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throughyour computer.
Listeningextracts.Theseare in enhancedaudio formatthat
can be playedon a conventionalCD-player
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lf you haveany problems,pleasecheckthe technicat
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l3
Tableof contents
TOPtCS
USEFUTtAilGUAGEAlID SKItts
SeftinElup a
business
typesof business
the rightbusiness
choosing
type
tiabitity
company
givingadvice
m a k i n gr e c o m m e n d a t i o n s
e n u m e r a t i n rge a s o n s
explainingstepsof a procedure
tro,"r.ngpeople
employment
contracts
amendments
to contracts
letter of resignation
referring
t o l e g a ld o c u m e n t s
statingrightsand obligations
reportingoutcomes
writingformallettersand emails
26
Buyin$ and selling
Eoods and scrviees
preambles
commoncontractterminoLogy
i n t e r a c t i nw
g itha client
agreements
andcontracts
of sale
contractual
disputes
a d v i s i n go n a c o u r s eo f a c t i o n
commonlegaltermsandconditions
37
Protectingl
intellectual property
copyright,patent,trademark
landmarklP cases
rightsagreement
lP rightson the internet
negotiatingan agreement
a m e n d i n ga n a g r e e m e n t
l i n k i n gi d e a si n w r i t i n g
48
Merglers and
acquisitions
planning
anacquisition
M & A procedure
articlesof association
financinga takeover
lettersof intent(LOl)
c o m p a r i n ga n d c o n t r a s t i n lge g a l
structures
vocabularyof companyprocedures
languageof meetings
expressions
usedin takeovers
58
Risk management
and insolvency
legaIrisk
insolvency
terminologv
assessing
of insolvencye m p h a s i z i nag p o i n t
causesandimplications
insolvencyprocedures
h y p o t h e s i z i nagb o u tp a s ta c t i o n s
creditors'rights
personalinsolvency
PAGE
APPENDIX
68
7o
75
Test yourself!
Partner files Partner A
Partner liles Partner B
8o
a7
Transcripts
Answer key
PA6E U]IIT
t6
I
4l
About the book
Englishfor LegalProfessionals
hasbeendesigned
to provide
anyonewhoneedsto speakaboutthe
lawin a business
environment
withthe language
theyneedto be ableto operatewithconfidence.
Thesixunitscoverselectedbasicareasof Commercial
Law:companylaw,employment
[aw,contract
patent
law,
andcopyrightlaw,mergersandtakeovers,
riskmanagement,
andbankruptcy
law.
pointsof lawdesigned
Eachunithasits ownstoryline
whichthrowsup interesting
to placethe
experienced
legalprofessional
in a position
to adviseclientson suitablecourses
of legalactionin
English.
A clientis givenadviceon startingup a company
in Unitr, employees
arehiredandcontracts
of employment
negotiated
in Unitz, andcontracts
withpartners
arefinalized
in Unit3. Successful
protecttheirproducts
companies
in Unit4; somearein a position
to takeoversmallerfirmsin Unit5;
perhaps
othershaveto takea closerlookat theirtiabilities,
because
theyareon the brinkof
progression
bankruptcy,
in Unit6. Atthoughthereis a logicaI
fromstart-upto bankruptcy,
the units
canbeapproached
in anyorder.
Eachunitbeginswitha Starter.a \riarm-Lp
activitythatintroduces
thethemeof the unitand
the studentto refresh
encourages
existirgxro'.'rledge.
Newoccupational
vocabulary
is acquired
by
ThereareVocabulary
analyzing
authentic
documents.
Assistants
for manyexercises,
whichprovide
definitions
of important
wordsandphrases.
Ne,,.figuresof speecharepractised
in listening
and
speaking
exercises.
Language
boxesprovideadviceon the correctusageoflegalandgeneral
Engtish
you
language
structures,
whilethe Did
know?boxesintegrate
usefulprofessionaland
linguistic
information
for English-speaking
legaIexperts.
role-plays
Realistic
usedwithrole-play
cardsfromthe PartnerFitesallowstudents
to practise
what
theyhavelearntin authentic
legalsituations.
An Outputcloseseveryunitwitha demanding
and
authentic
textfromthetradepressandstudents
pointsofview
areencouraged
to takepersonaI
throughthe accompanying
Overto you discussions.
TheMuttiROMcontainsall the Listeningextractsfromthe book.Thesecanbe ptayedthroughthe
audioplayeron yourcomputer,
or througha conventional
CDplayer.In orderto giveyourselfextra
practice,
listening
listento it in yourcar.TheInteractive
exercises
let you reviewyourlearningby
doingUsefuIphrases,
VocabularyandCommunication
exercises
on yourcomputer.
Thiswittbe
particularly
valuableif youareusingthe bookfor self-study.
Thereis alsoan A-Z wordlistwith a[]the
keywordsthat appearin Engtishfor LegalProfessionals,
as wellas a glossaryof UsefuIphrasesand
Thewordlistincludesa columnof phonetics
vocabulary.
anda spacefor youto writethe translations
of the wordsin yourown language.
ls
Settin€ up a business
Lawyersoften haveto use these terms when talking about
businesslaw. Howmanyof them are you familiar wlth?
Canyou explain any of them?
r soletraderr
articlesof association
capital. tangible
assets.
equity/ company
. unlimited
companies
liability
registerof
Forfurtherhelp,lookat the termsin the text below.
t
for the firm's
Deborah
Eyans,
a solicitorin the lawflrm GarfleldBrown,is writinga brochure
clientsaboutthe differentbuslnessstructuresin the UnitedKingdom.Fill the gapswith the
wordssuppliedbelow.
INFORMATION
FORINVESTORS
AND ENTREPRENEURS
FROMABROAD
in theUnitedKingdom
Legalstructures
i
:. :::l :.:1,:
'
:..
.
. caSt.:
t',.debtsr onyourown . owners.
agreement
.,'.pr9fitsr publicly. separate. shareholding
personaflyliable
Workingfor yourself
as a sotetrader.Youdo not
andaredescribed
lf youworkfor yoursellyou areself-employed
you
your
the
start
tradingandmanage
business
in
order
to
set
it
up:
simpty
haveto register
makesa certainamountof
onceyourbusiness
business
'. However,
year,
you
authority.
As
a
sote
trader,thereis no limitto the
mustregisterwiththe tax
moneyevery
buton theotherhand,youhaveunlimited
amountof capitalyoucantakeout of the business,
your
for
tiability
6 | UNIT1
Settingup a business
Partnerships
Therearetwo maintypesof partnership
partnership.
in the U.K.Theotdestis thegeneral
This
business
vehicledoesnot havea separatelegalidentityfromthe peoplewho formit. This
I withoutlimitfor thedebtsof thefirm.
meansthatthe partners
are
a
A writtenpartnership
is recommended
but is notrequired
by taw.
partnership
A generaI
private.
cankeepits partnership
agreement
andits financial
information
Partners
do not haveto provide
a minimum
amountof equityby lawbuttheyusuallyagreeto
paycapitalintothefirmwhentheyjointhe partnership.
Thesecondtypeof partnership
in the
partnership
(LLP).
U.K.is the timitedliabitity
partnership,
Untikea general
the partners
are
I of the business,
calledmembers.
Thevarestillthe
buttheirliabitity
for
the debtsof the firmis timited.However,
everyLLPmustpublishregularfinancialinformation
aboutitself.
Limitedcompanies
Thesebusiness
mustbe registered
structures
on the Register
of Companies
andhavea
b legalidentity.
Thismeansthe members
areonlytiabteto payfortheir
z in thecompany.
lt is the company
thatis liabteto its creditors.
Whena
is formed,its ownerswillnormally
putcapitaIintoit. However,
company
thiscompany
capital
8- tangibleassetse.g.machinery
doesnot haveto consistentirelvof
canalsobe contributed.
Limitedcompanies
mustalsohavea writtenagreement
- calledthe
articlesof association.
Thetwo maintypesof limitedcompanyarethe privatecompany(which
hasLimitedor Ltd in its name)andthe publiccompany,
or plc.
plc
A
is often- but not always- a companywhosesharesaretraded
i.e.anyoneis allowedto buythem.Forthesecompanies
thereis a minimum
amountof capital
andtherearedifferentrequirements
procedures.
regarding
directorsandaccounting
DtDYOUrlOW?
TheBritishandAmerican
Engtish
termsfor business
structures
vary.Theestablished
in the
structures
UnitedKingdom
aresoletraders,generalpartnerships,
andtimitedcompanies.
Soletradersand
partnerships
areoften(butnotalways)smallbusinesses.
Limitedcompanies
areusedby businesses
of
all sizes,fromtheverysmallto the verylarge.Thesmalleronesareoftenprivatecompanies
andhave
Ltdor Limitedin theirname.Largerlimitedcompanies
oftenchooseto be publiccompanies
andhaveptc
in theirname.Sincezoorin the U.K.,a fourthbusiness
structure,
the limitedliabititypartnership
or LLP,
hasexisted.
ln the U.S.,the abbreviations
lnc andCorpareverycommon,buttheyarejustthe abbreviations
acceptabte
in attU.S.statesfor a company
that hasregistered
itselfas a separate
legalidentity.
TheU.S.
limitedliabititycompany
or l[C is a differenttypeof company
whichcombines
thetaxflexibitity
of a
partnership
withthe personal
liabitityprotection
of a corporation.
Besureto checkandusethe correcttermin the rightjurisdiction:
exercise
1 on pages5-6 witl helpyou
do t his .
U N I T1
2
S e t t i n gu p a b u s i n e s s| 7
Hereare somepoints of view about dlfferent legal aspectsof the companytypes presented
above.What do you think?
A limited liability partnershipis a reallygood ideo nowadays.
Youcan't expectlaw firms, orchitects,tox advisersand so on to
acceptunlimitedliability in traditionalpartnerships.lf a big
contractgoeswrong,it cancosttensof millions.
It's veryimportantfor a public companyto
haveminimumequitytHowcan onyone
haveconfidence
in a companyof thissort
if it doesn'thoveony capitalof its own?
I can't see why the law in the U.K.requiresa company
to registeritself beforeit startstrading,but doesn't
requirea sole traderor a partnershipto registerat
that paint. They'reall businesses,aren't they?
I feel verysorryfor entrepreneurswho form a limited company.
Theideabehindthistypeof companyis that yourpersonal
as soonos the ownersgo to
assetsshouldn'tbe at risk.However,
the bonkfor stort-upcapital,the banksecuresany loonsit makes
ossets- usuallytheirhome.
againstthe owners'personal
AUDIO
g\
v}
3
DeborahFlynnhas a meetingwith her client Miya Osborne,a fapanesewomantiving in the U.K.
andanswerthequestions.
Partr: Listento the firstpartof the meeting
r
Whendid sheformhercompany?
business?
z Whatis the natureof MivaOsborne's
doesshenowwantto moveintoandwhy?
3 Whatareaof business
4 Whatplansdoesshehavefor oneor two of hercolteagues?
advicefromDeborah?
5 Whatotherreasondoesshehavefor seeking
8 | uNlTl'
Settingup a business
AUDIO
a
Partz: ListenandcompleteDeborahFlynn'swrittennotesfromthe meeting.
7
lvltya Osborrtt u currextly ruvutivg her ivnport bwinus as a soletraobr and has
2 ernployu^r.
Shz has fauvtd a possible v1r.wproperty to ure ar a shtp owd wants to yrwke aw
ffir to buy tt imnediatdy. Rtskt We dow't Ww whether shc.wLu be oillav,led
to
chavge its we/rorn an
^ buildivg to a shtp. Ne*d to find o,tt
tnore.
She'sftwrved tUz bwLnzrsup ta wv,/wtvg the
bwirizss and satu&sawvEs.she has 3 rusow
! of tt^e
for formtvg ot coynpqnyww:
1. to rev'/ardthe loyalty of h", Z stdf by gtivtg thzm a
thz bwivtzss
,Lw
2. otko
toreNard
thLym;trffi:tr-fuure bymakbs
them
3. thz. bwLnzs.ryrxds to apand qnd thue b a possihlencw
who wowtt share^sin thz bwirizrs
She doerw't woM, to borrow monzyfrorn the bank becausethe bq* wiil qsk hr-r
f the toawpersavuillyand that wtII put her htme
at rirk qs
thz laqyLwill be seturd ovt,her hnwe.
4
In prlncipte, lllya Osbornehas a potentiatly good ldea, but there are a lot of issues to consider.
Work in smatl groupsand discussthese quest:ons.
. ShouldMiyaOsbornegivesharesin the newcompanyto hertwo loyalemptoyees?
Whatarethe
risky?
rewarding
loyalty
that
are
less
other
ways
of
for
her?
Are
there
any
risks
r Whatotherstructures
Whydo youthinkDeborahdid not suggest
for Miya'sbusiness?
areavailable
them?
. lf youwereadvisingMiyain yourowncountry,
wouldyouradvicebe the sameor differentfrom
Why?
Deborah's?
Lookat Deborah'slist of issues.What should tlya do and why? Usethe following phrases:
I would(wouldn't)adviseherto ....
| (don't)thinksheshould....
oughtto ....
She(realty)
Shecouldalways....
UNITl
5
S e t t i n g u p a b u s i n e s| s9
A daylater DeborahFlynnsendstliya Osbornethe followingtetter. Putthe six paragraphsinto
the correctorder.
Dear Mrs Osborne
New businessproposals
a) Accordingly,I must stressthat a bank will usuallyask you to guaranteethe loan personally,which
it might make to your companyand take your houseas security.This would mean that, if the
companydefaultedon the loan, the bank would requireyou to repayit. If you could not afford
to do so,the bank would take legalproceedingsto sellyour houseand recoverits money.
b) I look forward to meetingyou againnext weekasarranged.Meanwhileif you haveany questions
about the mattersI haveraisedin this letter,pleasedo not hesitateto contactme on my direct ling
which is setout at the top of the page.
c) Following our meetingthis morning, I write to summarizemy adviceand setout the stepswhich
you shouldtake now.
d) As you explained,your businesshas now reacheda point wheie it needsto expandand requires
externalfunding to do this. Your choicesare betweendebt (that is, a bank loan) and equity (that
ig financingthrough sharesbought by an investor).Bank loansareavailableto you asa soletrader
and would also be availableif you wereto form a company.You explainedinitially that you were
interestedin obtaining a bank loan to pay for someof the expansion,but that you wereworried
about the effectthat this might haveon your personalassets,particularlyyour house.
e) If you decideto incorporatethe businessas just described,then you will be under more legal
obligationsthan you wereas a soletrader.Theseobligationsrelateto the waysin which you can
take money out of the company,and the waysin which you make valid decisionson behalf of
the company.I enclosea copy of our firm's booklet Runningyour newcompanywhich givessome
examplesof theseobligationsand explainsa little about the constitution of the company.
f) Turning to financingthroughshares, this option is not availableto soletradersor partnershipsand
is only possibleif you form a company.Sincean externalinvestoris alreadyinterestedin investing
in your business,I would advisethe formation of a privatecompanyasthe most practicaloption.
The assetsof the businesswould be transferredfrom you astheir ownerto the companyand shares
would be issuedto you and the other shareholders.
Yours sincerely
Deborah Flynn
Solicitor
A n s w e r sr I:
z[
3I
rl
\i
6I
10 | UNII1
O
settingup a business
Work In small groupsand discussthese questions.
r Howdoesthis advicecomparewith the adviceyou gavein exercise
4?
z WhatphrasedoesDeborahuseto meana bankloan'tWhatadvantages
does
anddisadvantages
Deborah
mentionin relation
to thistypeof finance?
Canyouaddanymorefromyourexperience?
phrase
What
Deborah
mean
money
raised
does
use
to
by sellingsharesin a company?What
3
advantages
anddisadvantages
doesDeborah
mentionin relation
to thistypeof finance?
Canyou
addanymore?
letterwarnsthatrunninga company
is morecomplicated
thanbeinga soletrader.From
4 Deborah's
yourexperience,
canyousuggestwhyshesaysthis?
0tD:YOUlKr{tU?
of a company
consists
of its memorandum
of association,
which
r In the U.K.,the constitution
givesinformation
aboutthe locationof the company
andits objectsor legalpurposes,
and
r its articlesof association,
whichcontaininternalrulesabouthowthe companyis
Boththe memorandum
organized.
andthe articlescanbe readby the publicat Companies
House,the centralregister
of companies.
In the U.S.,the articlesof incorporationis the documentthat hasto be filed with the
relevant
state.Thisdocumentis requiredof incorporated
firmsalike.
andnon-incorporated
7
f n her letter DeborahFlynn uses some verb + noun pairs, e.g. to set out detoJls.The following
yerb + noun pairs are commonwhen tettlng started in buslness.Try to makepalrs.
VERB
r register/ run
z raise/ contribute
3 submit/ reject
4 drawup
5 impose
6 incur
7 view/inspect
8 obtain
9 issue/ hold
10 conduct
8
NOUN
a restrictions
b debts/ costs
c the register
of companies
d business
e capital
f shares
g acompany
h a certificate
of incorporation
(forentryin a register)
i an application
j acontract/apartnershipagreement
Hll In the gaps using the verb + noun pairs above.Youmay haveto modlfy the verb.
r
Inthe U.K.anymemberof the publicis allowedto
Companies
Houseto getinformation
abouta particular
company.
z A plccanextendits equitybaseby
a company
shouldnotcommence
tradinguntilit has
3 Undernormalcircumstances
4 A soletraderdoesnot needto registerhisor heractivitiesin orderto
at
UNITt
S e t t i n g u p a b u s i n e s| s11
Housecan
for registration
if the proposedname
5 TheCompanies
is too similarto a namethatalready
of the company
exists.
partnership
in a general
to
6 Thelawdoesnotrequirepartners
wouldrecommend
this.
but mostsolicitors
triesto
any
, the bankofteninsistson securing
7 Whena company
assetsof thecompany's
owners.
loanagainst
the personal
partnership,
the partners
bearpersonal
tiability
for any
8 In a general
whichthe
partnership
might
GIVIt{G ADVtCEA1lD tAr !il G RECO
ll t{ E1{DAT|O1lS
for givingadviceandmakingrecommendations
requirea gerundandsomean infinitive.
Someexpressions
phrases
whenspokenbut arenotappropriate
NB:Some
areappropriate
in a formatwritten
context.
Gerund(-ing)
lnfinitive
I (would/wouldn't) suggest/recommendmoking
an offer at this stage.
How/What about talking to a prapertyexpert
aboutthis?(spoken)
lthink you should tell me a bit moreabout the business.
I (strongly)odviseyou to talk to a propertyexpert
about this.
Youcouldalwaysmokean offerwhenyou knowa
bit more.(spoken)
Youought to make an offer whenyou know a bit more.
(spoken)
Whydon't you makean offerwhenyou knowa bit
moreT(spoken)
lf you arediscussing
what
NB:All the abovephrases
canbe usedwhenyouareadvisingsomeone
directly.
he I she I they shoulddo, usethe phraseslistedin exercise4.
lf you wouldliketo userecommendandsuggestfor a third party,the structureis as fotlows:
I recommend
/suggestthat he /she should+ infinitive
9
look at an ext]actfroma letter froma client whosepartnershlphasgot into difficulty,to
their lawyer.
De a r ...
... I formed an accountancypartnership with David B. five years a-eo.
specializingin accountancy servicesand tax advice for small businesses.
My partner has now informed me he wishesto leaveour firm in order to
accept a partnership with a large firm specializingin accountancy for large
corporations. My problem is that I do not think I can afford to buy him out
right now. What is more, the new firm is not very far away.I mention this
becauseour partnership agreementstatesthat if a partner leaves,he should not
do businesswithin a S-mileradius of his old firm. I am. of course.worried that
David B. misht take someof our existinsclientswith him to his new firm. ...
1 2 | U NIT l
Se tting up ab us ines s
tlatch the beginningsin A with the endingsin B to rebuild the lawyer'ssuggestionsbelow:
AB
...worryaboutthecostof buyingyourpartneroutyet.Your
partnership
agreement
statesthatthispayment
wouldonlybe
year.
dueat theendofthe nextfinancial
...ascertain
the precise
valueof thefirm.Thenyouwil[know
howmuchit wiltcostto buyyourpartnerout.
...tryingto cometo a bindingagreement
aboutexisting
clients.
Youwilllosesomeclients,
but don'twantto losetoo many.
partnership
...to terminate
theexisting
withimmediate
effect.
DavidB.is notgoingto actin yourfirm'sinterests
anymore.
...bringing
in a newpartnerstraightaway.Waitandseehow
youhavebeforeyourushintosuchan
muchbusiness
imoortant
decision.
...to invokethe five-mileradiusclause.lt's probablynot
enforceable
anyway.
Youcouldalways...
I suggest...
Youreallyought...
I wouldn'tadviseyou...
5 I don'tthinkyoushould...
6 I don'trecommend...
ls there any adviceyou don't agreewith? Doyou haveany other advicefor the client?
.
..a..|:l
;4pefruunvrsSfrfr
.,,,...i11
ascertainfind out
binding (odj)whichmustbe obeyedbecauseit is acceptedin law
buy s.o. out to poy s.o.for theirsharein a business,usuallyin orderto
get controlof the businessyourself
due owed,payable
enforceable(odj)a clausewhichis enforceobleis one whichcanform the
bosisof a court action,if the promisecontainedin the clauseis broken
with immediateeffect ot once,immediatelv
DtDYOUrlOW?
Lawyeris a generaltermwhichwe useto referto someone
who has
learntthe lawandhasa licenceto practise.
Inthe U.S.,lawyersare
oftencalledattorneysor attorneys-at-law.
In EnglandandWales,the
legalprofession
is not unified,so a distinction
is drawnbetween
solicitors,who haverightsof audience
in onlysomecourts,and
(i.e.the art of presenting
barristers,
whospecialize
in advocacy
cases
in court)andwho havea rightof audience
in all courts.Generally,
a
soticitor
will consultwith hisor herclientandpreparea brief.Thisbrief
is thenpassedon to a barrister
whowill oresentthe casein court.
Successful
anddistinguished
barristers
areofteninvitedto becomea
Counsel.
Suchbarristers
alwaysuseQCaftertheirname.
Queen's
1O
A clientconsultsa lauryeraboutforminga company.
Beforeyoubeginyourconsultations,
agree
the countryof jurisdictionwith yourpartner.
P artnerA Fi l eor, p.7o
PartnerB Fiteor, p.75
Uselanguagefor making recommendations
and giving advicein your consultation.
After you have finished the activitn telt the class what you agreedto do.
U N ITl S etti ngupabusi ness
| 13
'
GIVIl{G
REASOTS
ATD
E)(PtAllAiloils
It is oftenimportantto givereasons
andexplainthingsstepby step.
Note:Wordslikefirstlyandfirstof all aren'tusedin the sameway.
reasons
Enumerating
ExplainingthestepsInvolvedin a procedure
Firstly, the companyis investingwith minimum
Firstof oll, we need to discussthe business
relationship between ...
Next, I wouldsuggestdepositing...
Following that, it would be yourjob to persuade....
Lostof oll, we would notify the tax office...
risk...
Secondly,the investorreceives757oof any rent
obovetheminimum.
Thirdly,...
Finolly,...
NB.Becarefulwithat first.Weusethisto express
the factthatwe thoughtsomething
initiattyandthen
c hanged
ourmi n d s .
Example:At first it seemeda good idea to form a company.Laterwe realizedthat this would be too
expensiveand too complicated.
tl
Readthe extractsfroma presentation
aboutbusinessformatsin the U.K.Gomplete
the gaps
with expressions
for orderinganexplanation
fromthe languageboxabove.
on
' I'dliketo provideyouwith a bit of background
formatsin this countrvandthe rationalebehindthesedifferent
business
formats.
', I'dliketo go on to lookin moredetailat the plc
or to giveit its moreformalname,the publiccompany.
I'dliketo lookat thetimescalefor converting
a privatecompany
intoa
q,ld liketo discuss
publiccompany.
withyousome
of listedplcs:oneswhichcanselltheirshareson globalstock
examples
exchanges.
I....t
ld liketo moveon nowto talkaboutthe plcin moredetail.
t, youmightthinkthattherearen'tmanyadvantages
to
legislation
becoming
a plc.Butwhenyoureadcompany
andthe rulesof
the LondonStockExchange,
therearethreeclearreasonsfor doingso.
" it'sillegalto
z,
Investment
Market
the Alternative
offersharesto the publicif youarenot a plc.
(wheresharesin youngcompanies
for
more
aretraded)is onlyopento plcs.
',
is alsoonlyopento plc
companies,
the MainMarketof the London
StockExchange
established
e,somemightsaythatbecoming
And
a ptcis goodfor marketing.'
shares.
t2
a plc in the U.K.,
Thespeakersaysin herpresentation
that therearethreereasonsfor becoming
but it is not a sultableformatfor everybusiness.Howslmilaris this situationto theiurisdlction
In yourcountry?
1 4 | uN lT l
t3
Se tting up ab us ines s
Herels a comparlson
tableshowingthe fourformsof businessstructurein the U.K.Comptete
a-f In the tableuslngthe notesbelow.
* Two
- Snallbusiness
6anklaansor profrlaof bueiness
* Ke1ianratlonfee. k1ietaalion formahties.
documentsrequiredand muel beopento public.
Canatibutional
- Yes
Unlimited
Business
structure
Raising
money
Sole tnder
' Bankloansor profits
of business
Limitedcompany
: (Ltd or ptc)
LLP
Generalpartnerchip
Bankloansor profits
of business
Bankloans,profits
of business
or
I sellingsharesin the
j company
NB:onlyplcscan
selltheirshareson a
largescale
Suitablefor
Anysizebusiness
(largerbusinesses
chooseplcs)
Anysize
Anysize
Minimu mn um berof
peopte
O ne
One
Two
C
Minimumcapital
requirement?
No
d
Yes
No
Setup costsand
formalities
Liabitity
Noregistration
fee.
Registration
fees;
i Noformalities
to set
administrative
up.Noconstitutional costsgreaterfor
required. plcs.Registration
i documents
formalities.
i
Constitutional
required
documents
andmustbeopento
public.
Limitedto capitaI
contribution
f
No registration
fee.
No registration
formalities.
Constitutional
not
document
required
but if one
is used,thereis no
obligationto makeit
opento public.
Limitedto capital
contribution
Unlimited
Completethe advantagesand disadvantagesof eachbusinessstructure.
ano
havefewformalities
but areliableto the
debtsof the business
withouttimit.
2
ano
havelimitedtiabitity
andbankloansmaybe
easierto obtainbuttherearemoreformalities.
t4
A lawyerglyesa cllentlnformationon forminga company.
tYorkwith a partner.
PartnerA Fiteoz, p.7o
PartnerB File02, p.75
UNITl
Settingup a business| L5
Readthese readers'letters to the editor of the law supplementof TheTlmesnewspaper.
What advlcewould you give them?
Letterr
Dear Sir
After I was made redundant from a job in a luxury hotel three years ago, I started
doing some work with an ex-colleague.We agreed to work part-time for the
businessbecauseboth of us were already working separately on other projects.We
invested several thousand pounds each in our new business and agreed to divide
the responsibilities between us. I dealt face-to-facewith customersand he worked
mostly with our suppliers and did the paperwork.
Things went smoothly at first, but when my colleague'sother projects started to do
better, he just stopped doing any work for our business and handed everything back
to me. I took over his responsibilities, but it was too much for one person to manage.
As a result I lost two major customers and had to wind the business up, losing all
of my capital investment.
Can you advise?
Yours faithfully
Simon Braithwaite
Letter z
Dear Sir
My husband and I were partners in a small manufacturing business until our
retirement, The business is still going strong in the hands of the remaining two
partners, but we have not had any involvement in it, financially or managerially,
for over a year. We have now found out that a claim is being made against the
firm in relation to a debt incurred just after the date of our retirement. We have
been named in the claim along with the other two partners, because our narnes
were not taken off the firm's letter head until two months after we retired, even
though we repeatedly asked for this to be done earlier.
'vVhatdo you advise?
Yours faithfully
Ann Richardson
Nowgo to page96 andreadat the bottomthe repliesto theselettersthatwerewrittenby experts.
. Doyouthinkthe lawis beingfairto thetwo peoplewhowrotethe letters?
o Arethereanydifferences
in the two repliesandthe legal
betweenthe legatpositionas exptained
positionin yourownjurisdiction?
16 I
Employingpeople
Thesepeopleare talking about different aspectsof their contractsof employment.
Workwith a partner and makea list of the points they are sure or unsureabout.
If I want to earnsome
moneyon the side doing call centre
work at the weekendsor workingin a
baf there'snothingmy employercan
do to stop me.
As far as l'm
awore,my employerhas
no controloverwho I go
to work for if I leavethe
company.
lf I wantedto
leavethe company,I would
haveto tell my employera
month
in advance.Or is it two
I alwoysmanageto
months?
use up all my holiday by the end
ofthe year,so I don't know what
I actuallycan't
happensif you'vegot somedaysleft
rememberif my contractsaysanything
over.I imagineyoujust carrythem
about componysecrets,taking
documentshomeand oll that kind of
thing. I supposeit does though.
p
rl
lf I work overtime,
I try to take that extratime off beforethe end
of the yeor.Otherwise,I lose it. ldon't have
any right to be paid for overtimethat
I have worked.
l{owlookat yourlist again.What,in yourexperience,
doesa standardcontractof employment
usuallysayaboutthesepoints?Discuss
thiswith othermembers
of thegroup.
DrDYOUKI{OW?
followed
A commercial
contractusuatlystartswith its owndescription,
for example,
THISAGREEMENI,
by the partiesandthe date.Nextusuallycomethe definitions
of wordsusedrepeatedty
in the contract,
andthenrecitals,givingdetailsofthe historyor purposeofthe contract.
Theoperativepart (theterms
of the contract)
thenfottows.
An employment
contractcontainsinformation
on salaryor pay.Theheadingfor this partof the contract
(BE)
(AE).
or clauseis usuallycalledRemuneration or Compensation
(BE)
(AE)
A severance or separabitity/ severability
clauseis verycommon.lt ensuresthat the contract
as a wholeremains
validevenif oneor two clausesin it becomeinvatid.
Thetwo partiesaresimply
quickly
possible.
required
to renegotiate
the invalidclausesas
as
U N I T 2 E m p l o y i npge o p l e| 1 7
t
Beloware someclauseheadingstaken from a standardcontractof employment.
tlatch them with the correctclauses.Oneheadingdoes not fit anywhere.
Absence. jpplieabterl'aw'. Competitiono Confidentialityo Durationof contract/
o Dutiesr Leaveentitlement
. Severance
. Workinghours
Termofemployment
Clauses
I
The Employeeshallnot makeknown to any third party any informationin respectof
patents,know-how,trade secretsor other confidentialmatterswhich relateto the
Companyor its clientsor its suppliersor its co-operationpartners.The originalsof any
documents relating to such information are to be surrenderedto the Company
immediatelyupon terminationof employment.
For the durationof this contractof employmentand for a period of two yearsthereafter
the Employeeundertakesnot to be employedin any way eitherby firms which compete
with theCompanyor conductsimilarbusiness
to that of theCompanyor by firmswhich
with suchfirms without the consentof the Company.
areconnectedto or associated
The Employee'sservicewith the Companycommences
on April I't 20... and continues
for an unlimited period of time, but until no laterthan the statutoryretirementage.
Shouldthe Employeebe unableto work on accountof certificatedillness,full pay will
continue accordingto the length of servicescalesset forth in the attachedStaff
Handbook.Irrespective
of thelengthof service,
thereis a minimumfull payentitlement
of 30 days.
The Employeeis entitledto 30days'paidleavein thecalendaryearpluspublicholidays.
In arrangingthedatesof this leave,the Employeeshallgiveproperconsideration
to the
needsof the Company.
The Employeeshall,as ExternalProjectCoordinator,managethe Company'sprojects
with externalpartnersin the field of telecommunications
softwaredevelopment.
Applicable law
The construction,validity and performanceof this contractshall be governedin all
respects
by Englishlaw.
The invalidity or unenforceability of individual provisionsdoes not affect the validity
or enforceability of the contract as a whole. In lieu of any such inoperative provisions,
agreement shall be reached by the parties on replacement provisions which approximate
as closely as possibleto the stated commercial intentions of the partres.
18 | UNIT2 Emplo yi ngpeople
2
ilatch the words or expressionshighlighted in the contracton page1Z(columnA) with wordsor
expressionsthat havea similar meaningin plain English(cotumnB).
A contractvocabulary
1 SUrrenoer
z duration
3 undertake
4 COnSenr
5 COmmence
6 leave
7 be entitledto
8 provisions
9 in lieuof
10 inoperative
B
a
b
c
d
e
f
g
h
i
i
ptainEngtish
agreement
hotiday
havethe rightto
terms
promise
in placeof
tength(oftime)
invalid
giveback
begin
AUDIO
a
4
3
Twodays ago CathyO'Brienfrom Dublin, lreland was offeredthe position of softwaredeveloper
company.Todayshe has a meeting
at Softline l,td, the U.K.subsidiaryof a Luxembourg-based
with the Headof HumanResources,Thierry Schwarz,to go over someof the details of her
contract.Listento the conversationand decideif the statementsbeloware true or false.
assumethinkthat somethingis correctwithouthaving
checked
clarify makecleor explain
draft a rough written versionof somethingnot yet in its
final form
entitlementa legalright to haveor do something
to that effect a phraseusedto showthatyouaregiving
thegeneralmeaningof somethingheardor read,and not
using the exactwordswhichthe speakeror writer used
u
n
T
n
According
Schwarz,
the normalworkingweekisn'tMondayto Friday.
to Thierry
nowandthen.
Cathyis prepared
to workweekends
?
year.
Thierry
statesthatit is unusual
to carryoverannualleaveintothefollowing
prepared
pay
might
to
accept
extra
in
compensation
for
annual
leave.
be
unused
4 Cathy
As a seniormemberof staff,Cathywitl not be entitledto receiveanypayfor overtime.
in hercontract
6 Cathywantssomething
thatentitlesherto be paidfor anyovertime
doneif herlinemanager
agrees.
Thierry
tetlsCathythatit wil[be possible
to change
theovertime
ctausein the contract.
1
2
T
I
T
OID:YOOKf,OU?
Thewordsclause,section,andparographcanoftenbe confusing.Contracts
and agreements
consistof clauses,subclouses,andparagraphs.Sections,subsections,andparagraphsare used
In eachcase,youcanusethe generalwordprovisionto
to referto partsof nationallegislation.
describewhatsomethingin the documentsays.Forexample,Sectionj subsection4 paragraph
a [writtens.f (+)(a)]of theAct containsa provisionaboutdirectors'remuneration.
U N I T 2 E m p t o y i npge o p l e| 1 9
TOA LEG AT
DO CUM EI { T
REFERRIT{G
The followingexpressionsare usefuIwhen referringto a legaIdocumentor explainingits content.
It says in clouse3 thot ...
Theterminationclauseclearlystotes/ stipulatesthot ...
4
Accordingto clause5 the employeemust ...
It mys here ...
Thissimply meansthot ...
Workwith a partnerto discusssomeproblemsrelatingto a contractof employment.
PartnerA
Partner B
5
Fite 03, p. 70-71
tile q, p.75-76
Thierry speaksEnglishvery wel[, but has difficulty finding the right tone in letters and emails.
Hewould like to write his email in a friendly but formal style. Fill the gapswith the words
below.
contactingo discuss r gettingin touchwith o got back . hereare,. I am attachingr
lapologise.3just o pleasso prettt o reasonablyo resolve: returned.
sort out r sorrV o talk about ' unfortunatelyo yy"n, . wish . you see
!l
ro: catrv.obrk n@hotrnail.cofll
Subject: amendments to contract
=
DearMrs.O'Brien
Regardingour meetinglastweek,
3,our solicitorwas in courtfor mostof lastweekand only
5 the amendmentsto yourcontractas suggestedby him.
I thinkyou'llfindthatoverallthey
6 the issuesyou raisedwith me last
Couldyou havea look at them and let me knowme by the end of the weekat the latestif thereare
!? | canthentry to
have the contract ready for signing by the middle of next week.
In the meantime, if there are any other matters where I can be of help.
give me a call.
I look forward to hearing from you soon.
Best regards
Thierry Schwaa
people
20 | UNIT2 Employing
6
ThierrySchwarz
sentanddiscusswith a partnerthe two questionsbelow.
Readthe attachment
to Cathy OoBrien'scontract
Suggested
amendments
of employment
Pteasenote: the suggestedamendmentsto the contract havebeen added in italics.
1.2 Working Hours
The length of the standard working week will be 38 hours. Weekendwork will be
necessaryfrom time to time.
6.2 Leare Entitlemeot
The Emplol'ee has an entitlement to compensationfor up to and no more than
l5 days of unusedleavebasedon the basic salary amount as defined in 4.1.
Unused annual leavemay be carried over into the following year, up to a
maximum of sevendavs Anl'leave carried over must be taken before lst March.
4.5 Remuneration
There is no claim tofinancial comp€nsationfor overtimg weekendor holiday work
or other work performedin addition to the qorking hours as set out in 1.2.Overtime
worked may be taken as time off in lieu at the discretion of the line manager.
1
2
Onwhatpoint(s)hasCathygot whatshewanted?
Onwhatpoint(s)hasshegot lessthanshewanted?
g!!i+ir:.:-:;
consistentwith (adi) in agreementwith
detrimentalto (adDharmfulto
express clearlyand openlysoid or written down
(in controcts,the oppositeof implied)
UNlT2
7
people| 21
Employing
andthenput thesentences
Cathyrepliesto Thierry'semail.Firstsort thewordsintosentences
in thecorrectorder.
From:
To:
Subiect:
cathy.obrien@hotmail.com
t.schwarz@softline,com
amendmentsto contractofemployment
DearMr.Schwarz
| | I a lsuggest/Pe rh a p s / c o u t d / h e re
I I a compromise
I
amendments
U to / happy/suggested
lwithlllclausest.zand4.slthe lam
/ Please
/ might/me/this
I I c let lif lknow/be/ possible
I
A take/extramonth
/to /givel it / wo u ld/ wh ic hla nllt l me/ a ls o/ in
/stands/stitl/eig h t d a y s ' le a| vlA
e /s lris k / u p t ola lit llo s in g
[_ J e year/would
I
f
meI forI contract
the/ sending/amendments
/Thankyou/ yesterday/
l/ / F u rt h e rmo re / t a k e /
/ a v e t o /F e b ru a ry
Ll s b y/would/theendof lany/ le a v e h
unused
U
h by/end/ten days/taken
/ agree
I beI ofz.
I theI you/to /Woutd/to / March
I
i
LJ i
meI z5l minimum
I a I of lThis| leave/guarantee
I days'/would
a m/about/leaveentitlem e n t / lit t le / Ho we v e r/la
c la
e o n c e rn e d
lt hues lllc
Kindregards
CathyO'Brien
2 2 | UN I T2 Emp loying peopt e
8
Gathyreachesan agreementon her leaveentitlementclause.l{owshemust]esignfromher
currentiob. took at her letter andat the two clausesbelowwhichsherefersto.
Hassheresignedin accordance
with hercontract?
4l Ratra Road
Dublin 7
Mr. John Flannagan
PersonnelDirector
Intelligent Solutions Ltd.
28 Parnell Place
Dublin I
N ovemberl 5th2...
Dear John
In accordanceuith clauses7.2 and 7.5 of my contract of
emplolment I hereby-sen'enotice of my wish to resign from my
current position as Softrx'areDevelopment Co-ordinator with
effect from Januarl' I't of next year. I will be taking up a new
position in softu,aredevelopmentwith a leading developerof
telecommunicationssoftware.
I r.rould like to take this opportunity to thank you for your
friendll'and professionalsupport during my five years at this
compan\'.
Yours sincerelv
Cntl4yO'Brist
Cathy O'Brien
Extractfrom Cathy'scontract
7.2 A probationaryperiod of six months hasbeenagreed.During this time employment
can be terminatedwith two weeks'notice.Thereafteqa noticeperiod of three
months to the last day of the month is in effect.
t.J
Notice of termination must be deliveredin writing. The Employeemust addressher
written notice to the PersonnelDirector.
U N I T 2 E m p l o y i n g p e o p|l e2 3
!4qLE9!|il G!!9,!U! AilDoB_rlGAIlq!9
oftentalk aboutrights andobtigations.
Contracts
Rights
Theemployeeis entitled / is allowed to /
has the right to / can toke 3o days'leave.
9
Obligations
Theemployeemust / is requiredto / is obliged to / hos
o duty to / hos to treat all companydata and files with
comp lete confi dentiality.
Lookat the following clausesfrom Cathy'scontract.tlatch the sentencehalvesbelow.
Decidewhich sentencesrefer to rights and which to obligations.
ExtractfromCathv'scontract
3.2 For the durationof this contractof employmentand for a periodof two years
thereafterthe Employeeundertakesnot to be employedin any way eitherby firms
to that of the
whichcompetewith the Companyor conductsimilarbusiness
with suchfirms.
Companyor by firms which areconnectedto or associated
3.4 Shouldthe Companydecidenot to waivethe ban on competition(asdefinedin 3.2)
expresslyand in writing within 7 daysof receiptof the Employee'swritten notice to
asfollows:50%of the current
terminate, it shallpay to the Employeecompensation
basicsalary(asdefinedin 4.1),to be paid in arrearsat the end of eachcalendar
month for a periodof no longerthan two years.
wherethe Employerreservesthe right to requirethe
7.6 Theremay be circumstances
Employeenot to attendwork for the full durationof the noticeperiod.The
Employee's
entitlementto full pay continuesunaffected.
According
to 3.2theCompany
can...
to 3.4theCompany,
but notthe
2 According
Employee,
can...
it is
makesthisdecision,
lf the Company
required
to...
lf the Company
decides
to enforce
3.2,the
is entitledto ...
Employee
q
is entitledto ...
7.6statesthattheCompany
is
home,
the Company
Employee
sent
lf
the
6
hasto ...
1
...receivehatfpayfor a periodof two years.
homeon the dayshe
b ...sendthe Employee
handsin hernotice.
...payherful[salaryfor the restof herperiod
of notice.
in writing.
thisto the Employee
d ...communicate
fromworkingfor a
e ...preventthe Employee
competitor
for two yearsafterleavingthe
Company.
...decidenotto makeuseof clause3.2.
a
instalmentone of a numberof paymentswhich
ore maderegularlyovero period of time until
somethingis poid for
waive fo choosenot to demandsomething,even
though you hovea legal right to do so
24 I UNIT2 Employingpeople
10
fohn Flannagan,Headof HumanResourcesat Intelligent Solutions Ltd.,is unhappyabout
Cathy'splans and so he consults tlary Wilson, a solicitor specializingin employmentlaw.
Duringthe meetingthey makereferenceto the ctausesabove.
AUOIO
a
Listento the conversation.Which of the three statementsbelow best sums up what is said?
5
r JohnandMarywantto stopCathygoingto workfor Softline,
the mobilephonecompany.
z JohnandMarywantto sendCathyhometoday.
worriedaboutconfidentiality.
3 JohnandMaryare,to differentdegrees,
Listenagain and choosethe best option or options to completethe sentencesbelow.
r
Marysaysthat the company...
a ...canpreventCathyfromstartingon rst of January
if it
wantsto.
b ...can'treallypreventCathyfromstartingon rst of January.
c ...intendsto preventCathyfromstartingon rst of January.
z Johnisn'thappyaboutCathymovingto Softline...
a ... because
it is poaching
the company's
staff.
b ...because
confidentiaI
information
mightchangehands.
partner.
c ...because
Softlineis an importantco-operation
gardeningleave a period
duringwhichsomeone does
not go to workbut remains
employedby a companyin
order to preventthem working
for onother,usuolly
competing,company
invokea clause fo useit for
its intendedpurpose
ooachstaff to recruit
employeesfrom another,
usuollycompeting, compony
clausewouldmeanthat the company...
3 Toinvokethe competition
a ...couldemployCathyon half-payfor the nexttwo years.
b ...couldpreventCathyfromworkingfor Softlinefor two years.
c ...wouldhaveto provethat Cathyhadcontactwith a competitor.
4 Intheend,thereisa riskthat...
a ...thecompany
won'tbeableto proveitscasein court.
b ...thatthecompany's
response
willbemoredramatic
thanis reallynecessary.
c ...thatSoftline
willreduce
itslevelof involvement
withIntelligent
Ltd.
Solutions
Wedon'theartheendof the meeting.Whatwouldyousuggestif youwerethe in-houselawyer?
tl
Youandyourpartneraresolicitors,onefromtntelligentSolutionsandthe otherfromSofttine.
Workwith yourpartnerto discussCathy'scontract.
PartnerA tile o4,p, 7r
PartnerB Fiteo4,p.76
Afteryou havefinished,presentthe outcomeofyour negotiation
to the restofthe group.
PRESEITililG
Ail qulqellE
Weagreed/ decidedto ...
Thebestoptionhereis to ...
In returntheywitt...
Bywayof compensation
theywill ...
U N I T 2 E m p l o y i n g p e o p|l e2 S
@ReadthearticletlomThefimesnew5paperaboutdresscodes.
intoconfusion
Tiecase
throwsdresscodes
The collar and tie facesan uncertain future in
the office. Willie Manners and fuliet McMyn
look at the implications of a recent tribunal
ruling.
["astweek'sruling that a man
who worked in a JobCentrewas
a victim of sex discrimination
becausehe was made to wear a
collar and tie has been seen
variouslyas a "victory for common sense"andthe deathofthe
traditional white-collar male
dresscode.
Matthew Thompson, an
employee in a )obCentre at
Stockport,objectedto the "smart
casual"dress code imposed by
the Department for Work and
Pensions because it required
men to weara collar and tie but
made no similar clothing requirements for
women. The code, which banned employees
from wearing fleeces without management
consent,was at first assumedto be a joke. But
when Thompsonwas disciplinedfor refusingto
wear a tie, it all becamelessamusing.
Thompsons real complaint was that dress
standards did not apply equally between the
sexes.While men had to weara tie, women were
allowedto wear T-shirts or evenfootball shirts to
work. Thompson claimed that the males were
victims of "gender stereotyping"and that the
dress code was discriminatory. The tribunal
agreed.But its ruling, which may go to appeal,is
surprising. It appears to be in direct contrast to
the previous view that an employer could impose
different dress codes on the sexesas long as the
rules were enforced equally; it certainly paves the
way for other employeeswho
dislike formal dress to bring
similar daims. We may, for
instance. hear from Dennis
Fitzpatrickof Birmingham, another fobCentreemployee,who
wasbannedfrom wearingjeans
to work. He recentlyreportedfor
duty in a kilt, lumberiack shirt
and a loud multicoloured tie. Of
his employers,he said: "They
seemedhappy for me to go to
work like this, even though I
looked like a pilloclC (slang:a
stupid person).
At the hearing on Thompson'scase,the panelwasinvitedby his employer
to consider the meaning of the term 'smart
casual"and, in particular, what kind of dothing
would be consideredacceptablein an office.For
men, smart trouserswith a collar and tie were
suggested.For women, skirts, dresses,housers
and fitted or loosetops. From such analysisit is
clear that while society's ideas of accepable
clothingfor a man haveremainedfairly constant,
its viewson dresscodesfor womenhavechanged
radically.
Willie Mannenondluliet McMyn - Macforlaneslawfirm
andDennisFitzpatrick?
Doyou agreewith MatthewThompson
you
fortheemployer,
in bothcasesthe localJobCentre?
haveanysympathy
Do
a ls therea dress
codeat yourplaceof work?
a Doesit applyto different
groupsof peopleequally?Howdo you feelaboutit?
a
a
@bndged)
26 1
Buying and selling goods
and services
Hereare somesales managershavinga consultationabout contractswith the in-houselawyer.
Howwould you answertheir questions?
Whathappensif, after the portieshave
signed,wefind that there'sa mistakein o
Do we haveto
contract- say about VAT?
draw up a wholenew contract?
A clientagreedto buysomegoodsfrom us but
neededthem urgently.Hedidn't havetime to wait for
all the paperworkto be drownup and signed.I sent
him the goods ond he paid - no problem.But washe
actuallylegallybound by ourverbal agreement?
.i{d*
tcrs
I often see
termsand
conditions
in our sales
documentotion.
Aren't they iust
two words for
the samething?
Wehad a big orderfrom a client and the client
said it was OKto osk a third party to supply
part of the orderfor us. But are we liable if the
third party'sgoods are defective?
t
Let'ssay there's
o rail strikeand
wefailto
deliverour
goods to the
client.I assume
we'reprotected
by the force
majeureclause,
aren'twe?
I keep comingacrossthis r,vordconsideration
in contracts.Doesit meanthat you have- sort
of - thought corefullyabout the other party's
offer beforesigning the contract?
Lookat the beginningof a contractfor the sale of goodsand find the fotlowing information:
r Whatis the product?
z Whichpartymanufactures
the product?
Where
is
there
detailed
information
aboutthe product?
3
4 Whoplansto buythe product?
U N I T 3 B u y i n g a n d s e l l i n g g o o d s a n d s e r v|i c2e7s
Version
r
CONTRACT OF SALE
This agreementis madethis I 't day of March 2. . . by and betweenDigital View
plc (registerednumber 123456),with its principal placeof businessat 17,
HopkinsonWay,Andover,SPl0, ENGLAND, (hereinafter'PURCHASER')
and PixeltechnikS.A.,with its principalplaceof business
at placeJourdain,
34, I180 UccleBELGIUM, (hereinafter'SELLER')and its permittedsubcontractorsand assisnees.
Whereas:
- PURCHASER, a manufacturerof electricalgoods,wishesto purchasethe
goods(hereinafter'GOODS') specifiedin Annex I heretoand subjectto the
termsand conditionsof this agreement:
- SELLER, a manufacturerof high-performanceLCD screens,wishesto
manufactureand supplythe aforenientionedGOODS. ,
IT IS AGREED:
DIDYOUXTOU?
is changing
in the U.K.and
Thelanguage
of contracts
groupscampaign
andbusiness
the U.S.as consumer
for morecontemporary
language
so thatthe
areeasierfor peoplewithouta legal
agreements
to understand.
Contracts
between
background
havebeenstowerto change,in contrast.
businesses
of Saleaboveis an exampleof a
TheContract
and hasexamples
business-to-busin essagreement,
of the typeof language
that is becoming
less
c om m on.
in this contextis usedto introducethe
Whereas
information
aboutthetransaction
thatthe two parties
wantto enterinto. Wherecanalsobe usedwith by.
Hereandtherecanalso be usedwith otherwords.
Hereis usedin a legaldocument
to meanthe
documentitself.whitethereisusedto meanother
meansfromthis
documentsor things.Hereinofter
pointin the document.Herebymeansas a resultof
thisdocument.
meansthat somethinghasbeen
Aforementioned
discussedor referredto earlier.
2 8 | UN I T 3 Bu yin ga nd se llinggoods ands er v ic es
2
CompareVersionr of the Gontractof Sale with Versionz, which uses morecontemporary
language.llake notes on how the phrasesmentionedin the Did you know? box on page2Zhaye
changedbetweenthe two versions.
Versione
CONTRACT OF SALE
This agreement
is madethis lst day of March 2...by and betweenDigital View plc
(registerednumber 123456),with its principal placeof businessat 17,Hopkinson
Way,AndoverSPl0, ENGLAND, (the'PURCHASER')and PixeltechnikS.A,with
its principalplaceof business
at placeJourdain,34, I180 Uccle,BELGIUM (the
'SELLER') and its permittedsub-contractors
and assignees.
Recitals
- The PURCHASER,a manufacturerof electricalgoods,wishesto purchasethe
(the'GOODS') subjectto the
the goodsspecifiedin Annex I to this agreement
terms and conditionsof this agreemen|
- The SELLER, a manufacturerof high-performanceLCD screens,
wishesto
manufactureand supplythe GOODS.
llow compareyour noteswith a partner.
3
Hereare someclausesfrom the contractbetweenDigital Yiew plc and Pixettechnik.
Completethe contracton page29, bv inserting phrasesr-8 below into boxesa-h.
r for a periodof threeyearsafterdelivery
2 arefreefromthe rightsof thirdparties
to the provisions
for termination
in 8.r and8.2below
3 subject
number
the
of
items
in
specified
Annex
z
4
goodsat no additionalcost
to PURCHASER
5 anydefective
6 PURCHASER
shattbe entitledto terminate
noticeto
theagreement
by givingzt days'written
SELLER
jurisdiction
partiesirrevocably
The
submitto theexclusive
of English
courtsforthedetermination
7
of disputes
arisingunderthiscontract.
8 PURCHASER
mayreducetheagreedpricefortheorderby rolo
UNITS Buyingandsellinggoodsandservices
| 29
1
Delivery
1.4 Failure on the part of SELLER to meet the terms of delivery shall entitle PURCHASER to invoke tle
following penalty clauseterms: for everyweek or part thereof by which the delivery date is exceeded,[-l a.
The rights of PURCHASER under 8.1 shall remainunaffected.
MinimumOndcrs
3
3.1 PLJRCHASER undertakes to purchase during the first 24 months following signature of this
agreement| 1". The minimum amount ordered each calendar month shall be according to the details set
out therein.
4
Prie
4.1 The price chargedfor the goods shall be in aocordancewith the pricelist g9!g! in Annex 2. The stated
price shatl be bigsligg on both the seller and the purchaserfor the duration of this agreement.
5
Drnation
;
5. 1This agrcementshall be for a period.of two yearsfrom the date of signaturel-l c.
5.2 The agreementshall be renewedautomatically fiora further period of ohecalendaryear unlesseitler SELLER
or PURCHASER terminatesin accordancewith the provisionscontdined in 8,2 below.
t
Termhetion
8.1 Should SELLER: (i) fail to providesatisfactoryperformanceof this agreementor (ii) fail to fulfil any of
its obligations hereunderor (iii) becomebankrupt or havea windinq up petition made against it or havea
liquidator or administratorappointed,I lo.
8.2 In all other cas€s,notice to terminate must be madein writing by either SELLER or PURCHASER no later
than 90 days in advanceof the expiry date as defined in 5.1 above.
10
Warrrnties
l0.l SELLER warrants that the goods will comoly with the cpecifcations as set out in Annex I and will be free
of defects(other than those causedby bcorrect usageor operation by PURCHASER) I t.
thatallerreceiptof writtennoticefromPURCHASER
10.2Pursuantto theabovewarrantySELLERguaratrtees
entiresatisfaction
it will promptlyrepairor replaceat PURCHASER'soption and to PURCHASER'S
T-lf
L, r'
I\sl
ll
Wrrranty of title
I l.l
SELLER wanants that the GOODS I c SELLER shall indemnifv PURCHASER on demand against
any claims made by third parties in this regard.
12
Applicablehwandiuisdiction
12.1 This agreementshall be governedby the laws of England and Wales
n.2nh.
Z
?
?
z.
3 0 | UN I T 3 Bu yin ga nd se llinggoods ands er v ic es
DrD_Yo!Kllow?
Warrantyhastwo meaningsin contractlaw.
makesto the purchaser
in whichthe repairor replacement
r lt canbe the statement
thata manufacturer
goodswithina certainperiodof timeis guaranteed.
of defective
A conditionis an essential
element
z lt is the wordusedfor a term in a contract
that is nota condition.
A
lf it is breached,
thenthe otherpartyhasthe rightto terminate
the wholecontract.
of a contract.
partof a contract.
warrantyis notan essential
lf a warrantyis breached,
the contractas a whole
remainsin forcefor bothoarties.
is valid.lt is oftencatledexpirationdatein
Expirydateis the endof a periodfor whichsomething
(AE).
English
American
in AE.Thisuseof the wordtermhas
TheheadingDurationin a contractcanalsobeTerm,especiatly
nothingto do withthe meaningof termabove.Hereit meansa periodof time.
referred
Forcemajeureis sometimes
to as actof God.Thisclausecoversall of the thingsthat can
impossible,but overwhichthe partieshaveno control,
happenwhichmightmakeperformance
unannounced
e.g.storms,naturaldisasters,
strikeaction.
4
Readthe dictionarydefinitions belowand choosethe correctterm amongthe words underlined
in the contracton page29, which fit the definition.
personappointed
by the court to managethe affairsof a
bankrupt company
6
a quarantee
issuedto the purchaserof an article
promisingrepairor replacement
in case
of defects
to be in
to hold a person
safeor secureasainsta risk
accordancewith
conditions(in an
8
to go beyond a
setlimit (quantityor time)
agreement)
to makeuseof or
apply a clausein a contract
9
formal requestto
10
have a company closed down
lmposmg an
obligation which one must fulfil
to state or
describe
in writing
something
UNIT3 Buyingandsellinggoodsandservices| 31
A U DIO
A
w
6
5
Youare the in-houselawyersat Digital View plc. At a meetingwith the purchasingdepartment
you are askedthe following questionsabout the agreementwith PixeltechnikS.A.Listento
eachquestion and note your answersbelow.Thenshareyour views with the class.
7
2
4
5
6
7
8
STYLETIPS FORLEGALTEXTS
O
LegalEnglishoftenusespast participlesto make
morecompact.
Insteadof:
sentences
Theprice whichis chargedfor the goods shall be ... or
... the numberof items whichis specifiedin Annexz
Presentparticiptesarealsousedto make
sentences
morecompact.
So insteadof:
Theagreementwhich existsbetweenthe parties
is due to expireat the end of this year.
the contractsays:
Theprice chargedfor the goods shall be ...or
...the numberof itemsspecifiedin Annexz
we cansay:
Theagreementexisting betweenthe parties is
due to expireat the end of thisyear.
Put the verbs :nto the sentences below. Decide if you need a present participle or a past
participle. Be careful! There are two verbs which you don't need.
arise . claim o dispatch r entitle . fail . find r impose . lead r list o reach
r
Anygoods
of the ourchaser.
satisfaction
mustbe replaced
to be defective
within48 hoursto thefult
bythearbitrator
is bindingon bothparties.
z Anydecision
3 Theprices
quantitydiscounts.
in Annexr failto takeaccount
of possible
is indemnified
againstanylossor injuryto a thirdparty
4 Thepurchaser
outof anyproductdefectasdefinedin 6.4above.
in
on thesupplierby my clientis completely
5 The1,oooeurocharge
withthe penaltyclausein theagreement.
accordance
5 A transportstrike
majeureclauseto a limitedextent.
to delaysin deliveryis onlycoveredby theforce
7 Anyproducts
supplier
at thesupplier's
expense.
to meetthe agreedspecifications
will be returnedto the
8 Thecompensation
is,in ourview,unreasonable.
bythe purchaser
32 | UN|T3 Buyingandsellinggoodsandservices
7
Thecontractrunswell for 15months.ThenPlreltechnlkS.A.ls forcedto sendthe followlng
letter to DlgltalYlewplc. Readthe letter andanswerthe followlngquestlons:
Whatistheproblem?
Howquickly
canPixeltechnik
solvetheproblem?
PixeltechnlL
S.A.
place Jourdain 34
1180Uccle
Tel: +32 511&8 31 50
Email pixel.technik@t-mobile.be
September23'd?...
Mr. Gary Thorne
Head of PurchasingDepartment
Digital View plc
17HopkinsonWay
PortwayIndustrial Estate
Andover
SPIO
England
Dear Mr. Thorne
Recallof dl batc.hes
fsomTZ&10 to TZQI9
I regretto inform you that we haveto recallthe aboveten batchesof LCD screensfor usein
digital cameras.Unfortunately,it hascometo our attentionthat a chemicalprocessingerror
hascausedminor inconsistencies
in the candlepowerof the screensThey failed to passall of
our quality controlsand must thereforebe regardedasdefective.
I appreciatethat, in reca[ing a total of 51000screens,I am causingconsiderable
inconvenience
to your company.I apologisefor this and will endeavourto dispatchto you
1,000screenswithin the next ten daysand the remaining4,000within 2l daysat the latest.
Pleaseacceptonceagainmy sincereapologiesfor this error. If you haveany questionsor
would like to discussthis matter further. do not hesitateto contactme.
Yourssincerely
Juvu/vlario Hdrault
Jean-MarieH6rault
ManagrngDirector
Whatls your ovenll oplnlonof the letter? ls the toneapproprlate?ls the Infornatlonsufffclent?
Glvesomeqamples.
U N I T S B u y i n g a n d s e l l i n g g o o d s a n d s e r v|i c3e3s
I
Youarea lawyerIn the legaldepartmentof DigltalVlew.Decldehowyour companyshould
r$pond to thls problem.Considerthe followingoptlonsandglyereasonsfor your choices:
. accept
apology
Pixeltechnik's
. accept
penalties
buttakestepsto obtaincompensation
theapology
orto impose
. suggest
alternative
another
9 llow listen to a consultatlonbetweenfean-llarle H6rault,llanaging Directorof Plxeltechnlk
S.A, and tr. Evans,an Engtlshcontracttawyer,workingfor an internatlonallaw ffrm.
AUDIO
@
7
Partr: Theproblem
Are the following statementstrue or false?
r
z
3
4
5
DigitalView
repliedto Pixeltechnik's
originalletterof
September
23'd.I
Managerfirstrealized
therewasa problem
TheProduction
error.I
whenhe noticeda chemicalprocessing
stillconformed
to the
M. H6raultis surethat the screens
productspecifications
agreedin the contract.I
onlycarriedout testson the productonce
Thetechnicians
everytendays.I
to
SomedefectiveLCDscreenshadalreadybeendelivered
DigitatView.
[-l
AU0to
a
Partz: Thedispute
E
Answerthefollowingquestions.
withDigitalView.
r Name
threereasons
whyM.H6rault
thoughthehadavoided
a dispute
nowintendto do?
z WhatdoesDigitalView
3 0n whatlegalgroundsis it tryingto do this?
thatthe contractrunsat leasttwo years?
4 Whyis it importantto Pixeltechnik
34 | UNIT3
10
Buyingandsetlinggoodsandservices
Youare sollcitors advlsingll H6rault.Discussthe followlng questionswith a partner.
r
Towhatextentarethe followingpointssignificant?
23'd,M. H6raultdescribed
as defective.
a In his letterof September
the 5,oooLCDscreens
b Pixeltechnik
alreadyseemedto havereacheda compromise
with DigitalView.
z Towhatextentcanit be arguedthat DigitalView
is notjustifiedin invoking8.r (i)?
here?
3 Howimportantis the conceptof reasonableness
DigitalView
lf
wants
to
terminate
the
contract,
what
areits rightsandobligations?
4
clausesignificant?
5 ls the absenceof a disputeresolution
l{ow decldewhat adviceto give your client.
tl
Contractsand legal correspondence
often containwordswith negatlvepreflxese.g.lnvolld,
lnsolvent. Look at the list of adiectives below and match them wlth the correct negative preffx.
lR-*;
,,1,,tIi,.:ti-
'
7ln
valid
8
foreseeable
2
lawful
9 _
partial
3 _
enforceable
10
confirmed
4 _
satisfied
r1 _
correct
5 _
reconcilable
72
complete
6 _
affected
B
_
reasonable
_
effective
14 _
satisfactory
TAXGUAGE
USEFUT
Thewordsvalid,enforceable,
andeffectivesometimescauseconfusion.
permitcanbemlid, i.e.it hasthe correctstampson it or hasn't
A workpermitor residence
expired.
A contractof employmentcanbe effective,i.e.it is in useand haslegalrelevance.
Asan employee,
I mighthavecertainrightsor claimswith respect
to an employer
thatare
enforceable,i.e. I cango to courtand askthe courtto ensurethat my rightsare respectedor
myclaimsmet.
A contractthat hasno legalbasis- because,for example,oneofthe contractingpartiesacted
underduressor because
the objectof the clauseis unlawful- is void.
t2
l
Workwith a partner.Usethe informatlonIn the Partnertlles to flndthe legalvocabulery.
P artnerA Fi te05,p.71
PartnerB Fiteo5,p.76
goods
andservices
UNITg Buying
andselling
| 35
ITTERACTIl{G
W.ITH
A CTIET{T
fromtheirclientsandsummarize
whatthe clienthassaid,to directthe
Lawyers
needto getinformation
questions
canbe useful.
andexpressions
theirownpointof view.Thefotlowing
consultation
andto express
Gettlnginformation
CouldI startby askingyouwhenI whyI howthe problembegan?
then?
Andwhathappened
Whatdid youdo then?
Howdid the otherpartyreactto this?
coutdyouexptainwhy...?
Geftingthe clientto refocus
Letmetakeyou backto ...
t3
Checkingand clarifying
Areyousuggesting
that...?
youcorrectly...
So,if I understand
Couldyouexplainwhatyou meanby ...?
Expressing
an opinion
A s I seei t...
Ourbestoptionwouldbe to ...
A cllent anda lawyerdlscustfontract issues.Whatadvicedid your lanryerglveyou?
Partner A
Partner B
Fite 06, p. 72
File 06, p.76-77
promise
comptywith to obeya rule or contractual
invoice a bill; a list of goods sold or work doneshowing what
the customermust poy
offer the act of sayingyou are willing to do something,for
exomple,mokeo controct
reiect refuseto accept
tiles coveringsfor o roof, wall, or floor
t4
Fill In the gapswith wordsfromthe unlt. BecarefultTherearetwo wordswhlchyoudon'tneed.
binding. bound. comply r defectiveo expir€ r invOk€r,speFiffcadonsr
terminate . terms o warranty
r Any
itemsmustbe replaced
withinfiveworkingdaysto the fultsatisfaction
ofthe purchaser.
the purchaser
of the supptier
entitles
to
z Theinsolvency
immediate
effect.
with
thisagreement
on bothpartiesfor a periodof z4 months.
3 Thepricesherebyagreedshallbe
according
to the
4 Thegoodsmustbe manufactured
setout in Annexz.
remains
liablefor thegoodsuntilthey
of delivery
statethatthe supplier
5 The
deliverypointandsignedfor bythe purchaser.
havebeenunloadedat the specified
6 Yourfailureto
followingfinancialpenalties:
dateentitlesmyclientto imposethe
withthiscomptetion
werenot of
clausebecause
someof the goodsdelivered
the termination
as
unreasonable.
standard
would
be
seen
the required
7ro
will
8 Theagreement
exactlytwelvemonthsfollowingits dateof signature.
3 6 | UN I T3 Buying an dset linggoods ands er v ic es
Readthe artlcle ebout a famous case ln contract law.
Flour power and
contra-ct law
By Franklin G. Snyder
are
two reasons. The first was the growth of contract
celebrating a rnomentous event: a broken steam
lan'. Before the 19th centuni. manv commercial
engine shaft at a llour rnill in Cloucester. That
relationships x'ere reg'ulated bv custorn, not by
shaft gar-e rise to tlre rnost widely knor-n case
individual agpeements.There was, in fact, no
in the histon of courruon law: the 1854 decisiorr
bodv of las'called
of Hadlev v Ba-rendale.
r-orld of 185+. like that of todal'. was one of
Legal scholars frorn around the world
"contracts". Secondlv. the
Great casessometimes have trivial causes.In
revolutions in transport. communications" eco-
an ela engrossedbvnews of impendingwarwith
nomics, politics and societr-.It s'as the first era
Russia. fi'n' cared about that broken shaft. Two
of "globalisation".
people s'ho dicl u'ere Joseph and Jonah Hadlev,
An era of rapid changeneedscontract mles that
the rnill owners. Thev needed that shaft and as
are predictable. but also flexible. And Hadley is
it cotrltl be repaired only in Greenwich, thev
the embodirnent of the common law's success
hired Pickforrls. the rernoval companyl to take
at dealing u'ith change. Its "foreseeability" rule
it l'r'orn Gloucester bv the next day. F'or sorne
encouragespeople to engage in transactions by
urrt'rplained reason,the shaft took several davs
protecting thenr fronr darnages that could not
lo arrive. During the delav, the mill lav idle.
be arrticipated. But bv avoicling a fixed rule -
The I ladlevs sueclfor the delav. The questiol
sar'.that the carrier is uever liable lbr such lost
lrt'lirre the collrt *'as whether Pickfords n'as
profits - it allos's lbr llexibilitv when things
liable for the nroney that the Hadleys had
change. Next time, the carrier might be aware
lo"t s'hile the mill was without its shaft. The
that there is onlv one shaft and that it had better
corrrt s ansser was no. Since Pickfords did not
take precautions or charge more in exchange for
necessarilvknos'that the mill wouldbeidle until
the greater exposure.
the shaft could be returned - there might have
The Hadlevs' old mill is" coincidentallv, being
beerr a spare - the court found that the companv
restored. For me. a lau'professor who studied
could not be charged u-ith those damages. Its
Hadlev 20 vears ago as a student. it is fitting that
opinion arurounced s-hat carne to be known as
the mill is being adapted to face a nes'centun'"
the'"foreseealrilitr"-test for contract breaches,
you cannot be helcl liable for losses that you
just as Hadlev's rule has allowed us to adapt to
futures about n'hich we could only guess.
could not reasonablv have auticipated.
How did this rather rrnurrlanetlispute become
(abridged)
a fixed star in the lesal firnranrent?'fhere are
Howdoesthe lawdealwith the conceptof foreseeability
in yourjurisdiction?
a Doyou sharethe author's
enthusiasm
for thiscaseas an exampleof clarityandflexibility?
a What,in youropinion,
worksbetterin contractlaw?Caselaw (theAnglo-Saxon
tradition)or
codifiedtaw(thetraditionin continentat
Europe)?
a
137
Protectingfintellectual property
How,if at all, canthe lawgiveprotectlonto the followlngandpreventcopying?
a newdrugsubstance
a rgthcenturyviolinconcerto
a a newperfume
a a scientific
theory,e.g.e = mc2
a a distinctive
product
chocolate
a newnovel
flavour
a sauceor drinkwithan unmistakeable
a a toasterthat downloads
the weatherforecastand
ontoyourbread.
toaststhe day'stemperature
Towerof Pisaat sundown
a photoofthe Leaning
a
a
a
a
a
a TVnewsshowformat
,p!9,vou Kr{OW?
artistic,musicalor other
rightgrantedto someone
who createsa literary,
I Copyrightis an exclusive
reproduce
right
author
composer
to
or
sell
thiswork.Therightcanbe
work.
lt
is
the
of
the
or
creative
i
Oddty,the periodof protection(inthe EU)
or recordcompanies.
r grantedto otherse.g.publishers
r dependson the typeof workundercopyright.
it is the author's
In the caseof a novel,for example,
lifetimeplus7o years;in the caseof a songit is 5o yearsfromthe datewhenthe songwasfirstreleased
or broadcast.
A patentgivesan inventorthe exclusiverightto exploitan inventionfor a periodof zo years.Thedate
comesontothe marketas a finished
whenthis periodbegins(prioritydate)is notwhenthe invention
is made.lf the patentee's
rightsareinfringed,the remedies
i productbutwhenthe patentapplication
I avaitableareto seeka courtinjunctionandto suethe infringingpartyfor damages.
identifies
a product.Whena trademarkhas
A trademarkis a design,logoor wordingwhichdistinctively
, beenregisteredthe ownerhasthe exclusiverightto usethis trademarkin connectionwith the products
lf a competitor
startsto usea trademarkthat is so similarto this
listedin the originalregistration.
trademarkthatconfusionmightarisein the mindof the pubtic,thisoffenceis calledpassing
, registered
I off.As longas a trademarkis used,it lastsfor ever.
usinga designright.Theperiodof protection
shapesor patternsor designscanbe protected
Originat
, hereis 25 years.
38 | UNIT4 Protectingintellectualproperty
t
the threetexts usingthe wordsin the box.Thentry to guesshow
Workwlth a partner.Comptete
thecourtdecldedin eachcaseandwhy.
o format r genelal,r
F*'itiade mark
validity
::,1:
A TV show
could vote for
act and viewers
could p"ttoilT-J"g"
public
a TV comp6re'
by Mr Green'
was designed
favourtte
Eheir
extremely
became
show
the
launch in the UK'
its
Following
of
Corporation
the Broadcasting
sursequentfy
successfulsame
the
show' \tith
similar
t t"ty
New zealand broadJast
propercy
intellectual
of
Infringement
elsewhere'
title,
Green' who sued
off were claimed by Mr
and passing
rights
2- The defendant
resPonded bY
'
for
show' and
that of a talent
that the show format was
3 a nature to
claiming
of too
was therefore
a protection.
be granted
of
CorPotation
Green v Btoadcasting
Privy CounciT
700'
RPC
(L989)
New Zealand
b
A disposablenappy, with fastenersmade of a Velcro-like material,
5by MolnyckeAB. The fastenersmadeit possibleto
was
check and refastenthe nappy without damaging it. A
Proctor & Gamble,startedproducingnappiesof an almost identical
7of its patent.
design, which led Molnycke to claim
in their defence,asserting
Proctor& Gambleusedgroundsof obviousness
that thefasteningsystemwascommongeneralknowledge,andchallenged
the
8of the patent.
Ltd (No 5) (1994)RPC49,
MdlnlyckeABv Procter&Gamble
Court of Appeal
Theownerof a Japanese-styre
noodre
restaurant
cailed
vAGAMAI//
brought
an
action
against
theownerofanIndian_themed
restaurant
e
fgr
infringement
and passing whenhe namednis ;e*awantaAMAMA.
'ff,
Irfe
thatthename
-10craimed
means,hearthy
eutin'i;il;''thtliuint, whereas
wAMAMAhas'AGAMAMA
nomeaning.
Thedefendant
changed
thenameof hisrestaura
nt to WAMAMA,s,
whichthe
praintiff
fertto be
unsatisfactory,
s0thecasewasbrought
tocourt.
Waganama
Ltd.VCityCentreBestaunn9ptc (lggil)
FSB
7lS, Cnancery
Division
2
ilow have a look at the answer key to see what was decidedIn each case.
. Doyou agreewiththe court'srulingin eachcase?
o Woulda courtdecidein the samewayin yourjurisdiction?
Whyor whynot?
UNIT4
3
intellectualproperty 39
Protecting
Thefotlowlngagreementwasreachede fewyearsegobetweena fflm productloncompanyanda
publlsherragardlngthe ftlm rlghts for a novcl.
rm Agreemeot ismadethisday,MayI't 2...
between:
IndexFilms Inc.
34West62 Street.
NewYork 10023
USA
(hereinafterPURCHASER)
and:
BlackbirdLtd
218The Strand
LondonWC2R IAT
England
(hereioafterOWNER)
Whereas:
I and exclusive owner of all rightg
a) OWNER, a publishing housg is the solel.
includingcopyrightg to the original literary wprk entitled 'BLACKOUT' by AdamParts (hereinafter
woRK).
b) PURCHASERdcstuesl
2to produce or cau$e to be produced a motion picture
basedupon or adaptedfrom the WORK.
3from OWNER and OWNERhas granted I
c) PURCHASERhasacquiredI
4to PURCHASERan exclusive
optionto purchasethe worldwidemotionpicture
rights (hereinafterRIGHTS) to the WORK underthe termsand conditionssetlorth I
5 herein.
2 OWNER warmntsI
6 that it has the exclusive right and authority to enter into and
:
to perform this agreement in full and to grant exclusively to PURCHASER the rights herein.
I
3.1 Theexclusivityperiodfor whichPURCHASERhasacquiredRIGHTS shallconunence
-'
either a) on the datethis Agreementis signedby both partiesand shall end exactlyten yearslater to
:
,
the day or b) upon the initial releaseof the motion picture asdefinedin AppendixA and endexactly
?
eight yearslater to the day,whicheverperiod erpries/ -8
Z
first.
4.1 The purchaseprice of $ ... is payableon the date this Agreement is signedby both parties
5.2 Should a third party wish to produce or causeto be produced a motion picture based upon or adapted
from the WORK within the exclusivity period as defined above in this Agreement, this will only be
lo of both
permissible I
,ewith the expresswritten consentI
PURCHASERandOWNER.
\\aj\aw
i
40 | UNIT4 Protectingintellectuatproperty
Are the following statementsabout the agreementtrue or false?
I r Thecopyrightto BlackoutbyAdamParkswill be soldto the purchaser.
film.
anotherfilmproduction
company
to makethe planned
I z IndexFilmscancommission
geographical
is not restricted
in anywayto certain
regions.
I f Thisagreement
period
years.
for
rn"
is
eight
exclusivity
[_-,]+
I i tf lndexFilmsmakesthefitmandthenanotherfilmmakerwantsto do a remakebeforethis
agreement
hasexpired,
thiswittnotbe possible.
4
Thewords in italics in the contracton page39 are standardlegal vocabulary.Replacethem with
standardnon-tegalvocabularybelow.
agreement. begin . bought . ends r given o guarantees. only r pgssible o
wants . writtendown
DtDYOUXttOW?
containsentences
or
that beginwithshould.Thesearenot requests
Quiteoftencontracts
questions
Wecanrewritectause5.2withoutchanging
as
but if sentences.
the meaning
follows:
lf a third party wishesto produce..., this will only be permissiblewith the expresswritten
consentof ...
5
Some years later, Fabian Stein, the head of Left Hand Productions, a london-based film
production company, is interested in doing a remake of the film version of Blockout.
Read the following letter from their solicitors in London and, using the agreement between
Index Films and Blackbird for reference, write a number ot dote ia each of the six gaps.
\\ alker& FieldSolicitors. 52Gloucester
Road . LondonSW74QT
Mr. FabianStein
Left HandProductions
52KingsRoad
LondonSW3ILR
M a yl " 2 . . .
Dear Mr. Stein
Acquisition of motion picture rights to Blackoat
With regard to your plans to acquire the motion picture rights to the novel Blackout by Adam Parks, I am
forwarding you the written responseI have now receivedfrom the attorneys for Index Films in New York and
from Blackbird, the publishers of the work. In addition. I enclosean abridged copy of the original agreement
betweenthesetwo parties.
The legal situation is relatively straightforward and I am confident that we will be able to negotiatea
satisfactory agreement.However,I would like to draw your attention to the following points.
UNIT4 Protectinginteltectualproperty
| 41
As you can seefrom the preamble of the original agreernent, it was signed on
exactlyfour yearsago.Index Filns actuallyreleasedtheir motion picture oneyearafter signingthe
agr€ement.As a result, in accordancewith clause
2. the exclusive worldwide
r vears after the releasedate. Since we are not
motion picture licencewill expire
negotiating a new agreementbut simply asking Index Films to waive its right to exclusivity,we too will
be bound by the same expiry date. In other wordg you would have no more than
yearsin which to produceyour fllm. Moreover,after the expiry datg any other party would be freeto
negotiateexclusivefilm rights with the publisher.Of course,your right to exploit the film you produce
will existin perpetuity.
The publishershaveindicatedtheir willingnessto consideryour acquisitionof the motion picture rights
within the definedexclusiveperiod in return for financialconsideration.With your permission,I would
be happyto drawup a Letter of Intent - to be signedby yourselfand the publishersThe final
compensationfigurewould not be fixed at this stage.
However.clause
5rtrakes clear that the consent bf both the original parties is
necessaryso wemust alsoreachan agreenentwith Index Films.ClearlyJndex Films will be looking for
financialcompensationin return for waivingtheir exclusivityrights"Neverthelesgit shouldbe bornein
mind that their film was released
b years ago and is generating hardly any income
now.In my view,Index Films will not wish to drive too hard a bargainherg so it shouldbe possibleto
reachan agreementfor no more than EUR 100,000.With your pennission,I could draw up a draft
agreementand setup a video conferenceto negotiatewith the attorneysin New York.
I would be gratefulif you could let me know how you would like me to proceedin this matter.If you
haveany questionsconcerningthe alove, pleasedo not hesitateto cotrtactme.
Yourssincerely
Wtllkm Fido(
William Field
Enc. Abridgedcopy of original agreementbetwe€nIndex Films and Blackbird
Written reply (April 22od2...) from Blackbird, publishers
New York
Written reply (April 28th2...) from Masonand Gonzales,attorneys-at-law,
abridgedshortened
attorney(AE) U.S.Iegalprofessional
bearin mind consider
bound by forcedto do somethingby law
([egaDhere,money
consideration
drivea hardbargaindemandthe best
termsfor yourself
generateincome earnmoney
in perpetuity forever
in the regionof (lRO)approximately,
about
release(film) publtsh
property
intellectual
42 | UNIT4 Protecting
6
Willlam Fieldoftenusesa llnking wordor phraseto loin a sentencewith the prevloussentence.
lVhatwordsor phrasesdoeshe useto do the following?
express
a contrast
provideadditionalinformation
express
a consequence
statean opinion
ln m.yview
restateor reformulate
someinformation
7
Usetlnklng wordsandphrasesfromexerclse6 to completethesesentences.
r
Wecanapplyfor a courtinjunctionagainstanyfurtheruseof the logo.
we shouldconsidersuingthe infringingpartyfor damages.
z Thisproductclearlyhasa commercialapplication.
that it is reallyinnovative.
demonstrate
it maybe difficultto
in questionsoldthe copyrightto the recordlabel.
she
3 Thesongwriter
cannotpreventthe recordlabelusingthis songin a commercial
for a productof whichshe
disapproves.
to waiveits rightto exclusivity.
4 Thefilm studiois prepared
anotherfilmmakerto makea filmof the samebook.
it wiltallow
that a quizshowis not normallycapableof copyrightprotection.
5 Thecourtaccepted
it ruledin thiscasethat certainfeaturesof the showformatwereso
distinctive
that a rightto protection
existed.
AUDIO
€
9
8
lndex Films and left Hand Productionshotd a video conference.Listen and decide if the
statements below are true or false.
r
FabianSteinis not willingto payroyatties.I
z According
to FabianStein,IndexFilmswouldnot be allowedto keepthe proposeddownpayment
of €zo,oooif the fitmflopped.I
payment.I
3 JakeGloverchangeshismindabouta success-related
with a thirdparty.f]
4 FionaMartinezmakesit clearthat herclienthasplansto negotiate
can'tgetthe agreement
of the publishers
withinthreemonths,it won't
5 lf LeftHandProductions
haveto makea downpayment.Tl
ceasesfop
conditionalupon (adDdependingon
down payment paymentin advance
dragon take more time than necessary
proposedplanned
royaltiespaymentto authoror artist
viable (adDpossible
zitch(AEslang) nothing
UNIT4 Protectingintellectualproperty
| 43
9
Readthe draft agreementbelow.tlow listen againandcompletethe sentences.
MOTION PICTURE RIGHTS AGREEMENT
is madethisday,May l5th2...between
LeftHandProductions
Limited(registered
ThisAgreement
withits registered
address
number678910)
business
at 52KingsRoad,LondonSW3lLR
(hereinafter
t) and IndexFilms Inc. with its registered
business
addressat 34 W.
62ndStreet,New York, 10023,USA (hereinafter
t).
Wherebyit is agreedas follows:
RIGHTS HOLDER, a film productioncompany,wishesto surrenderits right of exclusivityin respectof
the motion picture rights as definedin Annex 1.
RIGHTS HOLDER shall surrenderits right of exclusivityin respectof the abovementionedmotion
picture rights to PURCHASER. As considerationPURCHASER, on condition that it acquires
permissionfrom Blackbird, (hereinafter
a.An initial sum of EUR
EUR
'; to fllm a re-make,shall pay a total of
5shall be payableto
RIGHTS HOLDER upon the acquisitionof said rights following the signingof this agreement.Failure
o following the signingof this
to makethe initial paymentwithin a period of
asreementshall rendersaid agreementnull and void. No later than
7following
the releaseof the movie by PURCHASER, a secondand final paymentof
3 shallbe payableto RIGHTS HOLDER.
EUR
IA]IGUAGEOF TIEGOTIATIOII
ln a negotiation,confrontationallanguage(Wecan'tpossiblyacceptthaf.)statesabsolutesandclosesdown
options.Tentativelanguage(Wewouldfind that difficultto accept.)makesthe speaker'spositionclear,but
you havejust listenedto.
fromthe negotiation
leavesoptionsopen.Lookat someexamples
Tentatlve
lln afraidmyboordnight find thotfigurea
Iittlelow.
Wemight be oble to agreeto ....if we could
participatein ...
Any other type of agreementisn't really
workoble...
€3o,ooo isn't reolly high enough.
I think €45,ooois o little high.
Confrontational
My board will find thot figure too low.
is betterthan
Wewill agreeto .... if we canparticipate
in ...
Any othertypeof agreementis
unworkoble...
€3o,ooo istoo low.
€45,ooo is too much.
44 | UNIT4 Protectingintellectualproperty
10
Usethe informationIn the languageboxon page4t to makethe statements
less
confrontationat.
periodyousuggest
r Thepayment
istooshort.
z Ourshareof the royaltiesis too low.
impractical.
3 That'scompletely
of 4o/o.
4 lf youextendthe licenceareato includeJapan,we willacceptroyalties
5 Ourboardwiil neveragreeto that.
tl
Readthe followingextractsfroma songwritingagreement
andchoosethe bestoptlonto
complete
eachof thestatementsbelow.Sometimes
morethanoneoptionls possible.
An Agreementmadethis first day of March 2... betweenGlobal Music Inc. (hereinafter
PUBLISHER) of the one part and Billy Ratt (hereinafterCOMPOSER) of the other part.
l. COMPOSER agreesto composeand write musicand lyrics for and during the period of this
Agreementfor and on behalf of PUBLISHER and herebyundertakesto assign,transferand
deliverto PUBLISHER or its successors
the whole of the copyright to suchmusicand lyrics and
also to suchmusicand lyrics written heretoforeby COMPOSER for all countriesof the world
insofar as suchcopyright is not held by third parties.
2. COMPOSER makesthe following productivity commitment:he will endeavourto delivera
minimum of ten compositions,eachof which comprisingthreeminutesof musicon average,
every
yearfor the duration of this Agreement.
4. The rights of PUBLISHER includethe right to maketranslationsof songtextsin foreign
languagesin consultationwith COMPOSER.PUBLISHER is also entitledto grant licencesor to
authoriseothersto exerciserights hereunderin whole or in part and to assignin whole or in part
the compositionshereunder.However,PUBLISHER shall not be entitled to assignthe whole
burdenof this agreementwithout the prior consentof COMPOSER.
5. The term of the Agreementshall be for a period of threeyearsfrom the datehereof.PUBLISHER
shall havethe option to renewthis Agreementfor a further period of threeyears.
8. PUBLISHER agreesto pay feesand royaltiesin respectof the compositionsacquiredhereunder
to COMPOSER as follows:
i) 12.5%of net receiptsof PUBLISHER from salesof reproductionsto public (CDs and vinyl).
iD PUBLISHER shall divide performingfeesand broadcastfeesbetweenPUBLISHER and
COMPOSER in the ratio 20Yoand 80% respectively,
subjectto any allocationfiororchestral
arrangementsin accordancewith the rulesof the PerformingRights Societycurrently in force.
iii) 125% of net receiptsincluding the licensingof compositionsfor usein films, television
programmesand commercials.
property
UNIT4 Protecting
intellectual
| 45
10.The royalty and free statementsshall be madeup to June30thand December3ltt in each
year and shall includeall receiptsby PUBLISHER in that period. Suchstatementswill be
sentto COMPOSER within 28 daysof the relevantdateand be accompaniedby a
T he c om po s e ri s tra n s fe rri n gc o p y ri g h tto t he pubti sher...
a f or all w o rk s c o mp o s e dd u ri n gth e ti fe ti meof the agreement.
b f or allw o rk s w h i c h th e c o mp o s e rh a s al readycomposed,w herethe copyri ghti s avai l abte.
c but not to a th i rd p a rtyw h i c h m i g h t a cqui rethe ri ghtsof the publ i sher.
priorwrittenconsent
Thepubtisher
needsthecomposer's
...
a to makewrittentranslations
of songtexts.
b to assignselectedcompositions
to thirdparties.
c to assignthe entireagreement
to a thirdparty.
Theagreement
is drawnup so asto be ableto run...
a for threeyearsonly.
b for sixyears.
c for morethanthreebut lessthansixyears.
performs
Whenthe composer
hismusicin a concert,
hewitl...
a receivezo% of the performing
fees.
b get possibtylessthan8o% of the performing
fees.
performing
more
c collect
than8o% of the
fees.
Theperformer
will be paidhisfeesand royalties
...
a twicea year.
b whenever
he likes.
c no laterthanz8 daysafterthe pubtisher
hasreceived
them.
t2
Twolawyers,eachrepresenting
thelrcllent,meetto negotiateanexclusive
copyrightagreement.
Par tner A
Par tnerB
ti l e07,p.12
F i l e07,p.77
After you havefinished the role-play,tell the classwhat amendmentsyou agreedto make.
VOCABULARY
WORD
EUItDIl{G
- TEGAT
Prefixesandsuffixesareaddedto modifywords.
Prefixes
e.g.in-,un-,over-,ex-,arc usedto changethe meaning
of a word.
Suffixese.g.-ate,-able,-tion,-ship,-ment,-ism,-ee,-ity,-ly areusedto changeboththe meaningandthe
grammarof a word,i.e.to turnit intoa noun,an adjective,
an adverb.
Lookat the followingexamples:
valid(adi.)- invalid(adj.),validity(n.),vatidate(v.)
(adi.)
patent(n.orv.)- patentee(n.person),patented(adi.),patentabte
(n.)
compose(v.)- composet(n.person),composition
(n.),respondent(n.
(adj.),unresponsive
(adj.)
person), responsive
respond(v.)- response
property
intellectual
46 | UNIT4 Protecting
t3
Complete
the fotlowlngartlcleuslngthe correctformof thewordson the rlght.
to blockRDR
f . K.Rowlingdetermined
Books'HarryPotter'rip-off
TheTimes
by DalyaAlberge,Arts Correspondent,
andmagicalbeastsbut
to battlesagainstevilwizards
J.K.Rowlingmaybe no stranger
in her latesttussleshe is preparingto appearin personin the Americancourts.
Thenotoriously
shyauthoris readyto testifyherselfto protecther
American
of HarryPotteragainstRDRBooks,an independent
,ow;--1
,pibi;n-l
next month.A U.S.court is to decidewhethershe can blockthe publicationof
I encyclopaedia
worldthat shecreated.
of the wizarding
,Ath;rl
Rowling and Warner Bros., the Hollywood studio behind the epic fitm
1 of the Hogwarts
aretakinglegalactionto stop aadapt I
adventures,
guideto the Potterbooks
RDRfromprofitingfroma HarryPotterLexicon,
a 4oo-page
andmovies.
Accusing
the bookof tifting2,o34of its 2,437entriesstraightfromherwork,Rowling
with my rightsas
condemned
the Lexicon
as "a HarryPotter'rip-ofP...
lthat]interferes
5'. ShenotedthatRDR's
attempt"to co-opt I hold
a creatorandcopyright
my work for
I
e gain"wasout of keepingwiththe spiritof the Potter ,fr,",*-l
stories,whichare 'full of moralchoicesand ethicaldilemmas".Sheclaimsthat the
zof hercopyright
herown I infringe I
butundermines
RDRbookis notonlyan
plannedlexicon.As shewill donateits royalties
to charity,"the
to benefit".
in sucha situationwouldbe the charities
that I hope,eventually,
RDRBooks,said:"The HarryPotterLexicondraws
DavidS. Hammer,
co-counselfor
materialand
sfromtheHarryPotter
butisanentirety
newpiece ,Espq
series
to Rowling's
work,not a substitutefor it".
of work.lt is a companion
this prevents I create
'o holdsthe copyright;
11.ln Britainthe "fail ,peAn-l
passages
beingreproduced
without
substantial
ln Britainandthe U.S.thework's
workfor
dealing"provision
allowsuseof copyright
1'zand
reviewInthe
in reproducing
materia[.
U.5.rule,the thirdpartymustmakea contribution
Howdoyouthlnk the courtdeclded?
,;Ecil
UNIT4 Protectingintettectuatproperty
| 47
(lSP).
Readthe followingarticleaboutlP rightsandInternetServlceProvlders
[[
Why businessesshould be wary
of going after eBay fakes
by Gill Grassie specialist lawyer in intellectual property
and information tech nology
The Internetmay not be completelylawless,but it
doesfacilitateinfringementof intellectualproperty
lawson an unprecedented
scale.
How do you stop infringementwhen it is
occurringon sucha hugescale?Somecompanies
have gone after the intermediariessuch as eBay
and Facebook,which providethe platformon
which userscan exchangegoods and contentso
freely.
As the law stands,however,the middlemenare
generallyimmunefrom prosecutionprovidedthey
removeinfringingmaterialfromtheirsitesas soon
as they are notifiedof any potentialinfringement.
This sound like a sensibleapproach.lt gives
lP owners a quick and efficientmechanismfor
protectingtheirrightswithoutplacingburdensome
restrictionson popularsitessuchaseBay.Butthere
is a catch. lP ownerskeento preventcopycatting
of their products, brands and ideas are often
unawarethat assertingwhat they considerto be
genuinerightsmay give riseto liability.
It may seemsurprising,but lP ownerswho requestintermediaries
remove"infringing"products
from their sites can themselvesbe sued for an
injunctionanddamagesbythe personorcompany
they haveaccused.
The rationaleis: an accusationthat a business
has infringedlP rights may resultin that business
ceasingto sell the allegedlyinfringingitem.The
businessas a result may lose revenue,while
publicallegations
The
maydamageits reputation.
allegationsmay be madeby a competitoror in bad
faith;and evenif they aremadehonestly,they may
haveno legalbasis.Inthe UK,the lawon patents,
trade marksand designsmakessuch allegations
actionable.
Take eBay's Verified Rights Owner (VeRO)
programme.Under VeRO,you can notify eBay,
via an onlineform, that there is materialon the
auction site infringingyour intellectualproperty
rights,such as a design right or a patent.eBay's
standard responseis to remove the highlighted
materialwithout - understandably,
for reasonsof
expediency- any investigationof the meritsof the
claim.This immediatelydeprivesthe sellerof his
point of sale. eBay is contractuallyentitledto do
this, but what if the VeROnotificationis unfounded
and there is no infringement? The alleged
registereddesign right or patent may not have
been granted.You may not actuallyown the right
in question.Or theremayjust be no infringement.
Notification programmes such as VeRO are
therefore a double-edged sword: at first sight,
they are useful tools for lP owners to have
infringingmaterialremovedfrom the lnternet.But
unsuspectinglP ownerscan find themselveson
the receivingend of an injunctionor damages
claim.
Thisputsthe UK out of linewith othercountries
in Europe and elsewhere, where no such
provisionsapply. For the time being, lP owners
should be cautious about notifyingan ISP of
(adapted)
allegedinfringement.
described
a goodapproach?
Inyouropinion,is the procedure
your
areavailable
in
countryto lP ownerswho arefacedwith ISPinfringements?
Whatremedies
a Dotheyriskbeingsuedin the samewayastheirU.K.
counterparts?
a
a
48 1
Mergers and acquisitions
Readthe Quototionsof theWeekftom a U.5. magazine.
Whodo youthinkthespeakers
mightbe?
Whichof themseemto be in favourof moreregulation
to controlM &A?
a Which
Wheredo voustandon thisouestion?
of themaren't?
a
a
trleek
Quotations orrtre
-
Whenthe companyI workfor wastakenover,the price
offeredwasfar too high.Thescopefor savingsthrough
synergies
wasthenoverstatedto iustifythe high price.The
shareholders
won,the directors
won,all the tegalandfinancial
walkedawaywiththeirfees- andthe pricewaspaid
advisers
by the emptoyees.
Withinoneyearz,ooojobshadbeencut.
2
Th. legal instruments in placefor identi$ing and
combating insider dealing are more than sufficient.
Any more legislation in this areawould simply restrict the
freedom of companiesto expandand would make them
unattra&ve to investors.
Naturally, we take the Federal ltade Commission
(FTC) or its eguivalent in other countries very seriously
when we make an acquisition. But, to be quite honest, it
has never intervened once. The whole thing is more of a
formality, really.
4'
Mergers
andacquisitions
area perfectly
wayforthe
acceptable
market
tooptimise
itsefficiency.
Weweredelighted
whena large
multinational
wanted
t0acquire
limited
oursmallprivate
company.
Thepricewasfair,noonelosttheirjobandtherewasmuchmore
UNlT5
Mergers
andacquisitions
| 49
Readthe article. Comptetethe sentencesusing words from the box. Be carefult Two of the words
don't fit anywhere.
. offer r results o takeover
aqqu!19d,,,1.
r
. uirge'ted,
plc bringsin GEO
Foodstyle
from US
The Anglo-SpanishcompanyFoodstyleplc, which wasformed two yearsago out of
the
I betweenthe SpanishrestaurantchainPiment6nand the
British cafeteriaand snackbar chain CultureCaft,has respondedto criticism of its
recentperformanceby its major shareholders.Following the
2postedby the sandwich
disappointing
bar chain The Bread Company, which was recently
3
from a British hotel group for
a bid which
€60 million, and the failed
5 the well-known restaurantchain
had
PastaPlus,Foodstyle'ssharepricehad fallenby 20oh.Thelong-servingCEO Dr. Henri
Kroll hasagreedto makeway for a freshface- Matt Delaney,who hasswitchedfrom
his post as CEO of the major U.S. fast-foodrestaurantchain Lucky's.Mr. Delaney
is expectedto sharpenup the company'sperformanceand to put it back on an
.6course.News of the appointmentwas receivedpositivelyby
themarket,wrt:hF:od:tyle'ssharepncerisrnlbVO0Z
AUDIO
d\
w
10
2
tlatt Delaneyleavesthe followingvoicemail
message
for EstherSuarez,
the recentlyappointed
in-houselawyer.listen anddecideif the statementsbelowaretrueor false.
r
Mattfindsmergers
andacquisitions
confusing.
I
z Thereis documentation
on mergers
but not
on acquisitions.
I
3 EstherSuarezhasto explainto Mattwhere
the hiddendifficulties
are. fl
50 | UNIT5
3
Mergers
andacquisitions
Esthermails the following documentto Matt. Thefirst and last steps are in the correctorder.
Put the remainingsteps in the correctorder.
Acquisitions- l0 steps
The following ten stepsrepresenta standardprocedurefor carryingout mergersand acquisitions,startingwith
identifyinga targetcompanyand finishingwith the signingof a final contractwith that company.
L1-) An initial screenrhg
processis carriedout to identify a targetcompany.
u
(a) The board of managementof the targetcompanyis approached.I[ the approachisnot rejected,therewill
beamutualexchange
of informationbetweenthecompaniesbut only afteranon-disclosure
agreement(NDA)
has beensignedby all personsinvolvedat this stage.
u
(b) Basedon the outco,neof the due diligenceprocessthe kind of transactionthat is under considerationcan
be structuredand the processof negotiationstarted.
!
(c) Assumingthal expbratory talks havebeensuccessful,
a Letter of Intent (LOI) is then drawn up and signed
by the legalrepresentatives
of both companies.In our casgaccordingto clauseI 5.I oi the company'sarticles
oJassotiution,the CEO hasthispowerof representation.lnsomejurisdictiong
the LOI is not legallybinding
in all respects.
!
(d) The processof duediligencecan now becarriedout. Anyonenow enteringthe group of personswith insider
information must be addedto the list held by the complianceofficer.
Lj
(e) At this late stagewe may still not be in thepublit' domain.Oncea contract of saleis readyfor sigring, an
ExtraordinaryGeneralMeeting (EGM) would normally be held and the shareholders'approvalobtained.
Accordingto clause16.2of the company'sarticlesof associationa simplemajority of the registeredshare
capital would be necessary.
[t
!
ft
L-J
(D Apotentialtargetfortakeoverisselected.Accordingtoclause
l4.2of ourcompany'sarticlesof
association,
zupervisoryboard.approval."t, O":,.Yli:,d beforethe targetcompanycan beapproached
(g) In the gastronomysectorthe due diligenceprocesshas to particularlyincludean assessment
of public law
compliance(i.e.healthand safety,public building law,etc. and food hygieneand labellingnorms).
lJ
6A
L:1
i
(h) From this point on, the U.K. r6gimefor listedcompanies,which is broadlyequivalentto the U.S.Securities
ExchangeAct, requiresthat the company'sinsider list - designedto preventinsider dealing- should be
regularlyupdatedto include anyonein the companywith knowledgeof the plannedacquisition.This list
must then be kept with the companycomplianceofficer.Failureto comptymay opencompanydirectorsup
to criminal and civil charses.
We havenow enteredthe public domain.The contractcan be signed.
UNIT5
Mergersand acquisitionsI 51
of understandinga documentcontainingthe outlineof a future
Letterof intent(LOD/ Memorandum
agreement.Theparties useit as a basisfor morenegotiation.ln somecountriesit is o legallybinding contract
in itself.
Non-disclosure
agreement(NDA) the partiesnegotiatingagreenot to talk publiclyabout the possiblecontract
outcomeresult
screen check
is oftenmadeto certainlawsor authorities.Thefollowingarebroadlyequivalent.
In M &A, reference
Yourjurlsdlctlon? U.S.
U.K.
Corporation
Law
Companies
Act zoo6
SecuritiesExchange
Act
Financial
Servicesand MarketsAct 2ooo
(SEC) Financial
Securitiesand Exchange
Commission
Services
Authority(FSA)
(FTC)
FederalTradeCommission
Competition
Commission
4 Estherhas been reviewing the artltles of assoclation of Foodstyleplc. Lookat the clauses below
and decldewhat information she should add to her advlceto llatt on the previous page.
l4.2Themanagementboardmayonlycarryoutthefollowingmeasureswiththeapproval
of the supervisoryboard:
'
(i) Formation, dissolution,aCquisitionor saleof enterprisesin which the obligation
of the companyexceedsEUR 2 rii[ion.
15.1 The companyis statutorily representedby two membersof the managementboard
or by one member together with an authorised signatory.
16.2 Resolutionsare passedwith a simplemajority of the registeredsharecapital,unless
For resolutionsrequiring a75o/omajority, see
a75Yomajority or higher is necessary.
14.2(i), (ii) and (rD of thesearticles.
s2 l UNIT5 Mergersandacquisitions
5
Discussthe followingquestlonswlth a panner.
Whatkindof thingswouldan NDAcontain?
in
Howeffective
aretheseagreements
practice?
z Whatusedo LOlshaveif theyarenot fully
bindingunderthe law?
What
mightthe SECbe lookingfor if it
3
inspected
the insiderknowledge
list?
Bodies
like
FederalTrade
Commission
the
4
areveryimportant.But is therea rolefor
in our society?
somemonopolies
r
t^(tlrc cor
M&Aofteninvolvescomparingvariousnationallawsand institutions.
is (broadIy,basically)
U.K.Financiat
Authority
Services
equivalent
to
similarto
comparable
to
like
the sameas
is (o little, very completely)
unl i ke
differentfrom
differs (slig htIy, comp letely)
from
the USSecurities
and Exchange
Commission.
6 What are the aspectsof your legal practlcewhich most often requlre explanation to foreign
clients and investors?Dothey matchany of the items on the list below?Usethis tist, or the
aspects which are relevant to you. Usesome of the phrases from the language box above.
. commonlawor civillawsystem
o nationalor federaltegislation
o a unifiedlegalprofession
or a splittegatprofession
o the requirement
to registermostbusiness
structures
beforetheystartto trade
havelegalsystemswhicharebroadlysimilarto
Example:ManyEuropean
states,for exampleFrance,
civillawin the U.S.However,
the French
systemdiffersin that its lawis codified,whiteU.S.
lawconsistsof a mixtureof statuteandiudicialdecisions.
andacquisitions
UNIT5 Mergers
| 53
by eightverbs.Sixof theseyerbsmakeverb+noun
containsa nounsurrounded
7 Eachclrcleyerbs
thing.
don't.Crossthesetwo out!Twoverbsin eachcirclemeanthe same
paits;two
llamethem!
.g
5
o
H
6,
t4
"q"
-(g
c+-*
-o^
to
grve
pass
swrG,rt
\ro
oG6\
E
Qa"
'9
o
L.'
'oz
o6
=(o
u
P
3
F
G'
s,'o^-
f
(J
=
seek
reject
a resolution
'e
E
^O"
.i.s
s-
e/^
.=
."c
t(9
E
^\Q
.ss-
\8'
make
break
conclude an agreement
t"^
x
Av
da
..vQ
a(o.'
I
F,
'6
hold
a nuellng
ou*
g
d!..t
'%
u,
below.
the gapsin the sentences
Usethe pairsaboveto comptete
supportonthenewshareissuesoit was
of theshareholders'
r Theboardwasconfident
the
whenthe EGMvotedto
surprised
unpleasantly
the boardmust
articlesof association,
to the company's
z According
the
beforestartingtakeovertalkswith a company.
of the shareholders
the boardhasdecidedto
currentdifficulties,
3 ln viewof the company's
shareholders'
to discussthe questionof raisingfreshcapitat.
+ Thedetailsof thistakeoverareso complexthat it will takeat leasttwo weeksfor the acquiring
lawyersto
company's
an
cannot
5 lf a shareholder
his
behalf.
voteon
a
in person,he cansenda proxyto
of the
their
votedto
6 At the generalmeetingthe shareholders
dealweremadeavailable.
of thetermsof theacquisition
of the boarduntilfulldetails
actions
54 | UNIT5
Mergers
andacquisitions
AUDIO
@
11
9
Six monthshavepassedandFoodstyteplc hasidentifieda candidatefor acquisition.
Listento the dlscussionbetweentlatt Delaney(CEO),EstherSuarez(in-houselawyer),and
Francisco
l{arvaez(FinanceDirector),andanswerthe questionsbelow.
PART1
a Complete
thefactfileaboutthetargetcompany.
Fact file
Name of comPanY:
Paid-upcapital:
Foundedin:
Currentdebts:
Typeof company:
Currentno.of caf6s:
No. of shareholders:
Styleof caf6s:
Countryof registration:
AU0ro
a
72
b Whyis Francisco
concerned
aboutthe leasesfor the differentcaf6s?
c Whatdo theydecideto do aboutthis?
PART 2
Answerthe followingquestions.
a HowwouldFrancisco
liketo paythe currentownersof No Frills,the targetcompany?
What
b
wouldthe legalstatusof No Frillsbe afterthe takeover?
c Whatagreement
mustbe reached
with the existingshareholders
of Foodstyle
beforethe company
canissuenewshares?
d Whydo bothFrancisco
and Estherseea bankloanas an unattractive
option?
e DoesFoodstyle
haveto consultits shareholders
pays
if it
for No Frillsout of its capitalreserve?
f Whyis the BreadCompany
mentioned
in thisdiscussion?
capitalreservesmoneyownedby a componyln somejurisdictions,the companymustnot spendit without
approvaI of shareholders
charge here,securityfor o loan,for example,a mortgage
debts moneyowed
deplete decreose,
mokesmaller
drain(onfinances)a thing whichusesa lot of moneyor wastesmoney
issuesharescreatenewsharesand sellthemto shareholders
operatingcosts moneyspenton runninga business
sound (here)in good financialhealth
Discussion
lf Foodstyle
decidesto financethe acquisition
by issuingnewshares,it will needthe supportof its
shareholders.
r Whymightexistingshareholders
be unhappyaboutwaivingtheirrightto buynewlyissuedshares?
r Whatarguments
mightEstheruseto persuade
themto supportthis plan?
r Whatdo youthinkFoodstyle
shoulddo to financethe acquisition?
Arethereanyoptionsthey
yet?
haven'tconsidered
andacquisitions
UNIT5 Mergers
| 55
1()
Durlngthe meeting,Matt, trancigco,and Estheruse certain phrasesto guide the flow of
discusslon.Stefan,the trainee tawyer,would like to managemeetingswell but can't always find
the right thlng to say. llatch eachthought bubblewith the correctexpression.
a
b
c
d
e
f
g
h
Whatdo you meanby leveragefinoncing?
CouldI just comein there?
that'strue but ....I'msureyou'rerightbut ....
In principle,
Anyviewson that?
I can'tgo alongwith that,l'mafraid.
I'msorrybut I'mnot quitewithyouthere.
I thinkRoberthasa pointhere.
I thinkwe'regettingawayfromthe pointhere.
I
I wantto show
supportfor someone
elseSargument..
7
I can'tfollowthe
logicof someone\
argument.
t
lH like to hearsome
other opinions.
2
I want to saysomething
but thispersonis tolking
all the time.
hasjustused
Someone
I don't
someterminology
understand.
6
I want to disagree
with someonemore
tentotively.
I want to disagree with
someonequite firmly.
.4
fhe discussionat the
momentis nothing to do
with our agenda.
USEDI1{TAI(EOVERS
EXPRESSIOXS
are usedin the contextof takeovers.Herearea few commonones.
A lot of colourfulexoressions
white knight
blackknight
poisonpitl
killer bees
whitemait
bearhug
crownjewels
to outbida hostilebidder.
A friendlybidderwho is broughtin by the targetcompany
Thisis a hostilebidder.
to the bidding
A strategyadoptedby the targetcompanyto makeitselfunattractive
plan,
andnon-voting
changes
to
voting
lt mightinvolvea shareholders'rights
company.
with
higher
levels
of debt.
company
whichburdensthetarget
stock,or an acquisition
(lawyers,
to fend
by
a
company
etc.)
employed
target
accountants,
Thesearethe experts
off a hostiletakeoverbid.
sellsstockto a friendlythird
Herethetargetcompany
Thisis the oppositeof blackmail.
partyat a discountprice.
Thebidderoffersa sharepricetoo highto refuse.
All the valuableassetsof thetargetcompany.
56 | UNIT5
tl
Mergers
andacquisitions
Lookat theseclausesfroma Letterof Intentandsaywhetherthe statementsbelowaretrue or
false.
4 Exclusivity
(l) Beginning with the signing of this Letter of Intent until six months after the end of the due diligence period,
the Seller shall not hold any discussionq either directly or indirectly, with any third party about the transfer of
the Sharesor of the Company's businessoperations The Sellershall end any current discussions.
(2) The exclusivity ends in any eventupon the signatureof the sharepurchaseagreementor if one of the parties
breaks off from the Transaction pursuant to clause7(1).
(3) In the eventthe Sellerbreachesthe exclusivity,it shall pay a contractualpenahy inthe amount of EUR 100,000
to the Purchaser.Further c/airnsmade by the Purchasershall remain unaffected.The contractual penalty shall
not be payablg if binding contracts are concluded&tween the parties.
7 Binding Effect
(l) This Letter of Intent doesnot createany obligation to carry out the Transaction. Both parties shall be entitled
to break off the Transaction at any time before the share purchase agreementis signed, without having to
provide any reason.The notifcation of breaking-off must be in writing.
(2) The break-off shall not affect the applicability of theprovisionsin 4(3) and 7(3) of this Letter of Intent; these
provisions shall remain binding.
(3) If the Seller breaks off the Transaction, it shall pay a lump-sumamount of EUR 100,000to the Purchaseras
compensation for any expensesincuned in connection with the Tiansaction, unlessthe break-off is due to a
breach by the Purchaser of the confidentiality obligation. If the Purchaser breaks off the Transaction, it shall
pay a lump-sum amount of EUR 50,000 to the Seiler as compensation for its necessaryexpenses,unless the
break-off is due to of a breach by the Seller of the exclusivity or confidentiality obligations. Claims resulting
from the breaking-off of the Transaction shall remain unaffected.
lf the selleris alreadyin discussion
with a thirdparty,he can'tcontinuethesediscussions.
I
2 lf the sellerbreaksoff discussions
with the purchaser,
he hasthe rightto startdiscussions
with a
thirdpartyimmediately.
I
lf the sellerbreaches
the exclusivity
clause,the purchaser
is allowedclaimcompensation
in
additionto the EURroo,ooo
contractualpenalty.
I
doesnot observethe termsof the confidentiality
clause,the sellercanbreakoff
4 lf the purchaser
the transaction
withouthavingto payanycompensation.
f]
breaksoffthetransaction,
the sellercanonlyclaima maximum
compensation
5 lf the purchaser
paymentof EUR5o,ooo.Tl
!
applicabilityhere,whetheror not the clousescanbe invoked/ usedin thissituotion
claims legal demandsfor money concludeend confidentialitysecrecy;privacy(of information)
contractualpenalty paymentof moneywhicha party to a contractmustpay if it breoksa term of the contract
in any event in oll possiblecases,whateverthe circumstonces in the event (that) if
incur(anexpense)here,spendmoneyor createa debt
lumpsum amount here,money(theoppositeof a paymentin instolments)
notification telling someoneformolly(usuallyin writing) about something provisions here,termsof a controct
transfer here,selling or giving existingsharesin a componyto anotherperson unaffected unchanged
!2
plc is ptanningto acquirea U.K.company.
Foodstyle
Havea meetingabouta Letterof lntent.
Usesomeof the expressionsfor meetingsin exercisero.
P artnerA fi te08,p.73
PartnerB fite o8, p, Z8
UNIT5
Mergers
andacquisitions
| 57
FairnessOpinions are assessmentsprovidedby banks which show whether the valuation of
a companyis fair. Readthe article below.
RegardingFairnessOpinions Pros Ask, What'sFair?
Newresearch
anda recentrulingfromtheSEC
takeaimattheconflicts
infairness
inherent
opinions
by KenMacFadyen
A recentreport has reignitedthe debatearound
fairnessopinions with claims that conflicts of
interestdo in fact exist.The examinationinto what
is fair is by no meansnew.But since1985,when
the DelawareSupremeCourt ruled againstTransUnion Corp.,decreeingthat the company'sboard
was negligentin its sale,most public companies
have sought out fairnessopinions as a shield
againstlitigation.
Questions, though, still surround what is
motivatingthe banksprovidingtheseopinions.If
theyareindeedbeingbroughtin to "rubberstamp"
a deal,then would it be good practiceto impede
the deal'sprogress?Or, even worse, if the banks
are involved in other parts of the transaction,
such as the financing,would they risk thosefees
by declaringa transaction"unfair?"
Accordingto a new report, faimessopinions
are impacted by these diverging agendas.
RajeshNarayanan, (University of Georgia),coauthoredthe report with Anil Makhija, (Ohio
State University).While he concedesthat the
researchis a work in progress,Narayanan tells
M & A that out of the dealsthe pair looked at (a
samplingof 1,927transactions),companiesthat
didn't employfairnessopinionstypicallyfetched
higher premiumsthan those that had brought in
whenbanksprovidedan
outsidehelp.On average,
opinion,the targetcompaniesreacheda premium
that was 48"/" abovetheir shareprice going into
the deal,versusa 54 7. premiumwhen no fairness
opinionwas provided."The banksarebroughtin
to find a priceat which theycangetthe dealdone,"
Narayanansays."But they don't necessarilytell
you if a companycan find a better price."
Any solutions?
The SEC finally weighed in on the debate,
and after years of analysis, issued a con
creteruling (NASD Rule2290)that broadlycalls
for more disclosure.The directive now forces
member firms to disclose if they will receive a
"successfee" at the completionof the deal,and
also make public whether or not they have had
other relationshipswith the target company.The
ruling also requiresmemberfirms to incorporate
in writing the proceduresused to developthe
opinion.
While more disclosurewill help erasesome
doubtssurroundingfairnessopinions,somecritics
feel the ruling will fall short of having any real
impact.Narayanan,meanwhile,citeshis research,
noting that when fairnessopinions were provided
by "independent" advisers,the averagemerger
premium was higher than deals that included
opinions from banks with previousor ongoing
relationships.However,Narayananisn't readyto
sayindependence
shouldberequired."Thereisthe
chancethat a current adviser,if they'reintimately
involved with the company,knows more about
its true value."
Article
fromMergers
&Acquisitions,(abridged)
@
Whydo somepeoplefeelthatbanksdon'talwaysdo a goodfob?
a Whathasthe Securities
(SEC)
andExchange
Commission
decided
to do to improve
things?
a Whatmeasures
your
existin
countryfor ensuring
thata company
is valuedobiectively?
a Whatremedies
existif a partyfeelsthat a valuationis too lowor too high?
a
58 I
Risk managementand insolvency
Howcan the following be a sourceof potential risk to a company?
trademarks/ patents
warranties
corporate
compliance
code
plantandequipment
companypension
scheme
..:':,.,RISK
: ,:
with suppliers
contracts
t
employmentlegislation
healthandsafetylegislation
fromdifferent
ThebusinessmagazineFactFileregularlyconductsinterviewswith entrepreneurs
Readthe extractfroman
set up businesses
in Europe.
continentswhohavesuccessfully
interviewwith PietForsterfromSouthAfricaandput the questionsin the correctplaces.
a And you were happy to rely on your client's assurances?
b So had you already founded Form and Function, your
office and hotel furniture business, in Cape Town?
c But not everything went to plan, did it?
d And the headquarters of the company have remained in
Cape Town?
e And what made your products different?
f What brought you to London?
FactFile
Yes,we had.
PF
FactFile
designed.Secondly,
our
Well,threethingsreally.Firstly,theywereergonomically
principle.
furniturewasbasedarounda buildingblock
All unitscouldbe takenapartand
reassembled
in differentshapesto givecustomersmaximumflexibilityin their useof
resources.
Finally,
the stylingwaslightanduncomplicated.
?
PF
FactFile
A lotof ourcustomers
in SouthAfricaweresubsidiaries
andbranch
Purechance
really.
concept
companies
andtheyassured
usthatourproducts
anddesign
offices
of European
gap
filla
inthemarket
in Europe.
woulddefinitely
PF
-!
. i
r
rit .
i'irilr,l,\\\
.rliurN,rt\\i,!tr,\
UNIT6
Riskmanagement
andinsolvency
| 59
ract ilte
PF
Notentirety,
no.Wehiredan agencyto do somemarketresearch.
Thefindingslooked
promising,
so we decidedto opena branchofficein London- aboutfiveyearsago.
FactFile
PF
Actuatly,
no.Business
beganto lookso promising
in Europethat we registered
the
companyin the U.K.as a limitedand madeour CapeTownofficea branch.Wealsoset up
production
a European
facilityoutsideWarsawandacquireda timberprocessing
in Finland.
company
FactFile
PF
2
Notat all.Wehada verydifficultperioda fewyearsback.Wecouldalmosthavegone
under.Yousee,whathappened
...
Piet says 'We could almost havegone under.'Go under is a phrasalverb.A lot of phrasalverbs
are usedin the contextof insolvency.Havea look at the following newspaperreport and match
the phrasalverbswith their dictionarydefinitions below.
Skylark wipedout
by our financialaffairscorrespondentHazel Watts
Skylark plc, the low-cost airline founded in the
late 1990s,announcedyesterdaythat it had gone
into liquidation. This is the secondEuropean
budget airline to go under in as many months.
The announcementfollowedweeksof speculation
that the airline's creditors were unwilling to bail
it out with extra cash."The companywill now be
seriesof hostile takeovers.Criticism of Skylark's
sharp businesspracticeswas growing' however'
andthedecisionoftheoFTtoimposeaf50mfine
for price fixing set the companyback flnancially
towardsthe end of last year'In order to makethis
payment,Skylarkwasforcedto drawon its capital
reservesand to borrow as well' When the markets
earlier this yeaq the airline
,no*d oOas a matter of urgency,"said Jonathan suffereda downturn
found itself overstretched'The crunchcamewhen
fr4itts,Stytart's CEO. This will be little comfort to
it tried to raise the f20 m it neededto ward off
Skylark'sunsecuredcreditors,someof whom will
insolvency'So bad was the scaleof the problem
haveto write off considerablesums'
that the
to insidesources,
Skylarkhadbeenthebigsuccessstoryofthepastat this stage,according
of
standards
put
the
by
what'
up
Itquicklyrosetobecometheleadingplayer banksrefusedto
decade.
sum'
modest
is a relatively
in the budget airline market with a spectacular the airlineindustry,
Examptewardoff
to prevent
something
fromcausing
harmto someone
to providemoneyfor an
enterprise
to rescue
to obtainmoneyfroman
existing
source
to cancelthe recordof a
baddebt
to delayor impedethe
progress
of something
7
to dissotve
a company
to becomebankrupt
8
to destroy,
eliminate
andinsolvency
60 | UNITo Riskmanagement
3 Workwith a partnerto practisephrasalverbs.
PartnerA tile 09, p.73
PartnerB Fite09, p.78
4 Thestoryof FormandFunction'sdifficultperiodbeginsa fewyearsagowith anemailfrom
withinthe company.
Director,
the Finance
f anaBurzinski,aboutrisk assessment
Readthe emailandanswerthequestionsbelow.
! SuOlect Risk Management
Dear Piet
Just a quick email to confirmthat I have completedmy check on the following:
- Directors'liabilityinsurance
- Companyaccidentand injuryliabilityinsurance
- Buildingsand contents insuranceagainstfire, flood, theft, accidentaldamage,etc.
- Compliancewith statutoryhealthand safety requirements
- Compliancewith statutoryrequirementsregardingdangeroussubstances
Everythingis up to date and in order.
I am increasinglyconcerned,however,that our risk managementproceduresare too focused
on questionsof healthand safety,and insurance.With your permission,I'd like to carry out a
fuller risk managementaudit coveringcommercial,financialand legalrisks.
The commercialand financialrisks we should look into are e.g. over-relianceon largeclients,
exchangerate risks (giventhat we are beginningto export outside of the euro zone)and the
fact that the currentvalue of our productionfacilityin Warsawis possiblylower than the level
of the bank loan securedupon it.
In order to assessour legalrisks I would need to involveour lawyers.I understandthat
FergusWinterspecializesin risk managementissues.
I appreciatethat this audit will take some time and will cost money.Nevertheless,I feel
stronglythat we need to have a much clearerpictureof our exposureto risk.
Let me know what you think.
Best regards
Jana
r
procedures?
Whyis Janaunhappy
aboutthe company's
currentriskmanagement
for
risksmentioned
byJanacauseproblems
z In whatwayscouldthethreecommercial
or financial
in future?
thecompany
Winter'srole?
3 Whatwouldbe Fergus
andinsotvency
UNITG Riskmanagement
| 61
AUDIO
A
w
13
5 Laterthat day f ana finds a messageon her voicemait.Listenand decidewhich of the statements
is correct.
r
WhenPietsays,'l seewhereyou'recomingfrom',he means
yourposition
on thisissue.
a I understand
b I agreewithyouon thisissue.
thisissue.
c lt is clearto methatyouwantto discuss
withJana's
suggestion.
2 a Piethasno problem
b Pietdoesnotwantto carryoutthisaudit.
aboutthisaudit.
c Piethassomereservations
3 a PietteltsJanato go ahead.
beforehe candecide.
b Pietwantsmoreinformation
c Pietsaysthat he doesn'twantto go intodetailat thisstage.
O
In the courseof carrying out his shareof the risk assessmenttask, FergusWinter finds that he
is particulartyconcernedby the following contractclauses:
l-ease'Tramfer
2. Commenccment,Duration of
with s€ction 2(2)r
the dav of i'lnsftt in accordance
(1)The lease*hull
"t;;;;; place on l"t November 2"'
i
take
iii rrr. o"n*rtt shall
it
commeaced'
which
on
day
the
after
(5) The leaseshall end five year*
waivesits fight
utt *ars unlessthe t€sseeformally
i""i.t
in writing ar
(6) The leaseshall be automatically.extendedby.
kssor
the
to
must be made
of its intention,o-*uitt this lgbt
to this extension. Notification
2(5)'
eni or tf'e tea*epursuant to s*tion
least twelve mo*Ot O[t-t" tit"
5. Rent price adjustment
(3) The rent payableshall be adjusted
automaticallyif the Retail pricesIndex
for the united Kingdom (basis
in vear I = 100)'as publishedbv the officd
fot N;";;i
ir",iJ;;;r..
or
falls
by ten points comparedwith
the valueat the staft of the leaseor at
the time of the pr.uiou, ui.;urrment
of the rent payable.
3. Compensation
a compensation
of
the Employer
shall pay to the Employee
Forthe loss of his/heremployment
peryearof emptoyment.
Thecompensation
shallbe paidin additionto thesalary
threemonthlysalaries
Theclaim
to sec.2 para.(r)ofthisagreement.
Datepursuant
untiItheTermination
owedbytheEmployer
ofthe compensation
shallbe inheritable.
to the payment
6. Sale price adiustment
(1) The base purchase price
increases by the amount by which,
as of December 51st of tie first
calendar I'ear following signature
full
of this agreement, the varue of
the working capitar - as defined
section 4' 1 abo'e - is greater than
in
the u-o.-t
of EUR 750,000. Analogously., iil
our" purchase price is
reduced bl- the amount by rvhich
the
of the rrorking capital, as of oecemuer jlsr
'alue
of the first full
calendar year fo'o*ing this agreement,
is ,o*.er than the amount of
EUR 750.000.
lesseethepersonwhopaysto useproperty(usually
adiust to changesomethingslightly
analogouslyin the someway (asthe thingdiscussedearlier) landor a building)ownedby someoneelse
consumerpriceindex(CPl)a list (publishedby government)of lessor fhe personwho receivespaymentfor the useof
property (usuallyland or a building)
the pricesof someordinarygoods and serviceswhichshows
prior to before
how muchthesepriceschangeeachmonth
workingcapital fhe moneyneededto run o business
inheritable(adDableto be givento anotherlivingperson,if
from day to day (e.9.to pay employees)
the first ownerdies
62 I UNITO Riskmanagement
andinsolvency
the followingpolnts.
Discuss
r Whatkindof [ega[agreements
dotheaboveclauses
comefrom?Notedownyouranswers.
z Inwhatwaymighteachof theseclauses
represent
a potential
riskto FormandFunction?
AUDIO
ilow listento partof the meetlngbetweenPietForster,
fanaBurzinski,andFergusWinter.
a 7 Check
you labeledthe legalagreements
in exercise6 correctly.
r4
deductions amountsof moneysubtractedfrom wages,for example,tax
disadvantageous(adi) negative,bad (here,for Formand Function)
gross (adj) here,without deductionshavingbeenmade;grosspay is your pay beforetax is taken away
lay off (workers) dismiss,endingsomeone'semployment(usuollybecauseof o lock of work
leaseholdagreementrentolcontractfor landor buildings
premises (legal term) building in whicho businessor tradeis carriedon
priceadjustmentchongeto pricefor legallyogreedreasons
redundancyendingsomeone'semploymentbecausethereis no moreworkfor them
Listenagain and completethe table.
Clause/ tegal Document
Risk
Actionnecessary
zl
5l
3l
6l
ErPfiASrZrilGA POll|T
Wecanaddemphasis
to whatwe sayin the followingways:
r by stressinga particularworde.g.I will try to keepit straightforward.
z by addingthe auxiliarydo e.g.I did find ...
, 3 by restructuring
the statement,Clouse5 is theprobleminto ,f,s clouse5 that is theproblem.
4 by changingthe statement, I would recommendthot you allocate... into WhotI wouldrecommendls that you ,
allocate...
5 by movingcertainnegativeor nearnegativeadverbsor adverbialphrasese.g.never,underno clrcumstonces, l
ot no time,on no occount,seldomto the beginningof the sentence.
just allow the leaseto be extendedbecomesllnder no
Therefore,Youshould not, underany circumstances,
just
circumstoncesshould you
allow the leaseto be extended.
Whenwe usethis structurethe subjectandverbinverti.e.yoa should becomesshoaldyou.
I NB: Whenthe mainverbis in the presentsimpleor pastsimplethe followinghappens:
: My client neverclaimedhe wasa partner in the companybecomesNeverdid my client cloim he wasa ...
UNIT6
I
Riskmanagement
andinsolvency| 63
Fergussometimestries to add emphasisto what he says. Lookat the exptanationsin the
language box on page 6a Then rebulld the sentencesbelow to make them more emphatic.
of yourclient's
1 My clientwasnot at anytimemadeawareof the truefinancialcircumstances
companywhenhe signedthe contract.(Atno time....)
contractwith as manyloopholes
asthis.(Seldom...)
z Oneseldomcomesacrossan employment
interestsme in thiscase.(lt ....)
3 Thewholequestionof misrepresentation
particularly
is considering
cutsafter
of thisunionfindit
unfairthatthecompany
4 Themembers
(What....)
sucha successfulyear.
that the companyin this casewasregistered
in the Caymanlslands.(What....)
5 | find it suspicious
(lt ...)
is opento interpretation.
the lastsentence
6 Therestof the clauseis fine.However,
9
Aboutr8 monthslaterthe followlngreportappearsin the ftnancialpress.
plcdigsitselfintoa hole
construction
Fulleros
HazglWatts
by our financialaJfairscorrespondent
Mr. Gareth Jenkins, the chairman of Fuller's
Construction plc, announced yesterdaythat
the company's board of directors had
petitioned SussexCounty Court for awinding
up order. A liquidator has already been
appointed to wind up what is one of the UK's
market leadersin the construction of hotels
and residentialhomesfor the elderly' "In view
of the collapsein orders we haveexperienced
andthe insolvencyof two of ourmajorclientg
we were advisedby our lawyersthat no other
courseof action was open to us. All attempts
to involve our creditors in a debt restructuring
r
plan, which would have reduced the monthly
cost of the company's loan repayments,had
failed,' explained Mr. Jenkins.
Not only the financial markets were caught
unawaresby the news.Brian Harrington, the
chairman of British Brick Ltd, expressed
concern at the impact of this insolvencyon his
company. Other key suppliers to Fuller's
Construction, who maY be affected, are
understood to be Thermaglass plc, manufacturers of double glazing, and Form and
Function Ltd, the London-based furniture
designers Investment analysts ...
givefor the company's
insolvency?
Whattwo reasonsdoesthe chairman
creditorsplayin the insolvency?
z Whatroledid the company's
haveto do with Formand Function?
3 Whatdoesthis insolvency
6 4 | U NIT G Riskman ag em ent andins olv enc y
A UDIO
S10
15
Nowlisten to a meetingin which Piet Forster,fana Burzinski,and FergusWinter discuss
the implicationsof the insolvencyfor Formand Function.Are the following statementstrue
or false?
r Anadministration
orderanda winding-up
orderarebasically
thesame.I
-l
z Thepersonappointed
bythecourtis goingtotryto setlFuller
assets.
Construction's
payment
construction
wasexperiencing
at thebeginning
difficutties
3 JanaonlyknewthatFuller's
of the month.f]
wouldbe regarded
asan unsecured
creditor.I
4 FormandFunction
is confident
thatFormandFunction
cangetatlits furniture
back.I
5 Fergus
6 Janadoesn'tthinkthiswittbe possibte.
thatFormandFunction
wiltsuffera lossof r.5 miltion.I
7 lt'spossible
8 Janathinksthatsomeof FormandFunction's
non-core
maynotsurvive
activities
thiscrisis.fr
v0c{EuuiYrssEftrT
,:,,.:,,
'::',.....:
administration
order (in U.K.)o courtdecisionwhichformallystartsan odministration
of
an insolventcompany(seeDidyou know?below)
appoint put into place,give a duty to
chargeo form of securityfor a loon.A bankwhichtokesa chargeovera company's
machinerycantakethe machineryif the companydoesnot pay itsdebt to the bank.
creditorsomeoneto whomI owemoney
debtor someone who owesmoneyto me
defautton paymentto fail to repaypart of a loonat a time whenit hasto be repaid
knock-downprice verycheap
off-loadget rid of somethingthat you do not need
petitiona court asko courtformallyto do something/toke action
preferential
creditorspeoplewho havea legalright to havemoneywhichis owedto them
repoidbeforeany other debts are repaid(seeexercisen on page 65)
realizeassets(tegaDse//thingsthat you own in orderto get cash
servicedebts fo pay intereston debtsthat you owe
tl
A lawyer discussesan insolvencycasewith a client. Work with a partner.
PartnerA
Par tnerB
tile $, p.74
F i ter o, p.79
DIDYOUKI{OW?
I nt he U. K.,a s i n m a n yo th e rl u ri s d i c ti o nist is
fora company
to conti nue
tradi ngoncei t hasbecome
, i ttegal
insolvent.In bothjurisdictions,
however,
thereis nowa greateremphasis
on rescuingthanon liquidating
the company
or windingit up.Accordingly,
thereis a distinction
drawnbetweena companybeingin
administration
andin tiquidation.
Thesetwo procedures
arecarriedout by an administrator
or a liquidator
going;the tiquidator
accordingly.
Theadministrator
hasthe taskof keepingthe company
hasthejob of
windingthe companyup andrealizingits assetsin orderto satisfyits creditorsas far as possible.
Thiswork
quatifiedaccountants.
is oftendoneby Insolvency
Practitioners,
who areusuallyspecialty
lf the liquidatoris
(OR).
appointed
directlybythe court,he / sheis calledthe OfficialReceiver
In the U.S.,companies
fitewiththe bankruptcy
court.Thetwo procedures
thatarebroadlyanalogous
to
administration
andliquidation
arecalledChapteru(administration)
andChapterT(liquidation)
of the U.S.
Bankruptcy
Code.Forexample,
a company'goes
Chapteru'or it 'goesChapter
7'.
UNlT6
t2
Riskmanagement
andinsolvency| 65
Readthis excerpt from the booklet A Gutdefor Creditors,published by the InsolvencyServlceat
The DepartmentofTrade and Industry in the U.K.and fil1 in the gaps.
asset. SIsffi
r d,istribute
. repayment. secured. unsecur€d
r preferential
Creditors- Order of priority
Therishtsof a creditOr
who holds a fixed charge, or security, on assets(such as a
mortgage) to sell the asset to recover their debt are not affected bv insolvencv. The
chargeholder (
L creditor) is the first to get paid when the
r is sold. Any surpluswill be handed over to the trustee/
liquidator.
Whenall theassetsavailableto unsecuredcreditorshavebeenrealized,thetrustee/ liquidator
will
' the proceeds in a strict order of priority as follows:
L The fees and charges of the liquidation / bankruptcy.
2. Debts due to
I creditors. These debts are set out in the
InsolvencyAct 1986and includewagesowedin the four months beforethe date of the
pensionschemes.
insolvencyorderand contributionsto occupational
3. All unsecuredcreditors.
4. Any interestpayableon debts.
5. In companycases,the shareholders.
Therelore,
' creditors will usually only be paid when the fees
and charges of the insolvency procedures and the claims of securedand preferential creditors
'' of claims is not possible,payments
have been oaid. If full
are made to creditors by way of a dividend in proportion to the value of each claim
( abridged)
t3
the interviewusingwordsfrom
Readtheendof PietForster'sinterviewwith FactFile.Complete
the box.
acquisition. debtso insolvent. tease. loss c'severance
FactFile So howclosewereyou to becoming
at that time?
PF
Well,not nearlyas closeaswe wouldhavebeen.Yousee,
measures
we implemented
mostof the riskmanagement
at the timeand I'mgladwe did. lf we hadn't
suggested
: onourbusiness
renegotiated
the
premises
andour staff_r
andif we hadn'tput asidecapitalto cover
arrangements,
for the additionalsumsthat arosedueto our
+ of Finnwood,
our financialsituationwouldhavebeenmuch
redundancies
andto
tighter.lt wouldn'thavebeenas easyto financethe necessary
s.As it was,we wereableto absorbthe
restructure
ouI
.6of r.Smillioneurosandwe haven'tlookedbacksince.
*#'e"*
-.-..--.--,,eF*":--a:+.<rrym+-9lo*'.'*.-g4eff*rarv"T'-"
"""
*-*-.--€'
andinsolvency
66 I UNITO Riskmanagement
HYPOTH
ESIZII{G
AEOUTPASTACTIOT{s
In hisinterview
withFactFile,PietForster
looksbackat the pastandconsiders
scenarios
that
werea possibitity
at the time,butthatdidn'thappen.Weoftendo thiswhenwe talkabout
we madeor mistakes
mistakes
we avoidedmaking.Thestructure
worksas follows:
lf we hadn't implementedthose riskmanagementmeasures,we would havegone under.
Thelogicof the statement
is thattheydid implement
the riskmanagement
measures
andas
a resulttheydidn'tgo under.
t4
Rewritethefottowingstatements.
ExamptesOurclientwithheldvitalevidence
sowe tostthecase.
lf our client hadn't withheld vital evidence,we wouldn't havelost the case.
Thecorebusiness
washealthy,
Practitioner
sothe lnsolvency
didn'twindthecompany
up.
lf the core business hadn't beenhealthy, the lnsolvencyPractitioner wouldhave
woundthe
up,
^ompany
r
Thenewmachinein the company's
warehouse
waspaidfor,so it waspartof the insolvency
estate.
z Thebanksecuredits loanagainstassetsof the company,
so it got its moneyback.
in the company's
abilityto pay,so theypetitionedthe courtto
3 Thecreditorshadno confidence
makea winding-up
order.
tookthe correctactionquicktywhenthe companybecameinsolvent,
so theyweren't
4 Thedirectors
guiltyof an offence.
ventures,
so its corebusiness
wasexposedto risk.
5 Thecompanygot into a lot of speculative
5 lt wasa companywith limitedtiabitity,
so the members'personalassetswerenot at risk.
t5
Choosefrom the toplcs In the list and tell your partnerwhat happened.Try to finish wlth a
sentencelike the onesyou practisedabove.
. a casethatwentbadlybecause
the judgemadea strangeruling
. a difficultclientor difficuttboardof management
decision
r a failureto negotiate
an out-of-court
settlement
. a coursein yourstudieswhich,contraryto yourexpectations,
turnedout to be useful
. something
you
important
that
noticedin a contract
but nearlymissed
. a casein whichyourclientdidn'ttetlyousomething
important
UNlT6
Riskmanagement
andinsolvency
| 6?
(lVAs)andthenreadthe article
Lookat the deflnltionof lndivldualYoluntaryArrangements
tsomTheTlmesnewspeper
below.
(lVA)
Individualvoluntaryarrangements
voluntary
arrangement
is an alternative
Anindividual
to bankruptcy.
lt is a formal
withyourcreditors
agreement
to paypartor all of yourdebts.
Lenders write off a leeold f1.4bn of IVA debt
by GrahamSea{eant,FinanclalEdltol
Lendershavewrittenoff (cancelled)
a record11.4 billionin debtsthis yearas moreconsumers
than everlosetheir debtsbut keeptheir homesby enteringinto Individual
Voluntary
(lVAs)
withtheircreditors.An analysis
Arrangements
firm,has foundthat about
by KPMG,the accountancy
45,000 peoplehaveenteredlVAsduringthis yeardoublethe figurefor the previousyear.Peopleapplying
for lVAs,nowoverwhelmingly
consumers,hadaverage
debts of t52,000, but on averagethey haveofferedto
repayonly39 per centto theircreditors.
Banksand othercreditinstitutionshaveexpressed
spreadof lVAs
increasing
alarmat the unregulated
amongconsumersbut havereceivedlittle sympathy
or debt counselling
fromthe government
bodies,which
(too
soft)lendingstandards.
blamethem for lax
lVAswereintroducedbythe ThatcherGovernment
as
people
to takethe risk
a measureto encouragemore
lf the businessfailed,an
of foundingnewbusinesses.
IVAwouldbe less brutaland carryless stigmabecauseit has fewerrestrictionsthan bankruptcy.
In the earlyyears,lVAshelpedabout2,000 peoplea yearto copewith businessfailure.Recently,
however,
the use of lVAshas radicallychanged.
KPMG'sheadof personalinsolvency,
SteveTreharne,
said: "Typically,
the sort of debtswe have
personal
year
are
loans,creditcardbalancesand other
seenbeingdealtwith by lVAsthis
formsof buy-now-pay-later
unsecuredloans.Mostof the moneyis borrowedto meetcurrent
includinglifestyleelementssuchas holidays,ratherthan to acquireassetsor to
expenditure,
fund a business'"
@bridEect)
r Do lVAs,in yourview,providea necessary
safetynetto individuals
who havegot intodebtor do
personal
irresponsible
theysimplyencourage
spending?
o Doesyourcountryhaveanythingcomparable
to lVAs?
o ls it necessary
on banksandcreditcardcomparies?
to imposetightercreditrestrictions
68 I
Test yourself !
See how nuch legalvocabularyyou have learned.
Use the clues to completethe cossword puzzle.
Across
3 the payandbenefitsfromyouremployerin returnfor the workyou do
5 shareholders'capital
with a contract,
thenyou ...with it.
7 lf youact in accordance
8 You...a provisionin a contractif youwishto baseyourcaseon it.
10 to takelegaIactionagainstanotherparty
t2 a typeof firmwithouta separatelegalidentityto whichtwo or morepeoplebelong
tT a documentexplaining
the constitution
of a companyandits internaldecision-making
procedures
r8 A provisionor an entirecontractthat placesan obligationon a partycanbe described
as ....
tg lf you no longerwishto makeuseof a right,youcan...it.
zo a patentholder
propertyright
22 a violationof an intellectuaI
z4 theclausecontaining
factorsthat preventpqrformance
in a contractandthat arebeyondcontrol
z7 a changeto a legaldocument
z8 A liquidatoris saidto ...an assetif he or shesellsit in orderto be ableto paycreditors.
Down
r anotherwordfor earlieror before
z a decisionor intentionagreedby shareholders
at a formalmeeting
A
company
is
no
that
longer
able
to
meet
its
financial
is ....
obligations
4
5 to createnewsharesandofferthemfor sale
this is a typeof creditor,
e.g.an employee
9 in the caseof insolvency
11 lf a sumof moneyis paidin regularsmalleramounts,eachof theseamountsis an ....
73 paymentsmadeto authorsor composers
basedon the salesof theirwork
14 detailedinformation
aboutthe featuresandproperties
of a product
t5 Describing
a contract,this meansinvalidfrom the beginningot not effective.
t6 havingthe rightto something
2t anyformof collateral
for a loan
z3 A companywhichothersareaimingto takeoveris a ...company.
25 anotherwordfor agreeor agreement
z6 thingsthat belongto a companyor a person
Testyourself!| 69
70 1
Partner files
UNll1, Exercise 1O
File 1
UillT 1, Exercise 14
File 2
Part r
In Partr you playthe roleof two separate
clients
whowouldliketo haveadvicefroma lawyer.Explain
yoursituationto yourpartner.
for registering
a private
Explain
the procedure
p your
l i mi tedcompany
or a partnershii n
j uri sdi cti on.
Caser
Youhavejust tostyourlob at a company
that
manufactures
washingmachines.
Youunderstand
a
lot aboutwashingmachines
andyouwantto go into
r an.
bus inesas
s a re p a i m
Ul{lT 2, Exercise 4
Yourlowyerwill give you advice.Youdon't really
want to form a limited company.Givesomereasons.
Casez
Youarea partnerin a smallordinaryor general
partnership
thatofferstranslation
andproofreading
Oneofyourpartnershasiustreadabouta
services.
casein which75,oooannuaIstatements
for the
AnnualGeneral
Meetingof a majorcompanyhadto
be reprinted
because
the transtators
missedout an
importanttableof figures.At 3.oopercopy,this
meanta claimof zz5,oooagainstthe translating
agency.
In addition,therewerepostagecosts
amounting
to a further55,ooo.Yourpartnership
is
acquiring
somemajorcorporate
clientsandworriec
Youknowthat if a largeclaimexceeds
aboutliabitity.
yourpersonal
the timitof yourtiabitityinsurance,
assetswil[be at risk.
Yourlawyerwill give you someadvice.Youfeel
stronglythot it might be necessaryto convertyour
partnershipinto anotherlegalform.
Part 2
Nowit is yourturnto playthe roleof a lawyerand
advisetwo separate
clientsaboutforminga
company.
Caser
Listento yourclient.Explain
to him/ herthe
available
options:bringingin a newshareholder
/
moneyfromthe bank/ forminga public
borrowing
limitedcompanyandissuingshares.Basically,
youfeelthat organicgrowthmightbe best- just
capitalreserves
usingthe company's
to expandstep
by step.
Casee
Listento yourclient.Exptain
to him i herthe
avaitable
options.Onthe whole,youfeelthat it
mightbe bestfor yourclientto workas a soletrader
with his/ herownagencyandto employthe two
youngercolleagues
- maybewiththe chanceof a
partnership
if thingsgo well.
File 3
Taskr
Youarean employment
lawyerin Belgiumadvising
Engtish-speaking
employees
at a Belgiancompany.
froma contractof
Belowaresomeclauses
Yourpartnerwishesto consultyou
employment.
and
aboutthreeproblems
at work.Listencarefulty
thengivehim/ heryouropinion.Whenyou referto
in the boxon page19.
a clause,usethe language
I Placeof work
The placeof work is the businesspremisesof the
Company in Brussels.Work-relatedtrips (client
visits, trade fairs, exhibitions,projectsetc.) may
require work in places other than the aforementioned premises.However, such places of
work shall alwaysbe of a temporarynature.
2.1 Working hoursand location
Brusselsoffice
The work must be carried out during the period
8.00a.m. to 6;00p.m. (Mondaysto Thursdays)
and 7.30 a.m. to 5.30 p.m. (Fridays).The core
hours are as fiollows:9.30 a.m. to 4.00 p.m.
(Mondayto Thursdays)
and9.00a.m.to 3.30p.m.
(Fridays).
3.2 Overtime
As a rule, the Employee is entitled to receive
compensationlor overtimein the following way:
freetime for one-thirdof the overtimeworkedand
payment for two-thirds.Compensationfor overtime exclusivelyby paymentor exclusivelyby free
time is possiblefollowing agreementwith the line
manager.The line managermay not withhold
consentunreasonably.
4.1 Annualleaveentitlement
The Employergrants30 days'paidholidaya year
on the basis of a five-day week. The statutory
schoolholidaysshallbe madeavailableasa matter
of priority to employees
with childrenof school
ageand employeeswhosepartnersor spousesare
obligedby reasonof their professionto take their
annual leaveduring the statutory school holiday
period. The employeeis entitled to three weeks'
continuousholiday(15workingdays).
Partnerfi[es l 7 L
Taskz
Youarenowan
Swaproleswithyourpartner.
Youwishto
employee
andyourpartneris a lawyer.
consultyourpartneraboutthe followingthree
problems
at work.Readeachproblemout loudand
thenmakea noteofthe adviceyouaregiven.
r Readout the definitions
of legalwordsbelow,but
don'treadout thewordin bold.Seeif your
partnercangiveyouthewordyouarelookingfor.
y rn i n g
a n dth ec o mp any
4. ' l r angin s ic ko n F ri d a mo
received
my doctor'snoteon the followingWednesday.WhenI got backto work,my bosswasverynice
but shedid askmeto makesurein futurethat I
handin mysicknoteon time.I thoughtI had.Am I
reallyin the wronghere?'
lf performance
is not
goodenough,we can
saythat it is ....
5. 'l wenton a two-weekholidayto Spainlast
month.WhileI wasthereI becameittandI wentto a
Spanishdoctor.Hetreatedmeandtold meto stayin
bedfor two or threedays.Healsowrotea shortnote
- for mydoctor,tellinghimwhat
- in Engtish
I wasill for threedays
medication
he hadprescribed.
and I wouldliketo havethistimecountedas
My bossdisagrees.
HesaysI
sickness
not hotiday.
haven'tgot a propersicknote.Whois righthere?'
6. 'l'mgoingon holidayto lndiaandhaveto havea
at the doctor's.
Thedoctor
hepatitisvaccination
on Thursday
usuatlydoesthesevaccinations
between3 and4 p.m.I totdmy bossI
afternoons
wouldhaveto leaveworkearlyandhe saidI could
but I wouldhaveto takehalfa day'sleave.Surely,he
isn'trightl'
Ut{lT2, Exercise11
File 4
Solutions
Youarethe solicitoractingfor Intelligent
Ltd.Yourpositionis asfollows:
r lt wouldbe Cathy0'Brien'sjob to coordinate
with external
Softline's
softwaredesignprojects
Dartners.
SomeoftheseexternalDartners
are
Ltd.So
directcompetitors
of Intelligent
Sotutions
thereis a clearriskto yourclient.
r Youdon'twantto btockCathyO'Brien's
moveto
Softline,butyouwittif thereis no otherwayto
protectyourclient'scommercial
Whatis
interests.
contractallowsyouto block
more,CathyO'Brien's
hermoveto Softlinefor two years.
o Intelligent
LtdhastotdCathyO'Briento
Solutions
stayat homeduringherperiodof notice.Thecost
.
of pay ingherto d o n o th i n gi s E U Rz o ,o o oIn
addition,thereis a furtherEUR3o,ooonecessary
who have
to coverthe costof externalconsultants
to be caltedin to do herwork.Youwouldlike
Softlineto coverthesecosts.
. Tocompensate
youfor the riskthat know-how
youwouldlikea
maypassto a competitor
paymentfromSoftlineof a furtherEURroo,ooo.
UNll3, Exercise 12
File 5
Tryto
z Nowlistento yourpartner's
definitions.
providethe missingword.
unsatisfactory
lf two partiescannot
findcommonground
in a dispute,we can
saythattheyare....
irreconcilable
lf someimportant
clauses
aremissing
froma contract,then
we cansaythatthe
contractis ....
lf an exportlicence
expires,
thenthis
licencecannotbe
it is....
usedbecause
invalid
incomptete
lf the purchaser
says
that he plansto place
an orderfor some
goodsbut he stitl
hasn'tactuallyplaced
the order,we cansay
thatthisorderis ....
unconfirmed
lf onepartyreactsto a
situationin a waythat
is excessive,
this
party'sbehaviour
can
be saidto be ....
unleasonable
72 | Partnerfiles
Ul{]l3, Exerclse13
File 6
Taskr
Youarea clientandyou go to a lawyerwith the
followingproblem.Justgivea briefoverviewof the
problem.
Thenlet the lawyeraskyouquestions
to
findout the detaits.
0verview
I'mtryingto sellmy houseat the momentandI'm
havingproblemswith a prospective
buyer.Hesays
that I am boundby an offerwhichI accepted
earlier.
I thinkhe is wrong.
Details
My houseis valuedat aroundEUR 34o,ooo.I put it
on the marketthreemonthsagoand invitedoffersin
the regionof EUR34o,ooo.I wasvisitedby a
prospective
buyer,Mr Blue.Hehada lookat the
houseandfoundsomethingsthat neededto be
repairedor improved(twodefectivewindows/ a
problemwiththe lightin the cellar/ the lockson the
frontandbackdoor/ partofthe fenceroundthe
garden/ sometiles on the roof). I agreedwith him
andofferedto sellmy houseto himfor EUR3zo,ooo.
He askedfor a dayto think aboutmy offer.Hethen
contactedme a day laterand offeredEUR3oo,ooo.
I told him that his offerwastoo low for me and
reiectedit. A weeklaterI receivedanotherofferfrom
Mr Blueof EUR3zo,ooo.BythistimeI wasalready
in negotiations
with anotherprospective
buyer,
Mrs Green.Shewasrea[[yinterested
in the house
andtherewasa goodchancethatwe wouldagree
on a salespriceofaroundEUR3z5,oooor even
EUR33o,ooo.I contacted
Mr Blueandtotdhim I
wasn'tinterestedin his offer.Nowhe hassentme a
lettertellingme I am boundby the originalofferI
madeto himof EUR32o,ooo.He'snot right,is he?
Taskz
Youarea lawyer.A ctientcomesto you with a
problem.Heor sheis goingto giveyoua brief
Thenyou mustask
overview
of the problem.
questionsto get all the necessary
details.Tryto use
someof the language
in the language
boxon page
giveyourclientsomeadviceaboutwhat
35. Finatly,
to do.
UltllT4, Exerclso 12
File 7
Youarean attorney-at-law,
actingon behalfof
Youareplanningto
GlobalMusicInc.(PUBLISHER).
enterintoan exclusive
copyright
agreement
with
Mr BiltyRatt(coMPoSER),
a popularrapmusic
artist.YouhavesentMr Ratt'sattorneysa draft
versionofthe proposed
but theyare
agreement,
unhappywiththe followingclauses:
l. COMPOSER ... herebyundertakesto assign,
transfer and deliver to PUBLISHER ... the
whole of the copyright for all countries of the
world ... in and to suchmusicand lyricswritten
heretofore by COMPOSER insofar as such
copyright is not held by third parties.
2. COMPOSER ... will endeavour to deliver
a minimum of ten compositiong each of
which comprising three minutes of music on
average,every year for the duration of this
Agreement.
4. The rights of PUBLISHER include the
right ... to assign in whole or in part the
compositionshereunder.. .
5. The term of the Agreementshall be for a period
of three years from the date hereof.
PUBLISHER shall have the option to renew
this Agreement for a further period of three
years.
8. PUBLISHER agreesto pay feesand royalties
in respect of the compositions acquired
hereunderto COMPOSER as follows:
tii) 12.5%of netreceiptsincludingthe licensing
of compositions for use in films, television
prograrnmesand commercials.
10. The royalty and fee statementsshall be made
up to June30thand December3lst in eachyear
and shall includeall receiptsby PUBLISHER
in that period. Such statementswill be sent to
COMPOSER within 28 days of the relevant
date and shall be accompaniedby a remittance
for the amounts which are shown by the
statementto be due and payable.
Youarequitehappywiththeseclausesas they
stand.Beforeyou startthe role-play,
if possible,
workwith someone
who hasthe samerole.Tryto
thinkofsomegoodreasons
for keepingthe draft
clauses
as theyare.
Duringthe role-play,
be prepared
to listencarefu[[y
lt will be
to the arguments
of Mr Ratt'sattorneys.
necessary
to makesomeamendments
to the draft
clauses,
but try to getthe bestpossibledeaIfor your
client.
Partnerfi[es lzg
UIUT5, Exercise12
File 8
plcis planningthe
ThecompanyFoodstyle
of a U.K.companycalledFusionFood.
acquisition
plc.Hereare
Youarea solicitoractingfor Foodstyle
fromthe draftversionofthe Letterof
someclauses
Intent(LOl).Havea meetingwith the solicitor
representing
FusionFood.Youraimis to reach
wordingof
with themaboutthe precise
agreement
the LOl.Yourpositionis setout below.
4 Exclusivity
(l) Beginningwith the signing of this Letter of
Intent until six months after the end of the due
diligence period, the Seller shall not hold any
discussions,
either directly or indirectly,with any
third party about the transferof the Sharesor of
the Company's businessoperations.The Seller
shallend any ongoingdiscussions.
2) The exclusivity ends in any event upon the
signatureof the sharepurchaseagreementor if
oneof the partiesbreaksoff from the Tiansaction
pursuantto clause7(l).
(3) In the eventthe Sellerbreachesthe exclusivity,
it shallpay a contractualpenaltyin the amountof
EUR 100,000to the Purchaser.Further claimsof
the Purchaser shall remain unaffected. The
contractualpenaltyshallnot bepayable,if binding
contractsare concludedbetweenthe parties.
7 Binding Effect
(l) This Letter of Intent does not create any'
obligation to carry out the Transaction. Both
parties shall be entitled to break off from the
Transactionat any time beforethe sharepurchase
agreementis signed,without having to give any
reason.The notification of breaking-off must be
in writing.
(2) The breaking-off shall not affect the
applicabilityof the provisionsin 4(3) and 7(3) of
this Letter of Intent; theseprovisionsshallremain
binding.
(3) If the Sellerbreaksoff the Transaction,it shall
pay a lump-sum amount of EUR 100,000to the
Purchaser as compensation for its necessary
expenses incurred in connection with the
Transaction,unlessthe breaking-offis becauseof
a breach by the Purchaserof the confidentiality
obligation. If the Purchaser breaks off the
Transaction,it shall pay a lump-sum amount of
EUR 50,000to the Selleras compensationfor its
necessaryexpenses,unless the breaking-off is
becauseof a breachby the Sellerof the exclusivity
or confidentiality obligations. More extensive
claims resulting from the breaking-off of the
Tiansactionshall remainunaffected.
Yourposition
it givesyourclient
Clause4.r is hetpfulbecause
in the seriousness
confidence
of FusionFood's
intentions.
penaltyof EUR:.oo,ooo
A contractual
in 4.3 is
realistic.
Yourclientwill haveto investa lot of
moneyin duediligence
andthe penaltyclauseis a
guarantee
againstFusionFoodwastinghistime.
ptcshouldhavethe rightto makefurther
Foodstyle
claimsagainstFusionFood(4.3)if it canprovethat it
reallyhasincurred
theseextracosts.
According
to clause7.3,FusionFoodshouldbe
entitledto lowercompensation.
Normalty
the seller
doesn'tinvestas muchmoneyin duediligence
as
the purchaser.
Foltowup
you haveagreedto
Present
to the ctassanychanges
maketo thewordingof the Letterof Intent.
UNIT6, Exercise3
File 9
:. Readout the sentences
belowbut don'treadout
Seeif your
the phrasalverbin botdin brackets.
partnercanfindthe wordyouaretookingfor.
o Theinvestors
areprepared
to BLANK10m euros
ofcapitalfor this project,but the boardof
management
is askingfor more.(putup)
o I acceptthatABCLtdowesyou 5o,oooeuros.But
they'vegonebankrupt,
so I thinkyoumayhaveto
BTANKthis debt BLANK.(writeofD
r Thecompany
cannotrecover.
I wouldadviseyou
to BLANKit BIANK.(windup)
. As I seeit, yourcompany
will haveto BLANKits
reservesto coverits losses.(drawon)
Tryto
z Nowlistento yourpartner's
sentences.
providethe missingword.
?4 | Partnerfiles
UN|T 6, Exercise 11
File 1O
Youarean insolvency
lawyer.Priorto yourfirst meeting,yourclient,Mr RanjitSingh,sentto you the following
information
abouthiscurrentassetsandliabitities.
All the sumsof moneyarein euros.
Bank loan,
25,000
lvlortgqgcpwflat)
85,000
A,s,retr
Fht
Ru.clvablar(unpaidiwobar fir
party ,rcrilcc and evevtts)
Iwcnto ry ftitchen. q uipnuvrt/
110,000
E,000
10,000
furni.tnre)
slsfr
Pofft-hvn& employee^r
Lotndlordof pre*nisar
5upplius offre.rl,tfa oo(
Tele7hnw/Iwernet
Toc awfuntizr
2,500
6,500
2,500
500
18,000
Total
146,000
lu,000
Tatkto him and find out:
Advisehim on the following:
. hiscareerhistory
. the natureof hisbusiness
. locationof business
. [ega[statusofthe business
. start-upcapitalneeded.
. sourceofthe capital
. reasonfor businessdifficulties
r if he is currentlyservicinghis loanand mortgage
debts
o Howbadis hisfinancial
situation?
r Shouldhe registerhimselfinsolvent?
. ls it possibleto savehis home?
. Arethereothersolutionsavailable?
Afteryou havefinishedthe activity,be preparedto
tell the restof the classwhat adviceyou gaveto
yourclient.
lzs
Partner files
UillT 1, Exercise 1O
File I
Part r
In Partr you playthe roleof a lawyerand advisetwo
separate
clientsaboutforminga company.
Caser
with him/ herthe
Listento yourclient.Discuss
youfavoura limited
available
options.Generally,
washingmachines
cango wrong
companybecause
andc aus et hou s a n disn d a m a g e .
Casez
with him/ herthe
Listento yourclient.Discuss
youthinkyourclient
options.Generally,
available
Goodliabitityinsurance
and
shouldn'toverreact.
goodquatityassurance
procedures
shouldbe
sufficient.
Part 2
Nowit is yourturnto ptaythe roleof two separate
clientswhowouldliketo haveadvicefroma lawyer.
yoursituationto yourpartner.
Explain
Caser
of a
Youareoneofthreeshareholder
/ directors
privatelimitedcompanyspecializing
in
successfuI
Youwouldliketo expand,but
solarcelltechnology.
areworriedaboutoverstretching
the company
Youarealsoworriedaboutlosing
financiatly.
m anagem ent
c o n trool fth ec o mp a niyfy o ug o
pubtic.Theproblemis thatyoudon'thavemuch
Yourclientsaredemanding
a
choicebut to expand.
They
widerrangeof products
andhighervolumes.
if it doesn't
in yourcompany
mayloseconfidence
grow.
Yourlawyerwill give you someadvice.Youfeel that
you musthavea solutionthatgivesyou the option
to expandquicklyif necessary.
Casez
in a large
Youhaveworkedas an employee
partnership
for ten years.Youwere
architectural
hopingto be madea partnerbut thisis nownotvery
to
tikety.Youfeetthat you havegoodreferences
Thereis also
ofyourown business.
makea success
somemoneyin yourfamilywhichyoucanuseas
whoarein
start-upcapital.Youhavetwo colleagues
the samesituationasyou,but theyhavefewer
years'experience.
Theyaretalentedandyou all
they haveno capital
workwell together.However,
whichtheycouldbringintoa partnership.
Yourlawyerwill give you some advice.Youfeel that
you would like to havethesetwo colleagueson
boardas partners.Howelsecanyou persuadethem
to leavetheir currentjobs?
UNIT1, Exereise14
File 2
of
Explain
the advantages
and/ or disadvantages
in the examples
below.
oneof the legalstructures
a A firmdecidesto remaina privatelimited
company
eventhoughit hasa turnoverin biltions
sumsof
of eurosandcouldraisesubstantial
moneyif it wentpublic.
b An entrepreneur
decidesto buya shef company
(a ready-made
company)ratherthanforma new
one.
UNIT2, Exercise4
File 3
Taskr
in a Belgian
Youarean English-speaking
employee
company.
Youwishto consultyourlawyeraboutthe
followingthreeproblems
at work.Readeach
problemout to yourpartnerandthenmakea noteof
the adviceyouaregiven.
r. 'l normallyworkin the Brussels
officebut the
companyhasset up a projectgroupin the officesof
partnerin Antwerpandnowwantsto
a cooperation
sendmetherefor thethirdweekin a row I askedmy
in Antwerpwas
linemanager
howlongmy presence
goingto be for andshesaidshedidn'tknow.Can
shekeepsendingmeto Antwerpfor as longas she
wants?'
z.'l have36 hourson my overtimeaccountat the
moment.I'mtryingto savefor a hotidayand I'dlike
says
to be paidfor atl 36 hours.My linemanager
that I shouldacceptpaymentfor rz hoursandthat
shouldtakethe otherz4 hoursas freetime.Hesays
that he doesn'thavetimeto discussthe matter
further.Do I haveto acceDt
this?'
told methat shecantakeher
3.'A colleague
because
summerleaveduringthe schoolhotidays
shehaschildrenagedeightandten.I haven'tgot
anychildren,butwhenI told herthat my live-in
is a schoolteacher,
boyfriend
shesaidthatthis
doesn'tcount.ls sheright?'
76 | Partnerfiles
Taskz
Swaproleswith your partner.Youarenowa lawyer.
Belowaresomeclausesfroma contractof employment.Yourpartnerwishesto consultyouabout
threeproblems
at work.Listencarefully
andthen
givehim / heryouropinion.Whenyou referto a
clause,usethe language
in the boxon page19.
5
Sicknessduring annualleave
UNIT3 Exercise12
In the event that an employeebecomessick while
on annual leavg the sick dayscoveredby a doctor's
note shall not be counted as annual leave.
6
File 5
1 Yourpartneris goingto readout the definitions
of
somewords.Listenandtry to providethe missing
word.
Public dutiesand appointments
with authorities
As a rule, suchappointmentswill be either court
appointments(e.g.being summonedto appearin
court as a witnessor as an expert,) or medical
checksrequiredby theEmployeror madenecessary
by a businesstrip in the courseof the Employee's
duties to an overseaslocation for which certain
vaccinations(e.g.tetanus,yellow fever,hepatitis)
maybenecessary.
If theEmployeecandemonstrate
that it is not possiblefor such appointmentsto
be made outside of the core working timeq the
Emlloyer must grant him paid time off in order
to enabletheseappointmentsto be kept.
7
lf Intetligent
SolutionsLtdclaimsfurther
youarenot prepared
compensation,
to pay.
Intel[igent
Solutions
Ltdis a verygood,innovative
company.
Youareprepared
to enterintonew
co-operation
withthem.
agreements
Youareprepared
to discusssystemsand
safeguards
to preventconfidentialinformation
passingfromCathyO'Briento thirdparties.
Marriage
The Employergrantsone day'spaid specialleave i
for marriageinvolvingimmediaterelatives(i.e.son i
/ daughteqfather / mother,brother / sister).
!
8.2 Inability to work due to sickness
z Readout the definitions
of legalwordsbelowbut
don'treadout the wordin bold.Seeif your
partnercangiveyouthe wordyouarelookingfor.
lf the wrongnumber
of pieceswas
deliveredto the
purchaser,
we cansay
thatthe quantity
delivered
was...
lf a clausein a contractcannotstayas it
is because
the lawhas
beenchanged,
we can
saythatthisclauseis
now .,.
incorrect
ineffectlve
In a disputean
arbitratoris not
allowedto favourone
partyorthe other.He
mustbe...
A severance
clause
ensures
that,ifone
clausehasto be
changed,
the other
clausesremain...
impartial
unaffected
lf it wasimpossible
to
knowthat a certain
evente.g.a strikewas
goingto happen,then
thiseventwas...
lfthe purchaser
is not
happywiththe
performance
of the
supplier,
thenwe can
saythatthe purchaser
is ...
I
In all casesof the emjloyee being unable to work
dueto sicknessthe line managermustbe infiormed li
immediately.A doctor's note must be producedno :
:
laterthan on the fourth cdlendardayfollowing the
i
commencementof the period of sickness.
r
i
unforeseeable
UNIT2 Exercise11
dissatisfted
File 4
Youarethe solicitorrepresenting
Your
Softline.
positionis as follows:
. Youdon'twantIntelligent
Solutions
Ltd.to block
CathyO'Brien's
moveto yourclient.Youthinkthat
the legalsituationhereisn'troo% clear,but you
acceptthat Intelligent
Solutions
Ltdhasa case.
o Intelligent
Solutions
Ltdis notallowingCathy
O'Briento workduringherperiodof notice.You
understand
the reasonfor thisandyouaccept
that it is costingIntelligent
Solutions
Ltdmoneyto
keepherat homeat the moment.Softlinewoutd
be prepared
to paysomething
here- maybe
EURr5,oooor 2o,ooo.
U]{lT3 Exerciso13
File 6
Taskr
Youarea lawyer.
A clientcomesto youwith a
problem.Heor sheis goingto giveyoua briefoverviewof the problem.
Thenyou mustaskquestions
to getall the necessary
details.Tryto usesomeof
the language
in the language
boxon page35.
giveyourclientsomeadviceaboutwhatto
Finally,
oo.
Partnerfiles | 77
Taskz
Youarea clientandyougo to a lawyerwiththe
of the
followingproblem.
.lustgivea briefoverview
problem.
Thentetthe lawyeraskyouquestions
to
findout the details.
Overview
company
I askeda construction
to buitda swimming
poolfor mein my garden.
Alt of the specifications
Thecompanyhas
wereagreedin the contract.
finishedthe work.Butthe poolwhichwasbuittdoes
not complywith the specifications
we agreedto.
I am notwittingto paythe invoiceof EUR 35,ooo.
I thinktheyshouldrebuildthe pool.
Details
in the contractwasthatthe
Oneof the specifications
rc 2.4ometres.
deependof the poolshouldmeasu
Whenthe
Thiswasto enablepeopleto divesafely.
poolwasfinished,it wasclearthatthe deependof
2.1ometres.Another
the poolonlymeasured
problemwasthatthe depthofthe pootunderneath
the divingboardwasonlyz metres.I ordereda
Theinspector's
reportconcluded
safetyinspection.
I
thatthe poolwasstillsafefor use.Nevertheless,
wantthe construction
company
to rebuildthe pool
we originally
agreedin our
to the specifications
Thecompanysaysthiswouldcostabout
contract.
EUR3o,oooandhasofferedme EUR5,oooin
for mydissatisfaction.
I wouldliketo
compensation
I don'tseewhy I should
rejecttheirofferbecause
acceptsomething
that isn'texactlywhatI wanted.
5. The term of the Agreement shall be for a
period of three years from the date hereof.
PUBLISHER shall havethe option to renew
this Agreement for a further period of three
years.
8. PUBLISHER agreesto pay feesand royalties
in respectof the compositionsacquiredhereunder to COMPOSER as follows:
(iii) 12.5% of net receipts including the
licensing of compositions for use in films,
televisionprograrnmesand commercials.
10. The royalty and fee statementsshall be made
up to June30thand December3I stin eachyear
and shallincludeall receiptsby PUBLISHER
in that period. Suchstatementswill be sentto
COMPOSER within 28 days of the relevant
dateand shall be accompaniedby a remittance
for the"amounts which are shown by the
stateme4tto bb due and payable.
workwith
Beforeyoustartthe role-play,
if possibte,
someone
who hasthe sameroleandmakesureyou
whyyouaren'thappywith
understand
the reasons
the draftclausesabove.
Duringthe role-play,
try to getthe bestdealfor your
client.
Reasons
Ul{lT4 Exercise 12
File 7
actingon behalfof
Youarean attorney-at-law,
a popularrapmusic
Mr BittyRatt(COMPOSER),
artist.Heis planning
to enterintoan exclusive
with GtobatMusicInc.
copyright
agreement
( P UB LI S HETh
R ).ep u b l i s h ehra sa l re a d sy e n ty o ua
However,
draftversionofthe proposed
agreement.
youareunhappywiththe followingclauses:
1. COMPOSER . .. herebyundertakesto assign,
transferand deliverto PUBLISHER ... the
wholeof the copyright for all countriesof the
world . . . in and to suchmusicandlyricswritten
heretoforeby COMPOSER insofar as such
copyright is not held by third parties.
2. COMPOSER ... will endeavourto deliver
a minimum of ten compositions, each of
which comprisingthree minutesof music on
average,every year for the duration of this
Agteement.
4. The rights of PUBLISHER include the
right ... to assign in whole or in part the
compositionshereunder...
Clauser doesn'tmakeit clearthat the copyright
revertsto the composerafter the end of the
agreement.
Youwouldlikethis to be clearlystated.
Withoutsucha statement,
thereis the riskthatthe
publisher
of
canretainthecopyright
fortheduration
the copyrightitsetf.
You
Clausez requirestoo muchof the composer.
here.
wanta moreflexibleproductivity
commitment
rightsfor
Clause4 givesthe publisher
assignment
wants
The composer
any songby the composer.
morecontroloverhismaterial.
Hedoesn'twanthis
products
incommercialsfor
musicused,forexampte,
or services
he doesn'tagreewith.
can
Clause5 seemsto suggestthat the publisher
of
renewtheagreement
withor withouttheconsent
is needed.
thecomposer.
Clarification
Clause8 (iii) is unfair.lf the publisherallowsthe
musicto be used in a movie,the
composer's
publisher
costs.
The
hasno material
andproduction
8oo/o.
royalties
shouldbemuchhigher-forexample,
Clause ro means the composeronly receives
payment
twicea year.Youwantquartertypayments.
78 | Partnerfiles
UNIT 5, Exercise 12
File 8
plcis planning
ThecompanyFoodstyle
the
acquisition
of a U.K.company
caltedFusionFood.
Youarea solicitoractingfor FusionFood.Hereare
fromthe draftversionof the Letter
someclauses
of Intent.Havea meetingwiththe solicitor
representing
Foodstyle.
Youraimis to reach
agreement
withthemaboutthe precise
wordingof
the LOl.
4 Exclusivity
(l) Beginningwith the signing of this Letter of
Intent until six months after the end of the due
diligence period, the Seller shall not hold any
either directly or indirectly,with any
discussions,
third party about the transferof the Sharesor of
the Company's businessoperations.The Seller
shallend any ongoingdiscussions.
(2) The exclusivityends in any event upon the
signatureof the sharepurchaseagreementor if
one of the partiesbreaksoff from the Transaction
pursuantto 7(l).
(3) In the eventthe Sellerbreachesthe exclusivity,
it shallpay a contractualpenaltyin the amount of
EUR 100,000to the Purchaser.Further claimsof
the Purchaser shall remain unaffected. The
contractualpenaltyshallnot bepayable,if binding
contractsare concludedbetweenthe parties.
7 Binding Effect
(l) This Letter of Intent does not create any
obligation to carry otlt the Transaction. Both
parties shall be entitled to break off from the
Transactionat any time beforethe sharepurchase
agreementis signed,without having to give any
reason.The notification of breaking-off must be
in writing.
(2) The breaking-off shall not affect the
applicabilityof the provisionsin 4(3) and 7(3) of
this Letter of Intent; theseprovisionsshallremain
binding.
(3) If the Sellerbreaksoff the Transaction,it shall
pay a lump-sum amount of EUR 100,000to the
Purchaser as compensation for its necessary
expenses incurred in connection with the
Tiansaction,unlessthe breaking-offis becauseof
a breachby the Purchaserof the confidentiality
obligation. If the Purchaser breaks off the
Transaction,it shall pay a lump-sum amount of
EUR 50,000to the Selleras compensationfor its
necessaryexpensequnless the breaking-off is
becauseof a breachby the Sellerof the exclusivity
or confldentiality obligations. More extensive
claims resulting from the breaking-off of the
Transactionshall remainunaffected.
Yourposition
Youcanacceptthat FusionFood
4.r is a problem.
shouldnot starttalkswith a thirdparty.Youcan't
acceptthat it shouldbreakoffanyongoing
discussions
withthirdparties.lf FusionFoodhasthe
freedomto continueongoingdiscussions
with a
thirdparty,thenit canput Foodstyle
underpressure
if the thirdpartyis offeringbetterterms.
Thepenaltyin 4.3 is too high.A fairerandmore
has
realistic
sumwouldbe: EUR5o,oooif Foodstyte
compteted
duedi l i gence
andE UR z5,oooi f due
is stillin progress.
diligence
Youareagainstthe ideathat Foodstyle
shouldhave
the rightto makefurtherclaimsagainstyourclient.
Thepenaltyagreedin clause4.3 mustbe sufficient.
lf Foodstyle
hasthe rightto makefurtherctaims,
legaldispute,
thenyoucouldgetintoa long-running
whichwouldnot be in yourclient'sinterests.
Foodstyle
alsoneedsan incentive
to keepits costs
undercontrol .
Thepenaltyin clause7.3shouldbethe sameas in
for
clause4.3.Youdon'tthinkthe compensation
FusionFoodshouldbe lowerthanthe compensation
for Foodstyle.
Afteratl,the purchaser
shouldtakeits
obligations
seriously,
too.
Followup
you haveagreedto
Present
to the classanychanges
maketo the wordingof the Letterof Intent.
UNIT6, Exercise 3
File 9
1 Yourpartneris goingto readout somesentences
to you.Listenandtry to providethe missingworc.
z Readout the sentences
belowbut don'treadout
the phrasal
verbi n bol di n parenthese.
S eei fyour
partnercanfindthewordyouarelookingfor.
r I thinkwe canhelpyouto BLANKbankruptcy,
but
the company
will haveto go intoadministration.
(wardofO
o lt is mv understanding
that,if you implement
a
programme,
yourcreditors
radicalcost-cutting
will
be wiltingto BLANKyou BLAI{K.(baleout)
. I stronglyadviseyouto changeyourcompany's
taxstatus.lf youdon'tdo something
to reduce
yourtax burden,yourcompany
coutdBLANK.(go
under)
r I recommend
thatyouformatlyobjectto this latest
taxdemand.Payingthissumby the endof next
(wipe
monthcouldBtAl{Kyou BLANKcomptetety.
out)
Partnerfiles| 79
File 1O
UNIT 6, Exerclse 11
Youhavealreadysenthim/ herthe
YouareRaniitSingh.Youaregoingto meetwith an insolvency
lawyer.
All the sumsof moneyarein euros.
followingbriefoverview
of yourassetsandliabitities.
LwbllitLer
Assets
Banks
Bank loow
110,000
25,000
Fl.ott
Ruetvabtat (unpaid twolcet for
party servtce and events)
lvlodg4ge (owflat)
E5,000
Iwentory ftitchm
10,000
eqnLprnew/
a.
8,000
furniture)
Slsfr
Part-tLrvteemployear
6,000
Other credttort
2,500
Unlih.es
Landlard of prevnrse;
G,500
Supplbrs offre^rhfood
Tdephtne/ Intwnet
2,500
Tax aulhtrXir-t
18,000
Total
146,000
500
Total
128,ooo
situation,
Yourlawyer
hastoldyouthathe/ shewillwantto knowa lotmoreaboutyourbusiness
andfinancial
to takethesenotesalongto yourfirstmeeting.
soyouhavedecided
. I worktdftr nMD/ yearsN a food tethwlagut fir a larye supermarketchaiw.Fanryeart
at the nvne 4goI gat vnarrizdta Sabiw - shz wasa stqdext at Notttvgharulr{wvercLty
(4grq, a taww
and rnovedfrom Nottwgharuto
wrth your partwr) . Sabtw k a full-nne parenl at htn'w lookivgafter aur c6ldren.
I nld rnyflat iw Evglandand
At ftrst I faund work iw dw evew-cdtertvgcampavty.1heL
wed nmc of tho profit frow tho cdle to nakc a dov'twpaynent awa flat hzre iw
. Tfu.flat ctst Euk14o,000and is Lr+vwvnavne.'lhe
mtd1dge wasjwt EUK10,000.
Two year.tI dectdedta g0 Lnto bwinzrt as ot tole trader prowding frul, Indavt snacks anl
event caterttg for ffice utorkzrsand companies.I rented sovnebwtnzrc premkes tn, a
snart cawl-side
ofice devdopnzrrt.'fht {tdrt-ul
costsfar the bustne^rswere E1Ak45,000:
vt^.r my oww caprtal and E\,tk35,000 wat a barlk loaw secnred
E11k10,000of thu rr4..flL
agaiwt my flat.
Busivust Nent Nell for a while, but recently thzre has be<*t or dravnatu etowwtw dowduru
Thc luwhnvne trade hat fallew away and I caw w lovger cover vny u$t. A businus rarcuo
plaw senrnspatntlats belnwe thz rurroundiry afrce bnlldvvgs covtttvu,+e
to late tenants.
Over thz latt tur yeotrt I have kept up wtth wy mirtgqge avtd loaw repaywilts,
but dunng
thts hyne tho flat hac falbvt, iw value by E1Ak30,000,
Your[awyerwill giveyouadviceaboutwhatto do.Askaboutanythingthat isn'tclear.
Listento yourlawyerpresenttheadvicehe gaveyou.Thentellthe classwhetheryou intendto followit.
80 1
Tianscripts
a
2
at
Partr
DeborahNiceto seeyouagain,MrsOsborne.
Business
is good,I hope?
Miyo
Notbad,notbad,thankyou.I can't
c omp l a i n .
DeborahNowyoumentioned
onthephonethatyou
wantedto consult
meon thequestion
of
changing
thestructure
of yourbusiness.
How
exactlycanI helpyou?
Miyo
WellI'mthinking
of gettingintosomething
newwithmybusiness
andl'd tiketo discuss
thetegalimptications
withyou.
DeborohUptittnowyou'vebeenoperating
asa sole
you?
tradersinceyoustartedin zoor,haven't
Miyo
That'sright.When| firstmovedherefrom
goodsfrommy
lapan,I wassetting
Japanese
ownhome.Thebusiness
hasdonereatlywell
andI wantto exoand
intofurniture
and
textiles.I feetthegrowthpotentialthereis
greaterthanin thefoodandclothingsector.
DeborohI can'tseeanyprobtems
withdoingthatwith
yourbusiness
asit is.Orareyouthinking
of
forming
a separate
company
specializing
in
furniture
andtextiles?
Miya
Wett,thathadcrossed
mymind.ButI amthe
onlyownerandmanager
at themoment,
so
l'mthinking
of offering
oneor twoof the
peoplewhoworkwithme,somesortof
positionaswe[[.That'sfairlystraightforward,
isn'tit?
DeborahWell,it certainty
doesn'thaveto be
complicated.
I thinkyoushouldtettmea bit
moreaboutyourplansandaboutthepeople
youwantto bringintothebusiness.
Miya
Fine.
ThemainthingisthatI thinkwe're
goingto needmorecapitalin orderto
expand
thebusineSs
andthisis whereI need
youradvice.
Partz
Miya
Letmeexplain.EveryyearsinceI started,my
profitshavegoneup andI haveusedthose
profitsto expand
thebusiness.
l'veiustused
profitsandsomemoneyof myownthatI had
in thebank.I'mreallyproudthatI haven't
hadto askanyone
elseformoneyandeven
nowthebusiness
hasnodebtat alt.The
problem
is thatwenowneedto expand.
We
neednewpremises
forourshowroom,
we
neednewstoragespace, we needto invest
in newlTequipment
heardaboutan
...1've
officein a greatpartof townandlcould
easilyconvert
it intoa shop.lt'sgotaltthe
storagespacewe needtoo.Wecan'tafford
to missthischance
andwehavejustenough
cashin the bankto makean offerfor it right
away.
DeborahHmmm..
I wouldn'trecommend
doingthat
withoutknowing
a bit more.Yousaidit'san
officebuitding
Welt,it's
at themoment?
possibte
thatyou'tlneedpermission
fromthe
locaIcouncil
to change
theuseofthe
buitding
andif youdon'tgetthepermission,
youwon'tbeableto useit asa retailoutlet.
It'ttjustbestanding
empty.Inmyviewit's
too muchof a riskto makean offerfor it at
thisstage:canyoufindoutanymoreabout
it?
Miyo
Mmm.lt's notactuallyon themarketyet...
butl'll try andfindouta bit more.
DeborohGood.l'd stronglysuggesttalkingto a
property
lawyer
aboutthis.I canask
fromourproperty
department
someone
to
giveyoua callaboutit. lsthatOK?
Miya
Yes,I'd appreciate
that.
DeborahAndwhataboutyourcolleagues?
Yousaid
earlier
thatyouwantedto bringoneor two
peopleintothebusiness?
Miya
Yes.Firstly,
l'm reallykeento rewardthe
toyattyof two of mystaff.They'vestayedwith
mesincethebeginning
andeventurned
downjoboffersfromothercompanies
in
I want
orderto makethisbusiness
succeed.
to givethema sharein thebusiness.
Secondly,
in a yearor two fromnowI might
wantto givethesetwopeoplesomesayin
themanagement
They've
of thebusiness.
supported
mefromthebeginning
andso I
couldperhaps
makethemdirectors
ofthe
newcompany.
Thirdly,
asI said,thebusiness
needsto expand,
andforthatweneeda little
putmein touch
moremoney.
Myaccountant
witha possible
investor
whocouldcontribute
theamountthatweneed.
reallydoes
DeborohI see.Soforminga company
seemto bethe bestoptionfor you.Certainty
if youwantto bringin a newinvestor,
I'd
suggest
incorporating
thebusiness,
andthe
investor
suggest
doingthat
witlprobabty
anyway.
Miya
Exactly.
I assume
thattheassetsofthe
business
wil[betransferred
fromme
personally
intothenewcompany,
onceit's
in the
setuo.AndthenI'tthaveshares
company,
togetherwiththetwo staff,andthe
newinvestor.
ls thatright?
DeborahYes,that'sit. Butdo youhaveanymore
detailsabouttheinvestor?
Andhadyou
thoughtwhatwouldhappen
ifyouandhe
coutdn't
Whatwouldyoudo forfunds
agree?
then?
Miya
ThenI suppose
it wouldmeangoingto the
bankfora loan.ButI reatty
hopeit won't
cometo that...I'veheardthatthebankcoutd
askmeto guarantee
theloanpersonally,
and
maybeevenaskfor myhouseassecurity.
DeborahYes,exactly.
Thetoanwouldbeto the
guaranteeing
company,
buttheperson
the
loanwouldbeyou.Youhavelimitedliability
asa shareholder
in thecompany,
but
guarantor
untimited
liabitity
asa personal
of
whatbanksaskfor
theloan.That'snormatly
Transcriptsl el
in this situation,and yes,ultimatelyyour
homeis at risk.
Thenlet's hopethat we can persuadethe
Miya
investorto investin usl I think I would be
happierif you couldcometo the next
meetingwith him.
Deborah l'd be happyto. But can I just comebackto
the formationof the companyitsetPThere
are quitea few thingsthat I wittneedto
checkwith you beforewe can set up the
company.CanI suggestthat I set all this out
in an email,and then maybewhenyou've
had a chanceto readthroughall the
we couldmeetagain.Doesthat
information,
soundOKfromyour pointofview?
Miyo
Yes,that soundsfine.
Thierry Mmm ...ld like to checkthis with our lawyer.
I can'timaginethat therewouldbe any legal
difficuttieshere;it's morea questionof
companypoticywith respectto seniorstaff.
Letme get backto you on that one. I don't
wantto makeany promisesat this stagebut
I'm surewe'tlbe abteto find somekind of
c o m p r o m i s oe n t h i s .
cathy
0K... And there'siust one morething.lt's
clause4, paragraph5. lt saysthat...'Thereis
for overtime,
no claimto compensation
weekendor holidaywork.'
Thierry Yes,that's quite standardfor seniorstaff
contracts.0f course,in the caseof
employeeswho are earningstandardunion
pay rateswe haveto pay overtimeor givethe
emptoyees
the time back.
I see.But.as a seniorstaffmemberI
Cothv
wouldn'tbe entittedto any pay for overtime.
Thierry
That'sright.
But doesit alsomeanthat I wouldn'tbe
Cothy
entitledto haveany of this time back,either?
Thierry
I think you'tlfind that senior
Not necessarily.
staffusuallysort somethingout with their
line managers.lt alt dependson how much
work thereis at anv one time.
Cathy
I see.I'mjust wonderingif atl this couldbe
stateda bit moreclearlyin the contract.Can't
we add a paragraph
that sayssomethinglike
...er ...'Overtimemay be takenas freetime.
But this mustbe with the agreementof the
line manager.'?
Or somethinglike that?
Thierry I'massumingtherewon't be any legal
here.But,again,I'll haveto
comptications
checkwith our lawyeron this.
Cathy
OK.That'severything.The rest of the contract
seemsto be fineThierry Good.I'tlsendatl this off to the lawyerand
I'tl maityouin the nextday or two to let you
knowwhat he thinks.
Cothy
Great.I'ltexpectto hearfromyou soon,then.
And thankyou for takingthe time to discuss
atl thesethingswith me. I'll get backto my
flat huntingnow
Thierry Well,good luckwith that. lf you run into any
do let me know.Thecompany
difficulties,
would be ableto organizesome
for you for two or three
accommodation
months,if necessary.
Cothy
I'lIcertainlybearyour offerin mind,Mr
Thankyou onceagainfor your time.
Schwarz.
Bve.
a
4
Thierry ...the rstoflanuary.Fine.So, I'ttput that
startingdate into your contract.Beforewe
finish,MrsO'Brien,you mentionedon the
phonelast Fridaythat therearea few things
in your contractyoud tiketo discussbefore
signingit.
Well,yes.Therearejust a few pointsthat ld
Cothy
tiketo clarifywith you.
fhierry No problem.What would you like to know?
Well,in ctauser, paragraphz, it saysthat the
cathy
normalworkingtime will be 38 hoursa week.
But it doesn'tsay anywherethat the normal
workingweekis Mondayto Friday.
our
Thierry Wett,usuattyit is, but occasionatty
softwarepeoptehaveto comein at the
weekendif there'san imoortantdeadtineto
So, I think
meetor someotherdifficutty.
that'swhy the wordingis as it is.
it bepossible
to
Wouldn't
to addsomething
Cathy
Thierry
Cothy
Forexample,
thenormatworking
thateffect?
it
weekis Monday
to Friday
butsometimes
Something
likethat?
willbenecessary...
I'msurethat'ttbeOK.
about
Fine.
AndthenI'vegota question
Err...Yes,hereit is.According
annualleave.
I can
to clause
6, if I can'ttakeall myholiday,
forupto r5
havefinancial
compensation
daysof it.
Yes,that's right. lf there is a lot of work and
you aren'tableto take your fu[[ leave
we don'twant you to loseout.
entitlement,
That'sthe reasonfor this oarticularclause.
But ifthis happens,can'tI carry
I understand.
Cothy
r5 days'hotidayinto the nextworkingyear?
Thierry | suppose,in theoryyou could.We'veiust
to write it
neverreallyfelt it was necessary
are
down.And,in any case,emptoyees
usuattyquite happyto receivethe extrapay if
theycan'ttakesomeof their holiday.Another
problem,of course,is that in the foltowing
yearsomeonemightbe entitledto 3o days'
ptusr5 days'annualleave.That'sa lot of
hotiday!
cathy
Well,as you know from my lob interview,I
havea youngfamilyand I reallywoutdprefer
to havesomethingin my contractthat
guarantees
me my fulI hotidayentitlement.
Evenif it meanscarryingleaveinto the
followingyear.
Thierry
<-/
^4ory
resignation.
...thematterof MrsO'Brien's
you
Now,I'vehada lookat allthedocuments
and...wellthefirst
sentme,Mr Flannagan
is MrsO'Brien's
actual
thingI'venoticed
to
tetterof resignation.
Yousee,according
hercontract.
sheisn'tentitted
to starther
newjobasearlyastherstof January
you'rehappyto let hergo
unless,
ofcourse,
early.
Yes,I'dnoticed
that,too.Butthatisn'treally
concern
whatI'mworried
about,Mybiggest
to goto is
is thatthecompany
she'splanning
Softtine.
82 | Transcripts
Mary
lohn
Mory
John
Mory
John
Mary
lohn
Mory
John
Mory
lohn
Mary
Yes,I wantedto cometo that.Looking
at
yourfiles,I canseethatSoftline
hasbecome
partner
an important
co-operation
foryour
company.
Exactly.
Wett,if Softtine
hasstartedto poachyour
staff,it'sveryirritating,I admit.But,in reatity,
thereisn'tverymuchyoucando aboutit.
Actualty,
I'mworriedaboutconfidentiatity.
I see.Well,youcan,of course,
invokeclause
contract,
whichsays,
7.6of MrsO'Brien's
quitesimpty,
thatyoucansendherhome
todayon gardening
leave.
Theonlyproblem
thereisthatyouwoutdhaveto continue
to
payherforthefullperiodof hernotice- that
is...er...threemonths'salary.
Quitea lotof
money.Butit maybeworthit.
Whataboutthecompetition
clause?
You
know- theonethatsaysthattheemployee
isn'tallowed
to goandworkfora competitor
for twoyears.
Wetlthatwouldbedifficult.
Yousee,wecan
hardtysaythatSofttine
is a competitor,
when
youhaveco-operation
agreements
with
them.Theotherproblem
is thatthe
competition
wouldbeveryexpensive
clause
foryouasa company.
Ctause
3.4statesthat
youwouldhaveto payMrsO'Brien
half-pay
fortwoyears- andshewoutdn't
haveto do
anyworkforthismoney.
It wouldcostusa lot moremoneyif we lost
know-how
to a competitor.
Anyway,
there! a
furthercomplication,
Yousee,wearen't
partner
Softtine's
onlyco-operation
in the
fieldof telecommunications
software
development.
Andsomeof Softlinelother
partners
aredirectcompetitors
of ours.
Mm.Andwhatexactly
willMrsO'Brien's
new
iobbeat Softline?
Toco-ordinate
all theirexternal
software
projects.
development
Sothereis a riskthatyourcompany's
knowhowmightbetransferred
to a competitor.
Indeed
thereis.5o,can'tI invokeclause...
er
...3.2?lt saysherequitectearly
that...the
emptoyee
can'tworkfora competitor
or- |
quote-'a firmconnected
withthem.'lmean,
I canstopher,can'tl?
Perhaps.
ButI wouldn't
wantyouto overreact
to whatmaybeonlya verysmallrisk.And
another
thing.lf youdo anything
to delay
MrsO'Brien's
transfer
to Softline,
they?enot
goingto beverypleased
withyou.Thiscoutd
evenhavea negative
impacton future
co-operation
agreements.
So,whatdo yousuggest
I do?
Tobehonest,
I thinkit wouldbebestto ...
a
6
aboutthepenalty
ctause.
Canwe
Justa question
reduce
thepricebyr% if Pixeltechnik
delivers
four
dayslate?
Whereexactly
doesit sayin thiscontract
howmany
itemswe haveto order?
Wherecanwefindallthe pricesfor thedifferentLCD
screenS?
I'mjustlooking
at ctause
4. CanPixettechnik
increase
thepriceif it wantsto?
aboutclause5. lsthisa two-year
5 I'ma tittleunclear
contract?
goes
6 Whatexactly
areourrightsif Pixettechnik
bankrupt?
There's
in clausero I'dliketo clarify.
What
something
happens
if somegoodsaredefective?
Canweinsist
on a replacement?
Whathappens
if another
company
suddenly
claims
LCDscreen
thatit ownstheoatenton Pixeltechnik's
technotogy?
Canwebesuedbythiscompany?
a
Partr
M.Hdrautt...andit wasverygoodof youto fit mein at
suchshortnotice.
MrEvons Notat all,M. H6rautt.
I thinkthequicker
we
canworkouta resoonse
to thismatterthe
better.Now,let mesee.I haveherea copy
of theoriginal
contract
between
ViewandI also
Pixettechnik
andDigital
havea copyofthecorrespondence
which
wasexchanged
betweenthetwo
companies.
ButcanI startbyaskingyouto
describe
whathappened?
I wascontacted
by my
M.Hdrcult Well,in September
production
manager.
Heinformed
methat
ourrandom
sampting
wasshowing
in everysingleLCDscreen
inconsistencies
andthathewasgoingto shutproduction
down.
MrEvons Andwhathappened
then?
M.Hdraultljoinedhimin theproduction
areaandwe
to findout
organised
a seriesof checks
whattheproblem
was.lt turnedoutto bea
processing.
lt
minorerrorin chemical
meantthatthescreens
werenot
consistently
as brightastheyshouldhave
been.
whatyoumeanby'not
MrEvans Couldyouexplain
consistently'?
M.Hiroult Wett,thescreens
mightstitthaveconproduct
formedto theagreed
specifications,
buttheydidn'tpassour
Andthat'swhat
stringent
testingregime.
matters.
Yousee,thewholeprocess
is
patented.
lt means
thatourdigitatcamera
disptay
canbeseenperfectly
screens
evenin brightsunshine
and...
MrEvans Yes,but let metakeyoubackto the
question
of thesedefects.
Areyousaying
werenotdefective
as
thatthescreens
defined
in Annex1 to thecontract?
M.Hirault I thinkasfarasthecontractual
soecifications
areconcerned
thescreens
wereprobably
stittOK.Butweknewthere
wasa processing
error.Thescreens
might
havedeveloped
malfunctions
at a later
stage.Weiustthoughtit wasbestfor the
reputation
of Pixeltechnik
notto takeany
risks.
MrEvans OK.Canyouexplainwhyyouhadto recall
so manyscreens?
5,ooowasn'tit?
M.Hdroult At first,wethoughtthatonebatch- 5oowasaffected.
Butwhenwechecked
the
sample
datait became
clearthatwehad
Transcripts| 83
had the errorfor aboutten days.
So, if I understandyou correctly,you're
sayingthat your productionmanageronly
foundthe productionerrorten daysafterit
started.
M. Hdroult I'm afraidthat's right. Forten daysthe test
in
resultsshowedslightinconsistencies
screenbrightnessbut it seemsthat our
misinteroreted
technicians
the resuttsand
thoughtthe screenswerefine.
Mr Evans
a
8
Part 2
Mr Evans Whatdid your companydo then?
and
M. Hdrault We contactedDigitatViewimmediately
informedthemaboutthe oroductrecall.
Mr Evans And how did they react?
M. Hdroult Theyweren'tvery pleased,but we agreed
on a schedulefor detiveryof 5,oooLCD
acceptedthe futl
screensand Pixeltechnik
financialconsequences
of latedelivery.
Mr Evans Th iswouldbe c laus e1. 4. . .er . . . ' . . .f or ev e r y
weekor part thereofby whichthe delivery
the purchasercan reduce
date is exceeded,
the agreedpricefor the orderby zo/".'
M. Herault Quitea lot of money,I mightadd.
preciselyhow much?
Mr Evans Haveyou catcutated
M. Hdrault I haven'tgot the exactfiguresfrom our
FinanceManageryet, but it's somewherein
the regionof r5,oooeuros.
compensation
for any
Mr Evans So,reasonable
inconvenience
sufferedby DigitalView,
one
woutdthink.
M. Heroult lnde e d .
the5,oooscreens
according
Mr Evans Didyoudeliver
schedule?
to theagreed
quatity
was
M. Hdrault Yes,wedid.Andtheproduct
looo/o
aswett.That'swhyI wasso shocked
thisletteryesterday.
I meanthey
to receive
can'tiustterminate
thecontract
withzr
days'notice,
canthey?Surely
thisis breach
of contract!
Mr Evons Well,theyare invokingclause8.r(i),which
refersto unsatisfactoryperformance.That
coutdbe a stightprobtemfor us.Wasthis
the firsttime you had had quatity
oroblems?
M. Hdrault Yes,it was. So, in my view, it's comptetely
unfair.We did a tot of extradevelopment
work on our product- lust for DigitalViewand we won't beginto makea profiton this
dealuntilaftertwo yearsof production.So
if we get thrownout of this contractnow,
we'[[sufferan enormous[oss.
Mr Evans I supposethat'swhy the contractwas to
run for a minimumof two years.
M. Hdrault Exactty.And our patentedproductreally
gaveDigitatViewthe edgeoverits
competitors.
Mr Evans I must say,it does seem unfair.lt's possible
that DigitatViewcouldbe usingthis
productionproblemas an excuseto get out
ofa contractthat it no longerwantsfor
strategicreasons.
M.Hdrault But is thereanythingwe cando aboutit?
Mr Evons Well,as I see it, DigitatView'sconductgoes
againstthe wholespiritof your agreement.
In view of this,our bestoptionwouldbe to
<J
9
Goodmorningto you in NewYork.I'dlike to
start by confirmingwho is presentat this video
conference.
My nameis WitliamFietdand I'm
actingon behatfof my clientMr FabianStein,
fitm
ofthe London-based
the ChiefExecutive
company,LeftHandProductions.
acting
Fiona And I'm FionaMartinez,attorney-at-law,
on behalfof my client,.lakeGlover,who is the
Financial
Directorof lndexFilmsherein New
York.
5o. We areall in oossession
of the draftversion
CouldI suggest
ofthe proposedagreement.
that we handoverto Mr Steinand Mr Glover?
Maybewe couldstart by agreeingon a sum of
lake
moneyhere.Whatkindof figuredid you havein
mind,Mr Stein?
Fabion Well,I was thinkingof an initialdown payment
fotlowedby a later paymentafter the reteaseof
the film.Thetotatwould be in the regionof
5o,oooeuros.
I'm afraid my board might find that figure rather
Jake
low.After atl, you are askingus to waiveour
right to exclusivityhere.
Fobion I appreciate
that, Mr Glover.But this is a
low-budgetfilm. lf we agreedto a significantly
highersum,the proiectcouldquicktyceaseto
be viable.
jake
Well,we mightbe ableto agreeto your figureif
we couldparticipatein the film'sroyatties.
Fobian I don't thinkthat witt be possible.But perhaps
you couldaccepta figureof, say,a maximumof
Z5,oooeuros,dependingon the successofthe
film.
Youmean,if your movieflops,we wouldget
laKe
nothing.
Fabian Not quite.Youwould stilt havethe down
payment.
And how muchdid you havein mind?
lake
Fabian I think zo,oooeuroswould be fair.
Letme see if I understandyou here.IndexFilms
Jake
wouldget a guaranteedpaymentof zo,ooo
euros.Any furtherpaymentwoutdbe timitedto
the balance,namely55,oooeuros,and ifthe
film flopped,we'd get zitch.
Wett,yes.Butthat'sputtingit rathernegatively.
I'm simptytryingto suggesta frameworkwhich
would giveyou somekindof sharein the
successof the fitm.
Joke Nowthat I think aboutit, maybea successrelatedpaymentwoutdonly leadto endless
argumentsbetweenlawyersand accountants.
Why not drop the ideaand havea 4o,oooeuros
down paymentand 5o,oooeuroswithinone
yearofthe releaseofyour movie?
I couldagreeto the 4o,oooeurosdown
paymentif we reducedthe secondpaymentto
eUrOS.
3O,OOO
3o,oooeurosisn't reallyhighenough.I coutd
compromise
on 45,oooeurosbut on the
conditionthat we ctarifuthe termsfor the down
paymenr.
Mm.Thedown paymentwouldbe conditional
uponour securingthe formalagreementof the
oublishers.
And we do alreadyhavea signedLetterof
Intentfromthe publishersin this matter.
84 | Transcripts
Fiono But lettersofintent are,as you know,iust that.
Theyaren'tnecessarily
tegattybinding.Your
negotiations
with the pubtishercoulddragon
for monthsand monthsand duringattthis time
my ctient'shandswould be tied. No payment
and no freedomto negotiatewith otherthird
parties.
WilliomHow about settinga time limit for the down
payment?Let'ssaysix monthsfollowingthe
signingof our agreement,
or the dealis off.
Jake Wett,in view of what you just saidaboutyour
Letterof Intent,I'd havethoughtthat six
monthswas a littletoo long.Howaboutthree
months?
Fabion I think I coutdagreeto that.
Youwouldmakean initial
Jake So,to summarize.
down paymentof 4o,oooeuroswithinthree
months...
Fabian Not payabte,ofcourse,ifwe get a rejection
fromt he publis her s .
Jake Sure.And you would pay a further45,oooeuros
withinone vearof the movie'srelease.
Fabion I think 45,oooeurosis a tittlehigh.However,
I
couldagreeto 35,oooeuros.
Jake And I think my boardwould be happierwith
eUrOS.
40,OOO
Fabian Agreed.
WilliomFine.I'ttdraw up a final agreementreadyfor
signatureand witt notifyyou as soonas we
havesecuredthe agreementof the pubtishers
in this matter.Thankyou verymuchfor your
time,Mr Gloverand Ms. Martinezand ...
A-r
(-/
to
Esther You havereachedthe officeof EstherSuarez.
I am unabteto take your catlat the moment.
Pleaseleavea messageafterthe tone.
Motr Hithere,Esther.lt's Matt.I iust had a look
throughour company'sM&A documentation
and I'msort of confused.Someof it's in
Spanish;someof it's in Engtishand one or two
thingsseemto be - | dunno- somekind of
post-merger
documents.Do you think you
coutdget all this into'somekindof shapefor
guideto
me?WhatI'd like is a straightforward
the stepswe haveto take whentryingto make
an acquisitionup to the pointwhenthe whole
thingentersthe publicdomain.And I guessI
needto knowwhereall thoseminefieldsare,
too. Canyou do that for me, Esther?
Thanksa
tot.Talkto vou later.
a
11
Partr
Mott
sincezoo5and ...is stil[ownedby its three
originalfounders.lt's grownto 16 retro-styte
Engtishcaf6s- seemsto havegood growth
prospects.
Thefinancesaresound.There's
f 3oo,oooof fultypaid-up equityand atl
growthhas beenorganic.
FranciscoI'm sorry,Esther.What do you meanby
organic?.
Esther Er...I meanthat the growthhasfinanced
itself.Thecompanyhasn'tborrowedin order
to financeexpansion.
So,as far as we can
telt,the companyhas no debtsand thereare
no chargesagainstit.
Matt
And what abouttheir publichealthclearance
certificates,
disabledaccessto restroom
facilities,staffqualifications
- all that kindof
thing?
Esther No problemsthere,either.lt atmostseemsto
be too goodto be true but...
FronciscoSorryto butt in, Esther,but what'syour
opinionof the cunentleasesfor manyof the
caf6premises?
Accordingto thesefindings,
the companyhasgenerallygonefor very
short leases.lsn't it a bit overexposed?
Esther I'msorry,Francisco.
I'm not quitewith you.
FranciscoI mean,when leasesexpire,there'softenthe
riskthat the landlordwantsto negotiatea
muchhigherrent.
Esther I see.Welt,yes.In principle,that'strue but it
doesn'tseemto be a riskthat the solicitors
chooseto hightight.
got a point
Matt
Maybenot, but I think Francisco's
here.Surelysomethingtikethis is
quantifiabte,
isn't it?What'syour opinion,
Francisco?
FranciscoI think it is, yes.I mean,I'msureEstheris
right.But it wouldbe niceto knowwhat
potentialadditionatoperatingcoststhe
companymightbe facing.
Esther No, I agree.Betterto be safe than sorry.I can
ask the solicitorsto go throughatl the
leaseholdagreements
againand to check
commercial
rentsin all the relevantlocations.
ThenFrancisco
and I can havea short
meetingto re-assess
the levelof risk.
Mau
A n d w h e nd o y o u t h i n ky o u 'l tb e a b l et o g i v e
me the figures?
Esther Err...lt dependson our soticitors.
I mean,it's
one or two days'workat most.So we could
ask themto get backto us by Thursday.
Francisco?
Wouldyou havetime for a
meetingon Friday?
FranciscoSure.l'vegot appointments
throughmostof
the afternoonbut the morning'sfree.Shatt
we say9.3oand then we canget our figures
to Matt by lunchtime?
Esther Soundsfine.
Mott
Good.Now beforewe moveon I'diust liketo
s a yo n e m o r et h i n g . . .
HiEsther.
HiOliver.
OK.I knowyou'veboth
gotfullschedules
rightnow,so let'sget
started.
Now,oursolicitors
in theU.K.have
process
completed
theduediligence
on our
targetcompany,
NoFrills.
Canyoutakeus
r>
through
theirfindings,
Esther?
<t
l2
Esther Certainty.
Wetl,whatyouhavein frontof you
Part z
prepared
is a summary
byStefan,
ourtrainee
Matt
So,we can'tyet confirmour olfer pricebut,
lawyer.
Youcaninspect
theoriginal
assumingit woutdbe in the regionof f7.5
documents
in myofficeat anytime,of
million,what are our financingoptions?
course.
And...no unpleasant
surprises
reatty,
FranciscoBasically,there are three options- some of
It'sa limitedcompany,
registered
in England
whichcouldbe combined.We canfinancethe
Transcriptsles
we
acquisitionout of our capitaIreserves,
can borrow,or we can paythe threecurrent
ownersin the form of newlyissuedsharesin
Foodstyte.
Matt
And whichoptiondo you favour,Francisco?
FranciscoI'd oreferto issue new sharesto the vatueof
f7.5 mittionand buy out the ownersthat
way.The limitedcompanycontinuesto exist
as before.There'sjust a changeof owner,
wouldbe enteredinto
that'sal[. Foodstyle
ofCompaniesas the ownerof
the Register
Mott
Esther
roo%of theequityof NoFrills.
Anyviewsonthat,Esther?
possibte,
of course.
But
Wetl,itl perfectly
theriskof upsetting
existing
there's
always
Wehavesomequiteimportant
shareholders.
institutional
shareholders
andtheymight
worryabouttheimpactof a newshareissue
Andweshouldn't
on theirownshareholding.
forget- company
lawstipulates
thatthe
havetherightto buynewly
shareholders
Wewouldneedto geta 75"/"
issuedshares.
their
votefromthemin favourof waiving
rightto theseshares
beforewecouldoffer
Votes
of NoFrills.
themto thethreeowners
tikethiscanberiskv.
Matt
And bringingin loancapital?
Esther I'm againstit.
FranciscoI'm not in favoureither.Yousee, borrowing
conditionsare not so easyat the moment,so
we mightbe lookingat fairlyunattractive
ratesof interestand a drainon the
company'sfinancesfor the entirerepayment
period.
Mott
And what abouttakingthe moneyout of
| think we needthe
capitaIreserves?
approvaI here.
shareholders'
Esther Absotutety.lt's neededfor any acquisitionof
a companyor a stakein a companyinvolving
an obtigationof morethan z mi[[ioneuros.
of a
But we wouldavoidthe comptications
shareissue.
FronciscoOfcourse,you'reright. But our capital
reservesamountto ro millioneurosat the
moment.I don'twant themto becomeso
ourselves.
deptetedthat we over-expose
Afteralt,our recentacquisitionThe Bread
Companyisn'tdoingso well and we may
to approvea
haveto ask the sharehotders
releaseof capitalfrom our reservesto
financeinvestmentthere.
Matt
Yeah,it's as I thought.There'sno easy
answerherebut I thinkwete a[[agreedthat
an excellentacquisition
No Friltsrepresents
So why don'twe now ...?
opportunity.
a
t3
YouhavereachedJanaBurzinski.I'mafraidI'm
not availableto take your catlrightnow.But if
you leaveyour nameand number,I'll get back
to you as soonas possible.
Hi.lana.PietForsterhere.I got your email.Glad
checkedout OK.On the risk
that everything
auditissue- yeah- | seewhereyou'recoming
from on this.As you say,it coutdbe very
important,so | - er - don't havea problemwith
payingfor legalservicesif altthis is reallygoing
Tocomebackto your
to get us somewhere.
e m a i l - y o u d o n 'tr e a t l yg o i n t o a n yd e t a i l a b o u t
the scopeof the audityou havein mind.So - er
- beforeyou go ahead,canyou fill me in on
that?Thanks.Speakto you soon.Bye.
a
74
So. let'smoveon to the mainreasonfor our
analysis
meetingtoday- this riskassessment
you'veboth beenworkingon..lana,how do you
want to oroceedon this?
to hear
Jono Wett,I thoughtit wouldbe interesting
from Fergusfirst and then I cango on to set out
someof the other riskswe mightbe facing.
Piet
Fine.So,Fergus.Howdo thingslookfrom your
oointof view?
good.But I did find ctausesin the
Fergus Generally
that we shouldperhapslookat in
agreements
moredetait.I've- uh - prepareda printout of
the retevantctausesand I will try to keepthings
as possible.
as straightforward
Piet
Wetl,I'm certaintygratefuIfor that, Fergus.
Fergus Nowthe firstdocumentI'd tiketo drawyour
attentionto is the leaseholdagreementfor our
officesherein London.
Piet
lt's comingup for renewaIsoon,isn't it?
Fergus Exactly.As you can see from clause2.6, the
extendedby fiveyears
teaseis automatically
statein writingtwelve
untesswe specificatly
monthsbeforethe terminationdatethat we
don'twant this.
Piet
Butwhere'sthe problem?
Fergus I think it's clause5 that'sthe problem.Yousee,
your rentfor thesepremiseshas beenrising
steadityoverthe pastfive yearsin tinewith the
consumerpriceindexwhereastypicalrentsfor
and officespacein this part of the
commerciaI
youte probably
city havebeenfalting.Basically,
payingaboutro to r5olotoo muchat the
moment.What'smore,if this agreementis
extended,then clause5 will
automatically
continueto applyfor the nextterm of five years.
Piet
I see.So what do you suggestwe do?
shouldyou just allow
FergusUnderno circumstances
I
the leaseto be extendedautomaticaltv.
suggestyou statein writingas soonas possible
that you waiveyour right underclause2.5 but
that you wishto negotiatea new leasefor these
premises.
Thiswilt giveyou the chanceto
renegotiate
clause5 and thus savequitea lot
of money.Youarealsoholdingan optionon
zoo m2of officespaceon the zndfloor.Do you
reallyneedthat space?| mean,you haven't
you can get
neededit so far.lf you renegotiate,
that clauseremoved.
Pie:
0K. Thatall makessense.Andthe otherthings
you noticed?
tegLs Well,I had a look at the redundancy
proposats
you sentand I think it woutdbe betterto
you're
renegotiate
the sizeof the compensation
I mean,three
offeringin caseof redundancy.
months'salaryfor everyyear'sservicecouldbe
veryexpensiveif you had to lay off r5 or
zo staffoneday.I think,too, that any
proposaIshouldspecificatty
compensation
Piet
86 | Transcripts
statethat sucha paymentwouldbe grossand
- social
subjectto all the relevantdeductions
insurance,
tax etc.
Piet
5o this three monthsthing isn't some statutory
amount.
Fergus No, not at all.Thisis an entirelyvoluntary
arrangement
and one that is potentialty
disadvantageous
to you.
Piet
Fine.I canask the HRmanagerto get onto that.
And you foundone morethingtoo, didn'tyou?
Fergus Yes.lt's a ctauseagreedwith Finnwood,the
Finnishtimberprocessors
you acquiredat the
end of last year.
Piet
But that wholeacquisitionhas beena great
successso far!
Fergus Absolutety.lt's iust that...
Jana MaybeI couldiust comein here.
Fergus Sure,by all means.
vatuing
Jano Yousee,whenwe acquiredFinnwood,
the companywas not at atl easy.So,we
insertedthis priceadiustmentclause.lt's alI
aboutthe company'stiquidityand,essentially,
it meansthat we may haveto pay a little extra
at the beginningof nextyear.
Piet
Howmuch?
Jano lt dependson somequitecomplexcatcutations,
but it couldbe as highas 5oo,oooeuros.
Piet Are you suggesting
that we cha[engethis
agreement?
Fergus Not at alt.Theagreementis quitefairand
reasonable.
What I woutdrecommend
is that.ar
the beginningof nextyearwhenyou decideon
profitallocationin the company,you allocate
an appropriatesum to the capitatreservesin
order to coverthis risk.
Piet
ls that goingto be possible,Jana?
lt'sjust goingto meanlessmoney
Jona Definitely.
goingto the shareholders
nextyearor being
availablefor investment.
Piet
I can see that there'smore to this risk
management
businessthan I realized.Before
we discussJana'sfindings,why don't we takea
shortbreakand ...
r-r
(t
75
Thankyoubothforcoming
at suchshortnotice.
Asyou'veprobably
press
seenin thefinancial
thismorning,
oneof ourmaiorclients,
Futler's
Construction
Ltd.in theU.K.,hasgone
bankrupt.
I'vecalledthismeeting
to findout
exactty
whatthismeansforus.Maybeyou
coutdfiltusin on thetegalsideof things,
Fergus.
Fergus Certainly.
Well,I'vechecked
theRegister
of
Companies
andFuller!Construction
is listed
thereasbeingin compulsory
liquidation.
Piet
Sounds
bad.
Fergus I'mafraidit does.
Yousee,thedirectors
ofthe
company
clearly
tooktheviewthatthe
company
couldn't
service
itsdebtsandcouldn't
berescued.
Theycouldhavefiledforan
administration
orderbuttheydidn't- instead
theypetitioned
thecourtto makea winding-up
order.
I'mafraidyou'velostme,Fergus.
Jano Metoo.
FergusSorry,Basicatty,
whena company
is 'in
administration'
thentheadministrator
istrying
goingas
to keepasmuchof thecompany
possible.
Butwhena courtissues
a winding-up
order,it appoints
a liquidator
whoseiobit is to
realize
theassets
of thecompany
in orderto
satisfyits creditors.
Piet I see.Sothewholecompany
isgoingto besold
off.
FerqusWell,its assets,
yes.
Piet Andhowdo westandwith FutlerbConstruction
rightnou Jana?
good,l'mafraid.
Theydefaulted
Jono lt'snotlooking
on payment
on oneverylargeordersixmonths
ago.Thentheymadeanother
[argeorderand
werestructured
thewholetermsof payment.
I
justa fewminutes
checked
ourrecords
ago.
Theyweredueto paythefirstinstalment
at the
beginning
of lastmonthbut...
Piet Sohowmuchareweowed?
tona About1.5millioneuros,l'mafraid.
Piet (sounding
resigneAWett,I suppose
wewitljust
haveto register
ourselves
asa creditor
andwait
to getback- wetl- someof whatwe'reowedat
teast.
Fergus I'mnotsurewecancountonthat.
Piet
You'regoingto haveto explainthat.
Fergus Basicatty,
FormandFunction
is a supplier
and
qualifies
asan unsecured
creditor.
Aheadof
youarepreferential
creditors
likethe
emptoyees,
whomaybeowedwagesand
secured
creditors
or charge
holders
likebanks,
wholentmoneyto thecompany
andsecured
theloanagainst
thecompany's
assets.
And
thentherearethecostsoftheliquidation
process
itself.Theytoo haveto be paidbefore
the unsecured
creditors
canbesatisfied.
Piet
5o whatwouldyouadvise?
Fergus Wetl,certainty
youshouldregister
asa creditor.
But,if I remember
thesaleof goodscontract
for
thisctient,
titledoesn'tpassto thebuyeruntil
thegoodshavebeenpaidfor.lt couldbe
possible
to getthegoodsbackagain.
Piet
Jana?
I'mnotsurewewouldreallybenefit.
I mean
Jona
someof thefurniture
is already
in use.Another
probtem
isthatit wascustom-built
to
specifications
of theclient.
Wemightbeableto
offloadit for a fewhundredthousandeuros.
Butthere's
thedamage
to ourbrandto consider
goodsat knockifwe startselling
second-hand
downprices.
Sotheworstcasescenario
is thatwewillhave
to takea hitof r.5 millioneuros.Canwedo
that?
Well,I'vebeengoingthrough
lono
thefigures
andI
imagine
that,withsomedebtrestructuring,
withsomecostcutsacross
all levets
of the
company
withvoluntary
andpossibly
redundancies
of zo or 3o staff,we'ttbeableto
getthrough
thiswithourcorebusiness
intact.
Piet
Sounds
toogoodto betrue.Maybeyoucould
gothrough
thefigures
andthen...
la z
Answer key
Low
forentrepreneurs.
company
butmakelifedifficutt
mandatory
levelsof equity- asin thecaseof the
- aregoodnewsfor
Engtish
limitedcompany
entrepreneurs
butmakelifemoreriskyforcreditors.
PaEe5
5tarter
Articlesof association/ articlesof incorporation
seeDidyou know?boxon page10
Soletrader
- an
Soletrader-thesimplestformof business
of the
whoownsalltheassets
individuat
oerson
business
andis liabteforattof itsdebts.
capital
Equity/ Company
a certain
Thelawsaysthatforlimitedcompanies
mustbepaidin whenthe
amountofcashor assets
a
is formed.
Thelawdoesnotrequire
company
This
amountof equityforpartnerships.
minimum
sothatthere
capitalmustalwaysbeavaitable
company
ifthe
areat leastsomeassetsleftto satisfucreditors
goesbankrupt.
company
Tangibleassets
Therearedifferent
Assetsis anotherwordfor property.
assets
arephysical
andtangible
categories
of assets,
vehicles,
raw
buildings,
e.g.equipment,
objects
but
arenotphysical
objects
Intangible
assets
materials.
patents.
know-how,
theyhavea valuee.g.goodwill,
Registerof companies
(Companies
mustbeentered
House)attcorporations
keyinformation
aboutthe
contains
here.Thisregister
andthe
e.g.thenameofthecompany
company
address
of its headoffice,the namesof its directors,
it
thekindof business
thedateof itsformation,
This
conducts
andthesizeof itssharecapital.
of the
byanymember
information
canbeinspected
publicandis increasingly
available
ontheInternet.
Unlimitedliability
peopleandfor
existsforself-employed
Thisprobtem
partnerships,
is
Inthesecases
thebusiness
ordinary
legalentity.
Thismeans
thatliabitity
nota separate
lf thecompany
of thecompany.
restswiththeowner(s)
hasdebts,theowneris tiabteforthemandis not
- evenif it meanshim
to limitthistiability
altowed
the
losingtheroofoverhishead.Ina corporation
is timited
to thevalueof the
of a shareholder
liabitity
heor sheholds.
shares
r 1 ony our ow n
z debts
3 personal
4 agreement
5 Owners
6 separate
7 shareholding
8 cash
9 publicty
pege7
2
partnerships
areindeedbecoming
Limited
liabitity
and
tawyers,
accountants
amongst
morepopular
canrunto millions
of euros.
whosetiability
architects,
muststrike.High
thatthelawmaker
Thisis a balance
in a
confidence
mandatory
levelsof equitycreate
probtem
but
foryoungcompanies
Thisis a particutar
fora bankin this
onehasto havesomeunderstanding
is
Lifegetseasier
oncea company
situation.
newbank
Thenitsdirectors
mightsecure
established.
nottheirpersonal
assets,
loansagainst
thecompany's
assets,
3 Part1
7 2007
goods(foodand ctothing)
z sellingJapanese
3 furnitureand textites,becauseshe feelsthe
growthpotentiatin this sectoris greaterthan in
the food and clothingsector
4 to offerthem a positionin the restructured
business
5 to find out how to get morecapitaIin orderto
exoandthe business
"tp'3t-8,
3 Part2
a office
b orofits
c snare
d directors
e investor
f guarantee
F8e9
51c
20
3a
4f
5e
6b
p.cero,
6 r IHowdoesthis advicecomparewith yours?]
Somestudentsmay
Thisdependson jurisdiction.
insteadof
discussthe possibilityof a partnership
a company.Thereare no wronganswers:the key
thingsare minimisingrisk (limitedtiabitity)and
paperworkand maximising
money-raising
oossibilities.
z IWhatphrasedoesDeborahuse...?]
The phraseis debt /debt finonce.Confusinglythe
mediadiscussthis as the ovoilobilityof credit.fhe
prosand consof debt financedependon the
economicclimate.Will the banktend,and on what
terms?(interestrates,type ofsecurity,restrictions
ptacedon the runningofthe business,
e.g.the
ownersmay not be ableto se[[[argeassets
thereare
withoutthe bank'sconsent).Sometimes
tax advantagesfor a company,too.
3 [WhatphrasedoesDeborahuse..?]
The phraseis equity/ equityfinance(the
oppositeof debt,in questionz). The prosand
consdependon the economicclimateand the
healthof the business:you canonly raisemoney
by sellingsharesif peoplewantto buy the shares.
88 | Answerkey
Also,sharesoftenhavevotesattachedto them.
Thenew sharehotders
may be ableto influence
decisionswhichthe businessownershavebeen
usedto makingon their own. Do the ownerswant
to giveup a measureof control?
4 Shesaysthis becausein the U.K.companiesneed
to producemoreofficiatpaperworkthan other
forms of business(soletrader andgeneral
partnership).Companiesneedto be registeredat
Companies
Housein orderto do business,
while
othersdo not (thisis differentelsewherein the
world).Theyalsoneedto file (sendin) annualsets
of accountsand to file formseverytime their
membership
and management
changes.The law
alsoimposesa highstandardof behaviouron
directorsof companies,
in contrastto partners
and soletraders.whichare not so closelv
regulated.
7 19
2e
3i
6b
7c
8h
4i
5a
100
9t
8 r view/ thecommercial
register
z issuing
/ shares
ofincorporation
/ a certificate
3 obtained
4 c ond u c/ tb u s i n e s s
5 reiect/ anapplication
5 drawup / a partnership
agreement
7 raise/ capitat
8 debts/ incur
pags12
970
2C
30
b Thisis not uncommonin situationswhereit is verv
imoortantto movefast.
Advantages
- Thecompanyis alreadyregistered
so the amountof
time neededbeforeyou cancommencetradingis
veryshort.
- Timemightbe very important.lmaginea situationin
whichyou want to manufacture
and distributespinoff articleslikeT-shirts,basecaps
etc.which
articulatesomeissueof short-livedpopularinterest.
Yousimplyhaven'tgot the normalamountof time it
takesto registera new company.
- Thiskind of registration
is tessexpensive,
too.
Disadvantages
- A possibtedisadvantage
is that someclaimsexist
againstthe companyyou bought.lt couldbe a
compticated
matterto get out of liabitityfor such
ctaims.
- Because
the companyis no [ongertrading,it is more
difficuttto carryout due diligence.
Page17
a ,f
5a
6e
page13
u r Firstof all
2 Next
that
3 Foltowing
t tl
4 Lasofa
5 At first
pageq
Disadvantages
- Thecompanyhas lessaccessto capital- a possible
problemif it wantedto embarkon a major
investmentprogramme.
- Famityin-fightingcan makedecisionsmoredifficult.
- Companylesswillingto bringin outsideexpertiseto
freshenup its performance.
5 Firstty
Z Secondty
8 Thirdty
9 Finatty
1 3a Bankloansor profitsof business
b S m albl u s i n e s s
Two
d Yes
e Registration
fee.Registration
formalities.
Constitutional
documents
reouired
andmustbe
opento public.
f Untimited
1 Soletrader/ Generatpartnership
z LimitedCompany/ LLP
14 a Therearesomeverylargecompaniesin Germany
that haveremainedprivatelimitedcompaniese.g.
Bosch.
Advantages
- Thecompanyis protectedfrom hostiletakeoverbids.
- Theshareholders
areoftenprimarilymembersof an
extendedfamityand will alwaysact to preservethe
integrityand continuityof the company.
- Thecompanyis freeof the obtigations
that would be
imposedon a [argeplc,e.g.mandatoryquarterty
reDorts.
1 Confidentiality
5 Leaveentitlement
2 Competition
6 Duties
3 Durationof contract/ 7 Applicablelaw
Termof employment 8 Severance
4 Absence
pate 18
1i
2g
4a
ci
r false
2 true
3 true
4 fatse
6b
7 c
8 d
9 f
10 h
5 true
6 Irue
7 false
Page 19
r No.Clauser saysthat other placesofwork are
alwaysof a temporarynature.Themanagermust
decidehow longthe projectgroupwil[ meetin
Lucerneor how longone particularemployee
shouldhaveto workthere.Shecan'tsendthe
sameemployeethereweekafterweek.
z No.Accordingto clause3(z) compensation
for
overtimesotetyby paymentis possibleevenif it is
not typical.Themanagement
can refusebut it
can'tdo this unreasonabty.
lf a managersimply
saysthat he doesn'thavetime to discussthe
matter,this is not reasonable.
Answer
key l8e
3 Probabtynot. lf the boyfriendand the employee
livetogetherall the time (i.e.he doesn'thavehis
own separatehome),then he is her partner.
Clause4.r statesthat the emptoyeeis entittedto
take her leavein the schoolholidaysif her partner
is tied to thesehotidaysbecauseof his / her
Thisis the casebecausehe is a school
orofession.
teacher.
4 Yes.Accordingto ctause5 the sicknote must be
handedin no laterthan four catendardaysafter
the start of the periodof absence.Saturdayand
Sundayarecalendardays,so the sicknotearrived
tate.
The notewrittenby the
the employer.
5 Probabty
doctorbackin
Spanishdoctorto the employee's
Switzerland
is not a formalsicknote in the sense
of clause5. lt simptycontainssomeinformation
aboutthe medicationwhichthe patientwas
given.However,
theremightbe scopeherefor the
employerand the employeeto find a compromise.
6 He is right.Ctause6 statesthat the employeehas
is made
a rightto paidtime off if the vaccination
necessary
by a businesstrip. In this case,the
vaccination
is madenecessary
by a holidayso the
in his or her
employeemust havethe vaccination
own time.
r I apologize
z contacting
3 Unfortunately
4 returned
5 | amattaching
6 reS0tve
7 reasonably
8 wish
9 discuss
10 please
i0li$'&,l,
(suggestedanswer)
got what she
Workinghours:Cathyhas basicalty
wanted.Atthoughthe contractstitldoesn'tsay
specificatly
that the normalweekis Mondayto
Friday,
it saysthis indirecttybecauseweekendwork
is referredto as beingnecessary'from
time to time'.
Leaveentitlement:Thisis definitetynot what she
wanted.Accordingto this,she canonlycarryseven
days'leaveoverinto the foltowingyearand only up
to the beginningof March.
Thisis exactlvwhat she wanted.
Remuneration:
page 21
7a
PerhapsI couldsuggesta compromise
here?
b I am happywith the suggestedamendments
to
ctausestz and4.5.
c Pleaselet me knowif this mightbe possibte.
o It wouldalsogiveme an extramonthin whichto
take it.
As it stands,I woutdstittrisk tosingup to eight
days'leavea year.
f Thankyou for sendingme the contract
yesterday.
amendments
g Furthermore,
I woutdhaveto take any unused
leaveby the end of February.
h Wouldyou agreeto ten days,to be takenby the
end of March?
i Thiswoutdguaranteeme a minimumof z5 days'
teave.
I am a littleconcerned
aboutthe leave
i However,
entittementclause.
Thecorrect
orderis:
rf
zb
3i
4e
8i
5g
6a
7h
10c
9d
page e2
8 (suggestedanswer)
Cathyhas givennoticein writingand her written
noticeis addressedto the correctperson.However,
she has misunderstood
the periodof noticein her
contract.Shecanonlystart a newjob on the rstof
March.
page23
9 r e (right)
z f (right)
I d (obtigation)
ll.l:lil*!4
+ a (right)
s b (right)
5 c (obligation)
il
10 Statement3 bestsumsup what is said.
Thefollowingstatementsaretrue:
1a
zb
3b,c
4b,c
i:t
::.:::
i:::l
:,,:i'tSiiS:S',,,
Starter
'Whathappensil afterthe partieshavesigned,we find
that there'sa mistakein a contract- say aboutVAT?Do
we haveto draw up a wholenew contract?'
Thereshouldbe a severance
clausein a contract.This
ctausemakesit clearthat if one oarticularclausein the
contractturnsout to be an erroror invalidfor some
otherreason.the restofthe contractremains
unaffected.
Theseverance
clauseusuattygoeson to
statethat the two partieswill replacethe invalidctause
with a clausethat is vatidand comesas closeas
possibleto the originalintentionofthe parties.
'Let'ssaythere'sa railstrikeand we faitto deliverour
goodsto the client.I assumewe'reprotectedby the
forcemajeureclause,aren'twe?'
Not necessarily.
lf a rail strike went on for two weeks
and you madeno effortto transportthe goodsto the
clientin someotherway- eventhoughotherformsof
transportmight havebeen possible- the forcemaieure
clausewon't protectyou.
'We had a big orderfrom a clientand the clientsaidit
was OKto ask a third partyto supplypart of the order
for us. But arewe liableif the third party'sgoodsare
defective?'
lt's possibte.lt all dependson how the assignment
clauseis worded.lf tiabitityis not explicittytransferred
to the third partyin the wording,then it restswith the
originalpartyto the contract.So PartyA (thectient)
mightmakea claimagainstPartyB (theother partyto
the contract)in respectof defectivegoodsdeliveredby
PartyC (thethird party).PartyB woutdthen,in turn,
haveto makea claimagainstPartyC!
'l often see termsand conditionsin our sales
documentation.
Aren'ttheyiust two wordsfor the same
thine?'
key
9O I Answer
Yesand no. In a non-soecialist
contexttermsand
conditionsis one of these noun pairs like life and limb
or peaceand quiet-to be understoodas a singleunit
of meaning.However,for a lawyerfermscan be
conditionsor warranties.lfPartyA breachesa
condition,then PartyB has no continuingobligations
if PartyA breachesa
underthe contract.However,
warranty,
then PartyB canclaimdamagesfor this
breachbut the contractremainsin force.
'A clientagreedto buy somegoodsfrom us but he
neededthem urgently.He didn't havetime to wait for
all the paperworkto be drawnup and signed.I senthim
the goodsand he paid- no problem.But was he
actuatlytegattyboundby our verbalagreement?'
ln this situationthe verbalagreementwas binding.
Problemsarise,of course,if the two partiesrecalIthe
detailsof theirverbalagreementdifferently.
'l keepcomingacrossthis wordconsideration
in
contracts.Doesit meanthat you have- sort ofthoughtcarefuttyaboutthe otherparty'sofferbefore
signingthe contract?'
is PartyI's performance
in
No, it doesn't.Consideration
returnfor PartyA'sgoodsor services.
Consideration
is
usuallyin the form of moneybut doesn'thaveto be.
PartyA mightsetlhis motorbiketo PartyB. As
consideration,
PartyB mightagreeto repairthe roofof
PartyA'shouse.
r r High-performance 3 Annexr
LCDscreens
4 DigitatViewptc
z Pixettechnik
S.A.
page a8
z Thereare a few small differenceswhich reflecta
preference
for simplerand moremodernlanguage.
Bothversionsarecorrect:it is a questionof style.
Versionz usesRecitaIs ratherthan Wh ere as.lt uses
to this agreemenfratherIhan hereto.lt also creates
a definitionof Goodsby simptyusingbracketsand
q uotation marks, ratherthan usingherein after.
3a8
f 5
It is alt set out in Annexz. (see3.r)
3 Wherecanwe find all the pricesfor the different
LCDscreens?
Thisis alt set out in Annexz. (see4.r)
4 l'm just tookingat clause4. CanPixeltechnik
increasethe priceif it wantsto?
No.The pricesarefixedfor the futtperiodofthe
agreement.(see4.r)
5 I'ma littleunclearaboutctause5. ls this a twoyearcontract?
It is a two-yearcontractbut it wilt be renewedfor
one additionatyearunlesseitherof the parties
terminatesthe contract(see5.2).
goes
6 Whatexactlyareour rightsif Pixeltechnik
bankruot?
Youcanterminatethe contractwith zr davs'
notice.(see8.r(iii))
7 There'ssomethingin ctausero ld liketo ctarify.
Can
Whathappensif somegoodsaredefective?
we insiston a reolacement?
Yes,you can.(seero.z)
8 Whathappensifanothercompanysuddenty
claimsthat it ownsthe Datenton Pixeltechnik's
LCDscreentechnotogy?
Canwe be suedby this
company?
No you can't.Ctauserl.r protectsyou againstthis
risk.
r found
z reached
3 listed
4 ari si ng
5 imposed
6 teading
7 failing
8 claimed
pege32
Whatistheprobtem?
paSe29
b/ +
g2
z Whereexacttydoesit say in this contracthow
manyitemswe haveto order?
ca
d6
e1
h7
psge30
6war r ant y
4la dmin istr at or
z comp t y wit h
7 indem nif y
8 exceed
3 terms
4 in vo ke
9 binding
5 winding-uppetition 10 set out
Pixeltechnik
hasto recatlro batchesof 5oo items
eachbecausethey aredefective.
solvethe problem?
Howquicklycan Pixeltechnik
Theyguaranteeto deliveratt 5,oooitemswithin
21Oays.
ls the tone appropriate?
Definitety.
Politeand apologetic.
ls the informationsufficient?
page 31
5 r Justa questionaboutthe penaltyclause.Canwe
reducethe priceby r% if Pixettechnik
detivers
four days[ate?
Yes,you can.Thecontractstates:'...for every
weekor part thereof. Thismeansthat any part of
a week- evenif it is one day- entitlesthe
purchaser
to invokethe penaltyctauseand charge
the full rolo.
In somewaysnot. lt is not clearhow manyitemswill
be detiveredbetweenthe rothand the zr't day.The
letteris alsoa bit vagueaboutthe causeof the
that
oroblem.Theclientwouldwant to be reassured
thereisn'ta serioustechnicalprobtemthat might
turn out to be difficuttto solve.
Answerkev le1
pese33
performance.In
orderto terminatethe contract
after two years,it must givewritten noticeof its
intentionto terminateno laterthan 9o days
beforethe end of the two-yearperiod.
5 A disputeresolutionctausewouldcertainlyhave
Thecontracthas an
beenhelpfulto Pixeltechnik.
Applicablelaw and jurisdictionclause.This means
that disputeshaveto be settledin the courtof law
statedin the clause.As this is an Engtishcourt,a
tegatdisputewould involvesomedegreeof
inconvenience
and extracostfor Pixeltechnik.
8 Theadvicewoutdprobabtybe to invokethe penatty
serious
clause.lf DigitalViewis goingto experience
productiondifficuttiesbecauseof this detay,it might
feelentitledto somefurthercomoensation.
DigitatViewmighthaveto offersome
Furthermore,
kindof discountto its customersto compensate
themfor latedelivery.In sucha situation,Digital
Viewwould be lustifiedin seekingto recoverthese
too. Thisis
additionalcostsfrom Pixeltechnik,
somethingthat wouldhaveto be negotiated.
will dependon
Ultimately,
the soticitors'advice
will haveto bearif
the sizeof the lossPixettechnik
DigitatViewis allowedto terminatethe contract
n o w .A c o u r tc a s ew o u l db e t i m e - c o n s u m i nagn d
potentiatty
if Pixeltechnik's
lossis
costly.However,
g o i n gt o b e c o n s i d e r a b l ei .,e .i n t h e h u n d r e d so f
t h o u s a n d so f e u r o s ,l e g a la c t i o nw o u l dc e r t a i n l y
is well
seemsensible.In any case,Pixeltechnik
advisedto makesureany futurecontractscontain
a disputeresolutionclause.
9 Part 1
1 true
z fatse(Theproductionmanagernoticedthat the
samptingresultswerea problem.)
3 false(Heis not completelysure.He usesthe word
probably.)
4 fatse(Theycarriedout testseveryday but didn't
noticethe problemfor ten days.)
5 true
9 Part z
r - He agreeda newdeliveryschedule.
- He deliveredthe 5,oooscreenson time and the
qualitywas fine.
- He paid15,oooeurospenattyto DigitalView.
z DigitalViewis seekingto terminatethe contract
with zr d ays ' not ic e.
to
3 lt is invokingB.r(i),whichmakesreference
performance
as a reasonfor
unsatisfactory
terminatingthe contract.
is onlygoingto coverits costsafter
4 Pixeltechnik
two years.lf the contractis terminatednow,
witt
beforethe two yearsare over,Pixettechnik
for
makea toss.A third yearwouldbe necessary
Pixeltechnik
to makeany profit.
page34
1<l (suggestedanswer)
r a SinceM. H6rauttusedthe word defectivein his
would
the purchaser
tetterto DigitatView,
naturaltyhaveassumedthat the goodswere
defectivein termsof the contractual
In any case,M. H6raultis a littte
specifications.
unctearabouthow defectivethe 5,oooscreens
were.
seemedto havebeen
r b Thefactthat a compromise
reachedfavoursPixeltechnik.
DigitalView'sgood
faith seemsto be in questionhere.
ofthe
z lt dependshow difficuttthe consequences
productrecallwerefor DigitalView.lf the
problemsthey encountered
with their clientswere
at risk,
suchas to put theseclientrelationships
the n Dig italViewhasa point .lf Digit alView
managedto resolveany probtemswith clients
then,giventhe penattypaid by
amicably,
Pixeltechnik
anyway,its attemptsto terminatethe
contractearlycoutdbe seenas unreasonable.
is important.ln
3 Theconceptof reasonableness
principle,contracting
partiesshouldbehave
reasonably
to one another.
4 DigitatViewdoesn'thaveto go into a third yearif
it doesn'twantto. lt must,however,observeits
obligationsfor the futl term of two years- unless
it can reasonabtyctaimunsatisfactory
ur
invalid
z unlawful
3 unenforceable
4 dissatisfied
5 ineconcitabte
6 unaffected
7 ineffective
8 unforeseeable
9 imparlial
ro unconfirmed
rr incorrect
rz incomplete
r3 unreasonable
r4 unsatisfactory
page35
r3 Taskr - Thecaseaboutthe houseis ctearcut.
Mr Bluereiectedthe originalofferand madea
Thevendorof the houserejected
counter-offer.
Mr Blue'scounter-offer.
In no wav is he boundby his
originaIofferbecausethis offerwas rejected.
Taskz - Theswimmingpool caseis morecomplex.
Ctearlythe swimmingpool is safeto useeven
thoughit isn'tquiteas deepas the ownerwantedit
to be. Somecourtswouldsuggestthat the owner
acceptcompensation.
Othersmightsidewith the
o w n e ra n d i n s i s t h a t t h e w h o t es w i m m i n gp o o l b e
company.
rebuiltat the expenseof the construction
Whathappenedin this particularcasewas that the
Once
ownerwas requiredto acceptcompensation.
was an
again,the conceptof reasonableness
imoortantfactorin this decision.
r4 r defective
2 terminate
3 bi ndi ng
4 specifications
5 terms
6 comply
7 InvoKe
8 expire
pagetT
Starter
. A newdrug substance.
Patent(limitedto 20 years
fromdate of registration,
the so-calledprioritydate,
not date of marketLaunch)
. A rgthcenturyviolinconcerto.Thepublishedmusic
scorewould be coveredby copyrightbut the music
itsetfwascomposedtoo longago.Thedescendants
of the composerwould haveno rightsto royalties.
92 | Answerkey
A new perfume.Thebottte,and the namewould be
protectedby designrightsand trademarks.
However,it is difficuttto protecta smett.
A scientifictheorye.g.e = mc2.Thetheoryitself
cannotbe protected,onlyany commercial
applications.
A distinctivechocotateproduct.Sucha product
would havetrademarkprotectionand possibty
designrightprotection,too.
A TV newsshowformat.Difficutt.Onecouldargue
that a newsshow is of sucha universalnaturethat
you can'tprotectit. However,
if it hascertainvery
identifiabte
specialfeatures,thesemightbe ableto
be protectedby copyright.
A newnovet.Copyright.
A sauceor a drinkwith an unmistakeable
flavoure.g.
HPsauceor Coca-Cola.
TrademarkDrotection.
protectsthe recipeof its
Beyondthis,Coca-Cola
drinkby simptykeepingit a secret.Thehandfulof
who knowthe formutaare neverallowed
executives
to fly together!
A newtype of toaster.A patent.In the caseof this
particulartoaster,the studentwho inventedit
enteredit for a designcompetition.
Unfortunately,
this ptacedhis inventionin the pubticdomain.The
studenthad not yet patentedhis invention,so it was
no longerpatentable.
A photoof the LeaningTowerof Pisaat sundown.
Difficutt.
Thephotographitsetfis protectedby
copyright.lf someonecopiesit out of a bookand
permission,
usesit withoutthe photographer's
this
is a copyrightinfringement.
However,
the imageof
the toweris universally
accessible
and so can'tbe
protectedunlessthe compositionof the photograph
is particularly
original.Thisis a veryimportant
sourceof protectionto photographers
who take
highlyinnovativepictures.lt woutdbe unfairfor
someoneto iust standin the sameposition,recreate
the imageand then offerit on the marketat a knockdown orice.
page38
1 format
2 damages
3 generar
4 copyright
5 patented
6 competitor
7 infringement
B vatidity
9 trademark
ro plaintiff
a Thisis a caseaboutcopyrightand went all the
wayto appeal.Theptaintiffclaimedthat his
copyrightexistedin the scriptsto his showand in
the format.Hisproblemwas that he was required
by tawto demonstrate
that his showshouldenioy
protectionas an originaldramatiu,vork.The court
took the viewthat a tatentshowis somethingthat
can'tenjoycopyrightprotectionbecausethis
would be uniustto anyoneelsewho wantedto do
a talentshowon TV.In its view,Mr Green'sshow,
despitethe catchphrases
and somedistinctive
formatfeatures,remaineda talentshowand,
therefore,undeserving
of copyrightprotection.
b Thisis a caseaboutpatents.TheCourtofAppeat
foundthat the patentwas indeedvalid.
Somethingthat mayseemobviouswith hindsight
mightnot havebeenobviousat att beforeit was
done.Generatty,
this questionof obviousness
seemsto be a oroblemin oatenttawthat refuses
to go away.
c Thisis a caseabouttrade mark protection.
The
courtdecidedthat,despitethe namechange
made by the defendant,the likelihoodof
confusionstill existed.lt found for the ptaintiff.
paSe 40
r false
2 IrUe
3 true
4 fatse
5 false
r only
2 wants
3 bought
4 given
5 writtendown
6 guarantees
7 begin
8 ends
9 possible
10agreement
page 4ol41
r May rst
23.7
38
4 5
5 5.2
6 {
Page 42
expressa contrast
However/Nevertheless
o r o v i d ea d d i t i o n a l
information
Moreover
expressa consequenceAs a result
ln my view
statean opinion
restateor reformulate
some information
ln other words
I Moreover
z However
3 As a result
4 ln otherwords
/ However
5 Neverthetess
1 true
z false
3 true
4 false
5 rrue
page4t
1 purcnaser
z rightsholder
3 pubtisher
4 8o,ooo
5 4O,OOO
6 threemonths
7 one year
8 4O,OO O
Page 44
ro r Thepaymentperiodyou suggestis a litttetoo
s h o r t/ i s n 'tq u i t el o n ge n o u g h .
z I think our shareof the royaltiesis a tittletoo low
/ isn't reattyhighenough.
3 | don't think that'svery practica[.
4 lfyou extendedthe licenceareato includelapan,
we would/ could/ mightacceptroyaltiesof 4olo.
5 | don't think our boardwoutdagreeto that.
?agery+| 45
rr7
a,b
zc
ab
4b
5a
page 46
r3 r ownership
z pubti sher
3 unauthorised
4 adaptations
5 hotder
6 fi nanci at
7 infringement
I loser
9 inspiration
10 creator
rr permission
rz criticism
ThecourtfoundforJ.K.Rowting
Bros.,
andWarner
statingthatthepublication
oftheencyclopaedia
wourldcauseRowlingirreparableharm,
Answerkey lgs
pag€ 48
Starter
An employee,possibly
1 In favourof moreregulation.
a memb ero f th e unionor t he wor k sc ounc il.
z Not in favourof moreregulation.Possiblya director
of a comp an yo r a bus ines sanaly s t .
3 Slighttyunclear.Soundsas if she seesthe OFTas
somethingthat, in reality,doesn'tmakemuch
Probablythe directorof a company.
difference.
4 Theowner/ directorof a companythatwas taken
Veryhappy
over.Not in favourof moreregulation.
with the way thingsturnedout for his company.
Page49
1 1 merger
z results
3 ac quir ed
4 takeover
5 targeted
5 ex pans ion
on
z r false(Hefindsthe company'sdocumentation
confusing.)
M&A procedures
on both.)
z fatse(Thereis documentation
3 true
PagG50
3 2f
8b
3h
9e
4a
5c
6d
7g
page 5r
to information:
4 Changes
Stepf: Estherneedsto add that for small
(up to z millioneuros)the supervisory
acquisitions
boarddoesnot needto be consulted.
Stepc: TheCE0can representthe companybut only
with anotherboardmemberor an authorised
signatory.
for whichthe superStepe: Forthoseacquisitions
visoryboardneedsto be consulted,the necessary
majorityof represented
equitycapitatis now 75olo.
page 52
of t hos eper s ons
5 r NDAsset o ut t he obligat ions
who comeinto contactwith certaininformation.
Theagreementsetsout in detaitattthe things
that thesepersonsare not allowedto do with this
Theagreementalsospecifiesa fine if
information.
Thefine doesnot exclude
its termsare breached.
the injuredparty'srightsto seekfurtherdamages
quiteeffectivebut the
in a civilaction.Generally
burdenof prooftieswith the injuredparty.
z LOlsdo createobligationsand veryofteninclude
a fine that must be paidif eitherpartyis in breach
of the termsof the LOl.CiviIactionsfor damages
beyondthe fine paidare not excludedunlessthis
is specifically
stated.LOlsare goodat giving
pa rtiessom eas s ur anctehat a c om plic at ed
process(e.g.a plannedmerger)that witt costtime
and moneyis beingtakenseriouslyby the other
party.However,
they provideno guaranteethat a
particularcontractwitl actuatlycomeinto being.
3 TheSECwould becomesuspiciousif therewere
unusuaIpatternsof tradingin a particular
company'sshares.Theywould havethe rightto
c h e c ki f a n yo f t h e n a m e so n t h e i n s i d e rl i s t h a d
beeninvolvedin sharetransactions
afterthe date
on which,for example,they becameawareof
confidentiaI
informationthat couldaffectthe price
of a company'sshares.Provingthat a criminat
offencehas beencommittedcan,however,be
extremelvdifficutt.
4 Not everythingis entrustedto the freemarket.
Thinkof the LawSocietyor the GeneralMedicaI
Counci[.
Thesebodieshavethe exclusiverightto
professions.
A
regulatetheir respective
competitororganisation
isn'tatlowedto offerthe
sameservices.
page 53
. Resolutiondoes not coltocatewith ollocoteand
enter.
The two synonymsarc pass andcarry.
. Approvaldoesnot collocatewith se/ecfand
ocquire.
The two synonymsare withhold and refuse.
, Agreementdoesnot cotlocatewith assumeand
inform.
The two synonymsarebreak and violate.
. Meeting does not collocatewilh resolveand
maKe.
The two synonymsarecall and convene.
1 reiect/ resotution
z seek/ approval
3 convene/ meeting
4 drawup / agreement
5 attend/ meeting
6 withhotd/ approval
page34
Part r
a N a m eo f c o m p a n yN
: oFrills
Paid-upcapital:f3oo,ooo
F o u n d e di n : z o o 5
Currentdebts:nil
Typeof company:limited
Currentno.of caf6s:16
N o .o f s h a r e h o l d e r s : 3
Styteofcaf6s:retro
Countryof registration:
England
b Theyare short.Whentheyexpirethe landlordmay
w a n tt o d e m a n da m u c hh i g h e rr e n t .
c Estherwill ask the solicitorsin Englandto check
againthe leaseagreements
and the market
rentsin the relevantlocations.Esther
commercial
will then quantifythe risk.
and Francisco
Part 2
a He would liketo paythem in the form of Foodstyle
p l cS n a r e s .
b lt wouldstilt be a limitedcompany.ltwould now
plc.
be a whollyownedsubsidiaryof Foodstyte
c Theexistingshareholders
mustagreewith a
majorityof 75'/otowaivetheir rightto a new
shareissue.
d Theythink that the bank'sinterestratesmightbe
wouldalsoburden
unattractive.
Therepayments
t h e c o m p a n yf o r a n u m b e ro f y e a r s .
e lt doesif it wantsto take out morethan EUR 2
mitlion.
f Becauseit may needmajorinvestmentsoonand
this moneyshouldcomefromthe capitalreserve.
94 | Answerkey
psge55
r or d
zb
3a
4h
5e
6c
7f
8g
pagej6
111 true
z true(Thisis madectearin 4 (z).)
3 true
4 true
5 false(Theselteralsohastherightto makeclaims
in addition
to thestatedamountof 5o,oooeuros.)
Health and safety legislation representsa risk because
new processes
or facilitiesmay be moreexpensive
to
designbecauseof this legislationor may be
constructed
and then not allowedto go into use
becauseof complianceproblems.
r rb
2e
3t
4a
5d
6c
page 59
z r b a i lo u t
z drawnon
3 set back
4 go unoer
5 put up
6 write off
7 w i n du p
8 wipe out
page 6o
page 58
Starter
Trademarksneedto be monitoredin caseof passing
off. Patentsneedto be monitoredbecausethey expire.
A product'sprofitabilityis inevitablyaffectedwhen it is
no longerprotectedby a patent.Legalchallenges
to
patentscanalsorepresenta risk.A companymay have
to investa lot of moneyto defendits patentrightsin
cou rt,
Warrantiescan representa risk,especiatty
towardsthe
end of the warrantyperiod.Realistic
sumsfor repair,
maintenance
and replacement
of defectivegoodsneed
to be set asideto coverthis risk.
A companypensionschemecan quickly representa
riskto a companyif it has,on the one hand,a
contractual
commitmentto providea particularpension
schemebut, on the otherhand,has not doneenoughto
ensurethat the necessary
fundsare reallyavailable.
Thisha pp enst o m or ec om panies
t hanone m igh tt h i n k .
Contractswith supptierscan representa risk in all
kindsof ways.Thequatityof the supptier'sgoodsand
servicesmay be a problemor the completionof work by
specificdeadlines.
Therelevantcontractshaveto be
draftedverycarefullyto ensurethat, if the supplier's
performance
is unsatisfactory,
the damageand
inconvenience
causedto the other partycan be keptto
a min imum .
Equipmentrepresents
a risk becauseit wearsout or
becomesobsolete.Moreover,
the tax advantagefrom
its depreciation
is onlyavaitabte
for a limitednumberof
years.
Compliancewith the corporatecode can be extremety
important.We only needto think of companieslike
Enron,whereexecutivestandardswerenot as highas
they shouldhavebeen,to seethe enormousdamage
that canbe doneto a companyand its reputation.
Ctoserto home,a certainsupermarket
discountercould
haveavoideddamagingpubticityif they had monitored
adherence
to data protectionlegislationmorecarefully
and a well-knownDAXcompanycouldhavepreventeda
longand painfulperiodof introspection
if it had
monitoredcompliance
with its own guidelineson the
paymentof bribes.
Employmentlegislation is alwaysa risk factor.A
companyneedsto understand
exactlywhat its
obligationsare,so that it can manageits staffwithout
fearof beingoverruledby a courtof law.
4 r Shethinksthey aretoo focusedon healthand
safetyand insuranceissuesand not enoughon
commerciat,
financiaIand legalissues.
z i) Over-reliance
on majorclientsis a risk if the
m a j o rc t i e n tb e c o m e si n s o l v e not r s i m p l y
decidesto usea newsupplier.
ii) Exchange
rateftuctuations
canwipe out the
orofiton a transaction.
iii) lt is a riskto havea sum of moneysecured
againstan assetwherethe asset,if realized,
cannotcoverthe sum securedon it. Thiscould
forcethe companyinto insolvency
if it got into
financiatdifficutties
and was unabteto service
its debts.
3 FergusWinterwould lookat risk management
from a legalpointof view.
page 6r
2c
51aab
* lsee whereyou\e coming
from is sometimesa
politeway of signatting
disagreement.
6 Foranswersseeexercisez below.
page 6e
7 Clausesz and 5
Thesectausesarefrom a leaseholdagreement.The
automaticrenewalctauseis a risk becausethereis
the agreement.
The
then no chanceto renegotiate
tawyerrecommends
terminatingthe agreement
whilstat the sametime signatling
that one wishesto
negotiatea new teaseholdagreement.
Another
is the factthat
importantreasonfor renegotiating
the companyis holdingan optionon - and payingfor
- 2oom2of officespacewhichit probablydoesn't
neeo.
Thetink betweenthe rentand the ConsumerPrice
Indexis only fair if commerciaI
rentsare risingin line
with inflation.Thisis not the casein this particular
districtof London.Basically,
the companyis paying
too/otot5o/omore rent than the marketrate.
Clause3
This ctausecomesfrom a works councilagreement,
whichsupplements
the contractof emptoyment.
This
packageand
is a fairtygenerouscompensation
wouldbe veryexpensive
for the companyif it had to
makestaffredundant.Thecompanyshould
renegotiate
with the workscouncit.
Answerkey le s
Clause6
This clausecomesfrom a companyacquisition
it makesclearthat Formand
agreement.Basicatty,
Functionmighthaveto pay an additionalsum for a
companyit recentlyacquired.Thecompanyshould
find out how largethis sum mightbe and should
makeprovisionfor this.
page 63
8 r At no time was my client madeawareof the true
financialcircumstances
of yourctient'scompany
when he signedthe contract.
z Setdomdoesone comeacrossan employment
contractwith as manyloopholesas this.
that
3 lt is the wholequestionof misrepresentation
interestsme in this case.
4 What the membersof this unionfind particularly
unfairis that the companyis considering
cuts
year,
aftersucha successfuI
5 What | find suspiciousin this caseis that the
companywas registeredin the Caymanlstands.
6 There sto ft hec laus eis f ine.Howev erit. is t he
lastsentencethat is opento interpretation.
of two major
9 r Coltapsein orders/ insotvency
clients
plan.
z Theyrefusedto supporta debt restructuring
3 Formand Functionis thoughtto be a malor
supplierand coutdbe affectedby this bankruptcy.
page 64
ro r fatse(Anadministration
ordermeansthat an
attemptwill be madeto rescuethe company.A
winding-upordermeansthat the companywill be
tiquidated.)
2 true
3 false(Therepaymentprobtemsfirst begansix
monthsago.)
4 true
5 true
6 fatse(Shethinksthe lawyeris rightbut she isn't
surethat gettingthe furniturebackwill benefit
the company.)
7 t(ue
8 true (Byimplication.
Shesaysthat the company
shoutdbe ableto keepits corebusinessintact.)
l
Themortgageon Ranjit'sftat and the loansecured
on it do not exceedthe valueofthe flat. lf Ranjitcan
find an alternative
sourceof incomequickly,he
shoutdbe ableto continueto meethis mortgageand
loanobligations.lf he doesthis,the secured
creditorswilt haveno needto forcehim to sell his
h ome .
Ranlithas madeprogressin payingoff both the toan
and the mortgage,so wit[ be seenas creditworthy.
he
lf he realizeshis receivables
and his inventory,
will ha veEURr 8, ooo.
creditors,theywill be
As employees
are preferential
entitledto EUR5,ooo.
Theremainingsum of EUR rz,ooowould be available
to be distributedamongstthe unsecuredcreditors.
Thereis nothingto be gainedby the unsecured
creditorsseekingto forceRanlitto selthis home-
evenif this wereoossible- becauseits vatuewoutd
only be sufficientto satisfythe claimsof the secured
creditors.
Assumingthat Ranjitfindsan atternative
sourceof
income,he would be requiredto makefurther
pavments
creditors
for a numberof
to the unsecured
years.
page65
rz r secured
2 a55el
3 distribute
r3 :. insotvent
z lease
3 Severance
4 preferential
5 unsecured
6 repayment
4 acquisition
5 debts
5 loss
Pa8e66
r4 r lf the new machinein the company's
warehouse
hadn't been paid for, it wouldn't have been part
of the insotvency
estate.
z lfthe bankhadn'tsecuredits loanagainstassets
of the company,it wouldn't havegot most of its
moneyback.
in the
3 lfthe creditorshad had confidence
company'sabitityto pay,they wouldn't have
petitionedthe courtto makea winding-uporder.
the
4 lfthe directorshad delayedin registering
companyinsolvent,theywould havebeenguilty
of a criminaloffence.
5 lfthe companyhadn'tgotinto a lot of speculative
non-coreventures,its corebusinesswouldn't
have been exposedto risk.
6 lf it hadn'tbeena companywith timitedliability,
the members'oersonat
assetswould havebeen
at risk.
page68 / 69
Test yourselfl
Across
3 remuneration
5 equity
Z compty
8 invoke
10 sue
12 partnership
r7 articles
r8 binding
r9 waive
20 patentee
zz infringement
z4 force majeure
z7 amendment
z8 realize
Down
r prior
z resotution
4 insolvent
6 issue
9 preferential
11 instalment
13 royalties
r4 specifications
r5 void
r6 entitied
zr security
23 Iargel
25 con5ent
z5 assets
96 | Answerkey
Replyr
I cannotseefrom yourletterwhatform yourbusiness
took. If youdid not incorporate
partnership
it asa company,it is likelythat a
wasformedwhenyouandyourcolleague
startedworkingtogether.
From the details you have given, it seemsthat you unintentionallycreateda
"partnershipat will". Assumingthat you and your colleaguedid not agreeanything
different,thistypeof partnershipcanbebroughtto an endat anytime by anypartnel
evenwithout the consentof the otherpartners.This seemsto be whatyour colleague
did whenhe handedbackhis dutiesto you.
Partnersin a partnershipat will arerequiredto actin goodfaith,whichwouldinclude
beinghonestabout other projects,but nothing in the factsyou havegivensuggests
you abouthis otherinterests.
You do not thereforeseem
that your colleaguedeceived
to haveanyclaimagainsthim on that ground.Evenso,it wouldbeworth calculating,
if you havenot alreadydoneso,the total lossesincurredby the business.
Partnersin
this kind of partnershipusuallysharelossesand profitsequally,so in law you should
bear only half of the total loss.You may be ableto claim the remainderfrom your
colleague.
James Hopkins, berrister
Replyz
Your situation underlineshow important it is for retiring partnersto make clear and
effectivearrangementsfor their departurefrom the firm.
The debi forwhich thefirm is now beingsuedwasincurredafter you and your husband
left the partnership.A departing partner is not usually liable for future debts of the
firm, sincethe retirementitself terminatesthe relationshipbetweenhim or her and the
business.
The claimantshaveincludedyour namesin this claim because,in their view,you and
your husbandhaveallowed the firm to "hold you out" or representyou as partners,
despiteyour retirement.However,the facts that you havedescribedsuggestthat the
claimantsare not likely to succeed.
You did your bestto compelthe partnershipto
remove your names promptly from its businessstationery.You did not therefore
knowingly allow yourselvesto be representedas partners after the date of your
retirement.It is likely,therefore,that you and your husbandhaveno continuingliability
for the debtsof the partnership.
StevenCarter,Partnerat GarfieldBrown