Foreign investment into the UK limited by national security concerns?

Paul Marmor spoke at the recent annual Alliott Global worldwide conference in Vancouver, on the UK government’s concerns over foreign investment and national security.  Looking from a UK perspective, Paul talked about the growing trend, particularly among Western governments, towards scrutinising foreign mergers and take-overs, and even intervening, where there is a perception that national security could be at stake.  It is clear from recent British government pronouncements that the UK plans to give ministers more powers to intervene in take-overs of British companies and assets, where national security could be at stake. This marks a real shift for Britain, which has historically been one of the most open and liberal when it comes to foreign direct investment and deals. Paul’s view, having read the British government’s recent papers and listened to what the commentators are saying, is that in practice the British government only expects to block deals in the rarest of circumstances.

Richard Kaplan of New York Alliott Group member, Golenbock Eiseman Assor Bell & Peskoe, presented a US perspective at the conference, commenting that, “While the US has for decades had a national security based regulatory regime governing foreign acquisitions of US businesses (called CFIUS), recent 2018 amendments to the law have widened its scope and given regulatory authorities greater powers to review and approve transactions.”  The takeaway, in Richard’s view, is that M&A practitioners in the US going forward will need to consider carefully CFIUS and its broader coverage in every transaction where a foreign buyer is involved.

Paul Marmor added: “Much of the discussion concerns China, which continues to grow as a powerhouse in the global economy. And, of course, with the Trump administration raising tariffs to China, this will have an impact of its own on world trade, but that is another story!”

While at the Vancouver conference, Paul also presented alongside Jeffrey Berger, from Golenbocks, showcasing a separate project on which their two firms have worked together across the Atlantic, highlighting the benefits to their respective clients of being part of a global alliance of law firms.  Let’s just hope that governments can also take the view that alliances do work and that global co-operation is the way forward!

To find out more, contact Paul Marmor. 

Business Brexit Checklist

A few businesses are already setting up subsidiaries in the UK and the EU to deal with many of the issues arising from Brexit.

Whether you are already operating from the UK or managing a production line across the Channel, considering setting up or buying a business, here are some tips to bear in mind in the event of a “no-deal Brexit”:

  1. Mergers & acquisitions – if you can manage the risk of currency volatility, then at law, the event of “Brexit” is unlikely to have a major impact on the regulations relating to UK share sale/purchase transactions unless they are affected by competition regulation.
  2. Employment – Unless special arrangements are put into place by the UK, employing and recruiting new EU nationals in the UK will require work and residence permits. Each European country (UK included) is currently setting out their own set of rules.
  3. Shorter contracts – Your business model should allow enough margin to absorb currency fluctuation which will also have an adverse effect on your ongoing contracts if they cannot be terminated on short(er) notice.
  4. Transfer of EU data to the UK – It is not expected that the EU will confirm on short notice that the UK legislation is “adequate” to allow the transfer without additional protections of personal data to the UK from say a French or German company. Until then, businesses will need to use EC Standard Model Clauses. However, these clauses do not cover all circumstances.
  5. Intellectual property rights (IPR) and parallel imports – IPR will need to be registered both in the UK and in the EU. In addition, UK businesses will no longer benefit from the EU doctrine of exhaustion, which prohibits IPR holders from enforcing their rights in respect of the resale of goods originally sold in the EU with their permission. This will give more opportunities to EU businesses to block parallel imports in Europe from their UK competitors. Consider also changing your “.eu” domain name now.
  6. Cross-border traders – Suppliers are advised to set up companies in the UK to ensure the continuity of the production and reselling chain and keep their market share in the UK.  If you buy your components from local suppliers, have you thought about conducting an audit of where they source their materials?
  7. EU regulations – Review your contracts to address issues such like a reference to Italian/EU law as the applicable law to the contract, or a EU court (say Paris court) being competent to hear a dispute, or where the territory of your contract states “the EU”, or where the contract refers to a EU regulation. For example: is your business subject to the EU’s eCommerce Directive? Or what steps might you need to take to comply with separate UK and EU regulators in the future?
  8. Distributors’/resellers’ insurance documents and trade/VAT/import papers should be in place and in this context, consider some of these questions and consider training staff:
    • Are you familiar with terms such like: INCOTERMS, or being registered with an EORI number, being an Authorised Economic Operator, processing a customs and Safety and Security Declaration, the temporary tariff schedule for imports to the UK?
      Do you know which country would be best suited to support your supply chain to EU customers/suppliers?
    • Do you have access to bank guarantees required by Fiscal Representatives?
    • If you are a business that is stockpiling, have you checked with your insurer or insurance adviser on whether you are still fully insured?

Your business does not have to deal with Brexit alone.  Please contact Paul Marmor as well as your tax advisors who should be able to assist.

Cultures in International Legal Negotiation

One relatively undisputed fact of negotiation, any negotiation in fact, is that an understanding of those you are negotiating with and vice-versa, will certainly extend your chances of reaching desirable outcomes for both parties, or in turn, reaching outcomes at all. For international disputes, an understanding of the opposing parties’ culture is important.

What is culture?

Before delving into a variety of the cultures faced on an international scale, it is important to establish what a culture actually is.  In layman’s terms, culture is a group of people that share a similar set of beliefs, traditions or perspectives. Whilst not ingrained into flexible modern societies, cultural traditions can be used as a tool for distinguishing different groups of people. Societies may be becoming increasingly multicultural, adding another layer of complexity to a broader notion of cultures in international legal negotiation. However, without stereotyping, different approaches and traditions can be found across various cultures, influencing the practice of negotiation. It is important not to understate the danger of stereotyping on the topic of negotiation. An appreciation for cultural traditions and norms is key, however, whilst cultural definitions tend to apply to a large proportion of societies and populations, there are typically individuals or groups that break from said cultural norms. Regarding international legal negotiation, a focus on the individuals must not be forgotten in replace of cultural understanding. Instead, the two compliment each other. An understanding of both will aid negotiators during international disputes.


Whilst certainly multicultural demographically, there are several key elements to British culture that can help international legal negotiation. The UK is known for its etiquette, formality and politeness. An appreciation of all three certainly assists in negotiation. However, there are perhaps some more niche aspects to British culture that really come to fruition during negotiation.  One of these is directness.  Unlike the United States, in the UK not everything said is meant as such.  Understatement and irony are typical in the UK.  It is easy to be fooled by British statement, as taking it for meaning one thing, when in fact it implies another.  For example, saying something as simple as ‘that’s interesting’ could imply a lack of responsiveness to the point, or a genuine interest.  It is often hard to tell.  This is where a focus on the individual really strengthens the negotiation.  Tone and gestures are key to this.  Tone in the United Kingdom is often low or subtle, and a change in such can be telling in a negotiation.


The United States is quite different regarding international legal negotiation, but perhaps less complex.  One key element intwined in US culture is the role of negotiators.  Negotiators are typically given authority to make decisions on the spot.  In contrast, in hierarchical cultures negotiators are less conclusive at the time of negotiating, as they act as information gatherers for their superiors.

One other aspect of US culture is accountability.  Agreements must be specific so there is accountability, leaving each side to be held accountable for what they do or don’t do.  In other countries, more emphasis is placed on trust, expecting the other side to adhere to agreements made.

Pragmatism in the US is also key.  The willingness to avoid time and expense can somewhat dictate negotiation.  Straightforward dialogues are preferred within American culture.  In America, the phrase ‘time is money’ is commonplace.  This applies to legal negotiation and conducting it honestly and openly.


In stark contrast to the US, Japanese culture is very different in how it influences legal negotiation.  In Japan, individuals may not have the same authority to make decisions, and often act as information gatherers for their superiors.  This means that negotiation may take more time.

Another aspect to Japanese culture, not dissimilar to British negotiation, is that of politeness.  The Japanese are arguably more concerned with being polite than most nations.  This affects legal negotiation, as one might struggle to hear the word ‘no’.  This in turn leads to another similarity between British and Japanese culture: the meaning of words.  In Japan, ‘yes’ might simply be an expression of understanding as to what someone says, as suppose to an agreement to the point made.  This perhaps leads back to an appreciation for individuals, as well as culture, when partaking in international legal negotiation.  With the Japanese, be prepared to negotiate with teams of people, as collectivisation remains a crucial element of Japanese culture.


China is another country in which an approval process often leads to lengthier negotiations.  Agreements often take more time for a variety of reasons.  Patience is therefore key.  Often, the Chinese want time to trust the opposition, and also find consensus in agreement.  Great emphasis is placed on building trust in Chinese negotiation, and it is not to be understated.

Furthermore, like Japan and unlike Western cultures, much emphasis is placed on collectiveness.  China is a hierarchical culture, emphasising a utilitarian approach.  Emphasis is placed on the collective over the individual.  This leads to lengthier negotiation, as less authority is given to individuals.

One final aspect to Chinese culture, to be taken into account during legal negotiation, is an appreciation for tradition.  Chinese culture is entrenched in tradition, and some research or understanding of these traditions helps to ease the cultural barriers faced.


Italy provides an insight into another deeply traditional culture.  It is certainly one of the most traditional within the West.  Whilst Italy could be considered complex, as the culture within differs from the north to the south, there are some values that reign prevalent throughout the country.  Firstly, perception is important to negotiation with Italians.  More notably than other nations, well-dressed, presentable individuals are better regarded in Italy.  A formidable appearance often translates to reliability within Italian circles.  Reliability is crucial to Italians.  A culture entwined in familial tradition and relationships, trust is an important aspect to negotiating.  Indeed, this can lengthen the negotiating process, as Italians require time to develop this familiarity.  The Italian legal system is less flexible than its European counterparts, and the traditions Italians abide by are important to recognise during negotiation.


During international legal negotiation, Brazilians illustrate a different cultural perspective to those already mentioned.  Often, negotiation with Brazilians might appear informal.  Brazilian culture promotes personability and friendliness, and this extends to the negotiating table, creating non-hostile atmospheres.

However, other Brazilian values are also crucial to consider during negotiation.  Ethics, honesty and trustworthiness are key components of Brazilian society.  Brazilians also place great emphasis upon transparency and punctuality.  Adopting these values certainly strengthens a legal negotiator’s standing and position when negotiating with Brazilians.


India is another hierarchical culture, which often leads to lengthier negotiations.  Patience again, is emphasised during negotiation.  Decision-making is typically done at the top, and so like the other Asian countries discussed, negotiations can take more time before approved decisions are made.  Indian culture also strongly promotes community values.  When it comes to legal negotiation, emphasis is again placed on trust and personal relationships.  Respect for your counterparts helps build this trust, and whilst it can take time, it is culturally significant in India, and in turn will ease potential tension within the legal negotiation.

Final Thoughts

Having provided an insight into several different cultures and their impact upon international legal negotiation, some key notions prevail.  Crucially, understanding of your counterpart’s culture will aid legal negotiation, and this entails greater understanding than simply the history of the nation one might be dealing with.  Aside from obvious language barriers within international negotiation, which do present challenges in themselves, different nations adopt different approaches to customs, strategy and practice.  Trust is key to most negotiation.  On an international scale, adopting or understanding different cultures helps to build this trust, to aid the negotiation as a whole.

About the authors

This article has been written by Maximilian Marmor and Paul Marmor of Sherrards, but does not reflect the views of the firm.

What the new measurements introduced by the Government mean for businesses in financial difficulty

On Friday 20th March, the Government announced new measures to support businesses finding themselves in financial difficulty as a result of the impact of the Covid-19 pandemic. Below, Mark Fellows Partner in the Employment team, summarises the announcement and what it means for you and your business.

Please bear in mind that the Government announcement is lacking in some important detail, we endeavour to provide this to you in the coming days.

There are, therefore, a number of questions that remain unanswered.

The Government’s website for support for employers states:

  • Under the Coronavirus Job Retention Scheme, all UK employers will be able to access support to continue paying part of their employee’s salary for those employees that would otherwise have been laid off during this crisis.
  • To access the scheme, employers need to designate affected employees as ‘furloughed workers’ and notify their employees of this change. The guidance states that “changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation”.
  • Employers must submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal.
  • HMRC will reimburse 80% of furloughed workers’ wage costs, up to a cap of £2,500 per month.

The Government’s website providing support to employees states:

  • If an employer intends to access the Coronavirus Job Retention Scheme, they will discuss with you becoming classified as a furloughed worker. This would mean that you are kept on your employer’s payroll, rather than being laid off.
  • To qualify for this scheme, you should not undertake work for them while you are furloughed. This will allow your employer to claim a grant of up to 80% of your wage for all employment costs, up to a cap of £2,500 per month.
  • You will remain employed while furloughed. Your employer could choose to fund the differences between this payment and your salary, but does not have to.
  • The Government intend for the Job Retention Scheme to last at least 3 months from 1 March 2020 but will extend if necessary.

Mark highlights key areas which are worthy of further discussion:

In order to benefit from this scheme, employers would have to notify the employees of the change to them being furloughed workers. Since there will be no contractual right to do this – as it seems to be a completely new concept – employers would, in effect, need the employees’ agreement to the change. On the basis that the alternative is redundancy, then I would assume that most employees would accept the change.“One particular challenge is that the guidance is using terminology unfamiliar in an employment law context – despite saying that “changing the status of employees remains subject to existing employment law”. The guidance also repeatedly refers to employees who would have “otherwise been laid off”. Laying off, in an employment law context, has a very specific legal meaning – which is to provide employees with no work (and no pay) for a period while retaining them as employees. This seems to be exactly what they are now referring to as “furloughed workers”. The Government presumably mean “laid off” in the vernacular sense, which is to be made redundant (i.e. have their employment brought to an end).

So, once the employer has agreed with an affected employee that they will be reclassified as a “furloughed employee”, then the employer can reclaim 80% of the employees’ wage costs up to £,2,500 a month. However, what we are not clear about is:

  • What classifies as “wage costs”. The employee guidance talks about “all employment costs”. This might include the cost of benefits, pension, employer’s NI etc.
  • Whether the cap of £2,500 refers to the 80% value or the 100% value – likely the 80% value.
  • What happens when employers have already reduced employees’ salaries – can they claim the full 80% or only 80% of the reduced salary?
  • What happens to employees who have already been made redundant? Can they be reinstated in order to benefit from this scheme?
  • Whether there are any minimum service requirements. What happens if an employer has a new employee joining – can they immediately be furloughed?
  • How long the wait will be for reimbursement – if there is a significant wait, it doesn’t help with the immediate cash flow issue.
  • Whether furloughed employees continue to accrue holiday, what happens when they are on sick leave, and are they still entitled to pension contributions?

Employers need to think very carefully about whether to use this and for whom. One particular issue that jumps to mind is how non-furloughed employees will feel about still working – and probably picking up more of the workload to cover for their furloughed colleagues – and potentially receiving the same pay (80%) as those who are not working.

Employers will also need to consider what their approach will be to topping up the salary costs (or not) – particularly for those employees earning over £30K, for whom the cap will not fully cover their 80% salary.

Some of these questions may be answered in the next few days, but some of them are likely to remain unclear. I aim to update you as soon as the Government provide further guidance.”

As you will appreciate, whilst we have outlined options and some of the legal implications, this note does not constitute legal advice as each situation will be different and commercial considerations will no doubt dictate what you as a business ultimately decide to do.

Sherrards is here to support you should you need specific assistance.

To find out more, please contact Mark Fellows.

Directors face hidden dangers in insolvency Twilight Zone

UK businesses are in an extended period of uncertainty, and corporate insolvencies are at their highest since 2014, according to the Insolvency Service. The impacts are most visible on the high street where news of established brands going under is a regular occurrence.  This is, unfortunately, only going to be accelerated by Covid-19 and the current marketplace we are all in, despite the Government’s best attempts and financial stimulus packages.

Directors of limited companies take comfort in the fact that their liability is just that – limited. But many do not realise that they can incur personal liability in the period when their business is hurtling towards insolvency – the so-called twilight zone.

The dangers lie in the seven general duties of directors in the Companies Act 2006. These are to:

  1. act within your powers
  2. promote the success of the company for the benefit of its members as a whole
  3. exercise independent judgment
  4. exercise reasonable care, skill and diligence
  5. avoid conflicts of interest
  6. declare your interest in any proposed or existing transactions or arrangements with the company; and
  7. not accept benefits from third parties.

These duties are important in insolvency proceedings, such as liquidation or administration, because breaches of those duties can enable insolvency practitioners to pursue an offending director for a greater recovery for the company’s creditors.

Many directors do not realise that their duties to a company change during, and as the company approaches, insolvency. This shifts the focus away from protecting the shareholders’ interests towards the creditors’ interests. The danger is that it is not clear when this twilight zone begins.

Considering the testing time that we are in, it is now more imperative than ever that businesses carefully document their decision-making processes through minutes of board meetings (also considering the impact of daily briefings from Number 10 and supporting expert advice from the company’s accountants and legal advisors); updated cash flow forecasts supplemented by the Government-backed loan and/or other stimulus support over a reasonable period; as well as any cash flow models or plans to return to profitability when ‘normal’ trading returns.  All of this information may well justify the continuation of trade and assist any directors facing potential action from insolvency practitioners.

There are three risks that all directors need to be aware of and consider carefully – these are wrongful trading, fraudulent trading, and misfeasance

Wrongful trading

The liquidator or administrator has the power to pursue a director (including statutory director,  de facto director, or a shadow director) for wrongful trading a. Those who exercise control over the company are at risk even if they are not formally appointed at Companies House, so it is not necessarily a defence to argue that a person exercising such control was not a statutory director.

To prove wrongful trading, it must be shown that at some point before the start of formal insolvency proceedings, the director knew or ought to have known that there was no reasonable prospect of avoiding an insolvent liquidation or administration; and that they failed to take every step to minimise further losses to creditors.

Indicators that a director should be aware of a company’s impending insolvency could include:

  • company accounts showing liabilities exceeding assets
  • proceedings against the company for unpaid sums
  • failure to meet sales or cash flow targets or forecasts
  • banks calling in or refusing to extend overdrafts
  • suppliers refusing to make deliveries or provide services until outstanding invoices are settled.

The court has a wide discretion to determine the extent of a director’s liability when they are found guilty of wrongful trading, which is usually in the form of a financial contribution order. Where the court orders a contribution against a director, it also has discretion to disqualify that director, potentially for 15 years.

Fraudulent trading

Fraudulent trading imposes liability where a company suffers loss caused by continuation of the business with the intent to defraud. The key difference between wrongful and fraudulent trading, therefore, is that liability requires intent to defraud creditors.

Dishonesty involving moral blame must be proved. Dishonesty is assessed on a subjective basis and only what the director knew or believed is relevant. There is therefore a higher standard of proof than for wrongful trading.

A director found liable for fraudulent trading can be ordered to make a financial contribution, which should compensate for the loss caused to the creditors. The court can also disqualify the director. Additionally, a person who is knowingly party to fraudulent trading can receive criminal sanctions, regardless of whether the company is being wound up. These sanctions can include imprisonment of up to 10 years; a fine; or both.


Misfeasance is a much broader offence and reflects the common law principle that a company can claim against its directors for breach of duty. It is, some say, a “catch-all” provision.

Misfeasance covers the whole spectrum of directors’ duties and therefore includes:

  • misapplication of any money or assets of the company
  • breach of statutory duty such as unlawful loans to a director or entering into transactions at an undervalue
  • breach of the duty of skill and care.

A director found guilty of misfeasance must pay damages to compensate the creditors as a whole, and not any one particular creditor.

As is our continuing guidance during this difficult time the first step is not to make a snap decision. The Government has already committed significant resource to assist businesses during this period, most of which has already started or is likely to be in force during early April.It is highly likely that there will be more assistance to come.

In the face of the economic downturn, the need for directors to understand their duties – and how to fulfill their obligations and minimise potential liabilities – is increasingly important.  However, it is possible that the Government may take action to relax the Insolvency Laws in view of the Coronavirus pandemic.

To find out more, click here to contact Leigh Head. 

A limited breather for directors of UK companies

Temporary Suspension of Wrongful Trading until 31 May 2020: a limited breather for directors of UK companies

In response to the COVID-19 crisis, the UK Government announced on 28 March 2020 that it intends to amend insolvency law to suspend the offence of wrongful trading by directors of UK companies. At the time of drafting this article, we are still waiting for the exact terms of the proposed new regulations.

The suspension of the offence of wrongful trading is intended to ensure that, in the current uncertain COVID-19 environment where many businesses may be nearing insolvency, directors are able to take decisions to continue to trade and incur additional debt, including under the new government funding initiatives, without the threat of potential personal liability in respect of wrongful trading should the company ultimately fall into insolvency.

Directors have become increasingly concerned about the risk of personal liability that can arise in respect of wrongful trading. Under current legislation a director can be liable if they are found to have continued trading a business and did not minimise losses to creditors at a time when they knew, or ought to have concluded, that there was no reasonable prospect of avoiding insolvent liquidation or administration.

The measure is aimed at giving companies a breathing space and avoiding premature insolvencies by allowing directors to keep businesses going without the threat of personal liability.

What is the current legislation?

The current insolvency rules provide that if directors allow their limited liability company to continue to trade while insolvent or where liquidation becomes unavoidable, then they can become personally liable for business debts.

Under the wrongful trading provisions, a company director has a duty to take every step to minimise potential loss to the company’s creditors upon concluding that there is no reasonable prospect of the company avoiding insolvent liquidation or administration.

The court may order a director that is found liable of wrongful trading to make a personal contribution to the company’s assets in the amount the court thinks proper in light of the loss suffered by the company’s creditors. Any award is compensatory in nature and only arises if the company is worse off as a result of the continuation of trading.

These rules are often the trigger for directors claiming formal insolvency proceedings, in order to minimise the risk of incurring personal liability. Click here for the latest guidance.

What is being changed

In response to the COVID-19 crisis, the UK Government announced that the wrongful trading provisions would be temporarily suspended for three months with retrospective effect beginning from 1 March 2020 until 31 May 2020; and that the end date could also be reviewed thereafter.

The new measures do not modify the existing regime on directors’ duties. When taking on new debt whether under the government schemes or otherwise, directors should ensure that they meet their general duty to act in the way they consider, in good faith, to be most likely to benefit the company members as a whole, or, when there is a heightened risk of insolvency, to instead act in the interests of the company’s creditors.

Once a company enters formal insolvency proceedings, the directors’ duties will be owed to the company’s creditors instead. It is at this point that the suspension of the wrongful trading provisions will have a practical effect by removing the threat of personal liability where company directors elected to continue to trade in good faith using their best endeavours despite the company facing a high risk of entering insolvent liquidation.

The limitations to the change

However, this change will not affect the directors’ duties regime and other insolvency law offences such as fraudulent trading, transactions defrauding creditors and misfeasance. These rules remain in force to deter directors from misconduct.

In addition, a director may still be disqualified for wrongful trading under the Company Directors Disqualification Act 1986. The minimum period of a disqualification order is two years and the maximum is 15 years.

The proposal will therefore provide a limited “breathing space” for directors of UK Companies. It is still important for them not to overlook the need to comply with existing laws and mitigate the risk of breaching their duties when exploring options for corporate rescue. Directors still need to ensure that they obtain professional advice and not breach their duties.

To find out more, please contact Paul Marmor

Sherrards’ corporate team advise on ‘Bimbo’

The Sherrards’ corporate team worked with their clients Robert McGregor and Eamonn McGarvey on the acquisition of the issued share capital of Hugh LS McConnell Ltd in a buy-in management buy-out (“bimbo”) and creating a new company, “McConnell Group”.  With a strong track record in roofing, cladding and external coatings the aim is to turn the existing business into a specialist main contractor, with Rob Davis, one of the original owners and directors, staying on to work with the new management team.

McConnell has been at the forefront of delivering the highest quality roofing & cladding projects to the commercial, industrial, housing and retail sectors across the UK for over 40 years and with Eamonn taking the reins as Managing Director the new management team are looking to build on the excellent reputation and grow the business.

Robert McGregor comments, “We have worked with Leigh and the team for a number of years and they always provides concise and commercial advice. They have a collaborative, personable approach and we thoroughly enjoy working with them.”

To find out more, please contact Leigh Head.