Legal Advice - Conflict of Interest
Discussion
Company A was represented by legal firm Y who were paid on retainer + fees on top..
Company B is represented by legal firm Z.
Company B is to take over all of assets/liabilities etc of Company A say as of 1st November - leaving just the directors to wind Company A up ASAP.. The transfer agreement all sorted out by Y and Z. As of 1st November A has no assets as ALL had to be transferred, so no longer had Y on a retainer.
All fine.
However, post transfer there is an issue that Company A needs legal advice on regarding the transfer. Calls Y and finds out that B is now using Y as its legal adviser, and declares conflict of interest and refuses to speak.
Where does that leave Company A with any access to the historical advice it received from Y and any subsequent queries?.
A could just be 5hit out of luck I guess, but to me it does smell fishy and seems a cynical tactic by B, if not slightly underhand by Y..
Any advice greatly received.
Company B is represented by legal firm Z.
Company B is to take over all of assets/liabilities etc of Company A say as of 1st November - leaving just the directors to wind Company A up ASAP.. The transfer agreement all sorted out by Y and Z. As of 1st November A has no assets as ALL had to be transferred, so no longer had Y on a retainer.
All fine.
However, post transfer there is an issue that Company A needs legal advice on regarding the transfer. Calls Y and finds out that B is now using Y as its legal adviser, and declares conflict of interest and refuses to speak.
Where does that leave Company A with any access to the historical advice it received from Y and any subsequent queries?.
A could just be 5hit out of luck I guess, but to me it does smell fishy and seems a cynical tactic by B, if not slightly underhand by Y..
Any advice greatly received.
FunkyGibbon said:
Company A was represented by legal firm Y who were paid on retainer + fees on top..
Company B is represented by legal firm Z.
Company B is to take over all of assets/liabilities etc of Company A say as of 1st November - leaving just the directors to wind Company A up ASAP.. The transfer agreement all sorted out by Y and Z. As of 1st November A has no assets as ALL had to be transferred, so no longer had Y on a retainer.
All fine.
However, post transfer there is an issue that Company A needs legal advice on regarding the transfer. Calls Y and finds out that B is now using Y as its legal adviser, and declares conflict of interest and refuses to speak.
Where does that leave Company A with any access to the historical advice it received from Y and any subsequent queries?.
A could just be 5hit out of luck I guess, but to me it does smell fishy and seems a cynical tactic by B, if not slightly underhand by Y..
Any advice greatly received.
Re access to historical advice, A is entitled to ask for its file from Y, and Y should provide it (particularly in the circumstances).Company B is represented by legal firm Z.
Company B is to take over all of assets/liabilities etc of Company A say as of 1st November - leaving just the directors to wind Company A up ASAP.. The transfer agreement all sorted out by Y and Z. As of 1st November A has no assets as ALL had to be transferred, so no longer had Y on a retainer.
All fine.
However, post transfer there is an issue that Company A needs legal advice on regarding the transfer. Calls Y and finds out that B is now using Y as its legal adviser, and declares conflict of interest and refuses to speak.
Where does that leave Company A with any access to the historical advice it received from Y and any subsequent queries?.
A could just be 5hit out of luck I guess, but to me it does smell fishy and seems a cynical tactic by B, if not slightly underhand by Y..
Any advice greatly received.
If I was A, I would be concerned most about my confidential information having being passed to B - the last thing you want as a seller post acqusisition is for your long term solicitor to be engaged by the buyer. If A needs advice about a potential breach of warranty claim, it should perhaps be pondering whether Y may have breached its duty of confidentially (to A). And more importantly, asking questions through an appropriate channel (I.e. another solicitor) as to what has been done to safeguard A’s confidential information now that Y is acting for B.
There’s definitely potential for Y to find themselves in a sticky situation here, particularly if there is now a post completion dispute. The SRA code of conduct says that a solicitor shouldn’t act not only when there is a conflict, but also in circumstances where they have knowledge of things that are material to a client’s matter (and therefore have a duty to disclose them to the client) but can’t because their duty of confidentially to one client (ie A) overrides the duty to disclose to another (ie B).
Surely the important question is if the transaction is entirely complete?
It this is the case and there are no residual obligations between A and B, I don't see the issue.
If aspects of the transaction are still pending, or are within a period where they could be referred to an expert as part of the terms of the transfer agreement, then its clearly inappropriate.
It this is the case and there are no residual obligations between A and B, I don't see the issue.
If aspects of the transaction are still pending, or are within a period where they could be referred to an expert as part of the terms of the transfer agreement, then its clearly inappropriate.
Elysium said:
Surely the important question is if the transaction is entirely complete?
It this is the case and there are no residual obligations between A and B, I don't see the issue.
To give an example:It this is the case and there are no residual obligations between A and B, I don't see the issue.
What happens if, post completion, something arises which the Solicitor ought to have spotted but negligently missed...
Thanks for the advice folks. Much appreciated.
The transfer of all assets from A to B is complete. What is not completed are the final accounts and closing down of A.
The dispute is who is to pay for this. A cannot as it now longer has any assets or cash as B has all that now. B is claiming that it is not their issue.
To my simple mind it makes no material difference, but B disagrees. Very simple example:
If A was worth £100K and held back £20K to close down, B gets £80K.
But B has received all £100K and in my mind should pay the £20K, leaving them with £80K.
Y is refusing to help resolve this as they are claiming conflict.
I'm hoping it is just a case of the CEO of B not having a clue.
The transfer of all assets from A to B is complete. What is not completed are the final accounts and closing down of A.
The dispute is who is to pay for this. A cannot as it now longer has any assets or cash as B has all that now. B is claiming that it is not their issue.
To my simple mind it makes no material difference, but B disagrees. Very simple example:
If A was worth £100K and held back £20K to close down, B gets £80K.
But B has received all £100K and in my mind should pay the £20K, leaving them with £80K.
Y is refusing to help resolve this as they are claiming conflict.
I'm hoping it is just a case of the CEO of B not having a clue.
FunkyGibbon said:
Thanks for the advice folks. Much appreciated.
The transfer of all assets from A to B is complete. What is not completed are the final accounts and closing down of A.
The dispute is who is to pay for this. A cannot as it now longer has any assets or cash as B has all that now. B is claiming that it is not their issue.
To my simple mind it makes no material difference, but B disagrees. Very simple example:
If A was worth £100K and held back £20K to close down, B gets £80K.
But B has received all £100K and in my mind should pay the £20K, leaving them with £80K.
Y is refusing to help resolve this as they are claiming conflict.
I'm hoping it is just a case of the CEO of B not having a clue.
If the closing down costs were known or reasonably foreseeable when the assets were transferred to B, it’s arguable that transferring all assets with no provision for the costs being paid made A insolvent.The transfer of all assets from A to B is complete. What is not completed are the final accounts and closing down of A.
The dispute is who is to pay for this. A cannot as it now longer has any assets or cash as B has all that now. B is claiming that it is not their issue.
To my simple mind it makes no material difference, but B disagrees. Very simple example:
If A was worth £100K and held back £20K to close down, B gets £80K.
But B has received all £100K and in my mind should pay the £20K, leaving them with £80K.
Y is refusing to help resolve this as they are claiming conflict.
I'm hoping it is just a case of the CEO of B not having a clue.
If A is placed into liquidation then the transfer could potentially be set aside by the liquidator as the transfer caused A to be insolvent. The claim could then include the additional winding costs so maybe he CEO of B could think whether it would be easiest to just pay up before costs escalate?
Jasandjules said:
Elysium said:
Surely the important question is if the transaction is entirely complete?
It this is the case and there are no residual obligations between A and B, I don't see the issue.
To give an example:It this is the case and there are no residual obligations between A and B, I don't see the issue.
What happens if, post completion, something arises which the Solicitor ought to have spotted but negligently missed...
The OP has now confirmed that A still exists, but is apparently insolvent as a direct result of the transfer, preventing it from being wound up as originally planned. In that situation it does seem premature for A's solicitor to have decided to represent B and odd that they now claim it would be a conflict of interest to advise A.
Either way, it does not seem right that B could take all of A's assets leaving it unable to meet it's liabilities. Who else would pay to wind A up of the transaction is only between A and B?
There are a few things not adding up for me here.
So this was a business that was big enough to need to keep legal advisers on a retainer and costs for final accounts that are going to be significant enough to be worth taking legal advice in relation to. But yet the directors approved a deal where they transferred all of the assets (including even its cash) leaving it penniless, and without having foreseen that some funds would be needed for winding up expenses. And presumably they must have sold it for a nominal sum only - otherwise they would be taking the forthcoming costs out of the proceeds of sale.
Depending on what the circumstances were, after approving such a transaction the directors might want to think about taking legal advice in their personal capacity, in particular in relation to personal liability under insolvency law and/or shareholder actions against them (if they're not also the shareholders). Even if they do take advice re the company's position now they're going to end up funding it themselves - they're not likely to find an adviser willing to take on a company as a client if that company has no funds and no prospect of receiving funds without having some security for how their fees will be settled.
And on the main point, its impossible to say without having seen the purchase agreement but in general terms, why should the winding up costs be anything to do with B? Even if it was a case of 'all assets and liabilities for a nominal sum' then those liabilities would surely have been the ones known to (about) the date of completion, as shown in accounts and management accounts. The point above re potential unwinding of the transaction is fair on the face of it but if there was nothing paid for the business then perhaps it was already insolvent and in any case, who's going to appoint a liquidator - if all liabilities were novated to the buyer then there are no longer any creditors to force a liquidation.
I suppose the other possibility given that we have to assume that all assets were sold for zero pounds is that it was all in house - an internal rearrangement of some sort. In which case they should be sorting it out between themselves.
Any more info you can share re the background, OP?
So this was a business that was big enough to need to keep legal advisers on a retainer and costs for final accounts that are going to be significant enough to be worth taking legal advice in relation to. But yet the directors approved a deal where they transferred all of the assets (including even its cash) leaving it penniless, and without having foreseen that some funds would be needed for winding up expenses. And presumably they must have sold it for a nominal sum only - otherwise they would be taking the forthcoming costs out of the proceeds of sale.
Depending on what the circumstances were, after approving such a transaction the directors might want to think about taking legal advice in their personal capacity, in particular in relation to personal liability under insolvency law and/or shareholder actions against them (if they're not also the shareholders). Even if they do take advice re the company's position now they're going to end up funding it themselves - they're not likely to find an adviser willing to take on a company as a client if that company has no funds and no prospect of receiving funds without having some security for how their fees will be settled.
And on the main point, its impossible to say without having seen the purchase agreement but in general terms, why should the winding up costs be anything to do with B? Even if it was a case of 'all assets and liabilities for a nominal sum' then those liabilities would surely have been the ones known to (about) the date of completion, as shown in accounts and management accounts. The point above re potential unwinding of the transaction is fair on the face of it but if there was nothing paid for the business then perhaps it was already insolvent and in any case, who's going to appoint a liquidator - if all liabilities were novated to the buyer then there are no longer any creditors to force a liquidation.
I suppose the other possibility given that we have to assume that all assets were sold for zero pounds is that it was all in house - an internal rearrangement of some sort. In which case they should be sorting it out between themselves.
Any more info you can share re the background, OP?
bladebloke said:
Any more info you can share re the background, OP?
A and B are both Multi-Academy Trusts which are companies limited by guarantee. A would have become insolvent during 18/19 if its schools were not taken over by B (or another Trust) - all at the behest/command of the Department for Education. So no real sale value, the individual schools transferred to B overnight with all assets and liabilities going to B.
During the process no-one from either legal firm made any mention of the impact of the transfer making A insolvent.
A's budget for 18/19 included the fees for annual audit, so I think everyone assumed that B would deal with this (and any other liabilities).
B doesn't seem to agree, but A is struggling with legal advice from Y as Y now represents B.
FunkyGibbon said:
bladebloke said:
Any more info you can share re the background, OP?
A and B are both Multi-Academy Trusts which are companies limited by guarantee. A would have become insolvent during 18/19 if its schools were not taken over by B (or another Trust) - all at the behest/command of the Department for Education. So no real sale value, the individual schools transferred to B overnight with all assets and liabilities going to B.
During the process no-one from either legal firm made any mention of the impact of the transfer making A insolvent.
A's budget for 18/19 included the fees for annual audit, so I think everyone assumed that B would deal with this (and any other liabilities).
B doesn't seem to agree, but A is struggling with legal advice from Y as Y now represents B.
FunkyGibbon said:
Elysium said:
The Education Funding Agency ultimately stands behind all Academy Trusts. I would be asking them what to do.
We have, the contact we have there doesn't have a clue either.So far as I am aware they underwrite all academy trusts - so A will not be allowed to becom insolvent as a result of this transaction. Either the EFA will pay or they will make B pay.
FunkyGibbon said:
A and B are both Multi-Academy Trusts which are companies limited by guarantee.
A would have become insolvent during 18/19 if its schools were not taken over by B (or another Trust) - all at the behest/command of the Department for Education. So no real sale value, the individual schools transferred to B overnight with all assets and liabilities going to B.
During the process no-one from either legal firm made any mention of the impact of the transfer making A insolvent.
A's budget for 18/19 included the fees for annual audit, so I think everyone assumed that B would deal with this (and any other liabilities).
B doesn't seem to agree, but A is struggling with legal advice from Y as Y now represents B.
That’s a screw-up by A’s Directors (Governors) and their FD in my opinion. They must have been pretty useless in general if the whole MAT is being wound up. Anyway my amateur guess is that A didn’t realise what its liabilities were and is now expecting/hoping that B will pay the bills.A would have become insolvent during 18/19 if its schools were not taken over by B (or another Trust) - all at the behest/command of the Department for Education. So no real sale value, the individual schools transferred to B overnight with all assets and liabilities going to B.
During the process no-one from either legal firm made any mention of the impact of the transfer making A insolvent.
A's budget for 18/19 included the fees for annual audit, so I think everyone assumed that B would deal with this (and any other liabilities).
B doesn't seem to agree, but A is struggling with legal advice from Y as Y now represents B.
My guess is that B have taken on A’s assets as a favour to the DfE (if A has struggled to run the MAT it seems like a ballache for B to have to step in and take over failing schools). If this is the case then it’s highly unlikely that B feels it should be picking up the pieces of A’s mismanagement. One for the DfE to sort out.
Wonder what’s going to happen to the admin staff pensions......
Countdown said:
That’s a screw-up by A’s Directors (Governors) and their FD in my opinion. They must have been pretty useless in general if the whole MAT is being wound up. Anyway my amateur guess is that A didn’t realise what its liabilities were and is now expecting/hoping that B will pay the bills.
Possibly, but A's directors were following the advice and transfer agreement drawn up by lawyers Y and Z. Countdown said:
My guess is that B have taken on A’s assets as a favour to the DfE (if A has struggled to run the MAT it seems like a ballache for B to have to step in and take over failing schools).
MATS taking on failing schools is now very commonplace and lucrative business if you get the model right.Countdown said:
If this is the case then it’s highly unlikely that B feels it should be picking up the pieces of A’s mismanagement.
B got paid by DfE to take A on.Countdown said:
Wonder what’s going to happen to the admin staff pensions......
Nothing. All staff TUPE'd with same pension conditions. B picked up any LGPS pension liability as part of the transfer. New staff may well not get the same pension though.FunkyGibbon said:
Possibly, but A's directors were following the advice and transfer agreement drawn up by lawyers Y and Z.
Lawyers Y and Z won't have known what the residual liabilities were unless the FD of A had told them. What I mean is that somebody, somewhere, forgot that there were still bills to pay. IMO this sits with the FD of AFunkyGibbon said:
MATS taking on failing schools is now very commonplace and lucrative business if you get the model right.
When you say "lucrative" MATs/Sponsors aren't allowed to make a profit (or they weren't when I worked with them approx 10 years ago). It's all risk and very little reward (IMO). Although there are ways and means for the Sponsors to cream some profit off the top by outsourcing certain services the DfE doesn't tend to look at this fondly.FunkyGibbon said:
B got paid by DfE to take A on.
Ok. It depends on how much and what was covered. It will primarily be capital funding to pay for the transfer and rebranding. It won't be for residual costs (well, not explicitly). That should have been identified by the Finance staff at A and they should have told DfE. In actual fact part of the funding they received last year will have included the money to pay for the External Audit (etc)FunkyGibbon said:
Nothing. All staff TUPE'd with same pension conditions. B picked up any LGPS pension liability as part of the transfer. New staff may well not get the same pension though.
Are B already a sponsoring employer in the LGPS scheme that A was a member of? If so it should be straightforward, apart from the fact that B's pension deficit will increase (which, in turn, will have an impact on their contribution rates at the next valuation). it might be that B's FD has picked this up already and DfE have said they will cover the costs. However it's still not something that any FD would be happy with.Apologies for going O/T - to answer the original question - it's A who should be paying unless the winding down costs were clearly identified as a liability which was transferring to B. B aren't taking over A lock, stock and barrel, They are only taking on board certain assets and liabilities.
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