Understand Your Rights. Solve Your Legal Problems
GLA & Company exclusively advised sellers Bait Al Aseel and Bashar Al Ameer in the successful sale of a 35% stake in Gissah Perfumes Company ahead of the fragrance company’s highly anticipated initial public offering (IPO). Gissah, initially established in Kuwait, is strategically relocating its operations to Saudi Arabia in preparation for its IPO on the kingdom’s primary market.
Saudi private equity firm Jadwa Investment, guided by Clifford Chance and ASAR, emerged as the acquirer of this significant stake. GLA & Company played a pivotal role in overseeing every aspect of the transaction, including the negotiation and finalisation of the share purchase agreements, shareholders’ arrangements and the seamless closing of the deal.
In addition to negotiation and closing, GLA & Company successfully managed to secure merger control clearance from the Kuwait Competition Protection Agency, an essential regulatory step towards the deal’s conclusion.
GLA & Co advised the sellers on the transaction documents, due diligence, disclosure, merger control filing, regulatory matters and closing with a team led by managing partner Alex Saleh and partner Yousef Al Amly as well as legal director Maha El Meihy, senior associate Asad Ahmad and associates Salma Farouq, Fahad Albaijan and Jehan Saleh.
ASAR – Al Ruwayeh & Partners advised Jadwa Investment Company, while GLA & Company acted as exclusive legal counsel for sellers Bait Al Aseel and Bashar Al Ameer. AS&H Clifford Chance acted as the lead international counsel to Jadwa.
The transaction sees Jadwa acquire a 35% stake in Gissah for Perfumes, Teeb and Oud Company, a major player in the Middle East region’s perfume market.
ASAR advised Jadwa on the transaction documents, due diligence, disclosure and Kuwaiti regulatory matters with a team led by corporate and commercial law partner Luis Cunha and including senior associate Nader Abdelaziz and associate Mustafa Sayed.
Lawyer Monthly had the pleasure to speak with Alex Saleh, Managing Partner at GLA & Company to give us some further insight into this transaction:
Can you tell us any more about this transaction and the role that your team played in it?
GLA & Company acted as the sole legal counsel for sellers Bait Al Aseel and Bashar Al Ameer in the sale of 35% of their stake in Gissah Perfumes Company to Jadwa Investment, a Saudi private equity firm. The transaction was in preparation for Gissah’s planned initial public offering (IPO) and its relocation to Saudi Arabia. The GLA team oversaw all aspects of the transaction, including negotiation and conclusion of share purchase agreements, shareholders’ arrangements and all closing aspects of the deal. We also facilitated the necessary merger control clearance from the Kuwait Competition Protection Agency, which is a vital step in finalising the transaction. The deal showcased our firm’s regional expertise, with our teams in Kuwait and Saudi Arabia playing substantial roles in ensuring its success.
Why did the acquisition of a 35% stake in Gissah for Perfumes appeal to the buyers?
The acquisition appealed to the buyers due to the strategic prospects it presented. Gissah is a fragrance company planning an IPO and relocating to Saudi Arabia. It currently operates across multiple countries, including Saudi Arabia, Kuwait, the UAE and Bahrain. The investment aligns with Jadwa Investment’s growth strategy, providing them a foothold in a company with a strong regional presence and potential for further expansion. The move also positions Jadwa favourably in anticipation of Gissah’s IPO, offering potential for significant returns on their investment.
Were there any notable challenges involved in the transaction? If so, how did you resolve them?
The transaction presented both commercial and regulatory challenges inherent to cross-border deals involving multiple jurisdictions, particularly Kuwait and Saudi Arabia. Overcoming these challenges required a delicate balance of legal expertise, negotiation skills and collaboration between our offices. Our team demonstrated resilience and adeptness in navigating through the complexities of differing regulatory environments and commercial considerations. The goodwill and positive approach from all parties involved facilitated smooth resolution of challenges, enabling us to successfully close the transaction. We view this experience as a blueprint for future cross-border deals between Kuwait and Saudi Arabia, aiming to replicate this success and further strengthen bilateral business relations.
Admetos Acquires Mahle’s Thermostat Business
Tricon Law advised Bavarian investment firm Admetos on its acquisition of Mahle’s thermostat business. Baker Tilly also advised Admetos, while Mahle was advised by Jones Day.
Mahle’s primary business is in selling components for combustion engines in vehicles, with more than €12 billion in revenue recorded in 2022. Its thermostat division in particular boasts 600 employees across six countries, all of whom will continue in their roles under the newly merged company.
Admetos is an owner-managed industrial and investment holding company specialising in carve-outs for medium-sized companies. The firm has revealed plans to further expand Mahle’s thermostat business post-acquisition. The transaction, which remains subject to regulatory approval, is expected to include in early 2024.
Tricon advised Admetos with a team led by partner Hartmut Wollstadt.
Changing attitudes towards business management and post-pandemic litigation backlogs have combined to contribute to a surge in interest for workplace mediation. But how suitable is it as a method of internal conflict resolution? In this feature we hear from TeKay Brown-Taylor, owner and president of Brownstone Mediation Services (BMS), who draws on her considerable experience to comment on the merits of workplace mediation and what organisations should be aware of when approaching dispute resolution.
Speaking broadly, in what ways does mediation differ from a typical grievance resolution process when it comes to conflicts in the workplace, and why might mediation often be a better fit for resolving them?
Mediation is an alternative to the traditional grievance process – it is a supplement to and not a substitute for. Both are voluntary, mediation being more along the informal lines and the grievance process more of a formal process with specific procedural actions typically guided by policy. One has an impact on the other, but the other does not necessarily have an impact on the one; more plainly put, the mediation may have an impact on the grievance process if a full agreement is successfully reached, possibly preventing the need for a participant to seek further resolve through formal channels.
However, if an issue is worked through a formal grievance option, the results should not have a direct impact on the outcome of the mediation. This is because unlike a grievance process, mediation is not about who is right or who is wrong, nor about determining violation of policy or substantiating innocence or guilt. Mediation is future-oriented; how do participants resolve, fix, improve, engage, act, do and think differently from its conclusion?
Though mediation can be conducted at any stage of workplace disharmony, it is most effective when conducted early, which is why it benefits so much from being an informal process. It can be implemented as soon as a problematic issue arises between persons where the issues can be explored and addressed openly and candidly head-on. Often, the mediation is the first time where parties have had a real opportunity to listen and be listened to in a safe and private setting intent on getting to the centre of the issues impacting the workplace experience.
The typical conflict style exhibited by individuals and leaders in the workplace is conflict avoidance and issues that are not managed well early are certain to manifest into more serious hurt, offenses, unprofessionalism, mismanaged conflict, bad conduct, and bad behaviour. Its common issues that surface through the grievance process have been ongoing problems whether perceived or real and now escalated. People often wait to file a grievance for a number of reasons; hoping the issue will resolve itself, uncertain if they have a legitimate complaint and unaware of the proper channels to pursue, fear retaliation will make the situation worse; not seeking recourse until they are mentally and emotionally exhausted and have reached their last straw. All reasons to stress a workplace culture of early resolution and Mediation versus reliance on the grievance process to address workplace conflict.
Mediation in most cases will usually be the best first option. However, it is not always the best option overall. As mentioned above, it is future-focused. If the individuals participating need to remain in relationship, repair a broken working relationship and reconcile the issues, then mediation in most instances is best. On the other hand, if a party is seeking justice for wrongdoing it is important to acknowledge that mediation is not a fact finding and disciplinary process. It is also worth noting that all rights or entitlements to engage other resolution channels that are available to a party before mediation are also available to the party after mediation, whether successful or not.
Then there is the elephant in the room. As HR usually owns the grievance process, impartiality may be questioned. The benefit of the service we offer is that we provide external third-party mediation and other ADR tools in cases where HR or an internal leader serving as the mediator may not be viewed as equally independent and impartial to the matter. Additionally, the initial and ongoing cost to maintain an internal mediation program is often underestimated and possibly considerably more to upkeep than outsourcing an external mediator with BMS when you consider the logistics, coordination, costs, training and continuing education.
How should a mediator establish trust and rapport with the subjects of workplace mediation?
Establishing trust and rapport is essential to mediation starting off on the right foot. At BMS, we place a great deal of emphasis on empowering the participants to determine if mediation is the best option and being intentional in determining whether we are the most capable assist. Our approach is: even if you do not choose us, choose mediation.
Most cases start off with an initial meeting with the HR leader and senior leader of the parties for organisational goals and context as to how the conflict is impacting the workplace, which are usually macro concerns in comparison to the individual and personal issues the parties may bring to the mediation. We go the extra mile also meeting with each participant 1:1 in a brief pre-mediation meeting to discuss the overview of the mediation process, expectations, logistics and the questionnaire pre-work. This is where the participant is also given the opportunity to address any concerns he or she may have about participating in the process, which is especially important for our first-time mediation clients.
Additional resources, frequently asked questions and tips are provided in follow-on communications, in addition to a bio of the mediator’s experience and credentials. We never walk into a mediation talking to the party for the first time. Most often, the hardest part of our work is getting the parties to the mediation table, more so than helping to navigate the conflict mine itself.
What accommodations should be made if one or more parties involved in a conflict are resistant to the mediation process?
Educating a party on the benefits of participating in mediation is the best way to contend with resistance to the process. Once parties are fully informed about the many advantages that come with participating in an ADR process, he or she is most often usually open to the option.
In what ways have you developed your practice as a mediator with the benefit of experience?
As a mediator, I have been fortunate to work in many spaces as a neutral third party. I personally have experience in several mediation categories, including juvenile delinquency, peer, general and civil, divorce, family, domestic violence, equal employment opportunity and of course workplace mediation. At the heart of it all is conflict resolution. With almost 20 years in HR workplace mediation is where I am a natural but family mediation is where I operate with a deeper sense of obligation. It is my belief that no family belongs in a courtroom pitted as plaintiff and defendant.
I believe it is also important that young offender systems have programs for reform that include mediation and other restorative justice practices so that youth are allowed an opportunity to right their wrong before being thrust into a legal system with criminal backgrounds. As such, encourage schools to institute peer mediation programs for students to enable them to gain conflict capacity and interpersonal skills early.
It is a fact that the most experienced mediators are also the most skilled mediators. As mediators, we are communication and conflict specialists. Expertise equates to the degree of experience, with the most experienced being able to creatively facilitate difficult dialogue no matter the category.
In your opinion, how will the field of mediation develop in the coming years, particularly in regard to resolving workplace conflicts?
Thanks to high-profile cases and settlements, mediation is becoming more and more mainstream. It is no longer the ‘alternative’ dispute resolution option. Mediation is beginning to establish itself as the most productive, most successful and most non-adversarial way of resolving issues and disputes. Thanks to the recent pandemic, many courts are so backlogged that mediation provides a necessary relief. This means mediation is serving a need!
Even before the pandemic, courts were beginning to establish ADR programs, recognising the higher likelihood of success when mandatory mediation required parties to make an attempt to resolve issues on their own before using the resources of the court. These same benefits have flowed over into traditional workplace grievance processes. Mediation is now a key part of many organisation’s HR policies and processes that aim to resolve issues between staff informally. BMS is an HR firm and the heart of our existence is helping organisations identify the right tools and solutions to drive better workplace experiences through its people relations, and I over many years working across several industries have determined mediation is one of our best and most reliable tools.
About TeKay Brown-Taylor
TeKay Brown-Taylor is the owner and president of BMS. Having run her organisation for almost five years, TeKay has coached and advised thousands of employees and leaders on workplace-related issues across a range of fields, including the academic, corporate, non-profit and military sectors. As a thought leader often sought out for her insightful perspectives on issues of inclusion and conflict management, TeKay has received a number of accolades, including the CSRA Business League’s ‘Woman Entrepreneur of the Year’, Perry Broadcasting’s ‘Business Professional of the Year’ and the peer-selected ‘Woman Making a Difference’ corporate award.
About BMS
Brownstone Mediation Services LLC (BMS) is a human relations (HR) consulting firm with a solutions-focused niche in ADR strategies aimed at turning people problems into transformative learning experiences. BMS has been recognised for three consecutive years as one of Georgia Business Journal’s ‘Best of Georgia’ for Business and Creatives Services: Mediation and HR Consulting. BMS operates on the principal belief that equipping an employee with the confidence, skills, and capacity will enable them to become leaders that help build better workplaces and in turn better organisations.
TeKay Brown-Taylor
President
Brownstone Mediation Services LLC
207 Hudson Trace Suite 105,
Augusta, GA 30907, USA
Tel: +1 706-955-2031
E: tekayb@brownstonemediation.com
Often concealed from the public, cartel operations can imperil markets and pass significant fees on to consumers without their knowledge. The effective investigation of cartels – and organisations’ willingness to cooperate with these investigations – is therefore essential. Natalie Greenwood, partner at Euclid Law, takes a deeper look at cartel law in this article, outlining what is defined as a ‘cartel’ under EU law and how companies can best respond if they find themselves embroiled in an investigation.
To set a foundation for this discussion, what are the key principles governing cartel investigations in the EU?
The term ‘cartel’ is used to describe an agreement – typically secret – between two or more businesses not to compete with each other. Cartel participants will generally be involved in fixing prices, limiting production, sharing customers or markets or engaging in bid-rigging or other similar conduct.
However, it is even possible that the exchange of competitively sensitive information may be sufficient to be classed as cartel conduct. For example, the Commission fined a number of banana suppliers for exchanging quotation prices for bananas which they then quoted to customers, but which were not the actual prices charged to individual customers.
In the EU, the European Commission has extensive powers to investigate and enforce EU competition law against cartel participants. National competition authorities across Europe have similar powers to enforce both European (if in the EU) and domestic competition law.
How are these investigations carried out and how is information gathered?
Competition authorities can launch investigations based on information they receive from parties to the investigation (leniency applications in exchange for reduced fines), third-party complaints or their own data, including from data analysis teams that scour public information for specific patterns which may indicate anti-competitive behaviour.
A competition authority may carry out unannounced inspections (known as dawn raids) at the start of its investigation – often at various companies and locations at once. Competition authorities’ powers during a dawn raid are extensive and obstruction of inspections can result in significant fines. In 2019, the musical instruments company Fender was fined £25,000 by the UK’s competition authority because one of its employees removed 10 of his notebooks from the premises during the dawn raid, hiding them at the flat of a junior employee.1 The Dutch competition authority fined a company €1.8 million for obstruction as a number of employees left several WhatsApp groups and deleted chat conversations.2
In addition to dawn raids, competition authorities will gather information through extensive requests for information as well as interviews with relevant individuals.
If a competition authority decides to take the case forward, it will present the parties with a Statement of Objections and grant them with access to file, giving them an opportunity to defend themselves against the case and evidence put forward against them. Following the reply, the competition authority will issue its decision, including the fine.
It is also possible for the parties to seek a settlement to terminate the investigation, which will generally involve an admission of guilt in exchange for a reduction in fine.
In the context of EU competition law, what are the typical sanctions or penalties that companies may face if found to have participated in a cartel?
The potential sanctions are serious. The European Commission can impose fines of up to 10% of the previous year’s worldwide turnover. From 2020 to September 2023, the Commission imposed €2.224 billion in fines (down from over €8 billion in 2015-2019), with the largest single cartel fine against Daimler in 2016 for just over €1 billion for its role in the trucks cartel – a cartel between truck makers that were found to have colluded for 14 years on truck pricing and on passing on the costs of compliance with stricter emission rules.
However, there may be additional costs to participation in a cartel. These include individual criminal sanctions in countries including the US, Canada, the UK and Denmark, and director disqualifications in countries including the UK, Ireland or Sweden. In the UK, the Competition and Markets Authority can seek the disqualification of directors for a period of up to 15 years and it has been using its power regularly, securing 25 disqualifications since February 2019. Ignorance of competition law is generally not an excuse.
Companies may also be banned from bidding or entering a public procurement tender for participation in a cartel. In 2021, the European Commission sought to exclude 10 banks from tendering to participate in bond sales of the €800 billion recovery fund due to their involvement in competition law infringements.
Companies also face significant reputational damage for breaches of competition law, in addition to the business and management time (and costs) required to respond to an investigation.
Finally, customers may choose to launch civil claims for damages against a cartel participant. These claims are often now collective actions that aggregate the damages claims by affected parties against a particular business found to have infringed competition law. An increasing number of European countries are introducing collective actions, making it easier for these types of claims to be launched. For example, in addition to the nearly €3 billion in fines from the Commission for the truck makers in the trucks cartel, these manufacturers are now facing damages actions in the billions brought by their customers who are seeking money back for any overcharge resulting from the cartel in a number of European countries, including the UK, the Netherlands, Spain and Portugal.
Can you explain the role of leniency programs in EU cartel investigations?
Cartels tend to be secret agreements, which means that it is difficult for competition authorities to detect them. To combat this issue, leniency programmes offer companies involved in a cartel that bring this to the attention of the authorities and hand over evidence either total immunity from fines (if the company is the first to ‘blow the whistle’) or a reduction in fines, with lower reductions in fines available for subsequent leniency applicants.
However, as a result of the growth in private damages claims which may result in leniency applicants having to pay large sums to their customers for cartel participation, as well as the growth in cartel enforcement worldwide, the leniency incentives may not be as clear-cut for firms as they previously seemed.
What would your first advice be for a company that is facing down a newly launched cartel investigation?
My first advice would be to take it seriously and engage good lawyers! Senior management attention and support is paramount, together with a small team that can take decisions on the day-to-day matters and escalate strategic decisions quickly and appropriately.
There will be many strategic decisions to be taken early on. If you are being dawn raided, it is possible that there is already a leniency applicant that will benefit from total immunity. However, you may still be able to apply for leniency and receive significant fine reductions, but only if you admit liability and are able to provide the competition authority with ‘significant added value’ compared to what a competition authority already has at the time of submission. The earlier you provide this information, the more likely you are to be earlier in the ‘leniency queue’ and benefit from greater reductions in fines. You will therefore need to get a good grasp of your company’s role in any potential infringement quickly to feed into early strategic decisions.
However, prevention is better than cure. Make sure your business is aware of competition law with regular training, in particular in any high-risk areas where contact with competitors is frequent – and ensure that your business knows how to react in the event of a dawn raid.
About Natalie Greenwood
Natalie Greenwood is a partner at Euclid Law with over 18 years’ experience advising on all aspects of EU and UK competition law. Natalie is dual-qualified in England & Wales and Spain and advises on a broad range of matters including cartels, mergers, joint ventures, distribution issues, behavioural antitrust, foreign direct investment and competition litigation. Natalie joined Euclid Law in 2019 after 5 years’ working in an in-house competition legal team and, prior to that, for a Magic Circle law firm.
About Euclid Law
Euclid Law is a boutique law firm focusing only on competition law and foreign direct investment. With offices in London and Brussels, in-depth experience and a network of contacts in key jurisdictions around the world, Euclid Law has the ability to advise clients across Europe and beyond on all aspects of competition law and foreign direct investment.
Natalie Greenwood
Partner, Euclid Law
34 Settles Street, London, E1 1JP, UK
Tel: Tel: + 44 20 3816 3913
E: natalie.greenwood@euclid-law.eu
www.euclid-law.eu
Proper Debt Collection Practice in Spain
Business continuity and many individual livelihoods rely on the timely payment of debts. When payment is not forthcoming, the subsequent collection of debt by creditors is invariably subject to a highly constrained legal process. Manuel Hernández, managing partner of Vilches Abogados, answers our questions about the practice of debt collection in Spain and provides insight on proper conduct.
Could you provide an overview of the legal framework for debt collection in Spain?
Yes. I will begin by clarifying that, in Spain, the collection of a debit is a right that any person has, whether natural person, legal entity, or public or private entity, for the fact of having performed a service.
This person – the creditor – can request payment from the debtor out of court before taking the next stop and going to court. This is an amicable claim, as an action prior to going to court. Acting in this way is in a point in favour of the creditor, since it leaves a record that they have tried it orally; something that, for the judgment, favours them.
What are the main laws and regulations governing debt collection practices?
The legislation that protects those who suffer from delinquency, i.e. the non-payment of an amount by another, is the articles of the Civil Code. Two of them stand out in this area:
Article 1101 states that anyone who “incurs in fraud, negligence or default in the fulfillment of his obligations” from that moment has the responsibility to compensate for the damages caused.
In addition, and complementing the above, Article 1096 determines: “when what is be delivered is a specific thing, the creditor may require the debtor to make the delivery”.
With both, Spanish law gives full right to verbally request what is owed to you.
What are the typical phases of debt collection, from initial contract with the debtor to resolution?
When a person sets out to collect the amount owed to them, the first step is the recognition of the debt, they must prove that it exists. It is necessary to provide all the documentation you have, which gives veracity and solidity to your request. I am talking about contracts, emails, or messages by any other channel that show that the debt exists.
At this point it is possible to make a claim amicably, in the act of conciliation, where both parties meet and try to reach an agreement. In the worst case, if the debtor refuses, despite having evidence against them, you should go to court.
It is another thing if there is no evidence. Then it can get complicated. An out-of-court negotiation is required, where you must try to reach an agreement with the debtor to cancel the debt – something that is more difficult when there is no good will on both sides.
Are there any specific limitations or restrictions on debt collection practices that debt collectors should be aware of?
An essential thing to know is that debts are not reclaimable for life. There is a time limit after which, if the proceedings have not been initiated, all right to do so is lost, and I think this is the greatest restriction faced by the collectors.
In the case of personal contracts, such as a rental of real estate or a loan between two people, this term is five years. This has not always been the required term; this was established in 2015 via Law 49/9015, which modified the previous (much softer) term limit of 15 years. During those five years, the claim procedures must have been started. Once this happens, the term stops. In short, it is very difficult for that term to be met, and that debt is left unclaimed.
Further, each type of contract may have a limit period that is determined and accepted by the parties. This is the case with mortgage loans, for example, which have a claim term of 20 years.
What are the rights and protections that Spanish law grants debtors during the debt collection process?
Once the judicial proceeding has begun, the debtor has legal protection, which means that any possibility of seizure of assets to cancel what is owed is paralysed. In addition, you have the right to not have the debt continue to grow. Once the claim is already in process, interest no longer increases the debt already contracted, which is important in case the judicial process is delayed.
To respect the debtor’s right to privacy, any information concerning this subject cannot be disseminated without their consent.
How does the legal process of debt collection differ between consumer debts and business debts?
It does not differ too much. In fact, the steps to follow are the same as I mentioned before. You must claim business debts, in this case with the presentation of the invoice or invoices, where the due date is clearly shown. This makes it clear that the company is in breach of one of the conditions of the acceptance of the services, i.e. delivering the payment before a specific day.
If no news is received, the next step is to send a burofax requesting payment. It is important to use this means, because it justifies not only the content, but also the sender, addressee and date of sending – the best way to have a legal proof in court. At this point, if the company does not comply, you should take legal action.
What legal remedies are available to creditors when attempting to collect a debt?
Creditors, once they have proof of the debt owed to them, have all legal remedies in their favour. They have the right to file a judicial claim after going through a conciliation process to reach an agreement that we can call ‘amicable’, and that always benefits both parties.
Can you give us some insight into the negotiation and settlement typically employed in debt collection cases?
The first idea is more of a tip.
Before any service is provided, it is very important that, if it is not a contract signed by more parties, there is another type of justification of what has happened. Often – because it may be a family matter, or between friends – you think that nothing will go wrong, and with a conversation (without witnesses) you move on. This is a big mistake that, in the long run, has consequences.
Apart from that, it is important to negotiate with a certain flexibility, to take into account the situation of the other party and to try to reach an agreement, either through an alternative way of collection or an increase of the terms, for example.
You have to arrive at a negotiation with an idea of the worst scenario you can face, knowing how far you are capable of giving in, always with the idea that it is better to charge a little less or take a little longer than not to charge at all, or not at all.
About Manuel Hernández
Manuel Hernández is the managing partner of Vilches Abogados, a prestigious law firm in the city of Madrid. The firm boasts eight offices in Madrid and a staff of 21 lawyers, cementing Vilches Abogados as a leading law firm in the Spanish capital.
Manuel Hernández Vilches
Managing Partner
Vilches Abogados
C. Jorge Juan 78, 5º B (28009),
Madrid, España.
Tel: +34 915 75 90 82
E: manuel@vilchesabogados.es
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.
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.
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.
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:
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.
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.
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.
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 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:
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.
If approached with the necessary precautions and respect for their views, the inclusion of a child in relevant family mediation matters can bring a highly valuable perspective to the process. What benefits do the participants stand to gain from child-inclusive mediation, and how can the child’s rights be safeguarded throughout? Mediation specialist Caroline Bowden explores the subject in depth in this article.
What are the primary objectives of child-inclusive mediation, and how does it differ from traditional family mediation?
Traditional child-related mediation involves the primary caregivers – normally the parents – discussing the arrangements for their child or children with the mediator as their active facilitator. I can put forward various options to the participants, but they will decide the outcomes. The discussions go wider and deeper than any court case. Judges only decide on how much time is spent by a child with their parents and perhaps some of the practical arrangements to make that happen. In mediation, parents can discuss their communication with each other and how to improve what will be a life-long relationship as co-parents, so that their children can flourish.
Child-inclusive mediation builds on the same objective, but layers onto it the direct consultation between the mediator and the child.
What are the potential benefits of child-inclusive mediation?
Child-inclusive mediation will only benefit the child if they enter the process freely. They must have a genuine choice and they need their parents’ consent to be offered that choice in the first place. Some children may decline; they may feel like talking to a third-party stranger is not for them. However, just being offered the choice may be empowering.
Other children may feel that their views have been ignored thus far and would welcome the opportunity to be heard. Perhaps they resent their parents speaking for them or feel that one parent is pressuring them into an arrangement that upsets them. Others may accept simply because they are curious!
The benefits, if they do attend, have been set out in the mediators’ go-to textbook: ‘Family Mediation’ by Lisa Parkinson1. Lisa has done more than anyone to develop and promote the practice of child-inclusive mediation. I have summarised her key takeaways:
- Offering a child the opportunity to talk shows respect for them as individuals and recognises their legal right to be consulted if they wish. Art.12 of the UN Convention on the Rights of the Child, to which the UK has been a part since 1991, states that every child has the right to express their views and wishes in all matters affecting them and to have their views considered and taken seriously.
- A child may need reassurances that a parent has been unable to give them. This can be a two-way process, as the mediator can share the parents’ messages with the child. The mediator can reassure children that their feelings about their parents’ separation are normal and that the problems they are experiencing are not their fault.
- Sharing messages from a child, at the child’s request, helps parents to take their needs into account and make arrangements that are more likely to work in practice.
- The conversation with the child may dispel misunderstandings, for example, that a child does not want to see a parent, when the child does – but in a different way.
- The process enables a child to express concerns about the family, such as the practicalities of having their parents in two different homes, or more significant risks which will need careful exploration and possibly a referral for safeguarding.
- A child may find it easier to talk with an empathetic third party who helps them to talk freely without fear of upsetting a parent.
- Some children want to explain their wishes to their parents themselves and some parents want to explain their decisions to their children. A mediator can host a family meeting for this mutual feedback, obviously needing to do this with great care and sensitivity.
It is important that the mediator makes very sure that they only feedback what the child has given them permission to say.
The child needs to be relieved of any sense of responsibility to ‘sort out’ their parents’ issues. The mediator must discuss the implications if the child wants to be very directive, as they may not appreciate the long-term impact of that.
Can judges ask mediators to see the children caught up in legal proceedings and then feedback their comments to the court?
Definitely not, but that has not stopped judges from asking! Given the delays and pressures at court, it is predictable that these requests are increasing. However, it is fundamental to the very nature of mediation that it is a confidential and standalone process. Mediators can be naturally helpful, so they can find these requests hard to refuse. Yet it is vital not to erode the clear and distinct space our profession occupies. We are not an outsourced agency of the justice system!
What is the suggested (and typical) age range of children who may be involved in child-inclusive family mediation?
All accredited mediators abide by a Code of Practice, which states that all children and young people aged 10 and above should be offered the opportunity to have their voices heard directly during the mediation.
How should children be prepared for their participation in mediation?
The preparation starts with the discussions with the parents and only after having received their joint permission to do so. It is likely now that most children will be contacted via email rather than by letter, but the parents may have their own suggestions.
In the first contact with the child, the mediator should explain who they are, what they do and how it came about that they are making contact. In age-appropriate language, they need to explain the confidentiality of the process and what the child’s participation would look like and the fact that it is entirely voluntary.
The child should be able to ask questions about the process before agreeing to engage. This is an important stage during which the child must feel a degree of trust and reassurance that what they say will be respected.
What measures must be implemented to ensure the confidentiality and privacy of children during and after the mediation process?
Accredited mediators are already skilled at working within the parameters of confidentiality with their adult clients. The main difference is to make sure that children understand that there are exceptions to the fact that the child can tell them anything and they will keep their confidence. It is vital that these safeguarding conversations are carefully handled and in a way that is age-appropriate.
Are there any significant drawbacks or potential challenges to be taken into account when assessing whether a child ought to be involved in family mediation?
There may be reasons why mediation would be unsuited for a family. These might include issues of substance dependency, domestic abuse, vulnerabilities due to a child or parent’s mental or physical ill-health or other needs. Mediators must also look out for referral fatigue, if a child is already being seen by several agencies.
An obvious challenge to arranging child-inclusive mediation is a reluctance on the part of one or both parents. This can come down to something as basic as cost, as at least one extra meeting is required. There is no additional legal aid payment to make this viable for legal aid providers either. The other common source of reluctance is fear of what the child might say and whether their opinion is authentic or reflecting the wishes of the other parent.
Another fear is that the meeting itself may be distressing for the child. One hopes that the skilled mediator would ensure that this is not the case, but it is more likely if the child feels under pressure from one or even both parents to support and echo their views.
What advice would you give to a less experienced mediator concerning child-inclusive mediation?
All mediators accredited with the Family Mediation Council must either be trained in this field, or receive awareness training, so I am not sure I could say much that they have not already heard! To qualify to see children, there are at least 40 hours of learning on both the practical and the theoretical elements of this sensitive role.
About Caroline Bowden
Caroline Bowden is a solicitor who works exclusively in mediation. She specialises in all aspects of family law, concentrating especially on financial matters and children issues. Caroline is also an accredited civil and commercial mediator whose facilitation skills acquired from her years of experience in family mediation prove invaluable in the search for solutions in the commercial and civil context. She can offer a fusion of civil and family ways of mediation, adapted on a case-by-case basis, which includes having solicitors directly involved in the mediation where needed.
About Anthony Gold
Anthony Gold is a leading law firm based in London. The firm’s solicitors specialise in various areas of law and are experts in their fields of legal services. They are negotiators and litigators, committed to doing whatever is best for their clients.
Caroline Bowden
Consultant Mediator and Solicitor
The Cottons Centre, 5th Floor,
South-West Hay’s Lane, London
SE1 2QG, UK
Tel: +44 (0)20 7940 4050
E: csb@anthonygold.co.uk
www.anthonygold.co.uk
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.
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 preliminary understanding of what the whistleblower is saying, we would then create an “issues matrix” that captures all concerns raised and lists the investigative work steps that we would take with the objective of evaluating each allegation and determining whether it has substance. The goal is to validate or refute each item based on the facts and to determine next steps accordingly. We also assess the likely materiality of the allegations and consider whether other aspects of the entity’s financial reporting process could be impacted (even if not directly addressed by the whistleblower).
Our workplan would include assisting on tasks that are usually led by counsel, such as interviews and electronic discovery, as well as tasks we would lead on, like forensic accounting work on the books and records and assessment of any potential internal control weaknesses, as applicable. In most cases, the company will have an internal team that can help get the forensic team oriented and gain efficient access to records and relevant personnel.
This can be a senior person in the office of the General Counsel or Internal Audit Department or sometimes a senior accounting executive.
We would also attend an initial meeting with the external auditors, so they can begin to fulfil their obligations related to the investigative process. In some matters, the company may retain crisis management consultants and/or a public relations firm to handle external communications (if the matter is publicly known). Sometimes we have been asked to help educate the communications team on the details of the accounting issues and associated risks to help them frame their approach.
In the context of accounting investigations, what are the typical red flags that might prompt further scrutiny?
When evaluating whether there are red flags present, it is important to understand the “normative model” of the company and, to some extent, the typical industry practices. For example, a division of the company may utilize an older general ledger system that requires a lot of manual journal entries to close the books each quarter.
Usually, the presence of a lot of manual journal entries is a common red flag as it may suggest inappropriate management override of controls or an attempt to “manage earnings.” On the other hand, if the practice is well known and visible to the company accounting team and external auditors, then it is likely to be worthy of some review but may not be a serious red flag.
Industry practices can also be relevant when assessing the likelihood of red flags being present. In some technology sectors, it is common for buyers to wait until near the end of the company fiscal quarter before they seriously negotiate a purchase of software (as they feel they will get a better deal). This can result in many sales being closed in the last few days of the reporting period. This may be a red flag and would require some review and analysis, but given the prevalence in the industry, it may not be a dispositive red flag.
The above is not intended to suggest that red flags do not merit scrutiny and analysis, especially if raised by a whistleblower. Rather the goal is to highlight that the context applicable to a potential red flag is very important and needs to be a part of the investigative analysis.
Some examples of typical red flags that can arise include:
Lack of sufficient internal controls over financial reporting related to revenue recognition – In this example, consider a business that manufactures complex medical equipment (e.g., sonogram machines, MRI machines, etc.) These items have hardware and software components. Often, the sales team will be keen to offer incentives to customers to encourage them to purchase the machine. These incentives can include free software upgrades in the future or other benefits that are not yet fully known or available (but are anticipated). These can impact the accounting treatment for revenue recognition purposes and there should be internal controls in place to ensure the details on concessions are tracked and recorded. If those controls are weak or not present, then that is a red flag requiring further analysis and review.
Management overriding internal controls over financial reporting over bad debt reserves - many companies use a formula-driven approach to the calculation of bad debt reserves. This is a function of the aging of the accounts receivable. Often, a progressive percentage reserve is applied to the total accounts receivable amount aged over the usual collection terms, and this formula will be documented in the accounting policies and procedures manual or monthly closing binders. The reserve may be calculated and recorded on an automated basis, or a calculation performed and recorded by a member of the accounting team. When you see additional entries recorded to reduce this calculated reserve, or it never being recorded at the calculated amount, then that can be a red flag that can suggest improper management influence over the reported results.
Disconnect between the reported results and actual experience – In this example, you can have a division or a subsidiary and the recent financial reports show that it is performing to plan and generating profits. When you talk to the team at the entity, you learn that cash flow is very tight, and they need frequent help from head office to meet expenses. This is a red flag that merits further review. Sometimes the explanation may be that major customers are late paying their invoices or there are other legitimate reasons for delays in payment (e.g., waiting for an engineering certificate of completion). An analysis should be performed to ensure that the reported results are accurate.
Overly complex and opaque monthly closing process with insufficient division of duties – This is a red flag that can often be present in smaller entities. It can also be present when there is only one qualified accounting person who is assisted by a team of clerks who do not understand financial reporting. The severity of the risk would depend on the specific facts and circumstances present.
Could you share an example from your past experience where you successfully identified and addressed an accounting issue raised through a whistleblower allegation?
In one case, a whistleblower who was working in the warehouse and logistics area, was concerned about slow-moving inventory, and pointed out that there were large quantities of materials lying around for extended periods of time with no apparent sales activity. Our work determined that an appropriate reserve for obsolete and slow-moving inventory had been established by the accounting team. It just wasn’t visible to the whistleblower and was not an issue.
In another case, an anonymous whistleblower alleged that the profits and cash were overstated at a small European subsidiary of a public registrant. This subsidiary had historically not been subjected to a full internal or external audit due to its immaterial nature. When we started to investigate, it became clear early on that there were numerous unsupported entries recorded by the controller locally, prior to the results being included in the consolidation process. This activity had taken place over several years and was ultimately material to the overall entity and a restatement was required. In addition, the controller had obtained and manipulated an electronic copy of a bank confirmation to fraudulently support the overstated cash balance.
What role does technology play in your investigative process, and how do you leverage it effectively?
Over the years, technology has continued to play an ever-increasing role in the investigative and forensic accounting process. Thirty years ago, I remember doing investigations where the team would routinely print out most of a custodian’s emails and read them for relevance. Thankfully, we have made significant progress since then. At the same time, the volume of data has exploded, and you cannot investigate without using a variety of analytical tools and technology to increase efficiency and help reduce or eliminate non-relevant information.
We review emails and other electronic communications (internal messaging software, other messaging applications – if available) in our investigative work. We work with counsel to generate a list of search terms that are responsive to the whistleblower allegations and help review the resulting documents to inform our work. For this process to be efficient, you need to be very thoughtful with the search terms and go through an iterative process to ensure you are not generating too many false positives. I have seen clients leverage various technologically assisted review tools and in general, these are very helpful and increase the efficiency of the process.
My experience, especially internationally, is that many people will use non-business platforms to communicate in the ordinary course (e.g., WhatsApp in Latin America, WeChat in China) as well as other encrypted or ephemeral messaging apps. These communications are often not available to review due to privacy rules or inability to access. I find that email review is generally still very helpful to the investigative process, but you need to keep in mind that if people don’t want their communications read by others, they have various options outside of the company systems.
There are also some useful tools that allow you to search unstructured data that may reside within the structured financial records. Many general ledger systems include the ability to comment on specific transactions. This can be manual journal entries or other transactions. These types of notes are often helpful when investigating the provenance of accounting entries, as the company staff tasked with the entry input may want to remember the item and include a comment to help identify it as an unusual entry.
As the investigative field has grown over the years, there are also some tools created for the forensic practitioner. These can be helpful and include powerful financial analytics tools, modeling and predictive tools, data visualization, blockchain analysis and other items. I have also seen some matters where it is helpful to scrape social media to see what commentary is made by relevant individuals and to consider that in our analysis. To date, I have not personally leveraged any generative AI tools in the investigative process. I believe there are various tools in development so we will see what the future holds in that regard.
How do you communicate your findings and recommendations to clients, and stakeholders (e.g. the external auditor)?
As mentioned above, it is critical to communicate with all stakeholders frequently. In most situations, that communication will be a live discussion on a zoom call and may involve sharing some applicable company documents. Often the ultimate client is the Audit Committee, and we would expect to brief the full committee regularly, with more frequent updates for the Chair. Working with counsel, we typically have fulsome discussions with the Audit Committee about our progress, estimated completion schedule, what we are finding and the likely nature of required remediation, if applicable.
After the initial meeting to introduce the forensic team to the external auditor, there will likely be a lot of interaction as the facts are developed. The level of interaction will depend on the nature of the whistleblower allegations that we determine to have substance. Sometimes, the allegations are wholly immaterial or do not have merit and the external auditors will want to understand the work that was done and have the company explain its determination and everyone moves on. When you have what appears to be material allegations that have substance and perhaps may implicate senior management, then I would anticipate extensive interaction with the audit team and a lot of requests for information that counsel will need to navigate. Ultimately, it is always important to keep the auditor “in the tent” as if there are material issues, the company will need to work towards getting the financial statements restated and filed as promptly as possible. Keeping the auditor up to date as facts develop and giving them time to analyze and reflect on what they feel they need to do is the best way to get the company beyond the investigative challenge and have its financial statements filed.
Given the potential for regulatory implications, how do you coordinate with regulatory authorities during an accounting investigation?
Counsel typically manages the process with the regulators and will inform our approach, but we will often be involved and can bring context to the accounting issues at hand as well as internal control over financial reporting and material weakness or restatement issues (if applicable). In my experience, when dealing with the Securities and Exchange Commission, there will usually be an accounting person assigned alongside the lawyers. We can help build a relationship with that person and provide relevant information if instructed by counsel to do so. Similarly, I have interacted with CPAs from the Federal Bureau of Investigation when engaging with the Department of Justice on certain matters.
About Brian P. Loughman
Brian P. Loughman is a Partner at Floyd Advisory. He has extensive experience advising outside counsel, executive management, and other stakeholders on a wide range of forensic and integrity related matters. Brian’s clients have included Fortune 500 companies, private entities and various law firms. He has managed numerous investigations and remediation efforts for audit committees, management, trustees, and outside counsel. Investigative topics have included accounting fraud and restatement issues; bribery and corruption; trade compliance; and occupational fraud and money laundering. Brian’s experience also includes leading cross-cultural teams investigating and remediating potential corruption violations in Asia, Latin America, Africa, the Middle East, Central and Eastern Europe.
Prior to joining Floyd Advisory, Brian was the Global Markets and Americas Leader for Ernst & Young LLP’s Forensic & Integrity Services practice. He was also a member of Ernst & Young LLP’s Americas Assurance Leadership team. He is a Certified Public Account in New York, Certified in Financial Forensics (CFF), and a fellow of the Institute of Chartered Accountants, Ireland. Brian has spoken extensively on topics including investigative and integrity issues, anti-corruption compliance, and other related issues. He is the co-author of “Bribery and Corruption – Navigating the Global Risks.”
About Floyd Advisory
Floyd Advisory LLC is a consulting firm providing financial and accounting expertise in the areas of accounting advisory, SEC reporting, transaction analysis, business strategy, forensic accounting, fraud investigations, and valuation. Our team has significant experience analyzing accounting transactions and guidance in various settings, including business disputes, board-level investigations, white-collar defense matters, and bankruptcy settings. We have the skills and credentials necessary to gain the respect and confidence of the executive suite, company boards, the courts, regulators, and law enforcement professionals.
Brian P. Loughman
Partner, Floyd Advisory
1 Penn Plaza, Suite 3310
New York, NY 10119
Tel: +1 646.449.7268
Email: bloughman@floydadvisory.com
France and US Immigration: Challenges for French and US Citizens
The movement of French and US citizens between their respective countries for residence and employment carries its own distinct sets of obstacles. Asif Arif, a dedicated immigration attorney, explores these challenges in an exclusive interview with Lawyer Monthly, offering his advice to prospective immigrants on what to expect and how best to prepare.
Could you explain the differences between temporary visas, permanent residency and citizenship in France? What are the advantages and limitations of each?
France has a different approach to immigration than the United States. While the US has decided to classify immigrants as ‘non-immigrants’ and ‘immigrants’, France does not adopt such classification. Instead, French law proposes a unique classification of ‘étrangers en situation irrégulière’ or ‘undocumented immigrants’. These individuals must qualify for a category outlined in the French Immigration Code, which is a compilation of rules similar to the Code of Federal Regulations.
Work visas and work-based residency: France offers residency options based on extraordinary talent, highly skilled workers, international artists and unskilled workers. Overall, the implications of each residency category differ, but it appears that the current government is particularly interested in highly qualified immigrants, emphasising talent-based immigration. For unskilled workers, the government is working to grant legal status to undocumented immigrants working in France (without being formally employed as French citizens but based on their passports) if they can demonstrate clear and convincing evidence of residing in France for the past five years and having eight monthly paystubs. Work-based residency includes access to social security in France and healthcare services, but it is subject to a considerable amount of discretion.
Marriage-based visas and residency: If a US citizen (‘USC’) is married to a French citizen, they must apply for a long-term visa as the spouse of a French citizen at the French Embassy. Additionally, they need to register their US marriage license with the French Embassy. This visa application is free and allows the USC to seek employment in France (note that visitor status holders cannot seek employment). It is worth noting that France recognises not only legal marriages but also a broader conception of couples. Marriage-based residency includes access to social security in France and healthcare services, making it the most favourable residency option in France.
Long-term visitor visas and residency: When a USC wishes to retire in France or has the opportunity to work remotely for their US employer and relocate to France, the long-term visitor visa provides the option to seek residency without stringent criteria. This visa is granted to a USC if they can demonstrate sufficient income, secure a specific type of health insurance and sign a statement confirming that they will not seek employment in France. Visitor-based residency does not include social security coverage in France or access to healthcare services.
Citizenship: Citizenship in France generally requires continuous legal residence in France for the past five years. For the spouse of a French citizen, this duration is reduced to three years. It is important to note that citizenship necessitates a proficient level of the French language (B2 level), professional integration and good moral character. Therefore, USC individuals should be careful to file taxes in France and avoid convictions for aggravated offenses. If a holder of a visitor residency card renews it every year for five years and applies for French citizenship, they will need to demonstrate good cause for professional integration, which can be challenging.
Can you provide an overview of the most common types of visas that US citizens typically apply for when seeking to move to France?
Our law firm frequently assists USC with various visa matters, with a notable emphasis on marriage-based visas and long-term visitor visas. Many retired USC individuals from California and across numerous other states seek our expertise, especially those who wish to spend a significant portion of their time in European countries. This growing trend underscores the allure of European living for retirees and the appeal of exploring new horizons. In recent times, our firm has witnessed a remarkable uptick in USC clients interested in establishing corporations or launching businesses in France.
To obtain a visa enabling a three-year residency (renewable), US citizens are required to invest a minimum of €30,000 in France, along with establishing a robust foundation for their business. This entails meticulous planning, including a comprehensive business plan, roadmap and budget for advertising. This visa category closely aligns with what Americans are accustomed to under the Investment Treaty Country non-immigrant visa, such as the E-1 or E-2 visas.
Our role in assisting these enterprising USC clients extends to providing expert guidance throughout the intricate process, ensuring that they meet all legal requirements and helping them embark on their entrepreneurial journey in France with confidence.
What are the primary challenges that US citizens often encounter when applying for a French visa or residence permit, and how can these challenges be overcome?
While the prospect of establishing oneself in France holds immense appeal for US citizens, it is important to acknowledge the challenges that often arise, primarily rooted in the language barrier and the fundamentally different system of rules and regulations. These disparities can understandably lead to anxiety among Americans looking to make the move.
This is precisely why our law firm has garnered such popularity among US citizens seeking to establish a foothold in France. Our approach goes beyond legal work; it is about equipping US citizens with a comprehensive understanding of the challenges that lie ahead. We firmly believe that knowledge is empowerment, and we ensure that our clients are well-informed every step of the way.
For instance, one significant hurdle that US citizens often face is opening a bank account in France. We not only alert them to this critical requirement but also guide them through the process and advise on additional steps to proactively mitigate potential future issues.
Another common scenario we encounter involves individuals who attempt to navigate the visa application process on their own, only to discover that a crucial document was missing from their submission — an item not even listed in the official document requirements. In such cases, we serve as a bridge and a reliable source of support for US citizens, helping them navigate the complexities of immigration procedures successfully. Our commitment is to be a trusted ally throughout their journey, ensuring a smoother transition and a more confident start to their new life in France.
Are there any specific professions or industries in France that are more welcoming to US expatriates, and if so, what are the visa options available for individuals in these sectors?
Recently, the French government introduced the ‘French Tech’ program, aimed at cultivating an environment conducive to startup investment in France across various pivotal sectors, including agriculture, sustainable energies and health technology. This initiative underscores the government’s unwavering commitment to position France as the preeminent hub for startups, aligning with President Emmanuel Macron’s vision of creating a ‘start-up nation’.
One remarkable facet of this endeavour is the ‘French Tech Visa’, which is obtainable upon meeting the stringent qualification criteria established by the French Tech team. This visa offers entrepreneurs and innovators an expedited path to enter and work within the French tech ecosystem, fostering innovation, collaboration and growth.
Furthermore, France is open to considering investment visa requests that have the potential to stimulate employment opportunities for French citizens, thereby contributing to the alleviation of unemployment challenges in the country. This underscores France’s dedication to not only attracting international talent but also to fostering economic prosperity and development within its borders.
In your experience, what are some common misconceptions or misunderstandings that US citizens have about the immigration process in France, and how do you address them?
It is not uncommon for US citizens to assume that their waiver traveller status grants them the ability to establish permanent residence in France, enticed by the allure of the French lifestyle. I often encounter clients who express a desire to adjust their immigration status while in France under a tourist entry, even though the culture of adjustment is not prevalent in France.
In such cases, my consistent advice to US citizens is to proactively secure the appropriate visa before their arrival in France. By doing so, they can navigate the immigration process smoothly, ensuring that they have the necessary documentation to reside in France legally. This proactive approach not only guarantees compliance with French immigration laws but also simplifies the process in subsequent years.
At our firm, we prioritise providing comprehensive guidance to US citizens, empowering them to make informed decisions about their immigration journey and avoid potential complications down the road.
How long does the process typically take from applying for a visa to obtaining permanent residency or citizenship, and are there any strategies to expedite the process?
When it comes to visa applications, our law firm typically receives approvals within a remarkably efficient timeframe of nine to 10 days. This quick turnaround is the norm, barring any highly specific requests for additional evidence from the Embassy, which can occasionally extend the processing time.
In contrast, clients who choose to handle their applications pro se often encounter lengthier delays, primarily due to missing documents or incomplete submissions. Expedited processing can only be pursued in exceptional cases where ‘good cause’ can be demonstrated, although such opportunities are quite limited, particularly in the context of US consulate proceedings.
Obtaining citizenship, whether through the consulate or other means, presents a more intricate process. It typically requires the US citizen to have resided in France for a minimum of three years or to establish strong ties with the Consulate through, for instance, a marriage to a French citizen. The citizenship application process in France is renowned for its duration, averaging around two years. Unfortunately, there are no provisions for expediting this process, and applicants must be prepared for the substantial wait times involved.
What resources or support services do you recommend to US citizens who are planning to settle in France, such as expatriate communities or cultural integration programs?
In today’s digital age, there are numerous online communities across various social media platforms dedicated to discussing the unique challenges faced by Americans who have established themselves in France. These groups provide valuable insights, shared experiences and a sense of camaraderie for expats navigating the complexities of life abroad.
At our firm, we understand the importance of having a reliable support system in place. We take pride in being the kind of attorneys who are readily accessible when you need additional information or guidance on a specific legal matter. Whether it is addressing questions about immigration processes, global mobility, or any other legal concerns, we are here to pick up the phone and provide you with the expertise and assistance you require.
Conversely, what are the most common obstacles that French expats face when seeking to immigrate to the US?
When a French citizen relocates to the US, it often symbolises the pursuit of the American dream — a concept deeply ingrained in the aspirations of many French individuals who view America as the land of boundless opportunities. This dream has inspired countless professionals to take their businesses to international heights on American soil. However, alongside these dreams, it is crucial for these individuals to have the right legal representation to navigate potential challenges effectively.
In my experience, I have encountered numerous clients who approach me with the desire to make the US their new home, only to find themselves facing legal issues due to past convictions or overstaying their visas, resulting in potential bans ranging from three to 10 years. The reality is that the land of opportunity is accessible to immigrants and non-immigrant visa holders who enter the appropriate category. Some hopeful French citizens arrive with grand dreams but quickly confront the complexities of the US legal framework.
At our firm, we recognise the importance of guiding individuals through these intricate processes, ensuring they have the proper legal support to realize their American dreams while avoiding any unforeseen legal complications.
About Asif Arif
Asif Arif is an emerging attorney specialising in immigration and global mobility. Holding memberships in the Paris and California Bar Associations, Asif boasts over a decade of expertise in advocating for clients with cross-border interests between France and the United States. He stands as a pivotal figure in the French-American legal landscape, adeptly representing both Americans relocating to France and French citizens moving to the United States. His clientele spans corporations, international artists, renowned athletes and executive managers, reflecting his dedication to delivering exceptional legal counsel.
Asif Arif
Attorney
5001 Birch St – Suite 7,
Newport Beach, CA 92660-2110, USA
Tel: +1 949-394-0232
E: asif@ariflawoffices.com
www.ariflawoffices.com
The UK tech sector remains resilient in 2023; despite global upheaval, it continues to be the biggest in Europe. To hear more on the tech sector’s prospects when it comes to attracting global talent, we have spoken with Anushka Sinha, senior associate at Vanessa Ganguin Immigration Law, who is known for her expertise in the area. In this article, she breaks down latest developments, immigration options and challenges for the sector.
What is the most common immigration route for tech professionals looking to work in the UK?
Skilled Worker sponsorship
Following Brexit, the Skilled Worker route has become the most commonly used work immigration route with over 1,000 sponsor licence applications for skilled staff received by the Home Office weekly. The numbers of employees sponsored under this route has increased greatly. It is a popular choice for tech companies as it is a relatively straightforward way to source a range of skilled staff across different disciplines. Skilled workers can bring dependent family and settle after five years. There are no caps on numbers but there are skills and salary thresholds and vacancies do have to be genuine, among other requirements.
Are there any specialised visa categories or considerations for tech entrepreneurs or start up founders looking to work in the UK?
Global Talent visas
The Global Talent visa has become the greatest accolade our immigration system can bestow on those who excel in their fields.
This prestigious route offers a path to citizenship without any need of a job offer for those at the top of their game in certain sectors including digital technology. It is the most flexible route in terms of employment as it allows successful applicants the ability to be employed, self-employed or both. However, there is a high threshold to qualify: applicants need to satisfy the UK Government’s appointed endorser, Tech Nation, that they are internationally recognised as a leading talent in the digital technology sector. Nonetheless, thousands of tech talents and their families have used this immigration route to settle in the UK and found or work for some of the biggest UK tech brands.
Innovator Founder visas
Another option for tech founders is the new Innovator Founder category, which replaces the Innovator and Start Up routes, removing the old routes’ more onerous requirements (e.g. a £50,000 minimum investment for Innovators). Endorsement that a business plan is innovative, viable and scalable is required by a government-appointed endorsing body.
It is more attractive than its predecessor routes, but not only does the initial endorsement require more administrative hurdles and transparency than many entrepreneurs may want; for settlement after three years, various business targets must be met too.
UK Expansion Worker
While in most cases firms will need an established, operating business in the UK to sponsor staff to come to work here, under this new UK immigration route, an overseas business can send a small team to establish a branch or subsidiary in the UK. Companies established and trading overseas for three years or more can now send up to five employees to set up UK operations. The Home Office will require particular documents regarding your UK footprint, overseas trading and business plans to expand in the UK.
Scale-up visa
Tech professionals could also avail themselves of the Scale-up route, which requires sponsorship by an eligible scale-up company. However, the main advantages to this route are a lighter-touch sponsor licence process, no Immigration Skills Charge and, most controversially, after being sponsored for six months, the tech professional can then choose to work for different employers in the UK. Although this may not appeal to sponsors who have gone through the time and cost of sponsoring an individual only to then lose them to another employer, it might be more appealing for tech professionals seeking a greater degree of flexibility.
What are the potential challenges or obstacles that tech companies may face when hiring talent in the UK, and how should they look to overcome them?
As Britain aims to be a tech superpower, with our tech sector continuing to grow in comparison to other European tech hubs, the industry continues to require the best talent from around the world to fuel its rapid growth. There are several challenges and obstacles facing tech companies hiring foreign talent in the UK.
Shortage of talent
The tech industry is one of the UK sectors where clients have been constantly facing a skills shortage, and Brexit has only exacerbated the issue. Britain is competing with tech hubs across the world for the best talent and post-pandemic, most of the developing world is experiencing similar skills shortages. In the UK, the US and the EU, vacancies have increased to match or outstrip the availability of people.
Costs
Despite the government’s stated ambition of making the UK one of the top global innovation hubs, it has hiked up visa application fees to unprecedented levels and proposes to increase the Immigration Health Surcharge for migrants soon. Like all sectors, tech companies looking to hire foreign talent are now facing significantly higher costs of onboarding migrant talent.
And where does this money go? The Immigration Skills Charge is paid by employers sponsoring migrant workers coming to the UK for over six months. Where is this money spent? Current figures show that, for the year ended 31 March 2023, the total raised was £586 million. If the money is used for the purpose intended – to upskill the local workforce – the tech industry should really start to see a larger pool of locally trained talent available to hire.
Illegal work
We constantly advise companies against the perils of moving too quickly and hiring individuals to work in the UK without the appropriate immigration permission. Often, we are asked about business visitors and whether individuals can commence work here for the UK employer and then apply for their visa and the answer is almost always ‘no’.
To add to this unfortunate news, individuals who do not currently have the appropriate immigration permission in the UK already will have to travel outside the UK and submit their application from their country of nationality (or a country where they hold immigration permission to live and work). Unfortunately, they cannot ‘pop’ to France and apply from there. With timing often crucial to fill a tech role, this requirement may further delay a candidate starting.
Can you share anything about the current trends that you are observing in the tech sector relating to immigration?
Regional tech hubs – We still see that the vast majority of applications are for migrant workers to be based in the South of England. We have lobbied the government for years to increase incentives for companies to sponsor and recruit migrants in more regionally diverse locations, such as Scotland. We wait to see whether this will change in future.
Diversity – Women are still heavily underrepresented in tech and this has not changed from the immigration applications we see.
Why is it essential for tech firms to seek the advice of a specialised immigration lawyer when seeking talent from abroad?
Immigration can often be one of the last considerations in the journey of identifying and recruiting talent. This can lead to unnecessary stress and increased costs to scramble around and obtain visas in time for right to rent checks, job start dates, moves and the beginning of the school term. If a visa application is refused, this just adds to the time and cost of sourcing the talent you need. Prime Minister Rishi Sunak has announced hikes in illegal working penalties too, as well as greater enforcement. Specialist advice on best practices to avoid illegal working practices, how to mitigate and report lapses and how to respond if you fall foul are all essential.
About Anushka Sinha
Anushka Sinha is a senior associate at Vanessa Ganguin Immigration Law. She advises on all aspects of business and personal immigration to the UK, as well as providing seminars and training on sponsor licences and immigration routes for tech figures, other creatives and sectors.
About Vanessa Ganguin
Vanessa Ganguin Immigration Law is a friendly immigration boutique providing exceptional service to businesses, individuals and families. The team of well-respected specialists, led by founder Vanessa Ganguin, who boasts three decades of UK immigration expertise, is a go-to for many legal and professional services around the world, providing positive outcomes for clients in the context of UK’s ever-changing immigration laws.
Anushka Sinha
Senior Associate
Vanessa Ganguin Immigration Law
81 Rivington St, London, EC2A 3AY, UK
Tel: +44 02045 514906
+44 07549 413432
E: anushka@vanessaganguin.com
www.vanessaganguin.com
