Hong Kong: HIBOR report and reform recommendations

Following the problems recently identified with the setting of the London Inter-Bank Offered Rate (LIBOR), authorities elsewhere in the world have reviewed the manner in which benchmarks are set. In Hong Kong a review of the Hong Kong Interbank Offered Rate (HIBOR) was undertaken by the Treasury Markets Association (TMA) and a report published earlier this week (and submitted it to the Hong Kong Association of Banks (HKAB) for consultation): see here (pdf). The report make a number of recommendations, some similar to those made by the Wheatley Review in respect of LIBOR, including greater transparency with regard to the data used to support participating banks' submissions.

The Hong Kong Monetary Authority, in a press release noting the report's publication, has stated: "Without pre-judging the outcome of the consultation exercises, the HKMA wishes to reiterate that the market expects to see refining measures that would help increase the transparency of the fixing process, promote discipline and strengthen internal control amongst reference banks in submitting reference rates, and enhance governance for the fixing regime".

Europe: competition law - undertakings - parent company liability for subsidiary company infringements

Last year, in Gosselin Group and Stichting Administratiekantoor Portielje v Commission (Joined Cases T-208/08 and T-209/08), the General Court held that a parent company of an undertaking which had infringed Article 81 of the EC Treaty (now Article 101 of the Treaty on the Functioning of the European Union) could not be penalised by a decision implementing Article 81 if it was not an undertaking itself. The Commission appealed and yesterday Advocate-General Kokott delivered her opinion: see Commission v Stichting Administratiekantoor Portielje and Gosselin Group NV (Case C-440/11 P). In her opinion, which is not binding on the Court of Justice, the Advocate General took the view that the General Court had erred in law when it found that the parent company must itself be regarded as an undertaking. In this regard she stated (paras. 36 to 38):

For the penalisation of an undertaking for infringing the cartel rules, on the basis of Article 81 EC (now Article 101 TFEU) in conjunction with Article 23(2)(a) of Regulation No 1/2003, it is, however, irrelevant whether all the natural or legal persons who legally comprise that undertaking are themselves economically active and are therefore each to be regarded as undertakings individually. The only decisive factor is that – viewed as a whole – one undertaking has committed the infringement and that all natural or legal persons on whom a fine is imposed as the penalty for the infringement are principals of that joint undertaking, since the aim of the penalties imposed pursuant to Article 23(2)(a) of Regulation No 1/2003 is to ensure that those persons who have a decisive influence on the undertaking involved in a cartel are called to account in accordance with the principle of personal responsibility and that the undertaking does not commit such infringements again. In terms of that objective, it is irrelevant whether the aforementioned natural or legal persons are engaged in an economic activity otherwise – that is to say, irrespective of their influence over the undertaking involved in the cartel."

UK: FPC asks FSA to review bank capital

The Interim Financial Policy Committee of the Bank of England published its bi-annual financial stability report yesterday: see here. The FPC has recommended that the Financial Services Authority take action to ensure that the capital of UK banks and building societies reflects "a proper valuation of their assets, a realistic assessment of future conduct costs and prudent calculation of risk weights". This reflects the FPC's concern that banks' capital could be overstated.

UK: Wheatley Review implementation - consultation on draft secondary legislation

HM Treasury has published for consultation draft secondary legislation in respect of the Government's implementation of the recommendations made by the Wheatley Review of LIBOR: see here (pdf).

UK: Financial Services Bill update

The Financial Services Bill was debated for a fifth and final day at report stage yesterday in the House of Lords. Hansard, the official record of debate, is available here. One of the amendments tabled for consideration by Lord Mitchell was a clause concerning the power of the new Financial Conduct Authority. The amendment would permit the FCA to make rules "... that determine a maximum total cost for consumers of a product and determine the maximum duration of a supply of a product or service to an individual consumer". The amendment was made against the background of concern with so-called payday loans. It was withdrawn by Lord Mitchell in response to a commitment from the Government to introduce its own amendment (at third reading stage, scheduled for December 5) to give the FCA the power to impose a cap on the cost of credit and to prevent the rolling over of loans indefinitely. The Bill is expected to receive Royal Assent later this year or early in 2013.

UK: The company's separate legal personality and family proceedings - Supreme Court to hear Petrodel appeal

Last month, as noted here, the Court of Appeal gave judgment in Petrodel Resources Ltd v Prest [2012] EWCA Civ 1395. The majority provided a strong endorsement of the company's separate legal personality and its application in family proceedings. Indeed, Rimer LJ stated: "... the separate corporate identity of a company is a fact of legal life that all courts are required to recognise and respect, whatever jurisdiction they are exercising". The Court of Appeal granted permission to appeal and the Supreme Court has announced that it will hear the case in early March next year: see here (details will not remain on this linked page permanently but in due course further information will be available on the court's current cases page).

Update (2 January 2013) - the Supreme Court has set aside a couple of days in March 2013 to hear the case: see here (pdf).

UK: England and Wales: limited partnerships and derivative claims

The ICLR, as part of its free case summary service, has published a summary for the recent High Court decision Certain Limited Partners in Henderson PFI Secondary Fund II LLP (a firm) v Henderson PFI Secondary Fund II LLP (a firm) and others [2012] EWHC 3259 (Comm): see here. The summary's headnote reads: "A derivative claim brought by limited partners in a partnership, in the partnership’s name, against the partnership’s manager was permitted where there were special circumstances to justify such a claim."

Europe: Court of Justice approves the European Stability Mechanism

The Court of Justice of the European Union has held that EU law does not preclude the conclusion and ratification of the Treaty establishing the European Stability Mechanism by the Member States in the euro zone: see here (pdf). A copy of the Treaty is available here (pdf).

UK: Takeover Panel Code Committee publishes review of amendments

The Takeover Panel Code Committee has published its review of the amendments made last year to the Takeover Code: see here (pdf). In the Committee's view the changes have worked well overall. In one respect, however, the Committee expresses disappointment: with the quality of disclosures of intention made by offerors under Rule 24.2 which, in many cases, have been general and not specific.

Hong Kong: SFC consults on proposals to enhance the regulatory regime for non-corporate listed entities

The Securities and Futures Commission is consulting on proposals to enhance the regulatory regime for non-corporate listed entities: see here (pdf).

UK: The ABI's Principles of Executive Remuneration

The Association of British Insurers has published an updated edition of its Principles of Executive Remuneration: see here. The Principles reflect ABI members' views on the role of shareholders and directors in relation to remuneration and the manner in which remuneration should be determined and structured.

UK: NAPF's Stewardship Policy

The National Association of Pension Funds (NAPF) has published its first stewardship policy setting out best practice for pension fund trustees and explaining how funds should fulfil their stewardship responsibilities: see here (pdf).

UK: two cases considering unlawful distributions

The operation of the common law and statutory rules regarding permitted distributions from capital has been considered in two recent cases. In the first, Clearwell International Ltd. v MSL Group Holdings Ltd. [2012] EWCA Civ 1440, the Court of Appeal held that [a] the trial judge's findings of fact were unimpeachable and [b] the correct test had been applied in determining that a transaction was bona fide, in the interests of the company and not a disguised return of capital. In the second case, Iliffe News and Media Ltd. v HMRC [2012] UKFTT 696 (TC), in which argument was largely concerned with tax avoidance, the Tribunal found that licence fee payments were in excess of market value but this did not by itself mean that they were unlawful distributions.

UK: the financial reporting framework - new standards published by the FRC

The Financial Reporting Council yesterday published two new financial reporting standards concerning the overall financial reporting framework. The first standard, FRS100: Application of Financial Reporting Requirements, contains the financial reporting requirements for UK and Republic of Ireland entities. The second standard, FRS101: Reduced Disclosure Framework, contains disclosure exemption for the individual financial statements of subsidiaries, including intermediate parents, and ultimate parents that otherwise apply the recognition, measurement and disclosure requirements of EU-adopted International Financial Reporting Standards.

Europe: EBA publishes Guidelines on the assessment of the suitability of members of the management body and key function holders

The European Banking Authority has published Guidelines on the assessment of the suitability of members of the management body and key function holders: see here (pdf). The Guidelines are published in accordance with Article 16 of Regulation (EU) No 1093/2010 (the EBA Regulation) and Member State regulators are required to comply with them or to provide reasons for their non-compliance.

UK: The Government's response to the Kay Review of UK Equity Markets and Long-Term Decision Making

The Government's response to the Kay Review of UK Equity Markets and Long-Term Decision Making, and the individual recommendations made by Professor Kay in his final report, was published today: see here (pdf). Overall the Government accepts Professor Kay's analysis and his principles for equity markets. There is strong endorsement for the Good Practice Statement for Company Directors (included as an appendix in the Government's response) and, amongst other things, the Government has signalled that it will take a greater interest in mergers and acquisitions including greater engagement with companies and their investors.

UK: Competition Commission statutory audit market services inquiry - more working papers published

In the past week the Competition Commission has published some more working papers as part of its statutory audit market services inquiry, including the following (all pdf): Characteristics of long audit tenure companies, Econometric analysis of audit costs, Engagement level profitability analysis, The life cycle of FTSE350 companies and Views of investors and other stakeholders.

Australia: ASIC's new rules on market structure, dark liquidity and high frequency trading

The Australian Securities and Investments Commission has published new rules regarding market structure, dark liquidity and high frequency trading. Further information about these rules, which are being phased in over the next 18 months, is available here.

Europe: EVCA publishes Professional Standards Handbook

The European Private Equity and Venture Capital Association (EVCA) has published a handbook of professional standards: see here (pdf). The handbook identifies the principles of governance, transparency and accountability expected of EVCA members. It is based on and replaces several existing standards including the EVCA Corporate Governance Guidelines (published in 2005 and last updated in 2010; available here, pdf). The Handbook also includes the new IPEV Investor Reporting Guidelines.

Australia: disqualifying non-executive directors and the conduct of board meetings

The New South Wales Court of Appeal gave judgment last week in Gillfillan & Ors v Australian Securities & Investments Commission [2012] NSWCA 370. This is an important and interesting case which sets out very clearly the expectations placed on non-executive directors and boards more generally with regard to the manner in which board business is conducted and decisions reached where some directors are not physically present but take part by telephone or other means. The leading opinion was delivered by Sackville AJA. Much shorter opinions were given by Barrett JA and Beazley JA.

What may prove controversial is the court's decision to subject two non-executive directors in the US, not physically present at a meeting when a document was approved, to a lower disqualification period than those physically present at the meeting. Indeed, Beazley JA commented: "... the matter which I have found particularly vexing is whether the directors located in the United States ought to be visited with the same penalties as the directors who were physically present at the meeting .... Not without some hesitation, I have concluded that a lesser penalty is warranted in the particular circumstances of this case." (paras. 1 and 2).

This is not to say that Sackville AJA did not regard the actions of the US non-executive directors as serious. Indeed, he stated that their disqualification was required "... to drive home the importance of a director paying attention to each significant item of business at a meeting and ensuring that he or she does not vote in favour of a motion on an important matter without having sufficient material to make an informed judgment." (para. 319).

FSB proposals for oversight and regulation of shadow banking

The Financial Stability Board yesterday published for consultation its proposals concerning the regulation and oversight of the shadow banking sector. The proposals are outlined in three consultation papers (each in pdf): an overview; shadow banking entities; and securities lending and repos. The FSB also published its second annual global shadow banking monitoring report: see here (pdf). The press release accompanying these documents is available here (pdf).

UK: the Cadbury Report and Code - marking the twentieth anniversary

The Financial Reporting Council has published a transcript of the speech delivered by Sir Adrian Cadbury at the recent FRC event held to mark the twentieth anniversary of the publication of the Cadbury Report and Code: see here (pdf).

UK: ring-fenced banks and governance - some differences of opinion

The Parliamentary Commission on Banking Standards took oral evidence last week from several people including the Financial Reporting Council chairman Baroness Hogg. An uncorrected transcript of the evidence session was published today: see here. Amongst the matters discussed was the accountability of directors of the ring-fenced bank in the context of the Government's proposed banking structure reforms.

Baroness Hogg referred to the comments of Andy Haldane (an executive director for financial stability at the Bank of England) at an earlier evidence session (see here) with regard to the need for the ring-fenced bank's governance to be separate from the rest of the banking group. She observed: "... I think the notion that a ring-fenced bank could have entirely separate governance is wrong, a mistake .. [it] would create a vacuum of accountability to anyone other than the regulator, and would sever the line of accountability through the parent to the providers of risk capital...". But, as Andy Haldane has often asked, is this existing line of accountability, with the shareholders centre stage, appropriate for banks?

South Africa: Financial Markets Bill - update

Earlier this week the Financial Markets Bill received its second reading in the National Assembly. The Bill now passes to the National Council of Provinces for consideration. A copy of the Bill as approved by the National Assembly is available here (pdf). Further information about the Bill, which when enacted will replace the Securities Services Act 2004, is available here.

Norway: New Code of Practice for Corporate Governance published

The Norwegian Corporate Governance Board has published an updated edition of the Norwegian Code of Practice for Corporate Governance: see here (pdf). Details of the changes and additions made in the new edition are available here (pdf).

Jersey: interest charged must be 'moderate or reasonable'

Earlier this month the Royal Court gave judgment in Doorstop Ltd. v Gillman and Lepervier Holdings Limited [2012] JRC 199. This is an important decision in which the court considered and explained the rule of Jersey customary law that interest charged must be 'moderate or reasonable'. In doing so the court noted the importance of the principle la convention fait la loi des parties (about which see here, pdf) and stated that market practice would not, of itself, determine what would be 'moderate or reasonable'. The court also stated (at para. 51):

... in our view lenders, including institutional lenders, do have a responsibility towards those who want to borrow money. An urgent need for funds can make a person vulnerable and vulnerable people may be inclined to agree terms which reasonable people would not agree – no longer can one say that such persons are the best judges of what is in their own interests. Responsible lenders will not lend to those who will obviously not be able to make repayment or upon terms that offend the rules against usury. It is with this in mind that the Court does not – indeed cannot - ignore the customary law of this Island which requires the Court not to enforce the contract to the extent that an interest rate is immoderate or unreasonable."

UK: FSA consults on implementation of the AIFM Directive

The Financial Services Authority has published the first of two consultation papers in which it sets out rules and guidance in respect of the implementation of the Alternative Investment Fund Managers Directive: see here (pdf).

Europe: gender balance on company boards - Commission publishes proposals

The European Commission has today published its legislative proposals regarding the gender balance of listed company boards: see here. Mandatory quotas are not proposed. Instead, there is a proposal for a "minimum objective" of 40% representation for each gender among the non-executive directors of listed companies with more than 250 employees and an annual worldwide turnover exceeding 50 million euros. A copy of the draft Directive is available here (pdf) and further supporting materials are available here.

USA: a fiduciary duty to minimise tax?

A hearing took place yesterday in the UK parliament at which individuals from Google, Starbucks and Amazon were questioned on corporation tax: see here. The focus was on the corporation tax paid by these organisations in the UK and the corporate structures adopted across Europe and internationally. The impression was given more than once that directors are subject to a legal duty to minimise costs including tax.

Is this so? The existence and scope of such a duty has been considered by the courts in Delaware this year. First, in Freedman v Adams (Del. Ch. Mar. 30, 2012, available here, pdf) and second in Seinfeld v. Slager (Del. Ch. June 29, 2012, available here, pdf). In the latter case Vice Chancellor Glasscock stated (pages 8 and 9, footnote citations removed):

This Court has concluded that 'there is no general fiduciary duty to minimize taxes.' There are a variety of reasons why a company may choose or not choose to take advantage of certain tax savings, and generally a company’s tax policy “typif[ies] an area of corporate decision-making best left to management’s business judgment, so long as it is exercised in an appropriate fashion.' I am not foreclosing the theoretical possibility that under certain circumstances overpayment of taxes might be the result of a breach of a fiduciary duty. I am simply noting that a decision to pursue or forgo tax savings is generally a business decision for the board of directors. Accordingly ... Delaware law is clear that there is no separate duty to minimize taxes, and a failure to do so is not automatically a waste of corporate assets."

Update (14 November 2012) - Professor Bainbridge has commented on Seinfeld: see here.

Canada: Securities Administrators consult on introduction of statutory best interest duty

Canada's Securities Administrators have published a consultation paper in which opinion is sought on the appropriateness of introducing a statutory best interest duty when advice is provided to retail clients: see here (pdf).

USA: Basel III implementation - Federal Reserve announces delayed implementation

The Federal Reserve announced last Friday a delay in the implementation of Basel III: see here. For an update on implementation in other jurisdictions see here (pdf).

UK: Financial Services (Banking Reform) Bill - written evidence published by Banking Standards Commission

The Parliamentary Commission on Banking Standards has published the written evidence it has received in respect of its call for evidence regarding the draft Financial Services (Banking Reform) Bill: see here (pdf).

UK: Women on boards - EU Select Committee report published

The House of Lords European Union Committee published its report Women on boards last Friday, following an inquiry into gender balance in the boardroom: see here (pdf). The Committee supports a leadership role for the EU in this area but does not believe that the European Commission has made a convincing case in support of board quotas.

UK: Supreme Court hears appeal in veil piercing case

The Supreme Court will begin hearing argument today in an appeal from VTB Capital Plc v Nutritek International Corp. [2012] EWCA Civ 808. The issue for the court, as stated in its case summary, is this: where a person uses a puppet company to enter a contract with a third party in order to perpetrate fraud on that third party, can the court pierce the corporate veil and treat that person as a party to the contract? Supreme Court hearings can be watched live here.

Australia: High Court to hear appeal in preference share case

Last year, in Weinstock v Beck [2011] NSWCA 228, the New South Wales Court of Appeal considered whether a company was able to issue preference shares when at the time of their issue there were no other shares in existence over which they would have a preference. The court was divided: the majority view, expressed by Handley AJA (with whom Giles JA agreed), was that the directors had the power to issue preferences shares and this power was unaffected by the state of the company's share register. An appeal was made and will be heard later this week in the High Court of Australia. Further details, including appeal documentation submitted by the parties, is available here. At the same time the court will hear, in related proceedings, an appeal concerning the scope of section 1322 of the Corporations Act 2001: see here.

IFSB exposure drafts - risk management and capital adequacy

The Islamic Financial Services Board has published for consultation two exposure drafts: ED14 - Standard on Risk Management for Takāful Undertakings (here, pdf) and ED15 Standard on Revised Capital Adequacy (here, pdf). Further information is available here.

UK: Scotland: Partnerships (Prosecution) (Scotland) Bill introduced in Parliament

The Partnerships (Prosecution) (Scotland) Bill 2012-13 was introduced in the House of Lords earlier this week by Lord Wallace of Tankerness QC (the Advocate General for Scotland) and received its first reading: see here. The Bill provides, amongst other things, that a partnership will be capable of prosecution after its dissolution. It is based on recommendations made by the Scottish Law Commission (about which see here, pdf), following the High Court of Justiciary opinion Balmer v HM Advocate [2008] HCJAC 44, 2008 SLT 799.

Singapore: a regulatory framework for financial holding companies

The Singapore Monetary Authority has published for comment a draft of the Financial Holdings Bill, following a consultation earlier this year: see here (pdf). The purpose of the Bill is to introduce a new regulatory framework for financial holding companies (i.e., companies that have a bank or an insurance company as a subsidiary but which do not undertake such activities or other commercial activities).

UK: FSA and Bank of England consultation - complaints against the regulators

Part 6 of the Financial Services Bill currently before Parliament requires the Financial Conduct Authority, Prudential Regulation Authority and Bank of England to establish, as part of their accountability mechanisms, arrangements for the investigation of complaints against them. Yesterday a joint consultation paper was published by the Financial Services Authority and Bank of England setting out details of the proposed complaints scheme: see here (pdf).

UK: IDS survey of FTSE100 directors' earnings

Incomes Data Services has published the results of its latest survey of FTSE100 directors' earnings: see here (pdf). The press release notes that the median total earnings of FTSE100 CEOs was £ 3.2 million.

UK: FRC marks Cadbury Code's 20th anniversary with publication of essays

The Financial Reporting Council has today published a collection of short essays to mark the twentieth anniversary (on 1 December 2012) of the publication of the Cadbury Report and Code, upon which the UK's modern corporate governance framework has been built: see here (pdf).

Hong Kong: Companies Ordinance - consultation on subsidiary legislation (phase two)

Hong Kong's new Companies Ordinance was passed by the Legislative Council in July this year (a copy of the Ordinance, as published in the Hong Kong Gazette, is available here). The first of two consultations concerning the subsidiary legislation required by the new Ordinance began at the end of September: see here. A second consultation was launched at the start of this month with the publication of a further consultation paper: see here (pdf). Further background information concerning the Ordinance is available here.

UK: Financial Services Bill begins report stage in House of Lords

The Financial Services Bill begins the report stage today in the House of Lords. A list of the amendments being considered is available here. The amendments for consideration include those put forward by Lord Sassoon, on behalf of the Government, to implement some of the recommendations of the Wheatley Review of LIBOR. A copy of the Bill, as it stood at the start of the report stage, is available here (pdf).

Australia: Federal Court finds credit rating agency liable for 'misleading and deceptive' AAA rating

Judgment was given today in Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200. This is an important decision of the Federal Court of Australia which is attracting international attention because of the trial judge's finding that a credit rating agency was liable for the misleading and deceptive triple A rating it gave to a CPDO (constant proportion debt obligation). The judgment is very long but there is a summary near the start.

UK: England and Wales: investment bank administrator not analogous to liquidator

The ICLR, as part of its free case summary service, has provided a summary for Heis & Ors (Administrators of MF Global UK Ltd.) v MF Global Inc [2012] EWHC 3068 (Ch): see here. The headnote reads: "The appointment of an investment bank administrator under the Investment Bank Special Administration Regulations 2011 was not analogous to the appointment of a liquidator.".

UK: Deloitte's 2012 survey of annual reports

Deloitte has published its 2012 survey of annual reports (based on a sample of reports published between 1 September 2011 and 31 August 2012 by 130 listed companies, including 30 investment companies): see here. With regard to governance, it is noted that 54% of companies complied fully with the UK Corporate Governance Code; the composition of the audit committee was the most common area of non-compliance.

UK: Bank of England publishes three independent review reports

The Bank of England has published three independent reports which it commissioned in May this year. The first provides a review of the Bank's provision of emergency liquidity assistance in 2008-09: see here (pdf). The second considers the Bank's framework for providing liquidity to the banking system: see here (pdf). The third considers the forecasting capability of the Bank's Monetary Policy Committee: see here (pdf). The Bank's initial response to the reviews is available here. Governance matters are considered in the second report which notes, amongst other things, concerns with what is described as "informal governance" and "some tendency for [less senior staff] to filter recommendations in such a way as to maximise the likelihood that senior staff will find recommendations palatable" (paras. 389 to 394).

UK: The Heseltine Review report

The Heseltine Review report was published yesterday: see here (pdf). Titled No stone unturned in the pursuit of growth, the report contains 89 recommendations.  One recommendation - number 73 - concerns takeovers and foreign ownership: Lord Heseltine argues that the Government needs to take a more interventionist approach, including engaging with potential foreign investors to secure commitments regarding research and skills and, exceptionally, to discourage unwanted investment. Such an approach should, he states, be underpinned by a greater willingness to use existing powers under the Enterprise Act 2002 to intervene in mergers.

UK: Competition Commission Statutory Audit Services Market inquiry - further working papers published

In the past couple of weeks the Competition Commission has published some more working papers as part of its statutory audit market services inquiry: see here. Included is a paper titled Bundling of audit and non-audit services in which it is reported that the Commission found no evidence to support the view that the bundling of non-audit services with the statutory audit acts as a barrier to entry.