Monday, 29 June 2020

UK: The Companies etc. (Filing Requirements) (Temporary Modifications) Regulations 2020

The Companies etc. (Filing Requirements) (Temporary Modifications) Regulations 2020 were made last Friday and came into force on Saturday: see here or here (pdf). They were made in exercise of powers conferred by sections 1049(3) and 1050(5) of the Companies Act 2006 and sections 39(1) and (4) of the Corporate Insolvency and Governance Act 2020. Their purpose is to extend temporarily various filing deadlines to which certain entities - companies, eligible Scottish partnerships, limited partnerships, limited liability partnerships, unregistered companies, overseas companies, Societas Europaeas and European Economic Interest Groupings - are subject. Further information is available in the accompanying explanatory memorandum is available here (pdf).

Friday, 26 June 2020

UK: The Corporate Insolvency and Governance Act 2020

The Corporate Insolvency and Governance Act 2020 received Royal Assent yesterday and has become law: see here. A copy of the Act has not yet been published but supporting secondary legislation has: see the Limited Liability Partnerships (Amendment etc) Regulations 2020, which extend various provisions of the Act to limited liability partnerships.  Guidance on the Act has been published by Companies House: see here and here.

Update (29 June 2020) - a copy of the Act is available here.

Friday, 5 June 2020

UK: England and Wales: schemes of arrangement and the beneficial owners of shares

The transcript for Re Sirius Minerals Plc [2020] EWHC 1447 (Ch), a decision of Mr Justice Fancourt from March this year, has recently been added to BAILII. The trial judge sanctioned a scheme of arrangement under section 899 of the Companies Act 2006, noting that the documentation had been sent to the registered members and there was no requirement to send documents to the beneficial owners of shares even if the company had records of these beneficial owners. The trial judge nevertheless noted - and this is why I note the decision here - that the law as it stood raised a "genuine issue about shareholder democracy".

Thursday, 4 June 2020

UK: England and Wales: unfair prejudice, valuation dates and coronavirus

Adam Johnson QC, sitting as a Deputy Judge of the High Court, gave judgment earlier this week in Dinglis v Dinglis [2020] EWHC 1363 (Ch). The case arose in direct response to the coronavirus pandemic and in the context of ongoing proceedings for unfair prejudice under sections 994-996 of the Companies Act 2006.  At issue was the date set for the valuation of the petitioner's shares, 25 July 2019, and how the valuation on this date would be conducted. The trial judge concluded: [1] there was no basis for varying, directly or indirectly, the valuation date; [2] notwithstanding the broad jurisdiction under section 996, it was not possible to argue - as a matter of law or principle - that adjustments on account of the Coronavirus pandemic should be taken into account.

Tuesday, 2 June 2020

UK: The Corporate Insolvency and Governance Bill - an update

The Corporate Insolvency and Governance Bill received its first reading in the House of Commons on 20 May and is scheduled to proceed through second reading, committee stage and third reading tomorrow: see here. A copy of the Bill as introduced is available here (pdf). Explanatory notes, to be read alongside the Bill, are available here (pdf). Factsheets have also been published by the Department for Business, Energy and Industrial Strategy: see here.

In broad outline, the Bill will make permanent and temporary changes. The permanent changes include the introduction of a new insolvency mechanism: a moratorium. Among the temporary changes are those relating to filing deadlines, holding general meetings electronically and, in respect of directors' potential liability for wrongful trading under section 214 of the Insolvency Act 1986, to provide that the court is to assume that the director is not responsible for any worsening in the financial position of the company, or of its creditors, between 1 March 2020 and 30 June 2020 (or, if later, one month after the Act comes into force).

Monday, 1 June 2020

OECD survey: Covid-19 and corporate governance initiatives

The OECD has published a survey of the corporate governance related initiatives undertaken in 37 jurisdictions as a result of the Covid-19 pandemic, focusing in particular on the conduct of general meetings, insolvency frameworks and disclosure obligations: see here (pdf).

Tuesday, 21 April 2020

The search for a new (ab)normal ...

Even before the consequences of the pandemic were apparent in the UK, I had been less than successful in keeping the blog up to date.  The start of 2020 was somewhat hectic.  And then life changed in many ways: some small, some large - but each one profound.  It has, I admit, been a struggle to take an interest in the developments that I would otherwise have reported here, in the face of the sacrifices that others have made, and continue to make.  It is, nevertheless, my hope to return to posting soon.  Meanwhile, I hope that you, your family and your friends, are keeping well.

Thursday, 20 February 2020

UK: FRC launches review of the reporting (and auditing) of the impacts of climate change

The Financial Reporting Council has launched a review to consider how companies and their auditors assess and report on the impact of climate change: see here. As part of the review, the FRC will consider the extent to which companies are reporting in accordance with the Task Force on Climate-related Financial Disclosures framework.

Thursday, 13 February 2020

UK: Audit, accounting and corporate reporting during the transition period

The Department for Business, Energy and Industrial Strategy and Financial Reporting Council have published a couple of joint letters for auditors and accountants with information concerning auditing, accounting and corporate reporting standards during the transition/implementation period following the UK's departure from the European Union: explaining: see here (pdf) and here (pdf).

Wednesday, 12 February 2020

IOSCO report: crypto-asset trading platforms

The IOSCO has published a report, as part of its work programme on crypto-assets and for the benefit of assisting regulatory authorities, titled Issues, Risks and Regulatory Considerations Relating to Crypto-Asset Trading Platforms: see here (pdf).

Saturday, 8 February 2020

UK: FTSE100 boards - third of board positions held by women

It has been announced today by the Department for Business, Energy and Industrial Strategy that a third of FTSE100 board positions are now held by women, meeting one of the Hampton-Alexander review targets a year early: see here.

Thursday, 6 February 2020

UK: England and Wales: undisclosed wealth orders

Mrs Zamira Hajiyeva is the subject of the first unexplained wealth order to be made under section 362A(1) of the Proceeds of Crime Act 2002 (and introduced by the Criminal Finances Act 2017). In 2018 she applied, unsuccessfully, to the High Court for the order to be discharged: see [2018] EWHC 2534 (Admin). Her subsequent appeal to the Court of Appeal was also unsuccessful: see, from yesterday, Hajiyeva v National Crime Agency [2020] EWCA Civ 108.

One of the issues before the court was the definition of 'politically exposed person'. Section 362B(7) provides the following definition (as recently amended, but not in a way material to the appeal, by the Law Enforcement and Security (Amendment) (EU Exit) Regulations 2019): "(a) an individual who is, or has been, entrusted with prominent public functions by an international organisation or by a State other than (i) the United Kingdom, or (ii) an EEA State, (b) a family member of a person within paragraph (a), (c) known to be a close associate of a person within that paragraph, or (d) otherwise connected with a person within that paragraph".

The Court of Appeal held that this definition did not require the individual to be specifically entrusted either by an international organisation or by a State: the focus should be on the status of the entrusted person and not how they came to be entrusted with prominent public functions. As such, it rejected the argument that Mrs Hajiyeva's husband - the former chairman of the International Bank of Azerbaijan, controlled by the Azerbaijan Democratic Republic (the State) - had to be specifically appointed by the State to be regarded as a politically exposed person.

Wednesday, 5 February 2020

UK: The ownership of quoted company shares

The Office for National Statistics has published updated analysis on the ownership of UK quoted company shares: see here. The report notes that the proportion of shares (in terms of value) held by those outside of the UK has reached a record high: 54.9%. The following chart, from the ONS report, indicates the other ownership categories:

The "rest of the world" category is comprised as follows:

UK: The Parker Review - an update on the ethnic diversity of boards

The Parker Review today published a report with up to date analysis of the ethnicity of FTSE350 company directors: see here (pdf). This follows the publication of the original report, in 2017, in which two targets were set: that, by the end of 2021, all FTSE100 boards would have at least on director of colour; FTSE250 companies were to meet this target by 2024.

The update reports that in the FTSE350, amongst directors where ethnicity is known, there are 7.5% directors of colour. In the FTSE100, there are 98 directors of colour. The report was based on information from 256 companies and over half of these - 150 (31 from FTSE100; 119 from the FTSE250) - did not have at least one director of colour on their boards. The report also contains research commissioned by the Financial Reporting Council on the reporting of board diversity policy in annual reports. This research reveals that most FTSE350 companies do not set measurable objectives for board ethnic diversity. The FRC has commented on these findings: see here.

Tuesday, 4 February 2020

UK: England and Wales: shareholder agreements and restraints of trade

Judgment was given today in Guest Services Worldwide Ltd v Shelmerdine [2020] EWCA Civ 85. The decision is an important one on the operation of restraints of trade contained within shareholder agreements. At issue was whether a restriction in such an agreement continued to apply to an employee shareholder - defined as "any shareholder who is also an employee, agent or director" - if they remained a shareholder but were no longer an employee, agent or director.

At first instance, the trial judge held that the restriction did not apply. The Court of Appeal unanimously disagreed, Lady Justice Asplin observing that "it makes no commercial sense at all (nor would it at the time the Shareholders' Agreement was executed) if the restrictions ... can be avoided altogether and with immediate effect, by terminating one's employment, agency or directorships" (para. [33]).

UK: The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2020

The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2020 were laid before Parliament yesterday: see here. The accompanying explanatory memorandum is available here (pdf) and it explains the purpose of the Regulations - in general terms - as follows: "This instrument continues the process of addressing failures of retained EU law to operate effectively and other deficiencies arising from the withdrawal of the United Kingdom (UK) from the European Union (EU). This is intended to ensure that the frameworks for regulatory oversight and professional recognition of statutory auditors and third country auditors in the UK work effectively following the UK’s withdrawal from the EU".

Italy: OECD capital market review

The OECD has recently published, as part of its capital market series, a capital market review for Italy: see here (pdf).

Friday, 31 January 2020

Germany: new Code submitted to the BMJV

Lasy year the Corporate Governance Code Commission (DCGK) published a new edition of its Corporate Governance Code: see here. The DCGK has announced that the Code has now been submitted to the Federal Ministry of Justice and Consumer Protection (BMJV) and it will, when published in the Federal Gazette, enter into force: see here (pdf).

Thursday, 30 January 2020

UK: The European Union (Withdrawal Agreement) Act 2020 (Commencement No. 1) Regulations 2020

The European Union (Withdrawal Agreement) Act 2020 (Commencement No. 1) Regulations 2020 were made yesterday: see here. They are, as their title suggests, the first commencement regulations to be made under the European Withdrawal Act 2020 and they are accompanied by a short explanatory note: see here. The bring into force, amongst other things, provisions within the 2020 Act providing for the operation of the implementation period including saved law.

UK: FRC consults on revised ISA (UK) 315

The Financial Reporting Council has published for consultation a revised version of International Standard on Auditing (UK) (ISA (UK) 315 Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment, following recent changes made by the IAASB to the international standards on auditing: see here.

Tuesday, 28 January 2020

UK: The Financial Services (Consequential Amendments) Regulations 2020

The Financial Services (Consequential Amendments) Regulations 2020 were made yesterday and laid before Parliament today: see here. They come into force immediately before exit day. Their purpose - to quote directly from the accompanying explanatory memorandum (available here, pdf) - is explained as follows:
This instrument is being made under the European Union (Withdrawal Agreement) Act 2020 ... to amend several EU Exit instruments previously made under the European Union (Withdrawal) Act 2018 ... Specifically, the instrument delays the application of a number of financial services temporary permissions and transitional regimes established by these EU Exit instruments, such that they apply by reference to the end of the Implementation Period (“IP”) rather than exit day (31 January 2020)."

UK: The Money Laundering and Terrorist Financing (Amendment) Regulations 2019

I noted, earlier this year, that the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 were made last year: see here. I noted, too, that the changes being introduced by the new regulations were the subject of a consultation for which the Government's formal response had not yet been published. The response is now available: see here (pdf).

Monday, 27 January 2020

UK: England and Wales: foreign proceedings and solvent companies - recognition order terminated

Last year, in Bailey & Anor (As Foreign Representatives of Sturgeon Central Asia Balanced Fund Ltd), Re [2019] EWHC 1215 (Ch), [2019] WLR (D) 297, Mrs Justice Falk held, under the Cross-Border Insolvency Regulations 2006 (which implement the UNCITRAL Model Law for Cross-Border Insolvency), that it was appropriate to recognise as a foreign proceeding the liquidation, in Bermuda, of a solvent company. 

That order has been terminated by Chief Insolvency and Companies Court Judge Briggs, for the reasons set out in a judgment delivered today: Carter v Bailey & Anor (Sturgeon Central Asia Balanced Fund Ltd) [2020] EWHC 123 (Ch). Judge Briggs held that recognition was available only where it concerned proceedings relating to the resolution of the debtor's insolvency or financial distress. While the current case concerned a company being wound-up (on just and equitable grounds), that company was solvent and was not in financial distress.

To quote Judge Briggs (para. [5]): "It would be contrary to the stated purpose and object of the Model Law to interpret 'foreign proceedings' to include solvent debtors and more particularly include actions that are subject to a law relating to insolvency which have the purpose of producing a return to members not creditors".

Friday, 24 January 2020

UK: England and Wales: administration, jurisdiction and a company incorporated in Gibraltar

Judgment was given several days ago by Mrs Justice Falk in Re Nektan (Gibraltar) Ltd [2020] EWHC 65 (Ch). The case concerned an application for an administration order, under para. 12(1)(a) of Schedule B1 of the Insolvency Act 1986, in respect of a company incorporated in Gibraltar. The principal question before the court was whether it had the jurisdiction to do so. Mrs Justice Falk held that it did, in a decision exploring the meaning of "company" within paragraph 111 of Schedule B1, and the position of Gibraltar incorporated companies more generally.

Thursday, 23 January 2020

UK England and Wales: articles for use in connection with any fraud

The ICLR has produced a summary for R v Smith, a decision of the Court of Appeal (Criminal Division) from several days ago that has not (yet) been published on BAILII: see here. The decision is an important one concerning the application of section 6(1) of the Fraud Act 2006, which provides that "[a] person is guilty of an offence if he has in his possession or under his control any article for use in the course of or in connection with any fraud". The court held that section 6(1) was wide enough to encompass articles created after the commission of the fraud offence: it could include, therefore, a document that had been created subsequently in order to mask or hide a fraud.

Wednesday, 22 January 2020

UK: England and Wales: directors' duties and company administration

ICC Judge Barber gave judgment yesterday in Re Systems Building Services Group Ltd [2020] EWHC 54 (Ch). I note the case here because of the interesting discussion it contains regarding the extent and nature of the general duties of directors in the context of company administration. Judge Barber stated (at paras. [55] and [56]):
....the general duties of a director of a company to the company set out in ss171 to 177 [Companies Act 2006] do survive the company's entry into administration and creditors' voluntary liquidation. Whilst in office, a director continues to owe the company the duties laid down in ss171 to 177 CA 2006, as applied and interpreted in accordance with the underlying common law rules and equitable principles on which such duties were based: s170(3) and (4).

The fact that, on a company's entry into administration or creditors voluntary liquidation, the Insolvency Act 1986 is engaged, imposing a series of additional specific duties on the part of a director and limiting his managerial powers to those authorised under or in accordance with the Act, does not, in my judgment, operate so as to extinguish the fundamental duties owed by a director of a company to the company as reflected in ss.171 to 177 CA 2006."

Tuesday, 21 January 2020

UK: England and Wales: High Court holds that cryptocurrencies are a form of property

A copy of the judgment of Mr Justice Bryan in AA v Persons Unknown, Re Bitcoin [2019] EWHC 3556 (Comm) has now been published on BAILII, following the lifting of reporting restrictions. The decision is of considerable interest, and importance, because of the analysis it contains concerning cryptocurrencies. The trial judge held that cryptocurrencies were a form of property capable of being the subject of a proprietary injunction and, in doing so, described as "compelling" the recent analysis of cryptocurrencies within the UKJT legal statement.

Update (8 February 2020) - the ICLR has published a summary of the decision: see here.

Monday, 20 January 2020

UK: England and Wales: in reality a derivative claim?

His Honour Judge Eyre QC gave judgment last Friday in Zedra Trust Company (Jersey) Ltd v The Hut Group Ltd [2020] EWHC 5 (Ch). The decision is of interest because of the discussion it contains concerning the boundaries between the unfair prejudice remedy (Part 30 of the Companies Act 2006) and the statutory derivative claim (Part 11 of the 2006 Act). The case arose in the context of an application to strike out a petition under Part 30 as being an abuse of process on the grounds that it was, in reality, a derivative claim.

Thursday, 9 January 2020

UK: FRC's publishes annual review of the UK Corporate Governance Code

The Financial Reporting Council has today published its annual review of the UK Corporate Governance Code: see here (pdf). The report assesses companies' reporting in respect of the 2016 Code; it also comments on the disclosures provides by companies adopting the 2018 Code early and sets out the FRC's expectations in this regard. The quality of the reporting by these 'early adoptors' is described as being mixed.

Monday, 6 January 2020

UK: The Money Laundering and Terrorist Financing (Amendment) Regulations 2019

The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 were made on 20 December: see here. The accompanying explanatory memorandum is available here (pdf) and a shorter explanatory note is available here. Regulation 1(2) provides that the regulations will come into force later this week on January 10, with the exception of regulations 5(5)(c), 6 and 12(b). The regulations make amendments to the UK anti-money laundering framework arising from the amendments made to the fourth anti-money laundering directive (2015/849/EU) by the fifth anti-money laundering directive (2018/843/EU). These amendments will see the expansion of the UK's framework to include new businesses and activities, particularly concerning crypto-assets.

The changes being made by the 2019 regulations were the subject of a consultation last year: see here. Although the regulations have now been made, the Government's formal response to the consultation has not been published. The explanatory memorandum accompanying the regulations states, however, that "[the] government will soon publish its formal response ... This response document will summarise the stakeholder responses submitted and set out the legislative changes and reasoning behind them" (para. 10.7).

India: SEBI publishes stewardship code

At the end of last month, SEBI published a circular containing a stewardship code for mutual funds and all categories of alternative investment funds, in respect of their investment in listed equities: see here. The circular also notes that SEBI, IRDAI and PFRDA are examining a proposal for more wide-reaching stewardship principles in India.

Sunday, 5 January 2020

Finland: the 2020 corporate governance code

A new edition of the corporate governance code published by the Securities Market Association is now in force. A copy of this 2020 code, which replaces the 2015 code, is available here (pdf).

Philippines: SEC publishes new corporate governance code

The Securities and Exchange Commission has published a new edition of its code of corporate governance for public companies and registered issuers: see here (pdf).

A happy new year to you all

Rather belatedly, I wish all readers of the blog - and email subscribers - a happy new year!

Thursday, 19 December 2019

UK: The Queen's Speech - the Government's legislative programme

The State Opening of Parliament took place today with the Queen's Speech setting out the Government's legislative programme. The briefing notes accompanying the Speech, explaining in more detail the Bills that the Government intends to introduce, are available here (pdf). In the section of this document discussing the proposed Employment Bill, the following is said:
We will also develop proposals on company audit and corporate reporting, including a stronger regulator with all the powers necessary to reform the sector. These proposals aim to improve public trust in business, following the three independent reviews [see here, here and here] commissioned in 2018. It will also help workers employed by a large company in future to know how resilient it is".

Other proposals include the introduction of a new insolvency regime for airlines and further financial services legislation - the latter to include measures dealing with the selling of overseas investment funds in the UK and the UK's implementation of the Basel Framework standards following its departure from the European Union.

Wednesday, 18 December 2019

UK: Auditing - The Brydon review report and recommendations

The Brydon review's report concerning the quality and effectiveness of audit was published today: see here (pdf). It looks set to become a landmark publication in the development of the UK corporate governance framework. A list of the report's recommendations is available here (pdf). In its tone, and in the scope of the recommendations, the report calls for dramatic change. It extends beyond a narrow view of the audit process to consider the purpose of auditing (and the auditing profession) along with directors' reporting obligations and the role of audit committees.

Indeed, the report recommends the creation of a separate profession - corporate auditing - distinct from accounting, and operating within an overarching set of principles: the principles of corporate auditing.  It is recommended that the successor of the Financial Reporting Council - the Audit, Reporting and Governance Authority - should act as "midwife" for this new profession.

The report also recommends the adoption, in the Companies Act 2006, of this purpose of the statutory audit: “ help establish and maintain deserved confidence in a company, in its directors and in the information for which they have responsibility to report, including the financial statements”.  Auditors should act in the public interest, the report states, and have regard to the interests of users beyond the shareholders. Moreover, the role of employees in the audit process is acknowledged with the recommendation that the directors seek the views of employees regarding the scope of any audit activity.

With regard to fraud, the report seeks to challenge the perception that auditors have no obligation to detect fraud and argue that they should endeavour to do so. It recommends that directors are subject to a new reporting duty: to set out the actions they have taken each year to prevent and detect material fraud. This would be subject to a corresponding duty, owed by the auditor, to state (1) how they have assured the directors' statement and (2) the additional steps they have taken to assess the effectiveness of the relevant controls and to detect any such fraud.

Tuesday, 17 December 2019

IOSCO: consultation - conflicts of interest during the debt capital raising process

The IOSCO has published a consultation paper in which views are sought on proposed guidance to address conflicts of interest and associated conduct risks during the debt capital raising process: see here (pdf).

UK: FRC publishes revised Auditing Standards

The Financial Reporting Council has today published revised Auditing Standards including a revised Ethical Standard: see here.

Monday, 16 December 2019

Antigua and Barbuda: Privy Council decision on unfair prejudice and insolvency

The Judicial Committee of the Privy Council delivered its opinion today in Stanford International Bank Ltd, Re (Antigua and Barbuda) [2019] UKPC 45. A summary is available here (pdf). The opinion is of particular interest because of the wide relevance of the central question before the Board: whether relief was available for oppressive or unfairly prejudicial conduct where a company was in liquidation. The Board held, by majority and with reference to authorities from across the Commonwealth, that such relief was not available. Lord Briggs (with whom Lord Wilson and Sir Andrew Longmore agreed) observed (paras. [56] and [57]):
There is nothing in section 204 [("Restraining Oppression")], construed as part of the [Antiguan International Business Corporations Act], which compels a conclusion that it provides relief in the context of insolvent liquidation. The breadth of the discretionary power given to the court and the broad range of stakeholders for whose benefit those powers may be exercised is perfectly consistent with an intention that they are designed and intended to be used entirely in the pre-liquidation context. Although it is difficult to discern a clear statutory prohibition of the use of those powers in an insolvency context, it is, in the Board’s view, fundamentally inappropriate that they should be so used.

This is mainly because relief from oppression or unfairly prejudicial conduct is conferred on essentially broad discretionary and equitable principles which simply cannot be made to fit within the implementation of the applicable insolvency scheme. The two frameworks (relief from oppression and the insolvency scheme) as described earlier in this judgment are simply incompatible with each other. They serve different objectives. One of them (the insolvency scheme) serves a recognised public interest whereas the other does not or, if it does at all, only to a much lesser extent, being concerned more with justice and equity as between stakeholders in the company’s affairs. The two frameworks are like chalk and cheese."

UK: FRC corporate reporting and audit quality review programme

The Financial Reporting Council has announced its 2020/21 corporate reporting and audit quality review programme see here.  Included in the programme is a review of IFRS16 disclosure (in the first year of implementation) and the effects on disclosure of the UK's departure from the European Union.