors as a general guide, we recommend that you seek specific professional advice before acting upon the information contained within it.  No liability can be accepted by Maitland Walker for any action taken or not taken as result of this information. Maitland Walker is regulated by the Solicitors Regulation Authority.