Harper Macleod LLP was delighted to support Shetland business Laurence Odie Knitwear Ltd in the company’s recent move to employee ownership.
The move saw previous owner Laurence Odie sell 100% of his shareholding in the business, based in Hoswick on Shetland's south mainland, to an Employee Ownership Trust (EOT).
The company, which currently employs 14 people, exports 83% of its production with the Far East and North America among the main markets. There is growing demand for authentic Shetland knitwear and the company also supports a large casual workforce. Using traditional methods for the production of its iconic garments, Laurence Odie Knitwear's products have been endorsed by top designers, by the Royal Family, and figures including TV gardener Monty Don.
Chris Kerr, back right of photograph, with Laurence Odie and the team at the business now employee-owned
Chris Kerr, Corporate Partner with Harper Macleod LLP advised the company on the transition, said: "A sale to an Employee Ownership Trust can be an ideal option for business owners who are looking to set an exit strategy, realise some value in the business, but are not quite ready to leave the company behind. It’s particularly attractive to Highland and Island business owners, where there may be a strong tie to the local area and retaining ownership in the community is an important factor."
"Laurence Odie Knitwear is an excellent example of a local company, employing a significant number of people, where sustainability and employee interests were the key drivers in the sellers’ succession planning. The EOT route isn’t for everyone, and it’s key that the sellers’ aspirations are surfaced and alternatives explored. What is important is that business owners are making an informed choice when it comes to their exit strategy. Harper Macleod LLP are well placed to advise on the available options, supporting clients in making the right decision for them, and for the future of their business."
Laurence Odie said: “Chris Kerr, supported by Craig McKerracher, ensured that the process went as smoothly as possible. They guided us through the transaction and explained it all so well that we knew what we were agreeing to. We particularly appreciated that they took care to listen to what we wanted, incorporating specific requests into the deal. I would recommend any business owner considering their succession plans to speak to the team at Harper Macleod.”
Employee Ownership Trusts were introduced in 2014 as a means for business owners to transfer their ownership over to employees. Evidence demonstrates that businesses owned by their employees tend to outperform conventionally structured businesses. Importantly, for businesses that are key elements of the community, an employee-owned business is more likely to remain in its local area.
The EOT brings certain tax advantages, including the transaction being completed free of Capital Gains Tax for the seller, and the company being able to pay a bonus to employees of which £3600 can be tax free each year.
Chris Kerr added: "It’s a relatively straightforward transaction. The EOT is set up to buy the shares from the seller. The purchase price is usually funded from company profits, either directly to the vendor or by means of a loan from an external funder. Indeed, many of the mainstream banks are keen to lend to these kinds of transactions, and there also exists specialist lenders for employee buyouts. Moreover, because the employees and the seller usually have the best interests of the company at heart, then it can be a very collaborative transaction, with none of the adversity you sometimes find in corporate deals.
"The beauty of the Employee Ownership Trust sale is that there doesn’t have to be a lot of change. This is generally welcomed by the employees, as well as customers and suppliers and indeed, this continuity is a prime attraction of EOT ownership. The Board of Directors will still have legal responsibility for making the company successful, and one consideration might be to look at strengthening the board by adding senior management or appointing a non-executive director. The company’s managers will still be responsible for the day-to-day operation of the business.
"An added element is that, as the shareholding is now in a Trust, Trustees are appointed to ensure the long-term interests of the beneficiaries, the employees, are looked after. The Trustees will be responsible for scrutiny of the Board, ensuring they adhere to the company’s purpose. It is usual for the seller to retain a place on both the company’s board and the Trust. The Trustees might have to approve certain board decisions; for example, any acquisitions, divestments, investments or future sale, but in general, the Trustee role is more one of oversight and support."