Category: corporate finance

Company Liquidation – Pros and Cons

Posted on by admin in Capital, corporate finance, Corporate Governance, corruption, Development, insolvency, investment advisory, Personal Finance, Police and Security

On one hand, company liquidation definitely comes with some advantages, especially when it comes to your current situation.

Leases are cancelled

Terms on lease and hire purchase agreements are generally terminated at the date of liquidation, meaning that no further payments need to be made. If any arrears are owed, the company leasing the goods may be able to claim from the insolvency practitioners along with other creditors. It is worth noting here that personal guarantees are often given upon signing a property lease agreement; you should check your documentation carefully so you know whether you are likely to be made personally responsible for the remainder of the lease. 

Avoid court processes

By voluntarily choosing to liquidate the company, you can avoid being petitioned through the courts and be able to demonstrate to the public that liquidation was a company choice rather than a result of hostile creditor action.

Staff can claim redundancy pay

Members of staff will be made redundant by the liquidator, and if eligible, they can start their claim for redundancy pay and other statutory entitlements. If monies realized from the sale of company assets are not sufficient to cover redundancy payments, staff have an alternative route by which to claim what is owed. The National Insurance Trust Fund(NSITF) pays out for redundancy, unpaid wages and holiday pay should the company not be able to do so using its own funds.

Legal action is halted

Any legal action against the company is stopped when the company is in liquidation. Again, as long as you have no personal liability for a company debt, creditors will be unable to take action against you.

Having identified some of the advantages of this type of liquidation, let us now look at the main disadvantages of the process.

Personal liability for debts

Becoming personally liable for company debts can happen if a director has made a personal guarantee against debts of the business. A creditor can enforce the debt if they are unable to reach an agreement for repayment.

If it comes to light that the company has been liquidated quickly, with the sole purpose of avoiding debt repayment, directors may be held personally liable for company debts due to their improper actions.

All assets will be sold

All existing assets will be sold off in order to provide a dividend to creditors where possible, and for the insolvency practitioner to collect their fee.

Staff will be made redundant

As liquidation bring about the end of a company, any staff employed by the business will be made redundant and be forced to look for employment elsewhere. However, depending on their length of service with the business, they may be able to claim statutory redundancy pay following their dismissal.

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A History of Insolvency Law

Posted on by admin in Capital, corporate finance, Development, insolvency, International Investment, investment advisory, mergers and acquisitions, Uncategorized

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Early insolvency law was dominated by punitive approaches and it was not until the early eighteenth century that notions of rehabilitation gained force. Insolvency was seen as an offence little less criminal than a felony and was punishable by detention in person at the creditor’s pleasure in debtors prisons. The prevalent view was that it was not justifiable for any person other than a trader to ‘encumber himself with debts of any considerable value’

Prior to this revolution, common law offered no collective procedure for administering an insolvent’s estate. A creditor could seize either the body of a debtor or his effects – but not both. Creditors, moreover, had to act individually, there being no machinery for sharing expenses.

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The idea that creditors might act collectively was recognised in 1542 with the enactment of the first English Bankruptcy Act which dealt with absconding debtors and empowered any aggrieved party to seize the debtor’s property, sell it and distribute the proceeds among other creditors ‘according to the quantity of their debts.

During the 19th century, attitudes towards trade credit and risk of default changed. This was due to the rise of joint stock companies and the resulting de-personalisation of business and credit.

The key statute was the Joint Stock Companies Act 1844 which established the company as a distinct legal entity, although it retained unlimited liability for the shareholders. the modern limited liability company emerged in 1855, to be followed seven years later by the first modern company law statute containing detailed winding-up provisions.

The House of Lords in Salomon’s case confirmed that a duly formed company was a separate legal person from its members and that consequently even a one-man company’s debts were self contained and distinct. However, every insolvent business went into liquidation or receivership automatically. It was the kiss of death for them and the creator of unemployment.

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An insolvency system was later created to administer the range of new procedures be introduced as alternatives to outright bankruptcy or winding up, which would deal with individual cases on their merits. These involved recommendations that private insolvency practitioners should be professionally regulated to ensure adequate standards of competence and integrity; that creditors be given a greater voice in the choice of the liquidator; and that new penalties and constraints be placed on errant directors. This represented a movement towards stricter control of errant directors but also in favour of an increasing emphasis on rehabilitation of the company.

The rationale behind the culture of business rescues was expressed by Sir Kenneth Cork as follows: “When a business becomes insolvent it provides an occasion for a change of ownership from incompetent hands to people who not only have the wherewithal but also hopefully the competence, the imagination and the energy to save the business”.

The current attitude towards insolvency is to carry out much more work on corporate problems before any insolvency procedure is entered into. This places a new emphasis on managing insolvency risks proactively rather than after troubles have become crises.

In this series, we will explore the life cycle of insolvency from financial distress and default, to corporate failure and business rescue. We will also investigate different approaches to managing insolvency, along with their strengths and weaknesses.

Investing in Renovating and Selling homes

Posted on by admin in Capital, corporate finance, Development, estate planning, International Investment, investment advisory, Personal Finance, real estate, Small Businesses, strategy, succession, transaction advisory, Uncategorized, upscale, wealth

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Balogun is  a banker approaching his 55th birthday. After a 30 year career as a banker, and seeing several people make their fortunes in real estate, he has decided to become a real estate investor.

His plan is to invest in underpriced property, with the objective of renovating the buildings and selling the individual units at a higher value than the amount at which he purchased the property.  Balogun is interested in understanding the risks and opportunities of this business and he comes to us for advice.

Some things to note:

  • Using this strategy, you purchase a building that needs fixing up for N2,750,000 and then you invest N500,000 in improvements (paint, landscaping, appliances, decorator items, and so on) and you also invest the amount of sweat equity that suits your skills and wallet. You now have one of the nicer homes in the neighborhood, and 2 years later you can sell this home for a net price of N4,000,000 after your transaction costs.

 

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  • Be sure to buy a home in need of that special TLC in a great neighborhood. With most properties, the long-term appreciation is what drives your returns. Consider keeping homes you buy and improve as long-term investment properties.

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    After
  • This strategy is clearly not for everyone interested in making money from real estate investments. It is not advisable if you’re unwilling or reluctant to live through redecorating, minor remodeling, or major construction;

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  • You may not be experienced or comfortable enough with identifying undervalued property and improving it; so always make sure you get a professional opinion on each property .

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  • You should either have the budget to hire a professional contractor to do the work, or you should have the free time or the home improvement skills needed to enhance the value of a home.
  • You also need a financial cushion to withstand a significant downturn in your local real estate market, as this investment can be very cost intensive.
  • Mange your risks as much as possible!!! Make sure you do deep due diligence on the property in order to ensure that you have good title to transfer to a third party, especially since it may not make financial sense to perfect your title if you are not going to hold the property for a long period.

 

 

How can you transfer your music copyrights?

Posted on by admin in corporate finance, entertainment, entrepreneurship, International Investment, investment advisory, Personal Finance, real estate, rule of law, Uncategorized

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Wale is a music producer. Recently he composed music for a hit track which enjoyed substantial airplay for over 6 months. Consequent upon the success of his track, he was approached by an international music corporation, who requested him to transfer his copyright in the music to the company in return for a one off payment of $200,000 and royalties capped at 5% of  global sales for the next 2 years. They assured him that he would enjoy more concert appearances with the allied revenue streams. Wale is confused and requires advice on his legal rights.

Of all the forms of copyright protected works, music is perhaps the most restricted and licensed. Since music was first broadcast on radio, a vast mechanism for licensing music has emerged from the opposing forces of the recording industry and the radio and TV broadcasting industries.

Copyright ownership can be transferred like any other form of property. Copyright is transmissible by assignment, by testamentary disposition, operation of law, as personal or moveable property. however, to give legal effect to that transmission there must be a written agreement signed by the assignor. Any grant by the copyright owner binds every successor in title except a bona-fide purchaser for value without notice (actual or constructive).

This doesn’t however mean that a copyright cannot be transferred verbally, as it is trite law that a verbal agreement to which both parties have agreed all the terms (i.e. has reached completion) is legally binding. It follows then that a verbal agreement to assign, provided there is no dispute as to the terms of the assignment between the assignor and assignee, is valid and copyright is transmissible by operation of basic contract. It is however advisable that the parties sign a confirmatory assignment agreement which refers retrospectively to the earlier assignment.

The transfer could be partial or total, where the rights owner can transfer all of the exclusive rights his or her grants. In partial assignment, a music author may transfer his reproduction, translation and adaptation rights to a publisher. He may also decide to split his rights between different persons.

Copyright assignment agreements can be limited in terms of duration or territory. The author of a literary work could, for example, assign their right to reproduce it in the UK, Nigeria, Ghana and the Gambia for 4 years.

Copyright assignment agreements can be reversionary, in other words, the rights can revert back to the assignor on the occurrence of an uncertain event, such as an unremedied breach of contract. This protects the assignor from the loss of their rights in the event of the occurrence of certain events which may be vitiate the transfer contract.

The transfer of copyrights contains some knotty issues, which could become highly problematic if not properly managed. When faced with a decision on copyrights, it is best that you seek advice from a qualified legal practitioner, so as to ensure that you take the best steps in the circumstances.

Milton & Cross Solicitors provides advice to entertainers, rights owners, rights administrators and merchandisers. We help them make informed decisions that facilitate high value transactions. Contact us for a free consultation.

Investing in Lagos Real Estate Companies: The Pros and Cons

Posted on by admin in Capital, corporate finance, Development, entrepreneurship, estate planning, International Investment, investment advisory, mergers and acquisitions, Personal Finance, real estate, Small Businesses, strategy, transaction advisory, Uncategorized

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Okeke trades in furniture and fittings at a major market in Onitsha. In addition to his business, he owns a substantial number of houses within Onitsha and environs.  One day whilst attending an exhibition in Lagos, he was approached by a young marketer for a real estate company; the marketer had been tasked to sell some real estate located around the Lekki Free Zone and Okeke looked like the perfect buyer.

The marketer launched into a seductive pitch about the prospects of the area and the opportunity for amassing immense profits, especially due to the development of a refinery in the area by a major investor and industrialist. As a businessman with an eye for profit, Okeke was intrigued by the opportunity to multiply his capital, but he requested for time to seek advice from his lawyers before investing the substantial amount required, especially having heard horrible stories of the dreadful omonile and their penchant for violence in land matters.

There has been a boom in investment in vacant real estate over the past decade; however this boom seems to be driven by certain misconceptions which have been fed by advertising campaigns and the mass media. This misconception is that land values appreciate at a rate which exceeds rates of return on alternative investments such as treasury bills, stock or other asset classes. These misconceptions have led to the growth of a speculative bubble which seems to have driven the costs of real estate beyond reasonable levels.

In general, by investing in developing the land you may destroy an option and at the same time you may create other options. Vacant land represents an option of retaining it in its vacant form and expecting an increase in value of the land, or turning the vacant land into a development, thereby increasing its intrinsic potential for value creation through the injection of capital. The computation of the value of land requires the calculation of current and future construction costs, as well as current and future market prices of real estate in the area where the land is located.

Prior to purchasing land, it is pertinent to have an idea of the use to which the land is to be put, including the proposed structures which are to be constructed upon the land and the market prices or rental values such structures would fetch in the future based on the surrounding properties in the area. In calculating the values of the property, provision should be made for the probability that the property may fall in value in the future.

It would be wise for Okeke to first conduct a search on  the title of the sellers, especially since a number of real estate marketing companies do not perfect their title before commencing the sale of the properties, a situation worsened . This will protect him from any nasty surprise which may arise from defects in the title of the seller. These companies sometimes acquire their holdings by sponsoring the perimeter survey or excision (popularly known as gazette) of property belonging to a community. This implies that several of these properties have defective title from the beginning and should not be purchased if possible.

After ascertaining that the sellers hold good title to the property, Okeke should ask for all the charges and costs arising from the purchase of the property. This is because a number of real estate companies add certain fees and levies to the cost of the estate, ostensibly for the development of the estate, although several fail to use the funds for any such purposes. Their  refusal to develop the estate often slows the  pace of development within the estate, as well as the rate of appreciation for properties within the estate

 

We hope these tips will prove useful to you as you begin to navigate the world of real estate investment. For further information and consultancy, we may be contacted directly on +2348036258312, or by email on : info@miltoncrosslexng.com.

More Real Estate Investment Strategies that will Make you Rich 2

Posted on by admin in corporate finance, Development, estate planning, International Investment, Personal Finance, real estate, Small Businesses, transaction advisory, Uncategorized

Flipping Real Estate

Flipping

Outside Nigeria, flipping houses is one of the more popular tactics for making money in real estate, due largely to the numerous shows on cable TV that promote it.  House flipping is the practice of buying a piece of real estate at a discounted price, improving it in some way, and then selling it for a financial gain. In reality, the flipping model is quite similar to the “buy low, sell high” model of most retail businesses.

The most popular type of property to flip is the single family home. Following a rule of thumb known as the 70% rule, an experienced house flipper will buy a home for 70% of its current value less any rehab costs. For example: Home A should be worth N1,000,000 if it were in good condition, but it needs N200,000 worth of work. A typical house flipper will purchase the home for N500,000 (N1,000,000 x 70% – N200,000) and seek to sell it for the full N1,000,000 when completed. This is simply a rule of thumb, and actual numbers must be verified by a qualified construction expert and adjusted to ensure a successful and profitable flip.

Flipping is not a “passive” activity, but instead is just like an active day job. When an investor stops flipping, they stop making money until they begin flipping again. Many investors choose to use flipping to fund their day-to-day bills, as well as provide financial support for other, more passive investments.

More Real Estate Strategies that will make you Rich

Posted on by admin in Capital, corporate finance, Development, estate planning, International Investment, investment advisory, mergers and acquisitions, Personal Finance, real estate, Small Businesses, transaction advisory, Uncategorized, wills

Continued from Yesterday’s post….

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Now that we know the various types of real estate investments an investor can undertake, it is time to look at the different strategies an investor can use to unlock value from his real estate investment. While you can use any of the investment vehicles discussed yesterday in your career, you must next learn an investment strategy that you can apply to that niche. As an investor you will use a variety of strategies when dealing with these investment niches to produce wealth.

This article series explores three of the most common strategies that you can use to make money in real estate.

Buy and Hold

Perhaps the most common form of investing, the “buy and hold strategy” involves purchasing a property and renting it out for an extended period of time. It is probably the most simple and purest form of real estate investing that there is. Essentially, a “buy and hold investor” seeks to create wealth by renting the property out and either collecting monthly cash flow or simply holding the property until it can be sold for a gain in the future. the advantage is that the investor may receive cash flow from renting out the property.

By far the most common mistake that we see new investors make with this strategy is buying bad deals because they simply don’t understand property evaluation. Other common problems include underestimating expenses,making bad decisions on tenant selection, and failing to manage properly.

These mistakes can all be avoided, however, if you simply learn the business; jumping in without proper education can be extremely costly financially and sometimes, legally.To properly carry out the buy and hold strategy, an investor should learn how to properly identify the ebbs and flows of the market that a property is located in. Ultimately, when they perceive the market and the properties they are interested in to be at a low point (prices low, inventory high), the buy and hold investor seeks to purchase properties. When the market becomes over-heated, an experienced buy and hold investor will usually stop buying until they see things settle back down. During these slow periods, they may sell or simply continue to hold their properties.

Real Estate Cycle

Real Estate Investment Strategies that will make you Rich

Posted on by admin in Capital, corporate finance, Development, estate planning, International Investment, investment advisory, Personal Finance, real estate, Uncategorized

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It is generally accepted that real estate is a key element of wealth creation. As a factor of production, real estate generates passive income for its owner in the way of rents, royalties (for property that contains mineral resources) and capital gains from sales of the property to another purchaser at a higher price.

In a way, learning how to invest in real estate is like selecting a piece of chocolate from a box of chocolates. There are dozens (if not hundreds) of different ways to make money as a real estate investor, and it’s up to you to choose the niche you want to get into.Learning how to successfully invest in real estate is about choosing one niche and becoming a master of it.

This article is going to open up that box of chocolates for you to sample and let you see some of the most common niches you can get into when investing in real estate. Here are some strategies you can apply to build a real estate portfolio that will make you rich within a reasonable amount of time.

  1. Choose the type of real estate you prefer and understand the risks

The following list includes the most common property types that you are likely to deal with as a real estate investor.

  • Raw Land: Raw land is nothing more than basic earth. Land on its own can be improved to add value, and it can be leased or rented to create cash flow. Land can also be subdivided and sold for profit. Some investors choose to buy raw land with hopes (or plans) that someday the land will become much more valuable due to external developments like the construction of an expressway or from a development being built nearby.

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  • Detached/Semi Detached/Terrace  Houses: These buildings usually house single or multiple families (usually less than 5 in Nigeria). These homes are relatively easy to rent, easy to sell, and easy to finance. That said, in many areas, the rents derived from these homes  won’t be sufficient to provide positive cash flow to offset the cost of construction. In such situations, it is better to invest in multiple family homes which provide much better cash flow as economies of scale may arise.

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  • Small Apartments: These properties often provide significant cash flow for the investor who can deal with the more management-intense nature of the properties. However they are significantly harder to finance and manage than the single family units. The value of these properties are based on the income they bring in. This creates a huge opportunity for adding value by increasing rent, decreasing expenses, and managing effectively. These properties are a great place to utilize property managers who manage and perform maintenance in exchange for a management fee.

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  • Commercial Property: Commercial investments can vary dramatically in size, style, and purpose, but ultimately involve a property that is leased to a business. Some commercial investors rent buildings to small local businesses, while others rent large spaces to supermarkets or big box megastores. While commercial properties often provide good cash flow and consistent payments, they also may carry with them much longer holding periods during times of vacancies; commercial property can often sit empty for many months or years. Unless you are starting from a very solid financial position, investing in commercial real estate is not recommended for beginners.

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  • Real Estate Investment Trusts:  a REIT is to a real estate property as a mutual fund is to a stock. A large number of individuals pool their funds together, forming a REIT, and allow the REIT to purchase large real estate investments, such as shopping malls, large apartment complexes, skyscrapers, or bulk amounts of single family homes. The REIT then distributes profits to individual investors. This is one of the most hands-off approach to investing in Real Estate, but do not expect the returns found in hands-on investing. You can buy shares in a REIT via your stock account, and they often have a relatively high dividend payment.

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Legal Issues you Need to Know When Launching a Startup this year

Posted on by admin in Capital, corporate finance, International Investment, investment advisory, mergers and acquisitions, Small Businesses, transaction advisory, Uncategorized

Opeyemi was a successful engineer with an oil and gas servicing company; his job paid well and provided him with many perks and benefits. He lived in Lekki Phase 1, drove a nice car  and traveled round regularly to any country he wished.

In October 2016, Opeyemi came in to the office early and did his work as usual. Around 3pm, his boss called him into his office for a chat and informed him that due to cash flow issues affecting the company, the Board of Directors had decided to reduce the staff strength of the company. Consequently, Opeyemi was sacked with immediate effect.

Opeyemi is distraught and fearful of the future. He has heavy costs to bear and no way to provide for his lifestyle. After a conversation with his friends, he has decided to set up his own business in order to generate income.

Many Nigerians are Opeyemi’s shoes.

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After the recession with the attendant economic challenges and job losses that characterized 2016, it is understandable that individuals may want to start their own businesses in 2017. We have decided to give you some tips on forming a company, financing, and other things you may not have thought of but will definitely need to if you’re getting a business off the ground in 2017.

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  • ACTUALLY SET UP A COMPANY:

You won’t believe it, but some startup founders actually forget to actually form the company. They buy a domain name, set up a website, trademark the name and in some instances, actually raise substantial financing before they think of setting up a company. This course of action is risky because the founder may discover, too late, that the business name under which he had been operating already belonged to another company. Another obvious problem would be the inability of the startup to open a corporate bank account due to the unavailability of documentation.

  • EXECUTE A FOUNDERS AGREEMENT/PARTNERSHIP AGREEMENT

Many entrepreneurs commence businesses with partners on the basis of trust and do not sign any partnership agreement or founders agreement with their partners or co-founders. This situation often leads to very messy consequences especially when a partner desire to leave the business or where the creditors of a partner seek to recover any debts owed by the partner from the company. In such situations, the Partnership Act states that the profits and liabilities of the company will be divided equally among the properties, even though the claiming party may have provided a lower portion of the capital for the business.

  • SIGN CLEAR AGREEMENTS WITH SERVICE PROVIDERS

A common feature in technology startups is the contracting of technical work to independent contractors in return for a percentage ownership of the company or a percentage of the revenues from the business. It is really important to always promise a certain number of shares as opposed to a percentage because 5% before raising financing is a lot less than 5% after raising financing. If you don’t get around to actually doing the grant until post-financing, then all of the sudden you have given away a lot more of the company than you initially intended.

  • TRADEMARK, TRADEMARK, TRADEMARK

 When you’re thinking about what name you want to go to market with, always start with a trademark search so you can be sure that nobody else holds a trademark on the name within the class of goods or services. This will also help you avoid a potential problem down the road.

If someone comes to you and says you have to stop using their trademark, you’ll have to rename everything. Founders become very attached to their names, and they would like to fight it, and that might be a misuse of time and effort that could have been avoided at the beginning.

These issues and more should be deeply considered during the startup process, thereby reducing waste of time and energy and allowing you focus more on building a successful business than fending off threats to your business.

Milton and Cross Commercial Solicitors  provides legal advisory services to startup owners and investors. In addition, our affiliate company Upscale Business Resources provides business advisory services to Startup owners, allowing them to scale fast and well, and unlocking value from their operations. We may be contacted on 08036258312 or by sending an email to miltoncrosslexng@gmail.com

When scaling goes bad…

Posted on by admin in corporate finance, International Investment, investment advisory, Personal Finance, real estate, Small Businesses, Uncategorized

Most  businesses want to grow, and scale up their operations. This enables them to enjoy the cost savings that arise as a result of increased productivity.

“Economies of scale” is a simple concept that can be demonstrated through an example. Assume you are a small business owner and are considering printing a marketing brochure. The printer quotes a price of N5,000 for 500 brochures, and N10,000 for 2,500 copies. While 500 brochures will cost you N10 per brochure, 2,500 brochures will only cost you N4 per brochure. In this case, the printer is passing on part of the cost advantage of printing a larger number of brochures to you. This cost advantage arises because the printer has the same initial set-up cost regardless of whether the number of brochures printed is 500 or 2,500. Once these costs are covered, there is only a marginal extra cost for printing each additional brochure.

An organisation that increases the scale of its operations enjoys cost savings as a result of the following:

  • Division of Labor
  • Specialisation
  • Lower input costs arising from large volume purchases
  • Efficiency and Time Management

However, there is a finite upper limit to how large an organization can grow to achieve economies of scale. After reaching a certain size, it becomes increasingly expensive to manage a gigantic organization for a number of reasons, including its complexity, bureaucratic nature and operating inefficiencies. This undesirable phenomenon is referred to as “diseconomies of scale”.

They could stem from inefficient managerial or labor policies, over-hiring or deteriorating transportation networks. Furthermore, as a company’s scope increases, it may have to distribute its goods and services in progressively more dispersed areas. This can actually increase average costs resulting in diseconomies of scale.

Building a solid operation is all about the three P’s: Process, people and product.