Board and shareholder process is not a formality
Many closely held companies treat board meetings as a signature exercise
rather than a decision-making process. This becomes a real problem when a
transaction is later challenged, or when an investor’s due diligence team
asks for minutes that were never properly maintained. Under the Companies Act
2013, certain matters require board approval and some require shareholder
approval by ordinary or special resolution. Getting the sequence right, and
keeping a contemporaneous record, protects the company and its directors if a
decision is questioned later.
Related party transactions
A company buying services from a firm owned by a director’s relative, or
lending money to a group company, is a related party transaction and is
subject to specific approval and disclosure requirements. Treating these
casually because everyone involved trusts each other is a common source of
regulatory exposure, particularly once outside investors or lenders are
involved and start asking why an arrangement was never formally approved.
Allocating risk in a transaction
Every commercial agreement allocates risk somewhere, whether the parties
think about it or not. Indemnities decide who pays if a third party makes a
claim. Warranties decide what happens if a factual statement turns out to be
false. Liability caps decide how much of that risk is actually recoverable.
We negotiate these provisions with the specific transaction in mind rather
than accepting whatever the other side’s template proposes, because the
difference between a capped and an uncapped indemnity can be the difference
between a manageable loss and an existential one.
Designing the dispute-resolution clause
The clause parties negotiate least carefully is often the one that matters
most: what happens when something goes wrong. Governing law, the seat of
arbitration, and the choice between arbitration and litigation under the
Arbitration and Conciliation Act 1996 all affect how quickly and how
expensively a dispute can actually be resolved. We draft these clauses to
suit the transaction rather than copying a precedent that suited a different
one. A clause that works well for a high-value joint venture between
sophisticated parties may be entirely wrong for a routine supply contract,
where a faster, cheaper mechanism usually serves both sides better.
We also review these clauses periodically as a business relationship
matures, since a dispute mechanism agreed at the start of a contract does not
always remain the right fit years later, once the volume and value of
dealings between the parties has changed.
