Archive for December, 2009

When Should You Sell Your Business?

Thursday, December 31st, 2009

I read an interesting article submitted to a LinkedIn group of which I am a member.  The author has suggested that entrepreneurs should think about selling their businesses sooner rather than later.  Of course, for tax reasons, it might have been better for him to suggest this topic a few months ago while people could take advantage in 2009 but so be it.  In any event, some of the reasons given were:

  • Many of the baby boomers will be looking at selling their businesses in the next few years as they reach retirement age and there will be a glut of businesses up for sale on the market; and
  • There is a whole whack of money sitting on the sidelines right now not being used in the investment market and its ripe for going after before either it is used in the markets again or for investing in the businesses when they are sold by the baby boomers.

I’m not sure that I completely buy the first suggestion.  I’ve read a whole bunch of articles that actually suggest the opposite – namely, that as the baby boomers reach retirement they will quit their desk jobs, take their pensions and go off to run small or micro-businesses to give them something to do all day.  As for the availability of money, I suppose that could be true, but then you read in the papers these days that there isn’t really all that much cash that’s available for small businesses and, so, I don’t think things will be all that different in a couple of years.

So when should you sell your business?  When you can get the most money for it.  Now, you’re probably sitting back going “That’s great, genius, thanks a lot for telling me something I already knew!”  Fair comment – but that’s why I’m the lawyer and not the business consultant.  However, if and when you ever do decide to sell your existing business or buy into a new business, that’s when I can help with the “red tape” involved in the sale or purchase.  As for the timing, speak with the consultant.

Happy New Year!

CALC

Peace on Earth, Good Will Towards Men?

Saturday, December 12th, 2009

Bah Humbug! appears to be the more appropriate response this year.  I haven’t had a rant for a while, so here goes.

In previous years, December was the time when litigators prepared for a long winter’s nap (of at least a few weeks) while corporate lawyers went crazy.  The problem for corporate lawyers was that their clients usually wanted to finalize deals or corporate reorganizations or whatever before the December 31 year end.  So I would watch my colleagues on Bay Street who practice only corporate or commercial law enjoy their summers playing golf with clients and being somewhat slow in terms of productivity only to watch them pay for it dearly when November and December came around and they were in the office 24/7.  As for the litigators or those with a more varied practice, we just kept plugging along at roughly the same pace throughout the entire year.

This year, however, appears to be the exception to the norm.  In the last three days, for example, I have opened five new files and have rushed around like a chicken with my head cut off on a potential injunction matter related to an existing bankruptcy of a major retail chain (I act for one of the suppliers that is trying to avoid being forced to ship merchandise that may well never be paid for).   I will also get to spend part of this weekend drafting three new Statements of Claim for clients who have decided that it’s finally not worth it to negotiate any further with the other side.

I have never seen a busier December – it’s only the 12th! – and people are in a suing mood.  Is it a lack of Christmas spirit?  Is it because there are less Christians per capita than previously or that more of those who say they are Christians have lost the faith so this time of the year doesn’t mean as much as it used to?  Is it that the economy has rebounded enough and quickly enough that people are willing to pay the money to sue?  Is it that more lawyers are taking matters on contingency or on speculation rather than charging hourly rates?  Is it that the economy hasn’t rebounded enough causing people to fight over whatever scraps remain?  Has there been too much cloud in the sky lately causing an early arrival of “seasonal-affective disorder”?  Is it because the Leafs, Raptors, Jays and Argos all have had crappy seasons this year so there are no happy sporting distractions?  Or is it all just one big coincidence?  I expect it’s some of the above and probably other matters that haven’t been mentioned.

Oddly enough, it’s not just me who is busy.  A talk with my friends at other law firms reveals that they’re all going crazy this year too.  But whatever the cause of this increase in litigation, my recommendation is to keep your head down and watch your manners with customers, suppliers and others and hope that you don’t get caught in the wave.

And, so, despite the “Bah Humbug” attitude that seems to be prevailing right now, I’ll take this opportunity (admittedly a little early) to wish you all a Merry Christmas and a Happy New Year!

CALC

Inducing Breach of Contract

Saturday, December 12th, 2009

There has been a lot of buzz in the Toronto media for the past few days over an offer by Ashley Madison to advertise on Toronto Transit Commission buses or streetcars.  For those who don’t know, Ashley Madison is, for lack of a better expression, a dating service for people who are married who want to cheat on their spouses.  I have to admit that I am not a member of Ashley Madison so I do not know exactly how they work.  However, as a natural-born nightowl, I see their commercials often on late night TV and have always wondered if they are open to a lawsuit.  The claim would be for  inducing breach of contract and the claim would be made by one or both of the spouses who were cheated on.

Now, if nothing else, it would appear that Ashley Madison has a niche market and most small businesses would not have to worry about claims from innocent spouses, but it provides a good excuse for me to explain the law of inducing breach of contract.  As described in a court case earlier this year, to successfully claim for someone inducing breach of a contract the plaintiff must establish:

  •  
    The plaintiff had a contract with a third party;
  •  
    The defendant was aware of the existence of this contract;
  •  
    The defendant’s conduct was intended to cause the third party to breach the contract;
  •  
    The defendant’s conduct caused the third party to breach the contract;
  •  
    The plaintiff suffered damage as a result of the breach.
  • An example of where this might occur would be where Company A has a long-running supply arrangement with Company B.  Company C comes along, knows of this arrangement, and purposely tries to “undercut” Company A in an attempt to steal away the business of Company B.  As you can see from the requirements, in this example Company C has to not only know of the contract, but it must go to Company B with the intent of causing (and, in fact, causes) Company B to breach its contract with Company A.  Not the easiest thing in the world to prove.  However, in today’s economic climate where more companies are fighting to get smaller shares of existing work, claims for inducing breach of contract may become more common.

    So, if you are considering going after new business with a potential customer who has been involved in a long-term supply or other relationship with a competitor, you may want to be more cautious about your sales pitch.  Similarly, if you find that your customer with whom you have long-term contract suddenly decides to go with someone else, you may have a claim not only against the customer for breach of contract, but also against your “replacement” for causing the customer to breach the contract.

    Something to think about.  … And if there are any disgruntled spouses with lots of money to spend on litigation who want to take on Ashley Madison (which seems to have lots of money to fight the lawsuit based on what they were offering to the TTC to advertise on the buses), then give me a call as that would be a very interesting case to take – assuming you could prove that your spouse wouldn’t have left you if it hadn’t been for Ashley Madison’s “assistance” (and good luck proving that).

    CALC

    How Much Are You Suing For?

    Wednesday, December 9th, 2009

    While it is not “new” news since it has been pending for quite some time now, changes will be implemented to the Ontario courts effective January 1, 2010 that you should know about.

    Many of the changes are purely procedural in nature and cover matters such as how long examinations for discovery should last and new considerations by judges on summary judgment motions.  It’s of interest to me but far less thrilling for a small business owner.  That said, there are changes to the monetary jurisdictions that will be of interest.

    Perhaps the most important change is the increase to the monetary jurisdiction of the Small Claims Court.  On January 1 it will go from its current $10,000 to $25,000.  In the past, if you were owed, say, $15,000 and wanted to sue to collect payment you had the choice of either suing in the Superior Court under its “simplified procedure” regime or else waiving the $5,000 and suing only for $10,000 in Small Claims Court.  On Jan 1 there will be no choice as you will be heading for Small Claims Court so long as the claim is $25,000 or less.  So, you will now have to make decisions like this for claims of, say, $30,000.

    And I will take this opportunity to provide you with a link to the court’s page that provides a whole whack of information on going to Small Claims Court and what to do, when and how.  Even if you decide that you want to have a lawyer (and in Small Claims Court you do not have to have one), it is always best to take a look and get the background information so that you spend less time talking with your lawyer about the basics.

    At the present time, lawsuits between $10,001 and $50,000 go to the Superior Court of Justice but are governed by its “simplified procedure”.  As its name implies, this is a regular lawsuit but with less of the normal steps.  Most importantly, up to December 31, 2009, there are no examinations for discovery permitted in simplified procedure cases.  This has had its benefits and problems and the result is that a compromise has been reached in which limited (we’re talking only a few hours) examinations for discovery will now be allowed.  The biggest change, though, is that simplified procedure will govern cases from $25,001 to $100,000 as of January 1.

    And then, finally, the full-blown “regular” procedure will now only apply for claims over $100,000.

    These changes will be beneficial for small businesses.  Generally, if you have a claim for more than $100,000, we’re probably looking at a problem that has significantly affected the business (and could even threaten its existence).  Fortunately, these types of disputes do not occur frequently.  More commonly are claims under $100,000 and small businesses will benefit from the more streamlined rules found in both Small Claims Court and under the simplified procedure.  As I’ve said before, litigation is often neither cheap nor quick and anything which can reduce costs and time delays is to be welcomed.

    CALC

    Litigation – Look Before You Leap

    Thursday, December 3rd, 2009

    I have a friend, who is also a lawyer, who was about to go into a four week trial that settled at the last moment.  It shouldn’t have been a four week trial.  It probably shouldn’t have even been a four day trial.  What happened was a professional firm got stiffed on its fees.  So it sued for the fees and the defendant did what all financially pressed companies do – it acted like a caged animal and it struck back with a multi-million dollar counterclaim for negligence.  This forced the professional firm’s insurers to get involved and a two day trial gets dragged on into a four week trial.  Ultimately, a small amount was paid to the defendant to avoid the cost of a four week trial but my friend’s client ends up with (a) no payment on the fees that they were stiffed on in the first place; and (b) the joy of having paid legal fees for the past few years.

    To give another example, I have a client who was owed money for equipment that was sold but never paid for by the defendant.  The defendant says “we can’t afford to pay in full, so we’ll agree to a settlement for $X per month and as security for payment, this individual will give a guarantee.”  Big surprise, the company doesn’t pay.  So a demand is sent to the individual on his guarantee.  He doesn’t pay.  So the client goes back to the lawsuit and seeks its money.  The individual, again like a wounded animal, lashes out and starts claiming that the settlement was induced by fraud.  Total b.s. but if nothing else it will delay things as my client defends against these allegations.

    Another example, a client tried to obtain payment from a customer (who was also somewhat related to the client) and the customer turns around and tries to petition the client into bankruptcy.  The client then proceeds to fight the bankruptcy application and ultimately wins and now has to go against the customer for not only payment but for improperly using the court process.

    And the examples can go on and on.  So, let’s have fun mixing metaphors to show they can apply to litigation:

    - The best defence is a good offence:  you should be prepared that the other side will try to bring up a counterclaim to distract the court’s attention from the real issue (for which they have no defence);

    - Don’t bring a knife to a gun fight: if you think the other side is going to try and bring a counterclaim, see what you can do to stop it before you even sue.  If you think they’re going to complain about the quality of your goods / services, then it would be best to get even an e-mail from them confirming that they have no complaints about that but what they really want is extra time.  That way you have something from them that rebuts whatever excuse they later advance in their defence;

    - If you can’t take the heat, stay out of the kitchen: in some respects, this is similar to “don’t take a knife to a gun fight” in that before you start litigation you should be prepared for the other side to hit back hard and to not necessarily act rationally.  To use one of the examples above, you should be prepared for a fight that is really over tens of thousands of dollars to face a counterclaim for millions.  If you can’t take the pressure of such a claim then you should probably try to avoid starting the lawsuit in the first place.  And realize that “heat” can come in many forms: costs in terms of money paid for legal bills, costs in terms of time (for example, while you’re busy dealing with the lawsuit, you’re not out there making money, selling products, selling services, etc.), and costs in terms of stress (either to yourself or to those around you either at work or at home).

    The last statistic I heard was that over 95% of all lawsuits settle.  Why?  For many reasons.  But at least some of them are due to one side or the other making the decision that it is just not worth it to fight any further.  Fair enough.  But it’s better to ponder these issues before you sue rather than having to consider them after you have already started the litigation and your options may be more limited.

    Something to think about.

    CALC