Employee Ownership Association Conference 2011

Transcription

1 Employee Ownership Association Conference 2011 Choosing the best fit model for public sector mutuals addressing the key legal and tax challenges Graeme Nuttall and Neil Palmer 10 November 2011

2 Aim of this presentation Explore different models for public sector mutuals focussing in particular on employee-led mutuals and consider key legal and tax challenges when establishing a mutual

3 Who we are European commercial law firm Long time supporter and adviser to the EOA We advise owners who wish to transform their businesses into employee owned companies We help existing employee and trust owned businesses maintain and develop their employee ownership structures Extensive experience of advising the public sector Forefront of advising on mutual and co-ownership structures 6 deals completed this year

4 Areas for discussion Legal structure of a mutual Understanding the terminology Typical structures What are the benefits? Key tax issues Other legal and practical issues

5 Structuring mutuals: terminology Overlapping but distinct umbrella terms: Mutuals defined by membership Social enterprises defined by objectives

6 Structuring mutuals: range of mutuals Mutuals organisations that are owned by, and run for the benefit of, their current and future members Employee owned companies Worker co-ops Consumer, customer and other co-ops Building societies, friendly societies, mutual insurers etc. Other entities e.g. NHS Foundation Trusts

7 Structuring mutuals: range of social enterprises Social enterprises businesses driven by a social or environmental purpose Statutory or other permanent asset lock to ensure objectives achieved: charities community interest companies industrial and provident societies Voluntary asset lock to ensure objectives achieved: companies limited by guarantee trading arms of charities etc.

8 Structuring mutuals: what are the benefits? Evidence suggests... strong links between co-ownership and a range of business outcomes, including productivity, innovation, customer loyalty, talent recruitment and retention Coco Companies: Work happiness and employee ownership (2007) (Employee Ownership Association). the way employee owned companies are structured means they achieve high standards of accountability and corporate social responsibility Shared ownership: how employee ownership works (2005) (Employee Ownership Association)

9 Structuring mutuals: employee led mutuals Co-ops agree to seven principles of co-operation Co-owned companies Employee owned companies Employee owned companies Employee benefit trust ( EBT ) owned e.g. John Lewis Partnership plc Combination of EBT and direct share ownership e.g. Sunderland Home Care Associates Ltd Direct employee share ownership e.g. Central Surrey Health Limited City Health Care Partnership CIC

10 Structuring mutuals: other models e.g. My Civil Service Pension (MyCSP) Administers pensions for some 1.5 million members of the Principal Civil Service Pension Schemes, the third largest defined benefit scheme in the UK. The intention is to move to a Mutual Joint Venture early in 2012, with shares held by HM Government, a private sector partner and the employees who own 25% of the Company shares currently vested in the MyCSP Trust. Post Office Limited A possible structure for a Post Office mutual could be a three tier structure, comprising of the membership, a representative body, and board of directors. Members of the mutual could comprise an equal mix of producers (such as employees and subpostmasters) and consumers, with no one constituency having an overall majority.

11 Key tax issues Income tax and NICs on share awards? negligible value arguments use of tax advantaged share and share option plans new disguised remuneration rules and employee trusts Corporation tax paying tax on profits impact of associated companies VAT unable to charge it? irrecoverable VAT Other e.g. PAYE continuity, charitable status, grants

12 Other legal and practical issues Business and financial planning Governance and management Staff engagement Implementation

13 Business and financial planning Business case: viability of business and clear justification for way forward Decide objectives and routes to achieving objectives Key milestones and timetable Medium-term financial planning to ensure sufficient working capital is equity finance needed? Integrated business planning to deal with key financial requirements e.g. banks and auditors Commercial approach on financial management communicated and embedded throughout the organisation

14 Business and financial planning, continued Procurement The Government believes there are situations where employees would not have to go through a full competition in order to spin out and deliver public services Asset transfers Estates Funding What assets does the mutual need and on what terms? What are the mutual s real estate requirements? Can funding be made compatible with employee ownership and social enterprise aims? Is an improved social investment market needed?

15 Governance and management Staff participation and good management A conventional board of directors? Any restrictions on the board s powers? What additional design features e.g. an employee representative on the board, an employee council etc? One member one vote? Any share ownership or is membership sufficient? Is an internal share market needed? Choice of trustees a paritarian composition? Any guardian rights or safeguards?

16 Governance and management, continued Ethos/mission statement Regulatory requirements (e.g. NHS obligations) Compliance with company law Other restrictions (e.g. choice of name) Relationship with funders/stakeholders Best practice Transparency and accountability

17 Staff engagement Winning hearts and minds TUPE Information Consultation Role of Unions Staff morale, and Pension rights

18 Implementation: identify assets, review and act Gather together details of the business Review and investigate Take action terminate/discard remedy/improve e.g. liabilities transfer to new body Benefits of due diligence enables risks and liabilities to be assessed and action taken identifies gaps where additional services or equipment required (most importantly) gives assurance that the necessary assets, property and infrastructure are put in place to enable new body to deliver on its service contracts

19 Implementation: transfer mechanics Transfer agreement sets out: assets transferring or excluded from the transfer position taken in relation to liabilities how property is being dealt with financial provision / working capital provisions for transfer of staff warranties/indemnities Ancillary documents will include assignments / transfers relating to property estate IPR assignments facilities management/transitional support agreements contract novations

20 Implementation: contractual framework Ensure viable business following transition by implementing robust, arm s length delivery contracts Limits on choice of framework (e.g. in NHS) Important that legal advice is taken on the risks of entering into the contracts Devil is in the detail ensure adequate time is spent on the specifications and KPIs Contract management put adequate structures in place to ensure contracts are delivered to the required performance levels

21 Questions please Graeme Nuttall, Partner tel: Neil Palmer, Partner tel: