Investing in property: as safe as houses?

Bullying / Harassment in the workplace

Have you paid your debts?

Public procurement and the law

What happens to staff pensions when a business is sold?

New procedures at the Companies Registration Office

Resolving shareholder disputes

Over recent years, the government's efforts to curb soaring property prices have resulted in a maze of complicated rules and regulations for investors buying domestic property, as well as the imposition of penal stamp duty rates.

The 1999 Bacon report and the resultant anti-speculative property tax introduced by the Finance (No. 2) Act, 2000 had catastrophic effects on property investors. Effectively, any property bought after 15 June, 2000, which was not the principal private residence of the purchaser, was liable to a tax calculated at 2% of the market value of all non-exempt residential property owned by that person. There was also a blanket revised stamp duty regime for investors buying new or second-hand residential property, with an 'investor rate' stamp duty of 9% applied irrespective of the purchase price.

The 2% taxation levy on residential investment property was eventually deemed unworkable by the government and scrapped. However, the investor stamp duty rates were introduced by the Finance Act, 2001 for newly constructed houses acquired by investors.

The net result of all this has been to drive many Irish investors to look overseas for investment properties, particularly in Spain, Portugal, and more recently, in France.

However, recent changes brought in by the 2001 budget and the subsequent Finance Act, 2002 have meant that investment in residential property in the state is no longer the costly exercise that it used to be. Gone is the flat rate stamp duty of 9%, which is now replaced by a sliding scale up to a top rate of 9% for residential property worth over €635, 000. The effective reduction in costs on an average residential investment purchase of, say, €300, 000 is a reduction in stamp duty from 9% (equal to €27,000) to the current level of 5% (equal to €15,000). This creates a €12,000 saving in stamp duty alone.

Of course, the flat rate stamp duty of 6% still applies to al purchases of non-residential property, such as agricultural or development land and commercial or industrial or office properties. But for those looking for a 'no fuss' investment, residential property remains the popular choice. The lower stamp duty rates have brought an immediate resurgence of interest in the residential property market, which in turn has spurred the construction industry to proceed with developments.

While it has not been possible for the government, or indeed the market generally, to stem the property price increases, they have leveled off in the last year and once again the Irish property market is opening up to investors.

For further information please contact the Property Department.

The law on bullying and harassment is amongst the most rapidly developing areas of employment law. Increasingly employers are faced with complex and costly bullying/harassment related issues.

The recent publication of no less than three different codes of practice, dealing with harassment/bullying in the workplace, reflects the raised profile and importance of these types of issues and the serious manner in which they are being viewed. The Codes of Practice that have been introduced recently are:-

1. The Health and Safety Authority's Code of Practice on the Prevention of Workplace Bullying.
2. The Labour Relations Commission's Code of Practice Detailing Procedures for Addressing Bullying in the Workplace.
3. The Equality Authority's Code of Practice on Sexual Harassment and Harassment at Work.

Employer liability may arise out of incidents which occur at work or indeed incidents outside of the workplace (such as at social events). Employer liability may also arise out of the behaviour of suppliers or customers towards employees as well as from the behaviour of employees to one another.

Where an employee brings a claim seeking redress for alleged bullying/harassment the employer may end up facing a number of different claims arising out of the same set of circumstances. For example, the employee may argue that the employer's failure to deal with the alleged bullying/harassment meant that the employee was constructively dismissed. The employee may also argue that the alleged bullying/harassment has caused a stress related illness or injury. In such a situation the employer may face proceedings including:-

1. A Circuit or High Court personal injury claim.
2. A Constructive Dismissal claim to the Employment Appeals Tribunal or claim of Discriminatory Dismissal to the Labour Court or Circuit Court.
3. Discrimination proceedings under the Employment Equality Act, 1998.

If an employer is faced with a claim for harassment/bullying it is no longer sufficient for the employer to argue that it was unaware of the harassment/bullying and should therefore avoid liability. The Employment Equality Act, 1998 now places a positive obligation upon employers to take such steps as are reasonably practicable to prevent bullying/harassment. While ignorance may previously have assisted an employer escaping liability it is now very likely to lead to liability being imposed upon the employer.

A vital aspect of dealing with bullying/harassment is the existence of a clear written policy which makes clear that bullying/harassment will not be tolerated by the employer and which sets out how allegations of bullying/harassment will be dealt with by the employer. The policy should also set out the procedures which will be followed when allegations of bullying/harassment are made.

It is important that such a policy takes account of the recently introduced Codes of Practice given the legal and quasi-legal status of the policies. In fact, the Equality Authority's Code is admissible in evidence in relevant proceedings.

The policy ought be prepared in consultation with employees, or their representatives, and should be consistent with the employer's existing grievance/disciplinary procedures. When preparing their bullying/harassment policy employers would be advised to take the opportunity to review the terms of their contracts/staff manuals dealing with disciplinary matters generally.

When finalised the policy will need to be publicised so that all managers and employees in an organisation are aware of the policy. It should also be reviewed on a regular basis.

When an allegation of bullying/harassment arises it is important that the subsequent investigation is fair both with regard to the rights of the alleged victim and those of the alleged harasser. Any investigation of alleged harassment/bullying will involve competing rights and accordingly great care should be taken in this process. A number of claims have been brought against employers out of complaints that the employer's process of investigation lacked fairness. As stated above the investigatory process that will be followed in the event of an allegation of bullying/harassment should be provided for in the policy.

In practice, it can be quite difficult to ensure strict compliance with the requirements of fair procedures/natural justice. Indeed, what constitutes fairness may vary from one case to another. Each case must be examined on its own merits but a properly drafted policy document will be of great assistance to both employers and employees.

Employers must now face a future where they are likely, at some stage, to be faced with an allegation of harassment/bullying. To seek to minimise their exposure to liability in such a situation all employers must have in place an appropriate policy which makes clear that bullying/harassment will not be tolerated and sets out how allegations of bullying/harassment will be dealt with.

The investigation of an allegation of bullying/harassment of itself poses potential pitfalls for the employer. However appropriate action by an employer, once it becomes aware of an incident and/or allegation of bullying/harassment, can significantly assist the employer in dealing with the matter on a satisfactory basis. Given the level of compensation that may be awarded if proceedings are instituted it is prudent for employers to seek appropriate legal advice both in relation to formulating a bullying/harassment policy and in dealing with incidents or allegations of bullying/harassment.

For further information please contact Michael Kavanagh.

Late payment of business debts can be a serious problem for suppliers of goods and services. It may require businesses to increase their borrowing and extend overdraft facilities and it can also result in time and resources being wasted on the collection and monitoring of such late payments. New legislation which will affect many of our clients has been implemented in Ireland to address these issues.

The European Communities (Late Payment in Commercial Transactions) Regulations, 2002 provide that penalty interest will become payable if payments for commercial transactions are not met within 30 days, unless otherwise specified in a contract. There will no longer be a wide disparity in average payment periods throughout the EU, as is currently the case.

The Regulations will apply to most commercial transactions (i.e. non-consumer transactions) entered into after 8 August 2002. If a contract is silent on payment terms and interest rates for late payments, a payment is regarded as late after 30 days and the chargeable interest rate for late payment is to be the current European Central Bank rate plus 7 percent. A supplier may also choose to claim compensation for the recovery costs of the debt if such costs arise based on the 'Flat Rates' set out in the Regulations. If the parties agree alternative terms they must be fair otherwise they may be unenforceable.

Clients should ensure:

• that contracts are in writing as far as possible and payment terms and penalty interest rates for late payments are agreed in advance (if they do not want the terms of the Regulations to apply) and
• that a system exists for highlighting unpaid debts before they become late and begin to accrue penalty interest.

If you require any further information please contact Jennifer McGuire.

Public private partnerships (PPPs) are arrangements between the public and private sectors for the provision of public infrastructure of public service that traditionally would have been provided by the public sector.

The basic tenet of the public procurement rules is to ensure fair and open competition for public contracts above certain thresholds, by allowing suppliers to gain the full benefit of the single market and contracting authorities to choose from a competitive range of bids.

While this may be an easy concept to understand, the application of the legislation involved is complex and requires detailed legal advice. The European Union (EU) regime provides for a regulated tendering exercise within strict timetable constraints preceded by formal advertisement throughout the EU. Slightly different rules apply for each of the different types of procurement (works, supplies and services) and further differences occur due to the three different contract award procedures (open, restricted and negotiated).

Common issues that arise

It is common during the course of the tender procedure that various issues arise with individual consortia of tenderers. For example, one member may drop out of a consortium and the awarding authority must consider the implications of this if awarding the contract to that particular consortium. The solution in our experience required may alter. Such issues require solution-orientated advice to ensure that whilst being practical, compliance with the procurement rules is achieved.

Types of contracts

Many PPP's involve contracts which may incorporate elements of public works, supplies and services. For example, the construction of a public transport system often involves the operation of the services after its construction (such as tolling and maintenance) therefore it can be classified as both a services and supplies contract. In such an event the relative value test should be applied, i.e. that the element of the contract with the highest value is the determinant. However, the need to distinguish which of the directives will apply may not be as critical as one might think as the directives are quite similar in terms of procedures.

Procedural requirements

For the PPP process the negotiated procedure is preferable and is the one most commonly used. However, in an opinion of the European Commission on the 13th September 2000, addressed to the UK government, the Commission reprimanded the British Government for breaching the procurement rules by using the negotiated procedure in seeking tenders for a PFI deal for the redevelopment of the Pimlico Schools. The Commission found that the use of the negotiated procedure should be limited to situations where the existence of any of the three contingencies under the European Public Procurement Directives pursuant to which the negotiated procedure can be used are certain. The Commission stated that the contract in question did not, as determined by the British Government, satisfy the criteria for use of the negotiated procedure. Following this opinion the use of the most appropriate procedure for PPP projects being the negotiated procedure must be carefully applied. The negotiated procedure obviously has clear advantages for the tenderer over the open and restricted procedures in terms of negotiations.

New European developments

The European Union is set to implement two revised public procurement Directives in 2002. These directives are due to go before the European Parliament and as such are presently still under discussion at European level. The three existing public procurement Directives involving supplies, service and works are to be amalgamated into a single text in order to render the EU public procurement rules more comprehensible and consistent to the supplier and the buyer. The aim is to eliminate the current confusion as to which Directive applies to a particular contract. The structure of the proposed Directive is to be more user friendly. The new Directive is to logically follow the course of the contract award procedures. There is a strengthening of provisions in relation to reward and selection criteria. The thresholds are also to be amended. There are further developments in the negotiated procedure process. An extended negotiated procedure to be introduced will be a half way point between the current restricted procedure and negotiated procedure whereby negotiations can take place and then preferred three bidders are selected who are asked to submit formal tenders.

Electronic procurement

The Commission also places much emphasis on encouraging electronic procurement and has set a target that by 2003 that 25% of all procurement transactions will take place electronically. L.K. Shields with its strong technology law and e-commerce practice welcomes this development.

L.K. Shields, Solicitors and Public Private Partnerships

The firm has advised many large institutions on tender procedures in light of the procurement rules. These include amongst others: a national television broadcaster, tenderers for the National Lottery Support System, Dun Laoghaire Harbour Company on the tendering of the Dun Laoghaire Harbour marina complex (one of the first quasi PPPs in Ireland) and advising engineering concerns tendering for the Luas Project.

For further information please contact Philip Daly.

When one company transfers a business to another, all rights and obligations under a contract of employment transfer from the transferor company to the transferee company, except employees' rights to old-age, invalidity or survivors' benefits under company pension schemes. The European Court of Justice in Beckmann has recently considered whether terms providing for early retirement and lump sum payments to public sector employees over 50, dismissed for redundancy should transfer to the new employer. The Court held they did.

Going forward, whenever a business is being acquired or sold it is vital to see if any of the pension rights transfer. Up until this decision, it had been thought that none did. It will take some time before the scope of the decision is known and it is likely that follow-up referrals to the European Court will arise.

The decision also raises an issue as to whether certain early retirement rights transfer when a business is sold, irrespective of whether these are triggered on a subsequent redundancy after the transfer. The ruling did not contain any retrospection limitation. It so appears the decision may affect all asset transfers from the operative date of the relevant directive and regulations (generally, 3rd November 1980). In that event, transactions prior to 4th June 2002 (the date of the judgment) may require review: employees may seek to enforce rights which were not known to transfer at the time of transfer, but which will come into payment some years after the transfer e.g. early retirement options on redundancy.

For further information please contact Fiona Thornton.

Under Section 311 of the Companies Act 1963 (as amended), the Registrar of Companies is empowered, where he has reasonable cause to believe that a company is no longer carrying on business, to strike that company off the register.

In the past the Registrar has accepted applications to strike companies off the register provided they stated that the company had ceased to trade and had no assets or liabilities. In light of the stricter compliance regime brought into operation by virtue of the enactment of the Company Law Enforcement Act, 2001, it was decided that it would be invidious to allow the process to continue, whereby directors would be able to effectively walk away from their company. With this in mind a new process was introduced for company's who are voluntarily applying to be struck off the register.

Applications for strike off will now have to originate from a currently registered director of the company. A letter must also be submitted to the Revenue Commissioners asking them for a letter of no objection to support the Company's application to be struck off the register. Upon receipt of this letter, the company must advertise its intention to apply to have the company struck off the register in a daily newspaper that is circulated in the locality of the registered office of the company. An application can then be made to the Registrar under Section 311 of the Companies Act 1963 (as amended) and the application should comprise the following:-

1. The letter of no objection from the Revenue Commissioners.
2. A copy of the advertisement placed in the daily newspaper, showing the name of the newspaper in which the advertisement has been placed together with the date of that newspaper.
3. If applicable, all outstanding annual returns together with accounts and the relevant filing fees.
4. A letter originating from a currently registered director of the company explicitly stating that the company has never traded or is no longer trading and has no assets or liabilities.

This application must be made to the Registrar within 4 weeks of the advertisement first appearing in the daily newspaper.

Once received the Registrar will wait until he has a sufficient number of applications to hand before he commences the strike off process. This can take some time and until the company is dissolved, it is the responsibility of the directors to ensure that all filing requirements with the Registrar of Companies are kept up to date.

Once the Registrar has a sufficient number of applications, a first notice of strike off will be sent to the applicant company at the registered office address confirming the company's request for strike off. A second notice will be sent to the company on the expiry of one month from the date of the first notice, advising the company that it will be struck off the register and dissolved and that a publication will be made in Iris Oifiguil.

Returning documents to presenters

With effect from the 1st March 2002, documents which are inaccurate or which are not fully and properly completed may be rejected by the Companies Registration Office pursuant to Section 249 (A) of the Companies Act, 1990 (inserted by Section 107 of the Company Law Enforcement Act, 2001). Under this section, if a document delivered to the Companies Registration Office does not comply with the Companies Act, 1990 (Form and Content of Documents delivered to the Registrar) Regulations 2002 or with any other requirement of the Companies Acts, that document may be rejected by the Companies Office by serving notice on the presenter indicating the respect(s) in which the document does not comply. Unless a replacement document that complies with the matter(s) identified in the notice is delivered to the Companies Registration Office within 14 days, the original document will be deemed not to have been delivered to the Companies Office.

The Companies Office website, www.cro.ie has a comprehensive list of the reasons for returning individual forms and general documents and the legal requirements attaching to this.

Following discussions with the Companies Office, we have been informed that their computer systems are still in the process of being updated in order to enable them to issue automatic letters covering the rejection of documents. This system update will not be complete until the end of this year and more likely the beginning of next year. In addition, we have been informed that the 14 day period for returning documentation following rejection will be working days and will not include weekends.

We will contact our clients once the date for the implementation of this legislation is known and the Companies Office will place notices of this fact in the press and on their website.

For further information please contact Alan Browning.

Disputes between company shareholders are no less frequent than disputes in any other sphere of commercial life. Often shares in limited companies are held by individuals who have a close relationship to one another, for example family members. As a result when disputes arise they are frequently acrimonious and accompanied by strong emotions.

A further feature of shareholder disputes is that frequently shareholders in limited companies are also directors and are commonly employed by, and earn their livelihood from, the company in question. Thus a dispute between shareholders may have immediate and far-reaching consequences for a shareholding employee.

A shareholding in a limited company may be a valuable asset. However, the right to dispose of one's shares is restricted generally by the Companies Acts and often specifically by the company's Articles of Association or by the provisions of a Shareholders' Agreement.

Given the closely held nature of many limited companies it is not unusual for the Articles of Association and/or a Shareholders' Agreement to provide a mechanism to be followed in the event that a shareholder wishes to dispose of his or her shares. Similarly, it is not unusual for such a mechanism to provide a formula by which the value of a person's shareholding is to be determined. The appropriateness of the application of such a mechanism or formula is often one of the matters of controversy when a shareholder dispute arises. The individual whose shares are to be sold may feel that the conduct of his/her fellow shareholders has left him/her with no option but to dispose of his/her shares. In those circumstances that individual may well resist the application of any mechanism or formula that does not, in his/her view, properly value the shares in question.

Commonly a shareholder or group of shareholders (often, though not necessarily, comprising a minority of the company's shareholders) will complain that they have been or are being excluded from having a meaningful input into the business and affairs of the company or that the controlling shareholders, or directors, are exercising their powers in a fashion which is damaging to or oppressive of the minority shareholders. Complaint may also be made that the alleged conduct has resulted in a diminution in the value of the shares of the "oppressed" shareholders.

Faced with such a situation the alleged "oppressors" may react in a number of ways. For example, they may refuse to purchase the minority's shareholding. Given the restrictions attaching to the transfer of shares in Irish companies that may well place the minority in a serious predicament in terms of realizing value for the asset which they hold.

Alternatively the alleged "oppressors" may offer to purchase the minority's shareholding on the basis of a valuation mechanism contained, for example, in the company's Articles of Association or Shareholders' Agreement. As stated above, the minority may be unprepared to sell on that basis and may be of the view that a valuation on that basis does not reflect the "true" value of his/her shareholding in the particular circumstances.

If it proves impossible to reach a solution acceptable to both parties litigation may ensue. The "oppressed" shareholder may seek relief from the courts, for example pursuant to the provisions of Section 205 of the Companies Act 1963. An action seeking damages for the alleged diminution in the value of the shares of the "oppressed" shareholders may also be taken, as well as, litigation in relation to any employment issues that arise. Over the past decade the firm has acted in many high profile and complex shareholder disputes and has established an excellent reputation in the resolution of shareholder disputes both by agreement and through litigation when agreement proves impossible. Through our experience we have developed the particular skills that are necessary in such cases and have developed close relationships with other professionals (including accountants) whose expertise and skills are also required to appropriately resolve such disputes.

For further information please contact Hugh Garvey.