Private equity update - Third edition 2013

19 November 2013

The recent upturn in the market cannot simply be due to seasonal enthusiasm. There is a real and increasing appetite for transactions. However, what changes are afoot that will affect the private equity community? Among others, two key developments in the law need to be in the forefront of all houses' minds - workplace pension reforms and the implementation of the Alternative Investment Fund Managers Directive (AIFMD).

In our third update of 2013, our private equity specialists comment on key issues and recent developments affecting the sector:

  • AIFMD - what you need to know
  • Workplace pension reform - are you ready?
  • Deferred Prosecution Agreements - a new tool for the CPS and SFO
  • No such thing as 'the establishment' in UK collective redundancy law - how the Woolworths case has changed the law
  • Know your contracting party

AIFMD - what you need to know

The Alternative Investment Fund Managers Directive (AIFMD) represents a dramatic shift in the regulation of the fund management industry. Private equity fund managers and funds will fall within the AIFMD's scope and will be subject to a host of new requirements. The directive aims to reduce risks associated with investments into funds, increase transparency & fairness and align the remuneration of managers with sound and effective risk management.

The following points are of particular relevance to private equity funds:

  • the need for the fund manager to be authorised or registered by the Financial Conduct Authority (FCA)
  • the requirement to make certain notifications (including to the FCA) when the fund acquires major holdings in target companies
  • the obligation after the takeover of a non-listed company to disclose the fund manager's plans for the company's future business
  • the need to appoint a depositary; and
  • the obligation to produce and abide by an AIFMD-compliant remuneration policy (which will have a possible impact on carried interest arrangements)

There are various threshold and exemption provisions which may limit the applicability of some of the above points to some fund managers.

Wragge & Co has produced the following series of alerts which contain an introduction to the main issues raised in the AIFMD. This provides a valuable guide to whether (and how) AIFMD will affect you and your firm.

Workplace pension reform - are you ready?

Major reforms requiring employers to provide pensions to their workers started to affect the UK's largest employers last year. All UK employers will need to ensure that they are complying with automatic enrolment and the complex requirements of workplace pension reform.

For the first time, employers will be required to pay pension contributions for workers. This, combined with additional implementation and ongoing administration expenses, means that workplace pension reform will hit the bottom line and have a real impact on the cost of doing business. Certain sectors and industries will be disproportionately affected, especially if they employ large numbers of low to moderate earners, have high staff turnover or currently have low levels of pension provision. While all UK employers will have to comply, retail, leisure, hospitality, manufacturing and construction companies face some of the biggest financial and compliance challenges.

Fortunately, Wragge & Co's pensions and employment teams have plenty of experience in successful implementation of workplace pension reform solutions. You can start finding out more and testing whether your businesses are compliant by using our employer's checklist. If you want more information, we have produced a plain English guide to the reforms and a dedicated microsite with updates and video Q&As. Our experts are always happy to have a chat about the reforms.

Deferred Prosecution Agreements - a new tool for the CPS and SFO

Deferred Prosecution Agreements (DPAs) are to be introduced in 2014. DPAs are a new enforcement tool available to the Crown Prosecution Service and Serious Fraud Office that will enable corporate bodies to deal with allegations of criminal activity without trial and avoid the potentially damaging consequences of being involved in the court process.

This new power will be available to prosecutors in corporate manslaughter investigations. In the future, DPAs may be extended to other regulators such as the Health and Safety Executive, Environment Agency and local authorities.

Wragge & Co's regulatory litigation experts consider the features of DPAs and the potential consequences for companies under investigation.

No such thing as 'the establishment' in UK collective redundancy law - how the Woolworths case has changed the law

Wragge & Co's employment experts previously featured the case of USDAW v WW Realisation 1 Ltd (UKEAT/0548/12/N), concerning the requirements to consult employees in a collective redundancy situation. In June, the Employment Appeal Tribunal (EAT) held that section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) was not compliant with European law. Section 188 requires collective consultation where an employer is proposing to dismiss as redundant 20 or more employees 'at one establishment' within a period of 90 days. However, the EAT held that the words 'at one establishment' should be deleted from s.188.

The case has huge significance. It means that where 20 or more redundancies are proposed by an employer across their business as a whole, collective consultation will be required, with no further limitation or consideration of where these employees are located or how the workforce is organised.

The decision means that all the former employees of Woolworths and Ethel Austin are entitled to a protective award for failure to inform and consult under TULRCA. As the companies involved are now liquidated, the bill will be picked up by the Secretary of State.

For now, the case remains good law. However, the Secretary of State has been given leave to appeal the decision to the Court of Appeal. It's not clear when the case will be heard, so it's a case of watching this space for developments.

Know your contracting party

The Court of Appeal recently determined that an individual had signed a contract in his personal capacity rather than on behalf of a company, highlighting the importance of making it clear when entering into any agreement who will be bound by it.

Dr Hamid had engaged engineers to carry out works on a property he had purchased in his own name. The agreement for the works was partly done in meetings and partly by a letter. The letter was written by Dr Hamid, which he signed in his own name, alongside a trading name. Subsequently, the work ran into difficulties and Dr Hamid claimed against the engineers for the defective work. The engineers countered that the contract was with company. As the company did not own the property, it had suffered no loss.

The court disagreed. The letter did not include such words as "director" or "for and on behalf of" after Dr Hamid's signature and did not include any of the legally required details of the company. The use of the trading name did not, of itself, indicate the contrary.

The defendant had assumed it was dealing with a company but did not consider the matter further. The court held that the only question was what was actually known, as a matter of fact, by the parties. Private thoughts and assumptions were irrelevant.

Muneer Hamid v Francis Bradshaw Partnership [2013 EWCA Civ 479]


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