Clarkslegal Law Bites

Quarterly Insights: Key Corporate & Commercial Topics - Q1 2026

• Clarkslegal

Share episode

Welcome to the first episode of our new podcast series from the Corporate and Commercial team at Clarkslegal. Each quarter, we’ll delve into the most topical issues and significant developments explored by our team over the past three months. Our aim is to provide concise overviews and practical insights into the legal matters shaping the corporate and commercial landscape.

In this first episode, Stuart Mullins, Partner in the Corporate and Commercial team, is joined by Jonathan Hayes, Senior Solicitor. Together, they’ll discuss: 

  • Family Investment Companies (FICs) – What they are, how they work, and why they’re increasingly popular for succession and wealth planning.
  • Legal Due Diligence in Corporate Transactions – The importance of due diligence during acquisitions, what it involves, and benefits for both buyers and sellers.
  • Directors’ Duties – Focusing on the duty to act honestly and in good faith, with a look at recent legal developments and practical implications for company directors.

If you’d like to discuss any of the topics covered in this episode, please contact Stuart Mullins or Jonathan Hayes, who will be happy to assist you.

Articles featured in this episode:

Stuart Mullins 00:06
 
OK. Well, welcome everybody and thank you for joining us today. It's the 1st of a series of podcasts that we're going to deliver, exploring the last three months of topics of interest that we've written about within the team. The team being the corporate commercial team of Clarkslegal. So thank you for joining us. We hope you find this useful. The idea is. That we will talk about these topics are very high level review. And of course if you do want to read the articles that form the subject matter of the discussion today, please do visit our website where you will, you will, you will find them on.I'm Stuart Mullins, a partner in the corporate and commercial team, and I'm joined today by my colleague Jonathan Hayes, a solicitor within the corporate commercial team. Hi, Jonathan. How are you?
 
Jonathan Hayes 01:05
 
 Hi, Stuart. I'm very well. Thanks. Good to be here with you today. Thank you.
 
Stuart Mullins 01:08

Thank you. Well, thank you very much and happy New Year to you. So today, Jonathan, we within the team have written a number of articles over the last three months on a variety of topics that have that have that have caught our interest because of activity or increased interest from our clients and questions from our from clients. Which we're always pleased to receive and also those where there have been some developments in the law, be it statue or in this particular interest, some, cases, Jonathan. So, I suppose firstly we should just talk about family investment companies really. And we wrote an article in in October as a result of a piqued interest in in family investment companies and how they work. Which has resulted from a piqued interest from our from our clients and questions that we've that we we've received about them. Jonathan, do you just want to talk to us about family investment companies. What do we mean by a family investment company?

Jonathan Hayes 02:19
 
 Yep. So a family investment company, as you mentioned, it's becoming increasingly popular, I think, in particular with the owners of the owners of small to medium sized businesses.
 And the reason for that is that they already through their work, have an understanding of, sharing and corporate structures as opposed to the more typical trust structure which I think historically was the main route that people would go down when looking to consider succession and wealth planning. So what a family investment company is a private company typically limited by share capital and in essence the founder of the business and split the share capital into different classifications, that means that different shareholders can have can have different rights in that company.
 
Stuart Mullins 03:17

So thanks. Let me just interject if I may. So what we're talking about here is a is a form of structure similar to a trust but following more a company structure where people can allocate different share classes and share rights to different asset classes. It's part of their general wealth and estate planning. I think that's right. We're certainly seeing more interest in them from owner managed business owners. As you say Jonathan, because they tend to understand articles. They tend to understand different share class rights because of their businesses and their familiarity with company law. Whereas trusts are often viewed with a error of mysticism for once of a once of a better phrase. So what sort of assets can be held in a family investment company?
 
 Jonathan Hayes 04:12
 
So a family investment company can hold any asset than individual or a trust can hold. So for example, that can be cash, it can be property, it can be investment portfolios. So any sort of asset that the business owner may want to protect
 
Stuart Mullins 04:27
 
And it would be possible, wouldn't it to allocate different classes of shares with specific rights relating to each of those asset classes so that you could for example. Give a certain class of share to a child, a grandchild, even in a form of wills trust I suspect if you wanted to provide for remoter family members down the down the line, and each of those particular share classes would be entitled to receive income or capital like capital being proceeds of sale or distribution from those different asset classes. As distinct from other class asset classes that may well be held in the FIC. I think it's important when considering a family investment company as part of your general asset and estate planning, but the tax advice is so would you agree, Jonathan?
 

Jonathan Hayes 05:32 

 Yeah, absolutely. So it can be quite a complex area in order to calculate the exact amount of tax that can be incurred by the family investment company. So we would always recommend seeking investment advice and tax advice. To understand the value attributable to those shares.

Stuart Mullins 05:53

I think I think that's got to be right. And I think it needs to be looked at as part of your general estate planning as a as a whole. And my experience of creating articles of association with these specific rights is that they tend to work best when we work in conjunction with, as you say, investment advisors, tax advisors and general private client or wills probate solicitors. Well, as I say, thank you for, for, for helping us explore family investment companies Jonathan. Do, please look at our website if you'd like to read our article and other materials on the subject or don't hesitate to get in touch with myself or anyone from our corporate commercial team. If you do have any questions or queries around them.


 Moving on, as we look at the November article that was produced in the team and that was, that was very much focused on director's duties, honesty in good faith. And it's quite a technical article, it refers to a couple of courts of appeal decisions, and I think what's the article does go into some detail around the subject matter. I do think it's worth us on this podcast just outlining why we thought this case was of importance. And I suppose that some apologies for it being a slightly academic article in some respect. But I do think that the point that was surmised in that judgement is important for all owners and directors of companies. Jonathan, would you agree?
 
Jonathan Hayes 07:43  

Yeah, yeah, absolutely. So what, this judgement really focused on was section 172 of the Companies Act 2006. And what that section does is impose the duty on directors to act in good faith to promote the success of the company for the benefit of its members as a whole.  

 Stuart Mullins 08:04

 So this is one of the statutory’ s multiple statutory duties and obligations set out, the companies that they're all directors of all companies.
 That's fine, 

 Jonathan Hayes 08:15 

 Absolutely.
 
Stuart Mullins 08:16

And this this decision was interesting for a number of reasons. Do you want to outline why it was such an important decision?
 
Jonathan Hayes 08:31 

Yep, absolutely. So what the Court of Appeal found that section 172 of the company's acts cannot be read without the words in good faith. And so what directors need to be aware of is the two duties that they need to bear in mind when making decisions. And the first is as highlighted by the court, is that in everything a director does, they must act in good faith towards the company in the way that they consider would be most likely to promote the success of the company for the benefit of its members as a whole. And the court went on to say that the requirement that the Director acts in good faith includes as a fiduciary duty a requirement that the director acts honestly towards the company. So it's not just good enough for a director to say that they acted in good faith to benefit the company, but they must also, in doing so, ensure that they're acting honestly towards the company at all times.

 Stuart Mullins 09:32

And I think that's right. And I think I think I think the core take away here is that up until this Court of Appeal decision was issued. That it was kind of enough for a director to say, well, I'm, I followed a course of action or I made a decision and I sincerely believe that that would maximise the value for the company as a whole. And therefore promote the success of the company for the benefit of everybody, and that effectively was sufficient for me to meet the required standard of good faith in the company's act. However. For the first time, the Court of Appeal said well, yeah, that is, that is important. But actually, what you do need to have regard to is an objective assessment. So we're making a decision. What would the ordinary decent person consider to be appropriate in the circumstances? And I think that's a really important difference now. There have been a number of cases on director's duties. Before which all followed the subjective requirement of did you sincerely believe that was right and very little discussion around whether it was relevant having an objective testing in conduct of director's duty. So for the first time we see this creeping in where this goes and what this means for other case law we don't know and that goes beyond the subject matter of this podcast, but the practical tips I think really, Jonathan, for directors are these that you know it really is important to document the decisions that you're making, especially when they can be controversial or couldn't construed as controversial, I think that it's really important to consider and rationalise the subjective decision. As well as what any objective view a stakeholder or somebody who isn't necessarily a director may have, or a shareholder may have. And as I say document the decisions that you're making and justify be able to justify the reasons that you're concluding in a in a way that you that you are. And as I say, I think that's important not just to evidence that you've given thought to your statutory obligations, but also is a good way to manage relationships with stakeholders and other directors of the company generally. 

Well that thank you for that Jonathan, and I suppose the leading into Christmas 25, our last article of the quarter was really an overview is to this subject called due diligence, Jonathan, and why it's so important when carrying out a corporate transaction such as a sale or a purchase what it means for sellers and buyers, and also perhaps those businesses seeking external investment. So why is it necessary, Jonathan?
 
Jonathan Hayes 13:14

Well, I think it'd be beneficial to start of what is due diligence and what it is a process of really getting under the skin of a company that you have identified as a potential acquisition and really doing a comprehensive investigation into the health of that target company. So it's not just a legal investigation. But a financial one too. And it's really important to really understand the business and be aware of any potential pitfalls with it before you go ahead and sign on the dotted line.
 
Stuart Mullins 13:50

I think that's. That's right, isn't it that you know, you wouldn't buy a house without raising some inquiries? You wouldn't buy a car without necessarily seeing it and looking under the lid. And in many respects, that's what we're trying to do when we carry out due diligence on a, on a target business or a buyer is looking to undertake on your business. I think the key things are leading into due diligence or heads of terms. Try to get as much detail down about the deal if you can really hammer out the finer points of the transaction before we proceed to due diligence.

For the sellers out there, please do ensure that you've got your confidentiality agreements and you've got your confidentiality agreements in in place to protect that that information and it goes without saying that buyers don't necessarily need to know the names of your key customers, they just need to know enough to be able to identify them as against financials to double check the financial progress, prowess and performance of the business that they're buying. For sellers to use, this is an opportunity to consider exclusivity, a period you don't want to be time yourself into any due diligence, process or transaction that prohibits you from discussing the matter with other parties after a reasonable period of time, and similarly buyers, you do want to make sure that you do have that that exclusivity. As you say Jonathan, you know that there are many different types, there's legal, there's commercial and there's financial due diligence. Can you give us an example of the sorts of typical areas that are covered off in legal due diligence inquiries, Jonathan? 

 Jonathan Hayes 15:38

Yeah, absolutely. So the first one that comes to mind is something that you touched on earlier and that's contracts. So you want to be looking at the terms of those contracts where there's any change of control clauses. And as the buyer, you're really just trying to satisfy yourself that the key contracts that really drive the turnover of the business that you are looking to require will still be in place, post acquisition. The other thing is that you that are commonly looked at is property due diligence. If there's a property element to the transaction, for example, we act quite often on the sale of plant or purchase of hotel or pub businesses. And so you're really going to want to, to know to and to understand the state of that property. If there's any work required and something else that that often crops up in the deals that we work on, is employment if there are going to be employees of that business, are there any claims outstanding that you that you may inherit as the purchaser and will the key employees that are really vital to run that business, are they still planned to stay in place post acquisition. 

 Stuart Mullins 16:56

And that was very sound subject areas there, Jonathan and I think from a buyer's perspective it's about being proportionate with the level of inquiries that are raised, buyers can save themselves an awful lot of time and goodwill with sellers if they if they really try to focus on what's important to them in the transaction and shape those inquiries around that. So for example, if you're buying a company because of a particular key asset or you're buying a company because strategically the workforce makes sense to your wider group rather than the financial performance of the of the thing or the workflow that should shape the focus really and sellers it's very easy to get disgruntled and borne down by the detail that can be asked during this process, but I would encourage you to be very positive around the due diligence process and use this as an opportunity to show off what a great business you've managed to manage to build.

Well, thank you. Thank you, Jonathan. Thank you for joining me today to run through that. I do hope everybody has found this, this a useful overview as I say, do please look to our website where you'll find copies of the articles that are given rise to today. These subject matter, and if you do have any questions or queries, we would be delighted to hear from you, so don't hesitate to call us or send us an e-mail and we will do our best to help with you.

Well, that's it for me and us for now. We'll be back hopefully in the spring when the weather's a bit warmer to talk about the subjects and areas of law that have really caught our attention. The first part of 2026. So thank you once again, Jonathan and to you all. I wish you a happy, healthy and prosperous 2026. Bye for now.