UK: Bank of England and Financial Services Bill - second reading

The Bank of England and Financial Services Bill received its second reading in the House of Lords earlier this week. Hansard, the record of debate, is available here. The Bill now proceeds to committee stage, the date for which has not yet been announced.

The Bill makes changes to the governance of the Bank of England, including the creation of a Prudential Regulation Committee, and also extends the reach of the Senior Managers Regime. Further information is available in the explanatory notes that have been published to accompany the Bill: see here or here (pdf). A copy of the Bill as introduced is available here or here (pdf). The progress of the Bill can be followed here.

Kenya: Companies Act 2015 - copy published in Kenya Gazette

The Companies Act 2015, which contains Kenya's new company law framework, was signed into law last month by the President. A copy of the Act has since been published in a special issue of the Kenya Gazette Supplement: see here (pdf).

UK: Supreme Court judgment next week in penalty clause cases

The Supreme Court has announced that judgment will be given next Wednesday in two cases - Cavendish Square Holding BV v Talal El Makdessi and ParkingEye Limited v Beavis - in which it was argued that certain clauses were penalty clauses and therefore unenforceable: see here.

UK: BIS consultation - audit reform legislation

The Department for Business, Innovation and Skills has published a consultation paper in respect of the legislation necessary to implement the changes that have been made to the EU statutory audit framework: see here (pdf). A draft of the proposed Statutory Auditors and Third Country Auditors Regulations 2016 has also been published: see here (pdf).

Ireland: general meetings, resolutions and shareholder expressions of opinion

Earlier this month judgment was given in Petroceltic International PLC v Worldview Capital Management SA [2015] IEHC 612 by Mr Justice Abbott sitting in the High Court. The case arose following a disagreement between a company's directors and some of its shareholders in respect of a plan for fund-raising. The decision is noteworthy because it required the trial judge to consider an important aspect of corporate governance: the balance of power between the shareholders in general meeting and the board of directors.

More specifically, at issue was the legitimacy of certain resolutions - tabled by shareholders (including the company's largest shareholder) at an extraordinary general meeting (EGM) that they had requisitioned - which provided that those voting in support did not approve of (i) a bond issue and (ii) the company incurring new borrowing or issuing any debt securities.  These resolutions, it was argued by the shareholders, were not designed to direct the board to act in a particular way or to bind or constrain the directors in the exercise of their powers under the articles of association; they were instead designed to give the shareholders the opportunity to express an opinion on what was being proposed by the board.

The court granted an injunction which prevented the shareholders from requisitioning the EGM and tabling the resolutions. In doing so, the judge explained (at para. [29]):

To allow resolutions “for the expression of opinion” which in varying degrees would amount to a de facto restraint or impediment in market terms would be adding an intolerable risk to the jungle of risks faced by those working in the commercial world, so that the creation of value added such as employment, product, interest, and profit would, be greatly hampered. It was submitted by the defendants that to deny the possibility of such resolutions expressing opinions would amount to 'disenfranchisement and marginalisation' of the members on key issues and the suppression of their freedom of expression and the damage which would result to the members from that course of events is self evidently inestimable; and further, that it was 'counter intuitive' that shareholders cannot collectively express an opinion on the matter of concern in an era of increasing incorporate democracy and shareholder activism. However, the artificial construct of the company does, in fact, in an ordered way restrict the decision making powers of the shareholders. The articles of association of any company may in particular cases increase such involvement with decision making and therefore aid democracy of shareholders but it is difficult to envisage any changes however liberal which would not at least in some way seek to put order on the expression of shareholders views so that such expression did not have the direct or indirect effect of altering the way in which the company did business as it was intended by articles, statute and regulation, or (as in this case) to have to face de facto market impediments engendered by such 'expressions of opinion'."

UK: Women on boards - five year summary and new recommendations from Lord Davies

In February 2011, Lord Davies published recommendations to increase the proportion of women on FTSE100 boards, with a target for FTSE100 companies of at least 25% female representation by 2015. The recommendations were endorsed by the Government. That target has been met: in a report published today, Lord Davies notes that 26.1% of FTSE100 board positions are occupied by women: see here (pdf). It is also reported that there are now no all male FTSE100 boards.

The report also recommends a new voluntary target for women's representation on FTSE350 boards: a minimum of 33% to be achieved within the next five years. This has been endorsed by the Government: see here.

UK: The Financial Reporting Council's strategy for 2016/19

The Financial Reporting Council - the organisation responsible, amongst other things, for the UK Corporate Governance Code and UK Stewardship Code - has published its strategy for the period 2016/19: see here (pdf). The strategy states, with regard to governance and stewardship, that the FRC will continue to promote [a] governance and corporate cultures that support the long-term success of companies and [b] effective investor stewardship and engagement between companies and investors. It also states the FRC's aim not to make changes to the UK Corporate Governance Code during 2016/19 (and longer if possible).

UK: FRC discussion paper - board succession planning

The Financial Reporting Council has published a discussion paper on board succession planning: see here (pdf). The paper seeks to identify suggestions for good practice and to examine how the nomination committee can play an effective role.

Jersey: pooling the assets of companies in liquidation

Last month the Royal Court (Samedi division) confirmed that it had the power to order the pooling of the assets of two companies in liquidation (one in Jersey and the other Guernsey): see Representation of Huelin Renouf Shipping [2015] JRC 206. In the same month, and in the connected proceedings, the Royal Court (Ordinary division) in Guernsey held that it had same the power: see here.

Europe: valued added tax and Bitcoin exchanges

Last year HMRC in the United Kingdom published a briefing note considering the tax treatment of income received from, and charges made in connection with, activities involving Bitcoin and other cryptocurrencies: see here. This note took the view that no value added tax would be due on the value of Bitcoins when exchanged for a traditional currency such as sterling: see here. This position was endorsed yesterday by the Court of Justice in Skatteverket v David Hedqvist (Case C-264/14), which considered the operation of the Value Added Tax Directive (2006/112/EC) in respect of a proposed business consisting of the exchange of traditional currency for Bitcoins and vice versa. A summary of the court's opinion is available here (pdf).

UK: Consultation on the tax deductibility of corporate interest expenditure

As part of the Government's work leading to a new business tax road map, HM Treasury has published a consultation paper seeing views on the rules for the deductibility of interest: see here. The paper sets out the Government's position on proposals in this area - Action 4, Limiting Base Erosion Involving Interest Deductions and other Financial Payments - recently published by the OECD as part of its Base Erosion and Profits Shifting Project: they are seen by the Government as an appropriate response and views are now sought on how they should be implemented. It is unlikely that new rules would be introduced before 1 April 2017.

UK: The Bank of England's approach to stress testing the UK banking system

The Bank of England has published a document setting out its approach to stress testing the UK banking system: see here (pdf). Covering the period to 2018, the document explains that the Bank's approach is designed to be explicitly counter cyclical: the severity of testing, and associated regulatory capital buffers, will therefore vary with the state of the financial cycle.

Europe: European Commission says Fiat and Starbucks received selective tax advantages in breach of state aid rules

In June 2013 the European Commission began investigating the tax ruling practices of certain Member States; its inquiry broadened to all Member States in December 2014. The extent to which such practices breach state aid rules has been a major focus. Today the Commission announced its position regarding the selective tax advantages given to Fiat in Luxembourg and Starbucks in the Netherlands: they are illegal under the state aid rules, see here. The full decisions have not yet been published.

Other investigations taking place, in the context of state aid, include Apple in Ireland and Amazon in Luxembourg.

UK: FRC has "significant concerns" with HMRC proposal for named director to have responsibility for tax strategy

Earlier this year HMRC published a consultation paper titled Improving Large Business Tax Compliance: see here. Amongst the proposals set out in the paper was one for legislation to require large businesses to publish their tax strategy as it relates to (or affects) UK taxation, and for this strategy to be "formalised, articulated and owned" by an executive director within the business. The latter has proved controversial. Indeed, the Financial Reporting Council, referring to the board's collective responsibility, says that it has "significant concerns" with HMRC's proposal for a named individual be responsible: see here (pdf).

Australia: independent contractors and fiduciary duties

The Federal Court gave judgment earlier this month in SBA Music Pty Ltd v Hall (No 3) [2015] FCA 1079. The case provides a good illustration of the circumstances in which an independent contractor, with significant management responsibilities, can be subject to statutory and fiduciary duties. The trial judge, Justice Wigney, observed: "Where reliance is placed on an independent contractor in relation to tasks of special responsibility critical to the financial and reputational well-being of the enterprise, such reliance and the trust that it involves may cause the contractor to owe fiduciary duties" (para. [14]).

UK: FRC consultation - guidance on the going concern basis of accounting and reporting on solvency and liquidity risks

The Financial Reporting Council is consulting on guidance on the assessment of, and reporting on, the going concern basis of accounting and solvency and liquidity risks: see here (pdf). This guidance is intended specifically for companies not applying the UK Corporate Governance Code.

UK: Supreme Court judgment next week - did a freezing order apply to the right to borrow money?

The Supreme Court will give judgment next Wednesday in JSC BTA Bank v Ablyazov. At issue was whether a chose in action - a right to borrow money pursuant to a facility agreement - was an "asset" for the purposes of a standard form freezing order. The Court of Appeal unanimously held that it was not (see [2013] EWCA Civ 921, noted: [2013] WLR(D) 305) and here).

UK: PRA consultations - banking, structural reform and ring-fencing

The Prudential Regulation Authority has today published two consultation papers as part of its work establishing the new framework for ring-fenced banks. The first paper deals with prudential requirements, intragroup arrangements and use of financial market infrastructures: see here (pdf). The second paper is concerned with operational continuity in resolution: see here (pdf).

UK: Bank of England and Financial Services Bill - first reading in the House of Lords

The Bank of England and Financial Services Bill was introduced in Parliament yesterday by Lord O'Neill of Gatley, receiving its first reading in the House of Lords: see here and here. Second reading is scheduled for 26 October. A copy of the Bill as introduced is available here or here (pdf). The progress of the Bill can be followed here.

The Bill makes changes to the governance of the Bank of England, including the creation of a Prudential Regulation Committee, and also extends the reach of the Senior Managers Regime. The Bill also amends the proposed liability regime for senior managers (by amending sections 66A and 66B of the Financial Services and Markets Act 2000, as inserted by section 32 of the Financial Services (Banking Reform) Act 2013)). Senior managers will no longer have to prove that they had taken reasonable steps to prevent contraventions in order to avoid being found guilty of misconduct.

Further information is available in the explanatory notes that have been published to accompany the Bill: see here or here (pdf). The Bill was the subject of a consultation exercise earlier this year, about which see here (pdf).

Gibraltar: the legal framework for private foundations - draft legislation published

Draft legislation to provide the framework for the creation, governance and winding-up of private foundations was published today and presented to Parliament: see here (pdf).

Hong Kong: HKSE abandons weighted voting rights proposal

The Hong Kong Stock Exchange Listing Committee has announced that it is not proceeding with its draft proposal on weighted voting rights: see here. This proposal, contained in a consultation conclusions paper published in June this year (here, pdf), would have permitted certain companies to adopt weighted voting rights structures.

UK: Financial Advice Market Review - call for input

In August, HM Treasury announced that start of a review to consider the regulatory and legal framework governing the provision of financial advice and guidance to consumers and its effectiveness: see here. Today, as part of the review, a joint paper was published by HM Treasury and the Financial Conduct Authority seeking input in respect of a wide range of issues including, for example, the extent of the 'advice gap' and the regulatory barriers faced by firms in giving advice: see here (pdf).

UK: Takeover Code - new practice statements published

The Takeover Panel has published two new practice statements: No 29 ("Rule 21.2 – Offer-related arrangements") and No 30 ("Rule 20.2 – Information required for the purpose of obtaining regulatory consents"): see, respectively, here (pdf) and here (pdf).

UK: The Transparency Regulations 2015

The Transparency Regulations 2015 were made yesterday and laid before Parliament today: see here or here (pdf). The purpose of the Regulations is to implement, in part, Directive 2013/50/EU (which amended the Transparency Directive 2004/109/EC). Further information is available in the accompanying explanatory memorandum: see here (pdf).

UK: The FRC's project on boards and corporate culture

The Financial Reporting Council has published more information about its project on corporate culture and boards, including an invitation to participate: see here. The project contains several work streams, including the role of the board in delivering sustainable success and what is called "People issues" (aligning culture, values, human resource practices and performance reward systems). The FRC intends that the project will lead to new guidance, with culture at its centre, replacing the guidance it published in 2011 on board effectiveness (here, pdf).

UK: FCA policy statement - whistleblowing in deposit-takers, PRA-designated investment firms and insurers

The Financial Conduct Authority has published a policy statement titled Whistleblowing in deposit-takers, PRA-designated investment firms and insurers: see here (pdf). The statement contains the FCA Handbook rules being introduced by the Accountability and Whistleblowing Instrument 2015 (pdf) which will, according to the FCA, "build-on and formalise examples of good practice already found in the financial services industry. These rules aim to encourage a culture in which individuals raise concerns and challenge poor practice and behaviour" (para. 1.1.).

Europe: ESMA guidelines on alternative performance measures for listed issuers

The European Securities and Markets Authority has published guidelines for listed issues on alternative performance measures (APMs): see here (pdf). The purpose of the guidelines is, amongst other things, to improve the comparability and reliability of APMs when used in prospectuses or regulated information.

UK: The Deregulation Act 2015 (Commencement No.3 and Transitional and Saving Provisions) Order 2015

The Deregulation Act 2015 (Commencement No 3 and Transitional and Saving Provisions) Order 2015 was made late last month: see here or here (pdf). The Order, as its title suggests, brings into force various provisions of the Deregulation Act 2015 including, on 1 October, those relating to the authorisation of insolvency practitioners (section 17), the cessation of office by auditors (section 18) and certain parts of Schedule 6 (insolvency and company law).

Isle of Man: crowd funding - second consultation on regulatory framework

The Isle of Man's Financial Supervision Commission has published a second consultation paper on the regulatory framework for crowd funding: see here (pdf). This second paper includes a summary of responses received in respect of the first consultation paper (available here, pdf) and sets out more detailed proposals.

Europe: capital markets union action plan published

The European Commission yesterday published its capital markets union action plan and announced the first set of measures it proposes to take relating to securitisation and the promotion of long-term investment in infrastructure. Two consultations have also begun: the first on venture capital funds and the second on covered bonds. A call for evidence has also been opened on the impact of the EU financial legislation. The Commission also announced that changes to the Prospectus Directive will be published later this year, following the consultation that took place earlier this year.

For further information see: action plan (pdf) | economic analysis accompanying the action plan (pdf) | feedback on earlier green paper (pdf) | FAQs | press conference videos | press release |.