Friday 24 December 2010

UK: England and Wales: BAE's accounting records

A copy of the judgment R v BAE Systems Plc [2010] EW Misc 16 (CC) has been published on BAILII: see here. This is the decision of Mr Justice Bean, sitting at the Crown Court in Southwark, in which BAE was fined £ 500,000 (and ordered to pay £ 225,000 towards the prosecution's costs) in respect of its breach of Section 221 ("Companies to keep accounting records") of the Companies Act (1985) (see now Section 386 of the Companies Act (2006)).  Section 221(2) provides that "accounting records shall be sufficient to show and explain the company's transactions". The trial judge sentenced BAE on the basis that (at para. [15]):

... by describing the payments in their accounting records as being for the provision of “technical services” the Defendants [BAE] were concealing from the auditors and ultimately the public the fact that they were making payments to Mr Vithlani, 97% of them via two offshore companies, with the intention that he should have free rein to make such payments to such people as he thought fit in order to secure the Radar Contract for the defendants, but that the defendants did not want to know the details".

UK: boards and risk management - speech by FRC chief executive

In a speech delivered earlier this month (see here, pdf), the chief executive of the Financial Reporting Council, Stephen Haddrill, explained why the FRC had decided to defer its updating of the Turnbull Guidance on Internal Control: in order to meet with directors, investors and others to explore how companies are responding to the new UK Corporate Governance Code provision on the board's responsibilities for risk.

Thursday 23 December 2010

UK: the future of narrative reporting - BIS summary of consultation responses

Earlier this year the Department for Business, Innovation and Skills published a consultation paper on the future of narrative reporting (see herepdf). The consultation closed earlier this week and a summary of responses was published yesterday: see here (pdf). The Government has stated that it will publish policy proposals, as part of its broader review of corporate governance, after the closure of its consultation A Long-Term Focus for Corporate Britain (14 Jan 2011) but by the date of the next Budget (scheduled for 23 March 2011).

UK: company law reform - what next?

Following the publication yesterday (see here) of the results of an evaluation of the Companies Act (2006) carried out on behalf of the Department for Business, Innovation and Skills, the Government has outlined its future priorities with regard to company law. These include proposals to modernise and simplify the current system for the registration of company charges (details of which have already been published: see here), as well as a review of whether a new corporate form for single person businesses would reduce costs for entrepreneurs. For further information see here.

Wednesday 22 December 2010

UK: BAA Corporate Governance SIG meeting - papers available

Last week the British Accounting Association Corporate Governance Special Interest Group, in association with the Loughborough University Corporate Governance Centre, held a meeting titled Governing the Crisis: Creation and Resolution. Copies of some of the papers presented are available here. Included is a very useful survey of the corporate governance literature of the last decade, with a particular emphasis on British and European literature.

UK: BIS evaluation of the Companies Act (2006)

The Department of Business, Innovation and Skills has published a report by Infogroup/ORC International, which presents the results of a study evaluating the impact of the Companies Act (2006): see here (volume one, pdf) and here (volume two, pdf). The executive summary has been published separately - see here (pdf) - and there is further background information here.

New Zealand: banking supervision and corporate governance

The Banking Supervision Handbook published by the Reserve Bank of New Zealand now contains a separate section on corporate governance: see here (pdf). This new section sets out the Bank's policy on registered banks' corporate governance arrangements, following a consultation earlier in the year. Banks will be required to have a minimum board size of five, with at least half of the directors being independent. Guidelines on the board's expertise and experience are also provided. For further information on the consultation, and the Bank's response to feedback received, see here (pdf).

UK: financial regulation reform and consumer credit

HM Treasury and the Department for Business, Innovation and Skills have published a joint consultation paper concerning reform of the consumer credit regime: see here (pdf). The paper seeks views on the merits of transferring responsibility for consumer credit from the Office of Fair Trading to the new Consumer Protection and Markets Authority and regulating consumer credit in the same way as other financial services.

Tuesday 21 December 2010

Basel III rules text published

The Basel Committee on Banking Supervision has published the Basel III rules on capital adequacy and liquidity: see, respectively, here (pdf) and here (pdf). For further background information see here and the Committee's press release here.

Monday 20 December 2010

Hong Kong: Code changes proposed by HKEX

The Hong Kong Stock Exchange published a consultation paper last Friday in which it set out significant changes to the Code on Corporate Governance Practices and amendments to the Rules Governing the Listing of Securities: see here (pdf). The amendments cover, amongst other things, directors' duties and time commitment, and a much greater role is proposed for non-executive directors. It is, for example, proposed that the remuneration and nomination committees should be chaired by an independent non-executive director. The paper sets out functions to be performed by a corporate governance committee (or an existing committee sharing and/or performing this function). The paper also proposes that shareholder approval at a general meeting should be required for any proposal to appoint an auditor or to remove an auditor before the end of his term of office.

Update (7 January 2010): see the consultation papers here.

UK: FRC draft plan and budget proposals 2011/12

The Financial Reporting Council has published its draft plan and budget levy proposals for 2011/12: see here (pdf). The FRC states that it will focus on the following activities: [1] stronger and better-informed engagement between institutional investors and company boards, [2] corporate reporting and auditing that deliver greater value to investors and better serve the public interest, [3] a strong UK voice in the EU and international debate on the future regulation of corporate governance, reporting and auditing, and [4] a more effective UK regulatory framework that adds value for investors and other stakeholders at low incremental cost.

Friday 17 December 2010

UK: FSA publishes revised Remuneration Code

The Financial Services Authority has published a revised edition of its Remuneration Code: see here (pdf). For further background information see here.

UK: BIS response to European Commission audit policy consultation

The Department for Business, Innovation and Skills has published its response to the European Commission's green paper on audit policy: see here (pdf). With regard to the so-called audit expectations gap, the Government notes:

It is clear that there has been an expectation gap in as much as the audit is often assumed to provide a greater degree of assurance than any system can actually provide. The expectation gap has been well known for 50 years. Over that time attempts have been made to reduce it both by increasing the quality of audit through interventions such as audit inspections, auditing standards and professional education, and publicising the limits of the audit by amendments to the audit report requirements.

The Government’s view is that information about the company-specific issues such as the degree of aggression in the company’s accounting choices, the risk position of the company and the key judgements taken during the course of the audit might be best disclosed in the report of the audit committee. The audit committee could be required to give a view as to the extent to which and how Directors have complied with accounting standards in arriving at a true and fair view. The audit committee could explain the processes and reasons for auditor (re)appointment. Whilst seeking an expanded audit committee report, it is important to note that the audit committee is a sub-committee of the Board and that relationship of Board responsibility needs to be maintained".

UK: FRC Guidance on Audit Committees - updated edition published

The Financial Reporting Council has published an updated edition of its Guidance on Audit Committees: see here (pdf). The guidance is not binding: its purpose is to assist boards in arranging their audit committees and implementing relevant provisions of the UK Corporate Governance Code.

UK: Ethical Standards for Auditors - revised editions published

The Auditing Practices Board has published revised editions of its Ethical Standards for Auditors, following a consultation earlier this year: see here.

Thursday 16 December 2010

UK: compliance with the Walker Guidelines - report published

The Guidelines Monitoring Group has published its third report concerning compliance with the Walker Guidelines on transparency within the private equity industry: see here (pdf). The report notes an increase in compliance compared with previous years and also refers to some interesting research exploring the differences in reporting between private equity owed companies and FTSE350 companies.

Wednesday 15 December 2010

UK: gender equality on listed company boards - the CBI position

The Confederation of British Industry has published its submission to the review being conducted by Lord Davies on promoting gender equality on listed company boards: see here (pdf). The CBI rejects the introduction of gender quotas, preferring instead a requirement that listed companies report on diversity on a 'comply or explain' basis, identifying their progress against internally set targets that are appropriate to their current gender diversity position, culture and sector and, where targets are not met, the action being taken.

UK: asset managers' public disclosure practices on voting and engagement

FairPensions has published a report titled Stewardship in the Spotlight: UK asset managers’ public disclosure practices on voting and engagement: see here. The report outlines the results of a study of the public disclosure practices and formal responses to the Stewardship Code of 29 of the largest asset managers operating in the UK. The study found, to quote from its conclusion:

The Stewardship Code has enjoyed early success as evidenced by the fact that 24 of the 29 large asset managers included in this study have already issued detailed formal responses. However, there is clearly more to be done in encouraging asset managers to disclose more meaningful information about their compliance with the various Principles of the Code. Increasingly, asset owners are indicating that compliance with the Code will be a factor in the selection of asset managers. On the basis of our review of early published statements, asset owners still need to carefully scrutinise the quality of stewardship activities even amongst managers who have signed up to the Code. In our view, the early evidence on disclosure should leave the FRC in no doubt that a laissez faire approach to encouraging robust stewardship will fail to drive the change which is so necessary to protect the assets of ultimate owners and beneficiaries".

Netherlands: compliance with the Corporate Governance Code

The Dutch Corporate Governance Monitoring Committee has published a report concerning compliance with the Netherlands Corporate Governance Code. A copy of the report in English will be published soon. Already published in English is a press release (here, pdf), foreword (here, pdf) and executive summary (here, pdf). The press release reports, amongst other things, that proxy advisory services have significant influence at shareholder meetings; the number of female supervisory board members is rising but remains low (11%); and rules on the maximum term of office and severance pay of management board members are often not applied.

Update (27 January 2010): a copy of the report (in English) is available here (pdf).

Europe: Commission consultation on audit policy - FRC response

The Financial Reporting Council has published its response to the European Commission's audit policy consultation: see here (pdf). The FRC sets out its position on a number of matters and states that it does not support: [i] a wholesale ban on the provision of non‐audit services to audit clients, [ii] the forcible creation of audit‐only firms or [iii] the mandatory use of joint audits.

Tuesday 14 December 2010

UK: England and Wales: financial support directions - an expense of administration/liquidation

The ICLR, as part of its WLR Daily service, has published a summary for Bloom v The Pensions Regulator (Nortel, Re) [2010] EWHC 3010 (Ch): see here. The summary's headnote reads: "Liabilities arising from the financial support direction (“FSD”) regime created by the Pensions Act 2004 upon companies in administration or liquidation were payable as a liquidation or administration expense". For further background information see here.

UK: financial regulation reform - a progress report

Hector Sants, the chief executive of the Financial Services Authority, delivered a speech yesterday in which outlined progress to date with regard to financial regulation reform and the creation of the Prudential Regulation Authority and the Consumer Protection and Markets Authority: see here. The speech provides important insights into regulatory philosophy and the manner in which the PRA and CPMA will operate.

UK: Grant Thornton's FTSE350 Corporate Governance Review 2010

Grant Thornton has published its FTSE350 Corporate Governance Review 2010: see here (pdf). The Review notes, amongst other things, that more than half of FTSE350 companies claim full compliance with the Combined Code, although only a minority of such companies provide the detail necessary to support this claim. The average FTSE350 board, the Review found, contained 5.2 non-executive directors and 3.1 executive directors.

Monday 13 December 2010

France: the AMF 2010 Report on Corporate Governance and Executive Compensation

Earlier this year the AMF 2010 Report on Corporate Governance and Executive Compensation was published. A copy in English is now available: see here.

Europe: CEBS Guidelines on Remuneration Policies and Practices

The Committee of European Banking Supervisors (CEBS) published its Guidelines on Remuneration Policies and Practices last Friday: see here (pdf). For background information see here.

Friday 10 December 2010

UK: England and Wales: dishonestly procuring or assisting a breach of fiduciary duty

The remedies available in respect of the dishonest procurement or assistance of a breach of fiduciary duty are considered in Fiona Trust & Holding Corporation & Ors v Privalov & Ors [2010] EWHC 3199 (Comm), handed down today: see here. The trial judge, Mr Justice Andrew Smith, held (paras. [66] and [67]):

... I consider it now established that an account of profits is available under English law against one who dishonestly procures or assists a breach of fiduciary duty. There are strong reasons for recognising the remedy, which were explained by Gibbs J in Consul Development v DPC, (1975) 132 CLR 373 at p. 397:

'If the maintenance of a very high standard of conduct on the part of fiduciaries is the purpose of the rule it would seem equally necessary to deter other persons from knowingly assisting those in a fiduciary position to violate their duties. If, on the other hand, the rule is to be explained simply because it would be contrary to equitable principles to allow a person to retain a benefit that he gained from a breach of his fiduciary duty, it would appear equally inequitable that one who knowingly took part in the breach should retain a benefit that resulted therefrom'.

Therefore, although a person who assists a breach of trust or fiduciary duty is not himself a trustee, he is liable to account in equity as if he were: see Dubai Aluminium v Salaam [2003] 2 AC 366 at para 141 per Lord Millett.

There is a further issue about the limits of the remedies available to the claimants if [the defendants] are liable for procuring or assisting the breach of a fiduciary duty. [Counsel] argued that, if an account of profits is available, they are liable to account only for the profits that result from the act of dishonest assistance ... Accordingly, as it is argued, a dishonest assistant is not liable to account for profits that could and would have been made regardless of his dishonest participation in the fiduciary's breach; and he is liable to account only for profits which directly resulted from the transaction concluded through dishonest inducement or assistance and not profits which can truly be said to be the result of another subsequent event, such as the movement of the market. I do not accept this submission. The law does not enter into investigations of what would have happened if the fiduciary had performed his duty when taking an account of profits: see Murad v Al-Saraj [2005] EWCA Civ 959 ... at para 76 per Arden LJ".

UK: Government proposals for registration of charges by companies and LLPs

Earlier this year the Department for Business, Innovation and Skills published a consultation paper seeking views on proposals for the reform of the legal framework governing the registration of charges by companies and limited liability partnerships (see herepdf). The consultation closed in June and responses were subsequently published (see here, pdf). The Government has, this week, published its proposals (see here, pdf) together with an impact assessment (see here, pdf).

The Government proposes to introduce a single UK-wide scheme which will apply to all companies incorporated under the Companies Act 2006 (or preceding Companies Acts) and unregistered companies and limited liability partnerships (but not overseas companies). The Government proposes that the requirement to register should apply to every charge or mortgage granted by a company registered in the United Kingdom over any of its property (wherever situated) unless expressly excluded by Regulations under the Companies Act or any other statute. The criminal sanction, in Section 860 of the 2006 Act, for failure to register a charge will be abolished. There will be no change to the sanction of invalidity: if the charge is not registered within 21 days of its creation, it will be void (so far as any security on the company's property or any part of it is conferred by the charge) against the liquidator, an administrator and any creditor of the company (see Section 874 of the 2006 Act).  Electronic registration of charges will be permitted.

IASB publishes Management Commentary IFRS Practice Statement

Earlier this week the International Accounting Standards Board published a non-binding framework for the presentation of narrative reporting to accompany financial statements prepared in accordance with IFRSs. The framework takes the form of an IFRS Practice Statement titled Management Commentary and is available here (pdf). The Practice Statement is designed to promote good practice in financial reporting and comparability across entities that present management commentary. For further background information see here.

Thursday 9 December 2010

UK: Lord Turner responds to criticism regarding RBS decision

Lord Turner, the chairman of the Financial Services Authority, has responded to criticism following the announcement that enforcement proceedings would not be taken against the former directors of Royal Bank of Scotland: see here. In his response, Lord Turner offers these thoughts on incentives in the banking sector:

Failure in banking, or even the threat of failure offset by public intervention, carries huge economic costs quite different from non-bank companies. In banking, moreover, higher return for higher risks is sometimes achieved not by socially valuable product innovation, but by leveraging up and taking liquidity risks, increasing the danger that society must clean up the mess.

The question is, should we reflect these fundamental differences in a more explicit recognition that the attitude of bank Boards and executives towards risk-return trade-offs should be different from in other sectors, and should we create incentives to adopt this different attitude? It would, for instance, be possible to set a rule that no board member or senior executive of a failing bank will be allowed to perform a similar function at a bank in future, unless they can positively demonstrate to the regulator that they warned against and sought to reduce the risk-taking which led to failure. Compensation-related rules could also be considered: the Dodd-Frank Act in the US introduces the principle that executives of banks which fail are liable to forfeit two years of past compensation if they were ‘substantially responsible’ for the decisions which led to failure.

Such automatic rules would not rely for their application on proof of specific inappropriate conduct. They would recognise that while the financial crisis entailed some instances of professional incompetence, recklessness and fraud, the more general problem was that some executives and Boards made risk-return trade-offs which might have been acceptable in non-banks, but were hugely harmful to society when made by banks.

Investigations focused on whether individual executives breached rules have a role and the FSA has successfully brought some enforcement cases relating to breaches revealed by the banking crisis. But achieving a general shift in attitudes to risk and return may require that bank directors and executives are made subject to quite different incentives than those which are appropriate in other sectors of the economy.

Europe: Commission Communication on reinforcement of sanctioning regimes in the financial services sector

The European Commission has adopted a Communication setting out possible ways to reinforce sanctioning regimes in the EU's financial services sector: see here (pdf). For further background information see here and for FAQs see here.

Wednesday 8 December 2010

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.

Tuesday 7 December 2010

UK: Supreme Court judgment due in ultra vires case tomorrow

The Supreme Court will tomorrow hand down its judgment in Progress Property Company Ltd. v Moorgarth Group Ltd.. The Supreme Court's summary of the case (here) identifies the issue before the Court as follows: "Whether the sale at undervalue of a company’s assets to its shareholder is ultra vires, in accordance with the common law rule, in circumstances where the director who procured the sale (acting on behalf of both the company and the shareholder) subjectively believed the sale to be at a proper market value".

Ireland: remuneration policies and practices in Irish retail banks and building societies

The Central Bank has published the results of its review of the remuneration policies and practices in Irish retail banks and building societies: see here. Further information is available in the Central Bank's "Dear CEO letter" available here (pdf). The review found, amongst other things, that the governance and oversight of remuneration practices was poor and there was little evidence that banks had made a link between incentive structures and their risk appetite.

UK: England and Wales: the Duomatic principle and the company's financial circumstances

Judgment was given yesterday in Secretary of State for Business, Innovation and Skills v Doffman [2010] EWHC 3175 (Ch): see here.  The case concerned an application for the disqualification of several directors brought by the Secretary of State under Section 6 of the Company Directors Disqualification Act (1986). In this regard the trial judge was required to consider the operation of the so-called Re Duomatic principle, which takes its name from Re Duomatic Ltd. [1969] 2 Ch 365, in which Buckley J. stated (at p. 373): "[W]here it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be". With regard to the Re Duomatic principle, the trial judge in Doffmann observed (paras. [44] and [45]):

... a company's financial circumstances may preclude the application of the Duomatic principle. While the interests of a company are normally identified with those of its members, the interests of creditors can become relevant if a company has financial difficulties ... It has been said that the interests of creditors can "intrude" (and the application of the Duomatic principle can, accordingly, be barred) even when a company may not strictly be insolvent".

Monday 6 December 2010

New Zealand: corporate governance developments

Jane Diplock, the chairman of the New Zealand Securities Commission, delivered a wide-ranging speech on corporate governance at the end of last month: see here. The speech provides a useful overview of recent developments in New Zealand, and referred to a revised edition of the New Zealand Institute of Directors' Code of Practice for Directors which was published earlier this year (see here, pdf).

Friday 3 December 2010

UK: women on company boards review and gender pay gap disclosure

The Department for Business, Innovation and Skills announced yesterday that over 2,600 responses were received in respect of the call for evidence forming part of Lord Davies of Abersoch’s review into the low proportion of women on company boards: see here. The Institute of Directors published its response a couple of days ago (see here) and came down firmly against the use of quotas to increase the proportion of female directors.

The Government also published its equality strategy yesterday - see here (pdf) - and expressed the preference for "business-led measures to promote more women on to the boards of listed companies" (p. 15). The strategy document also explained the Government's preference for voluntary gender pay gap reporting by companies and, given this position, it is not surprising to learn that the Government has decided not to introduce mandatory gender pay gap reporting under Section 78 of the Equality Act 2010.

UK: the UK Stewardship Code - NAPF publishes guidance

The National Association of Pension Funds has published guidance for investors (particularly pension funds) with regard to their obligations under the UK Stewardship Code: see here (pdf).

Canada: securities regulators publish results of corporate governance disclosure review

The Canadian Securities Administrators have published the results of a review of 72 issuers' compliance with National Instrument 58-101: Disclosure of Corporate Governance Practices: see here (CSA Staff Notice 58-306, pdf). This publication also includes recommendations and, on page 3, this short summary of the review's findings:

Over half of the issuers reviewed were required to make prospective enhancements to their corporate governance disclosure. We view the level of non-compliance with the disclosure requirements of the Corporate Governance Instrument to be unacceptable. Although significant efforts have been made to comply with the corporate governance disclosure requirements, issuers need to further improve their disclosure. We will continue to review corporate governance disclosure ... Issuers should anticipate staff requests for additional disclosure, re-filings or other staff action, where appropriate, if an issuer has not fully met its corporate governance disclosure obligation".

Thursday 2 December 2010

UK: the 2010 Female FTSE Board Report published

Cranfield School of Management has today published the 2010 edition of its annual Female FTSE Board Report: see here (pdf). To quote from the report's executive summary:

2010 saw another year of barely perceptible change in the representation of women in leadership positions of UK PLC’s top 100 companies. The incremental increases include three additional women on FTSE 100 boards taking the total to 116; one additional female executive director (ED); four more companies with women on their boards; and two more companies with more than one woman on the board, returning to 2008 levels. Overall, the percentage of women on FTSE 100 boards is 12.5%, showing a three year plateau. The number of companies with no female directors has decreased to 21 and the number of companies with more than one woman on the board has returned to the 2008 figure of 39. Only 13% of new appointments went to women".

The report makes the following recommendations:

  • Strengthen the new principle on diversity in selection within the UK Corporate Governance Code to ‘Comply or Explain’. Any Chairman with less than 20% women on their boards and executive committees needs to explain why this is the case in their annual reports. This should apply to all FTSE 350 listed companies. The 20% should be reviewed in three years time with a view to lifting it to 30%.
  • Advertise all NED positions in the private sector.
  • Require search consultants to produce balanced candidate lists.
  • Continue to make the appointments process as rigorous and objective as possible through use of skills audits.
  • Use peer-to-peer pressure from FTSE 100 Chairmen to encourage FTSE 250 Chairmen to seek female candidates for their boards.

UK: England and Wales: Section 994 does not provide an inalienable right to petition for relief

Judgment was given yesterday in Fulham Football Club (1987) Ltd. v Richards [2010] EWHC 3111 (Ch): see here. In an interesting first instance decision, with some important policy discussion, the trial judge (Mr Justice Vos) held that the judge in Exeter City Association Football Club Ltd. v Football Conference Ltd. [2004] EWHC 831 (Ch), [2004] 1 WLR 2910 had been wrong to hold that the right of a member of a company to present an unfair prejudice petition under Section 994 of the Companies Act 2006 was inalienable.

The Fulham case concerned an application to stay a Section 994 petition, under Section 9 ("stay of legal proceedings") of the Arbitration Act 1996, on the grounds that issues between the parties fell within the terms of arbitration agreements in the Football Association Premier League Limited Rules and the Football Association's Rules. In holding that the right to petition under Section 994 was not inalienable, and in granting the application to stay the Section 994 petition, Vos J. observed (paras. [76] to [79]):

... the preponderance of persuasive authority is strongly in favour of the view that a stay can (and indeed should under section 9 of the AA 1996) be granted, at least in a case like the present, where the disputes fall squarely within the terms of the arbitration agreements and a party has alleged unfair prejudice under section 994 of the [Companies Act 2006], but none of the factors mentioned in Mustill & Boyd [in the Law and Practice of Commercial Arbitration in England, 2nd edition, 1999] is present so as to limit the scope of the available arbitrations.

This result seems to me to accord with legal common sense. It is true that the [Companies Act 2006] establishes a complex statutory regime for the birth, life and death of companies, but there are very few steps that fall within that regime that only the court can take. One of them is certainly the making of a compulsory winding up order. But no such order is sought here, and, moreover, companies can, and most commonly are, put into liquidation by voluntary non-court based means in any event.

... In my judgment, to prevent the parties agreeing to arbitrate disputes that normally come to court in the form of unfair prejudice petitions would be wholly contrary to the requirements of party autonomy, enshrined in the [Arbitration Act 1996] ... Moreover, the [alternative] course ... would take the law in a direction that is precisely the reverse of that which so many judges and academics have suggested, by forcing parties into court, even though they wish to save time and costs by using arbitration as their alternative dispute resolution mechanism of choice.

I have, therefore, concluded that the statutory right conferred on shareholders to apply for section 994 relief is not an inalienable one. Members of companies and the companies themselves can agree to refer disputes that might otherwise support unfair prejudice petitions to arbitration, provided that third parties are not to be bound by the award (as they will not be in this case), and provided that the other kinds of relief mentioned by Mustill & Boyd are not sought (as again they are not in this case). It is beyond the scope of this judgment to consider what might happen if one or more such features were to be present, since they are not in this case".

Update (2 December 2010): a summary of the decision has been published by the ICLR as part of WLR Daily: see here.

UK: updated NAPF Corporate Governance Policy and Voting Guidelines

The National Association of Pension Funds has updated its Corporate Governance Policy and Voting Guidelines to take into account the publication of the revised UK Corporate Governance Code earlier this year: see here (pdf).

Wednesday 1 December 2010

Philippines: the PSE Corporate Governance Guidelines for Listed Companies

The Philippines Stock Exchange Corporate Governance Guidelines for Listed Companies were launched last month and have since been published: see here (pdf).

UK: bank governance and the spirit of tax law

HM Treasury has published a list of the 15 banks which have signed up to the Code of Practice on Taxation for Banks: see here. The Code - available here (see Annex A, pdf) - has a section on governance which states that the bank "... should have a documented strategy and governance process for taxation matters encompassed within a formal policy. Accountability for this policy should rest with the UK board of directors or, for foreign banks, a senior accountable person in the UK". In the Code's overview it is explained: "The Government expects that banking groups, their subsidiaries, and their branches operating in the UK, will comply with the spirit, as well as the letter, of tax law, discerning and following the intentions of Parliament".

UK: the Scotland Bill and the winding-up of companies

The Scotland Bill was published yesterday: see here (pdf). Explanatory notes are available here. Clause 12 of the Bill concerns the winding-up of companies and its purpose is to give the UK Parliament sole responsibility for all aspects of the law covering the winding-up of companies in Scotland.

UK: corporate tax reform and debt finance interest

Last month, after much work, the Mirrlees Review tax reform conclusions and recommendations were published: see here (summary, pdf). The Review concluded, amongst many other things, that the UK's current system of corporate taxation favoured debt finance over equity finance and that the systems lack of integration with other parts of the tax system led to distortions over choice of legal form. One reason why debt finance is attractive is that the interest on it is tax deductible.

The Mirrlees Review advocated the introduction of an Allowance for Corporate Equity which would provide a deduction for the cost of equity finance similar to that currently available for the interest on debt finance. Whether the Government adopts (or considers) this recommendation remains to be seen. Most recently, the deductibility of debt interest was a major item of discussion in the Government's Corporate Tax Reform strategy document (see here, pdf). In the document, which was published earlier this week, the Government states (paras. 3.7 and 3.8):

... OECD countries’ tax systems generally recognise the distinction between debt and equity and give deductions for interest as a business expense. This is also reflected in international accounting standards. The Government remains committed to interest being relieved as a normal business expense irrespective of where the proceeds of the loans are put to use. Any fundamental changes to these rules would have disruptive and potentially damaging effects on existing arrangements and could undermine the Government’s commitment to providing the stability and certainty needed to promote investment and growth.

The UK’s current interest rules, which do not significantly restrict relief for interest, are considered by businesses as a competitive advantage and it is the Government’s view that this advantage outweighs potential benefits from moving towards a more territorial system for interest. In coming to this conclusion, the Government has considered the difficulty of designing workable rules to restrict relief for interest, which are fair to all businesses without creating complexity and uncertainty.

Tuesday 30 November 2010

UK: the Government's Growth Review and corporate governance

HM Treasury and the Department for Business, Innovation and Skills published a policy document yesterday titled The path to strong, sustainable and balanced growth: see here (pdf). The document refers to the Government's review of corporate governance and states (at paras. 1.42 and 1.43):

For a more competitive economy, the Government must also ensure that long-term growth is not compromised by short-term volatility, or that its benefits are captured by a few at the expense of the many who provide the capital. The Government has launched a review into corporate governance to investigate issues including the problems of short-termism, investor engagement, directors’ remuneration, and the economic case for takeovers. This will be one of the Government’s priority areas over the coming months. The Government will also consider the role of directors and shareholders and ask fundamental questions about shareholder engagement, market short-termism and the long-term sustainability of UK companies".

Ghana: the SEC's Corporate Governance Guidelines

The Codes and Principles Directory maintained by the European Corporate Governance Institute has been updated to include a copy of the Securities and Exchange Commission's Corporate Governance Guidelines on Best Practices: see here.

Japan: the TSE Principles of Corporate Governance for Listed Companies

The Codes and Principles Directory maintained by the European Corporate Governance Institute has been updated to include a copy of the Principles of Corporate Governance for Listed Companies published by the Tokyo Stock Exchange: see here.

Monday 29 November 2010

Hong Kong: Court of Final Appeal considers apparent authority of executive chairman and chief executive

The Hong Kong Court of Final Appeal has considered, in Thanakharn Kasikorn Thai Chamkat (Mahachon) v Akai Holdings Ltd. (FACV No. 9 of 2010), whether a company's executive chairman and chief executive (Mr Ting) had the apparent authority to enter various transactions with a bank: see here. The court's judgment was delivered earlier this month; Lord Neugerger of Abbotsbury, sitting as a non-permenant judge of the court, delivered the only reasoned opinion with which the other judges agreed.

Lord Neuberger stated that the bank would be able to rely on Mr Ting’s apparent authority (if he had such authority) unless its belief in this regard was dishonest or irrational (which included turning a blind eye and being reckless). His Lordship found that Mr Ting did not have apparent authority in respect of the transactions, although he noted noted that Mr Ting would, as executive chairman and chief executive, possess "a large measure of apparent authority - indeed, no doubt he would have had a large measure of actual authority" (para. [81]). Significant in this regard was Lord Neuberger's finding that the bank was irrational in its belief that Mr Ting had authority, not least because of the "peculiar" nature of the transactions, which benefited another company sharing the same parent as the company and under which the company gained a substantial liability.

Norway: the Code of Practice for Corporate Governance - revised edition published

Following a consultation earlier this year, the Norwegian Corporate Governance Board has published a revised edition of the Norwegian Code of Practice for Corporate Governance: see here (pdf). A marked-up copy of the Code, showing where the new edition differs from its predecessor, is available here (pdf).