Canada: OSFI draft guideline - operational risk management

The Office of the Superintendent of Financial Institutions has published for consultation a draft guideline on operational risk management: see here (pdf). The guideline contains four principles, the second of which states that operational risk management supports the overall corporate governance structure of FRFIs (federally regulated financial institutions). Further accompanying materials are available here.

UK: Scotland: joint ventures and pre-contractual disclosure

Earlier this month Lord Tyre delivered his opinion in The University Court of the University of St Andrews v Headon Holdings Ltd [2015] CSOH 113. The opinion contains some interesting discussion, with references to Scottish and English authorities, about the circumstances in which pre-contractual duties of disclosure arise. In the case before him, which concerned a joint venture and not (importantly) a partnership, Lord Tyre rejected the argument that a pre-contractual duty of disclosure arose, stating that it would be "...an innovation supported by neither principle nor precedent" (para. [18]).

Correction (2 September 2015): the word 'ventures' is now spelled correctly in the title. Apologies for the original misspelling.

Japan: Council of Experts to review governance and stewardship codes

Earlier this month the Financial Services Agency announced that it had established a a council of experts to review the effect and implementation of the Stewardship Code and Corporate Governance Code: see here (English) or here (Japanese).

UK: audit and auditor regulation - update on the implementation of new EU statutory audit framework

The Department for Business, Innovation and Skills has today published an update in respect of the UK's implementation of new EU statutory audit framework: see here. The update states that BIS will publish a consultation in the next few weeks covering, amongst other things, the following matters: the definition of a public interest entity; Financial Reporting Council powers and Professional Bodies’ responsibilities; and mandatory re-tendering and rotation of public interest entity auditors.

The update also contains information regarding the implementation work being undertaken by the Financial Reporting Council, Financial Conduct Authority and Prudential Regulation Authority. The FRC will, the update states, be publishing a consultation paper next month containing proposed changes to the UK Corporate Governance Code and the FRC's audit committee guidance.

The European Commission has, today, published information on the national measures being adopted by Member States: see here.

Thailand: Principles of Good Corporate Governance for Listed Companies

The codes and principles directory maintained by the European Corporate Governance Institute was updated today to include a copy of the Principles of Good Corporate Governance for Listed Companies published by the Stock Exchange of Thailand: see here. The Exchange has published additional governance materials and these are available here.

Germany: Principles of Good Governance for Indirect or Direct Holdings of the Federation

The codes and principles directory maintained by the European Corporate Governance Institute was updated today to include a copy of the Principles of Good Corporate Governance for Indirect or Direct Holdings of the Federation: see here.

Norway: code review - no changes being made this year

The Norwegian Corporate Governance Board (NUES) has announced, following its annual review exercise, that it will not be amending the Norwegian Corporate Governance Code this year: see here.

Switzerland: the code of best practice for corporate governance

The codes and principles directory maintained by the European Corporate Governance Institute was updated several days ago to include the latest edition of the Swiss code of best practice for corporate governance published by economiesuisse (the Swiss business federation): see here.

Yemen: the Central Bank's corporate governance code for the banking sector

The codes and principles directory maintained by the European Corporate Governance Institute was updated several days ago to include a copy of the corporate governance code for the banking sector published by the Central Bank of Yemen: see here.

UK: Small Business, Enterprise and Employment Act 2015 - overview of company law changes

Companies House has published a summary of the company law changes that have been made by the Small Business, Enterprise and Employment Act 2015 and which have come into force, or will come into force this year or next: see here. Amongst these changes are those concerning bearer shares, the new register of significant control and the prohibition (with some exceptions) on the appointment of corporate directors.

UK: High Pay Centre research - FTSE100 CEO pay

The High Pay Centre yesterday published research findings in respect of the pay of FTSE100 chief executives: see here (pdf). The headline finding - widely reported in the media (see, e.g., here and here) - concerned the ratio of FTSE100 CEO pay to the median level in the UK economy, reported as 148:1.

Ireland: court implies duty of good faith and fair dealing in shareholder agreement

Last Thursday judgment was given in Flynn v Breccia [2015] IEHC 547 by Mr Justice Haughton in the Irish High Court. In a case involving, amongst other things, a claim for breach of a shareholders' agreement, the trial judge held that it was appropriate to imply a duty of good faith and fair dealing in a shareholders' agreement. The decision is, however, relevant across a much wider range of contracts but much will depend on whether other judges follow the lead taken by Mr Justice Haughton.

In recognising the existence of such a duty, and as the following extract makes clear, Haughton J drew heavily (but not exclusively) upon the approach adopted by Mr Justice Leggatt in the English decision Yam Seng PTE Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB):

[159] The case for a wider implication of a term of good faith and fair dealing in ordinary commercial contracts based on the presumed intentions of the parties put forward by Leggatt J. in Yam Seng is persuasive, and on the level of principle there is much to recommend his approach. While it has certainly not received universal acceptance in the UK High Court, it has not been rejected by any clear cut authoritative decision of a higher court, and it appears to have some support from the Court of Appeal.

[160] In principle, but with certain caveats that Leggatt J. enunciates, I see no reason why this Court should not follow his lead in an appropriate case. Implying such a term is heavily dependent on context, and may only be appropriate in a “relational” type contract where there is a long term commitment. I also agree with Andrews J. in Greenclose where she said that such a term will be more readily implied in a situation where a contracting party is given a discretion such that 'the discretion should not be exercised in bad faith or in an arbitrary or capricious manner'."

UK: PRA update - senior managers regime - insurance and UK branches of non-EEA banks

The Prudential Regulation Authority has published further information about the way in which the Senior Managers Regime will operate in respect of insurers and UK branches of non-EEA banks: see here.

Ireland: Company Law Review Group to consider implications of Supreme Court decision regarding creditor priority in insolvency

Last month the Supreme Court gave judgment in In the matter of J.D. Brian Ltd (in Liquidation) t/a East Coast Print and Publicity [2015] IESC 62, an important decision on the operation of section 285 ("Preferential payments in a winding-up") of the Companies Act 1963 (now section 621 of the Companies Act 2014). The implications of the decision are to be considered by the Company Law Review Group and its 2014-16 work programme has been amended accordingly: see here or here (pdf).

South Africa: principles and policy proposals for the resolution of banks and other institutions

The South African National Treasury has published for consultation a position paper setting out principles and policy proposals for a strengthened framework for the resolution of banks and other financial institutions known as DRIs (designated resolution institutions): see here.

UK: England and Wales: "Complete inactivity as a director is by definition unreasonable"

Judgment was given yesterday by His Honour Judge Hodge QC (sitting as a judge of the High Court) in Finch (UK) Plc v Finch [2015] EWHC 2430 (Ch). The case concerned an application by a company's liquidators against its former directors and provides a warning to directors about their duties, the need to actively discharge those duties and to seek advice. In rejecting any opportunity for the directors to obtain relief from liability under section 1157 of the Companies Act 2006, Judge Hodge endorsed the position of Mr Justice Briggs in Lexi Holdings Plc v Luqman [2007] EWHC 2652 (Ch) at [224]: "Complete inactivity as a director is by definition unreasonable".

UK: England and Wales: listed company shareholder's application for permission to continue derivative claim declined

A copy of the extemporary judgment of His Honour Judge Hodge QC (sitting as a judge of the High Court) in Bridge v Daley [2015] EWHC 2121 (Ch), which was delivered in June this year, was added to the BAILII database this week. The case concerned an application for permission to continue a derivative claim under Part 11 of the Companies Act 2006. Permission to continue was refused and the shareholder was ordered to pay the costs of litigation. Unusually, the claim was brought by a shareholder in a publicly listed company (Elektron Technology plc, with a listing on AIM). This fact, and the potential for minority shareholders to act in ways detrimental to the other shareholders, was noted by the judge (para. [80]):

"An extraordinary feature of the case is ... that the company in question is a public limited company, rather than a private company; but shareholders have to be protected from a minor minority individual shareholder seeking to pursue a claim on behalf of the company of which they are shareholders when they do not wish the company's assets to be applied for that purpose. That is the whole purpose of the derivative claim procedure".

Extraordinary is, perhaps, too strong a word to use: this is not the first decision concerning a derivative claim and a listed public company under Part 11 (see Mission Capital Plc v Sinclair [2008] EWHC 1339 (Ch)). Note too that, according to a market announcement by Elektron, the unsuccessful shareholder - Mr Bridge - has indicated that he will be appealing the decision: see here.

UK: England and Wales: the misuse of insolvency legislation and the winding-up of companies in the public interest

Mr Justice Norris gave judgment several days ago in Secretary of State for Business, Innovation and Skills v PAG Management Services Ltd [2015] EWHC 2404 (Ch). The Secretary of State presented a petition for the winding-up on pubic interest grounds, under section 124A of the Insolvency Act 1986, in respect of a company - PAG - that had been incorporated in 2011 to manage and coordinate a business rates mitigation scheme. Mr Justice Norris held that it was in the public interest for the company to be wound-up, not because the promotion of the mitigation schemes was inherently objectionable but because of the way in which the schemes operated (using, for example, artificial leases with no commercial reality and also operating in a way that was held to be a misuse of the insolvency legislation).

UK: Financial Policy Committee - remit and recommendations for the year ahead

Last month, the Chancellor set out, as required by the Bank of England Act 1998 (as amended by the Financial Services Act 2012), the remit and recommendations for the Financial Policy Committee for the year ahead: see here (pdf). The FPC published its response yesterday: see here (pdf). The FPC's response explained, amongst other things, the focus on potential risks from non-bank activities (noting that, by balance sheet size, nearly half of the UK financial system consists of non-bank financial institutions).

UK: Scotland: section 1157 of the Companies Act 2006

Section 1157 of the Companies Act 2006 provides the court with the power to grant a director relief where the director has breached a duty but it appears to the court that he has acted honestly and reasonably and that, having regard to all in the circumstances, he ought fairly to be excused. The application of section 1157 was considered in an opinion delivered earlier today in the Court of Session (Outer House) by Lord Woolman: McGivney Construction Ltd v Kaminski [2015] CSOH 107. Referring to several Scottish and English authorities, including Towers v Premier Waste Management Ltd [2011] EWCA Civ 923, a director's claim for relief under section 1157 was refused because he had acted dishonestly.

Mauritius: corporate governance code review underway

The National Committee on Corporate Governance is currently undertaking a review of the Mauritius Corporate Governance Code: see here. A revised edition of the Code is expected soon, building on a consultation draft published towards the end of last year (here, pdf).

USA: SEC adopts pay ratio disclosure rule

The Securities and Exchange Commission has this week adopted a final rule that will require certain public companies to disclose the ratio of the compensation of their chief executive officer to the median compensation of their employees: see here (pdf). The SEC was required to adopt such a rule in order to implement section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

A short fact sheet explaining the new rule is available here. An update on the SEC's progress in implementing the mandatory rule making provisions of the Dodd-Frank Act can be found here.

Australia: Treasury consultation - crowd sourced equity funding framework

The Australian Treasury has published a consultation paper titled Facilitating crowd-sourced equity funding and reducing compliance costs for small businesses: see here (pdf). The paper sets out the key elements of the proposed crowd sourced equity funding framework for public companies and seeks views on what changes should be made in respect of proprietary companies.

UK and Jersey: Judicial Committee considers 'backward tracing'

The Judicial Committee of the Privy Council gave its opinion earlier this week in The Federal Republic of Brazil v Durant International Corporation (Jersey) [2015] UKPC 35, an appeal from the Court of Appeal of Jersey ([2013] JCA071): see here or here (pdf). The hearing took place in May, and can be watched here (part 1) and here (part 2). The Board's opinion is an important one concerning the doctrine of tracing and, in particular, backward tracing. Lord Toulson, delivering the board's opinion, stated (para. [40]):

The Board ... rejects the argument that there can never be backward tracing, or that the court can never trace the value of an asset whose proceeds are paid into an overdrawn account. But the claimant has to establish a coordination between the depletion of the trust fund and the acquisition of the asset which is the subject of the tracing claim, looking at the whole transaction, such as to warrant the court attributing the value of the interest acquired to the misuse of the trust fund. This is likely to depend on inference from the proved facts, particularly since in many cases the testimony of the trustee, if available, will be of little value".

A summary of the Board's opinion is available here (provided by the ICLR).

UK: PRA updates its supervisory statement on internal governance

The Prudential Regulation Authority published several policy and supervisory statements yesterday: see here. Amongst them was a revised edition of Supervisory Statement 21/15, Internal Governance, which now includes sections for the chief risk officer and the risk committee: see here (pdf).

UK: Financial Advice Market Review - terms of reference published

The terms of reference for the recently launched Financial Advice Market Review were published today: see here. Further information about the Review, which is being jointly led by HM Treasury and the Financial Conduct Authority, is available here and here.