“Reporting entities that apply the FRSSE, … , are exempt from complying with other Financial Reporting Standards (FRSs)”. (5) FRSSE defines: (a) an asset as: “Rights or other access to future economic benefits controlled by an entity as a result of past transactions or events”, (b) “intangible assets” as “non-financial fixed assets that do not have physical substance but are identifiable and are controlled by the entity through custody or legal rights”, and (c) “identifiable” assets and liabilities as: “the assets and liabilities of an entity that are capable of being disposed of or settled separately, without disposing of a business of the entity.” (6) There is no further guidance in FRSSE on the concept of “control”
“In the context of an intangible asset, control is normally secured by legal rights […]. However, control may be obtained through custody […]. Where it is expected that future benefits will flow to the entity, but those benefits are not controlled through legal rights or custody, the entity does not have sufficient control over the benefits to recognise an intangible asset. For example, an entity may have a portfolio of clients or a team of skilled staff. There may be an expectation that the clients within the portfolio will continue to seek professional services from the entity, or that the team of staff will continue to make their expert skills available to the entity. However, in the absence of custody or legal rights to retain the clients or staff, the entity has insufficient control over the expected future benefits to recognise them as assets.” (7) HMRC’s guidance at CIRD11135 states: “The dividing line between ‘goodwill’ and particular intangible assets or intellectual property, as defined for accounting purposes, may often be difficult to establish. On analysis for example the value of the goodwill of a business may arguably reside in particular assets such as customer lists or various forms of know-how.”
“7. The outgoing partner if he shall be living shall not during the period of five years following the succession date directly or indirectly carry on or be concerned or interested in the business of Chartered Accountants within a radius of five miles from any address from which the parties shall have been practising over the previous two years either alone or jointly within or as director manner [sic] agent or employee or [sic] any other person firm or corporation without the prior written agreement of the remaining partners.”
“How do you wish to value the portfolio? Average value of fees over last 3 years for clients on the portfolio at the retirement date? Fees in the year ended31 March 2005 , 2006 or 2007? Or an average of them. The point being that that there are many ways to skin a cat. If both parties are satisfied that the portfolio is worth (roughly) the same as my equity stake then we can leave aside the maths.”
“To: Russell Black, Managing Partner, Glazers (Please tick boxes below, as appropriate) • Yes, I would· like to remain a client of Glazers [ ] • Please indicate which partner(s) you would prefer to work with: Stewart Okin [ I Russell Black [ I Philippe Herszaft [ I Darren Specterman [ I Jessie Kho [) Any* [ I If you tick 'any' we will find the most appropriate partner to suit your circumstances. • Thank you, but I would like to move my affairs over with Robert Glazer/Pratima Patel and /you have my authority to pass information and documents to them regarding my affairs. • I may want to continue using Glazers for certain services only. [] (Please specify) _______________________ _ • I would like more information in order to make a decision. [] ( Please use the space below for comments, or attach your comments separately if you prefer) • Please call me to discuss this further. [] Please sign here………………..; . Date……… 07 Please print your name ...........................” • Yes, I would· like to remain a client of Glazers [ ] • Please indicate which partner(s) you would prefer to work with: Stewart Okin [ I Russell Black [ I Philippe Herszaft [ I Darren Specterman [ I Jessie Kho [) Any* [ I • Thank you, but I would like to move my affairs over with Robert Glazer/Pratima Patel and /you have my authority to pass information and documents to them regarding my affairs. • I may want to continue using Glazers for certain services only. [] (Please specify) _______________________ _ • I would like more information in order to make a decision. [] ( Please use the space below for comments, or attach your comments separately if you prefer) • Please call me to discuss this further. [] Please print your name ...........................”
“In respect of the taking of clients the old Partnership Deed […] provided for [Glazer’s CA] to agree with [Mr Glazer] about [Mr Glazer] continuing to act for clients and the terms under which he did so. In my view, since a substantial amount of goodwill had been paid and is on the balance sheet the terms that [Glazer’s CA] would reasonably agree with [Mr Glazer] would be for [Mr Glazer] to pay [Glazer’s CA] its share of that goodwill debit on the balance sheet.”
“…RG capital account @ full goodwill value£394,687 Value of fees being taken over by RG: RG/PP 2004 fees£546,3812 RG/PP 2005 fees£616,292 RG/PP 2006 fees£503,138 1,665,812 /3 =£ 555,271 Amount due from RG to Glazers for excess goodwill taken£160,584 (* based provisionally on group results for 2006) Note: Figures to be updated once 2007 group results available”
“The last part requires the agreement of the ongoing partners to an outgoing partner being entitled to act for clients of the firm. It is not clear whether that requirement is subject to the five year restriction on its own, or with the five mile restriction or neither. If it was an absolute prohibition it would in my view now be considered by the Courts to be too widely drawn and be unenforceable. However if it was interpreted as relating to the five years, and it is capable of being interpreted that way, it may be enforceable. The more recent partnership deeds, which I have already identified as not having been finalised, indicate that a shorter period was being discussed. Of course the more recent deeds have not been completed and signed. I find that it would not be unreasonable for the ongoing partners to discuss the terms of the departure of the retiring partner. Indeed this is in effect what they were doing but failed to agree on so many points. It would not seem unreasonable if it was agreed that The Claimant would take clients but for the partnership to be compensated. In my view in the absence of anything to the contrary in the 1998 deed that compensation should be based on the amounts of goodwill paid that are still a debit on the balance sheet, at the percentage of the retiring Claimant partner.”
“RG will continue to treat all information that he has about Glazers, its partners and its clients or former clients, as confidential information obtained in the course of his acting as a Chartered Accountant and no data or Information is to be used or divulged by him or any business that he becomes involved in, other than that which is available to an independent third party through the public domain. Glazers will similarly respect confidentiality regarding RG and all ex-clients of the firm…. …RG will collect all files from Glazer’s premises, relating to clients he is taking over, as soon as practicably possible, subject to permission from Glazers to take the files (to be given on a client by client basis). Glazers will withhold files pending instructions from the client to pass them over, and pending payment of outstanding fees.”
“Client Service - The services provided to clients should not be affected by the merger. The purpose of the merger is to provide an even better service and therefore it is paramount that ..,..,-it is demonstrated to clients that the merger has not diluted any of their expectations including a ~personal touch by RKD. RKD would continue to manage his existing portfolio in the merged practice with adequate staff resources to provide same level of service if not better .. service. , ,); Client fees - we believe that the fees charged by DCA at present to its clients are very much in line with the fees that a· well established firm of Chartered Accountants would charge its clientele. Whilst there would be disparity in the charge out rates used by the two practices, the fees charged by DCA do not tend to be at the 'cheaper' end and therefore we would anticipate that there would not be any need for substantial fee changes upon merger. So that client relationships of DCA are not prejudiced it would be essential to ensure that client fees . are not changed dramatically subsequent to the merger. _,. RICD Role - RKD would join the merged practice as a Partner. It is anticipated that RKD's role would be to manage his portfolio, maintain the goodwill, to grow and develop the business of the merged firm and to participate in the management of the merged practice. It is anticipated that a lot of the hands-on work that RKD performs at present would be delegated to appropriate staff in the merged firm. Remuneration - In the short term, RKD's remuneration should be set so that he is not _ financially disadvantaged compared to practising as a Sole Practitioner. In the medium to long term, RKD's remuneration & other benefits should be in line with that of the other Partners of the merged practice taking into account his client portfolio, status and responsibility within the merged practice. Legal title to Client Portfolio - The legal title of the client Portfolio (or the goodwill in regard thereto) introduced by DCA at the start of the full Merger should always remain with RKD. “Ring Fencing” of Client Portfolio- The respective client portfolios of both the parties at the start of the full merger should be “ring-fenced” so that there is no ambiguity if matters did not work out in the short to medium term and the Parties had to separate. The actual logistics of such a “ring-fence” would be negotiated by both the parties to each other’s mutual satisfaction. Pre-merger issues - Specific pre-merger issues relevant to each of the practice for example,. any- pre-merger liabilities or contingent liabilities should be 'ring-fenced' so as to keep them separate from the merged practice. This may for example be achieved by both the practices indemnifying each other for any pre-merger liabilities….”
“Goodwill, being the amount paid in connection with the acquisition of a business in 2007, is being amortised evenly over its estimated useful life of ten years”
“I don’t know what we were thinking in 2007 when we inserted a clause in our heads of agreement to the effect that those heads of agreement would eventually be superseded by a document written by a solicitor. We should have known that our clearly-written and perfectly workable 3-page document would be turned into a 15 page monster which clouds the issue, and for all we know doesn't even reflect what the two parties intended and agreed. None of us has read this legal draft in detail, nor have we discussed it, so we're not in a position to comment on any of its clauses. What we do know is that Gordon Oliver intended this as a draft for discussion rather than as the final document, so we certainly wouldn't want to sign it in its current form. And we certainly shouldn’t regard it as having any validity until and unless we do finalise and sign it. Many of the clauses are probably irrelevant now, having been superseded by events which have already transpired over time, most of them in May 2007. We have a valid legal written agreement which we have all signed, and I really can’t see any point in investing (ie. wasting) any more time or money in re-writing it in language that none of us finds as clear as plain English. I propose that the two parties jointly agreeto accept and treat the > heads of agreement as our permanent, legally binding document.”
“….Russell sent me this draft in April 2008. He asked whether we really needed it. On 15/09/08 I emailed: “I understand your points about the retirement deed and in many ways agree. However, the heads of agreement said we would be producing a deed and I think it would be sensible to complete the formalities as originally intended. And as Gordon has already produced a draft, I'd hope it wouldn't take too much effort to now finalise it?”
“I have spoken to a solicitor and we think we have a way forward. The main problems are that: a) the Hof T have been signed only by RB and DS and may only be legally binding on them, (although I recall you and SO may well have signed Powers of Attorney?); and b) the warranties and indemnities are only in draft form and so are not legally binding. The proposed way forward is: a) to add a front page/a "deed of confirmation" to the Hof A clarifying that all partners have signed and what does Glazers/Glazers Group represent; and b) formalising the draft warranties and indemnities and ensuring mutuality. It would also be helpful if you confirm that any personal guarantees that I had given whilst a partner at Glazers have now been released, including the lease, the overdraft and AG…”
“a licence in its simplest terms is a contractual arrangement between the owner of a right, who is the licensor and someone who wishes to do something which, if done in the absence of a licence, would render that person liable to a suit for infringement of the right”. (3) In this case, (a) the evidence is clear that on leaving Glazers CA Mr Glazer received permission for him to use the asset the use of which, but for the granting of such permission, may have been a breach of the restrictive covenant in the partnership agreement, (b) that Mr Glazer granted or transferred such permission to the appellant is shown by the payment made by the appellant to Mr Glazer albeit that the relevant sum was left outstanding on loan account, and (c) we accept that Mr Glazer considered it important for the asset to be held by a separate corporate entity from the entity which operated the accountancy business for the reasons which he and the other witnesses gave regarding “ring-fencing”. (4) We consider that the appellant had sufficient control over the asset for it to constitute an IFA in its hands. As the person with permission to make use of the asset it was able to exploit it on an on-going basis by in turn giving permission to Ripe LLP in effect to use it for its business purposes in return for a fee (and later a profit share). (5) We accept that on the evidence for each relevant accounting period the appellant correctly claimed debits for the losses recognised in its accounts in respect of capitalised expenditure on the asset by way of amortisation on the basis that the accounts were drawn up in accordance with generally accepted accounting practice. Whilst the accounts incorrectly described the asset as goodwill, it is apparent that there would have been no difference in accounting treatment had it been correctly identified. 50. We do not accept HMRC’s submission in support of their contrary conclusion: (1) HMRC argued that the payment is to be viewed as made as compensation to Glazer’s CA for future breach of the restrictive covenant in return for a partial release from the restrictive covenant. We note that in the absence of this partial release, Glazers CA may have been able to take legal action against Mr Glazer had he provided services to any former clients of Glazer’s CA within 5 years of his retirement from the firm, within a five mile radius of the firm. However, on the evidence the payment made by Mr Glazer was not specifically based on the restrictive covenant in the partnership agreement and the arbitrator did not reach a firm conclusion on whether or not that covenant was enforceable. The payment was compensation for Glazer CA losing the business of the clients who chose to engage Ripe LLP on Mr Glazer’s departure from Glazer’s CA, as is evident for the fact that the figure was based on prior years fee income from the clients. (2) HMRC submitted that there is a lack of evidence of the grant of any licence to Mr Glazer as there is nothing in writing evidencing this and even if Mr Glazer did acquire a licence from Glazer’s CA, there is no evidence that the appellant acquired, could acquire, or needed to acquire this licence. Any such licence, so they say, could not be acquired by the appellant, nor would the appellant need to acquire it: (a) the appellant was never a member of Glazer’s CA, and was never a signatory to the partnership agreement and so was never the subject of a restrictive covenant enforceable by Glazer’s CA, (b) Mr Glazer’s activities including activities carried out through a related entity were the subject of the restrictive covenant but the appellant did not need to provide services to clients on the client list, (c) Mr Glazer was able to provide services to clients on the list directly and via another entity as a result of the partial release from the restrictive covenant without the need to transfer anything to any other entity, and (d) in any event, while HMRC accept that Mr Glazer received the physical and digital client files necessary to service the relevant clients, the evidence shows that it was Ripe LLP, not the appellant, who exploited these files in order to service the clients in question. The appellant could not have acquired an intangible asset comprising the physical and digital client files, or the information contained within them. We have set out already that it is clear that a licence can be created without the need for a written document evidencing it and that we consider that a licence was created. As regards HMRC’s other points, we accept that Mr Glazer considered it important for the asset to be held by a separate corporate entity from that which operated the accountancy business for the reasons which he and the other witnesses gave regarding “ring-fencing”. (3) HMRC submitted that (a) in any event the appellant could not acquire a licence from Mr Glazer as that would be contrary to clause 7.1 of the settlement agreement which prohibited Mr Glazer from assigning any rights under that agreement to any other person, (b) the appellant has contended that clause 7.1 was a mistake in common between the parties, or that the deed was varied by agreement between the parties. The question is whether there is evidence to show that the parties to the agreement have agreed that there is an error in the document and that they have agreed a correction to that error. The appellant has not discharged its burden of proof to demonstrate that is the case. The appellant submitted that: (a) That clause 7 was inserted by mistake and neither party intended for it to apply is evidenced by the fact that by the time that the settlement agreement was executed, Mr Glazer had already transferred the asset to the appellant. It could not retrospectively prohibit something which had already happened. As Glazers CA were aware of the transfer and has not sought to enforce the provision (the time for doing so has long since passed, the partners of Glazers CA and Mr Glazer must have agreed to vary the agreement by conduct or Glazers CA must have (i) ignored clause 7.1 (as a mistake); (ii) consented to the transfer; or (iii) waived the breach of clause 7.1. (b) In any event, given all the facts and circumstances clause 7.1 is now irrelevant. Glazers CA were aware that Mr Glazer may set up in practice with Mrs Glazer before and during the arbitrator’s involvement (hence their reference in their note to clients asking if they wanted to stay with Glazers CA or not). Further, if rights arising under a contract are declared by the contract to be incapable of assignment, a purported assignment by one party will be invalid as against the other party, but a prohibited assignment can be effective as between assignor and assignee. In Tom Shaw & Co v Moss Empires Ltd,(1908) 25 TLR, 190 , 191) it was held that a prohibition “could no more operate to invalidate the assignment than it could interfere with the laws of gravitation”
“In our judgment, no new information, of fact or law, is required for there to be a discovery. All that is required is that it has newly appeared to an officer, acting honestly and reasonably, that there is an insufficiency in an assessment. That can be for any reason, including a change of view, change of opinion, or correction of an oversight. The requirement for newness does not relate to the reason for the conclusion reached by the officer, but to the conclusion itself.”