Wednesday 30 April 2008

UK: Market abuse and insider dealing

The UK's Financial Services Authority's Market Watch Newsletter 26 was published yesterday. It provides an update on the FSA's work in deterring and prosecuting market abuse. The Newsletter explains the FSA's approach to the detection of insider dealing and provides further information about the FSA's market cleanliness research (about which click here).

Perhaps the most important statement in the Newsletter concerns the manner in which the FSA seeks to deter market abuse. The FSA has, thus far, relied upon administrative sanctions (see here) but the Newsletter makes clear that a greater role is now seen for criminal prosecutions in recognition of what the FSA describes as "the significant deterrent effect of custodial sentences".

One of the perceived advantages of administrative sanctions is said to be the lower standard of proof: the "balance of probability" rather than, as in criminal prosecutions, "beyond reasonable doubt". It can, however, be difficult to draw a distinction where the alleged misconduct is serious. Thus, as the Financial Services and Market Tribunal stated in the important market abuse decision Davidson & Tatham v FSA (2006) (paras. [198]-[200]):

"...we conclude that there is a single civil standard of proof on the balance of probabilities but that it is flexible in its application. The more serious the allegation, or the more serious the consequences if the allegation is proved, the stronger must be the evidence before we should find the allegation proved on the balance of probabilities. We regard the allegations of market abuse, the subject of these references, as very serious allegations indeed. We also note that if the allegations are proved the consequences will be very serious also. A penalty of £750,000 imposed on Mr Davidson, an unregulated individual, is very serious. A penalty of £100,000 imposed on Mr Tatham, together with the professional consequences, is also very serious. Accordingly, although there remains a distinction in principle between the civil standard and the criminal standard, the practical application of the flexible approach means that they they are likely, in the context of these references, to produce the same or similar results".

Tuesday 29 April 2008

UK: The Climate Change Bill, the Business Review and greenhouse gas emissions

The Climate Change Bill, which was introduced in the House of Lords, is now awaiting debate in the Commons. During debate in the Lords, an amendment was made concerning company reporting the result of which was the insertion of Clause 80:
80 Guidance on reporting

(1) The Secretary of State may issue, or cause to be issued by an authorised body, guidance regarding the information concerning a company’s greenhouse gas emissions which should be publicly disclosed by such a company as part of its annual reporting.

(2) The guidance may relate to the appropriate content and form of such disclosures or any matter necessary to promote the provision of transparent and comparable data regarding the greenhouse gas emissions of companies.

(3) The guidance issued under this section may distinguish between different categories of company according to criteria to be determined by the Secretary of State, such as turnover or market share or number of employees or any other criteria he or she deems relevant, and may contain different standards for each category of company in respect of the content and form of the disclosures or other matters referred to in subsection (2) above.

(4) Any company which is required to produce a business review under the Companies Act 2006 (c. 46) must report on greenhouse gas emissions having regard to any guidance given under this section, and the Secretary of State may provide that compliance with any such guidance will be presumed to constitute compliance with section 417 of that Act (contents of directors’ report: business review) in respect of reporting on such emissions.

There is, of course, no guarantee that the Commons will accept this amendment.

Sir Derek Higgs

Some sad news: the death of Sir Derek Higgs has been announced. Sir Derek was the author of what became known as the Higgs Report (a.k.a. "Review of the role and effectiveness of non-executive directors"). Today, the composition of the largest UK companies' boards owes a great deal to the Higgs Report (see here). The Report stressed the importance of non-executive directors in corporate governance: it recommended that at least half of the members of the board, excluding the chairman, should be independent non-executive directors. This is now a provision within the UK's Combined Code (A.3.2), although one that applies only to FTSE350 companies.

Obituaries have been published in The Daily Telegraph, The Guardian, The Financial Times, The Times and The Independent newspapers.

Australia: corporate governance and financial reporting reforms under consideration

On April 28, Australia's Corporate Law Minister, Nick Sherry, delivered a speech at Riskmetric Group's Australia governance conference. The following comments of the Minister are of particular interest:

"I have previously announced that the Australian Government is examining three areas of corporate governance. The three areas are corporate offences… sanctions… and personal liability for directors. Our reforms in these areas will have one common goal — to ensure that we have a consistent and principled approach to addressing misconduct in corporate law. The particular measures to be taken include, firstly, clarifying the standards required of directors. This will enable them to make decisions with confidence. Decisions that are in the best interests of shareholders in fast-moving and complex business situations. Secondly, where directors fail to meet these standards, the law will ensure that the sanctions imposed are credible… flexible… and transparent. Thirdly, I believe that it is important to look at the emerging trend for imposing personal liability on directors for corporate fault. While this may be appropriate in exceptional cases, it now appears to be the norm. As a first step, Treasury will soon survey about 600 leading company directors to establish what is happening in the boardrooms of our leading companies. For corporate law this is where the rubber meets the road! In assessing the case for corporate law reform, we need to focus on what’s happening in the boardroom, as well as what’s happening in the court room".

With regard to financial reporting, the Minister stated:

"Earlier this year, I asked Treasury to examine a range of reforms to improve the relevance of financial reports to investors and the broader community. This work includes developing proposals to strengthen the executive remuneration framework. The proposals will be designed to promote greater transparency, accountability and shareholder engagement. While it’s important to get these reforms right, we certainly don’t intend to dictate the level of directors’ salaries. The Government believes that boards are best placed to set remuneration levels within companies, and take responsibility for those remuneration levels to shareholders."

Monday 28 April 2008

UK: NAPF: Company articles and arbitration clauses

The UK's National Association of Pension Funds (NAPF) has updated Section D of its Corporate Governance Policy and Voting Guidelines 2007. Section D now includes a new section - D.1.6 - dealing with arbitration clauses and which reads as follows:
D.1.6: Dispute Resolution
The introduction or maintenance of a provision in the Company's Articles of Association which prescribes arbitration as the sole mode for settlement of all or a significant class of disputes between shareholders (whether acting in their own right or in the name of the Company, as applicable) and any one or more of the Company, its directors, executive management, or its professional advisors, should be viewed in the first instance as a material reduction in shareholder rights.
Investors will normally wish to oppose any such provision in the absence of a clear demonstration by the Board that the inherent detriment of a reduction in shareholders rights represented by such provision is outweighed by the benefit the provision brings in the light of specific and extenuating circumstances to which the Company is subject.

It is worth pointing out that even where such clauses are present in a company's articles of association, the right to petition under Section 994 of the Companies Act (2006) cannot be removed through contract. This point was made in Exeter City AFC Ltd v Football Conference Ltd [2004] EWHC 831 (Ch), [2004] 1 W.L.R. 2910, with regard to Section 459 of the Companies Act (1985) (the predecessor of Section 994). Such petitions are, however, unusual in public companies.

Saturday 26 April 2008

US: A proposal for a corporate finance regulator

The Treasury Department has published its Blueprint for a Modernised Financial Regulatory Structure. The report makes many recommendations, the purpose of which are to improve regulatory coordination and oversight and to eliminate duplication. The report describes an optimal regulatory structure, with three main regulators: a market stability regulator, a prudential financial regulator, and a business conduct regulator. In addition, tasks are given to a federal insurance guarantor and a corporate finance regulator (CFR). With regard to the CFR, the Blueprint explains (p. 21):

"The corporate finance regulator should have responsibility for general issues related to corporate oversight in public securities markets. These responsibilities should include the SEC’s current responsibilities over corporate disclosures, corporate governance, accounting oversight, and other similar issues".

US: New York: The derivative action and LLCs

In 1994, New York State introduced a new legal form: the Limited Liability Company (LLC). The LLC is, to quote directly from the Guide produced by New York State's Division of Corporations:

" unincorporated business organization of one or more persons who have limited liability for the contractual obligations and other liabilities of the business. The Limited Liability Company Law governs the formation and operation of an LLC. An LLC may organize for any lawful business purpose or purposes. The LLC is a hybrid form that combines corporation-style limited liability with partnership-style flexibility. The flexible management structure allows owners to shape the LLC to meet the needs of the business. The owners of an LLC are "members" rather than shareholders or partners. A member may be an individual, a corporation, a partnership, another limited liability company, or any other legal entity".

The question before the New York State Court of Appeals in Tzolis v. Wolff, N.Y. Slip Op. No. 01260 (N.Y. February 14, 2008) was whether members of a LLC could bring a derivative action. The Limited Liability Company Law is silent on this issue. The majority in Tzolis held that a member could bring such an action, referring to early English and American cases; Smith J. observed (pp. 5-6):

"...we continue to heed the realization that influenced Chancellor Walworth in 1832 [in Robinson v Smith (3 Paige Ch 222)], and Lord Hardwicke ninety years earlier: When fiduciaries are faithless to their trust, the victims must not be left wholly without a remedy. As Lord Hardwicke put it, to 'determine that frauds of this kind are out of the reach of courts of law or equity' would lead to 'an intolerable grievance' (Charitable Corp. v Sutton, 2 Atk at 406 [(1742) 26 ER 642]). To hold that there is no remedy when corporate fiduciaries use corporate assets to enrich themselves was unacceptable in 1742 and in 1832, and it is still unacceptable today. Derivative suits are not the only possible remedy, but they are the one that has been recognized for most of two centuries, and to abolish them in the LLC context would be a radical step".

However, in a powerful dissent, Read J. observed (p. 20):

"The enacting (not a subsequent) Legislature considered and explicitly rejected language authorizing the very result that plaintiffs have successfully sought from the judiciary in this case. Fourteen years after the fact the majority has unwound the legislative bargain. The proponents of derivative rights for LLC members -- who were unable to muster a majority in the Senate -- have now obtained from the courts what they were unable to achieve democratically. Thanks to judicial fiat, LLC members now enjoy the right to bring a derivative suit. And because created by the courts, this right is unfettered by the prudential safeguards against abuse that the Legislature has adopted when opting to authorize this remedy in other contexts"

Friday 25 April 2008

Italy: Minority shareholder protection

Earlier this month, the Financial Times published an article by Luigi Zingales which considered recent changes in Italian law concerning the appointment of directors to public company boards. Zingales observed:

"To protect minority shareholders, a 2005 law made it mandatory for all publicly traded companies to reserve some board seats for lists not related to the controlling shareholder. This is a stronger version of a Securities and Exchange Commission proposal that would require US companies to include shareholder-nominated candidates for the board in the proxy voting material (so-called shareholders' access to proxy). Opponents of this reform in the US have argued that such access will transform corporate boards into small parliaments, where majority and minority will fight to the detriment of companies. The Italian experiment provides a powerful test of this conjecture. Given the legendary passion of Italians for politicking, if there were any merit to this concern, we would certainly see it in spades in Italian boards. While it is too early to draw a definite conclusion, the evidence so far is very encouraging. From the outside there seems to be no sign of politicking. Furthermore, my personal inside experience, as an appointee of minority shareholders on the Telecom Italia board, confirms this impression. We have had disagreements, but these were not ideological conflicts between majority and minority".

[Click here and here for an overview (in English) of the legislative changes].

Thursday 24 April 2008

Australia: Liquidation and the Statutory Derivative Action

In Chahwan v Euphoric Pty Ltd trading as Clay & Michel [2008] NSWCA 52 (8 April 2008) the New South Wales Court of Appeal considered whether the Australian statutory derivative action (Part 2F.1A of the Corporations Act (2001)) should be available where a company is in liquidation. The court unanimously held that it should not be available, thereby taking a different position from several first instance decisions in New South Wales and Victoria (see, e.g., Brightwell v Rfb Holdings [2003] NSWSC 7 and Freshstart Australia Pty Ltd v Lofthouse [2006] VSC 317). Tobias JA (with whom Beazley JA and Bell JA agreed) observed (para. [124]):

"...the context as well as the extrinsic materials identifying the mischief which Pt 2F.1A was intended to remedy, namely, the restrictions relating to the exceptions to the rule in Foss v Harbottle, are indicative of an intention that the statutory derivative action was intended to apply only to a company as a going concern and not one under the control of a liquidator. This is because the rule in Foss v Harbottle and its exceptions did not apply and were irrelevant to a company in liquidation".

A few days later, in Ragless v IPA Holdings Pty Ltd (in liq) [2008] SASC 90 (PDF version), the Supreme Court of South Australia (Full Court) touched upon this question but did not (in its opinion) need to provide an answer because an alternative route was found to permit a creditor to bring a legal action on behalf of a company in liquidation. Debelle J. observed (at para. [44]):

"When a company is in liquidation, the liquidator is, as a general rule, the person in whom is vested the authority to bring legal proceedings on behalf of the company ... However, the court has an inherent power to authorise a creditor or contributor to sue in the name of the company. As McLelland J noted in Aliprandi v Griffith Vintners Pty Ltd (in liq) (1991) 6 ACSR 250 at 252 the procedure is of respectful antiquity and is sanctioned by high authority ... Section 236(3) [which states "The right of a person at general law to bring, or intervene in, proceedings on behalf of a company is abolished"] abolishes only the right to bring derivative proceedings. Nothing in the Explanatory Memorandum to the Bill suggests an intention to remove or qualify the court’s inherent jurisdiction".

[For discussion of Foss v Harbottle, click here (the case can be read here). The UK Companies Act (2006) introduced a statutory derivative action: see Part 11].

Wednesday 23 April 2008

EU: IFRS and GAAP convergence

The European Commission has published a report considering the convergence between International Financial Reporting Standards and Generally Accepted Accounting Principles in several countries including the US, China and Japan. The report begins:

"In July 2007 the Commission reported on the respective work timetables envisaged by national authorities of certain third countries for converging their national Generally Accepted Accounting Principles (GAAPs) towards International Financial Reporting Standards (IFRS). In this second report the Commission services now examine the actual progress made by third countries, firstly, on their convergence programmes and, secondly, towards eliminating any rules on reconciliation requirements that apply to Community issuers listed in the jurisdictions of these third countries. In preparing this report emphasis has been placed on assessing third country GAAPs which are being used by a large number of issuers listed on EU markets (as identified by CESR) and whose respective national authorities have clearly demonstrated their commitment towards IFRS."

England and Wales: The phoenix syndrome, director's liability and S 727 of the Companies Act (1985)

Judgment in First Independent Factors & Finance Ltd v Mountford [2008] EWHC 835 (Ch) was given today. The trial judge, Lewison J., was required to consider a number of issues concerning Sections 216 and 217 of the Insolvency Act (1986). The main purpose of these sections is to deal with what has become known as the "phoenix syndrome": the continuation of a company's business, through a new company, where the original company has gone into insolvent liquidation. Section 216 prohibits the directors of the insolvent company from re-using the insolvent company's name (or a similar name) as part of the new venture. Contravention of Section 216 can result in the director's personal liability for the debts of the new company.

With regard to Sections 216 and 217, Lewison J. made the following points:

(a) Whilst the "phoenix syndrome" is the main target, the words of Sections 216 and 217 include situations that cannot be described as falling within this description. The operation of Sections 216 and 217 should not be confined to cases of "phoenix syndrome". [Ad Valorem Factors Ltd v Ricketts [2004] 1 All ER 894 was cited in support].

(b) When deciding whether a name suggests an association with another company, the person through whose eyes this should be considered is someone who might deal with the company or business. This person is closer to Laddie J's formulation of a "reasonable person in the relevant commercial field" (in HM Revenue & Customs v Walsh [2006] BCC 431) than Simon Brown LJ's reference to "members of the public" (in Ad Valorem Factors).

(c) "Association" can be based on ownership (e.g., between members of the same group of companies) or assets (e.g., where a successor company has the goodwill of the liquidated company).

(d) The defence available under rule 4.230 of the Insolvency Rules (1986) applies where a company was previously trading. Rule 4.230 referred to "company" and this could not be interpreted as "business".

(e) The court does not have the power under Section 727 of the Companies Act (1985) to relieve a director against liability imposed by Sections 216 and 217.

[Section 727 of the 1985 Act has been replaced by Section 1157 of the Companies Act (2006), the latter coming into force on 1 October 2008].

Tuesday 22 April 2008

England and Wales: "Accounts and records"

In Gallaher International Ltd v TLAIS Enterprises Ltd [2008] EWHC 804 (Comm), various allegations of breach of contract were made, including one party's failure to keep "full, proper and accurate accounts and records". In considering this alleged breach, the trial judge explored the meaning of "accounts and records" and observed (at para. [661]):

"Accounts and the records from which accounts are prepared are recognisably distinct things. That is so as a matter of ordinary language. The distinction also appears in the English Companies Act 1985, which by section 221 requires every company to keep 'accounting records which are sufficient to … enable the directors to ensure that any balance sheet and profit and account' prepared under the relevant Part complies with the requirements of the Act. It also appears in the Cypriot Companies Law, section 141(1) of which requires the directors to ensure that 'proper books of account are kept that are deemed necessary for financial accounts' in accordance with the Law".

[Under the Companies Act (2006), Section 386 requires every company to keep "adequate accounting records"].

Monday 21 April 2008

England and Wales: The director's right to inspect the company's books

In Oxford Legal Group Ltd v Sibbasbridge Services Plc and Another [2008] EWCA Civ 387, [2008] WLR (D) 121, the Court of Appeal considered the operation of the director's common law and statutory right to inspect the company's books. A unanimous court upheld the trial judge's finding - at [2007] EWHC 2265 (Ch) - that the court would decline to uphold this right where the director's purpose was improper or where he intended to injure the company. Hughes LJ noted (at para. [49]):

"Inspection may well not be ordered if a clear prima facie case is raised that the information sought will not be used qua director and especially if to the detriment of the company; one of many possible examples is where inspection is in effect sought for the benefit of a competitor"

[The decision was concerned with Section 222 of the Companies Act (1985); under the Companies Act (2006), Section 388(1) provides that a company's accounting records "must at all times be open to inspection by the company's officers"].

[Similar provisions exist in Australia: see the discussion in Boulos v Carter; Re Tarbs World Tv Australia Pty Ltd [2005] NSWSC 891].

Denmark: Governance Principles Updated

Earlier this year, Part VI of the Nørby Committee's Recommendations for Good Corporate Governance in Denmark was revised. Part VI deals with the remuneration of the members of the supervisory and executive boards. The revised version, which contains much more detail than its predecessor, is available here.

UK: Auditors and the Companies Act (2006) - APB Guidance

The UK's Auditing Practices Board (APB) has today published four bulletins providing guidance on certain provisions of the Companies Act (2006) which affect auditors:

(1) 2008/3: The auditor’s statement on the summary financial statement in the United Kingdom
(2) 2008/4: The special auditor’s report on abbreviated accounts in the United Kingdom
(3) 2008/5: Auditor’s reports on revised accounts and reports, in the United Kingdom
(4) 2008/6: The “Senior Statutory Auditor” under the United Kingdom Companies Act 2006

For further information click here.

Germany: Shareholder Activism + VW Law

A couple of items concerning Germany:

(a) In October 2007, the European Court of Justice held - in Commission of the European Communities v Federal Republic of Germany (Case C-112/05) - that Germany had failed to fulfil its obligations under the EC Treaty by maintaining in force provisions of the so-called "VW Law" under which, inter alia, shareholder voting rights in Volkswagen were capped at 20% and the Federal State and Land of Lower Saxony each had the right to appoint two representatives to the supervisory board. Earlier this month it was reported that EU Commissioner Charlie McCreevey had written to Germany's justice minister because of his concerns over the manner in which Germany proposes to comply with the ECJ decision. McCreevey is reported to have written:

"I am informed that your services are of the view that it is sufficient to eliminate two of the special requirements of the law - mandatory [state] representation on the board and the voting cap - and not the third [the 20% blocking minority] in order to comply with the ruling of the court. ... All three provisions, including the 20% blocking minority ... need to be abolished in order to implement the ruling correctly."

(b) The March 19th issue of The Economist contains an article titled "Raising their voices", which provides an example of successful shareholder activism at TUI.

Postscript (5 June 2008): Today the European Commission began infringement proceedings against Germany for its failure to comply with the ECJ's opinion. See here for further information.

Sunday 20 April 2008

Ireland: Company Law Reform

In Ireland, the Company Law Consolidation and Reform Bill is currently being drafted. Meanwhile, and in order to implement European law provisions concerning company law, new Regulations have been introduced. Statutory Instrument 89/2008 came into force on 15 April 2008 and made the following changes (to quote directly from the relevant press release):

"Firstly, the provisions of the 1963 Act dealing with objections by creditors to Court Orders confirming a reduction by a company of its issued share capital are being amended to reflect the change in emphasis in the Directive in respect of public companies, shifting the burden of proof from the company to the creditors in establishing grounds for an objection to the Court Order. Secondly Part XI of the 1990 Act dealing with the purchase by a company of its own shares is also being amended. These amendments are essentially for clarification purposes and do not give rise any changes of substance to the basic rules currently applying to purchase of own shares".

For further information about company law reform in Ireland, click here.

EU: Company law: reducing the administrative burden

In early 2007, the European Commission launched an Action Programme designed to reduce the administrative burdens of European law. With regard to company law, the Commission has announced several proposals including:

(a) Removing the requirement that business data is published in national gazettes.
(b) Parent companies with no material subsidiaries will no longer need to prepare consolidated accounts.

Postscript (22 April 2008): The Commission's proposals have been formally published here and here.

UK: ASB: FRSSE updated

The UK's Accounting Standards Board (ASB) has updated its Financial Reporting Standard for Smaller Entities (FRSSE). The update is a result of changes introduced by the Companies Act (2006). Amongst the changes are:

(a) A 20% increase in the thresholds for qualifying as a smaller company.
(b) A requirement to report separately political and charitable donations (and an increase in the threshold for such donations to £ 2,000).

The updated FRSSE applies to accounting periods beginning on or after 6 April 2008. The ASB has not yet published the updated version but it intends to do so by the end of May. For further information see here. The current version is available here.

Postscript (12 June 2008): The updated FRSSE has now been published here.

Monday 14 April 2008

Hong Kong: Company Law Reform

The Hong Kong Financial Services and the Treasury Bureau is conducting a review of company law. As part of this programme, a three month consultation has begun concerning company names, directors' duties, corporate directorships and registration of charges. A consultation paper has been published. Amongst the questions asked are:

(1) Should the general duties of directors be codified and, if so, should the UK approach (as in Section 172 of the Companies Act (2006)) be adopted?

(2) Should corporate directorships be abolished?

(3) Should "book debts" be statutorily defined?

Thursday 10 April 2008

UK: Companies Act 2006: Draft Regulations Published

Earlier this month, revised drafts of the following statutory instruments were published; all of the instruments have a commencement date of 1 October 2009:

(a) The Articles of Association: The Companies (Model Articles) Regulations.

(b) Registration and filing: The Companies (Registrar of Companies and Applications for Striking Off) Regulations, The Companies (Registration) Regulations, The Companies Act 2006 (Annual Return and Service Addresses) Regulations, The Company and Business Names (Miscellaneous Provisions) Regulations and The Companies (Particulars of Company Charges) Regulations.

(c) Company Records: The Companies (Company Records) Regulations and The Companies (Fees for Inspection and Copying of Company Records) Regulations.

(d) Share capital: The Companies (Shares, Share Capital & Authorised Minimum) Regulations.

(e) Trading Disclosures: The Companies (Trading Disclosures) (Amendment) Regulations.

Click here for copies of the draft regulations, further information and the Government's response to comments made on earlier versions.

Wednesday 9 April 2008

England and Wales: Fraud: Plea Negotiations

The Attorney General has published a consultation paper titled "The Introduction of a Plea Negotiation Framework for Fraud Cases in England and Wales". In the foreword it is stated:

"The proposals in this paper do not represent an attempt to replicate the systems operating in the USA or elsewhere in the world. What is appropriate and workable in other jurisdictions cannot automatically be expected to work here. However, we do want to encourage more plea negotiations between prosecution and defence at an early stage in fraud cases and we want to be more open about the process. Responses to the original Fraud Review were positive about the need for a change".

It has also been reported that the Government will soon give the Financial Services Authority "plea bargaining" powers.

UK: Auditors: Revised Ethical Standards

The UK's Auditing Practices Board has revised its Ethical Standards for Auditors. The following revised Standards apply to audits of financial statements for periods beginning on or after April 6, 2008.

(a) ES 1 (Revised) - Integrity, objectivity and independence
(b) ES 2 (Revised) - Financial, business, employment and personal relationships
(c) ES 3 (Revised) - Long association with the audit engagement
(d) ES 4 (Revised) - Fees, remuneration and evaluation policies, litigation, gifts and hospitality
(e) ES 5 (Revised) - Non-audit services provided to audit clients
(f) ES Provisions Available for Small Entities (Revised)

UK: Myners Principles - Further review

In March 2000, Paul Myners was commissioned by HM Treasury to conduct a review of institutional investment in the UK. Myners' report "Institutional Investment in the United Kingdom: A Review" was published in 2001 and it contained several principles for institutional investment decision making. These were last reviewed in 2004. HM Treasury has begun a further consultation and its consultation paper states:

"This consultation provides an opportunity to update the Myners principles and develop a comprehensive suite of authoritative best practice tools giving further assistance for pension fund trustees to improve investment decision-making and governance".

Update (16 November 2008): the Government's response to the consultation has been published here

India: Listing Agreement Changes

The Securities and Exchange Board of India (SEBI) has announced in press release 95/2008 several changes to the Listing Agreement. The following mandatory provisions have been added:

1. If the non-executive Chairman is a promoter or is related to promoters or persons occupying management positions at the board level or at one level below the board, at least one-half of the board of the company should consist of independent directors.

2. Disclosures of relationships between directors inter-se shall be made in specified documents/filings.

3. The gap between resignation / removal of an independent director and appointment of another independent director in his place shall not exceed 180 days.

4. The minimum age for independent directors shall be 21 years.

In addition, the following non-mandatory provision has been added:

The company shall ensure that the person who is being appointed as an independent director has the requisite qualifications and experience which would be of use to the company and which, in the opinion of the company, would enable him to contribute effectively to the company in his capacity as an independent director.

Sunday 6 April 2008

UK: April 6: Corporate Manslaughter

The majority of the provisions of the Corporate Manslaughter and Corporate Homicide Act 2007 came into force today. Further guidance, from the Ministry of Justice, is available here.

UK: April 6: Companies Act 2006 implementation

Today, April 6, is an important date for aficionados of the Companies Act 2006 and anyone else interested in the Government's programme of company law reform. Today, provisions concerning the following matters come into force:

(a) Execution of documents in England, Wales and Northern Ireland;
(b) Removal of former members from the register
(c) Company secretaries
(d) Accounts, reports and auditing
(e) Debentures
(f) Distributions
(g) Arrangements and reconstructions
(h) Mergers and divisions of public companies
(i) Statutory auditors
(j) The expenses of winding-up

There is further information in the implementation timetable (a Word document) and the Government has also published a short document titled "The Companies Act 2006 - Updating you; updating your clients" (PDF) which provides an overview of the Act's implementation. A press release was also issued on 31 March.

Saturday 5 April 2008

UK & US: Financial Services Regulatory Reform

Reform of the regulatory framework for financial services is being considered in the UK and USA. In the UK, the Financial Services Authority has published the results of its internal review concerning the manner in which it regulated Northern Rock. This makes many recommendations for improving the way in which the FSA supervises firms. These recommendations are in addition to those being considered as part of the review of the way in which the tripartite authorities - the Bank of England, the FSA and Bank of England - cooperate to ensure financial stability.

In the US, SEC Chairman Cox has stated (in press release 2008-53, March 29):

"Recent events have provided further evidence, if more were needed, that financial services regulation in the United States needs to be better integrated among fewer agencies, with clearer lines of responsibility. Just as systemic risk cannot be neatly parceled along outdated regulatory lines, the overarching objective of investor protection can't be fully achieved if it fails to encompass derivatives, insurance, and new instruments that straddle today's regulatory divides. The proposed consolidation of responsibility for investor protection and the regulation of financial products deserves serious consideration as a way to better address the realities of today's markets".

Postscript (25 April 2008): The US Treasury's "Blueprint for a modernised financial regulatory structure" is available here.

Postscript (28 April 2008): The FSA has now published its internal report titled "The supervision of Northern Rock: A lessons learned review".

UK: Auditing Practices Board: ISA (UK and Ireland) 600 - "Using the Work of Another Auditor"

The APB has issued a revision of ISA (UK and Ireland) 600, 'Using the Work of Another Auditor', which will apply to audits of financial statements for periods commencing on or after 6 April 2008. According to the APB's press release:

"The main effect of the revision is to add a new requirement that in an audit of group financial statements the principal auditor should document any review that it undertakes, for the purpose of the group audit, of the audit work conducted by other auditors. This reflects a new requirement in Schedule 10, paragraph 10A, of the Companies Act 2006, implementing a provision of the European Statutory Audit Directive".

Morocco: New Corporate Governance Code

The Moroccan National Commission on Corporate Governance has recently published a Code of Good Corporate Governance Practices. A copy in English has been posted on the ECGI website (the French language version is, however, authoritative).

UK: Corporate governance, M&S style - an update

On March 10, Marks and Spencer announced that Sir Stuart Rose would become executive chairman. As noted in an earlier post, this announcement caused much disquiet amongst shareholders although M&S's largest institutional shareholder, Brandes Investment Partners, publicly announced its support. M&S has since taken the unusual step of writing to all of its shareholders in order to explain its proposals. The letter explains how M&S will further strengthen the company's corporate governance in order "to mitigate the governance concerns [the proposals] might otherwise engender":

(a) The proposed arrangements will apply only to July 2011.
(b) Two new executive directors and a new independent director will be appointed.
(c) Shareholders will have an annual vote on Sir Stuart's reappointment, starting in 2008.
(d) Appointing Sir David Michels, an independent director, to the post of Deputy Chairman.
(e) The duties of the Executive Chairman and Deputy Chairman will be clearly specified.

It is perhaps surprising that M&S felt the need to state point (e). Clearly specifying the duties of all directors should be the norm, regardless of the governance structure adopted.

Tuesday 1 April 2008

The Netherlands: Phillips' AGM: Shareholders reject proposed bonus package

The Annual General Meeting of Royal Philips Electronics was held last week in Amsterdam. At the AGM, according to a report in the Financial Times:

For the first time in Dutch corporate governance history, a majority of shareholders objected to a proposal that would give directors of the consumer electronics giant share options even if the company underperformed. The executive bonus package was rejected by 57 per cent of the votes at the agm and received the strong backing of both the group's foreign investors as well as local Dutch shareholders.