Corporate & Commercial News: March 2015 | Davis Blank Furniss

Corporate and commercial law at Davis Blank Furniss

Welcome to the latest departmental newsletter from Davis Blank Furniss. Our focus this time is on our Corporate and Commercial team.


Sonio Singh – partner in our Corporate/Commercial department – discusses…

Enterprise Management Incentive (EMI) Schemes – Tax Advantaged Rewarding of Employees


Whilst the M&A market continues to gain momentum, EMI share option schemes still remain extremely popular in incentivising key employees/executives. EMI schemes are excellent tools for SMEs in a wide range of sectors given the tax efficiency and flexibility available to an employer in choosing how they operate. A brief overview of the rules and benefits of EMI options are detailed below.

Key Conditions

There are a number of statutory rules relating to the creation and exercise of EMI share schemes that are strictly enforced. The primary conditions are: –

• At present, the total value of shares in a company which may be subject to the grant of EMI options is £3,000,000. In terms of an individual EMI option holder, the upper limit is currently £250,000.

• A qualifying company must be independent and satisfy a gross assets test as well as be atrading entity.

• A qualifying company must also have a UK permanent establishment and have less than 250 employees.

• An individual benefiting from an EMI option is required to be an employee and who works 25 hours a week (or 75% of his working time if that minimum number of hours is not met).

• The employee on his own or with his associates (as defined by statute) must not have ownership of or ability to control directly/indirectly more than 30% of the ordinary shares of the qualifying company.

• There are also a number of key disqualifying events which will take a qualifying company out of the scope of the above criteria.


The relevant benefits of an EMI scheme are: –

• Absolute flexibility for the company in determining how the EMI options will operate -in terms of performance/targets or indeed a loyalty period.

• Employees are incentivised in just the same way as the key shareholders of the company and therefore have common goals.

• No Income Tax or National Insurance Contributions (NICs) are payable on the grant of the EMI options.

• Provided the exercise price of the EMI options is not less than the market value of the shares when the option was granted, no Income Tax or NICs is due on exercise.

• On disposal of the relevant shares, the relevant employees gain will be subject to Capital Gains Tax at a far lower rate than Income Tax.

• There is every possibility that Entrepreneurs’ Relief is available on the disposal of EMI shares at a rate of 10%, provided the employee holds the relevant shares for 12 months after the exercise of the option and remains employed by the trading company during that time.

• There may also be Corporation Tax deductions available to the company when the EMI options are actually exercised.


Key employees in high growth companies can continue to be rewarded in a tax efficient and cost effective way by utilising EMI options. In order to ensure that such options are granted and exercised correctly, detailed legal advice is required.

If you have any further queries, please contact Sonio Singh on

DeBrieF Q&A

Andrew Ryan – partner in our Dispute Resolution department – asks…

Can I Get Out of this Contract?

The answer will depend on the particular facts of the case. Each case is fact specific. I have, however, summarised below some relevant matters to consider when addressing the question.

(a) Is the other party in repudiatory breach of contract?
If the other party is in repudiatory breach of contract then you may be able to terminate (or discharge) the contract. The other party may be in repudiatory breach of contract:

i. If they are in breach of a condition (or vital term) of the contract (however minor the breach);
ii. If they have committed a sufficiently serious breach of a term that is not a condition and the breach deprives you of substantially the whole benefit of the contract; and/or
iii. If they refuse to perform the contract and this amounts to a breach of condition or deprives you of substantially the whole benefit of the contract.
It is important to recognise that not all breaches of contract are repudiatory in nature.

(b) Does the contract have express terms providing for its termination?
The contract may have express terms setting out circumstances in which it may be terminated. For example, it may automatically terminate in certain circumstances (e.g. upon a party becoming insolvent) or you may be entitled to give written notice to terminate it: either without having to give a reason or if you can show that you have the right to terminate (e.g. the other party is in ‘material’ or ‘substantial’ breach).

If you need to give notice to terminate a contract then you must comply with the provisions in the contract as to how and where notice must be given.

(c) If (a) and (b) above both apply: what should you do?
If you give notice to terminate the contract for repudiatory breach, you may be able to claim damages for loss of bargain (i.e. an amount to compensate you for the lost opportunity to receive future performance under the contract) subject to rules relating to causation, foreseeability and mitigation. If you terminate the contract for breach of an express term then your damages may be limited to the loss suffered up to the date of termination unless the contract provides otherwise. The difference between the two can be significant.

(d) What if I get it wrong and give notice to terminate the contract when I was not entitled to do so?
The other party may be able to treat your notice to terminate as a repudiatory breach of the contract. This would allow them to terminate the contract and claim damages from you. For this reason, you may wish to consider terminating the contract for breach of an express term (rather than a repudiatory breach) to reduce the risk of wrongful termination (even if this means you reduce the damages you may recover).

(e) What do I need to look out for?
You must ensure that you do not do anything that may prevent you terminating the contract; for example, you must be careful not to affirm the contract (by your conduct) or be guilty of undue delay before purporting to terminate it.

(f) Are there any other possible ways of escaping from the contract?
Yes – you could consider whether you have any grounds to rescind the contract for misrepresentation or whether the contract can be invalidated for other reasons: e.g. mistake, frustration, illegality, duress and undue influence.

You could also look at whether the contract is void because of a failure to comply with specific legal requirement: e.g. a written contract is required for the sale or disposition of an interest in land.

For more information on Andrew and his work, please click here.


Andy McNish – a partner in our Corporate/Commercial department – asks…

Corporate Law – the end of owners hiding behind nominees?

Since companies were first registered in England & Wales, the membership records of a company (both private and as shown on the public registers at Companies House) have reflected the registered (legal) owners of shares only and have not taken account of any beneficial rights in them.

The Small Business, Enterprise and Employment Bill, currently going through Parliament, is about to change all that. Part 7 of the Bill deals with increasing transparency and central to this is the abolition of the ability of the true owners of companies to ‘hide’ behind nominees.

From a likely implementation date of January 2016, if you are a ‘Person of Significant Control’ (PSC) in respect of a company, that company’s directors will be obliged to put you onto the company’s register of PSCs and to give your details to Companies House – including name, date of birth, usual residential address (which is not shown on the public register), service address and a description of why you are a PSC.

An individual who meets any of the following criteria in relation to a company will trigger a PSC registration:

• Holding more than 25% of the nominal value of its issued shares (in the case of a company which is not limited by shares, the trigger is instead if the individual has a right to more than 25% of the company’s capital or profits);
• Entitled to exercise or control more than 25% of the voting rights in the company;
• Entitled to appoint a majority of the board of directors of the company; or
• Having the right to exercise or actually exercises significant influence or control over the company.
These triggers bite whether the shareholdings or rights are held ‘directly or indirectly’ – which includes via nominees, other trustees or via foreign entities not subject to similar transparency rules.

If there is a group of trustees (or a firm) which if they held the shares or rights as one individual would count as a PSC, but over which an individual has the right to exercise or actually exercises significant influence or control, then that controlling individual is treated as the relevant PSC.

In addition, if there is any ‘joint arrangement’ which pre-determines how rights in shares are to be held or rights exercised across a group of persons, such as some types of shareholder agreement, each of those persons is treated as holding the aggregate number of shares covered by the joint arrangement for the purposes of the PSC triggers.

Shares held by nominees are treated as the shares of the beneficiary, so nominees themselves will not be PSCs unless they also hold sufficient interest in the company in their own right.

BIS is to issue guidance on the exact meaning of ‘significant influence or control’ in due course which has not yet been published. Another section of the Bill imposes the full suite of statutory director obligations on a shadow director (i.e. ‘a person in accordance with whose directions or instructions the directors of the company are accustomed to act’) which will certainly be sufficient to satisfy the PSC ‘significant influence or control’ test as well.

The wording of the Bill is not finalised yet, but significant changes to this area are not expected.

For more information on Andy and his work, please click here.


Holly Rogalski, trainee solicitor…

What does your role at Davis Blank Furniss involve?
I have recently joined the Business department as a trainee solicitor. I enjoy working with the other members of the team to solve client problems in both commercial and contract matters.

What is the best thing about your job?
I enjoy learning from my colleagues and reacting to the specific circumstances of each individual case so that I can best help the client.

What is the best case that you have been involved in?
Prior to starting my training contract, I worked as a paralegal in the Private Client department at the Glossop office. Whilst there, I was involved in a number of applications to the Court of Protection for deputyship orders. Often the client was applying for such an order because they were concerned about the welfare of one of their family members and I was pleased to be able to offer assistance at such a difficult time.

Name the person who has had the biggest influence in your career
My parents have encouraged me to work hard to achieve my goals. They have both inspired in me a love of learning.

If you were not a lawyer, what would you be doing?
Having previously worked for a leading children’s charity, I would probably be working in a project management role, however, my experience in that sector has firmly anchored my passion for putting legal principles and policy into practice.

Contact Us
If you have any queries or require any further information, please do not hesitate to contact our team of specialist solicitors on 0161 832 3304.


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