European Union: Court of Justice considers meaning of 'subscribed share capital'

Judgment was given last week in Zinātnes parks (Structural Funds - Concepts of 'subscribed share capital' and 'undertaking in difficulty' - ERDF - Judgment) [2022] EUECJ C-347/20. The Court of Justice held that the expression 'subscribed share capital', for the purposes of Article 2(18)(a) of Commission Regulation (EU) No 651/2014 and the question of whether a company was 'in difficulty', should be interpreted as meaning all contributions which current or future members or shareholders of a company have made or have irrevocably undertaken to make.

UK: Small Business, Enterprise and Employment Bill - Parts 7 and 8 - provisional implementation plan

The Department for Business, Innovation and Skills has published a provisional implementation plan for Part 7 ("Companies: transparency") and Part 8 ("Company Filing Requirements") of the Small Business, Enterprise and Employment Bill: see here (pdf). This explains, amongst other things, that the prohibition (with exceptions) on corporate directors will come into force in October 2015 and that companies will no longer be able to issue bearer shares two months after the Bill has received Royal assent. The Bill is currently before the House of Lords and its Committee stage will resume today.

UK: Restricting share capital reductions in takeovers

Last year, in the Autumn Statement, the Government announced that in order to protect the stamp duty tax base it would introduce legislation to prevent the use of 'cancellation' schemes of arrangement for company takeovers (such schemes enable stamp duty tax to be avoided). A draft of the proposed legislation - The Companies Act 2006 (Amendment of Part 17) Regulations 2015 - has now been published (see here, pdf) together with an information and impact note (here, pdf).

India: Companies (Amendment) Bill 2014 passed in the Lok Sabha

The Companies (Amendment) Bill 2014 was passed yesterday in the Lok Sabha: see here (pdf). A copy of the Bill, as introduced, is available here (pdf). The Bill makes various amendments to the Companies Act 2013, some designed to address omissions and others under the banner of "ease of doing business". In the latter category are changes to the approval requirements for certain related party transactions and the removal of the requirement for companies to have a minimum amount of paid-up share capital.

UK: The Companies Act 2006 (Amendment of Part 18) Regulations 2013

The Companies Act 2006 (Amendment of Part 18) Regulations 2013 were made last week and come into force today: see here or here (pdf). The Regulations amend the Companies Act 2006 in order to make it easier for companies to buy back shares in connection with an employee share scheme. Further information is available in the accompanying explanatory memorandum: see here (pdf).

UK: Government consults on 'employee owner' proposals

The Department for Business, Innovation and Skills has published for consultation further details regarding the proposal to introduce a new form of employment status (the 'employee owner'): see here (pdf). Under the proposals, which received a mixed reception when announced last month, employee owners will forgo certain employment rights in return for receiving shares in the company.

New Zealand: Takeovers Panel recommends changes to the Takeovers Code

The New Zealand Takeovers Panel has recommended changes to the Takeovers Code: see here. Amongst the recommendations is one designed to improve the quality of disclosure regarding the intentions of the offeror company in respect of the target company: the Panel recommends that clause 14(1) of Schedule 1 of the Code should be amended to require the offeror company to disclose its intentions regarding material changes to the target company's business activities, assets and capital structure (including dividend policy).

Basel III implementation - BIS report

The Basel Committee on Banking Supervision has published a report it has provided for G20 leaders in respect of Basel III implementation: see here (pdf).

Europe: share capital, freedom of establishment and freedom to provide services

The Court of Justice of the European Union delivered its judgment today in Duomo Gpa Srl and Others v Comune di Baranzate and Others (Cases C-357/10 to C-359/10). A copy of the judgment is available here and a summary is available here (pdf). The court held that Italian legislation requiring certain companies awarded contracts to collect local taxes to have a minimum share capital of ten million euros was an unjustified restriction on the freedom of establishment and the freedom to provide services (within Articles 43 and 49 of the EC Treaty, see here (pdf)).

Hong Kong: Bill to abolish capital duty published in Gazette

The Ordinance (Amendment of Eighth Schedule) Order 2012 has been published in the Gazette: see here. Its purpose is to abolish the capital duty paid by Hong Kong companies on their incorporation (and calculated with reference to their authorised share capital). The Order will be considered by the Legislative Council tomorrow and is likely to come into force on 1 June 2012.

UK: the Kay Review - interim report published

The Kay Review of UK equity markets and long-term decision making published an interim report today: see here (pdf). The report summarises the representations made to the Review and identifies those issues, including stewardship, to be considered in the second stage of the Review.

Europe: company law - Commission consultation launched

The European Commission launched a wide ranging consultation yesterday on the future of European company law. Amongst the matters on which views are sought are the objectives and scope of European company law, the relationship between company law and corporate governance, the future of European company law entities, cross border mobility, corporate groups and the minimum capital and capital maintenance regimes. For further information see: Commission press release | FAQs | Background information | Questionnaire (for online completion) | Questionnaire (pdf) |.

UK: the Kay Review of UK Equity Markets and Long Term Decision Making

The Secretary of State for the Department for Business, Innovation and Skills, the Rt. Hon. Dr Vince Cable MP, earlier this year announced the launch of an independent review, chaired by Professor John Kay, to consider the effect of UK equity markets on the competitiveness of business. An initial call for evidence was made (here, pdf), the deadline for which passed last week. On Saturday The Independent newspaper reported - see here - that Professor Kay has indicated that he is "ready to recommend a radical overhaul of the duties of big investors in monitoring companies in which they invest".

UK: FTSE Group consultation on minimum free float requirements

The FTSE Group is undertaking a consultation on the minimum free float requirements for UK incorporated companies in the FTSE UK Index Series: see here. It is proposed that the current minimum of 15% should be increased to 25% for companies seeking inclusion in the FTSE UK Index Series.

UK: the ONS share ownership survey - due in February 2012

The Office for National Statistics has announced several changes to the methodology it employs to produce its survey of the ownership of ordinary shares of UK quoted companies, which was last published in 2010 in respect of ownership on 31 December 2008. ONS has also announced that its next survey will be published in February 2012 in respect of the ownership of shares on 31 December 2010: see here.

Australia: what is a preference share?

The New South Wales Court of Appeal gave judgment last week in Weinstock v Beck [2011] NSWCA 228. The case concerned the validity of the purported issue of redeemable preference shares at a time when the company had only issued preference shares. At first instance - see [2010] NSWSC 1068 - the trial judge held the shares were not preference shares and could not be regarded as such unless at the time of their issue there were other shares that had been issued over which they had a preference.

Opinion in the Court of Appeal was divided. Young JA, in the minority, supported the position taken by the trial judge and, in his judgment, considered various definitions of preference share, referring to authorities from Delaware, England, Canada and Singapore. Young JA took the view that preference shares were those that had rights over and above other shares in the company which actually existed. The majority disagreed. Handley AJA (with whom Giles JA agreed) held that the directors' power to issue new shares, as contained in the articles of association, was exercisable at all times and was not affected by the state of the company's share register. As such, the preference shares in question were validly issued and conferred the preferential rights defined in the articles. These rights were, Handley AJA noted, potential only and would lack effective content until ordinary shares were issued. This did not, however, mean that preference shares could not be issued.

UK: Supreme Court considers whether transaction was unlawful distribution of capital

The Supreme Court handed down its judgment today in Progress Property Company Limited v Moorgarth Group Limited [2010] UKSC 55: see here (pdf). A summary is available here (pdf). The court unanimously held that the transaction in question was not an unlawful distribution and set out guidance in this regard. The ICLR, as part of its WLR Daily Service, has published a summary of the judgment here.

Patience, finance and corporate governance

Andrew Haldane, an executive director at the Bank of England, yesterday delivered a paper titled "Patience and Finance" at the Oxford China Business Forum in Beijing: see here (pdf). One argument advanced by Mr Haldane is that the "public good of information and liquidity may unleash the public bad of myopia and volatility". He provides examples of "impatience" and one of particular relevance for corporate governance policy stands out given the pivotal role ascribed to shareholders: the secular fall over the past 40 years in the average duration for which listed company shares are held. In the US and UK, the average duration is now less than a year. It was around 7 years in the US in 1940 and in the UK in the mid 1960s it was around 5 years.

UK: OFT confirms scope of equity underwriting study

The Office of Fair Trading has published a statement in which it provides further information about its study into equity underwriting: see here (pdf).

The OFT will be examining the way that the underwriting market works and will assess whether there is potential for improving the way it functions. This will involve considering how underwriting services are purchased and provided and the affects of regulation in this regard.

The study will focus specifically on equity underwriting services for the different types of share issue used by listed companies to raise capital in the UK, including rights issues, placings and other types of follow-on offer. The study will be limited to equity issues carried out by FTSE 350 listed firms and will not examine Initial Public Offerings.

Further information is available here.

Europe: an unjustified restriction on the free movement of capital - golden shares in Portuguese Telecom

In January 2008, the European Commission referred Portugal to the European Court of Justice because it considered that the special rights conferred on the State by its golden shares in Portugal Telecom (PT) discouraged investment from other Member States in violation of the EC Treaty.

Today the European Court of Justice gave its opinion - Commission v Portugal (Case C-171/08) - and supported the Commission's position. The court observed (paras. [60] to [62]):

... the Portuguese State’s holding of those golden shares, in so far as it confers on that State an influence on the management of PT which is not justified by the size of its shareholding in that company, is liable to discourage operators from other Member States from making direct investments in PT since they could not be involved in the management and control of that company in proportion to the value of their shareholdings (see, inter alia, Case C‑112/05 Commission v Germany [2007] ECR I‑8995, paragraphs 50 to 52).

Similarly, the structuring of the special shares at issue may have a deterrent effect on portfolio investments in PT in so far as a possible refusal by the Portuguese State to approve an important decision, proposed by the organs of the company concerned as being in the company’s interests, is in fact capable of depressing the value of the shares of that company and thus reduces the attractiveness of an investment in such shares (see, to that effect, Commission v Netherlands [C-283/04, [2006] ECR I‑9141], paragraph 27).

In those circumstances, it must be found that the Portuguese State’s holding of the golden shares at issue constitutes a restriction on the free movement of capital for the purposes of Article 56(1) EC".

A summary of the decision is available here (pdf). Following Lisbon, Article 56 is now Article 63 in the Treaty on the Functioning of the European Union: see here (pdf).