Third Edition MANUFACTURING SECTOR LEGAL CHECKLIST AUTUMN 2011

Transcription

1 Third Edition MANUFACTURING SECTOR LEGAL CHECKLIST AUTUMN 2011

2 AUTUMN CHECKLIST - CONTENTS Make sure you are aware of these legal hot topics Extension of domain names Pensions auto-enrolment Supplier fraud mitigate the risk The refinancing challenge No default retirement age Supplier insolvency Renewable heat incentive Women on boards Beware the risks of 'a right of first refusal' FEATURE: Construction report Issues covered in 2011 editions. Ask your contact for back copies. Cloud computing Public procurement & manufacturers Share incentives New agency work regulations Business continuity planning Tax issues after the Budget Corporate Manslaughter: lessons learnt from the first conviction Bribery Act update Export controls: strategic goods FEATURE: Post acquisition checklist Environmental regulations Contractual supply chain issues Late payment directive Pension auto-enrolment Olympic Games: marketing regulations Health & safety Product recall Opportunities and risks of social media Competition Data protection This note does not constitute legal advice. Please contact your usual Pinsent Masons' contact or Alison Bond, Head of Manufacturing Sector, alison.bond@pinsentmasons.com or , for further information.

3 EXTENSION OF DOMAIN NAMES The Internet Corporation for Assigned Names and Numbers (ICANN) is the body which has co-ordinated the internet's naming system since They establish the policies which operate the use of generic top-level domains (gtlds), which are the suffices which appear at the end of many domain names, such as '.com' '.org' and '.net'. On 20 June 2011, ICANN announced they plan to extend the number of gtlds which can be used to identify websites on the web. This means, that in the long term, we could see virtually anything appearing at the end of a domain name in any language. This presents opportunities and risks for how you use your internet address to reach customer and stakeholders and is relevant to your digital and multi-channel strategy and even how you contact your customers via . From 12 January 2012, ICANN will begin to accept new applications for gtlds. Application costs around $185,000 plus further possible fees for evaluation of the application. One reason for the high charge is to stop cyber squatters. The evaluation process includes background checks on applicants and checks on registered trade marks and brands in use and a decision will take 9-12 months from filing. 2 types of applicants: Brand owners i.e. Nike may register for '.nike' to use as its domain name or to stop anyone else from registering '.nike' Existing registrars and entrepreneurs may register and sell gtlds such as '.cookery' '.books' '.running' Brand owners can not reserve domain names, but they can file an objection during the evaluation process. The onus is on the Brand owner to watch the ICANN list for conflicting applications. Things to bear in mind: Will customers value a new gtld for your brand? Are you concerned that if you do not register the gtld, someone else will? Could their use damage your business? Contact cerys.wyndavies@pinsentmasons.com for further information.

4 PENSIONS AUTO-ENROLMENT Between October 2012 and September 2016 most employers will have to automatically enrol all of their "jobholders" in a workplace pension scheme or in a national defined contribution pension plan called the National Employment Savings Trust (NEST). Workers must earn enough money to be taxed in order to qualify for the scheme. Employers will have to pay a minimum 3% contribution to these pension schemes. A minimum of 8% of an employee's earnings, comprising a sole contribution from employers or a mix of payments from employer and employee, is also required. Employers should also put processes in place to identify auto-enrolment triggers for existing employees and new joiners (eg when they turn 22 or reach the minimum level of earnings). Individuals can opt out of scheme membership. Someone who has opted out can apply to reenrol, but only once in a 12-month period. Automatic re-enrolment will apply every three years, although employers will have some flexibility about when re-enrolment should take place Only single-person company directors; members of the armed forces; parliamentary staff; police officers; people working on vessels; and those in offshore employment are exempt from the auto-enrol requirements. Employers should ensure that they tell staff about the process, including the values and benefits of the scheme and the options to opt out explained. Employers cannot encourage jobholders to opt out of auto-enrolment nor can they encourage job candidates to do so during the recruitment process penalties will apply. Employers should bear this in mind when communicating with their workforce about the new requirements. Employers should consider how these new requirements fit in with their future HR strategy and remuneration policy. Administration and payroll processes will also need to be adapted. It may be sensible to put together a team responsible for implementing the auto-enrolment requirements within the company. Contact jacqui.timmins@pinsentmasons.com for further information

5 SUPPLIER FRAUD MITIGATE THE RISK Over the past months our clients have noticed a significant increase in the number of supplier frauds, sometimes known as creditor frauds. This type of fraud occurs where a fraudster adopts the identity of a genuine supplier and notifies a company s finance department that there has been a change in its bank details. If the payor company (or local authority, trading entity, etc) accepts this at face value and amends their payment system, genuine payments will then be made to the fraudster s bank account leaving both the true supplier/creditor and the payor company out of pocket. There are instances where the fraudster blags the details of the supplier from an unwitting company employee or, in unfortunate cases, has deliberate inside help from a company employee. Take some simple preventative steps, such as Check all requests for change in payment details with the known supplier/creditor, no matter how minor. Warn finance employees not to give supplier/creditor details out over the phone. Fraudsters are targeting large suppliers/creditors, which suggests they are using published supplier lists which may need protecting. If this function is outsourced or is back-office, ensure these teams are aware of the risk and have necessary controls in place. Don t rely on the banks picking this fraud up during their internal controls.. In another development, there is increasing use of counterfeit cheques in the banking system, which is a fraud that is increasingly difficult to investigate as banks now generally keep copies on microfiche. Finance departments would be well advised to keep their eyes open to this risk too. Contact jim.richards@pinsentmasons.com for further information

6 THE REFINANCING CHALLENGE Banks across Europe face a substantial refinancing challenge over the next two years. In the UK alone, the largest banks will need to refinance or replace around 750 billion of term loans and liquid assets by the end of If your business needs to refinance during 2012, it may be time to bring forward talks with your banks. Challenges: As a result of the short term lending put in place throughout the recession hit 2009, the pre-credit flurry of lending in the first half of 2007 and the 7 year tenor agreements from 2005, 2012 will see agreements signed in 2009, 2007 and 2005 all reach maturity in the same year. This maturity "spike" will, according to some sources, double the amount of debt refinanced in There is likely to be increased competition to bank capital as a result of the strengthening economic climate. Companies who held off financing investment and expansion will be looking to fund capital expenditure plans and new growth. Demand for cash will put pressure on bank balance sheets making the supply of bank funding more difficult to predict and bringing about an upward moving in pricing. Banks are having to focus on their own balance sheets and retain higher amounts of capital due to Basel III and tighter regulatory constraints. What steps should you be taking? Be realistic whilst margins have increased as a result of a risks and regulatory change, bank debt is still cheaper overall than in 2007 and 2008 as a consequence of the low interest rates. Focus on refinancing debt start discussions with your bank early and refinance ahead of time to avoid the spike in demand. Contact alice.broadfield@pinsentmasons.com for further information

7 NO DEFAULT RETIREMENT AGE The default retirement age (DRA) which previously enabled an employer to require employees to retire at age 65, was phased out between 6 April and 1 October Employers can no longer safely force employees to retire. It is still be potentially possible for individual employers to operate a compulsory retirement age, however they will need to be able to objectively justify it (e.g. on the basis of health and safety/physical demand of work for manual jobs).. Contact neil.black@pinsentmasons.com for further information

8 SUPPLIER INSOLVENCY Watch out for standard terms of contract that leave you in a vulnerable position In light of recent events in Japan, the Arab Spring and the economic recession, businesses should be looking closely at their complete supply chain and the vulnerability of their standard terms of contract. Businesses should be looking at their standard terms of contract with suppliers and clients. With the economic recession and businesses going into administration, the importance of clearing defining ownership of the goods is paramount. Standard terms of ownership on delivery need to be changed to ownership on payment, mitigating the risk of a client going into administration and goods not being paid for Business should also be looking at their entire supply chain to see if there is any reliance in any part of their supply chain, on parts or materials sourced from one geographic region of the world. Emergency planning and business continuity plans should be implemented and alternative sources of supply should be identified. If alternative sources are already in place, their ability to cope with potential increased demand should be verified, Furthermore, business should ensure that logistic providers are able to cope with change to supply routes and, if necessary develop and use alternative logistics networks. Contact jayne.hussey@pinsentmasons.com for further information

9 RENEWABLE HEAT INCENTIVE On 10 March 2011, the Government released details of a new policy and draft regulations that will implement the Renewable Heat Incentive (RHI). The RHI scheme will provide fiscal incentives and support for qualifying technology that generate renewable heat. The RHI will offer premium payments for any heat generated from eligible renewable energy sources. The Climate Change Act 2008 sets a legally binding target to reduce greenhouse gas emissions by 80% by The RHI will help to achieve these goals for reducing emissions and facilitate security of supply by encouraging diversification of heating fuels. How will the tariff work in practice? The RHI will provide long term (20 years) guaranteed financial support for renewable heat installations. Payments are claimed by, and paid to, owners of installations and will be regulated by Ofgem. Payments under the RHI will be calculated by multiplying the appropriate tariff by the eligible heat use. The financial cost of installing the new equipment may deter some from switching to the renewable systems. The Government has recognised this and hopes that the market will stimulate new financing options such as energy suppliers providing renewable heating as an option alongside existing packages and banks offering financial support to cover upfront capital costs. A two phased approach: Phase 1 Long-term tariff support will be targeted at the non-domestic sector and large consumers of heat. There will be ring fenced financial support of approximately 15million for households through the Renewable Heat Premium Payment, which will help individuals households cover the costs of installing green heating systems. Phase 2 Domestic households move to same form of long-term tariff support offered to non-domestic subscribers. Contact gordon.mccreath@pinsentmasons.com for further information

10 WOMEN ON BOARDS Gender balance in the boardroom has hit the headlines in the last few months. FTSE 350 companies had until the end of September to announce the number of women directors they are aiming to have by 2013 and The purpose of this initiative is to create access for women to key board members positions. We recently hosted a Panel Discussion on Lord Davies's report, Women on Boards, which raised many questions in what proved to be a lively debate. The Davies Report examines the low numbers of women on the boards of listed companies and attempts to answer such questions with recommendations to improve gender diversity in the boardroom and beyond. The attached report was produced following the Panel Discussion and reports on the issues raised and the questions raised by our invited audience and some of the solutions they offered. Visit for a copy of the report or contact Martin Webster. Contact martin.webster@pinsentmasons.com for further information

11 BEWARE THE RISKS OF 'A RIGHT OF FIRST REFUSAL' A recent case AstraZeneca UK Limited v Albemarle International Corp has highlighted the risks of supply contracts containing "rights of first refusal". Companies should be careful when granting "rights of first refusal" without considering and setting out in full detail the circumstances in which the customer would be prepared to give additional business to the supplier. Many supply contracts contain so called "Rights of First Refusal". These give the supplier the future right to tender for additional business from the customer. Rights of first refusal are often included in supply agreements as a way of reflecting the broad intention of the parties to potentially expand their business relationship. Case overview: Albemarle supplied AstraZeneca with a compound used to manufacture an anaesthetic product. With the possibility of sourcing the anaesthetic directly in the future - instead of manufacturing from the compound - the supply agreement between AstraZeneca and Albemarle gave Albemarle "the first opportunity and right of first refusal to supply AstraZeneca under mutually acceptable terms and conditions". AstraZeneca subsequently wanted to source the anaesthetic direct and began negotiating with two suppliers, Albemarle and Sochinaz. AstraZeneca appointed Sochinaz to supply the anaesthetic. Albemarle brought a claim against AstraZeneca on the basis that AstraZeneca had breached the contract by failing to honour the right of first refusal The court decided: The clause providing that any new supply agreement would be on "mutually acceptable terms and conditions" did not make it too uncertain to have legal effect. Albemarle was entitled to more than a simple right to participate in the tender process for the supply of the anaesthetic. AstraZeneca should have disclosed full details of Sochinaz's offer and given Albemarle the opportunity to match the offer. This raises an interesting question as to how competitive a bid process can be one supplier has pre emption rights. Albemarle had matched the offer made by Sochinaz. AstraZeneca claimed the offer differed because of sole supplier status and duration. After a detailed review the courts disagreed demonstrating the supplier will only lose its pre-emption right if there is a real and substantive difference in the offer it puts forward. The exclusion of liability for loss of profit in the contract was held not to apply in these circumstances (due to its drafting) and therefore AstraZeneca had liability for Albermarle's loss of profit arising from its breach in failing to honour the Right of First Refusal. Contact jayne.hussey@pinsentmasons.com for further information

12 FEATURE: CONSTRUCTION REPORT In June 2011, we published a report in collaboration with Constructing Excellence about supply chain issues in the construction sector. The report is a response from 70 key infrastructure and supply-side contractors, Infrastructure UK, HM Treasury, the Cabinet Office and a range of Government departments. The report outlines the plan for the government-led overhaul of construction practices by drawing up an action plan for change in the infrastructure sector. The plan places collaboration, supply chain integration and intelligent client behaviour at the heart of the campaign. Visit for a copy of the report or contact Richard Laudy for a hard copy. Contact richard.laudy@pinsentmasons.com for further information

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