Friday, 26 February 2010
The Court of Appeal gave judgment this week in Financial Services Authority v Amro International SA  EWCA Civ 123. This is an important decision concerning the powers conferred by the Financial Services and Markets Act (2000) on the Financial Services Authority to support overseas regulators. A summary of the decision has been provided here by the ICLR as part of its free WLR Daily service.
Thursday, 25 February 2010
The Takeover Panel Code Committee has announced the start of a review of the Takeover Code, in the light of what it describes as "recent commentary and public discussion, and suggestions for consideration from the Secretary of State for Business, Innovation and Skills and others". The Committee states that a consultation paper will be published "as soon as practicable". Meanwhile, further information about its review is available here (pdf).
A couple of High Court decisions concerning petitions under Section 994 of the Companies Act (2006) - the unfair prejudice remedy - were handed down yesterday: Shah v Shah  EWHC 313 (Ch) and Sharafi v Woven Rugs Ltd  EWHC 230 (Ch).
Whilst not adding anything important to our understanding of Section 994, the decisions provide good examples of conduct that will be regarded as unfairly prejudicial. This said, in Shah an interesting argument was made by the petitioning minority shareholder: that the appointment by a majority shareholder of a director who was not independent of the majority shareholder was unfairly prejudicial under Section 994. The trial judge rejected this argument, observing that the appointment per se of such a director would not be unfairly prejudicial.
Wednesday, 24 February 2010
The Financial Services Bill received its second reading in the House of Lords yesterday and now proceeds to Committee stage for more detailed consideration of its clauses (the date for which has not yet been set). The debate at second reading can be read in Hansard here and watched here (note that debate began at 4.14 pm).
The speeches were wide-ranging but common themes included: the effectiveness of the tripartite system of regulation; the desirability of the proposed new consumer financial education body; the issues associated with introducing a mechanism for collective proceedings in respect of financial services claims; the proposed duty on the FSA with regard to firms' remuneration policy; and the power given to HM Treasury in clause 9 to make Regulations concerning the preparation of executive remuneration reports.
With regard to clause 9, Lord Myners, for the Government, stated that a draft copy of the Regulations would be available before Committee stage.
The Committee of European Securities Regulators has updated its very useful summary of the measures taken by its members with regard to short selling.
Tuesday, 23 February 2010
The Financial Services Bill will be debated in the House of Lords today, having reached the second reading stage. A copy of the Bill, as brought forward from the House of Commons, is available here (html) and here (pdf). Further information about the Bill is available here.
The Government has published its response to the recommendations made last year by the Capital Market Development Taskforce: see here and here (pdf).
The Government has expressed its support for many of the recommendations including: ensuring the duties of fund managers and supervisors are clear and enforced; considering consolidating parts of the Companies Office, Securities Commission and the NZX Disciplinary Tribunal into a new market conduct regulator; and making it easier and cheaper for companies to raise capital privately by clarifying and broadening the exemptions to the Securities Act 1978 and Takeovers Act 1993.
Monday, 22 February 2010
The Scottish Law Commission has published its eighth programme of law reform (2010-2014): see here (pdf). One of the short-term projects identified is a review of the criminal liability of partnerships, about which the Commission notes:
Following a fire in a nursing home run by a partnership, the partnership was dissolved, and attempts to indict the dissolved partnership, and/or the members of it, in relation to the causes of the fire failed [see Balmer v Her Majesty's Advocate 2008 SCCR 765, 2008 SLT 799,  HCJAC 44]. It is clear that the traditional concepts of the law of partnership do not fit easily into the modern regulatory structure within which many of these organisations operate. While we and the Law Commission for England and Wales investigated and proposed reforms of the general law of partnership in 2003 [here, pdf], we did not focus particularly on criminal liability. It is, however, an area in which the public might reasonably expect a greater degree of clarity than is currently provided by the law".
Japan's Financial Services Agency has published for consultation rules which will increase the disclosure obligations of listed companies with regard to their adopted governance structure, directors' remuneration, cross-shareholdings and voting results. It is proposed that the new rules will come into force on 31 March. Further information is available here (pdf).
Friday, 19 February 2010
The Association Française de la Gestion Financière (the French Asset Management Association) has published a revised edition of its corporate governance recommendations: see here. A summary of the amendments made in the new edition is available in the accompanying press release: see here. Amongst the changes is the addition of a recommendation that a lead director should be appointed to monitor conflicts of interest where the chief executive is also the chairman.
An updated edition of the AIM Rules for Companies has been published, following a consultation last year: see here (pdf). A copy of the Rules, with the changes highlighted, is available here (pdf). The new Rules require the disclosure of directors' remuneration in the annual accounts (for financial years ending on and after 31 March 2010) and also provide for the electronic communication of annual reports and accounts (with immediate effect).
The Dáil Public Accounts Committee has published a report on the loss of fiduciary taxes arising from the abuse of limited liability: see here (pdf). The Committee has recommended that company law should require directors to have their own tax affairs in order when incorporating a new company or when being appointed to an existing company. It has also recommended that the Company Law Review Group should examine whether the current levels of capitalisation required when incorporating a limited liability company should be increased.
Thursday, 18 February 2010
The Government Commission on the German Corporate Governance Code has published its agenda for 2010: see here (pdf). It will be focusing on improving the professionalism of supervisory boards and developing specific recommendations for appointing more women to such boards. Other matters under consideration are conflicts of interest and board member education.
The new European Commissioner for the Internal Market, Michel Barnier, delivered a short speech earlier this week outlining his priorities and calling for stronger corporate governance: see here (html). More specifically, the Commissioner observed:
On top of supervision and regulation by public authorities, I am convinced that if we want to prevent future crises, financial institutions themselves, and other companies, need to change. We need stronger corporate governance. We may need to think about targeted measures to strengthen the responsibility and the independence of management boards, and look at the role of shareholders and external audit. And I am convinced that binding rules on remuneration across the financial sector would also be an incentive for taking less risk".
Wednesday, 17 February 2010
At Shell's 2009 annual general meeting a majority of votes were cast against the remuneration report. The results were: for (1,295,183,971), against (1,896,170,360) and withheld (129,487,396). A review of remuneration policy followed and this week the chairman of Shell's remuneration committee wrote to shareholders explaining the changes being proposed to remuneration policy: see the letter here (pdf). Remuneration is being frozen and bonuses will be calculated by reference to a broader range of metrics.
The Corporate Governance Association of Ireland has published a corporate governance code for independent directors of investment funds: see here (pdf). The purpose of the code, to quote directly from it, is to "promote a set of principles that makes a valuable contribution towards the achievement and maintenance of higher standards of corporate governance in investment funds in Ireland".
Tuesday, 16 February 2010
The Financial Services Authority has fined Mehmet Sepil, the chief executive officer of Genel Enerji, a Turkish oil exploration company, £967,005 for dealing in the shares of a UK listed company (Heritage Oil Plc) on the basis of inside information. The fine was made up of a profit disgorgement element (£ 267,005) and penalty (£ 700,000) and is the largest so far imposed by the FSA against an individual for market abuse under the Financial Services and Markets Act (2000). The penalty of £ 700,000 was reduced from £ 1,000,000 because Mr Sepil agreed to settle at an early stage in the FSA's investigation. In its final notice, the FSA stated (paras. 3.3 and 3.4):
The FSA finds that you did not set out to commit market abuse, that you were not familiar with the legal requirements which prohibited you from dealing in Heritage shares, and that you had not received advice on these at the time. This was a serious example of insider dealing by a person in a key position of responsibility. While you were not an approved person, you were the Chief Executive Officer of a company engaged in takeover discussions and had inside information about Heritage’s operations".
Genel Enerji’s chief commercial officer and its exploration manager were also fined for dealing in Heritage’s shares on the basis of inside information.
For further background information see here.
In August 2009 the Accounting Standards Board published a consultation paper in which it set out proposals regarding the future of UK Generally Accepted Accounting Practice (GAAP) and its convergence with International Financial Reporting Standards (IFRS). Substantial and wide ranging change was proposed. The responses received have now been published - see here - and these, the ASB notes in an accompanying press release, "demonstrate a divergence of views on many important issues and the ASB will have a challenging task in analysing them and in coming to firm recommendations".
Judgment was given yesterday in Rolfe v Rolfe  EWHC 244 (Ch), a case concerning the operation of the so-called Re Duomatic principle. This principle takes it name from the decision of Buckley J. in Re Duomatic Ltd.  2 Ch 365, in which his Lordship stated (p. 373):
[W]here it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be".
In Rolfe several arguments were advanced with regard to the Re Duomatic principle, in response to which the trial judge observed (paras.  to ):
... in my judgment if an individual who holds some shares for himself and other shares as a trustee or executor has expressed assent, he is not to be taken to have given that assent in respect of the shares held as a trustee or executor if he did not intend or purport to be making a decision in relation to those shares ...
... I do not accept that a shareholder's mere internal decision can of itself constitute assent for Duomatic purposes ... for a mere internal decision, unaccompanied by outward manifestation or acquiescence, to be enough would, as it seems to me, give rise to unacceptable uncertainty and, potentially, provide opportunities for abuse ... In my judgment, there must be material from which an observer could discern or (as in the case of acquiescence) infer assent. The law applies an objective test in other contexts: for example, when determining whether a contract has been formed. An objective approach must, I think, also have a role with the Duomatic principle ...
... I am willing to assume, without deciding, that the assent of the beneficial owners of a share will meet Duomatic requirements ... Whether or not, however, the assent of all the beneficial owners of a share will suffice, I do not think that the assent of just one of a number of such owners normally will".
Companies House has published revised editions of two of its guidance booklets:  GP2 - Life of a company, part 1 annual requirements and  GP06 - The European Company: Societas Europaea (SE).
Section 1041A of the Corporations Act (2001) provides that a person must not take part in, or carry out, a transaction (or two or more transactions) that are likely to have the effect of creating an artificial price for trading in financial products on a financial market operated in Australia. The concept of an 'artificial price' is not defined in the 2001 Act but, for the first time, the Federal Court provided a definition yesterday in Australian Securities & Investments Commission v Soust  FCA 68. The trial judge, Goldberg J., held (at paras 90 - 91):
I consider that the expression 'artificial price' in s 1041A connotes a price created not for the purpose of implementing or consummating a transaction between genuine parties wishing to buy and sell securities, but rather for a purpose unrelated to achieving the outcome of the interplay of genuine market forces of supply and demand ... It is fundamental to the working of the free market forces of securities exchanges such as the ASX that buyers are concerned to buy securities at the lowest possible price and sellers are concerned to achieve the highest possible price. Any different approach to the price for which securities are traded is a distortion of the interplay of the open market forces of supply and demand ..."
Monday, 15 February 2010
The States of Jersey Economic Development Department has published a green paper - see here (pdf) - in which this question is asked: should the Companies (Jersey) Law 1991 be amended to permit Jersey companies to merge directly with a wider range of bodies, including foreign companies?
Part 11 of the Companies Act (2006) placed on a statutory footing the right of a shareholder to instigate legal action on the company's behalf, known as a derivative action (in England and Wales) and derivative proceedings (in Scotland). A shareholder bringing a derivative action must, under Section 261, apply to the court for permission to continue it. Such permission was granted earlier this month by Mrs Justice Proudman in Kiani v Cooper (Ch.D., 4 February), in a case concerning alleged breaches of fiduciary duty by a company director. This is one of the first reported English decisions in which permission has been granted. It is available on the BAILII database here.
Friday, 12 February 2010
Grant Thornton has published its FTSE350 Corporate Governance Review 2009: see here (pdf).
The Review examines companies' compliance with the Combined Code and disclosure in this regard. It notes that 47% of companies reported that they were fully compliant with the Code. The quality of disclosure remains, nevertheless, an issue according to the Review, with only 29% of those companies claiming full compliance providing the disclosures needed to support their claim. Amongst the other finding reported are:
- The average FTSE 350 board has 5.2 non-executive directors compared to 3.3 executive directors, although 80 companies did not have at least half the board made up of independent non-executive directors for the entire year.
- 31 companies, including eight in the FTSE 100, did not disclose who on the audit committee had recent and relevant financial experience.
- Three FTSE 100 and 13 Mid 250 companies changed their auditors during the year.
The Corporate Manslaughter and Corporate Homicide Act 2007 (Commencement No. 2) Order 2010 was made on February 9th and published yesterday on OPSI: see here (html) or here (pdf). The Order brings into force Section 10 (the power to order conviction etc to be publicised) of the Corporate Manslaughter and Corporate Homicide Act 2007 on February 15th.
The annual general meeting of Infineon took place yesterday (a video recording is available here). Hermes and several other shareholders failed to supplant the company's chairman-designate with their preferred candidate. The Financial Times newspaper reports:
Infineon’s rebellious shareholders received a crushing and unexpected defeat on Thursday in their attempt to oust the chairman-designate, as some investors on the losing side alleged that there might have been flaws in the voting procedures. A majority of 72.62 per cent of the shareholders voted against Willi Berchtold, the finance director of a large German car parts maker who had been proposed as chairman by a group of investors".
The ICLR WLR Daily Service carries this headnote summary of the Court of Appeal decision Online Catering Ltd v Acton & Anor  EWCA Civ 58:
The Bills of Sale Acts did not apply to companies. Accordingly, a party would not succeed in establishing that a contract was unenforceable for want of registration under the Acts if the relevant contracting party was a company".
Thursday, 11 February 2010
UK: England and Wales: corporate manslaughter - Guideline published by Sentencing Guidelines Council
The Sentencing Guidelines Council has published its final definitive guideline Corporate manslaughter and health and safety offences causing death: see here (pdf). The guideline sets out principles to guide courts in England and Wales and applies to the sentencing of organisations on or after 15 February 2010 under the Corporate Manslaughter and Corporate Homicide Act (2007). It makes clear that fines for companies and organisations found guilty of corporate manslaughter should seldom be less than £ 500,000. It also provides that in fixing the level of the fine, account should be taken of the financial circumstances of the offending organisation and that the court should not be influenced by the impact on shareholders and directors. For discussion of the Guideline, see here.
Note: later this month the first trial for corporate manslaughter under the 2007 Act begins at Bristol Crown Court: see here.
The Global Accounting Alliance - an alliance of professional accounting bodies from across the world formed in November 2005 - has published its report Making Financial Reporting Simpler and More Useful - the Way Forward: see here (pdf). The GAA expresses its support for a single set of globally accepted, principles-based financial reporting standards, primarily focused on transparency and the needs of capital markets rather than the needs of prudential regulators.
Wednesday, 10 February 2010
A majority of votes were cast against the remuneration report at today's annual general meeting of Grainger plc: see here (results; see resolution 2) and here (report in the Guardian newspaper with background information).
Lord Myners, the Financial Services Secretary, delivered the keynote speech at yesterday's NAPF seminar on pension funds and responsible investing. Here are some extracts:
To me, one of the iconic failures of governance has been executive remuneration. There is a large body of data that shows a continual upwards spiral of senior executive pay ... Why has this happened? An economist might ask the following questions to find an explanation: Is the rise in salaries a reflection of contraction in the supply of talent or an increase in the demand for talent? Or have the demands, pressures and stresses of work risen over the past five decades, requiring this to be reflected in compensation? I am not persuaded that I can find a satisfactory answer to any of these questions.
... I believe that Institutional investors, on behalf of their clients, need to be more challenging in the future than they have been in the past. And you, as Trustees, have a duty to satisfy yourselves that your agents, the fund managers, are taking necessary action to protect and enhance the value of the investments they make on your behalf and on behalf of those for whom you act in trust.
... I am also keen to further the debate on establishing an independent industry body with a mandate to represent the institutional investor community and raise the profile of governance and engagement as an investment strategy. There would be very real benefit in establishing an industry-wide institute that speaks with one voice on behalf of all institutional investors.
... The Government can and will help in enabling good corporate governance, but, if the market and trustees are to meet their fiduciary duties, you need to develop and promote solutions to the problems that still impede effective engagement and governance. This should include a thorough evaluation by pension fund trustees of the appropriateness of goals they set for their fund managers and the development of effective economic incentives to good value-adding governance – those who are willing to put the effort and resource into successful stewardship deserve to be handsomely rewarded".
Today's Times newspaper reports the comments of the outgoing Cadbury chairman, Roger Carr, regarding the role hedge funds during takeovers. Mr Carr is reported as arguing that a minimum of 60% of shareholders should be required to approve a takeover and that restrictions should be imposed on the voting rights of hedge funds in the takeover context.
Tuesday, 9 February 2010
In April 2009 the President signed into law the Companies Act (2008). The Act is due to come into force later this year. Meanwhile, draft Regulations have been published supplementing the framework established by the Act. Included in the Regulations are, for example, further rules regarding the requirement for certain companies to have a Social and Ethics Committee: see here (pdf).
The Supreme Court gave its opinion last week in Grays Timber Products Ltd v Revenue and Customs (Scotland)  UKSC 4 - see here (html) or here (pdf). The Supreme Court summary of the decision is available here (pdf). The opinion contains some brief discussion of shareholder rights and the extent to which the rights attaching to shares might be found in documents other than the articles of association.
A summary of the decision has been provided by the ICLR as part of its WLR Daily Service, the headnote for which reads:
In assessing whether employment-related securities had been disposed of for a consideration which exceeded their “market value”, so as to occasion a charge to income tax, it was necessary to postulate a notional sale between a hypothetical vendor and purchaser, with the personal characteristics of the actual vendor, such as his right under a subscription agreement to a disproportionately large part of the consideration paid, being ignored".
Monday, 8 February 2010
The ESRC has funded a seminar series, hosted by Queen's University, Belfast, titled Re-Engineering the Corporation. Seminars (each with a different focus) will be held in London (26th March), Newcastle (14th May) and Belfast (16th - 17th September). Their purpose, to quote from the organiser's website, is to "develop a research agenda that works towards a wholesale re-engineering of the corporate form".
Simon Laffin was last month removed, in somewhat acrimonious circumstances, as the chairman of Mitchells and Butlers plc at the company's annual general meeting (for background information see here and here). In today's Daily Telegraph newspaper he reflects on some of the governance issues raised by his removal and the circumstances in which a shareholder should be permitted to have board level representation.
Last year a post on this blog noted that the Swiss Financial Market Supervisory Authority (FINMA) had published a consultation paper concerning a new framework for remuneration schemes within financial firms. To bring this up to date: in November 2009, FINMA published Circular 2010/1: Remuneration Schemes - Minimum standards for remuneration schemes of financial institutions, available here (pdf). Further information is available here.
Friday, 5 February 2010
Jersey's Financial Services Commission has published a consultation paper - see here (pdf) - in which two draft Orders are published. The first will establish a registration and oversight regime for auditors of market traded companies. The second will require that market traded companies prepare their accounts using IFRS or GAAP in the UK, Japan, Canada or USA.
The Treasury has published a paper - see here (pdf) or here (rtf) - in which it sets out a proposal to subject access to company share registers to a proper purpose test. According to the Treasury's paper:
The test would require a person to state, in writing, the purpose for which they are seeking to access the company’s register. If the company considers that purpose to be improper, the applicant will have the right to have the decision reviewed by a court.The proposed test specifically targets improper uses of a register and will preclude the use of a register for the purpose of making unsolicited share offers for less than market value. The test does not seek to permit specific behaviours and as such would not set out proper purposes. Instead, the test will operate to exclude undesirable uses of the information on a register and, as such, would specify certain improper purposes. Accordingly, this method will be more effective in preventing the types of behaviour associated with use of a register that are causing concern, rather than attempting to define all purposes that could be considered proper".
Thursday, 4 February 2010
UK: ICAS Working Group rejects ban on auditors providing non-audit services to their listed company audit clients
The Working Group established by the Institute of Chartered Accountants of Scotland to consider the issues raised by audit firms providing non-audit services to their listed company audit clients, following the publication of the Auditing Practices Board's consultation paper, has published its final report: see here (pdf).
The Working Group concluded that no benefits would be gained by banning auditors from providing non-audit services to their listed clients. The Group instead recommended greater disclosure and transparency with regard to the policy and procedures in place where the auditor provides non-audit services. The Group also proposed changes to the way in which auditor remuneration is disclosed because, in its view, the current regime has not resulted in useful information being provided.
The Guernsey Financial Services Commission has published for a comment a draft corporate governance code for financial services firms: see here (pdf). Background information is available here.
Wednesday, 3 February 2010
UK National Statistics has published a bulletin containing the results of its survey of the ownership of ordinary shares in UK quoted companies at 31 December 2008: see here (pdf). The survey reports that 41.5% of shares on this date were beneficially owned by investors outside of the UK. It also reports that individual ownership by UK investors (as opposed to ownership by, e.g., insurance companies, pension funds and banks) had fallen to 10.2% (it was 54% in 1963).
Pensions Investment Research Consultants Ltd. - PIRC - has published a set of best practice principles intended to provide a framework for responsible behaviour by voting advisory services: see here (pdf). In doing so, PIRC hopes to start a debate about what is expected of proxy voting advisors with regard to disclosure and accountability. PIRC's principles are:
- Clear voting policy guidelines should be made available to clients, the companies whom the adviser is monitoring and to the market.
- A clear audit trail and explanation of the process for assessing companies and making voting recommendations should be available to clients and the companies monitored.
- Possible conflicts of interest should be disclosed to clients and to companies monitored and, where necessary, to market regulators (ie paid consulting with companies).
- Companies monitored should be given reasonable opportunity to comment on voting recommendations made and the basis of such recommendations.
- Voting agencies should routinely report to clients on actions taken on their behalf.
- All voting recommendations made by a voting adviser should be publicly disclosed post-meeting.
Tuesday, 2 February 2010
The Financial Services Authority has published a consultation paper titled Effective corporate governance (significant influence controlled functions and the Walker review): see here (pdf). The consultation paper sets out important changes to the framework governing individuals performing significant influence controlled functions - e.g., directors - and other changes to the approved persons regime.
The paper also contains guidance on the FSA's more intrusive approach and its expectations in relation to non-executive directors of regulated firms and information on how the FSA proposes to implement some of the Walker review recommendations regarding, e.g., the establishment of board risk committees and the appointment of chief risk officers. There is also information concerning the FSA's role with regard to the proposed Stewardship Code.
The Bribery Bill is being considered at Report stage in the House of Lords today. At Committee stage (first sitting) there was much discussion about clause 7, which introduces a new offence of strict liability - the failure by a commercial organisation to prevent bribery - and the desirability of guidance on the measures that can be taken by companies to avoid committing this offence. In this regard, amongst the amendments moved to be considered at Report today is one from Lord Bach, a Government minister, requiring the Secretary of State to publish guidance about the procedures that relevant commercial organisations can put in place to prevent persons associated with them from bribing.
Monday, 1 February 2010
The Financial Times newspaper reports that the chief executive of the Irish Stock Exchange, Deirdre Somers, has called for radical changes in corporate governance, observing that Ireland has for too long accepted companies being run as "personal fiefdoms" with "opaque" appointments to some company boards.