Thursday, 10 October 2019

Australia: financial assistance and pre-emption rights

The High Court gave judgment yesterday in Connective Services Pty Ltd v Slea Pty Ltd [2019] HCA 33. The decision is an important and interesting one on the interaction between pre-emption provisions and the prohibition, within section 260A(1) of the Corporations Act 2001, against a company providing, in certain circumstances, financial assistance to a person in respect of that person's purchase of the company's shares. The court stated (at para. [39]):
Section 260A(1) does not abrogate the power of a company to enforce its constitution. However, together with s 1324(1B), it has the effect that if a company wishes to bring proceedings to enforce pre-emptive rights in its constitution, for the benefit of some of its shareholders but at the company's expense, then the company is liable to be enjoined from doing so unless the assistance is approved by shareholders under s 260B, or unless the company can satisfy the court that bringing the proceedings at its own expense does not materially prejudice the interests of the company or its shareholders or the company's ability to pay its creditors".

Wednesday, 9 October 2019

UK: England and Wales: just and equitable winding-up

Judgment was given yesterday by the Court of Appeal in Badyal v Badyal [2019] EWCA Civ 1644. At first instance the trial judge had rejected the argument that in order to secure the winding-up of a company under the just and equitable ground - section 122(1)(g) of the Insolvency Act 1986 - it was necessary only to show that mutual trust and confidence between the shareholders had broken down. The Court of Appeal agreed with the trial judge.

Tuesday, 8 October 2019

Australia: ASIC Corporate Governance Taskforce report - director and officer oversight of non-financial risk

The Corporate Governance Taskforce established by the Australian Securities and Investments Commission has published its first report. The report, on the subject of director and officer oversight of non-financial risk, is available here (pdf). The report found, amongst other things, that there was scope to improve the effectiveness of board risk committees: they ought to meet more regularly and be actively engaged in overseeing material risks in a timely and effective manner.

Canada: the gender diversity of boards

The Canadian Securities Administrators have published data on boards' gender diversity, based on the disclosures under National Instrument 58-101 Disclosure of Corporate Governance Practices, provided by 641 issuers with year ends between 31 December 2018 and 31 March 2019: see here. It is reported that the number of board positions occupied by women has increased to 17%, up from 11% in 2015.

Friday, 27 September 2019

UK: England and Wales: the extraterritorial effect of section 236 of the Insolvency Act 1986

Judgment was delivered earlier this week by Adam Johnson QC (sitting as a Judge of the High Court) in Wallace v Wallace [2019] EWHC 2503 (Ch). At issue was whether an order under section 236 ("Inquiry into company’s dealings, etc.") of the Insolvency Act 1986 could be made against an individual resident abroad. To put this another way: does section 236 have extraterritorial effect? The existing authorities presented, the Judge noted, "a somewhat fragmented picture" (para. [46]) but he concluded, with respect to the power to order the production of "any books, papers or other records" under section 236(3), that an order could be made against an individual resident outside of the United Kingdom.

Thursday, 26 September 2019

UK: FRC says Audit Transparency Reporting is ineffective

The Financial Reporting Council has published the results of its review of audit firm transparency reporting: see here (pdf). The FRC reviewed, amongst other things, the 2017 Transparency Reports for each of the 33 audit firms that audit a public interest entity and which, therefore, are subject to the requirement to prepare a Transparency Report (see, now, EU Regulation 537/2014, article 13). The FRC identified five firms - unnamed in the report - that had failed to publish a Transparency Report notwithstanding the requirement to do so.

The FRC has concluded that audit transparency reporting is ineffective, with Transparency Reports seen by many firms as a marketing opportunity (rather than an accountability or compliance document) and the Reports themselves remaining unread by the intended beneficiaries (principally investors and audit committee members). A review of the current requirements will begin in 2020.

Tuesday, 24 September 2019

Australia: ASIC report on corporate finance regulation

The Australian Securities and Investments Commission has published its latest report on its corporate finance oversight activities for the period January to June 2019: see here (pdf). The report notes, amongst other things, that ASIC asked for amended or additional disclosure in more than a quarter of the prospectuses lodged during this period. Under the heading of corporate governance, the report outlines what ASIC has recently done to clarify its policy concerning the disclosure of the risk and opportunities associated with climate change. 

Thursday, 19 September 2019

Singapore: Court of Appeal considers the prohibition against a company acquiring its own shares

The Court of Appeal gave judgment a few days ago in The Enterprise Fund III Ltd and others v OUE Lippo Healthcare Ltd (formerly known as International Healthway Corp Ltd) [2019] SGCA 48: see here (pdf). The decision is important as it has become the leading authority on the prohibition, within sections 76 and 76A of the Companies Act (Cap 50, 2006 Rev Ed), against a company acquiring its own shares. Amongst the specific matters considered by the court were the breadth of an indirect acquisition (under section 76(1A)(a)(i)) and the scope of the saving provision (in section 76A(1A)) for a disposition of book-entry securities.

Wednesday, 18 September 2019

France: AMF consultation on squeeze outs

AMF - Autorité des Marchés Financiers, the financial market regulator - has begun a consultation on squeeze outs: see here.

Tuesday, 17 September 2019

UK: England and Wales: more on relational contracts and good faith

Judgment was given yesterday by Mr Justice Fancourt in UTB LLC v Sheffield United Ltd & Ors [2019] EWHC 2322 (Ch). The decision is noteworthy because of the discussion it contains concerning the use of the label 'relational contract' and the circumstances in which a duty of good faith should be implied in an investment and shareholder agreement. The trial observed (paras. [203] - [204]):
Rather than seek to identify and weigh likely indicia of a "relational contract" in the narrower sense used by Leggatt LJ, it is, I consider, preferable to ask oneself first – as Leggatt LJ did in the Sheikh Tahnoon case – whether a reasonable reader of the contract would consider that an obligation of good faith was obviously meant or whether the obligation is necessary to the proper working of the contract. The overall character of the contract in issue will of course be highly material in answering that question but so will its particular terms, as recognised by the principle that (as restated in the Marks and Spencer case) no term may be implied into a contract if it would be inconsistent with an express term.

That approach is, in my respectful opinion, preferable also because the exact content of any implied obligation of fair dealing, or to act with integrity, or to act in good faith, will be highly sensitive to the particular context of the contract, as observed by Dove J in D&G Cars Ltd v Essex Police Authority [2015] EWHC 226 (QB) at [175]. The greater part of that context is the express terms of the contract. Thus, to imply a general obligation to act at all times in good faith towards the counterparty because the contract is a relational contract may fail to have regard to rights and obligations created by the express terms, to which any implied obligation must be tailored if it is not to be excluded as being inconsistent with them. In the instant case there is a real example of just such a question, to which I return ..."

Thursday, 12 September 2019

UK: Treasury announces review of the disguised remuneration loan charge

The Treasury has announced a review of the disguised remuneration loan charge: see here. The operation of the charge has been subject to intense criticism, not least by the Loan Charge All Party Parliamentary Group in its report published in April this year: see here (pdf). The review will be conducted by Sir Amyas Morse, the former Comptroller and Auditor General and Chief Executive of the National Audit Office.

Wednesday, 11 September 2019

UK: Director disqualifications in 2018/19

The Insolvency Service reports that, in 2018/19, there were 1,242 director disqualifications and that, since April 2014, the average length of disqualification is 5.7 years: see here.

Tuesday, 10 September 2019

Ireland: a review of the Registration of Business Names Act 1963

Somewhat belatedly - for those who wanted to make a submission - I note that earlier this year the Department of Business, Enterprise and Innovation consulted on the operation of the Registration of Business Names Act 1963: see here.

Monday, 9 September 2019

UK: FCA investigations and the destruction of documents

The Financial Conduct Authority has, for the first time, brought a prosecution under section 177(3)(a) of the Financial Services and Markets Act 2000 in respect of an individual's destruction of documents relevant to an investigation. For further information, see here.

Friday, 6 September 2019

UK: The Financial Services (Electronic Money, Payment Services and Miscellaneous Amendments) (EU Exit) Regulations 2019

The Financial Services (Electronic Money, Payment Services and Miscellaneous Amendments) (EU Exit) Regulations 2019 were made and laid before Parliament yesterday: see here. Further information about the Regulations is available in the accompanying explanatory memorandum: see here (pdf).

UK: The Prospectus (Amendment etc.) (EU Exit) Regulations 2019

The Prospectus (Amendment etc.) (EU Exit) Regulations 2019 were made and laid before Parliament yesterday: see here. For further information see the accompanying explanatory memorandum available here (pdf).

Thursday, 5 September 2019

UK: England and Wales: Law Commission report on the electronic execution of documents

The Law Commission (England and Wales) published its report on the electronic execution of documents yesterday: see here (pdf). A summary, which includes a statement of the law on execution with an electronic signature, is available here (pdf). The report makes several recommendations including the creation of multi-disciplinary, industry working group to consider the practical issues relating to the electronic execution of documents.

Wednesday, 4 September 2019

UK and Australia: Directors' duties and climate change - a speech by Lord Sales

Lord Sales, a justice of the UK Supreme Court, delivered a speech at the end of August in Australia titled "Directors’ duties and climate change: Keeping pace with environmental challenges": see here (pdf). With reference to laws in England and Australia, Lord Sales observed:
... the clear message to be taken away from this lecture is that company law in England and Australia alike is still undergoing a process of coming to terms with the new challenges raised by climate change and wider environmental issues ... There is a clear case for these company laws to be modified, by legislation, to provide a greater impetus to boards and individual directors to accord greater attention and weight to climate issues than has until now been considered appropriate.  That said, even as things stand, there is much force in the view that directors may and, increasingly, must take into account and accord significant weight to climate change in their decision-making. This is not least because a failure to act sustainably is more and more likely to have adverse financial impacts on companies who are, or are perceived to be, behind the curve on environmental issues"

Tuesday, 3 September 2019

UK: Insurance Special Purpose Vehicles - PRA consultation

The Prudential Regulation Authority has published a consultation paper setting out proposed changes to its approach and expectations concerning the authorisation and supervision of insurance special purpose vehicles: see here (pdf).

Thursday, 29 August 2019

UK: Charity Commission publishes new external scrutiny benchmark and compliance results

The Charity Commission (England and Wales) has published the results of its assessment of a sample of 296 charities' accounts against a new external scrutiny benchmark: see here. The purpose of the Commission's research was to find out if a minimum standard of scrutiny by auditors and independent examiners had taken place. The Commission found that just over three quarters of charities with an income of £1 million or more met the benchmark. However, among charities with income between £25,000 and £250,000, only 37% met the benchmark.

The Commission has also published a report on charities' reporting of related party transactions: see here.

Wednesday, 28 August 2019

UK: England and Wales: Law Commission seeks views on intermediated securities

The Law Commission for England and Wales has published a call for evidence concerning the system of intermediated securities: see here (pdf). An overview is available in the Commission's press release: see here. Views are sought on various issues including whether owners of intermediated securities find it more difficult to secure voting rights compared with those owning securities directly.

Friday, 23 August 2019

USA: SEC guidance on proxy rules and proxy voting responsibilities

Earlier this week the Securities and Exchange Commission published two document concerning proxy voting: [1] guidance regarding the proxy voting responsibilities of investment advisers (here, pdf); [2] interpretation and guidance regarding the applicability of the proxy rules (here, pdf).

Wednesday, 21 August 2019

Vietnam: Corporate Governance Code of Best Practices

Last week, the publication of the Vietnamese Corporate Governance Code of Best Practices was noted: see here. At the time, a copy of the Code in English was not available. It is now: see here (pdf).

Australia: Financial Services Royal Commission implementation roadmap published

The final report and recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, led by the Hon Kenneth Hayne AC QC, was published in February: see here. At the same time, the Australian Government published a response: see here (pdf). More recently - a couple of days ago, in fact - the Government published an implementation roadmap: see here (pdf).

Amongst the report's recommendations were those concerning the culture, governance and remuneration of regulated entities (see, in particular, chapter 6). In this regard, the roadmap notes, amongst other things, that the APRA is reviewing its work programme in this area and will publish a statement of its approach by the end of 2019.

Tuesday, 20 August 2019

UK: Companies House - changes to the late filing penalties manual

Companies House has made several changes to its late filing penalties manual, taking effect from 1 October 2019: see here.

Monday, 19 August 2019

UK: FTSE100 remuneration - preview of forthcoming report from Deloitte

Deloitte today published a preview of some of the findings from its forthcoming review of directors' remuneration in FTSE100 companies, due to be published in October: see here. These findings include: the median CEO package is £3.4 million; approximately one third of FTSE100 companies have reduced pensions for new executive appointments; and a reduction in the number of companies receiving low votes (below 80% in favour) on remuneration.

Friday, 16 August 2019

UK: Upper Tribunal decides that public censure appropriate sanction for breach of integrity principle

The Upper Tribunal (Tax and Chancery Chamber) decision Andrew Tinney v The Financial Conduct Authority [2019] UKUT 0227 (TCC), given in May this year, has now been published: see here. It appears on the same day as the FCA's publication of its final notice in the case: see here (pdf). The Tribunal found that Mr Tinney had acted without integrity - in breach of (what is now) APER Statement of Principle 1 - and that the appropriate sanction was public censure. The Tribunal decision is noteworthy because of the discussion it contains concerning the meaning of integrity. The Tribunal observed (para. [13]):
A lack of integrity does not necessarily equate to dishonesty.  While a person who acts dishonestly is obviously also acting without integrity, a person may lack integrity without being dishonest.  One example of a lack of integrity not involving dishonesty is recklessness as to the truth of statements made to others who will or may rely on them or wilful disregard of information contradicting the truth of such statements".

Thursday, 15 August 2019

India: report and recommendations on corporate social responsibility

The committee formed last year by the Ministry of Corporate Affairs to review the corporate social responsibility framework has published its report and recommendations: see here (pdf).

Among the recommendations are those concerning section 135 of the Companies Act 2013, which introduced, for companies of a certain size, mandatory spending on corporate social responsibility activities and the formation of a corporate social responsibility committee. The report recommends, for example, that the section 135 obligation should not apply to newly incorporated companies. It also recommends extending the current CSR regime to limited liability partnerships and, for smaller companies, relaxing the requirement to form a separate corporate social responsibility committee (for such companies the board would carry out the functions of the committee).

Wednesday, 14 August 2019

Vietnam: launch of the Corporate Governance Code of Best Practices

It's almost three years since I posted a note to say that the International Finance Corporation, part of the World Bank Group, was working with the State Securities Commission in Vietnam to develop a corporate governance code. That code has now been published, according to a tweet from the IFC (although I have yet to locate a copy online*):

* - update (21 August 2019): a copy of the code in English can be found here (pdf).

Monday, 12 August 2019

New Zealand: Supreme Court considers insolvent transaction provision of the Companies Act 1993

Last Friday the Supreme Court gave judgment in Robt. Jones Holdings Limited v McCullagh [2019] NZSC 86, in what is now the leading authority on
section 292 ("Insolvent transaction voidable") of the Companies Act 1993. The court unanimously rejected the argument that for a transaction to be voidable under section 292 it was necessary, in addition to the requirements within section 292 itself, to prove that the payment diminished the assets of the company. Further information is available in the media release published by the court: see here (pdf).

Friday, 9 August 2019

UK: England and Wales: conduct of general meetings and the role of the chairman

Judgment was given yesterday by Deputy High Court Judge Lance Ashworth QC in Kaye v Oxford House (Wimbledon) Management Company Ltd [2019] EWHC 2181 (Ch). The decision is an important and interesting one exploring the operation of general meetings and, in particular, the role of the chairman in conducting the business and in closing the meeting. It would also appear to be the first authority to consider the operation of section 303(5) of the Companies Act 2006, which provides that a resolution may be moved at a meeting unless (to quote directly): (a) it would, if passed be ineffective (whether by reason of inconsistency with any enactment or the company's constitution or otherwise), (b) it is defamatory of any person, or (c) it is frivolous or vexatious.

Here is an extract:

It is the duty and function of the chairman to preserve order and to take care that the proceedings are conducted in a proper manner and that the sense of the meeting is properly ascertained with regard to any question which is properly before the meeting. However, he does not have power to stop the meeting at his own will and pleasure ... the chairman is not running the general meeting for his own benefit, but for the benefit of the company as a whole. The chairman must therefore act at all times in good faith and for proper purposes, remembering at all times that the authority to preside over the meeting does not confer dictatorial power" (para. [106]).  

USA: SEC proposes amendments to disclosure requirements under Regulation S-K

Yesterday the Securities and Exchange Commission published proposals to amend the disclosure requirements under Regulation S-K in respect of business (item 101(a) and (c), legal proceedings (item 103) and risk factors (item 105). These amendments are intended, according to the SEC, "to improve the readability of disclosure documents, as well as discourage repetition and disclosure of information that is not material". For further information see here and here (pdf).

Thursday, 8 August 2019

UK: Establishing the Financial Services Contracts Regime

HM Treasury has published a draft of the statutory instrument that will establish the Financial Services Contracts Regime (FSCR): see here (pdf). The FSCR is intended to provide run-off mechanisms for several temporary regimes that have been put in place by EU exit statutory instruments. Further information is available here.

Wednesday, 7 August 2019

India: SEBI report on proxy advisors

At the end of last month, SEBI published a report from the Working Group on Issues Concerning Proxy Advisors: see here. Public comment is now invited in respect of the report and the recommendations it contains. The report recommends that SEBI "may" consider drafting a code of conduct for proxy advisors. It also recommends that SEBI "should" make a stewardship code, operating on the basis of 'comply or explain', mandatory for all institutional shareholders.

Tuesday, 6 August 2019

Ghana: Companies Act 2019 receives President's assent

It is now over sixty years since Professor Gower was appointed to chair a commission on company law reform in Ghana, the product of which was the Companies Act 1963. A new company law framework, to replace the 1963 Act, was placed before Parliament last year: the Companies Bill 2018. In May this year, it was reported in the media that the Bill had been passed and the new company law framework - the Companies Act 2019 - would become law on receiving the President's assent: see here.

The Ghana Presidency website reports that the President gave his assent earlier this month: see here. A copy of the new Act has not yet been published on the Parliament website.

Friday, 2 August 2019

UK: England and Wales: sentencing fraudulent trading

Last month, in Ali, R v [2019] EWCA Crim 1263, the Court of Appeal heard three appeals against a sentence - 28 months' imprisonment - imposed on three individuals for fraudulent trading under section 993 of the Companies Act 2006. One of the grounds of appeal concerned what was said to be the sentencing judge's undue or excessive reliance on the Sentencing Council Guideline for Fraud, Bribery and Money Laundering Offences, in the absence of a specific guideline for fraudulent trading.

The appeals were dismissed, the court finding that the sentences were neither wrong in principle nor manifestly excessive. The sentencing judge had stated that it was appropriate to pay "more than some regard" to the Guideline for Fraud, an observation noted by the court and not - as far as I can tell - explicitly accepted or rejected. It should, however, be noted that since the court's judgment was given, the Sentencing Council has published a new General Guideline for sentencing offences not covered by a specific sentencing guideline: see here. The General Guideline requires, as part of step 1 ("Reaching a provisional sentence"), that the court should take account (if applicable) of the definitive sentencing guidelines for analogous offences.

Thursday, 1 August 2019

USA: All S&P500 boards now contain at least one female director

The Wall Street Journal reports - in an article titled "The Last All-Male Board on the S&P500 Is No Longer" - that Copart Inc. has appointed Diane M. Morefield to its board: see here.

Wednesday, 31 July 2019

UK: England and Wales: relief for unfair prejudice, buy-out orders and tax avoidance

Last year, in Estera Trust (Jersey) Ltd v Singh [2018] EWHC 1715 (Ch), Mr Justice Fancourt ordered that two shareholders - the petitioners - should have their shares bought out by the company and another shareholder, following the finding that the company's affairs had been conducted in an unfairly prejudicial manner within section 994 of the Companies Act 2006.

At a subsequent trial, the purchase price and time for payment were fixed (see [2019] EWHC 873 (Ch)), only after which the petitioners appreciated the tax consequences of the proposed order: purchase by the company of their shares would be regarded as an income distribution and taxed more heavily than a capital transaction. With this knowledge, the petitioners made an application requesting that the final order not be sealed until a further hearing had taken place. They sought a change in the proposed order: they wanted a company structure to be created the aim of which was to minimise their tax liability.

Could, and if so should, the court order that the petitioners' shares be bought in the manner they now requested?  The answer was given several days ago in Estera Trust (Jersey) Ltd v Singh [2019] EWHC 2039 (Ch). Mr Justice Fancourt held that while he had the jurisdiction to make the order he would decline to do so. The proposed buy-out structure could, he stated, be reasonably regarded by HMRC and others as aggressive tax avoidance. The parties did not agree and, moreover, the order sought by the petitioners provided in his view "relief that is wholly out of the ordinary - if not unprecedented - for the Court to grant on a section 994 petition, despite the breadth of the jurisdiction to grant relief" (para. [32]). Fancourt J. further observed (paras. [33] and [41]):
[33] There are undoubtedly circumstances in which the Court will order a reluctant party to enter into a transaction for the purpose of saving tax for another party ... [41] In my judgment, in a purely commercial context such as this, there is no compelling reason why the Court should force reluctant parties to enter into a transaction solely for the purpose of saving tax for another party, even if there is no possible harm to them. There is no public policy interest in favour of making such an order. This is a case of an offshore trust, which will incur a tax liability on the receipt of an enormous sum of money, which it can very likely mitigate so that only the same tax has to be paid as would be paid by a private person resident in the UK. The public interest seems to me to be served by the payment of that tax, not by the avoidance of the substantial majority of the tax payable".


UK: FCA guidance on crypto-asset regulatory remit

The Financial Conduct Authority has today published final guidance in respect of those crypto-assets activities which fall within its regulatory remit: see here (pdf).

Tuesday, 30 July 2019

Sweden: Amending the Swedish Code of Corporate Governance

The Swedish Corporate Governance Board has announced that it will, in September, publish proposed amendments to the Swedish Code of Corporate Governance: see here or here (pdf). The Board has also announced that, in October, it will publish a new recommendation on remuneration.