North West WIN Annual Update

1. North West WIN Annual Update Liverpool 18 April 2013

2. North West WIN Annual Update Welcome – Andrew Roberts 18 April 2013

3. TUPE AND EMPLOYMENT ISSUES UPDATE 2013 EMPLOYMENT Rachel Power

4. TUPE – Current issues (1) • Erosion of service provision change mechanism • Enterprise Management Services Ltd v Connect-Up Ltd and others [2012] IRLR 190 (EAT) • Johnson v Campbell and another UKEAT/0041/12 • Argyll Coastal Services Ltd v Stirling and others UKEATS/0012/11 • Hunter v McCarrick UKEAT/0617/11 WIN Annual Update

5. TUPE – Current issues (2) • Which employees transfer? • Eddie Stobart Limited v Moreman and others • Argyll • Seawell Limited v Ceva Freight (UK) Limited WIN Annual Update

6. TUPE - Consultation on proposed changes • Consultation 17 January – 11 April 2013 • Proposals include: • repeal of "service provision change" provisions • removal of obligation to provide employee liability information • amending the meaning of "entailing changes in the workforce" (part of the ETO defence) to cover changes in location of the workforce • dual consultation • Legislation expected October 2013 onwards • Contractual protection key to address uncertainty WIN Annual Update

7. Employment Tribunal Reform - Fees • Implementation in Summer 2013? • Employment Tribunal fees • Issue and hearing fees • Level 1 – low value claims for sums due on termination (e.g. unpaid wages and PILONs) • Level 2 – all other claims (including unfair dismissal, discrimination, equal pay and whistleblowing) • Application specific fees • EAT fees • Remission scheme WIN Annual Update

8. Employment Tribunal Reform – Procedures • Changes to the Tribunal procedure rules • Implementation in Summer 2013? • Key changes • Rejection of claim and response • "Sift" stage • Costs – awards above £20,000 no longer need to be referred to the court for assessment • Presenting a response – 5pm deadlines • Preliminary hearings – to consider both case management and preliminary issues WIN Annual Update

9. Employment Tribunal Reform – Enterprise and Regulatory Reform Bill • Implementation from Summer 2013 onwards • Key changes in the context of Employment Tribunal reform include • Compulsory pre-claim ACAS conciliation • Protected settlement conversations for ordinary unfair dismissal claims • Settlement Agreements – statutory code of practice and guidance • Change to compensation award cap in unfair dismissal claims • capped at the lower of 1 year's pay and existing limit • Abolish discrimination questionnaires WIN Annual Update

10. Changes to collective redundancy consultation • Changes to collective redundancy consultation obligations: • Implemented 6 April 2013 • 90 day minimum consultation period before the first redundancy can take effect is reduced to 45 days where 100 or more employees are affected • Employees on fixed term contracts which have reached their termination point will be excluded from collective redundancy consultation obligations • New ACAS non statutory code of practice WIN Annual Update

11. OPPORTUNITIES AND RISKSCORPORATE RESTRUCTURING Christopher Roberts

12. Expertise Summary Profile Christopher joined DLA Piper in 2002 as a trainee solicitor, qualifying into the firm's restructuring team in 2004. Christopher specialises in non-contentious aspects of corporate recovery, restructuring, turnaround and insolvency including advising upon administrations, receiverships and liquidations. Other aspects dealt with include advising directors upon their duties and responsibilities in relation to companies facing financial difficulties and acting for purchasers of businesses from insolvent companies. Expertise All aspects of non-contentious insolvency and restructuring including business and asset sales, real estate transactions, landlord and tenant issues, advice on security issues, advising main clearing banks, invoice discounters and factors and insolvency practitioners. Major Transactions Administrations of: MusicZone, Wine Cellar, Passion for Perfume, Weatherseal Windows, Total Fitness and Stanleybet UK Investments/Stanleybet Overseas Investments. WIN Annual Update

13. Aim and Focus • Aim of update • To highlight certain circumstances where corporate restructuring and/or insolvency procedures may be used to benefit your company's business. • To reduce concerns surrounding corporate restructuring and insolvency • Focus of update • Acquisition of a company's shares followed by a CVA • Sale of a company's business and assets through an Administration process • Avoiding TUPE liabilities • ROT claims and identifying goods • Risk of over-reliance on a single supplier in the current economic climate WIN Annual Update

14. Acquisition of shares followed by a CVA • CVA (Creditors voluntary arrangement) - process whereby a company proposes an arrangement to its creditors to reorganise its liabilities • Enables a buyer to purchase a company and drop the loss making parts whilst leaving the good parts untouched and intact • Successful, well publicised CVA's include: JJB Sports, Focus DIY, Blacks Leisure, Barratts Shoes and Flannels WIN Annual Update

15. Acquisition of shares followed by a CVA cont… • DLA Piper was the first firm to bring this product to the market • Our first client to successfully utilise the product acquired the shares in a group of companies holding over 500 retail units and in doing so acquired the benefit of very significant tax losses which were available to be set off against the future profits of the post CVA profitable business • Advantages: • Preservation of tax losses • Less business disruption • Reduces overall liabilities • Avoids the stigma of insolvency? WIN Annual Update

16. Sale of a company’s business and assets out of Administration • If a CVA is not workable, an asset sale may be a potential alternative • However, risk of an asset sale being challenged as a TUV in a subsequent insolvency and vendor unable to fulfil its obligations under the SPA • An asset sale out of an insolvency procedure, e.g. Administration, may be more desirable for vendors and purchasers: • Preserve goodwill and no break in trading where the sale is pre-packaged • Cherry pick assets without the company's liabilities (except for TUPE liabilities) – though be wary of commercial reality: lack of supply credit going forward and may need to pay sweetner to suppliers • Limit the risk of the sale being challenged and subsequently unravelled as TUV WIN Annual Update

17. Avoiding TUPE liability on a business purchase • The Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE") apply when purchasing a solvent business or a business from an administrator • All employees automatically transfer plus purchaser may also be liable for potential protective awards • However, employees do not automatically transfer in a sale by a liquidator WIN Annual Update

18. Retention of title "club" • When supplying goods to customers, supply contracts normally contain ROT clauses • If a supplier is unable to identify its goods from an insolvent customer’s stock, then the supplier’s ROT clause will not normally be effective • Admixture of goods • BUT the supplier may be able to defeat an admixture defence if it can prove that it supplied generic stock/raw material to the customer WIN Annual Update

19. Risk of over-reliance on a supplier • As a result of the current economic climate, suppliers have been forced to reduce prices in order to combat competition • Increasing shift to low stock, just in time models of supply • Many suppliers now rely on volume ordering and customers have reduced their amount of suppliers to increase efficiency • Insolvency of one link in the supply chain can create a domino effect of insolvencies up and down the chain • eg the administration of Woolworths led to the insolvency of Zavvi WIN Annual Update

20. Risk of over-reliance on a supplier cont… • Insolvency practitioners may seek ransom payments from customers of an insolvent supplier • eg the Land Rover and UPF case: • KPMG threatened to stop supply unless Land Rover paid it £46 million. • Land Rover ultimately paid £15m to £20m for UPF’s debt to replace UPF’s receivers to ensure UPF continued to supply essential parts to Land Rover WIN Annual Update

21. Early warning signs of a supplier’s insolvency Warning Signs • Missed deliveries • Requests for deposits and up-front payments • Unexpected rise in prices or attempts to renegotiate pricing or terms • Reduction in credit insurance cover • County court judgments and winding-up petitions – DLA Piper can conduct these searches for you Questions to ask the supplier • Have you moved from quarterly to monthly rents? • Have you agreed a time to pay agreement with HMRC? WIN Annual Update

22. Protect yourself • Methods of dealing with a supplier's insolvency: • Protect yourself by building up stock levels and consider having more than one supplier for key supplies • If a supplier becomes insolvent, customers may have to consider acquiring the supplier's business to avoid costly renegotiation of supply terms or having to make ransom payments to the insolvency practitioner WIN Annual Update

23. Key Messages Key Messages • There are ways to purchase distressed businesses and assets in a financially efficient way • A vendor can make the sale of a subsidiary business more attractive to the market • If you are a supplier of generic stock or raw material, you may still be able to recover your goods from an insolvent supplier even if you are unable to identify your specific goods • Be vigilant of supplier distress and protect yourself from ransom demands and other business disruption WIN Annual Update

24. North West WIN Annual UpdateHOT TOPICS IN THE CONSTRUCTION AND ENERGY SECTOR Ian Wood and Jim Pinsent

25. Overview – one major new case! The Walter Lilly Case Walter Lilly & Company Ltd v Giles Patrick Mackay and others WIN Annual Update

26. Overview • Defining case in last 12 months in both construction and engineering • Extension of time and concurrent delay • Global claims • Privilege • Settlement WIN Annual Update

27. Background • Mr Mackay's quest to build the perfect house • Ended with legal costs liability in excess of £9 million • Litigation "Very old fashioned because it has involved full blooded conflict between the parties in which there seems to have been little, no or belated room for compromise" • Worth a read for Mr Mackay's comments WIN Annual Update

28. Simple facts • Traditional contract with Walter Lilly as main contractor • Fixed completion date with extension of time mechanism for employer risk events • Liquidated damages for culpable delay • Time and cost overrun – liquidated damages applied WIN Annual Update

29. Concurrent delay • Long standing question of who gets benefit of concurrent delay • Is contractor entitled to extension of time? • Traditional in England: yes Henry Boot v Malmaison • Scotland: City Inn v Shepherd no. Necessary to apportion relevant delay period between factors causing delay • Walter Lilly resolves confusion WIN Annual Update

30. Global claims • What are Global Claims? • Traditionally scorned by employers and courts • Aikenhead J: "there is nothing in principle 'wrong' with a 'total' or 'global' claim" • Claims will no longer fail on basis of single issue not pleaded or proved or which is proved to be the fault of contractor WIN Annual Update

31. Privilege • Claims consultant appointed to provide "contractual and adjudication advice" • Application of: • legal advice privilege • litigation privilege • Neither privilege applies to correspondence and legal advice from claims consultants or non practising solicitors or barristers WIN Annual Update

32. Settlement agreement and third parties • Settlement between Party A and Party B • What can Party B recover from culpable third party? • Siemens v Supershield upheld • Question of reasonableness determined by strength of claim, whether legal advice obtained, consequences of litigation and benefits of settling • Practical issues WIN Annual Update

33. North West WIN Annual UpdateTAX Stephen Jones

34. Patent Box 1 • Reduced rate of 10% for companies within the charge to UK corporation tax who exploit patents and/or certain other botanical and medical innovations • Companies must opt into the regime for it to apply and the relief is to be phased in between 1 April 2013 and 1 April 2017 • The reduced rate of corporation tax is applied to a proportion of the company's profits derived from: • sales of products incorporating the patented technology • licensing and selling patent rights themselves • other use of such right sin the course of a trade (e.g. in providing services) • compensation for infringement of patent rights UKG/15338364.1

35. Patent Box 2 • The company must have an "exclusive" licence over the qualifying IP in one or more countries or territories. • The company must have been involved significantly in the creation or development of the qualifying IP, or of a product or process that incorporates it. • There are special rules for groups aimed at preventing relief where the IP was developed outside the group (e.g. where a company that developed the IP is subsequently acquired by another company), unless certain further activity is carried out within the group or an additional "active ownership" condition is satisfied. • Patent box profits are calculated according to a standard formula (see next slide) or a "streaming method" UKG/15338364.1

36. Patent Box 3

37. Patent Box 4 Patent Box – Practice Points for In-House Lawyers • The ownership of patent rights and other qualifying IP will affect the availability of relief: • whether a company opts into the patent box may depend upon whether it is making profits or losses; • this and other factors may influence a decision whether or not to move IP around the group; • the effect of litigation settlements and licensing arrangements will be relevant for determining whether the company has an "exclusive" right enabling it to claim relief; • it may be beneficial to bring qualifying IP into the UK and to relocate development here. UKG/15338364.1

38. Statutory Residence Test 1 • Statutory Residence Test ("SRT") is contained in schedule 43 of the Finance Bill and replaces the previous mix of case law and HMRC practice (HMRC's approach was set out in HMRC6) for tax years 2013-14 onwards; • SRT • if automatic non-residence test is satisfied, the individual is not resident; • if the automatic residence test is satisfied, the individual is resident; • where neither of these applies the individual is resident if he or she has "sufficient ties" with the UK, which test depends on "connecting factors" and days spent in the UK – the more "connecting factors" the fewer days are required to make a person resident UKG/15338364.1

39. Statutory Residence Test 2 Automatic Non-Residence – always takes precedence Two other automatic tests apply in the event of death UKG/15338364.1

40. Statutory Residence Test 3 Automatic Residence – next test to apply A fourth automatic test applies in the event of death UKG/15338364.1

41. Statutory Residence Test 4 "Sufficient Ties" where resident in one or more of previous three tax years UKG/15338364.1

42. Statutory Residence Test 5 "Sufficient Ties" where not resident any of previous three tax years UKG/15338364.1

43. Statutory Residence Test 5 UKG/15338364.1

44. Statutory Residence Test 6 The rules are complex and the slides above are an over-simplification! SRT – Practical Points for In-House Lawyers • Patterns of work for multi-state employees may change • Old contracts and methods of working may need to be reconsidered • There will be a constant need to take tax advice on the impact of detailed personal and employment circumstances • Double taxation relief rules still apply UKG/15338364.1

45. General Anti-Abuse Rule • The General Anti-Abuse Rule (GAAR) will apply to income tax, corporation tax, capital gains tax, inheritance tax, petroleum revenue tax and stamp duty land tax (it is later to be extended to NIC) • The GAAR will provide for the counteraction of tax advantages arising from tax arrangements that are "abusive" • Counteraction must first be notified by a designated HMRC officer and, unless having considered representations made by the taxpayer a designated HMRC officer decides that counteraction ought not to apply, the arrangements must be referred to an "Advisory Panel" to be established by the Commissioners for HMRC for the purpose, for its opinion.

46. General Anti-Abuse Rule "Tax arrangements are “abusive” if they are arrangements the entering into or carrying out of which cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provisions, having regard to all the circumstances including— (a) whether the substantive results of the arrangements are consistent with any principles on which those provisions are based (whether express or implied) and the policy objectives of those provisions, (b) whether the means of achieving those results involves one or more contrived or abnormal steps, and (c) whether the arrangements are intended to exploit any shortcomings in those provisions"

47. General Anti-Abuse Rule Statute will set out examples of arrangements that are to be considered "abusive" • they result in an amount of income, profits or gains for tax purposes that is significantly less than the amount for economic purposes • they result in deductions or losses of an amount for tax purposes that is significantly greater than the amount for economic purposes • they result in a claim for the repayment or crediting of tax (including foreign tax) that has not been, and is unlikely to be, paid. Practical Point for In House Lawyers – difficult dividing line between "abusive" and non-abusive structures – scrutiny required

48. Miscellaneous Points to Remember • Entrepreneur's relief for shares acquired under an enterprise management incentive scheme – always consider EMI if you qualify. • VAT and acquisition costs – following BAA –v- HMRC [2013] EWCACiv 112 – taxpayer lost its claim to recover input tax on incurred on professional fees invoiced to a company which acquired it and subsequently became a member of its VAT group; the case underscores the need for a holding company to have an "economic activity", to make ,or to intend to make, supplies in the course of a business. • VAT – Robinson Family Limited –v- HMRC [2012] UKFTT 360(TC)– grant of a long lease subject to sub-leases can be a TOGC if value of reversion is minimal.

49. North West WIN Annual UpdateINTELLECTUAL PROPERTY Dominic McKean

50. Contents • Apple v Samsung - who is winning the war? • The new European Unified Patent system - what will it mean for you? • The Internet's New Wild West - an update on who's applying for new gTLDs and why • Is using your Community trade mark in just one Member State enough to keep it safe from attack? Essential Legal Update