acquisitions workshop 7
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How can assignment of debts be legal rather than equitable?
Written notice of the assignment must be given to each debtor (s136 LPA 1925)
What are the drawbacks of transferring debtors and creditors to the buyer
- - Complicated to give accurate definitions of debts and liabilities involved
- - Difficult to give notice to all debtors
- - Difficult to value book debts
- - Buyer will suffer a cash flow disadvantage
- - Buyer will bear the risk if some debts prove irrecoverable
Name some problems of debtors and creditors remaining with the seller
- - Seller may not pay off creditors promptly
- - Seller may be too heavy-handed in chasing debtors
This will mean the loss of goodwill in the company. Appropriate undertakings should be put in place
- After completion seller may no longer have the means to chase debtors
The buyer could instead collect as the seller's agent (usually on payment of a collection fee)
Does TUPE apply to a share acquisition
No. Only to an asset acquisition
How do you decide whether an employee has been "assigned to a relevant part" as is therefore covered by regulation 4 TUPE?
This is a question of fact.
You need to consider the test in Botzen v Rotterdamsche Droogdok. Whether there is a transfer of the part of the undertaking to which the employees were assigned and which formed the institutional framework within their employment relationship took effect.
Can an employer offload an unwanted employee by deliverately transferring him to a part of the undertaking the he knew was about to be transferred
Although the test is whether a person was assigned to undertaking rather than a part, this would be fraudulent and therefore void. The employee was NOT 'employed in the part of the undertaking' being transferred (Carsway Clearning v Richards)
Can an employee object to the transfer after the transfer has taken place?
Yes. If he did not know the identity of the transferee at the time and does so promptly (New IDG v Vernon)
Name 2 rights and liabilities that TUPE does not assign to the transferee
- 1. Criminal liabilities
- 2. Ones relating to occupation pension schemes
When will the dismissal of an employee during an acquisition be automatically unfair
- 1. When it arises due to the transfer or
- 2. Due to a non ETO reason to do with the transfer
- To bring a claim the employee must have at least one year's service.
- Note: transferee will also be responsible for employees left behind if they are got rid of for these reasons.
Is dismissal following pre-transfer 'collusion' between the transferor and the transferee with regard to dismissals likely to be regarded as by reason of the transfer itself
There is currently no authority supporting this
When wil dismissal be for a reason connected with the transfer?
- This is a question of fact:
- - If it occurs shortly before or after the transfer it is likely to come under Reg.7
- - If dismissed prior to transfer employee will come under reg 7 if he can prove at the time of his dismissal that a transferee had been found and that dismissal was related to the negotiation
Less clear if it will be covered when in contemplation of transfers generally but likely it will (Morris v John Grose Group)
Why does it matter if dismissal is for an ETO or a Non ETO reason?
- - If for a non-ETO reason then the buyer will be liable for dismissal claims
- - If for an ETO reason then the seller will be liable
- If for a non-ETO reason then an alteration in the terms and conditions of employment will be void
if dismissal is for an ETO reason, why kind of dismissal will this be?
Either redundancy or for some other substantial reason under s91(1) and s135 ERA 1996.
Even if a reason can be estalbished, the employer must show that he acted reasonably (s98(4) ERA 1996)
What will an ETO reason generally include?
- - Reason relating to profitability or market performance
- - Reason relating to nature of equipment or production process
- - Reason relating to management or organisation structure
What will an ECONOMIC reason NOT include
- - Dismissing employees to obtain an enhanced price (Wheeler v Patel)
- - A reason relating to the transferee and not to the future conduct of the transferor (Hynd v Armstrong)
What else must an ETO reason entail?
- A change in the workforce.
- - This must be a change in the composition of the workforce of a substantial change in job descriptions, sometimes a real change in the functions of the workforce will suffice
What due diligence should the buyer do in relation to the target's employees? Why?
- - Full details of employment matters
- - Employees' contract terms (little opportunity to vary these)
- - Which employees are working on/assigned to the undertaking being transferred
Because the buyer will inherit all employee related liabilities.
Will the buyer require warranties in relation to employees? If so, what about?
- That employees are only those listed in the schedule, that there are no disputes etc
- That there have been no dismissals due to transfer/Non ETO reason and that there have been no variations in contracts due to transfer/Non ETO reason
Will the buyer require indemnities in relation to employees?
E.g. For liabilities arising out of all outgoings re employees such as holiday pay or on any claims attributable to any breach by the seller of its employment obligations prior to completion
What is the difference between transferrance of pension benefits that are a discrete scheme as opposed to a group scheme?
- Discrete shcee:
- - Employees remain in the scheme following acquisition. Check whether scheme is in surplus or deficit (this will affect the purchase price)
- Group scheme:
- - A transfer payment from the group scheme must be made to the buyer's scheme
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