As an SME business owner, I know that you would need to take loans sometimes. These loans come in all sorts of variations. However, in some instances, you may not be the one who needs the loan, a friend, a colleague or well meaning neighbour could approach you to sign a deed of guarantee at the bank in order to help them get a loan. This article is aimed at helping you understand exactly what you are doing when you sign a deed of guarantee.
So what is a deed of guarantee?
In the case of Wardens & Commonalty of Mystery of Mercers of the City of London v New Hampshire Insurance Company (1991) 3 J.B.F.L. 144 Phillip J relied on a definition of a deed of guarantee contained in the 5th edition of Halsbury 2008 to define a deed of guarantee as follows:
A guarantee is an accessory contract by which the promissor (you) undertakes to be answerable to the promisee (the bank) for the debt, in the event of default or miscarriage of another person (your friend) whose primary liability to the promisee must exist or be contemplated.
In simple terms you are signing a contract promising that if one person does not pay his legal debts, you will pay on his behalf.
What a deed of guarantee is not?
The easiest way understand what something is, is to understand what it is not. The case of Vossoloh AG V Alpha Trains (UK) Ltd (2010) EWHC 2443 gives a great example of what a deed of guarantee is not it states that:
A contract under which the liability or debt of the principal debtor (your friend) is extinguished or replaced by the liability of some other person (you) is not a contract of guarantee.
This means that if the contract that your friend is trying to get you to sign TRANSFERS his legal debts to you, making him free of debt and you owe his debt, you are not signing a contract of guarantee but a novation.
Must my friend be a party to the deed of guarantee?
The answer to this question is no. Andrew and Millet in their book on the Law of Guarantees identified that whilst the simplest form of guarantee is one in which the creditor, principal and guarantor are all parties to the contract, it is not unusual for the contract of guarantee to be between the lender and the guarantor. Therefore, you must not think you are not bound by a deed of guarantee just because the party you are guaranteeing did not sign the agreement.
Can I be the only one who signs a deed of guarantee?
Yes. A deed of guarantee is different from a contract of guarantee. Now, a deed of guarantee is a contract that is valid because of its form. Because you sign a deed it is binding on you because it is a deed. It doesn’t depend on sufficiency of consideration to be valid etc. Even if you are the only one who signs the deed of guarantee it is still binding on you.
What does this all mean?
This simply means that whenever you want to sign a deed of guarantee you should understand what you are doing. It is advisable that you get a qualified legal practitioner to review the agreement for you and ensure that you are making a good decision. It also means that in business there are legal documents which may appear insignificant but have grave implications. You should not sign documents without reading them properly and making adequate legal consultation regardless of how much you need a loan or money for your business. It is important that you fully understand what you are getting yourself into.
Morenike Okebu is a qualified Legal Practitioner that graduated from the University of Sheffield at the top of her class. She has several years of experience practicing in leading law firm owned by a Senior Advocate of Nigeria and now owns her own business, Reni Legal which focuses on uniquely solving the legal problems facing SMES and Start-ups.
Contact: [email protected]
Law Firms: Any Vision For Your Practices?
The age-old dispute whether Law is a noble profession or a business has been long laid to rest. Law firms are set up for the practice of law and to render legal services, just as hospitals are set up to render medical services. However highlighting the importance of the administrative and business aspects of the law profession does not diminish its nobility. There is the professional aspects and the business aspects of the law. Only a well-run business can be an efficient and successful professional firm. Law is both a noble profession and a multi Dollar business.
The Financial reports (2018 gross revenue) of a few law firms sufficiently attest to this fact -Kirkland & Ellis USD 3.76 billion, Latham & Watkins USD 3.39 billion, Baker & McKenzie USD 2.9 billion; DLA Piper USD 2.84 billion, Dentons USD 2.42 billion. Wachtell, Lipton, Rosen & Katzs’ turnover in 2018 -USD 763 million; $6.530,000 in profits per equity partner. Kirkland & Ellis profits per partner $5,037,000; Latham & Watkins $3,452,000, DLA Piper$1,757,000
The sizes and corporate structures of these firms also underscore the importance of the business and administrative aspects of law practice. In the UK despite the uncertainties of Brexit and the much touted impending recession, The Lawyer (a UK based legal research magazine) – reported that well-managed law firms continue to thrive in their practices and benefit from new opportunities in the UK. The research magazine published the 2019 gross revenue of 200 top UK law firms – DLA Piper was at the top of the list with a revenue of £1.946 billion, followed by Clifford Chance £1.693billion, Linklaters £1.628billion, Allen & Overy £1.627 billion, etc.
Coming home to Nigeria, though we are bereft of statistics on law firm, the financial value of a few reported legal transactions sufficiently proves that law is both a profession and a business.
The Business of Law
From the business of law perspective, a law firm is made up of a group of people working together to deliver legal services for profit. A law firm is a vehicle formed to earn profits that will increase the wealth of its owners, all stakeholders and the community in which it operates. A law firm is an organized effort or activities by lawyers working togther to provide legal solution with the intention of building a going concern, an enduring entity.
From the business of law perspective, a law firm is a professional service that must be taken to the market (consumers); therefore it is subject to the market forces of supply and demand. Consequently sound technical knowledge alone – howbeit in Latin and English (Certiorari, Ad litem, Habeas corpus etc.), legalese, wig and gown, the gavel, and other sacred ornaments of the legal profession alone does guarantee the success of a law firm.
A Law firm should be run on sound business skills, knowledge and practices to ensure its financial sustainability. No law firm can survive and thrive without the combination of multi-disciplinary skills and professionals – which the changing aspects of law practice today demands.
Front or Backend?
Every business has a frontend and a backend. Law is no exception. There is the professional aspects and the business aspects of the law practice. The professional aspects – constitutes the frontend and the business aspects constitutes the backend. Is the frontend of a business more important than its backend? Can the backend be overlooked or compromised without consequences? In business, the quality of the backend heavily impacts the frontend.
What constitutes the backend of a law firm? The “messy little details” like Human resources – people or talent management, recruitment, retention, training and development, welfare, compensation, performance management, career progression and development, succession planning. Office Acquisition, facilities management, space planning and ergonomics.
Strategy – visioning, policy formulation, goal setting, mission and objective. Procurement, Logistics, operations, file management. Library and knowledge management.
Business/client development – value proposition, branding, website, social media, market collateral – brochures and newsletters.
Finance – budgeting, profit drivers, pricing, fee setting, billing and collection, cashflow management, tax, insurance, cost control and internal audit.
Governance and structure. Information technology – Practice support systems; Computer hardware and software systems, Electronic privacy issues, Disaster management and Business Continuity Processes, Document and Knowledge Management Systems, Artificial Intelligence, disruptive innovation like the commoditsation of legal services Etc.
The Balancing Act
Many law firms struggle with balancing the professional and business aspects of running their practice.Law practice have some inherent peculiarities that may pose as road-blocks to running a successful business. For instance, law firms are usually populated with very intelligent, opinionated and individualistic professionals. Independence is highly prized by lawyers. This is not a bad thing in itself but it can make governance a nightmare. Also, law firms can have highly politicised internal structures and decisions are usually consensus driven, which again, can make governance a nightmare. After “all said and done,” nothing is usually done because lawyers can have a particular strong aversion to taking directions–and management and administration is usually about directing, planning, innovating. Law firms can be individual client focused, with power usually based on client/revenue generation which is dangerous for firm cohesion. Another threat to law firm cohesion is the argumentative, competitive. Adversarial and even sometimes combative tendencies of lawyers.
Further, law firms usually are short-term focussed, bottom-line focussed and with poor investment mindset. In addition, it has been observed that lawyers are usually risk adverse.Another peculiarity is that most law firms have few role boundaries. It is typical to find lawyers in firms who wants to be the accountant, admin manager and human resources manager at the same time. Even some partnerships do not have and respect clearly defined roles. Unclear roles is the recipe for confusion in business. Importantly, running a successful business requires a lot of creativity and nimbleness. Law firms however are usually bound by precedents, are conservative, intolerant of mistakes – are trained to detect mistakes, impatient and pressurized because of deadlines. All these stifles creativity which is essential for business sustainability.
From the Back Office
From the Back Office will be focused on Law as a business. My name is Joy Harrison-Abiola, I have spent 21 years at the backend of law offices and have made some very interesting observations. Also, through the years, I have had the privilege of interacting with non lawyer (some lawyers) colleagues both in Nigeria and abroad who like me have spent years at the backend of law offices. These very seasoned business support professionals have shared their frustrations, observations and war stories that have helped in my journey. So I will be showing on this page what constitutes the back office of a law firm and how it can be effectively harnessed to make a law firm successful and sustainable.
The Trouble with Vision
A few years ago, I visited the back office of the 11th largest law firm in Boston USA – Burns & Levinson at the invitation of its CEO. I spent a couple of days and had the privilege of sitting down with one of its founders and of course my question was about Vision. What inspired the setting up of the firm in 1960? The “old man” gave me some very interesting perspectives on how they have navigated the very rocky American law business terrain for 50 years holding unto their vision. What is vision? Is there a relationship between vision and law practice? Does a vision drive a law firm or not? Is vision essential to the survival of a law firm? Who gets the vision? Is it essential that the vision is written and documented somewhere for easy reference? Who drives the vision? How is a vision communicated? Is it possible for a law firm to operate without a vision?
What is the vision of your law firm? Where is your law firm going? How far do you want to take your law firm? What will the destination look like? How will you know when you get there? A vision is an inspirational and aspirational destination on the horizon. The trouble with vision is that it is the thing lawyers typically omit to do when opening their law practice. Law firms ignore to articulate a vision for their firm. You find vision in very few law firm websites or marketing collaterals.
Meanwhile, Vision, if well crafted contributes to your brand – it has a way of carving out an identity for a firm – what it does, what it wants to become and what it believes in. Another trouble with vision I have observed from the back office is that even when a law firm articulates a vision, the vision is not translated to a shared corporate vision. Most lawyers lack the skill or the will to do this.
Why is vision, mission, values and a strategy document vital in business? The short answer is that without these, there is no direction, or there are several directions and confusion and wastage of resources follows. A good vision articulate’s the firm’s ultimate goals and objectives in a way that inspires and moves the firm in a specific direction. Any law firm that ignores this will do so at its detriment. A law firm that is serious about growth and success will pay attention to corporate visioning.
Article By: Joy Harrison-Abiola, a leading legal management professional and the Practice Administrator of Adepetun Caxton-Martins Agbor & Segun- ACAS-Law
SMEs: Avoiding the legal pitfalls of giving away goods and services on credit
Image credit: entertainment malawi
A lot of businesses have experienced hard times in the current economic climate. Conversely, the business of some SMEs is booming now more than ever before. The issue I want to write about today is related to managing success and covers some legal issues which come to play when an SME is giving services and goods away on credit.
Giving goods and services away on credit simply means selling goods and services to third parties while they defer payment. It can be an outright deferred payment which can be stated in a contract or receipt or a less obvious form of deferred payment in the form of a post dated cheque. When a business starts accepting transactions like this they are open to a lot of risks and the most notable risk is what if the creditor does not pay?
It is therefore imperative that before an SME gives away goods on credit, the SME fully understands the debt collection process in their country. What remedies would be available if the creditor defaults in payment? The answer to this question differs from country to country but usually the options are:
- Filing a court case against the creditor
- Reporting the creditor to the police
- Reporting the creditor to his professional organisation
When you are thinking of deferring payment, you ought to make amount to be paid on the later date higher than the payment to be made if payment was made instantly: This is because you must ensure that in case payment is not made on the due date, you have charged enough in your deferred payment sum to cover hiring a lawyer to help you get your money back or cover your administrative costs when taking options 2 and 3.
You should also take into consideration the time it would take to exercise any of your debt collection options. Our firm GM George Taylor & Co. specialises in debt collection and we have observed that even in the simplest of cases it can take 1-2 months to recover your money. The question for you SME owner is can you afford an additional delay of 2 months after the deferred date to get your money for the goods you gave away on credit? If the answer is no, then you should not be giving away goods on credit.
Another thing to bear in mind is that where the creditor does not pay, you will need to pay someone to help you get your money back. Apart from any recovery percentage you agree to, you would need to initially pay some money. Can you afford to do that? Before you give away any good or services on credit you need to have this in mind. Only give away sums that you can comfortably afford to recover if need be, the hard way.
Specially drafted contracts by a qualified lawyer will also ease recovering your money if the creditor does not pay. The contracts can create new remedies not listed above which may enable you get your money back faster if the payment is not made at the right date. In summary, even where you are excited for big business as an SME please be careful when giving away goods and services on credit and ensure that you only do so where you can truly afford to do so. Don’t hang your entire business on the promise of a creditor without fully appreciating the debt recovery options available to you. Finally, as I always say, get good legal advice.
Morenike Okebu is the founder of Reni Legal, a law business focused on connecting SMES with high quality legal services they can afford. She is also a partner in GM George Taylor & Co. a full service law firm which specialises in debt recovery. She graduated top of her class at the University of Sheffield and has since then undergone professional training at the University of Southampton, World Intellectual Property Organisation Academy and Harvard University she practiced for years at a tier 1 law firm belonging to an SAN before taking on her current roles..
She hosts free legal awareness seminars for SMES every month. If you would like to attend one of these classes or have any further questions about debt recovery, please send an email to [email protected]
Legal Marketing 101
Vector round web banner of judiciary service. Modern thin line icons in three colors. Big white letter LAW and icons of scales, courthouse, attorney, jury and prison on a black chalkboard(Image: Demoflick)
A lot of practicing lawyers often do not pay attention to the business development aspect of running their firm. Nowadays, It is no longer sufficient to set up a law firm with a small and modest sign board, and then expect clients to somehow find you. It now takes a lot more than that to let clients know you exist and will do an excellent job. As a lawyer, legal marketing entails connecting with your prospective clients on their terms, earning their trust and having them see you as someone who can help them when they need help.
Legal Marketing is a broad term that refers to practices such as client relations, public relations, networking, participation in professional organizations, etc. It generally includes business development activities and efforts to build the brand of your firm and win more clients, thus increasing revenue.
WHAT A LAWYER SHOULD KNOW ABOUT MARKETING
A lawyer doesn’t have to be a sales expert, naturally outgoing, or excessively charming. Instead, growing a law firm starts with a strong marketing plan that uses successful strategies targeted at the right audience and performed consistently. While you may not see results overnight, given time, new clients will be calling up your office. The more transparent your marketing efforts, the clearer it is about the type of cases and clients you want.
Some of the mistakes made in legal marketing include:
- Marketing for general practice
- Not sure of your target clients
- Not paying attention to marketing analytics and results
- Not conveying a clear marketing message
- Poor website design and social media presence
- Trying to do everything at once
- Ignoring the world of mobile technology
Some tips for legal marketing:
- Know your target clients
- Being active on social media is a must!
- Attend bar association events.
- Create a blog for your website and add new content on a regular basis
- Give away free resources in your community to connect with individuals and professionals you may not be able to meet otherwise.
Running a law firm is running a business. Your clients are your customers, and you need customers to remain in business. A lawyer can’t exist without clients and clients can’t find you if they don’t know you are in practice.
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