Why the Mediation Act is welcome

Following our recent review of the advantages of mediation, in this article, we will look at why the processes and procedures set out in the Mediation Act 2017 are welcome.

Obligations for solicitors to advise Clients on Mediation

The Mediation Act 2017 imposes new obligations on solicitors, including a statutory declaration. Under the Act, practising solicitors are required, prior to issuing proceedings on behalf of a client, to do the following:

  1. Advise the client to consider mediation as a means of attempting to resolve the dispute
  2. Provide the client with information in respect of mediation services, including the names and addresses of persons who provide mediation services
  3. Provide the client with information about the advantages of resolving the dispute otherwise than by way of the proposed proceedings, and the benefits of mediation
  4. Advise the client that mediation is voluntary and may not be an appropriate means of resolving the dispute where the safety of the client and/or their children is at risk
  5. Inform the client of the matters concerning confidentiality and enforceability of mediation settlements as set out in the Act

Section 14(2) provides that the originating document by which proceeds are instituted shall be accompanied by a Statutory Declaration made by the solicitor evidencing (if such be the case) that the solicitor has performed the obligation under Section 14(1) in relation to the client and the proceedings to which the Declaration relates.

While it may be thought that the mandatory nature of the provisions of Section 14 are somewhat incompatible with the Solicitor and the client having to consider when is the appropriate time to consider Mediation, having regard to the nature of the proofs available to the parties, the section does little more than oblige Solicitors to provide minimal advices to the client.

The Section clearly also applies to debt collection litigation.

Mediation Settlements can now be legally binding

We now have clarity about achieving a legally binding agreement in mediation. Any party to the mediation now has the right to decide if a legally binding agreement is required, drafted by the mediator, as an outcome of mediation. This is given statutory footing by Section 11 of the Act. Subject to this, a Mediation Settlement, as a compromise, “shall have effect as a contract between the parties”, save where it is expressly stated to have no legal effect until it is incorporated in a formal legal agreement or contract to be signed by the parties.

Limitation Periods are now extended

The Act extends limitation periods by the period commencing on the day on which the agreement to mediate is signed (presumably meaning the date on which all parties have executed) and ending on the day which is thirty days after either a mediation settlement is executed or the mediation is terminated. The mediator is obliged to inform the parties in writing of the date on which the mediation ends.

Conclusion

The statutory obligation now placed on solicitors to advise clients on Mediation has resulted in an increase in the number of Mediations and the demand for Mediators. The Act has provided solicitors and clients with a practical and cost-effective solution to deal with disputes quickly whilst avoiding the potential public exposure which can occur when litigating through the courts. Mediation will not be an appropriate resolution for all disputes, however it is a useful tool to consider before the issuing of court proceedings is contemplated.

In our next and final article on this topic, we will look at the role of each party in Mediation. For more information, contact: 

Ciara Lehane, Solicitor
clehane@jwod.ie

 

 

 

Mergers and Acquisitions: Pre-Transaction Steps

This article is the second in a series of publications by J.W. O’Donovan’s Corporate Team on the practical aspects of running a successful mergers and acquisitions transaction. To read the first, click here. 

Most people would assume that the starting point for the sale or purchase of a company is the agreement by the seller and buyer of a heads of terms for the transaction. However, there are a number of matters that should be considered at an early stage, even prior to any specific transaction being identified. These include:

  1. Review of Corporate Structure

A business owner who anticipates a sale of its business in the near to medium term should review its corporate structure to identify the target entity. It may be appropriate for any aspects of the business that would not form part of the sale to be ‘hived-off’ into other structures. Many long-established businesses have complicated group structures due to previous events such as management buy-outs. It may be advisable to simplify these by striking off or winding up dormant companies or merging subsidiaries with their holding companies.

  1. Tax Planning Considerations

It is critical that a business owner considers the potential tax arising on a sale of the business long before any sale is likely to occur. There are reliefs available but the criteria can be quite technical and specific advices should be obtained to ensure that such reliefs are availed of, to the maximum extent possible. An example might be where the owner’s spouse works in the business – if he or she is appointed as a director they may qualify for entrepreneurial relief or retirement relief on a sale of shares; such shares can be transferred between a husband and wife without any tax arising.

Aside from the personal reliefs that may be available on a sale of a business, many business owners are now choosing to hold a portion of their shares through a personal holding company as that holding company would be able to avail of an exemption from capital gain tax on a sale of such shares.

In order to qualify for some of the available reliefs, it may be necessary for the relevant structure to have been in place for a number of years prior to a sale. It may also be necessary to move any non-trading assets outside of the group (a ‘hive-off’ as described above).

  1. Vendor Due Diligence

One of the first steps that a buyer will take in a transaction will be to commence a due diligence exercise to examine the financial, operational and legal aspects of the target business. Significant issues identified in due diligence can result in indemnities being sought from the seller or a renegotiation of the commercial terms of the transaction. As a result, it can be advisable for a business owner who anticipates a sale to carry out its own ‘vendor due diligence’ exercise so that any issues in the business can be identified and remedied prior to a transaction commencing.

This exercise would cover matters such as:

  • review of internal financial reporting. If adequate management accounts and other financial records are not available it can make it difficult to justify a valuation when negotiating with a buyer,
  • review of commercial agreements to identify gaps in documentation, expired contracts in need of renewal and change of control clauses allowing the other party to terminate in the event of a sale of the business,
  • review of internal processes such as health and safety and data protection compliance,
  • review of employee contracts and policies to ensure all employees have been issued with a contract or memorandum of terms of employment and that each employee has received their legal and contractual entitlements.

Even if an anticipated sale does not materialise, the business will be on a better footing as a result of carrying out this internal review.

  1. Finance & Target Identification

On the buyer side, before engaging with a seller it is advisable to ensure that the necessary finance to carry out an acquisition is available. In recent years, a number of alternative lenders have entered the Irish market and have provided the finance for acquisitions. However, their requirements can be different from those of the pillar banks and it makes sense to engage with all potential lenders at an early stage in order to establish if they will be a good fit.

A buyer may also want to spend some time identifying potential targets in the relevant market and assessing their suitability for acquisition. Gaining a detailed understanding of the benefits that would result from a proposed acquisition in terms of potential synergies and efficiencies and growth in market share can be very important in ensuring a transaction is approved internally and in obtaining sanction from external lenders, where applicable.

  1. Identifying advisors

Both the seller and buyer will need to select advisors with the appropriate expertise to ensure their interests are represented and the transaction runs as smoothly as possible. For the seller in particular, firms that previously provided legal and financial services to the business may not have experience in large transactions and it may be necessary to appoint new advisors for the purpose of carrying out the transaction. In such event, it is important to ensure that the existing advisors work closely with those taking the lead on the transaction to pass on their relevant knowledge regarding the business.

Most large accountancy firms will have in-house tax advisory services but, in some instances, a separate tax advisor may be required. Furthermore, in some instances, minority shareholders may choose to take independent legal or tax advice.

In our next article in the series, we will cover the preparation of the heads of terms for a transaction.

For more information, contact: