News

Clare Murray and Bernadette Quigley explain why you should put restrictive covenants into place now to ensure you avoid conflict in the future. Post-termination restrictive covenants are crucial in protecting a partnership’s confidential information, client and trade connections, workforce stability and goodwill, which is why they are often the source of disputes between partners in professional services firms. The drafting and enforceability of restrictions can vary, and sometimes the significance of the precise wording of a restrictive covenant does not come into focus until a partner seeks to exit the partnership to join a competing firm. While there is fairly extensive case law governing the interpretation of employee restrictive covenants, the same is not true in the case of partner restrictive covenants. However, the limited guidance available from the courts about restrictive covenants concerning partners does make clear that it is imperative that firms and their partners take external legal advice when drafting such restrictions. It is generally accepted that more onerous restrictions are likely to be enforceable against partners than would be enforceable against employees. This is because partners enjoy substantial bargaining strength and should accordingly expect to be bound by the commercial terms to which they have agreed and from which they benefit. The true status of an individual is paramount to the enforceability of restrictive covenants. It is necessary to look beyond the label of ‘partner’ and assess the status of the individual concerned, such as involvement in management, remuneration structure and capital contribution. It should also be remembered that partners cannot claim constructive dismissal. Unlike employees, a fundamental breach of contract by one party does not entitle the other party to bring the contract to an end, and have the restrictive covenants fall away. As regards the enforceability of restrictive covenants in Ireland, the length of any restriction must be tailored to the specific role and business. In practice, restrictions tend to last for periods of between six months to two years’ post-retirement. It is necessary to consider what legitimate interest the firm is seeking to protect and for how long it needs to be protected in the specific context of the partnership and its partners’ activities. In short, you have to be sure restriction is reasonable. Liabilities and remedies against an individual partner in breach of their obligations can potentially be very significant. Partners can face costly arbitration or court proceedings, including applications for injunctive relief, in relation to the enforcement of restrictive covenants. Hiring firms can also face potentially significant liability and be named as co-defendants in proceedings, particularly if there is a suggestion that they have been involved in procuring and/or inducing the outgoing partner’s breach of their restrictive covenants. Partners must not lose sight of the fact that they owe fiduciary duties over and above contractual duties – which potentially include the duty to report their own wrongdoing as well that of their colleagues. Liability and remedies for breach of fiduciary duties are potentially significant and could, in theory, include clawback of profit share. These factors underline how important it is to ensure from the outset that restrictive covenants are well-drafted and fit for purpose. Partnership restrictions are not to be taken lightly by a departing partner. Restrictive covenant disputes can result in costly, stressful and time-consuming arbitration or court proceedings. In order to manage these risks in a timely and cost-effective manner, it is important that both firms and partners get advice early on.  Clare Murray is Managing Partner at CM Murray LLP in London, and Bernadette Quigley is a Barrister specialising in commercial and partnership law in Dublin.

Nov 18, 2017
News

What are the current recruitment trends in Ireland and how do they compare with global trends? One of the most notable recruitment trends in recent years is that the balance of power has shifted from the organisations that are hiring to the candidates they are recruiting. This means that organisations must come up with new and innovative approaches to attracting people.  There has been a significant growth in employers selecting talent earlier in the recruitment cycle: rather than waiting for the annual ‘talent war’ of graduate recruitment, they are increasingly using student work placements and internships. Additionally, students from diverse disciplines such as data analytics, science and engineering are now being actively targeted by professional service organisations for a range of professional roles. Other sourcing strategies include a focus on ‘returnships’, e.g. targeting women who may have been on a career break, but are now keen to return to the workforce.  As Ireland’s economy continues to grow and flourish post-recession with full employment predicted by the end of 2018, the challenge of recruiting the right talent for organisations continues to intensify. However, this is not unique to the Irish economy. A global study from Manpower Group shows that employers are reporting the highest talent shortages since 2007. 40% of employers are reporting difficulty in filling positions (2016) and this trend continues as economies recover post-recession. What challenges are employers facing when trying to recruit and retain staff? LinkedIn’s 2016 Ireland’s Talent Trends report showed that Ireland has below average levels of ‘active talent’ (30% v. 36% global average). Active talent refers to potential candidates actively looking for jobs compared to ‘passive talent’ where people who are currently employed, but are not actively looking for a role.  Top talent has a lot of opportunity in the current market and employers need to ‘woo’ talent by having an attractive employee value proposition (EVP). The ‘war for talent’ is fierce, particularly within the professional sector, and growing businesses and organisations need a clear strategy to recruit and retain the brightest and the best.  Employer branding has becoming an important topic for companies wishing to hire. Having a strong brand that reflects the culture of an organisation is key in attracting the right candidates. ‘In-bound recruitment’ is a growing trend, i.e. getting candidates to contact the organisation directly about positions rather than running specific campaigns to fill roles.  Are millennials as much of a disruption to typical recruitment processes and the workplace as the media would like to think they are? The powerful generations now entering the workplace demand a new approach by companies to attract, engage and retain them for longer. This includes a good work-life balance, flexibility and clearer routes to personal development and promotion. It is predicted that the newest generation entering our workplaces will have an average of 15 job changes in their life time. ‘Speed of play’ is important to these younger generations – the concept of filling out lengthy application forms and going through multiple recruitment stages will not work for them. Millennials are heavily influenced by peer reviews. Platforms like www.glassdoor.com, where employees share anonymous feedback about company work culture, are growing in impact and popularity.   What modern methods are employers utilising for recruitment?  Traditional recruitment practices have changed with the rapid advancements in technology and social media. For example, LinkedIn grows year-on-year as a recruitment platform. Facebook, too, is becoming more popular for sourcing candidates.  The use of sophisticated psychometrics to assess potential candidates, particularly at senior levels, is almost a given. The ways these psychometric tests are conducted are changing, however; for example, newer IT sectors are embracing strategies such as ‘gamification’ to help select the right candidate. Furthermore, accelerating digital, video capabilities, technology and continuing transparency are changing how recruiters source skilled employees.  How is artificial intelligence being used in recruitment? The 2017 Deloitte Global Human Capital Trends report ranks ‘talent acquisition’ as the third top priority for global businesses. For Irish businesses, it was ranked as the second overall priority. The report describes how “leading organisations are embracing technologies and developing new models that make innovative use of on and off balance sheet talent sources.”   The more disruptive ideas in talent acquisition from the report are focused on AI, machine-to-machine learning, robotic process automation, natural language processing, predictive algorithms, and self-learning. In Ireland, however, 79% of respondents use no form of AI, cognitive computing or robotics to connect to talent. Dr Mary E. Collins is the Senior Executive Development Specialist at the RCSI Institute of Leadership.

Nov 17, 2017
News

Eoin O'Shea takes a look at the UK’s national customs computer system and the technology that might not be Brexit-ready come March 2019. With the UK’s current negotiating position being to leave the EU Customs Union, one of the most important pieces of infrastructure for Irish businesses exporting to the UK (and the EU) post-Brexit will be the UK’s national customs computer system. After Brexit, the UK’s customs system will be handling inward declarations of Irish exports to the UK, as well as handling the transit of Irish goods travelling through the UK and on to mainland Europe. The UK’s National Audit Office has recently published a report on the UK customs computer system’s readiness for Brexit. In 2013, arising from planned changes to EU customs law, HMRC began work to replace its current computer system, CHIEF, with a new one, the Customs Declaration Service (CDS). The new system is due to launch in January 2019 – just two months before the UK is scheduled to leave the EU. The National Audit Office’s review has found that “there is still a significant amount of work to complete, and there is a risk that HMRC will not have the full functionality and scope of CDS in place by March 2019 when the UK plans to leave the EU.”   Despite a year having passed since the Brexit vote, the National Audit Office has said that no changes to the scope of the CDS project have been made, citing the uncertainty surrounding what relationship Britain will have with the EU post Brexit. The current CHIEF system deals with 55 million customs declarations per year; after Brexit, HMRC estimate that the new system will need to be capable of dealing with 255 million declarations – a five-fold increase. It is also estimated that 180,000 traders will, for the first time, be using the UK’s customs declaration system after Brexit. These are big numbers. The preparedness of the UK customs authority for Brexit is set to be one of the main reasons for a transitional period (or, as some Brexiteers call it, an implementation period) between the UK leaving the EU and the EU Customs Union. However, political opinion in the UK appears, at present, to be split on whether or not such a transitional period ought to be negotiated and, if so, how long it should last.  International trade secretary Liam Fox recently stated that obtaining a trade deal with the EU would be “the easiest in human history”. On the other hand, Brexit secretary David Davis told a business conference that certain aspects of his job of steering the UK out of the EU is incredibly complex: “half of my task is running a set of projects that make the NASA moon shot look quite simple.” Work on the UK’s customs computer system will be an important one to watch over the next year or so. Eoin O’Shea FCA is a practising barrister, specialising in commercial and tax law.  

Nov 17, 2017
News

The Financial reporting Council (FRC) has issued a revision of Practice Note 11: The audit of charities in the United Kingdom. The revisions to Practice Note 11 reflect: Revisions to International Standards on Auditing (UK) (ISAs (UK)); Changes to UK accounting standards (FRS 102) and the revision of the Charities SORP; Continuing developments in regulation and guidance issued by the UK Charity Regulators; and Changes in relevant legislation. The Practice Note has been developed with input from an expert working group comprising audit practitioners, charity regulators, and representatives of charities. The revisions that the FRC has made will support the delivery of high quality audit, and responds to recent well-publicised failings of certain charities that have been investigated by the Public Administration and Constitutional Affairs Select Committee, and the Committee of Public Accounts. An Invitation to Comment was issued in May 2017. The final revised Practice Note reflects the actions that the FRC determined should be taken, having considered the responses received.

Nov 17, 2017
News

The Companies Act 2014 prescribed, for the first time, the qualifications required to take an appointment as a liquidator. While most liquidators are either accountants or solicitors, there were some people who did not fall into either of those categories. If a person had gained relevant experience of winding up companies and knowledge of the law on liquidations before 1 June 2015, they could apply to IAASA for authorisation. The deadline for receipt of applications is 1 December 2017. This route of authorisation will close after this date.  Please see the IAASA website for more information. 

Nov 17, 2017
News

IAASA has published the results of a desktop survey it has undertaken into Irish listed companies’ impairment testing. The survey examined the 2016/17 annual financial statements published by 29 companies. Companies recognise substantial goodwill and intangible assets in their accounts. Accounting standards require that such assets be tested annually for impairment and, if applicable, the assets must be reduced to their recoverable amount and an impairment loss is recognised. The non-amortisation of goodwill and indefinite life intangible assets increases the reliance that users must place on the impairment tests conducted by the companies holding such assets. Survey results The key findings from IAASA's desktop survey were: the total goodwill and intangible assets recognised by the companies amounted to €24.7 billion, equivalent to 35% of those companies’ aggregate equity or 8% of their total non-current assets; just four business sectors (building materials & construction, food & ingredients, paper, packaging & containers, and sales, marketing & business support) recognised 90% (€22.4 billion) of that total goodwill and intangible assets; almost 1 in 4 of the companies had an equity to market capitalisation ratio of greater than 100%. A ratio of 100% or more is an indication that an asset may be impaired; the total impairment loss recognised by the twenty-nine companies amounted to €227m of which the goodwill and intangible asset impairment charge amounted to €158m. This represented an impairment loss ratio of 0.6% of the aggregate carrying value of goodwill and intangible assets. Areas for improvement identified IAASA's desktop survey found that the impairment disclosures made by a significant minority of the companies showed a combination of: incomplete information; boiler-plate disclosures lacking company-specific information; and/or inappropriately aggregated disclosures rather than disclosures at individual (significant) business unit (i.e. cash generating unit or ‘CGU’) level. Examples of high quality disclosures identified IAASA's survey also found instances of high quality disclosures of the impairment testing processes undertaken by some of the companies, including examples where companies had clearly presented disaggregated disclosures at a ‘significant’ business unit level. They also identified instances where companies provided more than the minimum disclosures required by accounting standards (e.g. quantitative disclosures of changes to key assumptions were disclosed where not strictly required). Future IAASA actions The results of IAASA's findings from this desktop survey, which are consistent with those from a similar Europe-wide survey will be used to inform future accounting enforcement activities. This survey was limited to a desktop examination of the companies’ 2016/17 financial statements. IAASA did not seek or receive explanations from the companies concerned. Due to the inherent limitations of such a desktop survey, it could not assess why certain disclosures were omitted by some companies or on what basis the presentation was deemed appropriate by the companies. IAASA’s paper is available on its website.

Nov 17, 2017

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