In an ever-evolving legal landscape, understanding nuances and intricacies is paramount. This issue is brimming with insights and expertise from industry stalwarts that promises to shed light on some of the most pressing topics in the legal domain today. Leading the pack is our feature of the month, where David J. Furtado (Furtado Law) dives deep into the realm of insurance policies and how they stand as a bulwark against the devastating impacts of natural disasters. As climate change redefines risk assessments, it's crucial to comprehend the ramifications on insurance clauses and claims. Special features encompass a range of pivotal topics, from the ramifications of trading while insolvent, as elucidated by Karl Hodson (UK Business Finance), to the maze of cartel investigations in the European Union, expertly decoded by Natalie Greenwood (Euclid Law). Brian Loughman's (Floyd Advisory) in-depth take on the role and complexities of accounting investigations after whistleblower allegations couldn't be timelier, given the increasing emphasis on corporate transparency. Our experts do not just stop at the complexities of corporate law. In the realm of family and personal law, Caroline Bowden offers a primer on getting child-inclusive family mediation right. As we look at personal and corporate issues, mediation emerges as a recurrent theme. TeKay Brown-Taylor delves into its importance in the workplace, and Amara Edblad, in our Thought Leader section, emphasizes its value in personal injury cases. From Europe to the US, this edition also journeys across borders. We explore the unique immigration challenges faced by French and US citizens with Asif Arif and navigate UK immigration avenues for the booming tech sector with Anushka Sinha. At Lawyer Monthly, our mission remains unflinching: to provide you with the knowledge and perspective that aids your practice, strengthens your understanding, and broadens your horizons. As always, we invite you to delve in, reflect, and engage. Warm regards, LAWYER MONTHLY©2023 Universal Media Limited Lawyer Monthly is published by Universal Media Limited and is available on general subscription. Readership and circulation information can be found at: www.lawyer-monthly.com. The views expressed in the articles within Lawyer Monthly are the contributors’ own. All rights reserved. Material contained within this publication is not to be reproduced in whole or in part without prior permission. Permission may only be given in written form by the management board of Universal Media Limited. Approx. 302,000 net digital distribution. Mark Palmer Editor Lawyer Monthly Welcome to Lawyer Monthly Magazine NOVEMBER 2023 EDITION @lawyermonthly @LawyerMonthly @lawyermonthly company/lawyer-monthly Universal Media Limited, PO Box 17858, Tamworth, B77 9QG, United Kingdom 0044 (0) 1543 255 537 Production Team: Emma Tansey, Luke Ostle, Nathan Athersmith production@lawyer-monthly.com Sales Enquires: Jacob Mallinder Jacob.mallinder@universalmedia365.com
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Contents 44 28 6 Monthly Round-Up 8 Lawyer Moves FEATURE OF THE MONTH 12 David J. Furtado Defending Against Natural Disasters with Insurance Policies SPECIAL FEATURE 22 Trading while Insolvent: What are the Legal Consequences Directors can Face? Karl Hodson, UK Business Finance EXPERT INSIGHT 28 Conducting Accounting Investigations After Whistleblower Allegations Brian Loughman, Floyd Advisory 36 Getting Child-Inclusive Family Mediation Right Caroline Bowden, Anthony Gold 40 Unravelling Cartel Investigations in the EU Natalie Greenwood, Euclid Law 44 The Importance of Mediation to Workplace Conflict Resolution TeKay Brown-Taylor, Brownstone Mediation Services 48 Exploring UK Immigration Options for the Tech Sector Anushka Sinha, Vanessa Ganguin Immigration Law THOUGHT LEADER 54 The Value of ADR in Personal Injury Cases Amara Edblad, Amara & Associates, LLC 58 France and US Immigration: Challenges for French and US Citizens Asif Arif, Arif Law Offices 64 Proper Debt Collection Practice in Spain Manuel Hernández, Vilches Abogados 68 Tackling Child Custody Disputes in Switzerland Taïsa Tadè-Klinkenbergh, Klinkenbergh Legal TRANSACTIONS 72 What’s Happening in the World of M&As and IPOs?
Allen & Overy and Shearman & Sterling to Merge Partnerships at global law firms Allen & Overy and Shearman & Sterling have voted almost unanimously in favour of merging to create A&O Shearman. now embark on a period of active integration planning while they cooperate towards the final closing of the transaction, which is projected to take place in or before May 2024. “This is a historic moment for both firms and our profession,” said Wim Dejonghe, senior partner at Allen & Overy. “We are delighted that our partners have voted so resoundingly in favor of this merger, which is a transformational step for the legal industry.” “We have long admired Shearman & Sterling for its outstanding reputation, talent, and client base, and we are confident that together we will create a truly exceptional global firm that will serve our clients’ needs in an increasingly complex and dynamic world.” The combined firm will boast a stable of more than 3,950 lawyers and 800 partners across 48 global offices, in addition to approximately $3.5 billion in joint revenues. The firm’s combined talent pool will be equally fluent in US and English law, with a breadth of insight into various global markets. More than 99% of the partnerships of each of the firms voted in favour of the merger. The firms have announced that they will Monthly Round-Up NOVEMBER 2023 Greta Thunberg Among Climate Activists Charged with Public Order Offence Climate activist Greta Thunberg has been charged with a public order offence following her arrest during a Fossil Free London protest. The 20-year-old has been accused of breaching a Section 14 order put in place by the Met Police outside the InterContinental Hotel on Park Lane, London, where oil executives gathered at an Energy Intelligence Forum event on 17 October. “People all over the world are suffering and dying from the consequences of the climate crisis caused by these industries who we allow to meet with our politicians and have privileged access to,” Thunberg said at the rally. Thunberg, a Swedish national, was released on bail with a trial set for 15 November. According to the Met, which said it had imposed conditions on the protesters under Section 14 of the Public Order Act to “prevent serious disruption to the community, hotel and guests”, 27 protesters were arrested and 26 were charged. The Met added that 21 of those arrested had been charged with failing to comply with orders to move off the road and five had been charged with obstructing the highway. https://commons.wikimedia.org/wiki/File:Greta_Thunberg_spricht_beim_Klimastreik_vor_dem_Reichstag_-_51511273812.jpg Author: Stefan Müller - https://creativecommons.org/licenses/by/2.0/deed.en (CC BY 2.0 DEED, Attribution 2.0 Generic) 6 LAWYER MONTHLY NOVEMBER 2023
to break into the market for mobile games, which is worth more than $90 billion globally. Spencer will oversee the Activision business postmerger, with current CEO Bobby Kotick staying on until the end of 2023. claims was an allegation that Pfizer and Mylan paid Teva Pharmaceutical Industries to delay the launch of a generic version of the device. "Pfizer denies any wrongdoing and continues to believe that its actions were appropriate," said a company spokesperson in a statement. The deal was originally unveiled in January 2022, but faced significant opposition from the UK’s Competition and Markets Authority (CMA), which initially blocked the deal over concerns that the merged company would be able to monopolise the cloud gaming market. The CMA finally approved the deal on the grounds that rights to Activision’s game-streaming services be sold to France’s Ubisoft. The US Federal Trade Commission (FTC) continues to pursue its appeal against the deal, but analysts believe In a 10 October filing in federal court in Kansas City, the wholesalers said the settlement was fair and would avoid the risk that the Court of Appeals would uphold an order by US District Judge Daniel Crabtree dismissing their claims. An EpiPen is a handheld device manufactured by Pfizer that treats severe allergic reactions by automatically injecting a dose of epinephrine. A decision by Mylan – which owns the rights to market and distribute the devices – to raise the price of that any impact of the challenge will be minimal. Microsoft Gaming CEO Phil Spencer lauded the news on X, formerly known as Twitter, having previously touted the deal as a way for Microsoft a pair of EpiPens to $600 (up from $100 in 2008) was met by public outcry. The product’s wholesalers filed suit against Mylan and Pfizer, accusing both of engaging in anticompetitive conduct that allowed them to maintain a monopoly over the market for the devices. Among the MONTHLY ROUND-UP 7 Following a lengthy battle with regulators, Microsoft closed its $69 billion acquisition of video game giant Activision Blizzard on 13 October, greatly increasing its share of the video game market in the industry’s largest deal to date. Pharmaceutical giant Pfizer has agreed to pay $50 million to settle claims by drug wholesalers that they overpaid for EpiPen allergy treatment devices as a result of its anticompetitive tactics. Microsoft Closes $69 Billion Merger Deal with Activision Blizzard Pfizer to Pay $50 Million to Settle EpiPen Antitrust Claims
Lawyer Moves RECENT APPOINTMENTS FROM ACROSS THE GLOBE Clifford Chance has appointed Jason C Ewart as a partner to its global financial markets team, furthering the expansion of its US leveraged finance group. Ewart has represented a variety of direct lenders, mezzanine funds and private debt and structured equity providers in complex financing transactions. He possesses more than 15 years’ experience in advising clients on banking, financial markets and ESG matters. He has represented issuers and financial institutions in traditional public and private markets transactions, including on SEC-registered transactions. The hiring of Ewart, who advises on private debt and alternative capital financings as well as traditional leveraged finance and capital markets transactions, meets growing market demand for private credit as a source of funding. “I’m excited to join a truly global platform in Clifford Chance,” Ewart said in a statement on his appointment. “Having connected with a number of team members already, I see limitless opportunities to share my experience and in turn collaborate with and learn from some of the most impressive attorneys in the market.” Baker McKenzie has appointed former Herbert Smith Freehills (HSF) executive counsel Emily Peverill as a commercial real estate partner in its Melbourne office. The firm’s national managing partner, Anne-Marie Allgrove, emphasised Peverill’s more than 17 years’ worth of experience as a real estate lawyer. In her past roles, she has worked with corporations and government bodies across Australia on complex real estate matters. Peverill has tackled commercial property matters such as the acquisition and disposal of commercial, industrial and retail properties, the negotiation of commercial contracts, complex leasing and property development projects. Baker McKenzie commercial real estate head Sebastian Busa lauded Peverill’s “extensive experience working on complex commercial real estate transactions and infrastructure projects throughout Australia” and the benefits it would bring to the Melbourne practice. This latest appointment comes on the heels of the firm’s recent hiring of a team from Norton Rose Fulbright that included Emanuel Confos and Harriet Oldmeadow. Clifford Chance Hires Finance & Markets Specialist to New York Office Baker McKenzie Adds New Talent to Melbourne Office New York, USA Clifford Chance Melbourne, Australia Baker McKenzie Hong Kong Eversheds Sutherland Eversheds Sutherland has made its first Asian partner hire of 2023 with the addition of banking and finance attorney Tom Van Hoof as a partner in Hong Kong. Van Hoof advises financial institutions, investors and corporate borrowers on debt finance and commercial transactions, including leveraged and acquisition finance, project finance, asset finance, pre-IPO and margin finance, real estate finance and general banking transactions. He advises clients across a number of sectors, including financial services, energy, maritime, logistics, infrastructure, manufacturing and hotels and leisure. In his role as of counsel at DLA Piper, Van Hoof represented Deutsche Bank, which was the mandated lead arranger and sole coordinator in respect of the $120 million acquisition and working capital term facilities for a major PRC-based real estate conglomerate listed on the Hong Kong Stock Exchange. He also advised a consortium comprising Qumei Home Furnishing Group and Huatai Zijin Investment on the acquisition and bridge facilities relating to the acquisition of Ekornes, the largest furniture manufacturer in the Nordic region, for a total consideration of approximately $630.75 million. Eversheds Adds Hong Kong Finance Partner from DLA Piper 8 LAWYER MONTHLY NOVEMBER 2023
Dentons has added Mitchell Osborne to its Brisbane office as a planning and environment partner, continuing its growth strategy. Osborne possesses over 15 years of experience in environment and planning law and is also a qualified town planner. He acts for developers, landowners, local and state government authorities and submitters across a broad range of planning, development and environmental matters. Osborne has represented both complainants and defendants in the Magistrates Court around planning and environment laws and regulations. His experience also includes preparing agreements and due diligence reports and providing clients with ‘front end’ advice on planning, environmental and infrastructure matters. “I am delighted to welcome Mitchell to Dentons,” said Doug Stipanicev, Dentons’ Australia Chair and Australasia Region CEO. “Mitchell’s appointment is a welcome addition to our Brisbane office, as well as our Planning and Environment team more broadly. Mitchell’s experience will be of great benefit to our clients in Queensland, particularly given the Olympics infrastructure projects currently underway.” Dentons’ Brisbane Office Gains New Planning and Environment Partner Freshfields Bruckhaus Deringer has hired Doug Bryden from Travers Smith as a partner in its London ESG practice. Bryden was head of environment at Travers Smith, as well as co-head of its ESG and impact group. His hire follows Freshfields’ appointment of Cambridge academic Jake Reynolds as head of client sustainability and environment in a push to advise clients on their transition towards a more sustainable approach. "The appointment of Doug is part of Freshfields’ wider strategic focus on investing in core areas, including private capital,” said Andrew Hutchings, Freshfields’ London transactions head. “He will enhance our existing ESG and environmental practice, where clients increasingly require support on navigating ESG investment strategies and frameworks.” Freshfields ESG partner Vanessa Jakovich added: “As our clients’ ESG needs continue to grow and evolve, Doug’s market-leading expertise will expand our ability to deliver both excellent service and creative new solutions.” Freshfields Hires ESG Partner from Travers Smith in London Brisbane, Australia Dentons London, United Kingdom Freshfields LAWYER MOVES 9
For those who have never experienced one, it is easy to dismiss the need to prepare for the possibility of natural disasters and the threat that they pose to one’s property. Even for the insured, many policies’ coverage excludes common elements of disasters. What can private citizens do to ensure their lives and livelihoods are fully protected? In the following pages, we hear more below with David J. Furtado, Attorney at Law and founder of Furtado Law PC. FEATURE OF THE MONTH
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Defending Against Natural Disasters with Insurance Policies FEATURE OF THE MONTH 13 understanding of the insurance policy language, statutory law and case law to effectively challenge coverage decisions, claim denials and policy exclusions. Insurance policies are often well defined in terms of specific coverages and exclusions. Many of these policies are designed to have a broad scope when it comes to the types of risks and losses that are covered, allowing for various interpretations and leaving room for subjective understanding. Understanding a policy is vital, as it can include both explicit, clearly stated terms and implicit, legally understood expectations. Just because something is not explicitly mentioned in the policy does not mean it can be interpreted or added. Deciphering the policy language is important to grasp the rights, obligations and limits outlined. The policy’s effectiveness and coverage depend on its specific terms and conditions. In insurance claims, if a policy explicitly excludes a specific type of loss, the insurance company has the right to deny the claim based on that exclusion. Unveiling the Foundation: The Significance of the Insurance Policy Imagine waking up one day to discover that your home has been destroyed, your belongings have been washed away and your loved ones have been forcefully displaced. Natural disasters possess an unsettling ability to strike without warning, devastating human lives and leaving behind a trail of despair. What makes this even more alarming is the fact that countless individuals and communities find themselves completely unprepared for such unforeseen events, with insurance coverage that proves to be woefully insufficient. The insurance policy serves as the fundamental basis for all property insurance claims. It is a form of a contract that consists of contract language, encompassing various terms and definitions. The attorney advising clients regarding insurance coverage matters bears the responsibility of possessing a comprehensive David J. Furtado Insurance policies are often well defined in terms of specific coverages and exclusions.
Interpreting the policy’s terms allows the insurance company to determine if a claim is covered or not. When multiple exclusions exist in a home insurance policy, it complicates property coverage interpretation when trying to make a claim. Coverage can vary, with some policies covering certain natural disasters while excluding others. For example, certain policies may not provide coverage for water damage, which is a common type of claim. If a policy specifically excludes coverage for certain natural disasters or water-related events, the insurer can deny the claim. These clauses help clarify the circumstances in which the insurance company must provide coverage for natural disaster claims or other types of claims. In case of a natural disaster, it is important to consider that any previous insurance claim, whether unreported, improperly investigated, not adequately paid, or where the necessary restoration work was not carried out, may have a negative impact on the evaluation and payment of the claim resulting from the natural disaster. Other factors that could affect the evaluation and payment of the claim include a lack of property maintenance, destruction of evidence, poorly worded coverage provisions in the policy, and policy exclusions. The consequences of the disaster can make the process of adjusting and settling the claim more complicated and time-consuming. Moreover, postevent crimes like theft or vandalism can further complicate the assessment of the claim, especially if the property is vacant due to a previous loss. Reframing Insurance: Transforming Liability into Valuable Assets Homeowners often underestimate the true purpose of insurance and neglect the opportunity to protect their valuable assets. Dismissing the likelihood of accidents, damage or natural disasters, they adopt a mindset of ‘It won’t happen to me’. However, it is vital to recognise that it is not a matter of if these incidents will occur but rather when they will happen. Your home holds paramount importance as your most valuable asset. Opting to save a few hundred dollars on an insurance policy exposes your most crucial investment to significant vulnerabilities. Many homeowners lack sufficient insurance coverage. Studies indicate that approximately 60% of homes in the US, which equates to two out of every three homes, are underinsured by a minimum of 18%. Outdated policies and failure to consider property changes and rising costs in labour and materials can lead to underinsured homes. Inadequate coverage in home insurance areas like dwelling, structures, personal property, 14 LAWYER MONTHLY NOVEMBER 2023 Studies indicate that approximately 60% of homes in the US, which equates to two out of every three homes, are underinsured by a minimum of 18%.
insurance may initially save money, it could ultimately result in denied claims and uncovered expenses, imposing a larger financial burden. While some people may be satisfied with a regular insurance plan, others might require a customised manuscript policy to cater to their unique needs. Manuscript policies are personalised for the insured’s specific requirements and are typically found in large commercial accounts or individuals with uncommon risks. However, using a manuscript policy comes with risks such as confusing terminology and potential disputes over coverage. Additionally, the regulations for manuscript policies differ from state to state, potentially resulting in less oversight and regulation compared to standard policies. Therefore, it is crucial to consider these risks before opting for a manuscript policy. Insurance companies are increasingly refining their policies by modifying exclusions in response to legal and regulatory changes, making it harder for policyholders to have their claims accepted. By modifying the terms and conditions of policies, and specifically targeting certain claims that previously would have been covered, policyholders are facing denied claims right from the start. Mother Nature versus Homeowner: Unleashing the Power of Your Insurance Policy Mother Nature is a homeowner’s worst enemy, causing damage through unavoidable collisions with nature. Weather events are the main cause of home damage, leading homeowners to seek insurance coverage. 70% of claims are weather-related, emphasising the need for insurance against these risks on residential properties. Many people fail to recognise that a single large-scale catastrophe, like a storm, can be categorised as multiple events such as flooding, wind damage and rainfall. What makes this significant is that insurance companies often loss of use and liability can leave homeowners vulnerable before and after disasters. Homeowners are advised to keep comprehensive records of all home improvements and renovations done during the year. These improvements have the potential to affect the coverage required for your home and also enable your insurer to identify any safety or security features that might make you eligible for discounted rates. By prioritising cost over coverage, individuals may unknowingly compromise their own protection. Homeowners depend on insurance brokers and agents as their trusted advisors when selecting policies and ensuring adequate coverage, especially as many homeowners never read their insurance policy. Agents might often prioritise sales and policy costs, focusing on offering lower premiums and emphasising cost as the primary factor when selecting a policy, rather than ensuring the policy will effectively protect the homeowner from financial calamity. While opting for cheaper FEATURE OF THE MONTH 15 Just because something is not explicitly mentioned in the policy does not mean it can be interpreted or added.
16 LAWYER MONTHLY NOVEMBER 2023 Many people fail to recognise that a single large-scale catastrophe, like a storm, can be categorised as multiple events such as flooding, wind damage and rainfall. mandate separate deductibles for each of these events. These deductibles can add up swiftly, underscoring the importance of considering the potential for multiple events when determining the deductible for your insurance policy. If one or more events are covered while others are not, this can result in a severely insufficient insurance payout that does not adequately cover the costs of restoring the property to its pre-loss condition. It is extremely important to remember this when allocating funds for emergencies and when reviewing insurance policies to ensure that they include coverage for catastrophic events. One common issue during home restoration is the impact of building
and safety code updates on costs. Many municipalities have stricter building and safety code requirements compared to the original construction of the home, adding thousands or even hundreds of thousands of dollars to the restoration expenses. Insurance policies often offer limited coverage for the increased costs resulting from ordinances and laws. In many cases, this coverage is limited to a percentage of the replacement cost coverage. While earthquakes often grab the headlines when it comes to ground movement, it is important to recognise that the ground can move for various reasons. Homeowners should not solely rely on earthquake coverage, as it only provides limited protection against damage caused by seismic activity. Earthquake policies generally exclude coverage for risks such as landslides, mudslides, rockslides, mine subsidence and sinkholes. To obtain coverage for these risks, seek out an earth movement insurance policy that provides broader coverage and protection against a wider range of perils. Earth movement coverage considers other causes of ground movement, such as landslides, sinkholes, or subsidence. These events can cause significant damage to properties and may not be covered under a standard earthquake policy. The risk of earthquakes is high in California, the Pacific Northwest and the New Madrid fault regions, but lower in other areas. However, there are still localised risks such as landslides, mine subsidence, sinkholes and ground movements. Oklahoma is unique as it experiences numerous smaller earthquakes due to fracking-related wastewater injection wells. Insurance coverage for Oklahoma earthquakes is limited, making policy definitions crucial. Insurance carriers struggle with assessing man-made risks in Oklahoma. Insureds in earthquake-prone areas should choose their earth movement coverage carefully to avoid coverage gaps or claim issues. They should review their policies to ensure coverage for both natural and man-made earth movements, such as the vibration of the earth due to construction occurring around their property, as some insurers may include or exclude this coverage explicitly. Thoroughly assessing the definitions and terms of their coverage is vital, especially for those with excess policies, to avoid discrepancies that could jeopardize their coverage. Insurance Policy Cancellations: A Changing Reality for Homeowners Homeowners are currently dealing with an unprecedented increase in policy cancellations and non-renewals. This is being driven by a succession of expensive claims within the community or state, leading insurers to make the tough choice of either discontinuing operations in certain geographic areas or terminating coverage for policyholders. Insurance companies consider various factors before cancelling a policy, and not all claims will automatically lead to policy cancellation. By neglecting to report a prior claim, homeowners are potentially jeopardizing their coverage and leaving themselves vulnerable in times of need. Insurance is meant to provide protection and peace of mind, but failing to disclose necessary information can ultimately hinder the purpose of having insurance. In the event that an insurance claim becomes necessary, homeowners who have a history of undisclosed claims may encounter significant obstacles. Insurance companies have the right to deny claims made for prior undisclosed incidents, which can leave homeowners responsible for covering the costs themselves. Failing to disclose prior claims can jeopardise coverage and leave homeowners vulnerable when they need it most. Homeowners frequently omit or fail to provide important details when filing a claim, due to the perception that this information might adversely affect the settlement process. However, holding back necessary information can ultimately weaken the intended outcome. Filing property damage claims can affect a homeowner’s eligibility for insurance. Insurance companies may reassess and potentially change the coverage and premiums, or even cancel the policy, based on the nature and frequency of claims. Homeowners can challenge these decisions by making adjustments, like modifying their property or insurance policy, to meet the company’s requirements and keep their coverage. Home Insurance Dilemma: When Coverage is Elusive The profitability of property insurance is compromised due to the rise in natural disasters, as the amount paid FEATURE OF THE MONTH 17 Homeowners are currently dealing with an unprecedented increase in policy cancellations and non-renewals.
18 LAWYER MONTHLY NOVEMBER 2023 Mother Nature may always have the upper hand, but homeowners who are prepared can minimise the impact of natural disasters. factors or location. FAIR plans currently operate in 26 states, the District of Columbia and Puerto Rico. Other states offer other types of ‘last resort’ options, such as the California Earthquake Authority, the Texas Windstorm Insurance Association and Florida’s state-run Citizens Insurance, which offers coverage for hurricanes and sinkholes. Mitigating Risk: Insurance Companies Investing in Private Firefighters In 2010, Chubb Insurance hired a private team of firefighters to protect some homes threatened by a wildfire in the Colorado foothills west of Boulder. Although limited to fire-prevention out in claims settlements exceeds the premiums collected from policyholders. Some insurance companies are forced to limit coverage or even stop offering new policies in certain regions. Citing wildfire risk and the state’s limit on insurance premiums, Allstate and State Farm have stopped writing new homeowner policies in California. Farmers Insurance placed a cap on the number of policies in California. When homeowners cannot find affordable coverage through traditional insurance companies, they may turn to ‘insurers of last resort’, or FAIR plans, which can operate similarly to a clearinghouse for participating insurance companies. These statemandated programs offer property insurance to individuals and businesses facing difficulties in obtaining insurance in the standard market. The goal of FAIR plans is to ensure equal access to insurance, regardless of property risk
Contact David Furtado Founder, Furtado Law PC 3773 Cherry Creek Drive North, Suite 755, Denver, Colorado 80209, USA Tel: +1 866-497-6106 E: info@furtadolaw.com www.furtadolaw.com About David Furtado David Furtado is a highly accomplished legal professional with an extensive educational background and exceptional expertise in civil litigation, with an emphasis on insurance law, construction defect and first-party and third-party insurance litigation. He holds a Bachelor of Science in Finance and Master of Science in Accounting from the University of Rhode Island, a Juris Doctor from the University of Denver and a Bachelor of Science in Electrical Engineering from the University of Colorado. Having practiced law since 1996, David has amassed nearly three decades of trial experience in complex civil litigation on behalf of plaintiffs. This extensive experience has provided him with a deep understanding of legal principles and a wealth of knowledge in various areas of law. As a result, he is able to provide seasoned and effective legal advice to his clients, ensuring their best interests are represented with diligence, dedication, passion and professionalism. safety and coordinate with private crews. Private firefighting companies may exacerbate income inequality during wildfires by giving affluent individuals and neighbourhoods a competitive advantage in protecting their homes, while economically disadvantaged communities lack access to such resources, widening the gap between those who can safeguard their properties and those left vulnerable to wildfires. Insurance Policies: Building Resilience in the Face of Nature’s Uncertainties While it is impossible to fully capture the breadth of natural disasters and their effects on the lives of property owners with different levels of protection – whether properly insured, underinsured, or uninsured – this article emphasizes the fundamental importance of securing an insurance policy as a means of safeguarding one’s home. Mother Nature may always have the upper hand, but homeowners who are prepared can minimise the impact of natural disasters. Policyholders should stay informed about policy changes and carefully review their insurance policies. Protecting your most valuable asset, your home, through the right insurance coverage is not just a wise decision, but a critical one. Do not wait until it is too late to secure the protection you and your home deserve. Remember, it is not just bricks and mortar; it is the place where memories are made and cherished. Fortune favours the prepared: safeguard your financial future today to ensure a secure tomorrow. work, they are credited with saving at least 10 homes, while three insured by the company were destroyed. This event signified the first instance where a privately-owned crew was dispatched to combat a Colorado fire, a fire that led to a staggering $217 million in damages and the destruction of 169 homes. USAA is the first major insurance company to offer a discount to residents of Firewise USA sites. They provide a free Wildfire Response Program in 15 states, partnering with certified wildland firefighters. These experts monitor wildfires and take proactive measures to protect policyholders’ homes, such as closing windows and removing debris. Private firefighting companies offer on-call wildfire protection services to homeowners and insurance companies like USAA, Chubb and Safeco. However, their lack of coordination with local agencies creates a burden for first responders who must prioritize resident FEATURE OF THE MONTH 19
In this edition, our special feature topic focuses on trading while Insolvent. In the challenging and tumultuous world of business, companies can sometimes find themselves on shaky financial ground. But when does financial difficulty translate into insolvency? And more importantly, what does this mean for company directors who continue to trade in such circumstances? Trading while insolvent isn't just a complex financial situation; it's a legal minefield that directors need to be acutely aware of. This article dives deep into the intricacies of trading while insolvent, illuminating the responsibilities, potential consequences, and pivotal actions directors must take to safeguard both the company and themselves. Whether you're a seasoned business leader or a fledgling director, understanding the nuances of insolvency is paramount. Let's embark on this journey of financial clarity and legal insight. SPECIAL FEAT URE
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An insolvent company is not necessarily doomed to failure. Insolvency is not always permanent and there are a range of formal rescue and recovery options available which can facilitate a successful turnaround of a financially distressed business. However, if a company is insolvent, expert advice must be sought in order to protect the company, its directors, and its creditors as a matter of urgency. If advice is not taken and the company continues to trade despite being insolvent, this is a fundamental breach of several areas of the Insolvency Act 1986 and the repercussions can be severe. Defining corporate insolvency The first step, is to understand what is meant by ‘insolvent’. In corporate insolvency, there are two main tests which are used to determine whether a company is indeed insolvent: the balance sheet test and the cash flow test. • Balance sheet insolvent – A company can be said to be balance sheet insolvent if its liabilities outweigh its assets. • Cash flow insolvent – A company is cash flow insolvent if it is unable to meet its liabilities, debts, and other overheads as and when they fall due. A company can be balance sheet insolvent, cash flow insolvent, or both. If either test suggests the company is insolvent, professional advice should be sought as a matter of urgency with consideration given as to whether the company should immediately cease trading. Company insolvency: A directors’ legal duties Once a company director knows – or ought to know – that their company is insolvent, they have a legal duty to place the interests of the company’s creditors above those of themselves and any fellow directors or shareholders. In practical terms this means not taking any additional credit you know you are unlikely to be able to repay, nor should a company accept customer deposits for goods or services the company is unlikely to be able to fulfil. SPECIAL FEATURE 23 Special Feature No one sets out in business expecting the company to become insolvent. However, in an increasingly challenging trading environment, many companies will unfortunately experience issues with cash flow, increased costs of doing business, and changing consumer preferences, all of which have the potential to threaten the ongoing viability of the business. If the situation continues, a financially challenging situation can quickly escalate to one of insolvency. Trading while Insolvent: What are the Legal Consequences Directors can Face?
In many cases tipping over into an insolvent position will mean ceasing trade immediately in order to shield creditors from any further losses. In some instances, however, it may be possible - and even advisable - for the company to continue to trade even when it is technically insolvent. This may be the case where continuing to trade in order to fulfil a certain contract would result in better overall returns for the body of creditors. Alternatively, where the company is going into administration and there is the potential for it to be sold as a going concern, continuing to trade while this deal is finalised is likely to preserve the company’s value, likewise resulting in a better return for creditors as a whole. What is key here, is that the decision to continue to trade while technically insolvent needs to be made by a licensed insolvency practitioner and not the company directors or shareholders. Company insolvency is a hugely complex area and falling foul of the laws and regulations surrounding it can have serious consequences for company directors. Liquidation and wrongful trading It is when a company’s financial situation takes it past the point of rescue that the issue of trading while insolvent can have serious repercussions on the company’s directors personally. Once a company enters liquidation, either voluntarily or by order of the court, the appointed insolvency practitioner or Official Receiver is statutorily obliged to carry out an investigation into the events leading up to the company becoming insolvent. This includes an investigation into the conduct of the directors which will typically cover a period of three years prior to the liquidation. If there is evidence that the directors were aware that the company was insolvent yet continued to trade as normal, and thereby potentially worsening the position of creditors, then this will be classed as wrongful trading. 24 LAWYER MONTHLY NOVEMBER 2023 The insolvency practitioner or Official Receiver will report their findings of wrongful trading to the Secretary of State who will then decide whether further action is required. Wrongful trading is covered by Section 214 of the Insolvency Act 1986 and is punishable by the following: • Personal liability for company debts: In some instances of wrongful trading, directors can be held personally liable for some or all the company’s debts. While a limited company is a separate legal entity from that of its directors meaning they will not ordinarily be held responsible for debts of the company, if a director is found guilty of wrongful trading, this limited liability protection can be removed. Depending on the financial position of the director, this could have a serious impact on their personal situation. An inability to repay the liabilities they become personally responsible for could mean their financial situation is compromised to the extent that personal insolvency options such as an IVA or even bankruptcy need to be considered in order to deal with the debt. • Director Disqualification Order: Directors found guilty of trading while knowingly insolvent can be disqualified from acting as a director for a period of between 2 to 15 years. A disqualification order also prevents an individual from being directly or indirectly involved with the incorporation, management, or promotion of a limited company or LLP during the length of the order. It may be possible for the director to agree to a voluntary disqualification undertaken as an alternative to a disqualification order. While a disqualification undertaking imposes the same restrictions and limitations on the director as a disqualification order, it will avoid court action and the associated costs. Wrongful trading vs Fraudulent trading It is also possible for directors to be found guilty of fraudulent trading if a court determines that trade continued past the point of insolvency with a clear intention to defraud creditors. Fraudulent trading is covered by Section 213 of the Insolvency Act 1986. Unlike wrongful trading which is a civil matter, fraudulent trading is both a civil and criminal offence and the potential consequences reflect this. As well as being made personally liable for the debts of the insolvent company, those found guilty of fraudulent trading can face a possible prison sentence.
Article written by Karl Hodson, UK Business Finance. Karl is responsible for helping businesses across the UK raise funding for a variety of purposes such as working capital, expansion and capital equipment. He has specialist knowledge of raising finance through invoice and asset-based lending, crowdfunding, loan and equity funds and Government schemes. Contact Karl Hodson Yorkshire and North East UK Business Finance Team E: karl@ukbusiness.finance www.ukbusiness.finance liable for repaying a compensatory amount back to the company to cover the antecedent transaction should it not be possible for the transaction to be reversed. Directors also face a disqualification order for up to 15 years if found guilty of either of these types of antecedent transactions. How to avoid trading while insolvent While many instances of insolvency are unavoidable, there are things a director can do to protect themselves, their company, and their creditors when dealing with a distressed limited company: 1. Be aware of the warning signs of impending insolvency – These can include cash flow issues, decreased sales, creditor’s threatening legal action, and the inability to obtain credit. 2. Regularly monitor the company’s financial position – Regular monitoring can allow for financial issues to be highlighted at an early stage. The sooner action is taken to stem a potentially ruinous situation, the more options are available when it comes to putting a rescue strategy in place. 3. Seek insolvency advice early – Swift insolvency advice will not only improve the chances of the company being able to effect a turnaround of its fortunes, it also demonstrates the desire for directors and shareholders to adhere to their legal responsibilities as the director of an insolvent company by taking action to minimise creditor losses. 4. Make transactions with care - Do not dispose of company assets, make preference payments, or be tempted to enter into a transaction at undervalue while the company is knowingly insolvent. While these may provide short-term relief, any subsequent investigation by an insolvency practitioner will see these antecedent transactions made void and directors will be opening themselves up to allegations of wrongful or even fraudulent trading. Entering into transactions while insolvent When a company is insolvent, extreme care should be taken when making a payment to creditors or otherwise entering into a transaction with another party. Favouring one creditor over another, or disposing of company assets for less than market value, are strictly prohibited once a company is insolvent. These are known as antecedent transactions and can be overturned by the appointed licensed insolvency practitioner should the company later enter into formal insolvency proceedings such as liquidation. • Preference Payments (Section 239 Insolvency Act 1986) – A preference payment occurs when an insolvent company pays a particular creditor ahead of others thereby putting the recipient into a better position than they otherwise would have been had the payment not been made. This is often done when repaying money owed to a connected party such as a friend or relative, paying a key supplier in order to maintain an ongoing business relationship, or repaying a loan a director has personally guaranteed. By making these payments the director is reducing the total amount available to the body of creditors as a whole, therefore breaching their fiduciary duties. • Transactions at Undervalue (Section 238 Insolvency Act 1986) – A transaction at undervalue occurs when a business asset is sold or transferred to another party for nil consideration or for a consideration significantly lower than its true market value. An example of this would be selling a vehicle owned by the company to the director’s spouse for a nominal amount. If an antecedent transaction is discovered as part of the liquidator’s investigations, they can bring a claim to have these transactions made void and reversed, restoring the company back into the position it would have been in had the transaction not been made. Directors can be made personally SPECIAL FEATURE 25 If a company is insolvent, expert advice must be sought in order to protect the company, its directors, and its creditors as a matter of urgency.
In an ever-evolving world, where challenges span from the minutiae of daily operations to broader industry conundrums, having a trusted source of expert advice becomes invaluable. Welcome to our 'Expert Insight' section, where we bring together leading minds across diverse sectors to shed light on the pressing issues of our times. First up, Brian Loughman of Floyd Advisory delves into the intricate world of accounting investigations, especially when triggered by whistleblower allegations. With corporate transparency becoming an increasing demand, understanding this terrain is pivotal for businesses of all scales. Family law, often a delicate and emotion-laden arena, is undergoing transformations of its own. Caroline Bowden from Anthony Gold discusses the nuances of making family mediation more inclusive for children, ensuring that the smallest voices aren't overshadowed by legal jargon and adult concerns. The business landscape of the European Union is not without its share of intricacies. Natalie Greenwood of Euclid Law embarks on a journey to demystify cartel investigations in the EU, offering clarity on what businesses must know to remain on the right side of the law. Workplaces, the epicentres of innovation and productivity, are not immune to conflicts. TeKay Brown-Taylor from Brownstone Mediation Services emphasizes the crucial role of mediation in resolving workplace disputes, ensuring harmony and continued progress. Lastly, in an age where technology knows no boundaries, immigration for the tech sector is a topic of paramount importance. Anushka Sinha, Vanessa Ganguin Immigration Law, explores the myriad immigration options available in the UK for tech professionals and entrepreneurs, ensuring the country remains at the forefront of technological advancements. Join us as we traverse these multifaceted realms with our experts, gleaning insights that promise not just knowledge but also actionable wisdom. EXPERT INSIGHT
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Conducting Accounting Investigations After Whistleblower Allegations In an age where corporate transparency and financial accuracy are paramount, the world of accounting investigations becomes more intricate with every new allegation. Allegations often arise unexpectedly, sometimes via whistleblowers, who shed light on questionable accounting practices or potential fraudulent activities. These claims can have serious implications, not just for the company involved, but also for its stakeholders, regulators, and the general public. Enter Brian Loughman of Floyd Advisory, an expert with over three decades of experience in the field of accounting investigations. With his unique skillset and profound insights, Brian has assisted countless investigative counsels in addressing and resolving whistleblower allegations. We sat down with Brian to delve deep into the nuances of these accounting investigations, from initial strategies after whistleblower revelations to recognizing potential red flags that may indicate accounting inconsistencies. We hope you enjoy this fascinating interview. Expert Insight EXPERT INSIGHT 29
When assisting investigative counsel, how do you ensure seamless communication and coordination to achieve the right outcome for your client? Typically, we are retained by investigative counsel in these matters and therefore, the attorney-client privilege doctrine applies to our work (as we act as an agent of counsel). Counsel is often retained by the Audit Committee. We are also independent of the subject company. Maintaining privilege is a key objective throughout the process, and we have developed applicable protocols and practices to ensure the privilege is maintained and that an unintentional waiver does not occur. In addition, our professionals are trained on typical privilege issues so they can flag those for counsel if they arise in the field. I have been doing this work for over thirty years and I find that you can never communicate too much with counsel (and other stakeholders) as the process unfolds. We often establish (at least) daily team calls in the early stages of an investigation with the legal team. This helps ensure that there is clarity of purpose and roles, and clear communication around focus and priorities. As the matter progresses, teams of attorneys and forensic accountants are usually “paired up” and deployed to workstreams and the communication process may become more decentralized on a day-to-day basis. But a full team call is still beneficial on a regular basis. It is also important to have a senior team member focus primarily on ensuring that the overall process is moving expeditiously, and to manage “roadblocks” or challenges in real time. Oftentimes it is beneficial to have regular status updates with key stakeholders. It is key to ensure that the external auditor is briefed on the status of the investigation and is given ample opportunity to comment on the adequacy of scope. This is especially true if there are upcoming filing deadlines for financial reports that may be impacted by an ongoing investigation. There will sometimes be tension between the auditor’s information requests and the goal of maintaining privilege. In my experience, seasoned investigative counsel can navigate this issue successfully and ultimately the investigation will be completed, and the auditor will be able to opine on the financial statements within a reasonable timeframe. Can you outline the key steps you would take when initiating an accounting investigation based on whistleblower allegations? Counsel will often take the lead with document preservation and the suspension of routine destruction practices. Our initial role would be to review and understand the accounting and internal control allegations raised in detail and to develop a preliminary understanding of the universe of potential issues raised. If the whistleblower has come forward, we would seek to interview them as soon as practicable. During the investigation, counsel will take steps to provide overall context for employees to help reinforce the need for confidentiality and to maintain privilege. In interviews, counsel will provide specific instruction about not discussing interviews with others. Often, company management will be keen to determine the identity of the whistleblower. Sometimes this may be part of an effort to evaluate the whistleblower’s credibility. Counsel will need to ensure that all applicable whistleblower protection laws are observed. Once we have framed out our 30 LAWYER MONTHLY NOVEMBER 2023 It is key to ensure that the external auditor is briefed on the status of the investigation and is given ample opportunity to comment on the adequacy of scope.
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