UK: Takeover Panel publishes annual report

The Takeover Panel has published its annual report for the year ending 31 March 2009: see here (pdf). In the chairman's statement an indication of the issues with which the Panel has had to deal over the past year is given:

The year to 31 March 2009 was characterised above all by the global financial crisis catalysed by the collapse of Lehman Brothers in September 2008. Public merger and acquisition activity was materially affected by the crisis and by the collapse in valuations and confidence in the equity markets. These events produced a rather different set of issues for the operation of the Code to those experienced in more normal times. It has been necessary to be responsive during offer periods to fast moving events and dramatically changing circumstances, and to find the right balance between flexibility and certainty. I believe that the Panel’s principles-based regime has stood up well to the challenges posed in these conditions and has been able to safeguard shareholders’ interests without compromising the principles and rules of the Code".

The report notes that there were no appeals to the Takeover Appeal Board during the year. It also notes that the Takeover Panel Executive issued eight letters of private criticism during the year and no statements of public criticism. See here for further information about compliance with the Code. See here for all of the Panel's earlier annual reports. 

UK: the Companies Act 2006 (Consequential Amendments) (Taxes and National Insurance) Order 2009

The Companies Act 2006 (Consequential Amendments) (Taxes and National Insurance) Order 2009 was made yesterday and published on OPSI today: see here (pdf). An explanatory memorandum is available here. The purpose of the Order is to amend tax and national insurance legislation so that it will refer, from 1 October 2009, to the Companies Act (2006) and regulations made under the 2006 Act.

UK: the Companies Act 2006 (Consequential Amendments) (Uncertificated Securities) Order 2009

The Companies Act 2006 (Consequential Amendments) (Uncertificated Securities) Order 2009 was made yesterday and published on OPSI today: see here (pdf). An explanatory memorandum is available here. The Order comes into force on 1 October 2009 and will amend the Uncertificated Securities Regulations 2001 to reflect the changes made to as part of final implementation of the Companies Act 2006 on 1 October. 

UK: the Corporate Manslaughter and Corporate Homicide Act 2007 - custody provisions - second progress report

The Ministry of Justice has published a second report explaining the progress made towards implementation of the custody provisions in the Corporate Manslaughter and Corporate Homicide Act 2007. Publication was accompanied by a written statement in Parliament on July 13 by the Parliamentary Under-Secretary of State for Justice (Claire Ward).

Section 2(1)(d) of the 2007 Act provides that the duty of care owed by a custody provider to a person in custody is a relevant duty for the purposes of the 2007 Act. This provision is not, however, in force and custody providers - including prisons, young offenders institutions as well as courts and police stations with custody areas - are therefore currently not subject to the Act.

The report states that it is most likely that the custody provisions will be brought into force by April 2011. It also notes the Government's intention to bring within the Act the detention and custody facilities of HMRC and the Ministry of Defence. For further information about the Act see here.

UK: Companies House publishes Companies Act (2006) draft forms and guidance

Companies House has published draft forms and draft guidance in preparation for the completion of implementation of the Companies Act (2006) on 1 October 2009.

UK: the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009

The Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009 have been published on OPSI: see here (html) and here (pdf). An explanatory memorandum is available here. The Regulations were made on 8 July: some are already in force with the remainder coming into force on 1 October 2009 (see here for further information).  The explanatory memorandum explains that the purpose of the Regulations is to:

... complete the application of the Companies Act 2006 (“the 2006 Act”) to limited liability partnerships (“LLPs”). The accounts and audit provisions of the 2006 Act have already been applied to LLPs with effect from 1st October 2008. These Regulations apply as appropriate (with modification) the remaining provisions of the 2006 Act".

Note: the Regulations contain a mistake: in error they repeal the application to limited liability partnerships of Part 18 of the Companies Act 1985 regarding floating charges under Scots law. This has been corrected by the Limited Liability Partnerships (Amendment) Regulations 2009 - available here (html) and here (pdf) - the effect of which will be to maintain the application of Part 18.

UK: England and Wales: company vicariously liable for director's harassment of a debtor

Yesterday, in S & D Property Investments Ltd v Nisbet [2009] EWHC 1726 (Ch), the trial judge held a company vicariously liable for harassment under the Protection from Harassment Act (1997) in respect of violent threats made by a director to a debtor. The trial judge stated (at paras. [119] and [122]):

The House of Lords held in Majrowski that an employer could be vicariously liable for the harassment of its employee. It was not disputed in the present case that [the company] could be vicariously liable for the harassment of [the director] if he acted as the company's agent and within the scope of his authority.

I conclude that [the director] was the agent of [the company] for the purpose of taking steps to recover the debt. Plainly, it was left to his judgment as to how this should be done. His harassment of [the debtor] was part and parcel of his attempts to do just that. Accordingly, I find that his harassment was within the scope of his actual authority. [The company] is vicariously liable for his tort".

Australia: corporate governance standards and reporting

The Australian Stock Exchange has published an analysis of corporate governance disclosures in annual reports for the year ended 30 June 2008. The analysis is based on a review of 1,510 annual reports of entities listed on the Australian Stock Exchange on 30 June 2007 and considers disclosure and compliance with the ASX Corporate Governance Council's original 10 principles of good corporate governance and 28 best practice recommendations (published in March 2003). In the media release included with the analysis, it is reported:

Overall reporting levels – the aggregate of adoption of recommended practices and of ‘if not, why not’ reporting – rose to 96.3% in 2008, up from 90.5% last year. This is the highest level since ASX began the annual review in 2004. The overall reporting level for the top-500 listed entities also increased, rising to 97.6% in 2008, up from 94% in 2007. The number of Recommendations with overall reporting levels greater than 90% (ie over 90% of listed entities adopted the recommended practice or provided an ‘if not, why not’ explanation) increased to 25 out of 28 Recommendations (17 out of 28 in 2007). Among top-500 listed entities, 27 out of 28 Recommendations achieved reporting levels of at least 90% (24 out of 28 in 2007)".

UK: the Companies Remuneration Reports Bill

The Companies' Remuneration Reports Bill received its third reading yesterday in the House of Lords. No amendments were made. The Bill now proceeds to the House of Commons. Parliament rises for the summer recess on 21 July and returns on 12 October 2009. This does not leave much time for the Bill to complete all stages in the Commons before prorogation and the start of the new session of Parliament.

UK: the Overseas Companies Regulations 2009

The Overseas Companies Regulations 2009 were published today on OPSI: see here (html) and here (pdf). An explanatory memorandum is available here and this explains the purpose of the Regulations as follows: 

Every company incorporated in a country outside the United Kingdom (an overseas company) that operates its business in the United Kingdom through at least one establishment (that is to say either a branch or a place of business that is not a branch) and is not a UK-incorporated subsidiary company, must register its particulars with the Registrar of Companies. The Overseas Companies Regulations 2009, made under the Companies Act 2006 ... set out the UK company law filing requirements for this type of company, which come into effect on 1 October 2009".

UK: draft of the audit firm governance code published

The ICAEW's Audit Firm Governance Working Group has published a second consultation paper containing a draft of the Audit Firm Governance Code for auditors of public interest entities. The Code is being developed as a result of a recommendation by the Financial Reporting Council's Market Participants Group in the report Choice in the UK Audit Market. The Code has the following features (to quote directly from the consultation paper):

• It follows the transparency reporting definition of public interest entities as listed companies;
• It is targeted at shareholders in listed companies and contains principles related to their dialogue with audit firms;
• It contains a recommendation that the Code should not be implemented through regulation and that only firms that audit more than 20 listed companies should be expected to report on their application of the Code. Based on analysis published in 2009 by the UK Professional Oversight Board (POB) and reproduced in Appendix 4 [of the consultation paper], the Code will initially apply to eight firms;
• It is a cousin of the Combined Code, rather than its offspring. It follows the structure of principles and provisions, the philosophy of comply or explain, and the wording of the Combined Code in a limited number of areas. However, it recognises that a Combined Code designed for listed companies is of limited applicability to owner-managed firms;
• It recognises the qualities that audit firms are expected to demonstrate as regulated professional practices and summarises these qualities so that they can be more widely appreciated;
• It sets out a very specific role for independent non-executives of audit firms in addressing threats that the firms face in spite of their strengths as owner-managed and highly regulated professional practices. This includes being a ‘witness’ to how a firm is run, a ‘safeguard’ of a firm’s reputation especially in unregulated areas of its business, and a ‘channel’ for dialogue with stakeholders; and
• It envisages that firms will make Code-related disclosures in transparency reports.

For further information see: first consultation paper | responses to the first consultation paper | Financial Reporting Council audit choice project | 

UK: the future of UK generally accepted accounting principles

The Financial Times newspaper reports that the Accounting Standards Board will meet later this week to finalise plans for a discussion paper proposing the adoption of the International Accounting Standards Board's IFRS for SMEs. This discussion paper is likely to be published later this month according to the ASB's Inside Track 59 newsletter. The report in the Financial Times states: 

Sweeping accounting changes could be forced on small companies and even sizeable subsidiaries of larger ones under proposals to be discussed this week. The UK Accounting Standards Board (ASB) meets on Wednesday to put finishing touches to plans that could see Britain drop the generally accepted accounting principles, the rules followed by non-listed companies, in favour of an international standard designed for smaller companies. Under Europe-wide changes introduced in 2005, listed UK companies shifted from local rules to international financial reporting standards. But private companies and subsidiaries of listed groups have until now generally continued to follow UK Gaap. Last week, the International Accounting Standards Board released its new standard for small and medium-sized enterprises. It is not expected to be adopted into European law like other IASB rules, but countries will be free to follow it if they want. The ASB is expected to propose the UK makes the change and it will publish a paper for consultation this month. Providing the plans win backing, UK Gaap could all but disappear in 2012 or 2013".

UK: the Walker Review of bank corporate governance

Sir David Walker's consultation paper will be published this Thursday. Speculation is mounting in the press about what may be proposed. Yesterday's Sunday Telegraph reported that the annual re-election of bank directors would be suggested whilst the Observer noted that Sir David would "call for far more responsibility to be placed on chairmen to rein in aggressive CEOs". Few will be surprised by these suggestions. However, more interestingly, today's Times reports: 

Sir David Walker is set to call this week for the creation of a new body to act as a rallying point for institutional shareholders wanting to challenge the governance of company boards ... One proposal is for a powerful 'standing secretariat', which would put forward shareholders’ views to a company if there were a disagreement about strategy or people".

UK: the Registrar of Companies and Applications for Striking Off Regulations 2009

The Registrar of Companies and Applications for Striking Off Regulations 2009 were made on 8 July and come into force on 1 October 2009. They have been published on OPSI: see here (html) and here (pdf). An explanatory memorandum is available here. The Regulations provide, inter alia, the Registrar of Companies with the power to annotate the Register and they introduce a procedure whereby an application can be made to rectify information on the Register.

UK: the Companies Act 2006 (Part 35) (Consequential Amendments, Transitional Provisions and Savings) Order 2009

The Companies Act 2006 (Part 35) (Consequential Amendments, Transitional Provisions and Savings) Order 2009 was made on 8 July and comes into force on 1 October 2009. It has been published on OPSI: see here (html) and here (pdf). An explanatory memorandum is available here. The Order makes amendments to Part 35 ("The Registrar of Companies") of the Companies Act (2006) and the Companies Act 2006 (Commencement No. 8, Transitional Provisions and Savings) Order 2008 (S.I. 2008/2860).

UK: the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2009

The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2009 was laid before Parliament on 2 June; a copy was published on OPSI last week: see here (html) and here (pdf). An explanatory memorandum is available here. The purpose of the Order is to extend the scope of the Financial Service Authority's regulatory ambit to include sale and rent back agreements. Some of the Order's provisions are already in force; others come into force on 30 June 2010: see here. For further information see here (HM Treasury) and here (FSA).

UK: Companies House - adjudicator's annual report published

The Companies House adjudicator's report for the year ending 31 March 2009 has been published. The adjudicator - Dame Elizabeth Neville - hears appeals against late filing penalties imposed by Companies House and investigates complaints about the way Companies House has dealt with complaints. The report provides an overview of the appeals heard and those (few) that were upheld. It also makes several recommendations including one concerning the development of policies and procedures in respect of the powers that the Registrar will have, from 1 October 2009, to annotate the Register and remove information from it. 

Note: Part 35 of the Companies Act (2006) sets out the framework governing the Registrar and will be supplemented by Regulations. A draft of the Registrar of Companies and Applications for Striking Off Regulations 2009 was published in May: see here (html) and here (pdf).

Update (12 July 2009): The Registrar of Companies and Applications for Striking Off Regulations 2009 were made on 8 July and come into force on 1 October 2009. They have been published on OPSI: see here (html) and here (pdf). An explanatory memorandum is available here.

IASB publishes IFRS for SMEs

The International Accounting Standards Board has published an International Financial Reporting Standard designed for use by small and medium-sized entities. In the accompanying press release it is stated:

The IFRS for SMEs is a self-contained standard of about 230 pages tailored for the needs and capabilities of smaller businesses. Many of the principles in full IFRSs for recognising and measuring assets, liabilities, income and expenses have been simplified, topics not relevant to SMEs have been omitted, and the number of required disclosures has been significantly reduced. To further reduce the reporting burden for SMEs revisions to the IFRS will be limited to once every three years".

The new standard is available for free download here (registration is required) and a fact sheet is available here. 

UK: the Companies (Shareholders’ Rights) Regulations 2009

The Companies (Shareholders’ Rights) Regulations 2009 were made on 2 July and laid before Parliament a day later: see here (html) and here (pdf). The Regulations, which amend the Companies Act (2006), come into force on 3 August and apply in relation to meetings of which notice is given, or first given, on or after this date. Some of the provisions in the Regulations apply to all companies; others apply to traded companies (defined here). In the accompanying explanatory memorandum the purpose of the Regulations is explained and the policy background provided:

This instrument implements Directive 2007/36/EC on the exercise of certain rights of shareholders in listed companies (the “Directive”) by amending Part 13 of the Companies Act 2006. The Directive is intended to help facilitate the exercise of basic shareholders' rights and solve problems in the cross-border exercise of such rights, particularly voting rights, in respect of companies traded on regulated markets.

The UK has a large and prestigious equity market with a dispersed shareholder structure. Consequently the regime of shareholder rights is well-developed. Shareholder participation in company meetings and the conduct of those meetings in listed companies is governed by a mixture of statutory provision – chiefly the Companies Act 2006 Parts 9 and 13, companies’ articles of association, the Financial Reporting Council’s “Combined Code on Corporate Governance” – and case law. As a result the UK framework for shareholder rights already meets the majority of the requirements in the Directive. Our approach to implementation is to build on that existing framework by amending the Companies Act 2006 in a way which will minimise any new burdens on business".

Note: the Department for Business, Innovation and Skills has updated its Shareholder Rights FAQs and has also published the Government's response to the consultation concerning implementation of the Directive. The explanatory memorandum also states:

Guidance will be issued subject to further consultation with stakeholders.  The key changes to Part 13 will be highlighted on the Department for Business, Innovation and Skills website".

UK: England and Wales: Law Commission annual report published

The Law Commission for England and Wales has published its annual report. With regard to the Commission's final report Company Security Interests, published in 2005 and which proposed major reforms, the annual report states:

We were disappointed that the then Department of Trade and Industry was not able to include our recommendations within the Companies Act 2006. We await a formal decision on whether the Government accepts our recommendations and, if so, how it intends to implement them".

Europe: CESR proposes pan-European short selling disclosure regime

The Committee of European Securities Regulators has published a consultation paper containing a proposal for a pan-European short selling disclosure regime. The CESR's proposed disclosure regime is wider in scope than the FSA's current disclosure regime because it is not limited to the shares of financial institutions. The CESR's proposed regime is explained in the consultation paper as follows:

It is based on a two-tier system for the disclosure of significant net short positions held in shares admitted to trading on an EEA regulated market or an MTF. When a short position reaches a specified initial threshold, the position holder (the ‘short seller’) would be obliged to make a private disclosure to the regulator of the most liquid market for the share in which the position was held. Further such disclosures would be required at specified subsequent increments. If the position reached a second-tier threshold, the short seller would then be required to make also a public disclosure for its position to the market as a whole. Further disclosures would be required if the short positions crossed subsequent incremental thresholds and would also be necessary if the positions fell below the any of the trigger thresholds, including the initial trigger thresholds".

The disclosure regime is justified in the following terms:

CESR considers that improving the transparency of short selling would have distinct benefits which would outweigh the associated costs. Greater disclosure would both help deter market abuse and reduce the risks of disorderly markets posed by short selling. It would provide early warning signs of a build up of large short positions, thereby alerting regulators to potentially abusive behaviour and enabling them to monitor and take action more effectively. Also, facilitating ready access to information on short selling would provide informational benefits to the market, improving insight into market dynamics and making available important information to assist price discovery".

UK: the Marks and Spencer AGM

Marks and Spencer plc held its annual general meeting today. The company's corporate governance arrangements - in particular Sir Stuart Rose's position as executive chairman - were a central issue (as they were last year). A group of shareholders - under the authority of the Local Authority Pension Fund Forum - had requisitioned a resolution under Section 338 of the Companies Act (2006). The resolution recommended that the board bring forward the appointment of an independent chairman from July 2011 to July 2010.

37.72% of votes were cast in favour of the resolution. Not quite the number that some were predicting but a clear signal to the board. Indeed, on the Manifest Blog it is stated that "[t]aking into account the abstain votes, total dissent is practically double the highest previously recorded for a FTSE 100 company since Manifest started collecting such data in 1996". Following the vote, LAPFF stated:

Given the scale of the vote ... LAPFF are looking forward to an immediate dialogue with the company about how it plans to respond. We will also be talking to other supporters of the resolution to listen to their views on the way forward. More broadly this is a significant day for shareholder engagement. Sometimes shareholders need to step up and be public with their concerns and use their voting rights effectively. We need to get past the idea that meetings behind closed doors are always the answer. We have filed this resolution on behalf of the market, in support of the integrity of the Combined Code. Therefore we hope the result is registered in boardrooms across the UK".

For further information see: poll results| annual general meeting notice (containing a copy of the LAPFF resolution and the board's response) | 2009 annual report | video of the annual general meeting |

UK: Reforming Financial Markets - Government white paper published

This afternoon the Chancellor of Exchequer delivered a statement before Parliament concerning the publication today of the white paper Reforming Financial Markets. The white paper does not propose significant change to the tripartite system of regulation although it does propose: [a] amending the FSA's statutory objectives to include financial stability and increasing the FSA's rule making and enforcement powers; [b] creating a new Council for Financial Stability. The white paper also endorses the findings of the Turner Review. 

The Chancellor's statement was followed by questions and responses from the opposition parties. The Shadow Chancellor, George Osborne MP, was critical of the tripartite framework and stated that he would soon publish alternative proposals which would give a much greater role to the Bank of England in regulating banks.

With regard to corporate governance matters, the white paper notes:

It is also clear that there must be major changes to the way that bank boards function. Improved risk management at board level, changes to the balance of skills, experience and independence, and a better approach to audit, risk and remuneration are required. Institutional shareholders need to be more actively engaged in monitoring the board of the bank in which they have invested. The FSA has already taken action to vet potential board members of banks more thoroughly.

The FSA have proposed the incorporation of a Code of Practice on remuneration into the FSA's Handbook and to apply it to banks, building societies and broker dealers. The Code has a general requirement that ‘a firm must establish, implement and maintain remuneration policies, procedures and practices that are consistent with and promote effective risk management’. This is backed up by ten principles covering the key areas of governance, performance measurement and the composition of remuneration packages. The FSA will continue to play an active role in the remuneration discussion at the EU and international level.

The Chancellor has, furthermore, asked the FSA to provide an annual report on remuneration practices, including compliance by firms with the new Code. This report will assess whether remuneration practices are likely to lead to a build up of systemic risk, and make recommendations for action if this is thought to be the case.

The Chancellor has also asked Sir David Walker to conduct a review of the corporate governance of banks and other financial firms, to recommend how financial institutions can better equip themselves to respond to lessons learnt from the crisis. Sir David’s interim report is due shortly [next week] and the Government looks forward to responding".

UK: Yesterday in Parliament

Two items of interest. The Companies’ Remuneration Reports Bill reached the Committee stage in the House of Lords. However, no amendments were tabled and no member of the House of Lords indicated the wish to speak. The House therefore agreed that the order of commitment be discharged and the Bill will now proceed to the Third Reading stage on July 13.

There was also a brief debate concerning the relationship between auditors and banks. Lord Lea of Crondall asked the Goverment "what action they are taking to prohibit interlocking directorships between auditing companies and banks and other financial institutions"? The debate can be read here. Lord Davies of Abersoch, the Minister for Trade, Investment and Business, responded on the Government's behalf and in one reply stated:

The independence of auditors has been the subject of increased regulation over the past 20 years. Indeed, the Treasury Select Committee recently recommended a consultation on the issue of auditors earning fees from non-audit work and the Financial Reporting Council is planning to consult later in the year. On the general point of where the auditors were during the financial crisis, there are lessons to be learnt for the accounting profession, just as there are for many different aspects of the financial services industry. As someone who worked in the industry, I know that auditors were involved in the risk governance and control side. We are not aware, however, of any evidence of an audit failure in one of the banks where the Government have had to intervene. Furthermore, the Audit Inspection Unit of the Financial Reporting Council, which reviews the audits of large firms, has concluded that audits are fundamentally sound".

UK: the Protection of Shareholders Bill - withdrawn

Earlier this year Mr William Cash MP introduced the Protection of Shareholders Bill in Parliament. Mr Cash has now withdrawn the Bill - a Private Members' Bill - which stood little (if any) chance of becoming law.

UK: the Bankers' Pensions (Limits) Bill - withdrawn

Earlier this year the Bankers' Pensions (Limits) Bill was introduced in Parliament by the Rt Hon Ann Clwyd MP. It has now been withdrawn (as a private members' bill, introduced under the ten minute rule procedure, it stood little chance of becoming law).

Ireland: the Companies (Amendment) Bill 2009

The Companies (Amendment) Bill 2009 - noted in this earlier post - has been approved by the Dáil. It now requires the approval and signature of the president to become law. A short overview of the Bill is available in this press release issued by the Department of Enterprise, Trade and Employment. 

UK: England and Wales: a de facto director?

The Court of Appeal gave judgment in Holland v Revenue and Customs & Anor [2009] EWCA Civ 625 last week. The court was required to consider whether a director of a company that acted as a corporate director of over 40 insolvent companies was a de facto director of those insolvent companies. At first instance ([2008] EWHC 2200 (Ch)), the trial judge found that the director was a de facto director of the insolvent companies. A unanimous Court of Appeal disagreed. Rimer LJ observed (para. [74]):

I emphasise that nothing that I have said is intended to suggest that there can never be circumstances in which a director of a corporate director can or will so act as to cause himself to be regarded as a de facto director of the subject company. But something more will be required than the mere performance by him of his duties as a de jure director of the corporate director. On the facts accepted by the judge, there was nothing more in the present case".

Notes: 

[1] The case has been summarised here by the ICLR as part of its WLR(D) service (this summary will be removed should the case be reported in one of the ICLR's series of law reports). 

[2] Section 155 of the Companies Act (2006) provides that "A company must have at least one director who is a natural person". This was brought into force on 1 October 2008 by the Companies Act 2006 (Commencement No. 5, Transitional Provisions and Savings) Order 2007. This Order provides, however, that companies which did not have at least one natural person as a director on 8 November 2006 (the date on which the Companies Act (2006) received Royal Assent) have until 1 October 2010 to comply (see Part 3 of Schedule 4). 

USA: SEC outlines proposals to improve corporate governance

The Securities and Exchange Commission voted last week to introduce measures which, according to a statement by SEC chairman Mary Schaprio, pursue a fundamental goal: enhancing the quality of the system through which shareholders exercise their franchise. One of the proposals will increase the disclosure of information provided to public company shareholders in respect of remuneration. For further information see here.

UK: FSA proposes increased penalties

The Financial Services Authority has today published a consultation paper in which it sets out proposals to increase substantially the penalties in enforcement cases as part of a new penalties framework. A significant proposal is the introduction of a minimum penalty of £ 100,000 in market abuse cases. The FSA also proposes to amend its Enforcement Guide in order to clarify that it may publicise enforcement action in criminal cases where proceedings have not yet commenced. 

For further information see: press release | newsletter | consultation paper | examples of how the new framework will operate | online response form |