UK: Financial Conduct Authority publishes its 2014/15 business plan

The Financial Conduct Authority has published its business plan for 2014/15: see here (pdf). Amongst the key activities highlighted, the FCA states that it will "continue to enhance the effectiveness of the listing regime, including ensuring that there is appropriate protection for minority shareholders to be able to exercise their rights" (p. 7). The FCA also states, in referring to the new Senior Managers and Certified Persons regimes, that the "... accountability of individuals in positions of responsibility needs to be improved and overall standards of governance raised" (p. 7). The framework for these new regimes is set out in Part 4 of the Financial Services (Banking Reform) Act 2013.

Malaysia: Commission seeks views on implementation of its Corporate Governance Blueprint

In 2011 the Securities Commission published its Corporate Governance Blueprint and set out proposals to improve the governance framework over a five year period. Many of the Commission's recommendations were incorporated in a revised corporate governance code published in 2012: see here. The Commission is now seeking views on the implementation of the Blueprint: see here.

UK: Scotland: Law Commission consultation on third party rights in contract

The Scottish Law Commission has published a discussion paper on third party rights in contract: see here. The Commission seeks views on whether a short legislative statement should be introduced, in place of the current common law, setting out how third parties can have rights and remedies conferred upon them under a contract between other parties. Several issues relating to corporate groups are considered in the discussion paper (see paragraphs 3.4 to 3.19).

Europe: Commission Communication on long-term financing of the European economy

The European Commission published a Communication yesterday on the long-term financing of the European economy: see here (pdf). This contains a section on corporate governance in which the Commission said that it would consider the following proposals:

• A revision of the Shareholder Rights Directive in order to "to better align long-term interests of institutional investors, asset managers and companies".
• The introduction of a Recommendation to improve the quality of corporate governance reporting.

UK: ACCA consultation paper 'Creating value through governance - towards a new accountability'

The Association of Chartered Certified Accountants has published a consultation paper titled Creating value through governance – towards a new accountability: see here (pdf). The paper seeks, amongst other things, to generate debate about the purpose of corporate governance and the extent to which the current framework requires reform.

UK: Women on Boards - publication of Davies Review annual report and Cranfield Female FTSE Board report

The third Women on Boards: Davies Review annual report was published yesterday: see here (pdf). The report notes that 20.7% of FTSE100 board positions are held by women (in 2011 it was 12.5%) and that only two FTSE100 companies have all male boards. In 2011 Lord Davies recommended that FTSE100 boards should, by 2015, have a minimum of 25% female representation: see here (pdf). Also published yesterday was the annual Female FTSE Board Report from Cranfield University: see here (pdf).

USA: Economic Policy Review special issue - large and complex banks

The latest edition of the Economic Policy Review - published under the auspices of the Federal Reserve Bank of New York - has been published. It is a special issue focusing on large and complex banks and contains the following eleven articles:

Bank Size

• Do Big Banks Have Lower Operating Costs? [abstract | full text (pdf) ]
• Evidence from the Bond Market on Banks’ “Too-Big-to-Fail” Subsidy [abstract | full text (pdf) ]
• Do “Too-Big-to-Fail” Banks Take On More Risk? [ abstract | full text (pdf) ]
• Components of U.S. Financial Sector Growth, 1950-2013 [abstract | full text (pdf) ]

Bank Complexity

• The Evolution of Bank Complexity [abstract | full text (pdf) ]
• Measures of Complexity of Global Banks [abstract | full text (pdf) ]
• Matching Collateral Supply and Financing Demands in Dealer Banks [abstract | full text (pdf) ]

Bank Resolution

• Bank Resolution Concepts, Trade-Offs, and Changes in Practices [abstract | full text (pdf) ]
• The Failure Resolution of Lehman Brothers [abstract | full text (pdf) ]
• Why Bail-in? And How! [abstract | full text (pdf) ]
• Why Are Large Bank Failures So Messy and What to Do about It? [abstract | full text (pdf) ]

Europe: ESMA consults on draft standards regarding notification of major shareholdings

The European Securities and Markets Authority has launched a consultation on draft Regulatory Technical Standards under the revised Transparency Directive relating to the notification of major shareholdings and the indicative list of financial instruments subject to notification requirements: see here (pdf).

UK: FCA publishes hedge fund survey

The Financial Conduct Authority yesterday published a survey of UK hedge funds: see here (pdf). The survey notes that approximately USD 470bn of hedge fund assets are managed in the UK, with 450 hedge fund management firms registered with the FCA. The survey itself is based on data from 49 management firms, which together manage USD 481bn of hedge fund assets globally, of which USD 206bn is managed in the UK. The survey finds that equity strategies are the most popular among the funds in the survey and that institutional investors have become the dominant type of investors in hedge fund vehicles.

UK: Is a member of a limited liability partnership a 'worker'?

Today the Supreme Court will hear argument in Clyde & Co LLP v Winkelhof. The issue before the court, to quote directly from its summary of the case, is "[w]hether a member of a limited liability partnership is a worker within the meaning of section 230(3) of the Employment Rights Act 1996 and is therefore within the category of persons protected by the Public Interest Disclosure Act 1998 and permitted to bring a whistleblowing claim".

The hearing will be broadcast live by Sky News as part of its Supreme Court Live service. When the Court of Appeal heard the case in 2012, it held that a partner of a limited liability partnership, who if it had not been registered as a LLP would have been a partner in a partnership under the Partnership Act 1890, was not a 'worker' under section 230(3): see [2012] EWCA Civ 1207.

UK: Scotland: Limited liability partnership is a 'company' for the purposes of equal pay claim

The opinion of the Court of Session (Inner House) in Glasgow City Council v Unison Claimants [2014] CSIH 27 was delivered last Friday. The case concerned an equal pay claim brought under the Equal Pay Act 1970 (the claim was brought before the coming into force of the Equality Act 2010). The court was required to consider whether a limited liability partnership could be regarded as a company for the purposes of section 1(6)(c) of the 1970 Act, which provides that two employers are "to be treated as associated if one is a company of which the other (directly or indirectly) has control or if both are companies of which a third person (directly or indirectly) has control".

The court (Lords Brodie, Drummond-Young and Phillip) unanimously held that for the purposes of section 1(6)(c), a limited liability partnership could be regarded as a company. Lord Brodie delivered the court's opinion and adopted the definition of company provided by Lord Hoffmann in O'Neill v Phillips [19991] 1 WLR 1092: "an association of persons for an economic purpose, usually entered into with legal advice and some degree of formality". He observed (at para. [46]):

"An LLP is an association of persons (natural or juristic). It has an economic purpose (see in particular, section 2(1)(a) of the 2000 Act). There are formal requirements for its constitution (including registration with the Registrar of Companies). It is a corporate body with a legal personality separate from its members and having limited liability. We should point out that all of the foregoing features exist in an ordinary (unlimited) Scottish partnership. Historically, partnerships were frequently referred to in Scotland as "companies". It may be, therefore, that a Scottish partnership is also a "company" for the purposes of the equal pay legislation. A decision on that point is not necessary for the purposes of the present case, however, and we express no concluded view on the matter."

UK: England and Wales: Court of Appeal considers the meaning of 'debenture'

In a judgment delivered yesterday - Fons Hf v Corporal Ltd [2014] EWCA Civ 304 - the Court of Appeal considered the meaning of the term 'debenture'. The question of meaning arose in a dispute between the parties as to whether rights under unsecured loan agreements had been charged. The legal charge provided, amongst other things, that 'shares' were subject to the charge and a definition of 'shares' was given that included the word 'debentures'.

The Court of Appeal unanimously held that the rights under the agreements were subject to the charge, thereby reversing the decision at first instance (see [2013] EWHC 1801 (Ch)). Lord Justice Patten, delivering the leading judgment, observed that as a matter of language, "the term [debenture] can apply to any document which creates or acknowledges a debt; does not have to include some form of charge; and can be a single instrument rather than one in a series" (para. [36]).

Lady Justice Gloster considered whether loan agreements, either when originally entered or when novated, constituted debentures. In doing so she referred to the view that they could not be so regarded because no debt was created until drawdown and that, accordingly, there was no debt capable of acknowledgment at the time of the agreement. Her Ladyship rejected this view as "wrong, and unnecessarily technical. The obligation to repay clearly arises on execution of the loan instrument itself, albeit that such obligation may be contingent on drawdown actually taking place" (para. [50]).

Europe: The Banking Union and the Single Resolution Mechanism - provisional agreement reached

Yesterday, in trilogue, provisional agreement was reached on the proposed Single Resolution Mechanism, part of the Banking Union: see here. The agreed text must now be adopted jointly by the European Parliament and the Council. A vote in Parliament is expected in April.

UK: Supreme Court to hear Jetivia appeal

The Supreme Court has published an updated list of permission to appeal decisions: see here (pdf). This notes that on 11 February permission was given to appeal the Court of Appeal's decision in Jetivia SA v Bilta (UK) Ltd [2013] EWCA Civ 968. The Court of Appeal had held, amongst other things, that section 213 ("fraudulent trading") of the Insolvency Act 1986 was of extraterritorial effect. It also held that a company could recover losses that it had suffered as a result of the fraud of its sole director and shareholder. In such a case the director could not rely on the maxim ex turpi causa non oritur actio to defeat the company's claim. A summary of the Court of Appeal's decision is available here.

UK: Bank of England Governor launches strategic plan

Dr Mark Carney, the Governor of the Bank of England, launched the Bank's strategic plan yesterday: see here. The plan contains fifteen core initiatives, including enhancing transparency: see here (pdf). A new organisational structure will be introduced on 1 June: see here (pdf). Dr Carney took the opportunity to speak about the new plan when he delivered the 30th annual Mais lecture yesterday: see here (pdf).

UK: Bank of England - senior appointments and the new deputy governor for banking and markets

The Chancellor today announced three new senior appointments at the Bank of England, the UK's central bank: see here. This includes the new position of deputy governor for banking and markets, about which the Governor spoke last week. This new deputy governor position does not currently exist within the statutory framework provided by the Banking Act 1998, recently amended by Part I the Financial Services Act 2012. The Chancellor has, however, announced today that it will be placed on a statutory basis "as soon as a suitable legislative opportunity arises".

UK: England and Wales: unlimited companies and the liability of their members

Judgment was given last Friday in Re Lehman Brothers International (Europe) & Ors [2014] EWHC 704 (Ch). This is an important and interesting judgment concerning, amongst other things, the liability of unlimited company members. The trial judge held, for example, that the obligation of members to contribute under section 74(1) of the Insolvency Act 1986 extended not only to proved debts but also to the statutory interest on those debts and un-provable liabilities. It was also held that the so-called contributory rule - the rule that a company contributory in liquidation cannot recover anything in respect of any claims he may have as a creditor until his obligations as a contributory are fully discharged - did not apply in an administration. The judgment also contains some discussion of the history of unlimited companies in the United Kingdom, the trial judge observing (at para. [132]):

As the limited liability of members, together with a simple process of registration and incorporation, were the principal advantages of the mid-nineteenth century reforms, it is not surprising that there has been only a sparse use of unlimited companies. It appears that their introduction by the Companies Act 1862 was to compensate for the prohibition of partnerships or joint stock companies with more than twenty members or, in the case of banks, ten members. If members wished to have an association which most closely resembled the old joint stock company, the unlimited company was introduced for that purpose. There remained in some circles some stigma attached to limited liability and there were a number of businesses, including banks and building societies, which were incorporated as unlimited companies. A number of cases, though far fewer than those concerned with limited companies, dealt with issues arising out of the liability of members of unlimited companies. The use of unlimited companies, never great, declined during the nineteenth century. In the twentieth century, their principal advantage was an exemption from ad valorem stamp duty, and later capital duty, payable on the issue of new capital by a company. For this reason, their principal use for many years was as estate or investment companies, where estates or other property were transferred to companies in exchange for shares issued to or owned for the benefit of the families owning them. For the same reason, they were sometimes used in complex corporate restructurings and transactions. As appears from the facts of the present case, unlimited companies have found a place in corporate planning for US tax purposes."

Update (17 March 2014) - a summary of the decision has been published by the ICLR: see here.

UK: Clawback of vested variable remuneration - a proposed change to the Remuneration Code

Yesterday the Prudential Regulation Authority published a short consultation paper in which it set out its intention to amend the Remuneration Code in order to require all PRA-authorised firms to amend employee contracts in order that they are able to clawback vested variable remuneration: see here (pdf).

Six years is the maximum time period proposed by the PRA and, as a minimum, firms should be able to clawback remuneration when: (a) there is reasonable evidence of employee misbehaviour or material error; or (b) the firm or the relevant business unit suffers a material downturn in its financial performance; or (c) the firm or the relevant business unit suffers a material failure of risk management.

USA: Whistle blowing protection and the Sarbanes-Oxley Act 2002

Earlier this month the Supreme Court gave judgment in Lawson v FMR LLC: see here (pdf). The case concerned the whistle blowing protection provided by section section 1514A of 18 US Code, introduced by section 802 ("Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud") of the Sarbanes-Oxley Act 2002. At the relevant time, Section 1514A provided that “No [public] company . . . , or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of [whistleblowing or other protected activity].”

The issue before the court was the extent of the section 1514A protection: did it apply only to employees of the public company? The court held, by majority, that it applied not only to employees of the public company but also to the employees of contractors and subcontractors (e.g., investment advisers, law firms and accounting firms).

UK: Bank of England governance and a new Deputy Governor

The Governor of the Bank of England, Dr Mark Carney, appeared before the Treasury Select Committee yesterday. A video recording of the meeting is available here. The meeting has been reported widely in the media: see, for example, here (BBC News), here (The Guardian) and here (Financial Times, subscription required).

Amongst other things, Dr Carney said that a review of the Bank's governance and processes would be published next week and in this regard he said that a new Deputy Governor position would be created with responsibility for banking and markets. What is not clear - and may well become clearer next week - is how this will be achieved. The Bank's formal governance structures, including membership of its Court of Directors, are set out in the Banking Act 1998, recently amended by Part I the Financial Services Act 2012. Legislation requires the Bank to have a Governor and Deputy Governors for financial stability, monetary policy and prudential regulation. Will changes be made to the Banking Act 1998 in respect of the proposed new Deputy Governor position? This is not clear but, according to the Financial Times report, the proposed new Deputy Governor is to have "the status of a deputy governor but will not formally join the ranks of the three official deputy governors". This would appear to suggest that amending the legal framework is not envisaged. Is this an appropriate? Is it possible for the new Deputy Governor to enjoy the same status as the other Deputy Governors if the position does not carry the same legal status?

Portugal: CMVM's corporate governance code - copy in English available

Last year the Portuguese Securities Market Commission, Comissão do Mercado de Valores Mobiliários, published a new edition of its corporate governance code. A copy of the Code, in English, is now available: see here (pdf).

UK: England and Wales: friendly society officers not validly appointed

Judgment was given yesterday by the Court of Appeal in Speechley v Allott [2014] EWCA Civ 230. One of the issues for the court to consider was whether several officers of a friendly society had been validly appointed. The rules of the society required them to be elected by ballot but they had been elected by acclamation or show of hands. At first instance the trial judge found this to be a failure of form, and not of substance, and held the elections valid. The Court of Appeal disagreed, Lord Justice Lewison stating (at para. [50]):

Although the judge placed reliance on the fact that the election was unanimous, unanimity is easier to achieve in an open election than in a secret ballot. It is of itself a reason why it is important that elections be conducted by ballot rather than by acclamation or show of hands in an open meeting. Moreover, since there had been no opportunity given to the members to nominate alternative candidates, the mere fact that those who had been proposed and seconded were unanimously elected is not of great weight. I cannot therefore agree with the judge either that adequate notice of the business to be transacted at the meeting was given, or that the irregularities were mere matters of form. It follows from this that the President and the Treasurer were not validly elected."

Best Practice Principles for Governance Research Providers

Last year the Best Practice Principles for Governance Research Providers Group published for consultation a draft of its Best Practice Principles for Governance Research Providers: see here (pdf). A final version of the principles was published last week: see here (pdf).

Europe: "Brussels plans fresh rules on executive pay", the Financial Times reports

The Financial Times newspaper reports, in an article on its website titled "Brussels plans fresh rules on executive pay", that "Shareholders in listed EU companies would set the pay gap between executives and average employee pay under draft Brussels reforms aimed at giving more clout and information to investors". According to the FT article, a new shareholder rights Directive will be published next month by Michel Barnier, the European internal market commissioner. Providing shareholders with the right to vote on remuneration policy was included in the Commission's action plan on company law and corporate governance published in late 2012.

The content of the draft Directive, on which the FT's article is based, is similar in some respects to the new remuneration framework introduced in the UK. The draft Directive contains, for example, the requirement to provide shareholders with a binding vote on remuneration policy every three years, something that has recently been introduced in the UK.

The FT article is available here (subscription required to view full text).

Australia: CAMAC review of managed investment schemes

The Corporations and Markets Advisory Committee has published a discussion paper on the establishment and operation of managed investment schemes: see here (pdf). Chapter five focuses on governance and contains several reform options.

IAASB publishes framework for audit quality

The International Auditing and Assurance Standards Board has published A Framework for Audit Quality: Key Elements that Create an Environment for Audit Quality: see here (pdf). The purpose of the framework is to raise awareness of the key elements of audit quality.

UK: The FCA's regulatory approach to crowdfunding over the internet - policy statement and final rules

The Financial Conduct Authority has today published a policy statement and final rules in respect of its regulatory approach to crowdfunding over the internet: see here (pdf). These final rules largely reflect what was proposed by the FCA in its earlier consultation paper although some firms will be subject to capital requirements lower than originally proposed.

UK: QCA report on governance disclosure by small and mid-size quoted companies

The Quoted Companies Alliance and UHY Hacker Young have published a report on the governance disclosures made by one hundred small and mid-size quoted companies, benchmarked against the QCA Corporate Governance Code for Small and Mid-Size Quoted Companies 2013: see here (pdf). Weaknesses were identified in respect of the disclosures concerning board evaluation and the explanation provided to shareholders in respect of how audit objectivity and independence is safeguarded.

UK: City Code on Takeovers and Mergers - some minor changes

The Code Committee of the Takeover Panel has published Instrument 2014/1, the purpose of which is to make various minor amendments to the City Code on Takeovers and Mergers: see here (pdf). These amendments reflect, amongst other things, the creation of the new Competition and Markets Authority and take effect on 1 April this year.

UK: Women on boards and the voluntary code for executive search firms - recommendations for meeting the 25% target

The Department for Business, Innovation and Skills has published the results of an independent review it commissioned concerning the operation of the Voluntary Code for Executive Search Firms: see here (pdf). The report makes ten recommendations with the view of supporting the attainment of the 25% target for women on FTSE100 boards, including calling on the investor community to play a more active role in challenging businesses on their plans for creating more gender balanced boards.

Europe: Board diversity policies and 'comply or explain'

The European Parliament and the Council have reached agreement on amendments to existing accounting Directives that will require certain large companies to disclose, amongst other things, their policy on board diversity: see here. Companies without a policy on board diversity will be required to explain why they do not have one.

New Zealand: New statute for incorporated societies - Government responds to Law Commission report

Last year the Law Commission recommended the introduction of a new Act for incorporated societies to replace the current Incorporated Societies Act 1908: see here or here (pdf). The Government's response was published last week: see here (pdf). The Government has agreed, in full or in principle, to all but one of the Commission's 102 recommendations.

Hong Kong: New Companies Ordinance comes into force

The new Companies Ordinance came into force yesterday: see here. A copy of the Ordinance, together with subsidiary legislation and guidance, is available here. As a result of the Ordinance coming into force, the Securities and Futures Commission has amended the Codes on Takeovers and Mergers and Share Buy-backs: see here.

Hong Kong: SFC consults on the regulation of alternative liquidity pools

The Securities and Futures Commission has begun a consultation concerning the regulation of alternative liquidity pools (sometimes known as dark pools): see here (pdf). The paper sets out proposals to increase the obligations imposed on alternative liquidity pool providers.