UK: Corporate Focus Spring 2016

Bribery Act sinks its teeth into Sweett

A recent case puts businesses on notice that the Bribery Act 2010 has bite. Punished for failing to prevent the corrupt acts of its subsidiary, and defenceless because of a complete absence of procedures to prevent acts of bribery being committed on its behalf, Sweett Group PLC has the unwelcome distinction of being the first company to be convicted under the Bribery Act's corporate offence.

Sweett Group PLC (Sweett) is a construction company listed on AIM. Its subsidiary in the UAE paid a bribe to a senior Emirati official at an insurance company in order to secure a consultancy contract relating to the construction of a hotel. The bribe amounted to GBP 680,000 and was made in monthly payments under a sub-consultancy agreement.

A company can be guilty of an offence under section 7 of the Bribery Act if "a person associated with the company" bribes another person, with the intention of obtaining or retaining business or an advantage in the conduct of business for the company (corporate offence).

Following an SFO investigation, Sweett pleaded guilty to the corporate offence and was ordered to pay GBP 2.25 million, made up of a GBP 1.4 million fine, a GBP 851,152.23 confiscation order and GBP 95,031.97 in respect of the SFO's costs.

The key takeaways for your business are as follows.

  1. Associated persons: Sweett's subsidiary, a separate legal entity, paid the bribe to win the contract for itself, and yet Sweett was the company which was penalised. The court found that where a subsidiary is not operating autonomously from its parent company, the parent company may be liable for acts of bribery committed by the subsidiary, which is held to be an "associated person". Ensure that you have sufficient oversight of your overseas subsidiaries as these could, in some circumstances, fall within the scope of "associated persons", making your business liable for their corrupt acts.
  2. Adequate Procedures: Section 7(2) of the Bribery Act provides a defence if a company can show that it had adequate procedures in place to prevent bribery being committed on its behalf. Sweett admitted that it had no such controls in place. Worse still, earlier audits and reports had identified concerns regarding the subsidiary's activities, which Sweett did not address. Assess where the corruption risks lie in your business and discuss with your advisers how best to mitigate them. If you fail to do so, the penalties can be hard to swallow.

No Prince Charming for Adamantine – Court prevents compulsory acquisition

Bowleven was at risk of losing its 50% participating interest in a Production Sharing Contract to Adamantine, but the Commercial Court found that arguments advanced by Adamantine would have "odd and uncommercial consequences". The case presents a useful reminder to businesses of how the courts will construe your contracts and their focus on the commercial intention of the parties.

Adamantine and Bowleven entered into a sale and purchase Agreement (SPA) to assign to Bowleven half of Adamantine's interest in a Production Sharing Contract (PSC) in respect of a Kenyan block. Under the PSC the exploration phase was divided into three periods. The SPA contained a 'drill or drop' provision, requiring the parties to meet and choose whether or not to proceed to each subsequent period. If one party elected to proceed to the next stage and the other did not, the withdrawing party was obliged to assign its interest to the other.

Under the PSC, Adamantine was required to fulfil minimum work obligations before the initial exploration period expired. At the time of the vote it was clear to both parties that these obligations would not be met. At the meeting only Adamantine voted to proceed to the next phase (conditional on further time being allowed to complete the minimum work obligations) and subsequently requested that Bowleven assign its interest to it in accordance with the SPA. Bowleven refused, maintaining that the drill or drop vote was invalid as the failure to meet the minimum work obligations would prevent the parties from proceeding to the next period.

Applying established principles for interpreting commercial contracts (see box), the Court held that, as the minimum obligations were not fulfilled, the right to progress to the next exploration stage did not exist and a vote to do so was meaningless. Bowleven was not therefore obliged to relinquish its participating interest. There was no fairytale ending for Adamantine.

The key takeaways for your business are as follows.

  • Courts will review contracts against the commercial background in which they were drafted.
  • The court's views as to what you and your counterparty intended when your contracts were signed might radically differ from your own. Clarity is key.
    • The Court is concerned with identifying the intention of the parties by reference to what a reasonable person, having all the background knowledge which would have been available to the parties, have understood them to have meant.
    • It does so by focusing on the meaning of the words, which is assessed in light of: the natural and ordinary meaning of the words;
      • any other relevant provisions;
      • the overall purpose of the clause and the agreement;
      • the facts and circumstances known or assumed by the parties at the time that the document was executed; and
      • commercial common sense, but disregarding subjective evidence of any party's intentions.

Can't do right for doing wrong? – Supreme Court tells directors to use powers for their "proper purpose", not what they think is in the company's interest

It was recently decided that the board of a company had restricted the exercise by certain shareholders of rights attaching to their shares for an improper purpose. Businesses should take note that it didn't help that the directors had acted in what they perceived to be the company's interest – to fend off a corporate raid.

The directors of JKX Oil & Gas plc believed that two of its shareholders were attempting to exploit their minority shareholding to obtain effective control of the company at a cheap price in a "corporate raid". The two shareholders were encouraging other shareholders to vote against an equity fundraising being proposed at an upcoming shareholder meeting, which the board supported.

The board issued a disclosure notice on the two shareholders requesting information about the number of shares they held and any agreements or arrangements between people interested in the shares. The two shareholders denied that there was any such agreement or arrangement.

The board considered that it had reasonable grounds to believe that the responses were false or materially incorrect. Relying on the Company's Articles of Association, the board issued a "restriction notice" in relation to the shares in question, suspending the right to vote at general meetings.

The two shareholders challenged the restriction claiming it was being exercised for an "improper purpose" in order to influence the outcome of the shareholder meeting. Under the "proper purpose" rule in the Companies Act 2006, a director must only exercise powers for the purposes for which they are conferred.

The board argued that, once the shareholders had failed to provide the information, the power to make a restriction order could properly be exercised for the purpose of defeating their attempt to influence or control the company's affairs.

The Court considered that the power in the Articles to suspend rights attached to shares had three purposes, including as a sanction for refusal to provide the information.

The Court found that the board had not suspended the rights for one of the three proper purposes, and so it was held to have exercised its power to issue a restriction notice for an improper purpose. The restriction notice was "not itself a legitimate weapon of defence against a corporate raider."

The key takeaways for your business are as follows.

  • Don't forget, your board's duty to act in the interest of the company is separate from – and additional to – its obligation to use powers for their proper purpose.
  • Work out what the purpose of a power is before using it. A power which comes with strategic benefits should not be used for that strategic purpose.

Eclairs Group Ltd v JKX Oil & Gas plc: [2015] UKSC 71

Another nail in the tax avoidance coffin

In a recent Supreme Court decision UBS AG & Anor v HMRC [2016] UKSC 13 the Supreme Court unanimously ruled in favour of HMRC and held that the bonus tax arrangements implemented by UBS and Deutsche Bank didn't work.

The schemes involved some complexity but, in essence, instead of the employees receiving discretionary cash bonuses (which would have been subject to income tax when the bonuses were paid) the banks used the amount of the bonuses to subscribe for redeemable shares in offshore companies. The shares were awarded to the employees in place of the bonuses. Conditions were attached to the shares making them subject to forfeiture if a contingency occurred. The idea was that when the shares were ultimately disposed of there would be a capital gains tax liability (or not as the case may be for non-domiciled employees) and at no stage would there be an income tax liability.

The importance of the contingencies was that it made the shares "restricted securities" which was a critical factor in enabling an income tax charge to be avoided. In the UBS scheme the contingency was a specified rise in the FTSE 100 within a three week period and in the Deutsche Bank scheme it was the employee being dismissed for misconduct or leaving voluntarily within a six week period.

In both cases the Supreme Court found that the contingencies were arbitrary and had no commercial or business purpose. On that basis the Supreme Court decided that the contingencies could be ignored with the result that the shares ceased to be restricted securities. This meant that the shares were taxable when they were received.

HMRC is focusing a lot of effort in relation to tax avoidance schemes and is certainly enjoying a "great run of form" in the courts. In the current climate the courts appear increasingly willing to look for ways to strike down tax avoidance schemes. Anyone considering entering into a tax avoidance scheme should therefore approach things with considerable caution. Where steps are inserted into an arrangement with little or no commercial purpose the courts are willing to ignore them and if these steps underpin the success of the scheme this of course is fatal.

Corporate Focus Spring 2016

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions