CASE STUDY
Your firm, Assesslaw & Co LLP, has been instructed by an existing client, Aidan Koban
and his wife Niko, two interior designers who own and run Aiko Linens (“AL”). AL was
set up by Aidan and Niko in 2013. AL is one of the few UK firms that manufacture and
supply custom made monogrammed bedding for yachts and aircraft using luxury
fabrics. It supplies several international and UK yacht and jet chartering companies.
AL has never been incorporated.
Although AL is a small firm, it is a profitable business. It operates from a leasehold
industrial unit, with state-of-the-art air jet looms, near Colchester in Essex and employs
8 people, including administrative staff. Much of its business comes from long term
contracts with a number of charterers, including one with a major international yacht
charterer, Dream Catcher Yachts plc (“DCY”), which operates a fleet of over 1,000
yachts. AL is the exclusive supplier of its bedding and this contract accounts for almost
27% of its sales.
AL’s accounts for the year ending 31 October 2018 show a profit of £975,000 from
sales of £4 million. Given the recent success, and on the advice of its accountants,
Aidan and Niko project profits of £1.2 million for the year ending 31 October 2019 and
£1.35 million for the year ending 31 October 2020.
The business has now reached the stage where additional finance is required for its
expansion. Aidan and Niko feel that this is a good time to realise their investment by
selling up. They want to pursue other projects in which they have an interest.
For the last few months, Aidan and Niko have been in negotiations with Carolina
Pomona and Merlin Goodrich, who are the shareholders and directors of Pomona
(Bedding) Ltd (“PB”). PB is a national retailer which imports and sells luxury cotton and
linen bedding. PB has been looking to expand the scope of its business and sees AL
as offering considerable opportunities at the top end of the market. PB has agreed to
purchase the assets of AL.
Following extensive due diligence, PB has now agreed to pay £3.6 million for the
assets of the business, including the leasehold premises, goodwill and stock. The draft
Sale and Purchase Agreement (SPA) and Disclosure Letter have been agreed and
prepared. Exchange and completion will take place simultaneously.
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Please read the attached memorandum (Document A) from your supervising
solicitor and the attached documents referred to in it and then answer the
questions below.
QUESTION 1
Draft an e-mail addressed to Niko Koban as instructed by your supervisor in
paragraph three of his memorandum.
QUESTION 2
Draft a memorandum as instructed by your supervisor in paragraph four of his
memorandum.
QUESTION 3
Draft a letter of advice as instructed by your supervisor in paragraph five of his
memorandum.
[The address of your firm is 41, Storey Way, Colchester, Essex CO1 5HD]
NOTES TO CANDIDATES:
Your name must NOT appear anywhere on your answer. Please ensure that any
correspondence is sent from you as “Trainee” and not in your own name.
The total word count for this assessment should NOT exceed 2000 words. Any
words over this total will not be marked.
(100 marks)
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DOCUMENT A
MEMORANDUM
To: [Trainee]
From: Rafael Ferrante
Client: Aiko Linens
Matter: Sale to Pomona (Bedding) Ltd
Ref: AL/RF/256
Date: [assume today’s date]
I have received two e-mails from the partners of Aiko Linens (“AL”) in relation to the
sale of the business to Pomona (Bedding) Ltd (“PB”). The first is from Niko Koban
asking about the position of the employees following the sale (see Document B). The
second is from her husband, Aidan (see Document C) asking for advice about a
dispute with one of their customers, Dream Catcher Yachts plc (“DCY”) over a
consignment of bedding supplied recently.
I would like you to do three things:
First, can you draft a short e-mail in reply to Niko’s e-mail, setting out what obligations,
if any, PB will incur in relation to the employees working at AL on completion of the
sale.
I would then like you to look at the Supply Agreement which you will find on the file
management system (see Document D). Please could you prepare a memorandum
on which I can base a reply to Aidan, advising on whether the clients’ standard terms
and conditions of sale would prevent DCY from rejecting the goods. I would like you to
refer me to relevant authorities. Please also include any practical advice that you
consider relevant in the circumstances. The memorandum need not cover any issues
with the warranties. I will be asking you to draft a separate letter on this (see below).
Finally, please could you look at the warranties in the final draft Sale and Purchase
Agreement (see Document E). During negotiations, PB asked for a fairly standard “no-
litigation” warranty, which we agreed. In the light of Aidan’s e-mail, I need to advise
Aidan and Niko of the effect which this dispute with DCY will have on this warranty.
Please could you prepare a draft letter of advice to be sent to Aidan and Niko (in my
name) explaining why PB would have asked for this warranty to be included, the
consequences of including this warranty in the light of Aidan’s e-mail and how the
Aidan and Niko could protect themselves from these consequences.
The address for the letter is:
Unit 3, Wivenhoe Industrial Estate
Colchester
Essex
CO6 1DG
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Please could you load your drafts on to the file management system as soon as
possible.
Thanks
Rafael
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DOCUMENT B
E-MAIL
From:
rafael.ferrante@assesslaw.com
niko@aiko.co.uk
Sale to Pomona (Bedding) Ltd – our employees
Dear Rafael
With the sale of our business imminent, I have been thinking more and more about our
employees. Three out of the eight employees have been with us since the business
was set up five years ago and all of them have been fantastically loyal to us.
I know that they all want to continue to work for the business, especially as I believe
that Pomona intend to run the business as a going concern and will continue to use
the Aiko Linens name (one of the assets which they are buying.) I know when we came
to see you, you told us that the employees could continue to work for the business, but
I didn’t really think very much about that at the time. There seemed to be so many
other things to think about.
I now want to be absolutely sure that all the employees will be secure in their jobs once
we have left, so I wondered if you could send me an e-mail briefly explaining exactly
what the position will be. Aidan thinks I’m fussing, but I just want my mind put at rest.
Kind regards
Niko Koban
Niko Koban
Aiko Linens
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DOCUMENT C
E-MAIL
From:
rafael.ferrante@assesslaw.com
aidan@aiko.co.uk
Dream Catcher Yachts plc – supply contract
Dear Rafael
We have a bit of a problem with a consignment of cotton sheets and monogrammed
duvet sets which we supplied to Dream Catcher Yachts in the last couple of weeks.
With the completion of the sale to Pomona Bedding coming up, this couldn’t have come
at a worse time.
To give you the background, a month or so ago Cheddi Jago, the procurement
manager of Dream Catcher Yachts, telephoned and told me that the company wanted
to replace all its bedding for its Caribbean fleet. This was a massive order for us – they
have 336 yachts in the Caribbean of varying sizes and, to meet laundering
requirements, need three sets of sheets for each bed. He explained that in view of the
heat, he needed ultra-light weight, high quality cotton. I explained that the lightest
weight cotton we supplied was percale cotton with a thread count of 200, and I would
see what we could do. (Just to fill you in, the thread count is the measure of how many
horizontal and vertical threads are in one square inch of fabric. So 100 length-wise
threads woven with 100 width-wise threads would produce a thread count of 200.
Thread count is not a measure of quality. It is just an indication of the way that the
fabric is woven.)
Two days later, Cheddi e-mailed through a signed form with all the measurements for
1,800 tailor made sheets and duvet sets. The order form, as you know, has our terms
and conditions printed on the back. [Note to candidates: these are the terms and
The consignment was delivered on 3 December together with our invoice totalling
£161,280. This is due for payment on 17 December.
On 13 December, Cheddi rang to say that, as the cotton appeared heavier in weight
than he expected, he had had the bedding tested before shipping it to the Caribbean
and discovered that the thread count was, in fact, 300 not 200. Clearly, there had been
a mix-up at our end when the order was sent to the weavers. Frankly, however, I don’t
think that a difference in thread count of 100 threads will make the slightest difference.
We usually tell our customers that a thread count of somewhere between 200 and 500
is the ideal for a light weight cotton.
The sheets are all custom made to size and the duvet covers and pillow cases are all
monogrammed. Dream Catcher Yachts is refusing to pay us and wants to return the
bedding. This is going to have a significant impact on our cash flow. Even if Dream
Catcher Yachts can’t use them in the Caribbean, which I still think is unlikely, they can
use them for some of their other yachts in other parts of the world that are not as hot.
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