Wednesday 31 July 2013

UK: Tribunal finds that payments were not distributions

Earlier this month judgment was given in Baker v HMRC [2013] UKFTT 394 (TC). The tribunal held that payments received by a shareholder, under a scheme for the purchase by a company of its own shares which was found to be void, were not distributions for the purposes of section 209 of the Income and Corporation Taxes Act 1988 and were therefore not taxable as such. The Tribunal also held that because it was not a court it did not have jurisdiction to grant relief under what is now section 1157 of the Companies Act 2006.

Malaysia: Company law reform - draft Companies Bill published

The Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia) has published for consultation a draft Companies Bill: see here (pdf). The Bill, once enacted, will replace the Companies Act 1965. Amongst other things, the Bill will require company directors to be at least 18 years of age; corporate directors will not be permitted (section 195). A mechanism for bringing a derivative action on the company's behalf is included (sections 347-352). Shares will no longer have a par or nominal value (section 72).

Section 211 contains the director's duty to exercise powers in good faith as well as the duty to exercise reasonable care, skill and diligence. Breaches of these duties may result in a fine or imprisonment. Section 209 provides that "... director includes chief executive officer, chief financial officer, chief operating officer or any other person primarily responsible for the management of the company.". This definition raises several questions. Would it include a non-executive director? Is it appropriate to define 'director' with reference to specific roles/titles?

Tuesday 30 July 2013

UK: England and Wales: web statement not sufficient notice of authority's decision

The Court of Appeal gave judgment yesterday in The Financial Conduct Authority v Hobbs [2013] EWCA Civ 918 and held that a statement on the authority's website, indicating that it was discontinuing action against an individual (and not addressed in any way to the person to whom the decision related), was not sufficient notice of a decision to take no further action for the purposes of section 389 of the Financial Services and Markets Act 2000 and Financial Services and Markets Act 2000 (Service of Notices) Regulations 2001.

UK: England and Wales: solicitors' fees were not an expense of administration

The ICLR has provided a summary for the Court of Appeal decision Neumans LLP (a firm) v Andronikou [2013] EWCA Civ 916: see here. The headnote reads: "Where solicitors had acted for a company in connection with its opposition to a winding up petition but had ceased to act for the company by the time the company went into out of court administration, the court had no power under the Insolvency Rules 1986 or under the inherent jurisdiction of the court to direct that fees which the company owed to the solicitors were an expense of the administration."

Monday 29 July 2013

UK: The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No.2) Order 2013

The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No.2) Order 2013 was made on 25 July. Some of its provisions are already in force (about which see article 1 of the Order). An explanatory memorandum is available here (pdf). The Order makes various changes to existing legislation as part of the move of consumer credit regulation from the Office of Fair Trading to the Financial Conduct Authority.

UK: ABI report and recommendations on improving corporate governance

The Association of British Insurers has published a report titled Improving Corporate Governance and Shareholder Engagement: see here (pdf). Many recommendations are made. The ABI calls on companies to ensure that their corporate governance reporting focuses on the application of the UK Corporate Governance Code principles rather than with reporting compliance. Reviewing the time commitment of non-executive directors is also recommended.

UK: England and Wales: is the right to draw down under an unsecured loan facility an asset?

The Court of Appeal gave judgment last week in JSC BTA Bank v Ablyazov [2013] EWCA Civ 928. Two questions arose (in the context of the standard Commercial Court form of freezing order prohibiting the disposing, dealing with or diminishing the value of assets): [1] Does a contractual right to draw down under an unsecured loan facility qualify, either generally or in particular circumstances, as an "asset" for the purposes of the order? [2] If the right to draw down is an asset, does the exercise of the right by directing the lender to pay the sum drawn down to a third party constitute "disposing of" or "dealing with" the asset? At first instance the trial judge answered no to both of these questions (see [2011] EWHC 2664 (Comm)). The Court of Appeal reached the same conclusion.

Friday 26 July 2013

UK: The Financial Services Act 2012 (Consumer Credit) Order 2013

The Financial Services Act 2012 (Consumer Credit) Order 2013 was made yesterday and comes into force today. A copy of the Order is available here or here (pdf). An explanatory memorandum is available here. The Order begins the transition of consumer credit regulation from the Office of Fair Trading to the Financial Conduct Authority.

UK: Financial Services (Banking Reform) Bill - second reading in the House of Lords

The Financial Services (Banking Reform) Bill received its second reading in the House of Lords earlier this week and now proceeds to committee stage: see here.

UK: Future development of the Walker Guidelines

The Guidelines Monitoring Group, which was created to monitor the private equity industry’s compliance with Sir David Walker’s Guidelines for Disclosure and Transparency in Private Equity, has published a document setting out changes that are expected to be made to the Guidelines: see here (pdf).

International framework for governance in the public sector - draft published

The International Federation of Accountants, working with the Chartered Institute of Public Finance and Accountancy, has published for consultation a draft international framework for governance in the public sector: see here (pdf). The framework provides that the function of good governance in the public sector is to ensure that entities act in the public interest at all times. The following definition of of governance is adopted: the arrangements put in place to ensure that the intended outcomes for stakeholders are defined and achieved.

Thursday 25 July 2013

UK: Parliamentary BIS Committee report on the Kay Review

The House of Commons Business, Innovation and Skills Committee has published the final report for its inquiry into the Kay Review of UK Equity Markets and Long–Term Decision Making: see here or here (pdf). The Committee has called on the Government to publish clear, measurable and achievable targets for the implementation of Professor Kay's recommendations, asking for this to be done immediately.

UK: Takeover Code - new edition to take effect on 30 September 2013

The Code Committee of the Takeover Panel has announced that a new edition of the City Code on Takeovers and Mergers will take effect on 30 September 2013. The new edition contains changes made in response to the Committee's consultation last year on profit forecasts, quantified financial benefits and material changes in information (focusing, in particular on rules 27 and 28 of the Code; see here, pdf). The amendments to the Code are contained in Instrument 2013/4 (herepdf) and further information about the changes is available in the Code Committee's Response Statement 2012/1 (herepdf). A copy of the new Code will be published on 30 September.

UK: FCA sets out how it intends to meet its operational objectives

Section 6 of the Financial Services Act 2012 made changes to the Financial Services and Markets Act 2000 in order to create the UK's new financial regulatory framework. Included were the following operational objectives for the new Financial Conduct Authority: securing an appropriate degree of protection for consumers; protecting and enhancing the integrity of the UK financial system; and promoting effective competition in the interests of consumers in the relevant markets. How the FCA proposes to meet these operational objectives is the subject of guidance published yesterday for consultation: see here (pdf).

UK: Competition Commission statutory audit market inquiry - full provisional decision on remedies published

On Monday this week, as part of its statutory audit services market inquiry, the Competition Commission published a summary of its provisional decision on remedies. A copy of the Commission's full provisional decision was published yesterday: see here (pdf).

Wednesday 24 July 2013

UK: Financial Support Directions and insolvency - Supreme Court judgment in Nortel and Lehman Companies

The Supreme Court gave judgment earlier today in In the matter of the Nortel Companies; In the matter of the Lehman Companies; In the matter of the Lehman Companies (No.2) [2013] UKSC52. A copy of the judgment is available here (pdf). A summary is available here (pdf). The court unanimously held that liability under a financial support direction, issued by the Pensions Regulator after a company had gone into administration, was not an expense of the administration but ranked as a provable debt. At first instance and on appeal it was held that the liability was an expense of the administration (see, respectively, [2010] EWHC 3010 (Ch) and [2011] EWCA Civ 1124). A video recording of Lord Neuberger delivering the court's opinion is available below:

UK: ICAEW asks 'what are the overarching principles of corporate governance?'

The ICAEW has published the second paper in its Dialogue in Corporate Governance: New challenges initiative: see here (pdf). The paper asks: what are the overarching principles of corporate governance? Five principles are provided for discussion including leadership, capability and accountability. These principles provide one view of governance and are discussed with a strong focus on the role of the board of directors. This is not surprising because, as the ICAEW states, the principles are generally derived from the UK Corporate Governance Code.

Trinidad and Tobago: Draft Corporate Governance Code published for public comment

The Trinidad and Tobago Chamber of Industry and Commerce, Trinidad and Tobago Stock Exchange and Caribbean Corporate Governance Institute have published for consultation a draft corporate governance code: see here (pdf). Further background information, including how to comment on the draft, is available here.

Tuesday 23 July 2013

UK: FCA takes enforcement action against high frequency trader

The Financial Conduct Authority has, for the first time, taken enforcement action against a high frequency trader who engaged in market abuse. Using an algorithmic programme he had created, the trader placed thousands of false orders for Brent Crude, Gas Oil and Western Texas Intermediate futures from the US on the ICE Futures Europe exchange (ICE) in the UK. The FCA's decision notice is available here (pdf).

Action was also taken against the trader in the USA by the Commodity Futures Trading Commission in the first case to be brought in respect of the prohibition against disruptive practices introduced by section 747 of the Dodd-Frank Wall Street Reform and Consumer Protection Act: see here.

UK: FRC response to Competition Commission's provisional measures

The Financial Reporting Council published an initial response to the publication yesterday of the Competition Commission's decision regarding provisional measures in respect of the statutory audit services market: see here. The FRC expresses concern with regard to some of the proposed measures but welcomes the Commission's decision not to propose mandatory audit firm rotation.

UK: England and Wales: Court of Appeal upholds order for damages against bank for harassment of customer

Last month the Court of Appeal rejected an appeal by a bank against an order requiring it to pay one of its customers damages for harassment in respect of repeated telephones calls. Lord Justice Jackson, delivering the leading opinion, stated that the existence of a debt did not give a creditor the right to bombard the debtor with endless and repeated telephone calls. A copy of the court's decision - Roberts v Bank of Scotland Plc [2013] EWCA Civ 882 - was added to the BAILII database a few days ago but was removed yesterday (the reason given: "for revision").

Update (24 July 2013): the decision is now available (follow the link above).

Monday 22 July 2013

UK: Competition Commission proposes mandatory audit tendering and other measures

The Competition Commission has published, in provisional form, the measures it is proposing to include in its final report on the supply of statutory audit services to large companies in the UK: see here (pdf). These include:
  • FTSE 350 companies should put their statutory audit out to tender at least every five years (with the possibility for deferral by up two two years in exceptional circumstances).
  • The Financial Reporting Council’s Audit Quality Review (AQR) team should review every audit engagement in the FTSE 350 on average every five years. The audit committee should report to shareholders on the findings of any AQR report concluded on the company’s audit engagement during the reporting period.
  • The prohibition of provisions in loan agreements that restrict the company's choice of auditor. 
  • Shareholders should have an advisory vote on whether the audit committee's report in the annual report contains sufficient information. 
  • Only the audit committee should be permitted to negotiate and agree audit fees and the scope of audit work, initiate tender processes, make recommendations for appointment of auditors and authorise the external audit firm to carry out non-audit services.
  • The Financial Reporting Council should amend its articles of association to include a secondary objective to have due regard to competition.

The Commission's final report will be published in September.

Europe: EBA risk assessment of the European banking system

The European Banking Authority has published its latest risk assessment of the European banking system: see here (pdf). The EBA notes, amongst other things, that financial markets remain fragile and susceptible to a sudden switch of market sentiment.

UK: England and Wales: company entitled to inspect former director's e-mails

The Court of Appeal gave judgment last Friday in Fairstar Heavy Transport NV v Adkins [2013] EWCA Civ 886. At issue was whether a company was entitled to an order requiring its former CEO to provide access to the content of e-mails (stored on his computer) relating to the company's business. At first instance the company argued that it had a proprietary claim to the content of the e-mails held by the former director. This argument failed: see [2012] EWHC 2952 (TCC). The Court of Appeal, citing the right of a principal to an inspection and copying remedy against a former agent, held that the judge ought to have made an order for inspection of the e-mails on the computer.

UK: Scotland: liquidator of Scottish registered company able to abandon land

A copy of the opinion of Lord Hodge in Nimmo & Anor, Re Directions [2013] CSOH 124 has recently been added to the BAILII database. The decision is noteworthy for several reasons, the most important being the recognition that the liquidator of a Scottish registered company was able to abandon heritable property. In England the power to disclaim onerous property is provided for by section 178 of the Insolvency Act 1986 but there is no directly equivalent statutory provision in respect of Scotland.

Friday 19 July 2013

UK: Insolvency Service begins consultation on insolvency law changes

The Insolvency Service has published a consultation paper in which views are sought on various amendments to insolvency law, including extending the powers available to a liquidator to take action against directors for wrongful or fraudulent trading to an administrator: see here (pdf).

IASB begins Conceptual Framework consultation

The International Accounting Standards Board has published a wide-ranging discussion paper titled A Review of the Conceptual Framework for Financial Reporting: see here (pdf). The paper sets out the IASB's preliminary views on many matters, including the purpose of the Conceptual Framework. The IASB aims to complete its revisions by the end of 2015. Its progress can be followed here. From a UK perspective, the chairman of the Financial Reporting Council's Accounting Council, Roger Marshall, has offered his views on the IASB's work: see here.

UK: The Growth and Infrastructure Act 2013 (Commencement No. 3 and Savings) Order 2013

The Growth and Infrastructure Act 2013 (Commencement No. 3 and Savings) Order 2013 was made on 14 July: see here. Article 2 of the Order brings into force, on 1 September 2013, section 31 of the Growth and Infrastructure Act 2013. Section 31 of the Act inserts, into the Employment Rights Act 1996, a new section: section 205A. Section 205A contains the new 'employee shareholder' framework.

A related Order, The Finance Act 2013, Schedule 23 (Employee Shareholder Shares) (Appointed Day) Order 2013, has also been made: see here.

UK: FRC publishes annual report

The Financial Reporting Council published its annual report yesterday: see here (pdf). Section two of the report is titled 'The state of corporate governance and reporting in the UK'. In the chairman's report section, Baroness Hogg, the outgoing FRC chairman, reasserts the FRC's mission: to help capital markets, and in particular the market for risk capital, function well. In doing so she provides a strong defence of the role of equity markets. Elsewhere in her report she describes the UK Stewardship Code as a 'fragile success' and, looking ahead, states her hope that the annual report should become "a disciplined distillation and communication of the information and issues of importance to investors".

Thursday 18 July 2013

UK: Quoted company share ownership survey - methodology update

The Office for National Statistics has published information regarding the changes it has made to the methodology used in its survey of the ownership of UK quoted company shares: see here. Publication of the latest edition of the survey is expected in September this year.

Wednesday 17 July 2013

UK: Banking reform - draft secondary legislation published

As part of reforms being made to the regulatory framework governing banks, including the Financial Services (Banking Reform) Bill currently before Parliament, the Government has published draft secondary legislation for comment: see here (pdf). Drafts of the following are included: Ring-fenced Bodies and Core Activities Order; Excluded Activities and Prohibitions Order; Banking Reform (Loss Absorbency Requirements) Order; and Prescribed International Organisations Regulations.

IOSCO publishes Principles for Financial Benchmarks

The International Organization of Securities Commissions has today published its final report Principles for Financial Benchmarks, following a consultation earlier this year: see here (pdf). The principles fall into three broad categories - governance, quality and accountability - and their purpose is not supersede existing laws, regulations or supervisory frameworks but to provide guidance for administrators, submitters and regulators.

UK: Supreme Court considers value of restitutionary award

The Supreme Court gave judgment earlier today in Benedetti v Sawiris [2013] UKSC 50. A copy of the judgment is available here (pdf). To quote from the court's summary of the decision (available herepdf):
Where a restitutionary award is made on the basis of unjust enrichment, it is to be calculated as the value of the benefit received by the defendant at the expense of the claimant. Where the benefit takes the form of services, that will normally be the market value of the services performed. The market value may depend on the personal characteristics of the defendant, such as his buying power in the relevant market. Lord Clarke (with whom Lords Kerr and Wilson agree) suggests that the sum to be awarded to a claimant can be reduced on the basis that the defendant subjectively valued the services that he received at less than the market value (subjective devaluation). Lord Reed suggests that that is not permissible, and Lord Neuberger prefers not to express a concluded view on the issue. That difference of opinion is likely to be significant in very few cases, and it is unnecessary to resolve the debate for the purposes of this case. It is not, however, possible (save perhaps in exceptional circumstances) to increase the amount awarded to a claimant on the basis that he valued the services at more than the market price (subjective revaluation)."

A recording of Lord Clarke, delivering the court's decision, is available below:

UK: The Alternative Investment Fund Managers Regulations 2013

The Alternative Investment Fund Managers Regulations 2013 were made yesterday and come into force on 26 July. A copy of the Regulations, including a short explanatory note, is available here (pdf). The Regulations implement, amongst other things, part of Directive 2011/61/EU (the Alternative Investment Fund Managers Directive). An explanatory memorandum and transposition note will soon be available here. Other parts of the Directive will be implemented by the Financial Conduct Authority (about which see here).

Tuesday 16 July 2013

OECD Corporate Governance Working Paper Series - paper ten: 'Making Stock Markets Work to Support Economic Growth'

The tenth paper in the OECD Corporate Governance Working Paper series has been published. Titled Making Stock Markets Work to Support Economic Growth, Implications for Governments, Regulators, Stock Exchanges, Corporate Issuers and their Investors, the paper considers the characteristics that make some markets more successful than others: see here. Although largely focusing on the USA, the paper has something to say about the UK: the authors welcome the Kay Review recommendations and Government response thereto but describe them as insufficient. They argue that greater attention should be given to what they believe is the root cause of short-termism: the enablement created by low-cost electronic trading, cross linkages of asset classes and markets, and the accompanying use of derivatives to displace fundamental investment.

Luxembourg: Ten Principles of Corporate Governance of the Luxembourg Stock Exchange - third edition published

Earlier this year the Luxembourg Stock Exchange published the third edition of its Ten Principles of Corporate Governance: see here.

Monday 15 July 2013

UK: 'Transparency and Trust' discussion paper published

The Department for Business, Innovation and Skills today published a discussion paper titled Transparency and Trust - Enhancing the transparency of UK company ownership and increasing trust in UK business: see here (pdf). The paper contains many proposals and views are sought on seventy two questions across the following areas: establishing a central register of beneficial ownership; bearer shares; nominee directors; corporate directors; the duties of bank directors; financial redress for creditors; and directors' disqualification (including the power of regulators to seek a director's disqualification). The paper also notes that in the autumn a further consultation paper will be published setting out proposals to simplify the filing requirements for all companies.

UK: England and Wales: High Court decides that managing director did not breach duty to exercise reasonable care, skill and diligence

Last Friday judgment was given by Mr Robin Knowles CBE QC (sitting as a deputy judge of the High Court) in ARB International Ltd. v Baillie [2013] EWHC 2060 (Comm). The case concerned a claim brought by a company (a Lloyd's insurance and reinsurance broker) against its former managing director in which it was claimed that he had breached several duties including section 174 ("Duty to exercise reasonable care, skill and diligence") of the Companies Act 2006. The claim failed, the deputy judge noting that the director "... had a sufficient knowledge and understanding of the company's business to enable him to discharge his duties as its Managing Director, and in respect of compliance. That does not mean that he knew all there was to know, including especially about points of insurance and reinsurance law and practice where the views and experience of others in the market differ. But he knew enough to do his job and, so far as material to this case, he had the experience to know when to take a view or make a business judgment" (para. [48]).

UK: FCA publishes Code of Practice for the relationship between the external auditor and the supervisor

The Financial Conduct Authority has published a finalised version of its Code of Practice for the relationship between the external auditor and the supervisor: see here (pdf). The Code consists of five principles: [1] Auditor's duty to report, [2] Supervisors and auditors shall share all information relevant to carrying out their respective statutory duties in a timely fashion, [3] Supervisors and auditors shall seek an open, cooperative and constructive relationship, [4] Supervisors and auditors should engage in regular dialogue, [5] Supervisors and auditors shall treat information shared between the two parties or received from regulated firms confidentially.

Friday 12 July 2013

UK: Financial Services (Banking Reform) Bill receives first reading in the House of Lords

The Financial Services (Banking Reform) Bill received its first reading in the House of Lords on Wednesday this week: see here. Second reading is scheduled for 24 July. A copy of the Bill, as introduced in the Lords, is available here or here (pdf). Explanatory notes for this version of the Bill are available here.

UK: Supreme Court to give judgment next week in quantum meruit case

The Supreme Court has announced that it will give judgment next Wednesday in Benedetti v Sawiris. The issues before the court, to quote directly from the case summary, were these: [1] To what extent the parties’ subjective valuation of services (both before and after the provision of those services) can be taken into account by the court when assessing the valuation of those services on the quantum meruit basis? [2] In which circumstances does free acceptance of services amount to enrichment for the purpose of a restitutionary claim?

Russia: Federal Service for FInancial Markets publishes draft of revised corporate governance code

Earlier this year the Federal Service for Financial Markets published a draft of its revised corporate governance code: see here. A copy of the draft code, in English, was prepared for the OECD's recent technical seminar on corporate governance in Russia and is available here (pdf). Also considered at the seminar was a paper highlighting problems with the corporate governance framework; the paper is available, in English, here (pdf).

UK: Scotland: relief for unfairly prejudicial conduct

Section 996 of the Companies Act 2006 provides that the court "may make such order as it thinks fit" where a claim for unfair prejudice is made out under section 994. Whilst most orders require the petitioner to bought out by the company and/or other shareholders, section 996 explicitly recognises that the court's order may regulate the conduct of the company's affairs in the future. This is well illustrated by the order recently made by Lord Doherty in Re Orders Under The Companies Act 2006 in respect of DS Orr & Sons (Holdings) Ltd [2013] CSOH 116 in which he sought to give the petitioning shareholders control of two companies.

Thursday 11 July 2013

UK: ABI publishes 'Encouraging equity investment' report

The Association of British Insurers published a report today titled Encouraging Equity Investment, Facilitation of Efficient Equity Capital Raising in the UK Market: see here (pdf). Many recommendations are made including some regarding governance and, in section 3.4 of the report, it is argued that the governance standards of companies with controlling shareholders should be increased. In this regard some suggestions are given including imposing certain compliance responsibilities directly on controlling shareholders and making them liable for the prospectus at IPO for companies seeking a Premium listing.

Europe: Banking Union - Single Resolution Mechanism proposal published by Commission

The European Commission yesterday published its proposal for a Single Resolution Mechanism for banks within the Single Supervisory Mechanism. For further information see: Text of Commission proposal (pdf) | FAQs | Commission press release.

Canada: Securities Administrators priorities for 2013-2016

The Canadian Securities Administrators outlined its priorities for 2013-2016 earlier this week: see here (pdf). Included is work considering defensive tactics in takeovers and the regulation of activities undertaken by proxy advisory firm.

Wednesday 10 July 2013

UK: Financial Services (Banking Reform) Bill completes passage in Commons

The Financial Services (Banking Reform) Bill completed the report and third reading stages in the House of Commons earlier this week and now moves to the House of Lords. Hansard, the official record of debate, can be read here (report stage) and here (third reading). At both stages there was criticism and discussion of the extent to which the recommendations of the Parliamentary Commission on Banking Standards were accepted by the Government in its formal response published on Monday.

BCBS discussion paper - balancing risk sensitivity, simplicity and comparability

The Basel Committee on Banking Supervision has published a discussion paper titled The regulatory framework - balancing risk sensitivity, simplicity and comparability: see here (pdf). Background information is available here. Responses to the paper will inform the Committee's thinking with regard to possible reforms; no decision has yet been made to pursue any of the ideas in the discussion paper.

UK: HMRC consultation - reform of close company loans to participators rules

HMRC has published a consultation paper in which views are sought on possible options to reform the rules governing close company loans to participators: see here (pdf).

UK: FRC publishes best practice guidance for audit tendering

The Financial Reporting Council has published guidance to assist companies with the tendering of their external audit contracts: see here (pdf). In its guidance notes the FRC takes the opportunity to repeat its opposition to mandatory audit firm rotation and cites arguments in support of its preferred approach: requiring, on a comply or explain basis, FTSE 350 companies to put their audit out to tender every ten years.