Corporate Blawg UK

Case spotlight: IFE v Goldman Sachs International

Corporate Blawg has discovered that the vast majority of his hits are new visitors, and through the techno-wizardry of Typepad, Corporate Blawg can find out the search words used in google that have led his visitors to this site, bringing them to this climactic exclamation of corporate happiness. 
             Accordingly, Corporate Blawg is now less interested in his regular readers (they be few) but more focussed on the occasional reader, who has stumbled here through the forest of gloomy legal discourse to this oasis of self-expression and delight in corporate values.  It is therefore herein that Corporate Blawg proclaims that this blog will be frustratingly irregular, but any reader who has not read any historic posts is directed to visit this corporate blog's historic posts, which are not so out of date as to no longer be an epiphany of legal intrigue. 
            Managing expectations, Corporate Blawg informs the regular reader to expect a weekly update and no more unless the week has been a particularly peaceful one.
           Following that unusually direct opener, Corporate Blawg is scraping at the feet of relevance to find a link to this month's case spotlight.  Failing which Corporate Blawg has elected to go straight ahead and tickle the toes of this legal goldmine.
           The judgement of IFE Fund SA v Goldman Sachs International [2006] EWHC 2887 was handed down on 21 November in this year of our word 2006.  IFE Fund brought their action against Goldman Sachs on the grounds of misrepresentation (pursuant to section 2(1) of the Misrep Act 1967), and negligence. 

The essence of IFE's complaint is that it was induced to enter into the transaction by information provided by Goldman Sachs, which presented a picture that was in fact misleading....

Nevermind the facts, Goldman Sachs won the case.  Their Syndicate Information Memorandum had contained a large number of disclaimers for responsibility.  These disclaimers related to non reliance on any information, the fact that the information had not been independently verified, the information was not comprehensive, and that the information has not been updated.  Basically the disclaimers were tantamount to Goldman Sachs saying "this information is bollocks - don't blame us if its made of acid and you burn your fingers picking it up".  They're not known as "Nice Guys Goldmans" for nothing! In fact, they're not known that at all.
            Leaving that lyrical twister behind, these exclusions (and the lack of any other representations made by Goldman Sachs) did for the negligence claim.
            Corporate Blawg was also excited by this case in para 65, where it stated that:

A mere declaration by a misrepresentor that he does not accept liability for the consequences which the law attaches to a misrepresentation would by ineffectial and therefore did not need to be covered by the Misrepresentation Act.

Since the question is one of substance not of form, allow the Blawg to elucidate.... If a seller said "Buy my kidney because I've only drunk 3 beers in my life" those statements would be representations and they would still have the character even if the seller added the words "but those statements are not representations on which you can rely" (Cremdean Properties Ltd v Nash [1977] EGLR 80.  However if the seller said "buy my kidney because the doctor's says my kidneys are "in perfect working order", but I have no knowledge of whether he is telling the truth or not" the position would be different.  The court pointed out that:

the qualifying words could not fairly be regarded as an attempt to exclude liability for false representation arising from the first half of the sentance.

So here the court found that the IFE Fund's Misrepresentation claim was hopeless.  (Further investigation by the court found that the claim was further rubbished by the fact that any claim by IFE Fund would be barred by clause 16.4 of the Bondholders' Agreement - a strange foreign beastie)
           Stopping for a moment, and turning to camera, as the soft music carresses our ears and makes us think of home... There is a lesson here for lawyers and investors and Corporate Blawg wishes to make sure none of you make the mistake of relying on disclaimed documents (like this blog for instance) nor forgetting the relevant disclaimers when drafting an investment memorandum, due diligence reports, or any other such disclaimed documents. 
            Further, Corporate Blawg has found out again, as he well knew already, that Goldman Sachs UK in-house lawyers rock!  This is a compliment he is sure they have never heard before and are unlikely to hear again on such a trendy medium as the blogosphere.  And then, with a gentle sigh, Corporate Blawg disappears up his own ass.

Partnerships in law

Corporate Blawg has been very busy these last few weeks, and due to sleep depravation or alcohol intoxication, one way or another his journey home has looked much like the Corporate Pic in this corporate post. 
              Corporate Blawg has spent much of his precious time drafting and thinking about limited partnerships under the Limited Partnership Act 1907 (the same year that the first hackney carriages ran with meters in London), and the Partnership Act 1890 (the same year Van Gogh shot himself in the chest and died two days later). 
              These solid acts are still in force and mighty in their effect.  Corporate Blawg understands that the Law Commission is considering clarifying various issues from these ancient and historic acts.  This is because Limited Partnerships have found themselves a new(ish) lease of life in relation to their use for private investment funds.   It is in the setting up of such an investment fund that Corporate Blawg has been largely pre-occupied with his Limited Partnership Agreement, and all such ancillary documentation. 
             An interesting legal nugget of the limited partnership world is that a limited partnership differs from a partnership in that a limtied partnership has a "general partner" and one or more "limited partners".  The limited partners are only liable in so far as the amount they contribute to the capital of the partnership, and the general partner is liable for all the debts and obligations of the partnership.  If the limited partner gets involved in the management of the company in any way whatsoever, the limited partner becomes liable for all the debts and obligations too.  So stay well clear limited partners!  For now, that is all Corporate Blawg has to say on the matter.
             Corporate Blawg has been inspired by his fellow bloggite Ruthie's escapades, and has decided to head off into the wilds today to go clay pigeon shooting in the rain.  Corporate Blawg hopes that he will not lose any digits in the process as it may slow down his lightning-like typing skills.  Nevertheless Corporate Blawg is keen to get out there and show those bits of clay his fire power; and Corporate Blawg hopes that he will not have his liver eaten out by vultures in consequence.  (Corporate Blawg apologises for the tortured literary reference).

Hedge trimmer

The Alternative Investment Management Association has jumped on the chance to be the first to respond to the European Commission White Paper on Enhancing the Single Market Framework for Investment Funds which was published on 15 November.
          On 16 November, AIMA’s Executive Director, Florence Lombard said:

We are happy to see standardization of definitions for private placements but less so on the prospect of any new regulations.”

To feminize the words of the iconic Mandy Rice-Davies - well, she would say that wouldn't she?

O'er the Corporate Veil and Hill

With all this fuss and commotion over hajibs in the news recently, Corporate Blawg has retreated into his cocoon of legal comfort and pondered recent applications of lifting the corporate veil. 
             Whilst Corporate Blawg firmly believes that if an individual wishes to hide her face she should (but may have to identify herself in other ways, such as fingerprints or a secret password), Corporate Blawg finds that he is often considering whether his corporate structures enable persons to avoid responsibility and liability where due.  This is because Corporate Blawg loves shareholders and creditors.  Although he loves shareholders and creditors, he also loves the well-paying client who instruct Corporate Blawg to set up an impenetrable corporate veil, but most of all he loves his wife.
             The veil of incorporation was first tested in Salomon v Salomon & Co [1897] AC 22, where it was decided that, amongst other issues, a company is different to the persons in its memorandum, and that after incorporation the company is not the agent of its subscribers.  Further cases cemented the company as an independent legal entity carrying its own liability.  A good corporate structure would mean that at each company in the group the buck would stop.
           Despite the veil of incorporation, the courts are often invited to lift the veil and peek at the chanel lipstick underneath.  The most famous example is Adams v Cape Industries plc [1990] BCC 786 when the court famously said:

Neither in this class of case nor in any other class of case is it open to this court to disregard the principle of Salomon v Salomon merely because it considers it just to do so.

However, in the circumstances, the court in Adams decided that it:

...will lift the corporate veil where a defendant by the device of a corporate structure attempts to evade... limitations imposed on his conduct by law

The best example for flinging the veil to one side is Jones v Lipman [1962] 1 WLR 832 where the relevant company was described as "a device, a sham, and a mask".  In our tortured analogy this would also apply to persons who used the hajib to hide their identity as they rob banks.  Not that Corporate Blawg has ever heard of a hajib wearer robbing a bank, nor a moustached man stealing razors, it doesn't mean it never happened.  For the avoidance of doubt, Corporate Blawg does not think that hajib wearers are any more prone to robbing banks than woolly jumper wearers are to jumping into cold rivers whilst singing a Moon River by Henri Mancini.
             In the recent case of Kensington International Ltd v Republic of Congo (formerly the People's Republic of Congo) and others [2005] EWHC 2684 Comm the court referred to a "creature of Cape" and, for those that like details, this is a handy piece of instructive dicta:

The court accepted that it would lift the corporate veil where a defendant, by the device of a corporate structure, attempted to evade such rights of relief against it as third parties already possessed, whilst rejecting the notion that the corporate veil would be lifted where the corporate structure was created to evade rights of relief which third parties might in the future acquire. The corporate structure could legitimately be used so as to ensure that the legal liability (if any) in respect of particular future activities of the group (and correspondingly the risk of enforcement of that liability) would fall on a particular member of the group, rather than upon its parent or other associated companies.

Corporate Blawg agrees with this in principal, and notes that the key issue here for corporate lawyers are the words "where the corporate structure was created to evade rights of relief"  Bring on arms length transactions at market value!
          Corporate Blawg considers that the veil should stay firmly on in all circumstances other than a clear and present sham, device, mask, facade, myth, deceit, falsity, perversity and absurdity, and where there is ANY DOUBT that such structure was created for bona fide purposes, that veil should stay firmly down, especially if it makes over-the-hill politicians feel uncomfortable.

Partnerships in groups are not body corporates

This blog is a bit dry, but like a desert where the camel milk is sweeter.
            On the 10 October 2006, Corporate Blawg contemplated the Company Law Reform Bill.  Big questions were posed and hard answers imposed for how the law would change in relation to written resolutions (or not-change-much as it happens; nor-change-very-soon as it happens slowly). 
            Does he - Corporate Blawg who stumbles through this tangly brush of linguistical melody - go down the s.381A route (where Directors must "know" of the written resolution - when would they not?) and inform their auditors, or does he trip the light fandango down to Article 53 of the Table A, which is a bit less secure but a hell of a lot easier. Corporate Blawg usually checks the Art.s, and heads straight for Road 53.  Anyway, this is old turf now...
           In Corporate Blawg's great road-trip of corporate legal discovery, Corporate Blawg has recently discovered another such dilemma to add intrigue and expertise to his drafting.  Like a bullet from the blue, or a bolt from the green, Corporate Blawg learnt of a key decision to make when drafting commercial contracts.  This gemstone of wisdom is that where a group of companies contains an entity that is not a corporation or body corporate... such as.... a partnership... (gasp)... the typical definition of group, following s.736 of the Companies Act 1985, will not apply! (Eek).  Therefore if you use the s.736 definition and have a partnership or unincorporated association somewhere in the middle of the group, then it may split the group in two - ouch - (a bang on the head with swinging beam).  One thing to be wary of is that this may have implications on your "change of control" provisions in the contract, so DUCK! (as the beam swings back at you again) (is this like panto-law?).
           The alternative to this quasi-disaster (is behind you) is to look back into s.258 which may describe groups in terms of "undertakings".  The partner of s.258, namely s.259, states that undertakings may be body corporates or partnerships. [Cheer].
           The key difference, to be savy to in your meaty £500-per-page contract, is that a group without partnerships or unincorporated associations will describe itself in the contract as a group consisting of "subsidiaries" and "holding companies", whereas a group with such non body-corporates will describe itself as consisting of "subsidiary undertakings" and "parent undertakings". The End.
           So close, yet, so far.

NEWSFLASH: Companies Act 2006

On Wednesday (just gone), the Company Law Reform Bill became the Companies Act 2006. Most provisions won't be in force until October 2008.  Accordingly, Corporate Blawg considers his approach to the Companies Act 1985 now to be somewhat like this:

      

Charity Auction - buy Corporate Pics

Corporate Blawg has decided to sell the images and all intellectual property rights in all or any or his Corporate Pics.  All funds raised will be donated to Avocats Sans Frontiers.

Avocats Sans Frontières (ASF) is a non-governmental organization acting in the field of law and justice. ASF was created in 1992 by a small group of lawyers who strongly believed they could contribute to a more equitable and united world. Therefore, ASF works to promote, to strengthen and to protect civil, political, social and cultural human rights of individuals and peoples.

Corporate Blawg will not handle any funds, and proof of receipt from Avocats Sans Frontieres will be accepted as evidence of payment. 

The prices of each picture will vary according to who the customer is (i.e. a corporate body wanting to use a picture in a brochure should pay corporate rates, and weirdo who wants to put a corporate picture on his bedroom wall should pay mates rates).  In any event, all prices are negotiable.

 

Cool terms: angels, archangels and fallen angels

Corporate Blawg's great Aunt was an angel.  She was renowned for her generosity of spirit, her honesty and lack of any prejudice or impatience whatsoever.  Auntie Elsie worked as a blue-stocking Matron in the Lake District.  She hardly rested through two major wars, never marrying, but dedicating her life to those she could help (rumour has it she always longed for a young soldier who had been killed in action).  This unsung angel, now no longer in flesh amoungst us, never once, as far as Corporate Blawg is aware, invested in technology businesses in their infant stages to reap huge dividends and buy dangerous sports cars and fat cigars. 
          Perhaps she missed out?  I guess I'll be able to ask her after I push St Peter into a ditch and climb over the pearly gates.
          Angels, we love them, whether as young individuals for our oldest blood, or as young businesses for our richest investors.  We've all seen pictures of angels  - in the Last Judgement of the Sistene Chapel, and we all know (or knew) one or two earth-angels who pulled us away from that careering vehicle (or other metaphorical disaster); yet few of us know of the allegorical angel spoken of so highly in centres of capitalist paradise. Corporate Blawg has therefore taken a few moments to set out a few key terms, and the impact should be implicit:
           A business angel is an angel investor who is usally an entrepreneur or wealthy investor.  The usual pickings for an angel investor are young nubile companies with a great potential to grow and flourish, like e-businesses and technological devlopments.  Capital raised from a number of angel investors is known as angel financing, or seed financing.  This usually involves much greater sums than a single angel can amount.  Then you have Angel groups, which are organisations, funds or networks specifically set up for facilitating angel investments.
          As a rather cool term of the CV, an archangel is an outsider hired by an angel group to carry out due diligence exercises and to coordinate investment duties to the members of the angel group.  Archangels usually have no financial commitment to the group. 
         Back on the ground, or even the gutter, fallen angels are former investment-grade corporate borrowers that have been downgraded by the FSA.  Some of these villains have issued debt instruments with poor credit.  Such dodgy instruments tend to be traded in the high-yield market, where liquidity tends to be lower.  The FSA warns that this can create risks for investors and financial institutions that have limited experience of dealing in illiquid instruments.
           All in all, Corporate Blawg adores angels, as clients, as concepts and, most importantly, as creatures of compassion.  Corporate Blawg wishes to perpetuate the notion of sharing and co-operation so, somewhat contrary to his strict rules of anonymity, Corporate Blawg has notified his trainee of the existance of his blog in order that his trainee may avoid having to do tiresome research on basic concepts.  Corporate Blawg hopes that this blog is also serving a similar use to others on the intraweb.  Corporate Blawg would like to hear from those who have read this blawg, together with your suggestions of how Corporate Blawg could make it better.  Corporate Blawg's corporate law blog does not aim to rant, it aims to please.

Shareholders' rights are important

The DTI have published a consulation document called "a proposal for a Directive on the exercise of voting rights by shareholders".  Aimed at those in the know, this consultation commences with the ground-breaking statement that:

Shareholder rights are important.

In the same vein, Corporate Blawg sincerely hopes that when the Ministry of Defence was consulted before going to war in Iraq the first sentence of their report was "War is bad".  Anyway, the EU's proposal that has inspired this consultation document will affect the rights of shareholders to  be informed of meetings and how those shareholders exercise their rights at those meetings.  The consultation can be boiled down to four key horsemen for trading between Member States:

1. The abolition of "share-blocking".  Whilst not quite being a "cool term" share-blocking is the process by which shareholders must notify the company of the intention to vote at a forthcoming meeting by a certain date.  After this date shares are not permitted to be traded.  The EU suggests 30 days before the meeting is the earliest.  Currently in the UK we have 2 days.
2. Sufficent advance notice for meetings.  The EU proposes 30 days, which will impact on the UK's 21 days for AGMs and 14 days for EGMs. 
3. Removal of legal obstables to electronic participation.  Hooray for the digital age - yet speed and cost must be proportionate to security and identification (the oldies warn us).
4. The ability to vote without attending the meeting.  It is proposed to have a right to vote in absentia, by post or electronic means, without appointing a proxy.

Because it is unlikely that Corporate Blawg will put together a full response to this consultation, Corporate Blawg thought he would express his views here, for discussion by regular readers and those accidental web-tourists looking for porn.

1. SHARE BLOCKING - keep two days - the market will be less efficient with longer time of non-trading shares duh.
2. ADVANCE NOTICE - if it's that important to you, go to it, otherwise vote by email - you don't need 30 days notice, who takes holidays for more than 14 days anyway - you'll have your blackberry with you, so what?
3. ELECTRONIC PARTICIPATION - right on, digitise the lot. 
4. VOTE WITHOUT ATTENDING - apparently Corporate Blawg is a stakeholder in parliament - he's never attended but has voted, so bring it on.

Since the consultation needs to crystallise, and the Commission needs to send the directive to and from the European Parliament a million times, and the directive will then have some way-off implementation date, Corporate Blawg finds it hard to get overly excited about this consultation.  Accordingly, and after this high-level analysis, Corporate Blawg is off to the pub.

p.s. Corporate Blawg thought up a law joke today: How do you serve a judge his whisky?  Just-ice.  Stupid really since judges prefer their whisky straight (off the belly of a Brazilian housecleaner).

One member one vision

How cool is this... ? 

The random cheesemeister looks familiar, but not sure - if you see either of these characters in the street you should stay clear as one is a robot and the other is a corporate lawyer, or are they both robots? ... hard to tell.

Corporate Blawg has recently read a book that says it is important to have empathy at work.  So, in light of this, something else you should watch out for, a bit like an 9ft robot, is that s.24 of the Companies Act 1985 states that if a public company has only one member for more than 6 months, then that one member becomes liable for all the debts of the company incurred from the 6 month trigger point.  If Corporate Blawg was that one member Corporate Blawg would be gutted.