Family businesses—governance

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Family constitution

Successful family businesses are different in many ways, but they have at least one thing in common; they are well organised. Their success is achieved through thoughtful planning and part of this organised approach often involves creating a family constitution. Other names that are used for ‘family constitution’ include family charter or family creed or family protocol.

Some family constitutions are intended by families to have moral, rather than legal force. However, the family constitution may contain provisions about ownership and other matters that the family want to be legally binding. In such cases, there is a need for some convergence between the family constitution and other forms of legal agreements.

Some families introduce sanctions for breach of a family constitution. For further guidance, see Practice Note: Family businesses—the family constitution.

Family governance

A family business that has no formal structures and policies in place does not completely lack governance. There is always a ‘natural’ or ‘organic’ governance system based on understandings, assumptions and expectations that everyone in the family and in the business adheres to as ‘the way we do things around here’.

Formal

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Latest Private Client News

FTT decides joint and several liability notice is a criminal charge and it has jurisdiction to consider public law arguments (Hall v HMRC)

Tax analysis: In this interlocutory decision, the First-tier Tax Tribunal (FTT) in Hall ruled in favour of Mr Hall (H), a director of insolvent companies issued with a joint and several liability notice (JSLN) in the amount of £1.68m under the phoenixism provision in para 3 of Sch 13 to the Finance Act 2020 (FS 2020). The FTT held that a JSLN constitutes a criminal charge for the purposes of Article 6 of the European Convention on Human Rights (ECHR) so that HMRC bears the burden of proving its validity and was therefore directed by the FTT to serve its evidence and skeleton arguments first. The FTT also refused HMRC’s application to strike out three grounds of appeal challenging the proportionality of the JSLN regime and the rationality of HMRC’s decision to issue the notice, holding that it has jurisdiction to consider such public law arguments and, in respect of two of the grounds, although they were weak, they were arguable and should be heard.

Trustee removal following breakdown in relations with beneficiaries (Smith & others v Campbell & others)

Private Client analysis: Beneficiaries of a Will trust sought the removal of trustees on several grounds, including a breakdown in relations between the parties and trustee hostility. The principal asset in the trust was a shareholding in the deceased's company, and the trustees had removed two of the beneficiaries as directors of the company. The court carried out a detailed analysis of the law and evidence before ordering the removal of two of the four trustees. This court found that removing the two trustees would be in the best interests of the beneficiaries of the trust as a whole, with a view to securing the proper administration of the trust. A professional trustee was appointed to resolve any concern that the management of the company was not subject to proper oversight. They will act alongside two family members as continuing trustees, in line with the deceased's wishes. Written by Alexandra Rogers, legal director at Foot Anstey LLP.

Proprietary estoppel and unenforceable land contracts (Conway v Conway)

Private Client analysis: In Conway v Conway, the High Court clarified the interplay between proprietary estoppel and the statutory formalities required for contracts for the sale of land under section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (LP(MP)A 1989). The case concerned an appeal from a first instance decision ordering specific performance of an oral contract for the sale of land as relief in a proprietary estoppel claim. In allowing the appeal, Mr Justice Michael Green held that that proprietary estoppel could not be used to obtain specific performance of an otherwise unenforceable oral contract for the sale of land, but remitted the question of equitable compensation to the County Court due to the absence of alternative relief in the pleadings. The decision clarifies that LP(MP)A 1989, s 2 bars relief that has the effect of enforcing void contracts while leaving open other forms of equitable relief that can satisfy the equity arising in estoppel cases. Written by Cameron Stocks, barrister at Gatehouse Chambers, who acted for the appellant at first instance and on appeal to the High Court.

Power of the COP to make orders to implement best interests decisions (University College London Hospitals NHS Foundation Trust and Another v AB (By his Litigation Friend) and others)

Private Client analysis: Mr Justice Williams found that AB lacked capacity and it was in his best interests to be conveyed to hospital for an in-patient stay to allow assessment and treatment. He held that, to implement his best interest decisions, he was able to impose duties on AB’s mother in her role as AB’s Deputy for Personal Welfare. He further held that he was able to rely on the High Court’s inherent jurisdiction to make orders authorising the applicants and third parties to implement his decision, including by allowing them to enter the property without permission to access AB and remove him to hospital. This case considers what tools the Court of Protection has at its disposal to ensure compliance with best interests decisions made on behalf of P and on what basis these tools are available to the Court of Protection. Written by Dr Anton van Dellen and Natasha Niccolls, barristers at Fraser Chambers.

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