UK: Chancellor's statement on Barclays; governance, regulation and culture in banks

The Chancellor delivered a statement in Parliament yesterday following the FSA's decision to impose its largest every fine on Barclays Bank plc in respect of its manipulation of LIBOR and EURIBOR rates: see here. Amongst other things, he said that the Government was considering whether to increase the criminal sanctions for market abuse and he also announced the publication next week of a consultation paper exploring the sanctions available against the directors of failed banks.

Barclays' chief executive, Bob Diamond, will soon appear before the House of Commons Treasury Committee.  In an open letter to the Committee's chairman, Mr Diamond offered contrition for what he referred to as behaviour "limited to a small number of people relative to the size of Barclays trading operations". That may be so but those individuals operated in a Bank the values of which were set by the board and senior management. Moreover, as the FSA decision note explains, there were clear systems and control weaknesses for which the board should accept responsibility.

Much has and will continue to be said about the culture in banks. Indeed, the Governor of the Bank of England today said that "real change" was needed. He added that this required two things: leadership of an "unusually high order" and structural changes to the industry. Is this leadership to be found amongst those currently on bank boards? Can the banks themselves be relied upon to bring about cultural change?  Does there need to be a reevaluation of the role and place of regulation within banks? Has the debate about the corporate governance of banks focussed sufficiently on organisational structures and accountability beneath the board?

Europe: Court of Justice judgment - the precise nature of inside information

The Court of Justice of the European Union gave its judgment today in Markus Geltl v Daimler AG (Case C-19/11) and considered the requirement for inside information to be precise in nature for the purposes of EU law on market abuse and insider dealing (Directives 2003/6/EC and 2003/124/EC). Article 1(1) of Directive 2003/124/EC provides that information will be of a precise nature "if it indicates a set of circumstances which exists or may reasonably be expected to come into existence or an event which has occurred or may reasonably be expected to do so and if it is specific enough to enable a conclusion to be drawn as to the possible effect of that set of circumstances or event on the prices of financial instruments or related derivative financial instruments".

The facts giving rise to the court's judgment were as follows. On 28 July 2005, Daimler's supervisory board decided (and disclosed) that the chairman of its management board would be standing down earlier than expected. The company's share price rose as a result of this announcement. The chairman's intention to leave had been discussed earlier, on 17 May 2005, with members of the supervisory board.  In proceedings before Germany's Federal Court of Justice, a former Daimler shareholder sought compensation for the loss he suffered in respect of the allegedly late disclosure by Daimler of the chairman's early departure. A reference was made to the Court of Justice, which was asked if information precise in nature could exist before the supervisory board's decision on 28 July.

The court held that it could and stated that Article 1(1) must be interpreted as meaning:

• "... in the case of a protracted process intended to bring about a particular circumstance or to generate a particular event, not only may that future circumstance or future event be regarded as precise information within the meaning of those provisions, but also the intermediate steps of that process which are connected with bringing about that future circumstance or event" (para. 40).

• "...the notion of ‘a set of circumstances which exists or may reasonably be expected to come into existence or an event which has occurred or may reasonably be expected to do so’ refers to future circumstances or events from which it appears, on the basis of an overall assessment of the factors existing at the relevant time, that there is a realistic prospect that they will come into existence or occur. However, that notion should not be interpreted as meaning that the magnitude of the effect of that set of circumstances or that event on the prices of the financial instruments concerned must be taken into consideration". (para. 56).

A copy of the court's summary of its judgment is available here (pdf).

Europe: banking supervision and the next stages of economic and monetary union?

The European Council meets today and tomorrow and on the agenda is a report prepared by the President, Herman Van Rompuy, titled Towards a Genuine Economic and Monetary Union: see here (pdf). The report is intended to provide the foundation for the further development of the economic and monetary union. Amongst other things it is suggested that a new banking supervision system should be introduced with a European level and a national level. Ultimate responsibility and supervisory authority for banks would reside at European level although direct supervision of banks by European authorities would depend on factors such as the size and nature of the bank.

UK: England and Wales: fiduciary duties and employees

The Court of Appeal gave judgment yesterday in Ranson v Customer Systems plc [2012] EWCA Civ 841, an important decision on the circumstances in which employees will be subject to fiduciary duties. The decision, which has not yet been published on BAILII, also contains interesting dicta on the fiduciary duties of directors and the extent to which the standards to which directors are subject are appropriate for non-director employees.

At first instance (see [2011] EWHC 3304 (QB)) the trial judge held that an employee (Mr Ranson) had acted in breach of fiduciary duty when, two days before leaving a company, he canvassed for work in competition with the company and did not inform the company of what he was doing. The Court of Appeal held that there had been no breach of fiduciary duty and suggested that the trial judge's approach, whereby the law was analysed in terms of cases involving breaches of duty by directors, was one likely to lead to confusion and that the judge's analysis had "got off on the wrong foot" by not first having regard to the employee's contract of employment. The contract of employment was, in the court's view, the starting point for determining whether fiduciary duties were owed and the scope of those duties.

One of the arguments made on appeal was that the Court of Appeal's decision in Item Software (UK) Ltd v Fassihi [2004] EWCA Civ 1244 had "changed the legal landscape" with regard to the disclosure obligations of employees in respect of their own wrongdoing. The court rejected this argument but recognised that a disclosure obligation could arise out of the terms of the contract of employment.

Update (28 June 2012) - a copy of the judgment is now available on BAILII: see here.

UK: the remuneration report - consultation on Government's reform proposals

The Department for Business, Innovation and Skills has published for comment a draft of the Regulations through which changes in the structure and content of remuneration reports will be introduced: see here (pdf). Under the Regulations, remuneration reports will contain two distinct parts: [1] a policy report setting out all elements of a company’s remuneration policy and key factors that were taken into account in setting the policy (this part will only be required when there is a shareholder vote on the policy) and [2] a report on how the policy was implemented in the past financial year, setting out actual payments to directors and details on the link between company performance and pay. The purpose of the consultation is to seek evidence on the costs and benefits of the proposals as well as comments on the drafting of the Regulations.

UK: FInancial Services Bill - Committee stage in the House of Lords

The Financial Services Bill began the Committee stage in the House of Lords yesterday. Hansard, the record of debate, is available here. Several of the debated amendments concerned the governance of the Bank of England but debate also included, amongst other things, the powers of the Governor of the Bank of England and the role of the Bank's Deputy Governors. Debate continues on 3 July.

UK: reform of the Financial Reporting Council

The House of Lords yesterday debated and approved the Statutory Auditors (Amendment of Companies Act 2006 and Delegation of Functions etc.) Order 2012. Hansard, the record of debate, is available here or here (pdf). The purpose of the Order is to make changes to the structure and powers of the Financial Reporting Council. Further information is available here. A copy of the Order will be published soon on the legislation.gov.uk website (a draft of the Order is available here).

Update (6 July 2012): a copy of the Order has been published here.

UK: key facts and trends in the accountancy profession

The Professional Oversight Board, part of the Financial Reporting Council, has published the tenth edition of its annual publication Key Facts and Trends in the Accountancy Profession: see here (pdf). This contains, amongst other things, data on large audit firms' income from audit and non-audit clients.

UK: NHS foundation trusts - guidance on director and governor interactions

Earlier this month Monitor published Director-governor interaction in NHS foundation trusts: A best practice guide for boards of directors: see here (pdf). As well as the best practice guidance, the guide briefly highlights some of the changes to the role of governors that will be made by the Health and Social Care Act 2012. Monitor will publish an updated edition of its Code of Governance for NHS Foundation Trusts next year to reflect the changes being introduced by the 2012 Act including the duty imposed on governors to hold the non-executive directors individually and collectively to account for the performance of the board of directors (see section 151 and the accompanying explanatory notes).  Section 152 specifies some of the duties owed by directors of foundation trusts and these are similar to those imposed on directors by the Companies Act 2006.

UK: England and Wales: permission to continue derivative claim granted

Earlier this month, in Phillips v Fryer [2012] EWHC 1611 (Ch), permission was given to continue a derivative claim under section 261 of the Companies Act 2006. The judgment is not yet available on BAILII but a short summary has been published by Lexisweb: see here. The shareholder seeking permission had already presented a petition under section 994 of the Companies Act 2006 in which he sought the repayment of sums to the company by those controlling it and an order that those shares he did not own were transferred to him. The existence of the section 994 petition did not, however, prevent the continuation of the derivative claim where, in the judge's view, the matter was largely one of case management and it was important to get the case quickly and economically before the court. (No date had been set for the section 994 hearing, the parties' preparation for which was unclear; the section 994 proceedings had started in September 2010).

BIS Annual Report 2011/12

The Bank for International Settlements has published its 2011/12 annual report: see here (pdf). A summary is available here. The report is divided into six chapters (all pdf): Breaking the vicious cycles, the year in retrospect, rebalancing growth, the limits of monetary policy, restoring fiscal sustainability and post-crisis evolution of the banking sector.

Europe: company accounting requirements

Last year the the European Commission published a proposal to repeal the current Accounting Directives, replacing them (and their amendments) with a single, new Directive: see here (pdf). This proposal contained, amongst other things, provisions to reduce the disclosure required by small companies and, for medium and large companies, it was proposed that certain principles - such as substance over form and materiality - should be mandatory in respect of information in the financial statements. Yesterday the Council of the European Union agreed the general approach of the Commission's proposals: see here (pdf).

Canada: the regulation of proxy advisory firms

The Canadian Securities Administrators have published for comment a consultation paper in which views are sought on the potential regulation of proxy advisory firms in the light of concerns that have been raised about their services and impact on Canadian capital markets: see here (pdf).

UK: a single figure for remuneration - FRC publishes Financial Reporting Lab's project report

The Financial Reporting Council has published the Financial Reporting Lab’s project report A single figure for remuneration: see here (pdf). The report describes the components of remuneration that the investors involved in the project believe should be contained within a single figure for total remuneration, as well as how these components should be measured and disclosed. The project was undertaken at the request of the Department for Business, Innovation and Skills and will inform the Government's proposals, announced yesterday, for the reform of remuneration disclosure.

UK: greenhouse gas emissions - reporting by LSE Main Market companies

The Government has announced that all companies listed on the Main Market of the London Stock Exchange will be required to report their levels of greenhouse gas emissions from the start of the next financial year: see here. Further background information is available here.

FSB progress reports: strengthening financial stability and sound compensation practices

The Financial Stability Board has published a progress report - see here (pdf) - regarding the implementation of its Principles for Sound Compensation Practices (here, pdf) and their Implementation Standards (here, pdf). According to the report, almost all FSB member jurisdictions have implemented the Principles within national regulation or supervisory guidance. The FSB has also published a progress report - see here (pdf) - with regard to the implementation of the G20 Recommendations for Strengthening Financial Stability. More detailed information is available here, arranged by country.

UK: Government proposals on directors' remuneration

The Government has published its proposals for the reform of directors' remuneration, including the new binding shareholder vote and changes to disclosure: see here (pdf).

UK: FRC to consult on executive remuneration

The Financial Reporting Council has today announced its intention to consult on changes to the UK Corporate Governance Code concerning remuneration after the Government's legislative proposals have been confirmed: see here. The FRC intends to consult on two proposals: extending the provisions on claw-back arrangements and limiting executive directors sitting on the remuneration committees of other companies.

UK: England and Wales: piercing the veil - Court of Appeal judgment in VTB v Nutritek

The Court of Appeal's much anticipated judgment in VTB Capital Plc v Nutritek International Corp [2012] EWCA Civ 808 was delivered today. Amongst the matters for consideration were the principles governing the piercing of the veil of incorporation and whether a puppeteer company should be made a party to a contract entered by the puppet company. At first instance - see [2011] EWHC 3107 (Ch) - the trial judge held the puppeteer could not be made a party to the contract and in doing so declined to follow Antonio Gramsci Shipping Corp v Stepanovs [2011] EWHC 333 (Comm). Lord Justice Lloyd, delivering the judgment of the Court of Appeal, held that the trial judge was right to do so. His Lordship stated (at paras. [91] and [94]):

... whilst we accept that the court can, in an appropriate case, "pierce a company's corporate veil" and, in doing so, substantially identify the company with those in control of it, no authority has been cited to us, apart from Burton J's decisions in Gramsci and Alliance, that supports the proposition that, once the veil is pierced, the court either does or can (or that it is arguable that it does or can) proceed in consequence to a holding either that the puppet company was a party to the puppeteer's contract, or vice versa. As we have said, we interpret Burton J as having regarded [Gilford Motor Company Ltd. v Horne [1933] 1 Ch 935 and Jones v Lipman [1962] 1 WLR 832] as cases in which the remedies against the companies were granted on the basis that they were themselves parties to the individuals' contracts. We respectfully regard that as a misreading of both cases".

... there remains a question as to whether, even if founded on mistaken reasoning, Gramsci and Alliance anyway represent a principled development of the law that this court should adopt. We have said enough to show that we consider that they do not. The "veil piercing" cases show that the principle is, in its application, a limited one, which has been developed pragmatically for the purpose of providing a practical solution in particular factual circumstances. The reported authorities certainly proceed on the basis that (in the usual case) the puppet company and the controlling puppeteer are to be closely identified, an identification that will or may be regarded as justifying the grant of a judicial remedy against the puppet as well as the puppeteer, if only on the basis that it will be just and convenient to do so. They do not, however, go to the length of treating the puppet company as other than a legal person that is formally distinct and separate from the puppeteer; and, were they to do otherwise, they would wrongly be ignoring the principles of [Salomon v Salomon [1897] AC 22]. Consistently with that, they do not provide any basis for the proposition that the puppeteer should be regarded as having always been a party to a contract to which it or he plainly was not a party."

Update (30 August 2012): the case is heading to the Supreme Court, which granted permission to appeal in July 2012 (see here, pdf).

Update (31 January 2013) - the Supreme Court's judgment is being handed down on 6 Feb 2013.

UK: FSA annual report published

The last annual report to be issued by the Financial Services Authority was published yesterday and is available here (pdf). Individual sections of the report and the accompanying appendices are available to view individually: see here. In his contribution to the report, the FSA's chief executive, Hector Sants, reflects on the last five years and provides a strong defence of the FSA's actions during this time. He states that he is most proud of the FSA's willingness to change and to reflect on the way in which it regulates. Elsewhere data are published on market cleanliness and the FSA reports that there has been a decline in abnormal share price movements ahead of regulatory announcements: in 2011 it was 19.8, the lowest level since 2003.

Ireland: CLRG annual report published

The Company Law Review Group has published its annual report for 2011: see here (pdf). With regard to the Companies Bill, the report notes (at para. 2.4) that "Pillar B" is currently being drafted by the Office of the Parliamentary Counsel and that once completed it will be amalgamated with Pillar A (already published: see here). The aim is to introduce the entire Bill in the Houses of the Oireachtas in the autumn this year.

UK: APPCGG report on the role of the company secretary

Last month the All Party Parliamentary Corporate Governance Group published a report titled Elevating the Role of the Company Secretary: Lessons from the FTSE All Share: see here (pdf). The report draws upon the results of questionnaires and interviews conducted with 27 chief executives, 55 executive directors, 27 chairmen, 143 non executive directors and 166 company secretaries. The research found, amongst other things, that the company secretary's role varied noticeably between companies, with there being an increasing tendency for it to be combined with another position (e.g., General Counsel or Head of Legal). Many respondents recognised the importance of the company secretary's role although amongst some directors the role was not well regarded. The research also found that most company secretaries reported to the chief executive.

IOSCO report - development and regulation of institutional investors in emerging markets

The International Organization of Securities Commissions has published a report titled Development and Regulation of Institutional Investors in Emerging Markets: see here (pdf). The report identifies the issues and challenges for the development and regulation of institutional investors. It also provides recommendations for policy makers and regulators wanting to attract and better regulate institutional investors.

UK: gender balance on company boards - Lords Select Committee inquiry

The House of Lords EU Sub Committee on Internal Market, Infrastructure and Employment has launched an inquiry into the gender balance on company boards. The Committee's call for evidence is available here (pdf). Amongst the matters on which views are sought is the extent to which the EU should have a role in improving the representation of women and whether action is better taken at national level.

UK: FRC update - currency and country risk

The Financial Reporting Council has published an update for listed company directors in respect of the importance of interim reports conveying a balanced and understandable assessment of country and currency risk: see here (pdf).

Hong Kong: company law reform update

The Companies Bill - a Bill containing 909 clauses and 10 schedules, the purpose of which is to modernise Hong Kong company law: see here (pdf) - was introduced into the Legislative Council in January 2011. A Bills Committee was subsequently formed to scrutinise the Bill and the Committee's report was published last week: see here (pdf). The Bill is scheduled to receive its second and third readings on 27 June.

UK: the Prospectus Regulations 2012

The Prospectus Regulations 2012 were made yesterday, laid before Parliament today and come into force on 1 July 2012. A copy of the Regulations is available here (pdf) and an explanatory memorandum is included at the end of this document. The purpose of the Regulations is to amend provisions in the Financial Services and Markets Act 2000 in order to implement, in part, Directive 2010/73/EU. Further background information is available here.

UK: banking reform - Government white paper published

HM Treasury and the Department for Business, Innovation and Skills yesterday published a white paper explainin how the Government proposes to implement the recommendations made by the Independent Commission on Banking last year: see here (pdf). The Government has accepted most of the ICB's recommendations but has not, for example, accepted the recommendation that there should be a binding Tier 1 leverage ratio greater than the 3 per cent proposed under Basel III. The Government is also proposing that ring-fenced banks should be permitted to undertake a wider range of activities than suggested by the ICB.

Paragraphs 2.70 to 2.73 of the white paper consider some of the governance implications arising from the ring-fencing proposal. It is stated, for example, that the Government believes that there is a strong case for ring-fenced banks to have their own board committees. For further discussion of governance in this context see the editorial written by Professor Iain Macneil in the November 2011 edition of the Law and Financial Markets Review and available (without charge) here.

France: AMF's 2011 corporate governance report

Autorité des marchés financiers (AMF), the financial regulator, has published the 2011 edition of its annual review of corporate governance and executive remuneration: see here (pdf, French). A summary, in English, of the principal observations is available here (pdf). One area where AMF seeks improvement is with the quality of information provided in respect of 'comply or explain'.

Cyprus: the Cyprus Stock Exchange Corporate Governance Code

The codes and principles directory maintained by the European Corporate Governance Institute has recently been updated to include a copy of the third edition of the Corporate Governance Code published by the Cyprus Stock Exchange: see here.

Basel III implementation - BIS report

The Basel Committee on Banking Supervision has published a report it has provided for G20 leaders in respect of Basel III implementation: see here (pdf).

UK: Treasury consults on disincorporation relief

HM Treasury has published a consultation paper in which it seeks views on proposals for a form of tax relief in respect of the liability that may arise on the disincorporation of a company: see here (pdf).

UK: Government consults on General Anti-Abuse Rule (GAAR)

HM Treasury has published for consultation its proposals for a General Anti-Abuse Rule applicable to income tax, corporation tax, capital gains tax, petroleum revenue tax, inheritance tax, stamp duty land tax, and the proposed new tax on ownership of high-value residential properties or dwellings: see here (pdf). The consultation paper also includes draft legislation.

Bosnia and Herzegovina: the Corporate Governance Standards

The codes and principles directory maintained by the European Corporate Governance Institute has recently been updated to include the Corporate Governance Standards published by the Republic of Srpska Securities Commission and Banja Luka Stock Exchange: see here.

UK: financial regulation - Hector Sants on the powers of the Bank of England Governor

Hector Sants, the chief executive of the soon to be disbanded Financial Services Authority, has given an interview to the BBC's Business Editor, Robert Peston: see here. Mr Sants will leave the FSA at the end of this month and in his interview he reflects on past decisions of financial regulators as well as the future. He states, for example, that the personal responsibilities of the Governor of the Bank of England will be excessive under the Government's proposed new financial regulatory framework.

UK: POB publishes annual audit quality inspection report

The Professional Oversight Board, part of the Financial Reporting Council, has published its annual report on the audit quality inspections it undertook in 2011/12: see here (pdf). The POB states, amongst other things, that firms must take further action to embed the application of professional scepticism within the audit and that further improvements are required in the standard of auditing in the financial services sector.

UK: Sharman inquiry final report published

The Sharman Inquiry's final report was published today: see here (pdf). The report makes several recommendations the purpose of which is to help improve the management of going concern and liquidity risks.

UK: Financial Services Bill receives second reading in House of Lords

The Financial Services Bill received its second reading in the House of Lords yesterday. Hansard, the record of debate, is available here and here. At the end of the day's debate Lord Sassoon proposed a motion to commit the Bill to a Grand Committee for further consideration. There was not, however, sufficient support for the motion because of the strength of feeling that the Bill should be considered by a committee of the whole House. Lord Sassoon therefore withdrew his motion pending further discussion about the manner of the Bill's consideration at committee stage in the Lords.

UK: FTSE100 chief executive remuneration

Today's Guardian newspaper reports the findings of the latest Manifest/MMK remuneration survey: see here. According to the Guardian report, "Using a measure of 'remuneration awarded' – salary, any cash, benefits and the expected value of deferred bonuses and share options – the survey found that the median increase in chief executive pay in FTSE 100 companies was 10% but in more than 25 of these companies the rise was greater than 41%. Employees at FTSE 100 companies got mean average rises of 1%".

UK: binding say on pay vote - annual or triennial?

Reports in today's newspapers (see here, for example) suggest that the Government may be considering giving shareholders a triennial binding vote on remuneration rather than an annual vote as originally proposed.

Saudi Arabia: Corporate Governance Regulations added to the ECGI directory

The codes and principles directory maintained by the European Corporate Governance Institute has been updated to include a copy of the Corporate Governance Regulations in the Kingdom of Saudi Arabia published by the Capital Market Authority: see here.

UK: women on boards - Government response to European Commission's consultation

The Government has published its response to the European Commission's consultation on the gender imbalance of corporate boards: see here (pdf). Unsurprisingly, there is no enthusiasm for regulation or the introduction of quotas.

UK: Financial Services Bill - second reading in the House of Lords next Monday and Treasury Committee concerns

The Financial Services Bill 2012 will receive its second reading in the House of Lords next Monday and this will provide the first opportunity for members of the Lords to debate the main principles and purpose of the Bill. A list of speakers has been published here. A copy of the Bill, as introduced at first reading in the Lords, is available here (html) and here (pdf). Explanatory notes are available here (html) and here (pdf).

The House of Commons Treasury Select Committee remains concerned with aspects of the Bill and has published a report setting out its concerns and suggested remedies: see here (html) and here (pdf). Amongst other things, the Committee is concerned with the proposed governance arrangements for the Bank of England and the strategic objective being given to the new Financial Conduct Authority.

Europe: the European Commission's corporate governance action plan

An update on the work of the European Commission regarding corporate governance was provided in the European Parliament earlier this week by Mr Ugo Bassi, a director in the Internal Market and Services Directorate. Mr Bassi said that the Commission proposed adopting an action plan on corporate governance in October this year. Mr Bassi's comments have been reported here.

UK: England and Wales: winding-up in the public interest

A transcript for Secretary of State for Business, Innovation and Skills v Top Choice Wholesale Ltd. [2012] EWHC 1262 (Ch) was published on BAILII yesterday. The decision was handed down in February this year by HHJ Hodge QC (sitting as a judge of the High Court) and concerned the operation of section 124A of the Insolvency Act 1986. Section 124A provides the Secretary of State with the power to petition for the winding-up of a company on public interest grounds. Subsection (2) provides, however, that this power is not available where a company is already being wound-up. HHJ Hodge QC held that this subsection did not prevent the Secretary of State from presenting a petition where a petition had already been presented by a creditor of the company, and noted that the existence of the creditor's position provided no guarantee that the company would in fact be wound-up.

Europe: the bank recovery and resolution framework - legislative proposals published by Commission

The European Commission has published proposals for a Directive containing common rules regarding bank recovery and resolution: see here (pdf). For further information see: Commission press release | FAQs | Citizens' summary (pdf) | Impact assessment: full version (pdf), executive summary (pdf) |

Europe: CRA regulatory technical standards published in the Official Journal

The first regulatory technical standards on credit rating agencies have been published in the Official Journal of the European Union: see here. These standards set out, amongst other things, the information CRAs must provide to the European Securities and Markets Authority as part of the registration process. For further information about the supervision of CRAs and ESMA's role, see here and here.

UK: England and Wales: directors' disqualification and extenuating circumstances

The ICLR has published a summary of the Court of Appeal's recent decision Cathie v Secretary of State for Business, Innovation and Skills [2012] EWCA Civ 739: see here. The summary's headnote reads:

In the context of determining whether to disqualify a company director for misconduct in the direction of an insolvent company the use of the expression “exceptional circumstances” was better avoided. The expression “extenuating circumstances” was to be preferred, because the fact finder’s task was to consider the evidence as a whole, including extenuating circumstances, and to decide whether the director had fallen below the standards of probity and competence appropriate for persons fit to be company directors".

UK: England and Wales: breach of statutory duties by directors

Judgment was given earlier this week in Weavering Capital (UK) Ltd & Anor v Peterson & Ors [2012] EWHC 1480. The case has attracted a great deal of attention (see, e.g., here and here). From the company law perspective, the judgment is interesting because the trial judge was required to consider, amongst other things, whether directors of a hedge fund were liable for breach of their statutory duties under Part 10 of the Companies Act 2006 and, more specifically, section 174 (duty to exercise reasonable care, skill and diligence).

The trial judge, Proudman J., found that the directors had breached section 174 (and other duties) and, with regard to one director, rejected the argument that she should not be liable because of her limited role. In the words of the trial judge (at para. [174]): "The test is whether what Mrs Peterson [the director] did was that which a reasonable director of a hedge fund management company in her position, with her experience, actual knowledge and intelligence should have done, and whether she acquired a sufficient knowledge of WCUK's business to discharge her duties. In my view she did not meet that test".

UK: England and Wales: the articles of association

The Court of Appeal gave judgment yesterday in Cherry Tree Investments Ltd v Landmain Ltd [2012] EWCA Civ 736. Whilst not a company law case, the judgment contains some discussion of the distinctive contractual nature of the articles of association, in the context of debate about the interpretation of a registered charge. Arden LJ observed (at paras. [44] and [45]):

Articles of association have special characteristics that justify the conclusion that they are to be regarded as addressed to third parties as well as to the shareholders at the time of their adoption. There is often a substantial number of other persons who have to rely on them and they may be in force for many years. Registration gives constructive notice of their contents to the entire world: Ernest v Nicholls (1857) 6 HL Cas 401. Third parties frequently have to rely on a company's articles of association to determine the powers of its directors. In addition, it is well established that articles of association cannot be rectified by the court (see the Bratton Seymour case). ... In the case of articles of association, therefore, the balance to be struck between the shareholders at the date of their adoption and third parties comes down in favour of protecting the third parties. Protection is achieved by the total exclusion of extrinsic evidence".