1. New Regulations on Late Payment of Commercial Debts; in force from 16th March 2013
2. Proper execution of company documents
3. “Liquidated Damages” v “Penalties: meaning and effects of the differences
4. Disclosure implications of the so called “audit” clauses
5. New guidance on liability of non-executive directors
6. Director in contempt of court for failing to comply with injunction
The new “Late Payments of Commercial Debts Regulations 2013” came into force on 16th March 2013. These apply to commercial contracts made on or after 16th March 2013 for the supply of goods or services. There is a distinction between where a “business” purchases goods or services and where a “public authority” purchases goods or services.
Contracts do not have to be in writing to be legally enforceable although many contracts are put in writing as evidence of their terms. Simple contracts (those that are not “deeds”) can be executed: “on behalf of the company” or more formally “by the company” where the company is the named party to the contract.
A “penalty clause” is basically a clause which provides for the payment of a sum of money on contract breach but the main purpose of which is to deter the party from deliberately breaching its obligations. Whereas a provision setting out an amount of “liquidated damages” in the event of a breach will be a genuine pre-estimate of the loss of damages likely to result from the breach.
Audit clauses are inserted in agreements to provide that a party shall keep certain records or documents for a particular period as evidence of correct payments or entitlements. Normally, following a request by the requiring party the records are to be supplied to the requiring party (or its professional advisors) to evidence that payments or charges have been calculated correctly or to check that a party has complied with its performance obligations. In a recent case, however, the High Court held that a supplier must disclose under an audit clause a wide range of documents with sensitive information about costs of sub-contractors, materials, labour and equipment, accounting information and board minutes. However, it should be pointed out that in that case the disclosing party had the benefit of a confidentiality obligation from the disclosee. The case however highlights the fact that the courts may quite liberally interpret the effect of audit clauses and therefore if a party wishes to limit such effect it should consider expressly excluding or restricting certain types of information from the scope of disclosable information; for example, costs calculation information if it is a fixed price contract.
The Institute of Chartered Secretaries and Administrators (ICSA) has recently published a guidance to assist non-executive directors (NEDs) to comply with their obligations. It includes measures NEDs can take to assist them to show to a court or regulatory body that they have exercised due diligence care and skill in carrying out their duties. The guidance highlights certain areas of best practice, for example: undertaking their own due diligence into the company before joining the board; avoiding conflicts of interest; inputting into their induction programme and assuming responsibility for their ongoing training and continuous development; providing independent overview and independent input and constructive challenge to the board; insisting on receiving high-quality information sufficiently in advance of meetings and any other important information between meetings when it becomes available and making decisions objectively in the interests of the company.
See: CSA Guidance on Liability on Non-Executive Directors: Care, Skill and Diligence January 2013 www.icsaglobal.com
A recent High Court decision highlights the potential penal consequences for company directors of failing to comply with an injunction. The court held that two companies (and a director of both companies) were in contempt of court for failing to comply with an injunction that required the companies to remove an estimated 3000 cigarette bins containing advertisements for the companies that had been erected without advertisement consent.
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