Monday, 22 July 2019

UK: The Financial Services Future Regulatory Framework Review

Earlier this year the Chancellor announced, in his Spring Statement, that a review of the regulatory framework for financial services would begin in the summer: see here. That review - The Financial Services Future Regulatory Framework Review (a mouthful, I admit) - has now started with the publication, last Friday, of a call for evidence document: see here (pdf). The document introduces the Review and seeks views on its first phase: the coordination of regulatory activities by HM Treasury and the other UK regulators, including how firms and the regulators can work together to make authorisation, supervision and enforcement more efficient.

Friday, 19 July 2019

UK: The Draft Registration of Overseas Entities Bill

At this time last year, give or take a day or two, the Government published the draft Registration of Overseas Entities Bill: see here. A Joint Parliamentary Committee was subsequently formed for the purpose of scrutinising the Bill and it reported in May: see here. Yesterday, the Government's response to the Committee's report was published: see here (pdf).

UK: Government consults on CMA statutory audit market recommendations

Earlier this year, the Competition and Markets Authority published its report and recommendations in respect of the statutory audit market: see here. The recommendations are now the subject of an initial consultation by the Department for Business, Energy and Industrial Strategy that opened yesterday: see here (pdf).

Views are being sought on the core remedies proposed by the CMA, including the enhanced regulatory oversight of audit committees; the introduction of mandatory joint audits of FTSE 350 firms; proposals to mitigate the effects of the distress or a failure of a 'Big Four' firm; and the operational split between audit and non-audit practices of ‘Big Four’ firms. Views are also sought on other proposals that did not form part of the CMA's core remedies.

Thursday, 18 July 2019

UK: England and Wales: a new liability on forfeiture of shares?

Judgment was given yesterday by Chief Master Marsh in Zavarco Plc v Yusof [2019] EWHC 1837 (Ch). It is noteworthy because of the analysis provided in respect of the effect of a provision in the Articles of Association on the consequences of the forfeiture of shares.

The company's Articles contained a provision stating that forfeiture extinguished all interests in the shares and all other rights relating to them; it also provided that where a person's shares had been forfeited, that person remained liable to the company for all sums payable by that person under the Articles (whether accrued before or after the date of forfeiture). The question for Master Marsh was the effect of this provision: did it - as the editors of Palmer's Company Law had stated - create a new obligation as debtor? The answer is of wide interest given the prevalence of such provisions (see, for example, the model articles for public companies: here, .doc).

Master Marsh disagreed with the position adopted in Palmer's Company Law and explained that in his view the position was as follows. Forfeiture changed the nature of the relationship but the sum owed remained the same. This sum remained, and was always, a contractual debt by virtue of section 33(2) of the Companies Act 2006. It was wrong to see the liability as a contributory transformed into a different liability. The preservation of the liability, arising from the articles of association, did not create a new liability or a new cause of action.

UK: England and Wales: when will directors owe a fiduciary duty to shareholders?

Judgment was handed down today in Vald. Nielsen Holding A/S Newwatch Ltd v Baldorino & Ors [2019] EWHC 1926 (Comm). The decision is noteworthy because of the analysis it provides of the circumstances in which directors will owe fiduciary duties towards shareholders.

The claimants' argument that fiduciary duties were owed, which relied heavily on the Australian decision Brunninghausen v Glavanics [1999] NSWCA 199, was rejected and, at the end of his analysis, the trial judge (Jacobs J) stated (at para. [746]):
Overall, it seems to me that the circumstances in which a fiduciary duty will usually be held to exist are well-summarised by Nugee J. at [13] of [Sharp v Blank [2015] EWHC 3220 (Ch)]: the cases where such duty has been held to exist mostly concern companies which are small and closely held, where there is often a family or other personal relationship between the parties, and where, in almost all cases, there is a particular transaction involved in which directors are dealing with the shareholders".

Wednesday, 17 July 2019

UK: England and Wales: directors' duties and an unauthorised profit

Judgment was delivered yesterday in Parr v Keystone Healthcare Ltd [2019] EWCA Civ 1246, the Court of Appeal having given its decision at the end of the hearing on July 9. The court dismissed the appeal and upheld the trial judge's finding (at [2018] EWHC 1509 (Ch)) that Mr Parr, a former director and shareholder of a company, Keystone, was liable to disgorge half the proceeds he had received when he sold his shares in the company to another company. Mr Parr received the full proceeds in circumstances where, had he disclosed his breach of duty (participating in a fraud and failing to disclose his own misconduct) he would have received only half.

The court's decision represents a strong affirmation of the 'bright line' nature of the prohibition against profits imposed on company directors as part of their general duties under the Companies Act 2006. The court made clear that Keystone was entitled to recover from Mr Parr the unauthorised profit even though Holdings had suffered the loss and regardless of whether Keystone itself could have made the profit. 

UK: CIC Regulator publishes 2018/19 annual report

The annual report of the Office of the Regulator of Community Interest Companies has been published: see here (pdf). The report covers the year in which online incorporation became available and it notes that there are now over 15,700 CICs on the register.

Tuesday, 16 July 2019

UK: Risk Coalition consults on new risk guidance for financial services sector

The Risk Coalition - a network of not-for-profit professional bodies and membership organisations committed to raising standards of risk governance and risk management in the UK - has published for consultation its Principles and guidance for board risk committees and risk functions in the UK financial services sector: see here. The consultation closes on 20 September and the final guidance is expected in December 2019.

UK: APPG on Whistleblowing - report and recommendations published

The All-Party Parliamentary Group on Whistleblowing has published the first of three reports on the UK's whistleblowing framework: see here (pdf). This report, which focuses on the experience and concerns of whistleblowers themselves, contains ten recommendations including the adoption of a new definition of whistleblowing (it should include any harmful violation of integrity and ethics, even if not criminal or illegal, and the focus should be on the harm, or risk of harm to the public).

Monday, 15 July 2019

UK: FRC consults on revised Ethical and Auditing Standards

Last November, the Financial Reporting Council sought feedback as part of a post-implementation review of the 2016 Ethical and Auditing Standards: see here. A position paper followed earlier this year, culminating in the publication today, for consultation, of the amendments the FRC proposes to make to its Ethical and Auditing Standards. The proposed changes include simplifying and restructuring the Ethical Standard; enhancing the authority of the Ethics Partner function with audit firms; and requiring the auditors of all UK listed entities to include in their published auditor's report the performance materiality threshold used in the audit.

Further information is available in the FRC's press release and in the other documents published today: Feedback statement and impact assessment (pdf) | Revised Ethical Standard 2019 - Exposure Draft (pdf) | Changes to the International Standards on Auditing (UK) (ISAs (UK)) and International Standard on Quality Control (UK) (ISQC (UK)) - Exposure Drafts (pdf) | Glossary of Terms (Auditing and Ethics) - Exposure Drafts (pdf) |.

UK: CIIA consults on draft Internal Audit Code of Practice

The Chartered Institute of Internal Auditors has today published for consultation a draft of its new Internal Audit Code of Practice: see here (pdf).  The Code is intended to become a benchmark of best practice for boards, audit committees and regulators.

The Code contains 30 recommendations, the first of which sets out the primary role of internal audit: "to help the board and executive management to protect the assets, reputation and sustainability of the organisations". The second states that the scope of the internal audit should be unrestricted: "There should be no aspect of the organisation which internal audit should be restricted from looking at as it delivers on its mandate".

There are seven consultation questions; the first question seeks views on the scope of the Code: should it focus primarily on publicly listed companies or should large private companies and third sector organisations be included?

This is not the first Code the CIIA has published. In 2013 it published guidance on effective internal audit in the financial services sector, the latest edition of which was published in 2017: see here.

UK: Insolvency Service call for evidence on the regulation of insolvency practitioners

The Insolvency Service has published a call for evidence concerning the regulatory framework for insolvency practitioners, in particular the introduction of regulatory objectives and other changes made by Part 10 of the Small Business, Enterprise and Employment Act 2015: see here (pdf).

UK: Companies House independent adjudicators' annual report published

The Companies House independent adjudicators have published their annual report for the year to 31 March 2019: see here (pdf). The report contains data on the appeals heard by the adjudicators as well as recommendations for improving Companies House procedures.

Prominent in this year's report is the adjudicators' concern - expressed to Companies House for some time - with the high number of appeals they receive from newly incorporated companies and from dormant companies. The adjudicators argue that more needs to be done to improve compliance amongst such companies, particularly because directors often (wrongly) assume that the Companies House filing obligations are identical to those imposed for tax purposes and filing with HMRC.

Friday, 12 July 2019

UK: The Government's Economic Crime Plan 2019-2022

The Government has published its Economic Crime Plan 2019-2022: see here (pdf). The plan contains seven "strategic priorities", including "Transparency of Ownership". This part of the plan explains what the Government has already done, or what is subject to on-going consultation (including, for example, proposals to reform Companies House in the consultation Corporate Transparency and Register Reform - see here, pdf). With regard to the introduction of the new register of the beneficial owners of legal entities owning property in the UK, the plan states that a Bill will be introduced "early in the next Parliamentary session when Parliamentary time allows". The draft Bill received pre-legislative scrutiny earlier this year.

The UK's implementation of the Fifth Money Laundering Directive ((EU) 2018/843)), also known as 5MLD and the subject of a consultation earlier this year, is discussed as part of a strategic priority titled "Powers, Procedures and Tools". The plan states that the Directive will be transposed into national law by January 2020 and that the Government intends to go beyond the requirements of 5MLD by bringing a wider range of crypto-asset businesses within the anti-money laundering regime. The paper also states that those wanting access to the beneficial ownership information held on the expanded trusts register will need to demonstrate a "legitimate interest".

UK: England and Wales: the effect of administrative restoration on contract termination

Judgment was delivered yesterday by Mrs Justice Cockerill in Bridgehouse (Bradford No.2) v BAE Systems Plc [2019] EWHC 1768 (Comm). The decision is an important one on the consequences that flow from a company's return to the Register of Companies under section 1024 of the Companies Act 2006.

The Registrar of Companies dissolved a company, BB2, and struck it off the Register on 31 May 2016, in exercise of a power given by section 1000 ("Power to strike off company not carrying on business or in operation") of the Companies Act 2006. This was done following BB2's failure to submit accounts on time and its failure to respond to a notice from the Registrar sent to its registered office (the address had not been updated by BB2, meaning that the notice was sent to an address no longer functioning as its registered office).

A contract between BAE and BB2 contained a clause - number 20 - providing BAE with the right to terminate the agreement should BB2 suffer an event of default including "being struck off the Register of Companies or being dissolved or ceasing for any reason to retain its corporate existence". On 2 June 2016, BAE served BB2 notice of contract termination.  An application was then made for the administrative restoration of BB2 to the Register under section 1024 of the Companies Act 2006. This was successful and BB2 returned to the Register on 28 July 2016.

What effect did restoration have on BAE's termination of the contract?  This question was first answered by an Arbitrator and the answer given - with reference to section 1028 of the 2006 Act, which provides that the "general effect" of administrative restoration is that the company "is deemed to have continued in existence as if it had not been dissolved or struck off the register" - was that BB2's restoration to the Register did not undo or reverse the termination of the contract.

BB2 appealed, pursuant to section 69 ("Appeal on point of law") of the Arbitration Act 1996 and with the agreement of BAE, and this was heard by Mrs Justice Cockerill. Her Ladyship agreed with the Arbitrator. Restoration did not undo the termination. Section 1028 was not mandatory and of universal application. It was necessary, she stated, to make a distinction between direct and indirect consequences. To quote directly (paras. [115] and [116]):
..... The deeming provision [section 1028] will have very wide application indeed. It will be (as it has been in the authorities) taken to undo the automatic consequences of a removal from the register or dissolution which is later undone in circumstances to which the deeming provision applies. But there will be situations where consequences arise which are not automatic. A lease will become forfeit not because of the fact of the dissolution, but because, either consequent on that dissolution or independently of it, the lessee does not pay its rent. A contract will be repudiated for a similar reason and that repudiation will be accepted – as happened in Contract Services. Or, as in this case, a contractual party will have a choice as to whether to terminate a contract simply because of the removal from the register. The termination will not flow from, or be automatically a consequence of dissolution. It will occur where the party decides to make that decision and takes the step necessary to bring about that termination. Such consequences are, in my view, outwith the deeming provision."

[The reference to Contract Services in this quotation is a typographical error in the judgment as it appears on BAILII; it ought to read Contract Facilities - shorthand for Contract Facilities Ltd v Rees [2002] EWHC 2939 (QB), one of the decisions cited in the judgment].

Update (19 July 2019) - a summary of the decision has been published by the ICLR: see here.

UK: Finance Bill 2019-20 - draft published - insolvency law provisions

HM Treasury has published, for consultation purposes, a draft of the Finance Bill 2019-2020 together with supporting guidance: see here. Drawing most attention in the media is the new Digital Services Tax but the Bill also contains measures to change the priority of HMRC in insolvency and to address tax abuse involving insolvency.

With regard to the priority of HMRC in insolvency, it is proposed that HMRC should become a secondary preferential creditor in respect of certain debts. Further information about this change is available in a policy paper; the draft legislation and accompanying explanatory note are available, respectively, here (pdf) and here (pdf).

The Bill also contains a provision that will provide HMRC with a power to make directors (including shadow directors) jointly and severally liable for a company's tax liabilities, in a limited range of circumstances linked to avoidance, evasion and insolvency. Further information about this new power is available in a policy paper and the draft legislation and accompanying explanatory note are available, respectively, here (pdf) and here (pdf).

Thursday, 11 July 2019

UK: Cranfield's Female FTSE report 2019

The latest annual edition of Cranfield University's Female FTSE Board Report has been published: see here (pdf). To quote directly from the executive summary:
This year we see a more encouraging picture emerging in terms of the number of women on FTSE boards. Over the past 12 months the percentage of women on FTSE 100 boards has increased from 29% to 32%, so the 33% target set for 2020 is well in sight. In total 292 women hold 339 directorships on FTSE 100 boards. The percentage of female non-executive directors (NEDs) is at the all-time high of 38.9%, whilst the percentage of female executives remains worryingly low at 10.9%."

However, and to quote from the report's concluding remarks:
We are pleased to report on the good progress achieved this year in terms of increasing the number of women on both FTSE 100 and FTSE 250 boards. .... What is very concerning is the mounting evidence to show that once women are appointed to boards they have significantly shorter tenures and are less likely to be promoted into SID [Senior Independent Director] or Chair roles. The number of women holding Chair roles across FTSE 100 boards has actually decreased on the already low levels of last year. Urgent action needs to be taken on addressing this issue, hence we welcome the initiative set up recently to accelerate women into Chair roles. It is vital that women are not appointed to boards because of the symbolic importance. This is not the case of just ticking a box. One of the routes into Chair is to acquire experience running a board committee, hence it is positive news this year that the percentage of women chairing such committees across FTSE 100 boards has increased to 31%. Clearly women directors have many more strengths to offer beyond being women. In our extended analysis of their diversity this year, we see that the women directors across FTSE 100 boards come from many countries (only 55% are British), different ethnic backgrounds, a range of universities (with only 11% from Oxford and Cambridge), are financially extremely literate (55% have held various financial roles) and won many awards. We certainly do not have enough women from BAME backgrounds nor women from outside of the corporate mainstream. We also note that the average age of women directors is several years below the average age of men directors, indicating another bias. All these gaps in the talent pipeline must be addressed if the UK is to fill its boards with the best individuals available."

Wednesday, 10 July 2019

UK: FRC audit inspection results published

The Financial Reporting Council has today published the results of its most recent audit inspections, relating (on the whole) to the audits of companies with a December 2017 year end: see here. The inspections covered seven audit firms and the FRC reports that it found cases in all of them where auditors had failed to challenge management sufficiently on matters of judgement. Overall, the FRC classed 75% of the FTSE350 audits it inspected as being good or requiring limited improvements. The remaining 25% were assessed as being below an acceptable standard.

The FRC notes that there have been changes in individual audit firm performance. At Grant Thornton, for example, only half of the reviewed audits were classed as good or requiring limited improvement (down from 75% in the previous year). The FRC states that Grant Thornton is now under increased scrutiny. The firm announced, last year, that it had stopped tendering for FTSE350 external audit engagements, citing the cost involved: see here. It announced, last month, some of the actions it had taken (and will take) to address the concerns raised by the FRC: see here.

Tuesday, 9 July 2019

UK: FCA publishes annual report

The Financial Conduct Authority has published its annual report and accounts for the year ended 31 March 2019: see here (pdf). Chapter 3 focuses on the FCA's work concerning firms' culture and governance and discusses, amongst other things, the Senior Managers and Certification Regime, the Financial Services Register, remuneration and whistleblowing (1,119 reports were received). The main report is accompanied by the following separate reports: anti-money laundering (pdf), competition (pdf), diversity (pdf) and enforcement (pdf).

Monday, 8 July 2019

UK: Fraud Advisory Panel report - 'hidden in plain sight: domestic corruption, fraud and the integrity deficit'

The Fraud Advisory Panel has published a report titled 'Hidden in plain sight: domestic corruption, fraud and the integrity deficit': see here (pdf). The report provides an overview of the anti-corruption framework in the UK as well as highlighting well-known and emerging areas of concern. It ends with a 'blueprint for action', arguing (amongst other things) for greater and easier access to court information and documents; the creation of a central public reporting mechanism (the Home Office is currently exploring options for a centralised reporting mechanism: see here, pdf); and the introduction of corporate criminal offence in respect of the failure to prevent economic crime (the subject of a Government call for evidence in 2017).

Friday, 5 July 2019

UK: The Capital Allowances (Structures and Buildings Allowances) Regulations 2019

Section 30 of the Finance Act 2019 provided for the introduction of a new capital allowance in respect of expenditure incurred from 29 October 2018 in the construction of a building; it also provided the Treasury with the power, exercised through secondary legislation, to amend the Capital Allowances Act 2001 in order to provide for the operation of this new allowance.  That power has now been exercised, with the Capital Allowances (Structures and Buildings Allowances) Regulations 2019 being made earlier this week and now in force: see here or here (pdf). Further information is available in the accompanying explanatory memorandum: see here (pdf).

Thursday, 4 July 2019

European Union: freedom of establishment, group relief and 'final losses'

The Court of Justice of the European Union gave its judgment last month in Skatteverket v Holmen AB (Case C-608/17). The judgment is an important one on the meaning of 'final losses' as described by the court in its judgment Marks and Spencer plc (C-446/03). A summary, published by the ICLR, is available here.

Wednesday, 3 July 2019

UK: FCA proposes ban on sale of crypto-asset derivatives

The Financial Conduct Authority is proposing to ban the sale, marketing and distribution to retail consumers of all derivatives and exchange traded notes that reference unregulated transferable crypto-assets by firms acting in, or from, the UK: see here. The FCA has also announced that it expects to publish later in the summer its final guidance on the regulation of crypto-assets (the outcome of its consultation (CP19/3) that closed in early April).

Tuesday, 2 July 2019

UK: England and Wales: directors' duties and the unfair prejudice remedy

Judgment was delivered several days ago by Adam Johnson QC (sitting as a Deputy High Court Judge) in Dinglis v Dinglis [2019] EWHC 1664 (Ch). This first instance authority, which concerned a petition for relief in respect of unfairly prejudicial conduct under sections 994 to 996 of the Companies Act 2006, is noteworthy for the following reasons.

With regard to directors' duties, it adds to the growing list of cases in which a director has been held in breach of section 172 ("Duty to promote the success of the company") of the 2006 Act. It also contains discussion of the scope of the statutory duty to avoid conflicts of interests and, in particular, the scope of section 175(3) which provides that the duty does not apply to conflicts arising in relation to transactions or arrangements with the company. Judge Johnson QC held, in this regard, that section 175(3) applied not only to cases where the director was himself a party to the transaction but also to those transactions or arrangements in which he was interested regardless of who had entered into the transaction.

The judgment also considers two issues relating to the scope of the unfair prejudice remedy. The first is whether understandings can exist, of the kind indicative of a quasi-partnership, where there are shareholders not party to those understandings. Judge Johnson QC did not rule out this possibility, although the facts before him required further investigation. He nevertheless asserted that it was "obviously undesirable for a situation to exist in which equitable constraints impact on the rights and obligations of some shareholders but not others, in particular where such others have acquired their shareholdings on the assumption that the company's constitution was contained within its published constitutional documents only" (para. [191]). The second issue concerns the valuation method to use where an order to purchase the petitioner's shares is made under section 996. Noting the broad discretion provided by section 996, and conflicting authority, Judge Johnson QC stated that outside of quasi-partnership scenarios, it would be a very unusual case where no discount was applied to reflect the petitioner's minority position.

Update (8 July 2019) - the ICLR's short case summary is available here.

Monday, 1 July 2019

UK: Hampton-Alexander review - women on FTSE350 boards

The Hampton-Alexander Review published an update today on the number of female directors appointed to FTSE350 company boards: see here (pdf). The headline figures are: 32.1% of FTSE 100 board positions are held by women (up from 12.5% in 2011); in the FTSE250 the percentage is 27.5 (up from 24.9). There are four all male FTSE350 boards (there were over 150 in 2011).


The 2019 Hampton-Alexander Report will be published on the 13 November 2019 and this year's Female FTSE report, from Cranfield's School of Management, will be published on 11 July.

UK: JCPC opinion on apparent authority

The Judicial Committee of the Privy Council handed down its opinion last week in East Asia Company Ltd v PT Satria Tirtatama Energindo (Bermuda) [2019] UKPC 30: see here or here (pdf). A summary of the opinion is available here (pdf).

In a case concerning the principles of apparent authority, the Board upheld the decision of the Court of Appeal of Bermuda (here, pdf) that a director did not have the apparent authority to enter into a share sale agreement, contained within a heads of agreement document, on the company's behalf. Amongst the factors leading to this conclusion was the absence of reliance on any representations made by the company.

Of particular interest - and importance - is the discussion the Board provides, albeit obiter, about the extent to which a party can rely on apparent authority where they are "put on inquiry" as to the agent's authority (or lack thereof). In such cases, the Board accepted that in order to rely on the apparent authority of a director, the third party must have made the inquiries that a reasonable person would have made in all the circumstances in order to verify that director's authority. In adopting this test, the Board rejected the position adopted by Lord Neuberger in Akai Holdings Ltd v Kasikornbank Public Co Ltd [2010] HKCFA 64, [2011] 1 HKC 357, that reliance was permitted unless the third party knew of the agent's lack of authority, was dishonest or irrational, or reckless in his belief or turned a blind eye.

Update (18 July 2019) - a summary has been published by the ICLR: see here.

Thursday, 27 June 2019

UK: Companies House - annual statistics published

Companies House has today published its annual statistical release for 2018/19 (covering the year to 31 March 2019): see here. This reports that the size of the register (at 31 March 2019) was 4,202,044, an increase of a little over 4% on the year before. During the year there were 672,890 company incorporations and 508,865 dissolutions. The average age of a company on the register is 8.5 years (it was 10.7 years in 2000). Public limited companies account for 0.1% of the total register; private companies, limited by shares, account for 92.8%.

Wednesday, 26 June 2019

UK: England and Wales: directors' liability for unlawful dividends

Judgment was given last week in Burnden Holdings (UK) Ltd v Fielding & Anor [2019] EWHC 1566 (Ch). This is an important first instance decision concerning insolvency and company law.

Of particular interest is the consideration of whether the liability of directors for the making of an unlawful distribution is strict or fault based. The trial judge, Mr Justice Zacaroli, held that liability was fault based. He stated that if directors were unaware of facts that rendered a dividend unlawful, they would not be personally liable if they had taken reasonable care to secure the preparation of accounts to establish the availability of sufficient profits to render the dividend lawful. If there were, in fact, insufficient profits, the directors would not be liable in such circumstances.

In reaching the position, Zacaroli J. commented on what is expected of directors in terms of their knowledge of accounting and their reliance on others. He stated:
"Directors are not required to be accountants and the comments of Lord Davey and Lord Halsbury LC in Dovey v Cory [[1901] AC 477] as to directors being entitled to rely on the judgment of others whom they appoint to carry out specialist financial roles within the company are as pertinent today as when they were made in 1901. The only modification to the position reached at the end of the 19th Century is as to the standard required of directors, which is as set out by Nelson J in [Bairstow v Queen's Moat Houses plc [2000] BCC 1025]."

UK: Law Commission report - "Anti-money laundering: the SARs regime"

The Law Commission for England and Wales has published its report and recommendations concerning the regime for the reporting of suspicious activity within the UK's anti-money laundering and terrorist financing framework: see here (pdf). A summary is available here (pdf, English) and here (pdf, Welsh). The report contains 19 recommendations, including the creation of an advisory board with oversight over the drafting of guidance and responsibility for measuring the effectiveness of the reporting regime.

UK: The Financial Services and Markets Act 2000 (Prospectus) Regulations 2019

The Financial Services and Markets Act 2000 (Prospectus) Regulations 2019 were made yesterday and come into force on 21 July 2019: see here or here (pdf). The Regulations amend existing legislation, including the Financial Services and Markets Act 2000, with the aim of ensuring that the EU Prospectus Regulation ((EU) 2017/1129) is effective in the UK from 21 July. Further information is available in the accompanying explanatory memorandum: see here (pdf).

Tuesday, 25 June 2019

Germany: new corporate governance code - copy in English now available

Last month the Corporate Governance Code Commission - DCGK - published a new edition of the German Corporate Governance Code: see here. A copy of the new Code, in English, is now available: see here (pdf) or here (pdf, with rationale for the changes). A press release explaining the key changes is available here (pdf).

Monday, 24 June 2019

UK: England and Wales: Law Commission project on intermediated securities system

The Law Commission for England and Wales has announced the start of a project concerning intermediated securities: see here. The Commission states in its announcement that "concerns have been raised about the effect of a system of intermediation on corporate governance and transparency, whilst there is uncertainty over what legal redress is available to investors, if issues with their securities arise". The project is being undertaken at the request of the Department for Business, Energy and Industrial Strategy. A call for evidence will be published in the summer and a scoping study is expected in summer 2020.

UK: Creating a responsible payment culture and board level responsibility

Last October, the Government published Creating a responsible payment culture - a call for evidence in tackling late payment: see here (pdf). Last week the results of the call for the evidence and the Government's response were published: see here (pdf). Part of the Government's response is titled "Board level responsibility" and within this section the following is said (pp. 24-25):
Increasing board level responsibility will ensure that late payments are being discussed at the highest level of organisations. Furthermore, it will increase the visibility of companies’ payment policies and who is responsible for them, allowing other businesses to engage the appropriate person with relevant issues and concerns.

The Payment Practices Reporting duty for large businesses has started to improve Board level responsibility for payment practices.

The Audit Committee of a company, which includes Non-Executive Board members, has an important role to play in considering the integrity of a company’s financial statements and the financial controls in place. In the 2019 Spring Statement, the Chancellor announced that government will require large companies’ audit committees to review payment practices and report on them in their annual accounts. This will further elevate payment practices to Board level, increase transparency and complements a new reporting obligation ... that came into force in January 2019.

We are working through the implementation of the Chancellor’s Spring Statement announcement with the Financial Reporting Council (FRC). This will preferably be implemented through guidance that clearly sets out the expectation that Audit Committees will review payment practices and report on them in their annual reports. But if necessary, we will consider legislation to ensure that the issue of late payments is given sufficient attention by the Boards of larger companies.

[U]nder a new strategic report requirement, large companies must include a statement in their directors’ report summarising how the directors have had regard to the need to foster the company’s business relationships with suppliers, customers and others, and the effect of that regard, including on the principal decisions taken by the company during the financial year.

We are also asking the FRC to review how well payment practices are reflected in the first year of the new reporting requirement, which will inform our future thinking on this issue. The requirement applies to c.15,000 both listed and private companies".

UK: The Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) (Amendment) Regulations 2019

The Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) (Amendment) Regulations 2019 were made last week and come into force on 9 July 2019: see here (pdf). The accompanying explanatory memorandum is available here (pdf).

The purpose of the Regulations is to ensure the full implementation of the EMIR REFIT Regulation (to use its full title: Regulation (EU) No 2019/834 of the European Parliament and of the Council amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivative contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories).

Further information, from the Financial Conduct Authority, is available here. The Regulations will amend the Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) Regulations 2013 (S.I. 2013/504).

Tuesday, 18 June 2019

IOSCO Cyber Task Force - final report published

The IOSCO Cyber Task Force has published its final report: see here (pdf). The report examines how IOSCO member jurisdictions have applied three standards: the CPM-IOSCO Guidance on cyber Resilience for Financial Market Infrastructures; the National Institute of Standards and Technology Framework for improving Critical Infrastructure Cybersecurity; and the International Organization for Standardization 27000 series standards. It also provides a series of questions for firms and regulators designed to promote awareness of good practice and guide the review of existing practices.

Monday, 17 June 2019

UK: FCA quarterly consultation paper

The Financial Conduct Authority has published its latest quarterly consultation paper (CP19/19, No 24): see here (pdf). The consultation paper contains, amongst other things, the FCA's proposals for the fees and levies to be paid for 2019/20 by Gibraltar-based firms should the UK leave the European Union without an agreement and a transition period by 31 October 2019; and new notification procedures for certain firms in respect of changes to their management body.

Friday, 14 June 2019

UK: The Companies (Directors' Remuneration Policy and Director's Remuneration Report) Regulations 2019

The Department for Business, Energy and Industrial Strategy has today published a document containing an overview of, and FAQs concerning, the Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) Regulations 2019: see here (pdf).

UK: Government responds to BEIS Committee report on executive rewards

Earlier this year the House of Commons Business, Energy and Industrial Strategy Committee published its report Executive rewards - paying for success: see here (pdf). The Committee made various recommendations, including that there should be an employee representative on remuneration committees. The Government's response was received by the Committee earlier this month and published yesterday: see here. The response has been described as a "missed opportunity" by the Committee's Chair, Rachel Reeves MP: see here.

UK: England and Wales: shadow and de facto directorships

Judgment was delivered earlier this week by HHJ Hacon in Popely v Popely [2019] EWHC 1507 (Ch). This first instance decision - concerning a double derivative action - is noteworthy for the discussion it contains of the distinctions between de facto and shadow directorships and whether it is possible for an act to be simultaneously carried out in both of these capacities (no was the judge's answer). Of note, too, is the reliance placed on a decision of Guernsey's Royal Court: Carlyle Capital Corporation Ltd v Conway (Judgment 38/2017; available here for registered users; registration is free).

Wednesday, 12 June 2019

UK: The Financial Services (Miscellaneous) (Amendment) (EU Exit) (No. 2) Regulations 2019

The Financial Services (Miscellaneous) (Amendment) (EU Exit) (No. 2) Regulations 2019 were made earlier this week: see here or here (pdf). The accompanying explanatory memorandum is available here (pdf), from where this very general explanation of the purpose of the Regulations is taken (para. 2.1):
This instrument is being made in order ensure a coherent and functioning financial services regulatory regime once the United Kingdom (UK) leaves the European Union (EU). It makes amendments to a number of financial services EU exit statutory instruments and to an EU delegated regulation, correcting errors identified in legislation after it was made, making amendments to ensure consistency between EU exit instruments and introducing a transitional provision. These amendments will ensure that these instruments operate effectively after the UK leaves the EU".

OECD publishes 2019 edition of its Corporate Governance Factbook

The OECD published the 2019 edition of its Corporate Governance Factbook yesterday: see here (pdf). The factbook covers 49 jurisdictions and provides information in five areas: (1) the corporate landscape (including the ownership structure of listed companies); (2) the corporate governance framework; (3) the rights of shareholders and key ownership functions; (4) the board of directors; and (5) mechanisms for flexibility and proportionality in corporate governance.

Tuesday, 11 June 2019

Trinidad and Tobago: the Companies (Amendment) Act, 2019

The Companies (Amendment) Act, 2019 became law earlier this year with assent given on 4 April 2019: see here (pdf). The Act amends the Companies Act, 1995 and will come into force through promulgation and, so far, this has been done for section 10A of the Act: see here (pdf). The 1995 Act prohibited the issuing of bearer shares; section 10A retains this prohibition but adds to it by also prohibiting the conversion or exchange of any share into a bearer share. Elsewhere in the 2019 Act are rules requiring companies to maintain information about the beneficial owners of its shares.

Monday, 10 June 2019

UK: England and Wales: section 127 of the Insolvency Act 1986 and the defence of change of position

Judgment was given last Friday by HHJ David Cooke in Dingley v Nisa Retail Ltd [2019] EWHC 1383 (Ch). The decision is of interest because of the discussion it contains of the issues surrounding the making of a validation order under section 127 ("Avoidance of property dispositions, etc") of the Insolvency Act 1986 as well as the availability of the defence of change of position where a liquidator seeks recovery of payments void under section 127. HHJ Cooke stated (at para. [69]): "... although the defence is in principle as a matter of jurisprudence available, the circumstances in which it can succeed are constrained in the same way and for the same reasons as the exercise of the court's discretion to validate".

Thursday, 6 June 2019

UK: England and Wales: unfair prejudice and the reasonable offer

Judgment was given today by the Court of Appeal in Prescott v Potamianos [2019] EWCA Civ 932. This unanimous judgment of McCombe, Leggatt and Rose LJJ concerned the unfair prejudice remedy (sections 994-996 of the Companies Act 2006) and is noted here for two reasons.

The first reason is that, in the context of the remedy that is provided, the court has endorsed the view expressed by Arden LJ (as she then was) about the adaptable nature of the remedy. The case law has, the court noted, "consistently declined to introduce 'bright lines' and the assessment of an offer to purchase is no exception to this flexible approach" (para. [130]).

The second, related reason, is that the court rejected the view, expressed by the trial judge ([2018] EWHC 1924 (Ch), para. [360]), that the assessment of the offer to purchase, in order to determine its reasonableness in the sense explained by Lord Hoffmann in O'Neill v Phillips [1999] 1 WLR 1092, was a "logically antecedent question" to the assessment of the alleged unfairly prejudicial conduct. In the court's view, "[the] terms of any offer made by the majority to purchase the petitioner's shares, the circumstances in which the offer was made and the reasons why it was rejected are one aspect of the overall consideration by the court of whether an unfair prejudice petition should succeed" (para. [130]).

Whilst reluctant to set out an exhaustive list of factors relevant to deciding an offer's fairness, the court nevertheless discussed what it regarded as those factors that were relevant in most cases (see paras. [131] to [136]). But it stressed that there was no one feature of an offer that would make it automatically either reasonable or unreasonable (para. [130]).

Wednesday, 5 June 2019

UK: The EU Prospectus Regulation and the new PRR Sourcebook

The Financial Conduct Authority has published a policy statement containing near final rules the aim of which is to align the FCA Handbook with the EU Prospectus Regulation (Regulation (EU) 2017/1129): see here (pdf). The changes will see the creation of a new sourcebook - the Prospectus Regulation Rules (PRR) sourcebook - coming into force on 21 July 2019 and replacing the current PR sourcebook. The rules are 'near final' because they contain references to proposed revisions to domestic and EU legislation that have not yet been made. Further information about the Regulation can be found here.

Tuesday, 4 June 2019

UK: Establishing the Accounting Standards Endorsement Board

The position of chairman of the new UK Accounting Standards Endorsement Board (UKEB) has been advertised on the Public Appointments website: see here. The advertisement, and role description it contains, is useful in that it sets out what role the UKEB will have and its place within the new regulatory framework following the UK's departure from the European Union.

Further information about the new framework was provided earlier this year in the explanatory memorandum accompanying the International Accounting Standards and European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2019: see here (pdf). These Regulations, in chapter 3,  give the Secretary of State delegated powers to adopt and endorse IFRS for use in the UK and the process that must be followed. The Secretary of State is also given, by chapter 4, the power through regulations to delegate this decision-making function to another body. We now know that this body will be the UKEB.

Kiribati: company and insolvency law reform

The Republic of Kiribati - as it became known on gaining independence from the United Kingdom forty years ago - is to reform its company and insolvency laws. Draft Bills have been published, including a Companies Bill and a Company Insolvency Bill: see, respectively, here (pdf) and here (pdf). The Bills are accompanied by a consultation paper: see here (pdf). The new Companies Bill, when enacted, will enable companies with a single shareholder to be formed and will abolish the current minimum capital requirements.

Monday, 3 June 2019

UK: FCA Policy Statement - Improving shareholder engagement and increasing transparency around stewardship

The Financial Conduct Authority has published PS19/13 Improving shareholder engagement and increasing transparency around stewardship: see here (pdf). The statement contains final rules and feedback following the FCA's earlier consultation (about which: see here, pdf). The new rules come into force on 10 June and will implement, in part, EU Directive 2017/828 (aka SRD II or the Second Shareholder Rights Directive). They will require, amongst other things, life insurers and asset managers to disclose information concerning their engagement policies and investment strategies (or to explain publicly why these disclosures are not being made).

The FCA states (at para. 2.20) that it cannot see a reason why these new SRDII disclosures should not be contained in the same document as the disclosures required by firms under the revised Stewardship Code but firms will need to consider whether their Stewardship Code disclosures are sufficient to meet the FCA rules. The regulator also states (at para. 1.42) that for an initial period, and because the rules are coming into force quickly after their publication, firms can comply by explaining that they are developing an engagement policy (or considering whether or not to have one).

Friday, 31 May 2019

UK: ICSA consults on the effectiveness of the independent evaluation of listed company boards

In the statement published last year following its insolvency and corporate governance consultation, the Department for Business, Energy and Industrial Strategy stated that it had invited ICSA to convene a group with the purpose of identifying ways to improve the quality and effectiveness of board evaluations: see here (pdf, para. 1.66). The group has been formed and a day or so ago published a consultation paper: see here (pdf). The paper begins by seeking views on the purpose of board evaluation before summarising the evidence regarding current practice. It then invites suggestions and views on various matters and proposals, including a code of practice for the providers of board evaluation services and voluntary principles for listed companies when engaging external reviewers.

Thursday, 30 May 2019

UK: IA report - Shareholder votes on dividend distributions in UK listed companies

Last year, when responding to the feedback received in respect of its insolvency and corporate governance consultation, the Department for Business, Energy and Industrial Strategy stated that it was "concerned at what appears to be a growing trend for companies to pay only interim dividends which, under most articles of association, do not require shareholder approval": see here (pdf, para. 1.52).* The Investment Association was asked to assess and report on the prevalence of this practice and this it did a few days ago with the publication of its report Shareholder votes on dividend distributions in UK listed companies: see here (pdf).

The IA's sample contained 628 companies: the constituents of the FTSE All-Share as at 1 January 2018 that held an AGM between 1 December 2017 and 30 November 2018. This sample included 98 FTSE 100 companies, 249 FTSE 250 companies and 281 FTSE SmallCap companies. The IA found that of those companies paying dividends, 22% did not seek shareholder approval. The majority of such distributions were interim dividends: 92% of companies not seeking a shareholder resolution were distributing interim dividends only.

The IA's findings lead it to call on companies to publish a distribution policy, in respect of which the IA will establish a working group to develop best practice guidance. The group will also consider whether there should be a mandatory vote on this policy and/or yearly distributions. The guidance is expected in the autumn this year.


* - See, for example, Article 70 of the Model Articles for Public Companies - available here.