SGS 7 (Employment & Pensions)

Question 1

How does the obligation to provide info to / consult differ under Reg 13?

Answer 1

Provide info must occur before asset sale agreement signed (when it is to take place, reasons for it, legal, economic and social implications for affected employees and whether buyer / seller envisage taking any ‘measures’)

Consult only if measures are planned.
nb measures is widely defined and includes minor changes in employee’s situation.

Question 2

Which cases give guidance on the meaning of assigned?

Answer 2

Re Botzen and Duncan Webb
Matter of employee’s function rather than terms of his or her contract:
Amount of time employee spends on the business being sold

Contractual terms indicating the employee is assigned to a particular business.

Allocation of cost for the employee’s services between businesses

Value input given to each part of the business by the employee

Question 3

Why can a buyer or seller not be sure that employees will / will not transfer?

Answer 3

TUPE applies automatically to transfer employees and no way of ‘testing’ whether it applies to an individual unless they make a claim to the Tribunal.

Question 4

In terms of the transfer of employees under TUPE, how do the buyer and seller apportion the financial risk of legal position not being the same as their agreed ‘list’ of employees who ‘will’ transfer?

Answer 4

Cross indemnities

From Seller if employee not on list DOES transfer by operation of law, (seller indemnifies buyer for claims brought by excluded employee)

From Buyer if employee on list does NOT transfer and brings a claim against the Seller

Additionally
S indemnifies B against liabilities for employees (on LIST) on schedule in respect fo pre-completion acts.
B indemnifies S for post completion acts (on LIST).

Question 5

What is the next step to consider if the sole or principal reason for the change to employee’s terms and conditions was the transfer?

Answer 5

Is the change?

For an ETO reason entailing changes in the workforce;
OR
Permitted by the terms of the contract; Or

Entirely positive for the employee; OR

Relating to relevant insolvency proveedings

Question 6

If none of the ETO conditions apply, can a buyer make a change?

Answer 6

No, any change is void even if employee consents.

If one of the conditions IS met, buyer can make change is employee consents.

Question 7

What is a defined benefit scheme?

Answer 7

Occupational

Defined in relation to employee’s benefit

Provides a fixed % of employee’s final salary as a pension on retirement (% dependent upon number of year’s service whilst on scheme)

Employer required to pay balance of cost of annuity, whatever the members have contributed.

Question 8

Why are defined benefit schemes so unpopular with employers?

Answer 8

following uncertainties

How long will employee work for the company?

What will the performance of the stock market be on employee’s retirement?

How much will the annuity cost on retirement

Question 9

What is a defined contribution scheme?

Answer 9

occupational

Defined from an employer’s point of view (their liability is fixed)

Usually employer’s contribution is fixed as a % of each member employee’s annual salary

Sum total of benefits will be contributions in respect of the member plus the investment returns on that sum.

Question 10

What should R10 TUPE be read with?

Answer 10

Pensions Act 2004 and Pension Protection Regulations 2005: where Seller provides occupational pension scheme, Buyer must make contributions to:
Occupational final salary scheme; or
Occupational money purchase scheme; or
Personal scheme.

Question 11

What must a buyer’s contribution be under R1- TUPE?

Answer 11

lower of (i) the statutory minimum (i.e. the very least that the buyer had to pay to employees is 6% of salary if that is what employees are contributing themselves) and (ii) the contributions which the seller was making

Question 12

When does s.75 Pensions Act apply?

Answer 12

Where there are group final salary schemes.

Triggers =
Share Sale: date Target leaves the group.

Asset Sale: employer under the scheme is leaving the group.

Question 13

s.75 Share sale?

Answer 13

Target leaves group and would be liable to pay a proportion of the deficit; of concern to Buyer as would undermine value in target;

Question 14

s.75 Asset Sale?

Answer 14

Seller (no employees / assets left) would be liable to pay a proportion of the deficit; this would be of concern to the seller; a buyer would not be concerned

Question 15

How would assignments of third party contracts operate in practise?

Novation?

Answer 15

Legally, can only assign the benefit of the contract
The buyer would give an undertaking to perform the burden on the seller’s behalf and an indemnity if it fails to do so.

Consent of third party allows S to be released from contract and B to take on benefit and burden (good for un assignable contracts)

Question 16

What is the potential issue of a cash shell seller to the buyer?

Answer 16

warranty and indemnity claim against a now worthless company (need sufficient assets to meet the cost of such claims)

wants to ensure it has the benefit of restrictive covenants protecting it against competition from LTC and other subsidiaries.

Question 17

How does a buyer seek protection against a cash shell seller?

Answer 17

Seller’s SH:
party to AA to guarantee the performance of seller’s obligations.
give restrictive covenants directly and on terms that it shall procure all of its subsidiaries comply with them.

money into retention account and locks in for a set no of years to recoup money out of the account

Question 18

When would you:
investigate title
certificate of title
property warranties?

Answer 18

only if property valuable (cost on BUYER and expensive and time consuming but reveals any problems BEFORE Buyer bound to proceed with purchase)

number of properties or seller’s solicitor recently acted for seller on purchase (costs on SELLER)

if property unimportant (not appropriate where value of property is high, as only provide remedies after completion when problems materialise)

Question 19

On whom will a local authority serve a remediation notice for land designated as contaminated?

Answer 19

‘appropriate persons’

Class A: original polluter

Class B: if no Class A, current owner or occupier even if not aware of or involved in contamination.

Question 20

In a share sale what would buyer’s concern be in relation to contaminated land?

Answer 20

any liability Target might incur for contaminated land as this would decrease the value of the Target

Question 21

In an asset sale what would buyer’s concern be in relation to contaminated land?

Answer 21

Buyer becomes owner / occupier, potential Class B liability for remediation costs. Particular issue If price reduced to take contamination into account o Buyer given info about the contamination.

Question 22

Issue with seller retaining debts and collecting?

Answer 22

Engage third party (no employees to carry out)
Buyer’s ongoing relationship with customers could be jeopardised if seller suing one.
Get undertaking from seller that it will not issue proceedings to recover debt for a specified period after completion and to allow buyer he option to buy the debts after this period

Question 23

Why is Seller retaining debts but Buyer collecting a good compromise?

Answer 23

S retains risk that debts not recoverable
Buyer should get Seller to repay expenses and a fee
Buyer has more control over relations with debtors.

Question 24

Pros and Cons of buyer buying debts?

Practicalities?

Answer 24

Clean break for seller
cannot use if contracts relating to debt have non-assignment clause.

Debts detailed in schedule too AA.
Legal assignent requires written notice of assignment to each debtor.

Question 25

Practically speaking, how does a new employer change employment terms and conditions?

Answer 25

Buyers often dismiss the employees, enter a binding settlement agreement and then re-engage employees on new terms.

Question 26

What happens to smaller third party contracts which cannot be assigned or novated before completion?

Answer 26

Should be a provision in the AA of the following:

S paid by third party and holds on trust for B.
B provides services to third party.
B indemnifies S in relation to any action third party brings.
S uses best or reasonable endeavours to procure novation or assignment of contracts after completion.

Question 27

What are the protections for the Buyer for the following forms of title investigation:

Investigation of Title

Certificate of Title?

Answer 27

Negligence / breach of contract against own solicitors

Negligent misstatement against S’ solicitors and S if Buyer was able to get a warranty from S confirming truth and accuracy of certificate.