Restructuring & Insolvency analysis: The High Court held on appeal that the appellants could rely on facts in existence at the time of termination of a finance agreement, but which were not set out in the termination notice, in order to justify that termination. It also found that the court at first instance had applied the wrong test and burden of proof on the application to set aside statutory demands and took the unusual step of setting aside the decision of the lower court which had been an exercise of discretion on consideration of written evidence. The case is an example of the application of the principle explained in Reinwood Ltd v L Brown & Sons Ltd in relation to justifying termination and a reminder of the considerations on an application to set aside statutory demands. Although dealt with in an insolvency context here, the principle in Reinwood is relevant to all areas involving contracts and termination notices. Written by James Culverwell, barrister at Lamb Chambers.

This Practice Note explains when an appointment of a guardian for a child made under section 5 of the Children Act 1989 (ChA 1989) comes to an end. It also considers the ways in which an appointment may be terminated, eg death of a sole guardian or removal of a guardian by court order. It explains the procedure for an application for termination of a guardianship order by the court. Automatic termination of guardianship There is nothing in ChA 1989 that prevents a guardian being appointed conditionally or until the child reaches a specified age which is less than the attainment of majority or until some other event happens. Unless the appointment has been expressly limited guardianship automatically ends when the child reaches the age of 18. It will also end on the death of the child. Unless a sole guardian has appointed a successor, on their death the guardianship will be brought to an end. If there were joint guardians the survivor continues to be guardian. Removal of a guardian by court order An application

FORTHCOMING CHANGE: The Trusts and Succession (Scotland) Act 2024 received Royal Assent on 30 January 2024, marking the first review of trusts law in Scotland in over 100 years since the principal legislation, the Trusts (Scotland) Act 1921, was passed. The trusts provisions require secondary legislation from Scottish Ministers to be brought into force whereas some provisions relating to succession law came into effect on 30 April 2024. The main changes to modernise the law are summarised in News Analysis: Trusts and Succession (Scotland) Bill passed. Practice Notes on areas of Scottish trusts and succession law will be updated further to reflect this new legislation. Revocation by the settlor Testamentary trusts Will trusts (or testamentary trusts) are capable of being revoked up until they come into effect on death. In simple terms, a Will (whether containing trust provisions or not) is superseded by a more recent testamentary writing. Whether that is technically a revocation of trust is another matter. However, a person may bind themselves during their lifetime to bequeath their estate in

Duty to distribute to the correct beneficiaries On the termination of the trust, the trustees are under a duty to distribute the trust assets to the right beneficiaries. Failure to distribute to the correct beneficiary can subject the trustees to liability for breach of trust, although the trustees could apply to the court for relief for honest and reasonable conduct. Relief for honest and reasonable conduct If it appears to the court that a trustee(s) is or may be personally liable for any breach of trust but that they have acted honestly and reasonably, and ought fairly to be excused for the breach and for omitting to obtain the court's directions in the matter, the court may relieve them either wholly or partly from personal liability for the breach. ‘Honestly’ means that the trustee acted in good faith. The word ‘reasonably’ indicates that the trustee acted prudently. The relief is discretionary and in exercising its discretion, the court will have regard to the interests of both the trustees and the beneficiaries in deciding whether the breach

Winding up the trust Before winding up the trust, the trustees must have paid or provided for all outstanding liabilities, dealt with any compliance issues and identified the beneficiaries who are entitled to the trust assets. Winding up the trust will involve: • drawing up final trust accounts • calculating the entitlement of each beneficiary • transferring legal ownership of the trust assets to the beneficiaries • obtaining an appropriate release or discharge Trust accounts Beneficiaries are entitled to be informed of the condition of trust property and trustees must be ready at all times to produce accounts. Generally, beneficiaries are supplied with copies, although strictly they are entitled to view the original accounts and to have any copies made at their own expense. Trustees must also allow a beneficiary to inspect all documents connected to the trust (trust documents) but not those documents that would reveal reasons for the exercise of the trustees' discretion. For more information, see Practice Note: Trust disputes—beneficiaries' rights to information. Trustees neglecting or failing to provide information

Duration of a trust The duration of an express trust is subject to the restrictions imposed by the rules against remoteness of vesting and against the creation of trusts of perpetual or indefinite duration otherwise than for charitable purposes, and by the statutory restrictions on accumulations of income. The Perpetuities and Accumulations Act 2009 significantly amended the rule against perpetuities and abolished the restrictions on accumulations in respect of instruments taking effect on or after 6 April 2010. However, practitioners must still have regard to the common law rules and the Perpetuities and Accumulations Act 1964 in certain cases. See Practice Note: Perpetuities and accumulations. Ways a trust may terminate An express trust, after it has become operative, may come to an end in a number of ways, for example: • action taken by the trustees, the settlor, the beneficiaries or a third party—the action may be by virtue of a power conferred by the trust instrument or it may require an application to the court • as a result of particular events occurring,

Trustees have the right to indemnify themselves from the trust fund in respect of expenses, including: • administration costs • the costs of proceedings against third parties, and • trust proceedings The question of trustees seeking an indemnity usually arises on final distributions where they might be exposed to future liabilities. The question also usually arises on their retirement. Administration expenses A trustee has a right to be indemnified from the trust fund in respect of expenses properly incurred by them when acting on behalf of the trust. Examples include: • trustees’ fees • investment management fees • legal or accounting fees Once the extent of any outstanding liabilities for trust expenses is established by the trustees, a reserve should be made to cover the expected liabilities. Section 27 of the Trustee Act 1925 (TA 1925) enables the trustees to protect themselves by advertising for interested persons (beneficiaries and creditors) in an appropriate newspaper or gazette and in the case of land, also in a newspaper circulating in the district in which the land is

Where a party to a construction contract becomes insolvent, the consequences of this insolvency are set out in the Insolvency Act 1986 (IA 1986). However, the contract may itself provide expressly for what is to happen where a party, usually the contractor, becomes insolvent. Following the implementation of Corporate Insolvency and Governance Act 2020 (CIGA 2020), suppliers have been prohibited from exercising contractual termination rights arising from insolvency situations through the introduction of section 233B of the IA 1986. CIGA 2020 may therefore impact supply chains in the construction industry. The IA 1986 The IA 1986 deals with both the bankruptcy of individuals and with a winding up of companies. Where an individual who is a contractor becomes bankrupt, the contract will pass to the Trustee in Bankruptcy. Where a winding up order is made against a company trading as a contractor, the benefit and burden of the contract will remain with the company, the liquidator having stepped into the shoes of the directors to carry on the business of the company so far as is necessary

The CA 2006 contains provisions requiring shareholder approval for payments made by a company to a director as compensation for loss of office. The term ‘payment for loss of office’ is used to describe any payment made by a company or a third person at the direction of, or on behalf of, a company, to a director, a person connected with a director, a former director, or a third person at the direction of, or for the benefit of, a director or a person connected with them, where the payment is made as compensation for the loss of office as director of the company.

As this Practice Note explains, there are many different types of termination payments and it is necessary to analyse as a preliminary step whether the payment in question is taxable as ‘earnings’ under section 62 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) or under other provisions in ITEPA 2003 before considering whether the £30,000 exemption (contained in ITEPA 2003, s 403) will apply to the particular payment in question. ‘Tax’ usually includes National Insurance contributions (NICs) in the mind of the average taxpayer, since NICs operate to reduce the funds at the disposal of taxpayers in the same way as ‘real’ taxation. It is therefore essential to consider the impact of NICs when considering the financial efficiency of any payment. However, since there is specific legislation relating to NICs and it in no way mirrors that for tax, the NICs treatment should always be considered as a separate issue when reviewing any termination payment. What does termination include? ‘Termination’ in connection with employment is a word that can cover very

The first question in respect of any termination payment or benefit is whether it is taxable on basic principles as earnings from or an emolument of an office or employment under section 62 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003). This question must be settled before considering any further taxing provisions. For details of the principles to be applied in determining whether a payment made in connection with the termination of an office or employment is taxable as earnings (or emoluments) under ITEPA 2003, s 62, see Practice Note: Termination payments taxed as earnings. This Practice Note focuses upon the specific deeming provisions (in ITEPA 2003, Part 6, Chapter 3), which subject to income tax payments and benefits on termination of, or change in the duties or functions of, an office or employment that are not otherwise chargeable. These provisions also include a number of exemptions and reliefs as set out below (including an exemption for the first £30,000). This Practice Note also briefly considers

Depending on the circumstances, a payment made or other benefit provided in connection with the termination of an office or employment may be taxable in full, in part or, in limited circumstances, may be fully exempt. For an overview of the different ways in which a termination payment could be taxed, see Practice Note: Termination payments and tax. The first question in respect of any termination payment is whether it is taxable on basic principles as earnings from, or an emolument of, an office or employment under section 62 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) or, under other provisions of ITEPA 2003 which deem certain types of termination payments to be earnings (for example, ITEPA 2003, s 402B which, since 6 April 2018, has deemed non-contractual payments in lieu of notice (PILONs) to be earnings). This question must be settled before considering any further taxing provisions, such as the benefits code (in ITEPA 2003, Part 3, Chapters 2 to 11), or the specific deeming provisions