OECD publishes new edition of its Corporate Governance Factbook

The OECD has today published the 2021 edition of its Corporate Governance Factbook: see here or here (pdf). Individual chapters can be viewed/downloaded separately, including (in pdf): chapter 1 (the global market and corporate ownership landscape); chapter 2 (the corporate governance and institutional framework); chapter 3 (the rights of shareholders and key ownership functions); and chapter 4 (the corporate board of directors).

50 jurisdictions are included: all 38 OECD countries and Argentina, Brazil, China, Hong Kong, India, Indonesia, Malaysia, Peru, Russian Federation, Saudi Arabia, Singapore and South Africa.

UK: Companies House - companies register activities 2020 to 2021

Companies House has published its annual review of the companies register for the year ending 30 March 2021: see here. At the end of March 2021, the total register size was 4,716,126 (an increase of over 8% when compared with the end of March 2020). During the year there were 810,316 company incorporations - an increase of over 21% when compared with the previous year and a new record. 

UK: Review of the Securitisation Regulation - a call for evidence

The Government has published a call for evidence in respect of a review, launched today, of the (onshored) Securitisation Regulation: see here (pdf). The review is taking place because there is a legal obligation to do so under Article 46 of the Regulation (as amended by the Securitisation (Amendment) (EU Exit) Regulations 2019, where the original reference to the European Commission is replaced by a reference to HM Treasury). 

Australia: Court of Appeal of Western Australia considers the reflective loss principle

Last month I noted a decision of the New South Wales Court of Appeal concerning the (shareholder) reflective loss principle: Central Coast Council v Norcross Pictorial Calendars Pty Ltd [2021] NSWCA 75. The principle has been considered again, at appellate level, in a judgment handed down today by the Court of Appeal of Western Australia: Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 2] [2021] WASCA 105.

 

The court (Buss P; Murphy and Beech JJA) found that the following principles emerged from the authorities (para. [268], to quote directly):

• Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder to make good a diminution of the value of the shareholder's shareholding where that loss merely reflects the loss suffered by the company.
• This will be so even if the company has declined or failed to take action to recover the loss.
• If the company suffers loss, but has no cause of action to sue to recover that loss, a shareholder with a cause of action who suffers loss to the value of his shares may sue in respect of it.
• The reflective loss principle does not prevent a shareholder suing for a loss suffered from a breach of duty owed to him or her where the loss is separate and distinct from the loss suffered by the company.
• The principle extends to the case where both the company and the shareholder have a claim for breach of duty or breach of contract which caused the loss.

Ireland: a new rescue regime for small companies

The Department of Enterprise, Trade and Employment announced, earlier this week, that the Government had approved the publication of the Companies (Rescue Process for Small and Micro Companies) Bill 2021: see here. The purpose of the proposed legislation is to amend the Companies Act 2014 in order to introduce a new rescue process for small and micro companies. An overview of the Bill's provisions is available here. 

Guernsey: GFSC publishes amended finance sector corporate governance code

The Guernsey Financial Services Commission has published an updated edition of its finance sector corporate governance code: see here (pdf). The new Code applies to financial years starting on and after 1 October 2021 and has been amended to include a new rule concerning climate change (5.2.1): "The Board should consider the impact of climate change on the firm’s business strategy and risk profile and, where appropriate in the judgement of the board, make timely climate change related disclosures". 

UK: England and Wales: the rule against reflective loss

As part of its WLR Daily series, the ICLR has published a case summary for a recent decision of the Court of Appeal - Broadcasting Investment Group Ltd & Ors v Smith & Anor [2021] EWCA Civ 912 - in which the rule against reflective loss was considered: see here.

UK: authorised firms, financial promotions and a new 'regulatory gateway'

The Government has confirmed, following a consultation, that it will - when parliamentary time allows - introduce legislation to require authorised firms to pass through a "regulatory gateway" before they are able to approve financial promotions by unauthorised firms: see here (pdf). This change is being made because of concerns with the effectiveness of the current regime under which no specific assessment is made of authorised firms approving such promotions.  

UK: The Financial Services Act 2021 (Commencement No. 2) Regulations 2021

The Financial Services Act 2021 (Commencement No. 2) Regulations 2021 were made today: see here or here (pdf). Their purpose is to bring into force, later this month or in July, various provisions of the Financial Services Act 2021 including those relating to benchmarks (sections 8 to 21 and schedule 5) and insider dealing and money laundering (section 34). Attached to the Regulations, but not formally part of them, is a note indicating those provisions of the 2021 Act that have already been brought into force: see here. 

Canada: Ontario - separate legal personality and the common employer doctrine

The Court of Appeal for Ontario gave judgment earlier this month in O'Reilly v. ClearMRI Solutions Ltd., 2021 ONCA 385. Of note is the discussion by Zarnett JA concerning the common employer doctrine and the separate legal personality of companies in group structures.  To quote directly (at [45] and [49]-[50]): 

Ontario law rejects a “group enterprise theory” under which related corporations that operate closely would, by that very fact, be considered to jointly own their businesses or be liable for each other’s obligations. Although the group might, from the standpoint of economics, appear as a unit or single enterprise, the legal reality of distinct corporations governs ... The common employer doctrine does not involve piercing the corporate veil or ignoring the separate legal personality of each corporation. It imposes liability on companies within a corporate group only if, and to the extent that, each can be said to have entered into a contract of employment with the employee ... Thus, consistent with the doctrine of corporate separateness, a corporation is not held to be a common employer simply because it owned, controlled, or was affiliated with another corporation that had a direct employment relationship with the employee. Rather, a corporation related to the nominal employer will be found to be a common employer only where it is shown, on the evidence, that there was an intention to create an employer/employee relationship between the individual and the related corporation ...".

 

UK: FCA consults on extending the reach of climate-related disclosure rules

Last December, the Financial Conduct Authority introduced a new disclosure rule requiring commercial companies with a UK premium listing to disclose in their annual report whether they had made disclosures consistent with the TCFD recommendations: see here. Today the FCA announced its intention to extend this disclosure regime to (1) standard listed companies and (2) asset managers, life insurers, and FCA-regulated pension providers - see, respectively, here and here.

UK: The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2021

The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2021 were laid before Parliament today and come into force tomorrow: see here or here (pdf). The accompanying explanatory memorandum - available here (pdf) - explains the Regulations' purpose as follows: "... to extend the duration of the temporary measures restricting the use of statutory demands and winding up petitions introduced by the Corporate Insolvency and Governance Act 2020 (c. 12) ... beyond their current expiration date of 30 June 2021 ... to 30 September 2021".

UK: England and Wales: unfair prejudice - a majority shareholder's petition and an order regulating the company's affairs

Judgment was delivered today by His Honour Judge Hodge, sitting as a judge of the High Court, in Macom GmbH v Bozeat & Ors [2021] EWHC 1661 (Ch). The case - a successful petition brought under sections 994-996 of the Companies Act 2006 (the unfair prejudice remedy) - is noted here because in two respects it is unusual: first, the petitioner was a majority shareholder; second, the relief provided was an order regulating the affairs of the company.

European Union: Prospectus Directive - damages

The Court of Justice of the European Union delivered judgment earlier this month in Bankia (Prospectus when securities are offered to the public or admitted to trading - Judgment) [2021] EUECJ C-910/19. A summary of the judgment has been published by the ICLR: see here. The Court of Justice held, to quote from the headnote of the ICLR summary, that: "an investor who had participated in an offer of securities in the context of which a prospectus had been published could legitimately rely on the information given in that prospectus and was, therefore, entitled to bring an action for damages, pursuant to article 6 of Parliament and Council Directive 2003/71/EC, on the grounds of the inaccuracy of that information, whether or not the prospectus was issued for that investor".

UK: The Payment and Electronic Money Institution Insolvency Regulations 2021

The Payment and Electronic Money Institution Insolvency Regulations 2021 were made yesterday and come into force on 8 July: see here or here (pdf). The accompanying explanatory memorandum is available here (pdf). The Regulations create a new special administration regime for payment and electronic money institutions.

UK: England and Wales: tort - negligence - determining the scope of duty and the extent of liability of professional advisers

The Supreme Court delivered judgment today in two related decisions - Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 and Khan v Meadows [2021] UKSC 21 - that, together, set out the framework for determining the scope of the duty of care, and the extent of liability, owed by professional advisers in the tort of negligence.  Each case was heard by the same panel of seven justices; summaries are available here and here.

UK: England and Wales: Law Commission discussion paper - corporate criminal liability

Earlier this month, as part of its project considering corporate criminal liability, the Law Commission published a discussion paper: see here (pdf).  The paper does a number of things: it provides an overview of the current law and the criticisms made; it considers the approach taken in some other jurisdictions; and it identifies various reform proposals.  While the paper asks a number of questions, views are not - at this stage - sought on provisional proposals.  The questions asked are as follows: 

1. What principles should govern the attribution of criminal liability to non-natural persons?
2. Does the identification principle provide a satisfactory basis for attributing criminal responsibility to non-natural persons? If not, is there merit in providing a broader basis for corporate criminal liability?
3. In Canada and Australia, statute modifies the common law identification principle so that where an offence requires a particular fault element, the fault of a member of senior management can be attributed to the company. Is there merit in this approach?
4. In Australia, Commonwealth statute modifies the common law identification principle so that where an offence requires a particular fault element, this can be attributed to the company where there is a corporate culture that directed, encouraged, tolerated or led to non‑compliance with the relevant law. Is there merit in this approach?
5. In the United States, through the principle of respondeat superior, companies can generally be held criminally liable for any criminal activities of an employee, representative or agent acting in the scope of their employment or agency. Is there merit in adopting such a principle in the criminal law of England and Wales? If so, in what circumstances would it be appropriate to hold a company responsible for its employee’s conduct?
6. If the basis of corporate criminal liability were extended to cover the actions of senior managers or other employees, should corporate bodies have a defence if they have shown due diligence or had measures in place to prevent unlawful behaviour?
7. What would be the economic and other consequences for companies of extending the identification doctrine to cover the conduct along the lines discussed in questions (3) to (5)?
8. Should there be “failure to prevent” offences akin to those covering bribery and facilitation of tax evasion in respect of fraud and other economic crimes? If so, which offences should be covered and what defences should be available to companies?
9. What would be the economic and other consequences for companies of introducing new “failure to prevent” offences along the lines discussed in question (8)?
10. In some contexts or jurisdictions, regulators have the power to impose civil penalties on corporations and prosecutors may have the power to impose administrative penalties as an alternative to commencing a criminal case against an organisation. Is there merit in extending the powers of authorities in England and Wales to impose civil penalties, and in what circumstances might this be appropriate?
11. What principles should govern the sentencing of non-natural persons?
12. What principles should govern the individual criminal liability of directors for the actions of corporate bodies? Are statutory “consent or connivance” or “consent, connivance or neglect” provisions necessary or is the general law of accessory liability sufficient to enable prosecutions to be brought against directors where they bear some responsibility for a corporate body’s criminal conduct?
13. Do respondents have any other suggestions for measures which might ensure the law deals adequately with offences committed in the context of corporate organisations?

UK: BEIS research paper - Executive pay and investment in the UK

The Department for Business, Energy and Industrial Strategy has published a new paper, as part of its research paper series, titled "Executive pay and investment in the UK": see here (pdf). To quote directly from the executive summary: 

Whilst there is good evidence to suggest that CEO performance targets do influence firm performance in a manner consistent with increasing CEO payout, it is much less clear that CEOs are influencing firm performance (and therefore their pay) by changing investment. There is some evidence of such investment decisions amongst certain firms, but less clear evidence of this behaviour across the wider FTSE All-Share group.  We note that the latter finding does not necessarily mean that CEO pay is correctly set in most large firms. Indeed, one reason why there is little need for CEOs to reduce investment to hit the threshold payout could be that threshold targets are too easy to hit. Still, the evidence does not suggest a systematic problem with executive pay causing underinvestment". 

Monitoring Group: progress report - strengthening the international audit and ethics standard setting system

Last July the Monitoring Group published a set of recommendations the purpose of which was to strengthen the standard setting system in respect of international audit and ethical standards: see here (pdf). A progress report has now been published: see here (pdf). This notes that, following development of a transition plan, many aspects of implementation are underway. 

The Monitoring Group's members include the IOSCO, Basel Committee on Banking Supervision, European Commission, Financial Stability Board, IAIS, IFIAR and World Bank. 

Ireland: CLRG report - liquidation and the provision of information to creditors (in particular employees)

As part of its work programme on the Companies Act 2014 and creditors' rights, the Company Law Review Group has recently published a report considering the provision of information to creditors generally and in particular employees: see here (pdf). Amongst the recommendations made in the report is one that would impose an obligation on liquidators and directors to ensure that creditors are made aware that they have the right for form and participate on a Committee of Inspection. 

OECD publishes new standard: transparency and disclosure by internationally active state owned enterprises

Under the banner of "Maintaining competitive neutrality", the OECD has published a voluntary standard containing a set of best practices for transparency and disclosure by internationally active state owned enterprises and their owners: see here (pdf).