Europe: Commission consultation on access to company registers

The European Commission has published a green paper to launch a consultation on improving access to company registers across the EU. It has also published a progress report concerning the interconnection of European company registers in which it describes the current legal and factual position regarding access to information and co-operation between business registries. The Commission provides this short overview in the green paper (at pp. 2 and 3):

There is an increasing demand for access to information on companies in a cross-border context, either for commercial purposes or to facilitate access to justice. However, while official information on companies is easily available in the country of their registration, access to the same information from another Member State may be hindered by technical or language barriers. In these circumstances, facilitating cross-border access to official and reliable company information for creditors, business partners and consumers is necessary to ensure an appropriate degree of transparency and legal certainty in the markets all over the EU. To achieve this, the cross-border cooperation of business registers is indispensable.

Efficient cross-border cooperation between the registers is not only essential for a smooth functioning of the Single Market. It also significantly reduces the costs for companies operating cross-border. ... The existing voluntary cooperation between business registries is, however, not enough. There is a need for enhanced cooperation between them. ... This Green Paper describes the existing framework and considers possible ways forward to improve access to information on businesses across the EU and more effective application of the company law directives".

Responses to the green paper should be made here.

UK: the Companies Act 2006 (Accounts, Reports and Audit) Regulations 2009

The Companies Act 2006 (Accounts, Reports and Audit) Regulations 2009 were made on 26 June and published on OPSI last week: see here (html) and here (pdf). An explantory memorandum is available here and this explains:

This instrument amends Parts 15 and 16 of the Companies Act 2006 on accounts and audit. Its main purpose is to complete implementation of the EU Company Reporting Directive (Directive 2006/46) by requiring filing at Companies House of, and an auditor’s report on, corporate governance statements of publicly traded companies where the corporate governance statements are not included in the directors’ report. The instrument also makes some technical amendments to other accounting provisions in Part 15 and regulations made under that Part".

Europe: the 'micro entity' and financial reporting - Commission consultation

The European Commission has published a proposal for a Directive amending Directive 78/660/EEC (the Fourth Company Law Directive). The proposed Directive will provide Member States with the option to create a 'micro entity' category of company that will be exempt from the accounting requirements of the Fourth Company Law Directive. The proposal defines a micro entity as one which meets two of the following criteria:

• A balance sheet total of not more than EUR 500,000;
  
• A net turnover of not more than EUR 1, 000,000;
  
• Not more than ten as average number of employees during the financial year.

For further information see: press release | FAQs | citizens' summary | impact assessment |

The Commission is also undertaking a wider review of the Fourth and Seventh Company Law Directives: see here for further information. 

Malta: corporate governance statements + the Maltese Code

The Malta Financial Services Authority has issued a consultation paper concerning changes to its Listing Rules with regard to the requirement, under the Fourth Company Law Directive (as amended by Directive 2006/46/EC), for certain companies to include a corporate governance statement in their annual report. The deadline for implementation of the Directive by Member States was 5 September 2008. 

Companies with securities traded on regulated markets are required to provide the corporate governance statement (in the UK, this requirement is found in DTR 7.2 of the FSA Handbook). This must state, inter alia, the Code to which the company is subject and/or the code which the company has adopted. The relevant Code in Malta is the Code of Principles of Good Corporate Governance, which is included in the Listing Rules as an appendix (number 8.1). This Code has many similarities with the UK's Combined Code but it is interesting to note that it contains much greater guidance with regard to boards. There is, for example, a separate section titled "Board Meetings" and this explains:

Notice of the dates of the forthcoming meetings together with the  supporting material should be circulated well in advance to the Directors so that they have ample opportunity to appropriately consider the information prior to the next scheduled board meeting. Advance notice should be given of ad hoc meetings of the board to allow all Directors sufficient time to re-arrange their commitments in order to be able to participate".

There is also a section in the Code dealing with corporate social responsibility and Principle 12 of the Code states: "Directors should seek to adhere to accepted principles of corporate social responsibility in their day-to-day management practices of their company". In this regard the Code explains:

Corporate Social Responsibility is the continuing commitment by business entities to behave ethically and contribute to economic development while improving the quality of life of the work force and their families as well as of the local community and society at large. Being socially responsible means not only fulfilling legal expectations but also going beyond compliance and investing “more” into human capital, the environment and the relations with stakeholders".

UK: listed companies: calling general meetings after 3 August 2009

The UK's implementation of the Shareholder Rights Directive (2007/36/EC) will require several changes to the Companies Act (2006) with regard to the calling of general meetings by listed companies. The Department for Business, Enterprise and Regulatory Reform is currently consulting on the implementation of the Directive and the amendments it will make to the 2006 Act - see the DBERR consultation paper for further information; the consultation period ends on 30 January. The deadline for implementing the Directive is 3 August.

The Directive requires a minimum of 21 days for annual general meetings (this is the current requirement for public companies under Section 307 of the Companies Act (2006)). Article 5 of the Directive provides that Member States may permit other general meetings (i.e., extraordinary general meetings) to be called with 14 days' notice providing the following criteria are met:

[1] the shareholders have approved the holding of general meetings on 14 clear days’ notice by passing an appropriate resolution at an AGM; and
[2] that the company offers "the facility for shareholders to vote by electronic means accessible to all shareholders".

The Directive requires the approval required in [1] to be by no-less than a two-thirds majority. DBERR is consulting on whether this should be a 75% majority in order that it is the same as that required for a special resolution (see Section 283 of the Companies Act (2006)). Until the outcome of the consultation is known, DBERR has recommended that listed companies consider passing a special resolution at their next AGM in order that they are able to call general meetings on 14 days' notice after 3 August 2009. This resolution would need to be passed at each subsequent AGM. 

With regard to the requirement in [2] that electronic voting "accessible to all shareholders" is offered, it is noted in the DBERR consultation paper (at para. 3.16):

It is not entirely clear in this context what this final phrase covers in terms of accessibility and the circumstances when accessibility is required. For example it may mean that companies must offer the facility for members to vote electronically (eg. via the company’s website) at all times; or it might mean that any method available to vote electronically (eg. via certificate acceptable and that shareholders should use such facilities.

Europe: private equity - review of industry codes

The European Internal Market Commissioner, Charlie McCreevy, has announced that he is conducting a review of the codes adopted by the private equity industry, considering their scope, content and performance. His findings are due to be reported to the European Parliament in March 2009. 

In his speech, Commissioner McCreevy acknowledged that there were concerns regarding corporate governance, transparency and reporting. He identified three areas that his review would concentrate upon:

• The coverage and adoption of codes (McCreevy noted the limited adoption of the Walker Guidelines)
  
• The monitoring and mechanisms for promoting compliance with the relevant codes
• Consistency across Member States

This review follows the European Parliament's adoption of a resolution earlier this year in which it recommended:

The Commission should undertake an examination of all existing Community legislation relevant to financial markets in order to identify any lacunae as regards the regulation of hedge funds and private equity and, based on the results of such examination, to submit to the European Parliament a legislative proposal or proposals amending the existing directives where necessary, in order better to regulate hedge funds, private equity and other relevant actors. Such proposed regulation should be purposive"

UK: Rights Issue Review Group report and recommendations

Amongst the documents published today, as part of the Government's pre-budget report, is the report of the Rights Issues Review Group. The Government has agreed with the Group's recommendations, which include the following short-term objectives (to quote directly from the report):

• The FSA and BERR to consult on reducing the rights issue subscription period from 21 to 14 days.
• BERR to take forward the practical transposition of the Shareholder Rights Directive to maintain the option of a 14 day notice period for companies’ general meetings.
  
• The Association of British Insurers (ABI) to review its guidance on the ceiling on allotments in light of the Group’s recommendation that it be increased from one-third to two-thirds of an issuer’s issued share capital.
  
• The FSA to continue to maintain oversight of the conflict of interest regimes with a view to reinforcing transparency between issuers and underwriters.
  
• The FSA to facilitate the development by market participants of non-prescriptive guidance on the issues that an issuer could usefully consider when embarking on a capital raising by way of a rights issue.
  
• The FSA to take forward consultation on a new form of open offer which will provide compensation and which may be run over a 14 day period in conjunction with a general meeting notice period. 

Several medium term objectives are identified, including:

• Working at the EU level for the adoption of a short form prospectus for rights issues.
  
• The possible increased use of shelf registration for equity issuance.
  
• The FSA to consider further a basis for conditional dealing in rights issues to allow the general meeting notice period and the rights issue subscription period to be run in parallel.
  
• The FSA to undertake further informal discussions on the usefulness of progressing with further work to introduce more accelerated rights issue models including for this purpose the Australian RAPIDS [Renounceable Accelerated Pro-rata Issue with Dual-bookbuild] model.
  
• The FSA market consultation on a more permanent position on short selling in rights issues.
  

UK: the Companies Act 2006 (Accounts, Reports and Audit) Regulations 2009

The Department for Business, Enterprise and Regulatory Reform has published a draft of the Companies Act 2006 (Accounts, Reports and Audit) Regulations 2009. In the accompanying consultation paper, BERR explains that the Regulations are required to implement the requirements of Directive 2006/46/EC in respect of corporate governance statements which are published separately from the directors' report. 

The Regulations deal with the publication and auditing of such corporate governance statements. They also make changes to Part 15 (Accounts and Reports) of the Companies Act (2006) in order to correct several minor errors. 

Europe: Commission consultation on control structures in audit firms and their consequences on the audit market

The European Commission has published a consultation paper concerning control structures in audit firms and their consequences on the audit market. The purpose of the consultation is to identify ways by which the audit market can be opened up. In this regard, comments are sought on two proposals:

• modifying Article 3(4) of the Statutory Audit Directive 2006/43/EC, in order to deregulate the rules on audit firms' capital structure and ownership.  
• focusing on wider barriers including reputation, quality and expertise of staff and low client switching rates. 

In a press release, announcing the opening of the consultation, Internal Market Commissioner McCreevy stated:

We all need to think of how to bring new capital into the audit profession. Some have suggested that we should do away with ownership restrictions in audit firms and allow other players – not only audit partners – to invest in an audit firm. Audit firms fear that such relaxation could reduce the quality of audits and pose a risk to auditor independence. I want to hear more about both sides of the argument. I encourage all those who have a view or experience in this field to share it with us."

Comments can be submitted here. The Commission's 2007 study on the ownership rules of audit firms is available here.

UK: implementing the shareholder rights Directive (2007/36/EC)

The Department for Business, Enterprise and Regulatory Reform has today published a consultation paper with regard to the UK's implementation of Directive 2007/36/EC on the exercise of certain rights of shareholders in listed companies. The opportunity is also being taken to make some amendments to the Companies Act (2006). The Government plans to implement the Directive by the deadline (3 August 2009) and in this regard the consultation paper contains a draft of The Companies (Shareholders’ Rights) Regulations (2008/9). 

One area of company law that will be changed concerns the rules for calling meetings of the shareholders. The Directive requires that at least 21 days' notice is given for AGMs.  14 days' notice is required for other meetings subject to certain conditions being met.  These conditions are different from those currently in place and include providing "the facility for shareholders to vote by electronic means accessible to all shareholders". 

For further background information, from the European Commission's Internal Market website, click here.

Europe: company law and corporate governance - infringement proceedings

The European Commission has begun infringement proceedings against 12 Member States in respect of their failure to implement certain Directives in the company law and corporate governance fields. Further information is available here.

Europe: exempting "micro-entities" from the Accounting Directives - McCreevy recommendation

Internal Market Commissioner Charlie McCreevy has stated that he will recommend to the European Commission that Member States should be given the option to exempt "micro-entities" from the Accounting Directives (Fourth Council Directive 78/660/EEC (annual accounts of companies with limited liability) and the Seventh Council Directive 89/349/EEC (consolidated accounts of companies with limited liability). Mr McCreevy also announced that the time has come to overhaul the Accounting Directives and in this regard he stated that his review would be guided by the "think small first" principle. 

Europe: Commission proposals for simplification of the EU rules on mergers and divisions

The European Commission has published proposals to simplify the European rules governing mergers and divisions.  A new Directive is proposed which will amend various company law Directives including 77/91/EEC, 78/855/EEC, 82/891/EEC and 2005/56/EC.  According to the Commission, the proposal is intended, inter alia, to reduce the reporting requirements of companies and avoid double reporting.

For further information see: press release | proposal | regulatory impact assessment | 

Europe: proposed codification of the Second Council Directive 77/91/EEC

The European Commission has published a proposal for the codification of the Second Council Directive 77/91/EEC (13 December 1976) on the coordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 58 of the Treaty, in respect of the formation of public limited liability companies and the maintenance and alteration of their capital, with a view to making such safeguards equivalent.

Europe: legislation under review

In a speech delivered this week at the annual dinner of the Quoted Companies Alliance, European Commissioner Charlie McCreevy outlined work currently being undertaken concerning the operation of the Prospectus, Transparency and Market Abuse Directives. In this regard, Mr McCreevy observed:

We are currently carrying out an evaluation of the functioning of the EU Prospectus regime, five years after it was put in place. Overall, our assessment is positive; however, we have identified a number of areas where the regime does not work as efficiently as we would like. Also we have found a number of unintended consequences nobody thought about when the text was agreed. Employee shares schemes are one example. But there are others. These are the areas where we want to propose changes to reduce the administrative burden on issuers, without lowering investor protection standards.

One thing that we have heard so far is that the way Member States have implemented the [Transparency] Directive has not helped. My services are currently conducting research on the extent of the national gold plating. The preliminary findings show that problems with the Directive may not always be Brussels' fault. Interestingly, in the UK there are some slightly more stringent transparency measures in place because some obligations from a previous regime were maintained when transposing the Directive. Actually, when they were consulted, market participants had expressed a preference for the older rules they already knew. So, the UK chose to listen to market participants and did not to take all the opportunities for simplification offered by the Directive.

At the moment, we are commissioning an independent study on the way in which the Transparency Directive operates in practice. A survey on stakeholders' perceptions will be an important component of this study. And we will be listening carefully to smaller quoted companies. This study will help the Commission evaluate the Directive in 2009. I hope that it will help us identify any problems and how best to address them.

Our review of the Market Abuse Directive is well underway. It will look at the efficiency of the Market Abuse framework and, more precisely, its scope of application, insider dealings, market manipulations, the powers of national administrative authorities and the sanctioning process. This review will give us an excellent opportunity to simplify some provisions of the Directive".

Note: Research undertaken by the Commission concerning the operation of the Prospectus Directive was published in June and is available here.

UK: BERR consultation on proposed changes to the European Works Council Directive (94/45/EC)

Earlier this year the European Commission published proposed changes to the European Works Council Directive (94/45/EC). The Department for Business, Enterprise and Regulatory Reform has now published a consultation paper with regard to the Commission's proposals, the closing date for responses being 6 October 2008. This does not provide much time; the reasons for this short consultation period are explained in the consultation paper (p. 3):

The French Presidency and the European Commission are seeking political agreement from the Member States and the European Parliament on the revision of the EWC Directive by December 2008. The Commission's proposals will therefore be subject to early and detailed consideration by the Council this autumn, starting with Working Group meetings scheduled for mid-September".

UK: the Statutory Auditors and Third Country Auditors (Amendment) (No 2) Regulations 2008

The Department for Business, Enterprise and Regulatory Reform has published a draft of the Statutory Auditors and Third Country Auditors (Amendment) (No. 2) Regulations 2008 (available here in Word format). Further information, with background information, is available in the explanatory text accompanying the draft (available here in Word format) and from where the following text is taken:

The EU’s Statutory Audit Directive (2006/43/EC) introduces the regulation of auditors from outside the EEA (“Third Country Auditors”) who audit the accounts of companies who issue securities on regulated markets in the EEA. The Directive also allows these requirements to be disapplied where third country auditors are subject to a system of regulation in their home country which is determined to be equivalent to those in the EU.

Although the Commission has not yet made proposals for determinations of equivalence, the Commission and Member States have recently agreed a decision (2008/627/EC) on transitional measures which will allow Member States to treat auditors from specified countries largely as though the regulatory regimes were equivalent. This will allow the introduction of these provisions with the minimum disruption to EU markets. 

... because of the legal approach of the Commission’s decision, some amendments are needed to the existing provisions in SI 2007/3494 [The Statutory Auditors and Third Country Auditors Regulations 2007, and this is the purpose of the new Regulations]".

Europe: consultation on credit rating agencies

The European Commission has issued a consultation document as part of its work developing proposals with regard to the regulation of credit rating agencies. According to the Commission: 

The policy response currently being developed ... is likely to involve a legislative framework for credit rating agencies comprising both a set of legal obligations to be complied with by CRAs as well as independent external oversight. Addressees of the rules proposed by the Commission will be all existing (and prospective) credit rating agencies with business operations having significant market impact in Europe. The proposed directive / regulation will aim to achieve the following
objectives:

• Appropriate management of conflicts of interest.
  
• Improvements in quality of output.
  
• Increased transparency of CRAs' activities.
  
• Establishment of a supervisory and enforcement regime on the territory of the EU."
  

The consultation period ends on 5 September 2008. Further information is available here.

UK: proposed reforms to Part 7 of the Companies Act (1989)

HM Treasury has published a consultation paper titled "Modernising the insolvency protections for the operation of financial markets – proposals to reform Part 7 of the 1989 Companies Act". In the executive summary it is stated:

Part 7 of the Companies Act 1989 modifies general insolvency law to provide systemic protection for certain financial markets in the event that one of their participants defaults. Due to the rapidly evolving nature of financial markets, the Act allows for these provisions to be updated by regulations and this consultation concerns proposals for such an update. Central counterparty clearing, which is the main focus of Part 7, is increasingly recognised as a vital element of market infrastructure, helping to guarantee transactions and produce efficiencies of risk management. In November 2004 the IOSCO (International Organization of Securities Commissions) and the Group of Ten central banks produced recommendations for the operation of central counterparties. The amendments proposed here are in accord with those recommendations, and with the recent proposal by the EU Commission to update the Settlement Finality Directive in line with latest market and regulatory developments, including the increased interoperability of systems".

UK: delayed disclosure of liquidity support - FSA consultation

The UK's Financial Services Authority has published a consultation paper in which it proposes amending the Disclosure and Transparency Rules (DTR) in order to clarify that, in a limited set of circumstances, financial institutions admitted to trading on a regulated market and in receipt of liquidity support from the Bank of England can delay disclosure of this fact.

There is unlikely to be unanimous support for this proposal, not least because of the argument that the proposal (which is clearly designed to support financial stability) undermines the transparency of the market. The FSA nevertheless states in its consultation paper that its proposal is consistent with Article 3 of the European Market Abuse Directive (2003/124/EC) which recognises certain circumstances in which delayed disclosure can be justified. These circumstances are reflected in the current version of DTR 2.5. 

For further information see:

FSA press release | FSA newsletter | FSA consultation paper | Online response form |