Wednesday, 29 June 2016

UK: key facts and trends in the accountancy profession

The Financial Reporting Council has today published its annual publication Key facts and trends in the accountancy profession: see here (pdf). The report notes, amongst other things, a decline in the number of registered audit firms and an increase in the number of listed companies outside of the FTSE 350 being audited by the 'Big Four' in 2015.

Tuesday, 28 June 2016

Hong Kong: reforming listing regulation - joint consultation paper published

The Securities and Futures Commission (SFC) and the Hong Kong Exchange (HKEX) have published a joint consultation paper setting out proposed reforms to the regulatory framework for listing: see here (pdf). Included in the proposed reforms is the creation of two new committees - the Listing Policy Committee and the Listing Regulatory Committee - with the SFC and HKEX equally represented on both. The reforms are designed to achieve greater cooperation and coordination between the SFC and HKEX.

Monday, 27 June 2016

UK/Europe: FRC statement following the EU referendum

The Financial Reporting Council - the organisation responsible for the UK's governance and stewardship codes as well audit oversight and accounting standards - has made an announcement in response to the result of last week's referendum:
Stakeholders have asked about the implications of the referendum result for our regulatory work. Our regulatory framework is unchanged and we will continue to apply it. The FRC will also continue to play its part in representing the interests of the UK internationally. We will pay close attention to the decisions now taken by the Government and Parliament, and continue to work in collaboration with our key stakeholders, particularly investors, business and the professionals we regulate, in order to ensure our work continues to support economic growth".

Friday, 24 June 2016

UK: corporate culture and the external auditor

In a speech delivered a couple of days ago at Deloitte’s annual Risk, Regulatory and Public Policy Forum, the chairman of the Financial Reporting Council - Sir Win Bischoff - spoke about corporate culture, the FRC's work in this area, and the role that external auditors can play: see here. In particular, he observed (perhaps a little controversially):
Nobody is in a position to develop a better feel for the culture of an organisation than its auditor. I suggest that you are able – more than anyone- to draw the attention of the Chairman or the Board as a whole, or its CEO, to shortcomings and potential failures as you become aware of them. This is not a duty specifically prescribed in any auditing manual, but is a responsibility you may well agree you have towards investors. Perhaps even towards what is broadly considered the broader public interest".

Thursday, 23 June 2016

UK/Europe: the new EU statutory audit framework

The new EU statutory audit framework is now in force in the UK following the making (and coming into force) of the Statutory Auditors and Third Country Auditors Regulations 2016: see here and here (pdf). The Regulations are accompanied by an explanatory memorandum (pdf) and impact assessment (pdf). Further background information is also available from the European Commission: see here. Also, EcoDA (in conjunction with PwC) has also published guidance on the new regime for audit committees: see here (pdf).

Wednesday, 22 June 2016

UK: Supreme Court rules that property transfers were gratuitous alienations under section 242 of the Insolvency Act 1986

The Supreme Court gave judgment earlier today in Brown v Stonegale Limited [2016] UKSC 30, on appeal from [2015] CSIH 12. A summary of the decision is available here (pdf).

The case concerned the disposition of five properties by a company. The first property was sold for £2.4million, the proceeds being transferred to a bank to reduce the company's borrowing. The remaining four properties were then transferred to others for no consideration. Lord Reed held that there was no reciprocity between the transfer of these four properties and the earlier payment to the bank: the purpose of the later transfer was to divert assets away from the creditors, exactly what section 242 ("Gratuitous alienations (Scotland)") of the Insolvency Act 1986 was designed to prevent.

A recording of Lord Reed, delivering a summary of the court's decision, is available below:

Tuesday, 21 June 2016

Ireland: Private Members' Bill introduced - Companies (Amendment) Bill 2016

Among the Private Members' Bills introduced in the Dáil Éireann last week was one that seeks to amend the Companies Act 2014 in order to extend the personal liability of company officers for employment law breaches: see here. A copy of the Bill, as introduced by Deputy David Cullinane, is available here (pdf).

Monday, 20 June 2016

OECD business and finance outlook - investment treaties and companies, shareholders and creditors

The OECD has published its 2016 business and finance outlook: see here. Chapter 8 of the report provides a useful introduction to the impact of investment treaties on companies, shareholders and creditors: see here.

Friday, 17 June 2016

South Africa: King IV Code and Report - sector supplements published

Earlier this year the Institute of Directors and King Committee published for public comment a draft version of the latest King Report and Code on corporate governance in South Africa (King IV): see here (pdf). The report set out the philosophy, principles, practices and outcomes that provide the benchmark for corporate governance in South Africa. The Code and Report are supported by a series of sector supplements, which have recently been published: see here. These cover, for example, the non-profit sector, state owned entities and SMEs. Comments on the supplements should be submitted by 11 July.

Thursday, 16 June 2016

Europe: ESAs publish their annual reports

The three European Supervisory Authorities - the European Banking Authority, European Securities and Markets Authority and European Insurance and Occupational Pensions Authority - published their annual reports this week: see here (pdf), here (pdf) and here (pdf).

UK: Supreme Court rules that capital notes were redeemable

The Supreme Court gave judgment earlier today in BNY Mellon Corporate Trustee Services Ltd v LBG Capital No 1 Plc [2016] UKSC 29. A summary of the judgment is available here (pdf). By a majority of 3:2, the court held that Lloyds Banking Group was entitled to redeem £3.3 billion of enhanced capital notes (ECNs; a form of contingent convertible security often known as a 'coco'). Lord Neuberger, President of the court, delivered the majority opinion and provided some observations on the interpretation of the trust deed (paras. [30] and [33]):

"Over the past 20 years or so, the House of Lords and Supreme Court have given considerable (some may think too much) general guidance as to the proper approach to interpreting contracts and indeed other commercial documents, such as the Trust Deed in this case. What, if any, weight is to be given to what was said in other documents, which were available at the time when the contract concerned was made or when the Trust Deed in question took effect, must be highly dependent on the facts of the particular case. However, when construing a contract or Trust Deed which governs the terms upon which a negotiable instrument is held, as in the present case, very considerable circumspection is appropriate before the contents of such other documents are taken into account. ... In the present case, the Trust Deed, and in particular those parts of clauses 7, 8 and 19 of the T&Cs which fall to be construed, cannot be understood unless one has some appreciation of the regulatory policy of the FSA at and before the time that the ECNs were issued".

"In the present case, the Trust Deed, and in particular those parts of clauses 7, 8 and 19 of the T&Cs which fall to be construed, cannot be understood unless one has some appreciation of the regulatory policy of the FSA at and before the time that the ECNs were issued. That is self-evident from the provisions of clause 19 which are set out in paras 13 and 14 above. Accordingly, I consider that at least the general thrust and effect of the FSA regulatory material published in 2008 and 2009 can be taken into account when interpreting the T&Cs".

A summary of the court's decision was delivered in person by Lord Neuberger this morning:

Wednesday, 15 June 2016

Jersey: Financial Services Commission publishes revised Codes of Practice

The Jersey Financial Services Commission has published revised editions of its Codes of Practice: see here. Each of these Codes includes governance requirements for different types of business (e.g., deposit-taking business, insurance business). The new Codes come into effect on 1 September this year.

Tuesday, 14 June 2016

IOSCO survey report on audit committee oversight of auditors

The International Organization of Securities Commissions has published a survey report on audit committee oversight of auditors: see here (pdf). The survey contains results from 47 jurisdictions and clearly highlights how the audit committee has grown in importance since the IOSCO's last survey over ten years ago. The survey found that publicly listed companies are required to establish an audit committee in all but two of the 47 jurisdictions in the survey.

Monday, 13 June 2016

Australia: shareholder meetings - boards, shareholders and the balance of power

Judgment was given last Friday in Australasian Centre for Corporate Responsibility v Commonwealth Bank of Australia [2016] FCAFC 80. The case - on appeal from [2015] FCA 785 and heard by Allsop CJ, Foster and Gleeson JJ - is an important decision on the operation of shareholder meetings as well as the balance of power between the board of directors and shareholders.

At issue was whether shareholders were entitled to table resolutions at a shareholders' meeting for the purpose of expressing an opinion regarding the management of the company. The resolutions were not intended to be acts of the company, or to direct the directors to act in particular way. In the court's view (at para. [60]):
" ....the shareholders in general meeting did not have a role to play in the exercise of powers vested exclusively in the board by passing a resolution which would express an opinion on the exercise of those powers. That general proposition may be affected by the particular constitution of a company, but it applies in this case".

UK: Supreme Court judgment this week in capital notes interpretation case

The Supreme Court will give judgment on Thursday this week in BNY Mellon Corporate Trustee Services Limited v LBG Capital No. 1 Plc. At issue, to quote from the Supreme Court summary, was whether the Court of Appeal ([2015] EWCA Civ 1257) "erred in law in its construction of the terms of enhanced capital notes by relying on technical and specialist information as part of the factual matrix". The hearing took place in March this year, over two sessions, and can be watched here and here.

Friday, 10 June 2016

Australia: resolutions to remove directors of public companies

Judgment was given several days ago by Justice Beach, sitting in the Federal Court, in the case State Street Australia Ltd in its capacity as Custodian for Retail Employees Superannuation Pty Ltd (Trustee) v Retirement Villages Group Management Pty Ltd [2016] FCA 675. At issue was the operation of section 203D of the Corporations Act 2001, which provides certain rules concerning the removal of directors from public companies. Beach J held that whilst section 203D was "mandatory in the sense that it overrides a company's constitution to the extent of any consistency, it does not provide an exhaustive codification of the mechanism for removal" (para. [16]). In reaching this view, Beach J refused to follow the earlier authority of Scottish and Colonial Ltd v Australian Power and Gas Co Ltd [2007] NSWSC 1266.

Thursday, 9 June 2016

Europe: Commission consultation on the Financial Conglomerates Directive

The European Commission began a consultation today as part of its evaluation of the EU Financial Conglomerates Directive (2002/87/EC). A copy of the consultation paper is available here (pdf) and further background information is available here. The Commission is considering whether the framework set out in the Directive is proportionate and fit for purpose. More specifically, the Commission wants to know whether the framework has: (a) contributed to enhanced financial stability; (b) safeguarded creditors' and policyholders' interests; and (c) promoted the competitiveness of financial conglomerates within the EU and at international level.

Wednesday, 8 June 2016

UK: The Bank of England and Financial Services Act 2016 (Commencement No. 3) Regulations 2016

The Bank of England and Financial Services Act 2016 (Commencement No. 3) Regulations 2016 were made yesterday: see here or here (pdf). They bring into force various provisions of the Bank of England and Financial Services Act 2016 on July 6, including section 2 (term of office of non-executive directors) and section 3 (abolition of the Oversight Committee). A short explanatory note is available here and a note concerning earlier commencement orders is available here.

Tuesday, 7 June 2016

Isle of Man: derivative actions under Manx law

His Honour Deemster Doyle (First Deemster and Clerk of the Rolls), sitting in the High Court of Justice, gave judgment at the end of May in Gulf Hibiscus Limited v Lime Petroleum Plc (Ord, 2016/1): see here (part 1 of 2) and here (part 2 of 2). This is an important decision concerning derivative actions under the regime introduction by the Isle of Man Companies Act 2006 (pdf) and the Rules of the High Court of Justice 2009.

Deemster Doyle refused a shareholder's claim to bring a derivative action under section 175 of the 2006 Act and in doing so considered the meaning and operation of those factors the court is required to take into account in exercising its discretion (including, for example, whether the shareholder was acting in good faith). Reference was made to authorities from England and also to a couple of recent decisions from the Eastern Caribbean Supreme Court, Deemster Doyle noting that Tynwald had appeared to follow British Virgin Islands legislation - section 184C of the BVI Business Companies Act 2004 - rather than English legislation in respect of derivative actions brought on behalf of companies formed or re-registered under the Companies Act 2006.

Monday, 6 June 2016

UK: ICSA consultation on the practice of minuting meetings

ICSA - the Institute of Chartered Secretaries and Administrators - has published a consultation paper on the practice of minuting meetings: see here (pdf). The role, purpose and standard of minutes has been the subject of recent Parliamentary attention: see the letter sent by the Rt Hon Andrew Tyrie MP, chairman of the Treasury Committee, to the chief executive of ICSA: here (pdf). Indeed, the first question asked by ICSA in its consultation paper is this: what is the principal function of meeting minutes?

Thursday, 2 June 2016

Ireland: Corporate Manslaughter Bill introduced in the Dáil Éireann

Among the Private Members' Bills introduced in the Dáil Éireann earlier this week was one that seeks to introduce a statutory offence of corporate manslaughter. A copy of the Bill, as introduced, is available here (pdf) and an explanatory memorandum is available here (pdf). The memorandum states that Bill is based on the draft Bill prepared over ten years ago by the Law Reform Commission and published in its Report on Corporate Killing (pdf).

Bhutan: Parliament passes the Companies Bill 2015

The seventh session of the second Parliament of Bhutan began last month. A Bill to introduce a new company law framework - the Companies Bill 2015 - was debated earlier this week and passed: see here.

Wednesday, 1 June 2016

Pakistan: SECP publishes capital markets action plan

The SECP has published for comment its capital markets action plan: see here (pdf). Governance is an important theme running through the plan, particularly with regard to the self-regulatory organisations, described by the plan as the pillars of the capital market.

Tuesday, 31 May 2016

UK: England and Wales: parent company liability for subsidiary company operations

Judgment was given last week by Mr Justice Coulson in Lungowe v Vedanta Resources plc [2016] EWHC 975 (TCC). Although not a full hearing, the decision is noteworthy because of the (albeit brief) discussion it contains of the circumstances in which a parent company may be liable in tort for the operations of subsidiary companies.

Friday, 27 May 2016

UK: non-compete clauses - a call for evidence

The Department for Business, Innovation and Skills (BIS) has published a consultation paper seeking views on the operation of non-compete clauses: see here (pdf). In particular, BIS is interested to know whether such clauses unfairly hinder workers from moving freely between employers or from starting their own business.

Bhutan: company law reform - joint sitting to consider Companies Bill

The seventh session of the second Parliament of Bhutan began earlier this week: see here. A Bill to introduce a new company law framework - the Companies Bill 2015 - was introduced last year and now looks close to completing its legislative journey: it has been scheduled for debate at a joint sitting next Monday: see here (pdf).

Thursday, 26 May 2016

UK: Modern Slavery (Transparency in Supply Chains) Bill

The Modern Slavery (Transparency in Supply Chains) Bill was introduced in the House of Lords earlier this week and received its first reading: see here. A copy of the Bill, as introduced by Baroness Hamwee (on behalf of Baroness Young of Hornsey) as a Private Members' Bill, is available here and here (pdf). The Bill will, amongst other things, amend section 54 of the Modern Slavery Act 2015 in order to require publication of the 'slavery and human trafficking statement' in companies' annual reports.

Wednesday, 25 May 2016

UK: a review of the corporate insolvency framework

A joint consultation paper - from the Insolvency Service and Department for Business, Innovation and Skills - was published today and seeks views on reforms to the corporate insolvency framework: see here (pdf). Four main proposals are outlined, including the introduction of a new moratorium as well as reforms designed to make it easier for companies to continue trading during restructuring. Further information, including a response form and impact assessment, is available here.

Kenya: guidelines on the Companies Act 2015

The Companies Act 2015, which contains Kenya's new company law framework, became law last year. A copy of the Act was published in a special issue of the Kenya Gazette Supplement: see here (pdf). More recently, guidelines on the operation of the new Act, including information about secondary legislation and those provisions that have been enacted, have been published by the Office of the Attorney General and Department of Justice: see here.

UK: Tomorrow's Company Futures Project - rethinking governance structures

Tomorrow's Company has published a report, as part of its Futures Project, titled "UK Business: what's wrong? what's next": see here (pdf). As well as calling for more diversity in business forms, the report also calls for a rethinking of established governance structures. Are controlling shareholders a problem? Is too much expected of non-executive directors? Does the UK Corporate Governance Code place too much emphasis on risk mitigation?

Tuesday, 24 May 2016

UK: FRC feedback statement on board succession planning discussion paper

The Financial Reporting Council has published a feedback statement for its recent discussion paper on board succession planning: see here (pdf). Providing further guidance for nomination committees, as part of the revision of the Guidance on Board Effectiveness, is being considered by the FRC within its Culture Project. The FRC also plans to review and analyse nomination committee disclosures and to comment on these in the next edition of its Developments in Corporate Governance and Stewardship report.

Monday, 23 May 2016

UK: PRA publications - audit committee requirements (policy statement) and internal governance (supervisory statement)

The Prudential Regulation Authority has published a policy statement (reference 16/16) on the implementation of audit committee requirements under the Statutory Audit Directive: see here (pdf). The publication of this policy statement has resulted in several changes being made to the PRA's supervisory statement on internal governance (reference 21/15). The revised statement is available here (pdf).

Friday, 20 May 2016

FSB task force publishes phase 1 report on climate-related disclosure by companies

At the end of last year the Financial Stability Board set-up a task force on climate-related financial disclosures: see here. The group was given the task of developing recommendations for climate-related disclosure by companies. The group's phase 1 report was published earlier this month: see here (pdf). The report sets out the principles needed for an effective disclosure regime (including, for example, that disclosures are specific, complete and consistent over time) and identifies the objectives for the second phase of the group's work. The objectives include producing recommendations relating to the near, medium and long-term physical and non-physical impacts faced by the financial sector and non-financial companies, in order to further understanding and evaluation of relevant financial risks and opportunities.

Thursday, 19 May 2016

USA: Comments sought on proposed rule to prohibit incentive-based pay that encourages inappropriate risk taking in financial institutions

Six federal agencies, including the Securities and Exchange Commission, have published for comment a proposed rule to prohibit incentive based pay that encourages inappropriate risk taking in financial institutions: see here (pdf). The proposed rule will implement section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. For an update on the SEC's progress in implementing the Act's rule-making requirements, see here.

India: IRDAI publishes updated governance guidelines for insurers

The Insurance Regulatory and Development Authority of India has published an updated edition of its Corporate Governance Guidelines for Insurers: see here. The new Guidelines take effect from the 2016/17 financial year.

Wednesday, 18 May 2016

UK: England and Wales: a representation that shares are fully paid

Judgment was given yesterday by HHJ David Cooke in Blomqvist v Zavarco Plc & Ors [2016] EWHC 1143 (Ch). The decision is interesting and noteworthy because of what is said about the representation made by a company when its shares are traded on an exchange: that they are fully-paid. To quote the trial judge (at paras. [86], [89] and [90]):

In modern markets, share transactions are likely to be uncertificated. The reality of the market is that [it] is assumed by participants that all listed shares are fully paid. Some will know that it is a condition of listing that shares must be fully paid. Others will give no thought to the point, because the concept of the unpaid share is wholly alien to the system of public share markets.

It is in my view wholly necessary that market participants should be able to assume that shares are fully paid unless specifically informed otherwise. Given the way in which market transactions are now conducted, it is in my judgment unsatisfactory to provide this assurance by a legal mechanism (estoppel by representation) that derives from the conduct of individual transactions between identified persons ... In the absence of statutory protection however, the available legal mechanism must be interpreted and adapted to modern conditions.

In my judgment, a company that applies to have its shares or other securities listed on an exchange, or traded through a system such as Crest, which in either case requires that the securities be fully paid, is to be taken as thereby representing to potential acquirers of its shares that they are fully paid. That representation should be taken as relied upon, unless the company proves the contrary, by any purchaser or transferee who buys or acquires the securities with knowledge that the shares are so listed or traded. An acquisition through the market would clearly demonstrate such knowledge. But an off-market purchaser is very likely also to have the requisite knowledge".

Tuesday, 17 May 2016

UK: CMA retail banking market investigation - provisional decision on remedies

The Competition and Markets Authority has today published its provisional decision on remedies, as part of its retail banking market investigation: see here (pdf, 3.72MB, 405 pages). A summary is available here. The CMA states that competitive pressures are weak. Breaking-up the largest banks is not proposed; the CMA relies, instead, on other measures including improved disclosure and the better use of technology to improve the switching process. The CMA also proposes requiring banks to set a monthly maximum charge for unarranged overdrafts.

UK: The purposeful company task force publishes interim report and seeks views on wide-ranging options

The Purposeful Company Task force - formed within the Big Innovation Centre, under the direction of the Purposeful Company Steering Group - has published its interim report: see here (pdf). The purpose of the report, to quote directly from it, is to argue for better conditions to allow companies to increase long-term value creation.

The report does not contain recommendations, but instead invites views on 21 policy options grouped under the following headings: business implementation and remuneration; corporate governance and commitment devices; blockholding, monitoring and engagement; strengthening the capabilities of asset owners; and reversing the decline of British equity ownership

A summary of the options (with information about making a submission) is available here (pdf).

Monday, 16 May 2016

UK: HM Treasury consultation - the tax deductibility of corporate interest expenses

Earlier this year, as part of the Budget, the Government announced that new rules limiting the tax relief available to large multinationals in respect of interest expenses would be introduced next April. A consultation on the detailed policy design and rules has now begun with the publication by HM Treasury of a consultation paper: see here (pdf).

Friday, 13 May 2016

UK: Public Accounts Committee report on financial services mis-selling

The House of Commons Public Accounts Committee published a report today titled "Financial services: mis-selling: regulation and redress": see here or here (pdf). Whilst noting that the Financial Conduct Authority has taken action to address some of the causes of financial services mis-selling, the report states that substantial mis-selling risks remain. It calls upon the FCA and Treasury to do more to understand whether, and to what extent, mis-selling continues.