UK: England and Wales: Court of Appeal confirms that shares were not alloted at a discount

Section 580(1) of the Companies Act 2006 provides that "[a] company's shares must not be allotted at a discount". Last Friday, in Chalcot Training Ltd v Ralph [2021] EWCA Civ 795, the Court of Appeal unanimously upheld the trial judge's decision (at [2020] EWHC 1054 (Ch)), that shares issued as part of a tax avoidance scheme had not been issued in contravention of section 580.  In what is - I believe - the first appellate decision to consider section 580, Lewison LJ (with whom Arnold and Edis LJJ agreed) observed (paras. [43], [50] and [73]):

The idea behind the limited liability company is that people will be encouraged to be associated in a business enterprise if they are able to limit their personal liability for the debts of the enterprise. The way in which this is achieved is by the creation of a corporation with limited liability. What that means is that the personal liability of the members of the company is limited to the amount that they have subscribed or agreed to subscribe to the capital of the company. The capital in this instance is the company's nominal share capital. It is part of the very definition of a limited company in section 3 of the Companies Act 2006. That provides that a company is a company limited by shares if the liability of its members "is limited to the amount, if any, unpaid on the shares held by them." This fundamental feature of corporate liability has been recognised for a very long time. It was introduced by the Joint Stock Companies Act 1856; and repeated in the Companies Act 1862". 

"The prohibition on issuing shares at a discount to nominal value thus long pre-dated section 580. Although it was described as a "common law" prohibition, it is, I think, more accurately described as inevitably flowing from the statutory machinery for the creation of a limited liability corporation".

".... the mischief against which section 580 is directed (as confirmed by all the cases that we have been shown) is the depletion of the company's nominal share capital".

UK: England and Wales: resignation and the director's continuing duty to avoid conflicts of interest

Sitting as a Deputy Judge of the High Court, Mr Ashley Greenbank delivered judgment today in Burnell v Trans-Tag Ltd [2021] EWHC 1457 (Ch). The decision, while first instance, is nevertheless important because of the discussion it contains of section 170(2)(a) of the Companies Act 2006, which provides that a person ceasing to be a director continues to be subject to the duty in section 175 to avoid conflicts of interest as regards "the exploitation of any property, information or opportunity of which he became aware at a time when he was a director".

Deputy Judge Greenbank stated (at paras [411] and [412]):

... the extended duty imposed by s170(2)(a) is a continuing duty and ... it must therefore be possible for a breach of that continuing duty to be founded on acts which take place after a director has resigned his or her directorship. It follows that, following the introduction of the general duties by CA 2006, it cannot be an absolute requirement for a breach of the extended duty that a director's resignation must have been prompted or influenced by his or her wish to acquire a business opportunity of the company.

Such a conclusion is of course contrary to the reasoning in some of the cases which discuss the common law rules and equitable principles on which the general duty in s175 is based, in particular, that of Rix LJ in Foster Bryant Surveying Ltd v Bryant [2007] EWCA Civ 200 and Cockerill J in Recovery Partners GP Ltd v Rukhadze [2018] EWHC 2918 (Comm) ... However, the courts did not have to address in Foster Bryant or Recovery Partners the question of the interaction of the existing case law principles with the statutory code. My conclusion also, in theory, risks creating circumstances in which duties are extended beyond the scope of the duties imposed by common law rules and equitable principles on which the general duty is based and imposing liabilities for breach in cases where liability might not arise based on those principles. However, it is, in my view, an inevitable result of the codification.".

European Union: Corporate reporting in the Capital Markets Union after Wirecard

Mairead McGuinness - the European Commissioner for financial services, financial stability and capital markets union - delivered a speech today titled "Corporate reporting in the Capital Markets Union after Wirecard": see here. The Commissioner used her speech to explain that a public consultation on corporate reporting would take place later this year and, in respect of what she termed the three "core pillars to high-quality reporting", she identified various issues that are likely to be considered. 

UK: the auditor's responsibilities relating to fraud in the audit of financial statements - updated standard

The Financial Reporting Council has today published an updated edition of ISA (240) - The Auditor's responsibilities Relating to Fraud in an Audit of Financial Statements: see here (pdf). The updated standard, which seeks to bring greater clarity regarding the auditor's obligations, is effective for audits of periods beginning on or after 15 December 2021.  

UK: The International Accounting Standards (Delegation of Functions) (EU Exit) Regulations 2021

The International Accounting Standards (Delegation of Functions) (EU Exit) Regulations 2021 came into force on 22 May: see here or here (pdf). The accompanying explanatory memorandum is available here (pdf). The purpose of the Regulations is to delegate to a new body - the UK Accounting Standards Endorsement Board - the responsibility for the adoption of international accounting standards (this function was conferred on the Secretary of State by The International Accounting Standards and European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2019 to replace the EU framework). 

UK: England and Wales: unfair prejudice petitions and changes in control during proceedings

Judgment was delivered several days ago in McMonagle v Harvey & Ors [2021] EWHC 1374 (Ch). While first instance, the decision is noteworthy because of the discussion it contains about whether those in control of a company can be unfairly prejudiced for the purposes of a petition presented under sections 994 to 996 of the Companies Act 2006 (the unfair prejudice remedy).

The petitioner had become the company's only director and de facto majority shareholder after his petition had been presented. While noting that the authorities suggest that there are limited circumstances in which a company's controller may bring a section 994 petition, ICC Judge Mullen said that no authority had been cited to support the proposition that a change in control during the proceedings should halt any consideration of the allegations of unfair prejudice where they had an effect on the company's value.

Canada: contract, voluntary associations and judicial intervention - the view of the Supreme Court

The Supreme Court delivered its judgment today in Ethiopian Orthodox Tewahedo Church of Canada St. Mary Cathedral v. Aga 2021 SCC 22. Judgment was delivered by Rowe J. (Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown, Martin and Kasirer JJ. concurring). A case summary is available here. To quote Rowe J. (at para, [49]): 

.... courts can only intervene in the affairs of a voluntary association to vindicate a legal right, such as a right in property or contract. Membership in a voluntary association is not automatically contractual. Even a written constitution does not suffice. Membership is contractual only where the conditions for contract formation are met, including an objective intention to create legal relations. Such an intention is more likely to exist where property or employment are at stake. It is less likely to exist in religious contexts, where individuals may intend for their mutual obligations to be spiritually but not legally binding. A voluntary association will be constituted by a web of contracts among the members only where the conditions for contract formation are met".

Canada: CSA to consult on "broader diversity in corporate leadership"

The Canadian Securities Administrators have announced that they will consult later this year on the subject of "broader diversity in corporate leadership": see here. The aim, amongst other things, is to help determine whether the needs of Canadian investors have changed since the adoption by most CSA jurisdictions of the "women on boards" disclosure requirements. 

Laos: Guidelines on Corporate Governance for Listed Companies

A collaboration between the Lao Securities Commission and the International Finance Corporation has resulted in the publication of a set of corporate governance guidelines for listed companies. A copy of these guidelines - we might call them a code (and, as such, the first in Laos) - is available here (English, pdf) and here (Lao, pdf). The guidelines will operate, after an initial transition period, on the basis of 'comply or explain'.

Malta: MFSA feedback statement - the corporate governance framework for authorised firms and listed companies

In February 2020 the Malta Financial Services Authority published proposals for a new corporate governance framework for MFSA authorised firms and listed companies: see here (pdf). The proposed framework, on which views were sought, contained principles operating on the basis of 'apply and explain', to be supported by sector specific guidance and rules. A consolidated corporate governance code for authorised firms and listed companies was also proposed.

An update on these proposals, in the form of a feedback statement, was published today: see here (pdf). A short press release was also published: see here (pdf).  The statement explains that the proposed principles within the corporate governance framework for authorised firms will no longer be mandatory - as suggested by "apply and explain" - but will operate on what is described as a "best effort basis". The principles will be supported by binding rules and guidance notes. The feedback statement also sets out the structure of the proposed new MFSA corporate governance code. A consolidated code is no longer proposed.

Ireland: new corporate rescue regime for small companies // virtual shareholder meetings

The Department of Enterprise, Trade and Employment published a press release last week in which it announced that approval had been gained for the priority drafting of the Companies (Small Company Administrative Rescue Process and Miscellaneous Provisons) Bill 2021: see here. The Bill will amend the Companies Act 2014 in order to introduce a new rescue process for small and micro companies.

The Bill will also - hence the word miscellaneous in the title - make some other changes to the 2014 Act and the Industrial and Provident Societies Act 1893 including making permanent provisions for the holding of virtual meetings (such meetings were introduced as a temporary measure under the Companies (Miscellaneous Provisions) (Covid-19) Act 2020).

The press release highlights the key features of the Bill. 

UK: Supreme Court considers corporate veil piercing - again

Judgment was delivered today by the Supreme Court in Hurstwood Properties (A) Ltd & Ors v Rossendale Borough Council [2021] UKSC 16. The case provided the opportunity for the court - once more - to consider corporate veil piercing, against the background of its earlier decision in Prest v Petrodel Resources Ltd & Ors [2013] UKSC 34.

In Prest, Lord Sumption delivered the leading judgment and accepted that English law contained a principle that the corporate veil could be pierced in (very) limited circumstances - what he termed the "evasion principle".  There was, nevertheless, discussion amongst his fellow justices about whether the principle should remain - and, indeed, if it existed. 

In today's case we learn some more about current thinking.  Lords Briggs and Leggatt delivered the leading judgment (with whom Lords Reed, Hodge and Kitchen agreed) and observed:

 

[In Prest] Lord Walker of Gestingthorpe questioned whether “piercing the corporate veil” is a coherent principle or rule of law at all, as opposed to simply a label used to describe the disparate occasions on which some rule of law produces apparent exceptions to the principle of the separate juristic personality of a corporate body (para 106). Although this is not the occasion for reaching any final view, we are inclined to share Lord Walker’s doubts .... Even if there is an “evasion principle” which may in “a small residual category of cases” (per Lord Sumption) justify holding a company liable for breach of an obligation owed by its controlling shareholder, we are not ourselves convinced that there is any real scope for applying such a principle in the opposite direction so as hold a person who owns or controls a company liable for breach of an obligation which has only ever been undertaken by the company itself".

A summary of the case is available here and in the below recording (if the recording does not appear below, it can be viewed here): 

UK: England and Wales: winding-up in the public interest

Judgment was delivered yesterday in Secretary of State for Business Energy And Industrial Strategy v Celtic Consultancy & Enterprises Ltd & Ors [2021] EWHC 1240 (Ch). The decision is noteworthy because of the trial judge's discussion of the circumstances in which winding-up on public interest grounds might be justified in respect of a company's inability to explain the basis on which it has received money.  The trial judge (HHJ Cawson QC) stated (paras. [128] and [129]): 

.... [it is argued that] a failure simply to explain the basis upon which monies are received cannot properly form the subject matter of a winding up petition presented on public interest grounds. There is force in this point, and in the main I consider that this must be right, but I do not consider that one can exclude there being circumstances in which a failure to explain might, in itself in the particular circumstances of the case, be indicative of the relevant company operating in an illegal or otherwise inherently objectionable way, or should be taken to be so indicative, such that the Court is entitled to proceed on the basis that the affairs of the Company have been, or are being, conducted in an inherently objectionable way so as to disclose a lack of probity."

Update (19 May 2021) - the ICLR has published a summary of the decision: see here.

UK: The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill

The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill received its first reading in the House of Commons today. A copy of the Bill, as introduced, is available here (pdf).

The accompanying explanatory notes - available here (pdf) - explain that the purpose of the Bill is to address "public concerns about the abuse of limited liability, by extending the powers of the Secretary of State and, in Northern Ireland, of the Department for the Economy to investigate the conduct of company directors to include former directors of dissolved companies, to commence disqualification proceedings against them where public interest criteria are met, and to seek compensation where their conduct has caused loss to creditors". 

Further information is also available in a press release from the Insolvency Service. 

UK: FRC report - the UK Corporate Governance Code 2018 and remuneration reporting

The Financial Reporting Council has published the results of research exploring remuneration reporting following the introduction of the UK Corporate Governance Code 2018: see here (pdf). While noting improvements in the quantity of disclosure, the research did not assess the quality of disclosure; the authors observed, nevertheless, repetition of the wording from the Code in companies' reporting.

Ukraine: OECD review of the corporate governance of state-owned enterprises

The OECD has today published the results of its review of the corporate governance of state-owned enterprises in Ukraine: see here (pdf). The review describes corporate governance reforms as being "nascent" and "fragile" and, while gradual progress has taken place, changing priorities have led to "reform stagnation and setbacks". 

Australia: NSW Court of Appeal considers the reflective loss principle

Judgment was delivered several days ago by the New South Wales Court of Appeal in Central Coast Council v Norcross Pictorial Calendars Pty Ltd [2021] NSWCA 75. The decision is noteworthy because of the discussion it contains of what is often described as the reflective loss principle, also recently considered by the UK Supreme Court in Marex Sevilleja v Marex Financial Ltd (Rev 1) [2020] UKSC 31.

Chief Justice Bathurst (Macfarlan JA and Gleeson JA concurring) stated (paras. [118] - [119]): 

In the present case, neither of the parties contended that the approach of Lord Sales in Marex should be adopted. However ... the Council contended that the exception to the principle, namely that the shareholder could recover for loss to the value of his shares in the company as a result of damage suffered by the company where the shareholder had a cause of action but the company did not ... should not be accepted.

I am unable to agree. There seems to be no reason for the principle to apply to circumstances where the company has no cause of action to recover the loss. This is so regardless of the rationale of the principle. If the purpose is to prevent double recovery, there is no prospect of double recovery where the company has no cause of action. If is as I conceive it, the principle is based on the rule in Foss v Harbottle that only the company can sue for a wrong done to the company, the principle is not outflanked because there is no actionable wrong done to the company, the company having no cause of action. If ... it is associated with the doctrine of maintenance of capital, there is no reduction of capital if a shareholder recovers funds that the company as a matter of law cannot recover. Finally, there is no policy reason not to impose such an exception". 

Singapore: MAS consultation - Guidelines on Corporate Governance for Designated Financial Holding Companies, Banks, Direct Insurers, Reinsurers and Captive Insurers

The Monetary Authority of Singapore is consulting on proposed changes to the Guidelines on Corporate Governance for Designated Financial Holding Companies, Banks, Direct Insurers, Reinsurers and Captive Insurers which are incorporated in Singapore: see here. 

UK: FCA consultation - a new authorised fund regime for investing in long term assets

The Financial Conduct Authority has begun a consultation seeking views on a new authorised fund regime - LTAFs or long-term asset funds - to facilitate investment in long-term, illiquid assets: see here (pdf). 

UK: HM Treasury consultation outcome - supporting the wind-down of critical benchmarks

HM Treasury has announced, following a consultation earlier this year (see here, pdf), that legislation will be brought forward, when Parliamentary time allows, to reduce the disruption that might arise in respect of contracts that have been unable to move from LIBOR to another benchmark ("tough legacy" contracts): see here.

UK: Financial Services Regulatory Initiatives Forum - Regulatory Initiatives Grid published

The third regulatory initiatives grid has been published by the chairs of the Financial Services Regulatory Initiatives Forum: see here. The grid provides a timeline for current initiatives - over 120 - from organisations including HM Treasury, the Bank of England, Financial Conduct Authority and Financial Reporting Council.  

Pakistan: SECP consults on legal framework for SPACs

The Securities and Exchange Commission of Pakistan has published for consultation proposed Regulations the purpose of which is to introduce a framework for the formation and operation of special purpose acquisition companies (SPACs). For further information about the Regulations, which will amend the Public Offering Regulations 2017, see: press release (pdf) | Draft Regulations (pdf) |. 

UK: PRA discussion paper - the prudential framework for non-systemic banks and building societies

The Prudential Regulation Authority has published a discussion paper the purpose of which is to start exploring options for the creation of a simpler prudential framework for banks and building societies that are neither systemically important nor internationally active: see here (pdf).

Australia: Treasury consultation - greater transparency of proxy advice

The Australian Treasury has published a consultation paper seeking views on various reform options including those designed to ensure independence, facilitate engagement between companies and proxy advisers, and provide for an appropriate licensing regime. The paper is available here here (pdf).

UK: FCA consultation - SPACs and the Listing Rules

The Financial Conduct Authority has published a consultation paper - CP21/10, available here (pdf) - in which it seeks views on proposed amendments to the Listing Rules in respect of SPACs. The proposals are intended to enable a SPAC's listing to continue, subject to there being appropriate investor protection, where an acquisition target is identified. Such a change was one of the recommendations made in the recent UK Listing Review conducted by Lord Hill. Whether there should be a separate listing category for SPACs is something the FCA will consider - and consult upon - at a later date.

Latvia: corporate governance code - new edition published

A little belatedly, I note the publication of a new edition of Latvia's corporate governance code: see here (pdf).

Europe: ecoDa publishes new edition of its governance guidance and principles for unlisted companies

The European directors organisation - ecoDa - has published an updated edition of its Corporate Governance Guidance and Principles for Unlisted Companies in Europe: see here (pdf).

Iceland: sixth edition of the Corporate Governance Guidelines

A new edition - the sixth - of Iceland's Corporate Governance Guidelines was published earlier this year and comes into effect on 1 July. A copy of the Guidelines in English is available here (pdf).

Norway: NUES consults on revisions to the Norwegian Corporate Governance Code

The Norwegian Corporate Governance Board (NUES) is currently consulting on proposed changes to the Norwegian Corporate Governance Code for Listed Companies. A copy of the consultation paper, in English, is available here (pdf). In addition to the proposed changes, which include those relating to the composition of the nomination committee, views are sought on any aspect of the Code.

Update (4 February 2022): the new code is available here. 

UK: Financial Services Bill receives Royal Assent

The Financial Services Bill received Royal Assent last Thursday thereby becoming the Financial Services Act 2021.  A copy of the Act is available here (pdf). The accompanying explanatory memorandum has not yet been published; reference can, instead, be made to the briefing paper provided by the House of Commons Library: see here (pdf). 

Hong Kong: consultation on the Governance Code and related Listing Rules

The Hong Kong Exchange has begun a consultation in respect of proposed changes to the Hong Kong Corporate Governance Code, including related Listing Rules: see here (pdf). 

Nigeria: new edition of the Corporate Governance Guidelines for Insurance and Reinsurance Companies

Earlier this year the National Insurance Commission published a new edition of its Corporate Governance Guidelines for Insurance and Reinsurance Companies: see here (pdf). 

Malaysia: Securities Commission publishes new edition of Malaysian Code on Corporate Governance Code

At the end of last month (on the 28th to be precise) the Securities Commission published a new edition of its Corporate Governance Code. A copy of the Code is available here (pdf), with further information available in the accompanying FAQs (pdf) and press release. 

Japan: new governance and stewardship codes

The Council of Experts, set-up to review Japan's governance and stewardships codes, has published, in draft form, new editions of both codes: see, in English, here (pdf) and here (pdf).