Monday 31 May 2010

Friday 28 May 2010

UK: revised Corporate Governance Code published

The Financial Reporting Council has today published a revised edition of the UK's Corporate Governance Code (formerly known as the Combined Code): see here (pdf). The new Code applies to financial years beginning on or after 29 June 2010.

A short summary of some of the changes included in the new edition is provided in the accompanying press release and more detailed information is available in the report on the consultation process leading to the publication of the new Code: see here (pdf).

The changes include a new provision (B.7.1) concerning directors' election: "All directors of FTSE350 companies should be subject to annual election by shareholders". With regard to gender diversity, a new supporting principle provides that "[t]he search for board candidates should be conducted, and appointments made, on merit, against objective criteria and with due regard for the benefits of diversity on the board, including gender".

In its press release, the FRC states that it intends to publish its Stewardship Code for Institutional Investors by the end of next month. Further background on the review leading to the new Code is available here.

South Korea: the Code of Best Practices for Corporate Governance

The directory of corporate governance codes and principles maintained by the European Corporate Governance Institute has this week been updated to include a copy of the Code of Best Practices for Corporate Governance published by the Korea Corporate Governance Service: see here.

Thursday 27 May 2010

Canada: financial regulation reform - proposed Securities Act published

The Department of Finance yesterday published a copy of the proposed Canadian Securities Act: see here (html) or here (pdf). The purpose of the Act is to bring about significant reform, most notably through the creation of a national securities regulator - the Canadian Securities Regulatory Authority (CSRA) - with oversight over capital markets. At present there are separate securities regulators (and securities legislation) in the provinces and territories.

The CSRA's objectives include:
  • Protecting investors from unfair, improper or fraudulent practices.
  • Fostering fair, efficient and competitive capital markets in which the public has confidence.
  • Contributing, as part of the Canadian financial regulatory framework, to the integrity and stability of the financial system.
The Government's intention is that the CSRA should be established and operating across participating provinces and territories within three years. This will require the provinces and territories to opt-in. The transition is being led by the Securities Transition Office and a transition plan will be published in July. Meanwhile, the Government has referred the Act to the Supreme Court of Canada for an opinion as to whether it falls within the legislative authority of Canada's Parliament.

An overview of the proposed Act is available here and further information is available here. The Government's proposals build on the recommendations of the Expert Panel on Securities Regulation, which published its final report in 2009: see here.

Wednesday 26 May 2010

UK: Rule 19.1 of the Takeover Code and public criticism for Kraft

The Takeover Panel Executive has publicly criticised Kraft Foods Inc for its failure to meet the standard required under Rule 19.1 of the Takeover Code in respect of statements made in the course of its takeover bid for Cadbury plc: see here (pdf). Public criticism is one of the disciplinary measures available to the Panel; a public criticism was last issued in 2007.

Rule 19.1 provides that "[e]ach document or advertisement published, or statement made, during the course of an offer must be prepared with the highest standards of care and accuracy and the information given must be adequately and fairly presented". During the course of its bid for Cadbury plc, Kraft had stated, on the basis of an honest and genuine belief, that it could keep operational one of Cadbury's factories (Somerdale).

In its statement, the Executive observed that Rule 19.1 was of "great importance" and "fundamental to ensuring the orderly conduct of takeovers" and that where a party to an offer makes a statement of belief of the kind made by Kraft, Rule 19.1 required "not only that the party concerned honestly and genuinely holds that belief (a subjective test) but also that it has a reasonable basis for so holding that belief (an objective test)".

The Executive accepted that Kraft held an honest and genuine belief that it could keep Somerdale operational. However, the Panel found that Kraft did not have a reasonable basis for holding this view because it did not know the details of Cadbury’s phased closure of Somerdale. Moreover, Kraft did not seek further information, or take the opportunity to take mitigating action in respect of its statements, when it learned, from Cadbury representatives, that the phased closure of Somerdale was well advanced.

Europe: bank resolution funds - Commission proposal published

The European Commission today published a Communication in which it proposed that the European Union adopt an EU wide network of bank resolution funds: see here (pdf). The Commission states in its Communication:

A clear political message that emerged from the G-20 meeting in Pittsburgh in September 2009, strongly backed by the EU, is that taxpayers' money should not be used again to cover bank losses. The European Commission is working to achieve this in at least two complementary ways: i) by reducing the probability of banking failure through stronger macro and micro-economic supervision, better corporate governance and tighter regulatory standards and; ii) by ensuring that, if in spite of these measures failure does occur, appropriate tools including sufficient resources are available for orderly and timely resolution. The establishment of resolution funds constituted from private sector sources are an important part of this response.

The Commission supports the establishment of ex ante resolution funds, funded by a levy on banks, to facilitate the resolution of failing banks in ways which avoid contagion, allow the bank to be wound down in an orderly manner and in a timeframe which avoids the "fire sale" of assets ("principe de prevoyance"). The Commission believes that resolution funds are a necessary part of the toolbox of several different measures that will be included in the new EU crisis management framework seeking to mitigate the burden on taxpayers and minimize – or better still eliminate - future reliance on taxpayer funds to bail out banks".

The Commission's proposals will be discussed at the forthcoming European Council and presented at the G-20 Summit in Toronto next month. Further information is available in the Commission's press release and FAQs. A recording of the Commission's press conference, which included a question and answer session, is also available here (the video will play automatically in French but the language can be changed to English).

Australia: the Corporations Amendment (No 1) Bill 2010 - draft published

The Treasury has published a draft of the Corporations Amendment (No 1) Bill 2010: see here. The Bill contains, amongst other things, provisions dealing with access to the register of members, the size of fines imposed for insider dealing and the powers of ASIC.

Tuesday 25 May 2010

UK: The Queen's speech - the Financial Services Regulation Bill

Today saw the State Opening of Parliament by The Queen. The Queen's speech - available here - set out the Government's legislative programme. A Financial Services Regulation Bill is proposed, the purpose of which is to give the Bank of England control of macro-prudential regulation and oversight of micro-prudential regulation: see here.

It's fair to say that the exact boundaries of responsibility between the Financial Services Authority and the Bank of England under the proposed regime will remain uncertain until further information is provided by the Government, not least because the terms 'macro-prudential' and 'micro-prudential' lack a precise definition and have changed over time. Further discussion of the meaning of 'macro-prudential' appeared in the March 2010 edition of the Bank for International Settlements Quarterly Review: see here (pdf).

UK: boards and gender diversity

The Telegraph newspaper has published findings from its Executive Pay Report 2010 concerning board diversity: see here. The newspaper notes:

... the number of women in FTSE 100 companies dropped 5pc in 2009. There were just 29 female executive directors, down one from 30 in 2008. Across the FTSE 250 there were just 39 women directors out of 950, although the figure rose from in 2008".

Monday 24 May 2010

UK: annual election for directors? - what the papers say

The Financial Reporting Council is expected to publish the revised Corporate Governance Code this week. A report in yesterday's Sunday Times newspaper (see here) repeats the suggestion made in the Daily Telegraph last week (see here) that the FRC has decided that it is desirable for boards to be subject to annual re-election by the shareholders (presumably subject to 'comply or explain'). But yesterday's Independent on Sunday offered a more cautious view in a short report - available here - titled "Annual directors' vote in doubt".

USA: 'say on pay' vote at the Motorola general meeting

Motorola Inc., incorporated in Delaware, held its annual stockholder meeting earlier this month. The voting results are available here. Stockholders were given a non-binding vote on the company's remuneration policy. Although more votes were cast in support of the policy (887,793,923) than against (855,021,547) it was defeated when the number of abstentions (201,440,789) were taken into account. This would appear to be the first time that an American company has lost a 'say on pay' vote (although there is currently no legal or regulatory obligation to provide such a vote).

The abstentions were included in determining whether the resolution was passed because the company's bylaws (Section 4, page 5; available here, pdf) provided that "the affirmative vote of a majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, except as otherwise required by Delaware law, the Certificate of Incorporation, or these Bylaws".

In the absence of such a provision a default rule is provided by Section 216(2) of the Delaware General Corporations Law as follows: "[in] all matters other than the election of directors, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders". For judicial discussion of Section 216, see Licht v. Storage Technology Corp., et al. (C.A. No. 524-N, 2005): here (pdf).

Friday 21 May 2010

USA: the Restoring American Financial Stability Act of 2010

Major reform of financial regulation, including some corporate governance reforms, is now imminent following a vote in Senate to end debate of the Restoring American Financial Stability Act of (2010). For newspaper reports see here (Wall Street Journal) and here (New York Times). President Obama welcomed the vote in Senate: read his speech here or watch it below.

Australia: directors' guidance - CAMAC report published

Last year the Corporations and Markets Advisory Committee was asked by the Government (see here, pdf) to undertake a project concerning directors' role and responsibilities. CAMAC was asked to examine, amongst other things, whether directors' performance would be enhanced by the introduction of guidance for directors, through, for example, a code of conduct or best practice guidance, by a relevant regulator, and if so what form that guidance should take.

CAMAC published its findings and report this week: see here (pdf). The Committee rejected the case for a new code of conduct for directors but nevertheless stated that efforts to assist directors to understand their role and responsibilities should be pursued. The Committee also recommended that the Australian Securities Exchange should review its corporate governance principles and recommendations in the light of international developments.

It should be noted that CAMAC did not undertake empirical research to assess whether directors in Australia understand their role and responsibilities.

UK: Supreme Court considers derivative actions

This week the Supreme Court delivered its judgment in Roberts v Gill & Co Solicitors & Ors [2010] UKSC 22: see here (pdf) and here (html). Whilst not a company law case, the judgment of Lord Collins contains some discussion of the derivative action (now placed on a statutory footing by Part 11 of the Companies Act (2006)): see, in particular, paras. [56] - [62].

Thursday 20 May 2010

UK: annual election for directors?

Ahead of the publication of the UK's revised Corporate Governance Code next week, today's Daily Telegraph newspaper reports - see here - that the Financial Reporting Council has decided that the Code should require the entire board to face annual election by shareholders.

The newspaper also reports that in a lecture given last night, Sir David Walker stated that he now supported the annual election of the whole board. In his recent report concerning bank governance (here, pdf), Sir David recommended that the chairman should face annual election, with the board keeping "under review the possibility of transitioning to annual election of all board members".

UK: the Coalition's programme for Government - governance and financial regulation

The Coalition has published its programme for Government - see here (pdf) - expanding on the broad policy agreements in the coalition agreement. The document contains the following commitments (in no particular order) with regard to corporate governance and financial regulation:
  • Reinstate an Operating and Financial Review to ensure that directors’ social and environmental duties have to be covered in company reporting, and investigate further ways of improving corporate accountability and transparency.
  • Make it easier for people to set up new enterprises by cutting the time it takes to start a new business ... reduce the number of forms needed to register a new business and move towards a 'one click' registration model.
  • Look to promote gender equality on the boards of listed companies. [note: the Conservatives' pre-election pledge - see here - to require the long list for public company directorship appointments to include 50 per cent female candidates, appears to have fallen by the wayside].
  • Reform the regulatory system to avoid a repeat of the financial crisis ... bring forward proposals to give the Bank of England control of macro-prudential regulation and oversight of micro-prudential regulation [note: the FSA survives, despite the Conservatives' pre-election pledge for radical reform of the regulatory structure, but see the final point below].
  • Bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector.
  • Create a single agency to take on the work of tackling serious economic crime that is currently done by, among others, the Serious Fraud Office, Financial Services Authority and Office of Fair Trading.

Europe: short selling measures - CESR updates summary of regulators' actions

Following the restrictions imposed on naked short selling by BaFin in Germany (see here), the Committee of European Securities Regulators has updated its very useful summary of the measures taken by its members with regard to short selling: see here (pdf).

Wednesday 19 May 2010

Europe: the alternative investment fund managers directive

At a meeting of the Economic and Financial Affairs Council yesterday a mandate was agreed for negotiations with the European Parliament on the alternative investment fund managers directive. The purpose of the directive is twofold:
  • to introduce a harmonised framework for monitoring and supervising the risks that alternative investment funds (e.g., hedge funds) pose to their investors, counterparties, other market participants and to financial stability
  • allowing alternative investment fund managers to provide services and market EU funds throughout the EU single market, subject to compliance with strict requirements.
Further information about the agreed mandate is available here (pdf). The press conference can be watched here. On Monday, MEPs on the Economic and Monetary Affairs Committee agreed their position with regard to the proposed directive: see here. Interestingly, the MEPs agreed that naked short selling should be prohibited. Short selling is one of the matters currently being considered by the European Commission as part of its work on financial regulation.

Tuesday 18 May 2010

UK: the FSA's approach to intensive supervision and corporate governance

Jon Pain, the Managing Director of Supervision at the Financial Services Authority, delivered a speech today in which he provided some interesting examples of the regulator's new, so-called "intensive", approach to regulation: see here. These included being "at the heart of the analysis and judgements being made by senior management" in mergers and acquisitions and actively encouraging changes in board membership. With regard to regulated firms' governance, Mr Pain observed:

... it is clear to us that the financial crisis exposed significant shortcomings in governance and management across numerous firms. And although poor governance was only one of many factors that contributed to the financial crisis, it was an important one. We are therefore looking closer at behaviour and culture in firms, particularly ensuring two key things: [1] that good culture and behaviours in firms is being driven by senior management; and [2] that good culture and behaviours are being reinforced by effective corporate governance and the role of the boards.

Through the crisis we have also seen examples where boards did not sufficiently challenge the executive or understand their firms’ business models and their inherent risks, and where boards did not simply receive the relevant management information to be able to carry out their important oversight role. Boards need to make sure they have the right people, asking the right questions, informed by the right information ... where this is not the case we will take action".

Europe: financial regulation reform

The European Commission has published a table setting out the progress made in implementating the G20 commitments on financial regulation reform: see here (pdf). The table reports that the Commission's forthcoming financial institution corporate governance green paper will not, as expected, be published this month but will instead be published in June.

Further background information, with explanations for some of the abbreviations in the table, is available in the accompanying presentation: see here (pdf).

Ireland: directors' duties and corporate groups

Ireland's court of final appeal - the Supreme Court - delivered its judgment in Mitek Holdings Ltd & The Companies Acts [2010] IESC 31 last week. The Supreme Court unanimously upheld an order restricting two individuals from acting as company directors for a period of five years. The order was made by the High Court in May 2005 on the application of the liquidator of five companies in liquidation, following the judgment Grace (Liquidator) v. Kachkar & Ors [2005] IEHC 63, under Section 150(1) of the Companies Act (1990).

In upholding the restriction order, the Supreme Court considered directors' duties, the increased expectations placed on non-executive directors and the conflicts that can arise in corporate groups. With regard to directors' duties, the famous propositions in Re City Equitable Fire Insurance Ltd. [1925] Ch 407 - including the statement that directors' responsibilities were of an intermittent nature - were described by the court as reflecting "the more relaxed standards of business in another age" (para. [73]).

The court made clear that where a company is part of a group, its directors must consider and act in the interests of each company. With regard to "group policy" in such structures, the court stated (para. [89]):

It may indeed be normal and permissible, within a group of companies, to take account of group policy. That does not mean that the property of one company can simply be transferred, at the behest of the parent, to another company in the group. That would be to ignore entirely the separate existence of each company".

With regard to non-executive directors, the court stated:

... non-executive directors of companies must be increasingly conscious in the times we live in that they cannot be mere ciphers or purveyors of votes at the whim of management. There was a time when even such a distinguished text as Gower (The Principles of Modern Company Law 3rd Ed. Stevens, London 1969 page 549) could state: 'public opinion has come to recognise that directorships are little more than sinecures, requiring, at the most, attendance at occasional board meetings.' The Act of 1990 itself evinces public concern that directorships involve real responsibility and that persons who do not conform at least to some generally acceptable minimum standards either should not, in the public interest, be permitted or should be restricted in regard to future holding of directorships".

Monday 17 May 2010

Europe: Governance Forum publications

Last week the European Corporate Governance Forum published two documents: its 2009 annual report (here, pdf) and the minutes of its meeting on 19 February 2010 (here, pdf). Sir David Walker attended the February meeting and spoke about his review of bank and financial institution governance; the minutes record his answers to questions from Forum members.

The minutes also provide an insight into the European Commission's forthcoming green paper on corporate governance, due to be published this month. To quote from the minutes:

As with the Walker report, some of the planned recommendations are specific for the financial services industry, others are also relevant for listed companies in general, for instance the recommendations with regard to shareholders. At this stage some recommendations are further developed than others, such as the recommendations on risk. No choices have been made yet as to whether and to what extent the recommendations should take the form of legislative measures. This will depend on the Commissioner's decision".

UK: Executive Pay Report 2010 published by Sunday Telegraph

The Sunday Telegraph newspaper published its Executive Pay Report 2010 yesterday - see here (methodology here) - and this reports:

FTSE100 chief executives saw their salaries fall an average 1pc in 2009, while cash bonuses and benefits were 28pc lower. However, share based incentives rose a mouth-watering 31pc, leaving total compensation 6pc higher at an average of £3.76m".

Friday 14 May 2010

UK: stewardship code consultation - responses published

The Financial Reporting Council has published the responses received in respect of its consultation on the stewardship code for institutional investors: see here.

Belgium: new governance laws

A summary of some recent changes to Belgian law concerning the governance of listed companies has been published by Clifford Chance LLP and Freshfields Bruckhaus Deringer LLP: see, respectively, here (pdf) and here (pdf).

UK: England and Wales: an investment company?

Judgment was given earlier this week in Dawsongroup Plc v Revenue & Customs [2010] EWHC 1061 (Ch). The case concerned a company - Dawsongroup plc - the holding company for a group of companies carrying on the business of renting trucks, trailers, buses, coaches and other specialist equipment. The company undertook two activities: [1] providing services to the subsidiary companies (including banking, financial, legal and IT services) and [2] holding the shares of the subsidiary companies and arranging the affairs of the group (which included the disposal and acquisition of companies, the general control of the subsidiaries to ensure the maintenance of their value, and receiving income from the subsidiaries in the form of dividends).

Last year, in the First-tier Tribunal (Tax) (see [2009] UKFTT 137 (TC)) it was held that the company was not an investment company, defined by Section 130 of the Income and Corporation Taxes Act (1988) as "any company whose business consists wholly or mainly in the making of investments and the principal part of whose income is derived therefrom...". As such, the company was unable to deduct certain expenditure under Section 75 of the 1988 Act when calculating its profits for corporation tax purposes.

The company appealed. Mann J. heard the appeal and held that the company was an investment company although, for other reasons, the disputed expenditure was not deductible. In holding that the company was an investment company, Mann J. held that the First-tier Tribunal judge had incorrectly decided that the company's exercise of control over the subsidiaries was a trading activity. HMRC argued that the company's investment activity was ancillary to its main trading activity of providing services. Mann J rejected this argument because it failed to describe the company's raison d'ĂȘtre and the overall picture of its functions. He instead found that the company was "primarily a holding company ... which also happens to provide services to the rest of the group ... its main activity is being a holding company with a degree of real control over the rest of the group" (para. [39]).

Thursday 13 May 2010

UK: SIG plc shareholders reject remuneration report

SIG plc held its annual general meeting today. The resolution seeking approval of the company's remuneration report failed to receive the support of a majority of the shareholders: see here. In a statement published after the meeting - available here - the company noted its disappointment and promised to consult further with shareholders.

India: Supreme Court upholds constitutional validity of National Company Law Tribunal

Significant changes to the way in which company law disputes and the winding-up of companies are dealt with have moved closer. Earlier this week the Supreme Court of India held - in Madras Bar Association v Union of India (11 May, appeal number 3067 of 2004, heard with appeal number 3717 of 2005) - that it was not unconstitutional to create the National Company Law Tribunal and National Company Law Appellate Tribunal and vest in them the powers and jurisdiction exercised by the High Court with regard to company law matters. A copy of decision is available by searching the Supreme Court judgments website here.

The Company (Second Amendment) Act (2002) provided for establishment of the NCLT and NCLAT to take over certain functions performed by the High Court, Company Law Board, the Board for Industrial and Financial Reconstruction and the Appellate Authority for Industrial & Financial Reconstruction. This followed the recommendations of the Eradi Committee, which found that the time taken to wind-up a company (often between 10 and 15 years) was largely due to the multiplicity of court proceedings required.

Wednesday 12 May 2010

UK: the Con-Lib coalition agreement and financial regulation

The Conservative-Liberal Democrat Government has published its coalition agreement: see here (pdf). With regard to financial regulation (with overlaps into the governance field) the agreement states:

The parties agree that reform to the banking system is essential to avoid a repeat of Labour’s financial crisis, to promote a competitive economy, to sustain the recovery and to protect and sustain jobs. We agree that a banking levy will be introduced. We will seek a detailed agreement on implementation.

We agree to bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector; in developing these proposals, we will ensure they are effective in reducing risk. We agree to bring forward detailed proposals to foster diversity, promote mutuals and create a more competitive banking industry.

The parties wish to reduce systemic risk in the banking system and will establish an independent commission to investigate the complex issue of separating retail and investment banking in a sustainable way; while recognising that this would take time to get right, the commission will be given an initial time frame of one year to report. The parties agree that the regulatory system needs reform to avoid a repeat of Labour’s financial crisis. We agree to bring forward proposals to give the Bank of England control of macro-prudential regulation and oversight of micro-prudential regulation".

France: recent developments

Freshfields Bruckhaus Deringer LLP has published a short newsletter highlighting developments in law, practice and the AFEP/MEDEF corporate governance code, with regard to female directors and board composition: see here (pdf). The newsletter notes an interesting development:

An increasing number of CAC40 companies that had previously adopted a system of management with a separate chairman and chief executive officer are now choosing to combine these roles under the authority of a single individual, while counterbalancing this concentration of power with the appointment of a 'senior independent director' (sometimes also referred to as a 'vice chairman' or 'reference director')".

Canada: governance at financial institutions

Ted Price, an assistant superintendent at the Office of the Superintendent of Financial Institutions (OSFI), delivered a speech earlier this week titled "Defining the New Agenda for Governance at Financial Institutions": see here (pdf).

The speech provides some useful insights into governance in Canada as well as the actions being taken by the OSFI with regard to governance, including the assessment of board directors and the functions of the board with regard to risk, about which Mr Price observed:

At OSFI, we believe that defining financial risk appetite is as important in an institution’s strategic planning as other production inputs, like budgets. It has been long accepted that major expenditures and budgets should be reviewed by the board, but when it comes to setting risk appetite, some boards have, incorrectly, abdicated that responsibility to management. We believe that boards have an essential oversight role in setting and limiting risk appetite in financial institutions".

Tuesday 11 May 2010

Europe: financial supervision update

MEPs on the Economic and Monetary Affairs Committee yesterday made significant changes to the European Commission's proposed financial supervision framework. The Committee's proposals will require the approval of the European Parliament and further debate and lobbying is inevitable. In a press release published yesterday - see here - the Committee's decisions were explained:

The EU's financial supervisory plans were beefed up by Economic and Monetary Affairs Committee MEPs on Monday, with new measures including a much bigger say for the nascent European Systemic Risk Board before and during crises affecting financial stability, direct EU supervision of systemically important financial institutions, the right to impose temporary bans on very risky financial products and the designation of two EU stability-assisting funds.

EU supervision must be much stronger than what the Commission and Council are proposing, in order to prevent the kind of slow and fragmented supervisory responses seen in the 2007-2008 crisis, said the committee, broadly backing the position of its rapporteurs.

If backed by Parliament as a whole, the committee vote will base all the proposed supervisory bodies in Frankfurt and make them part of a tightly-integrated system, replacing the looser network of supervisors in various European cities originally proposed.

Intensive talks now start between MEPs and the Council find a deal that satisfies both sides. It is hoped that this deal could then be put to a vote at Parliament's June plenary session. If the deal is done in June, then the bodies provided for in this package can be set up in 2011".

For further information about the Committee's adopted text see here and the short video news report below from European Parliament TV:

The Committee was due to vote on the proposed Alternative Investment Fund Managers Directive but this will now take place on May 17 so that time is available to consider the opinion of the Legal Affairs Committee (available here, pdf).

Monday 10 May 2010

UK: NAPF Corporate Governance Policy and Voting Guidelines for Investment Companies

The National Association of Pension Funds has published an updated edition of its Corporate Governance Policy and Voting Guidelines for Investment Companies: see here (pdf).

Friday 7 May 2010

Hong Kong: Companies Ordinance Rewrite - second consultation phase launched

The second consultation phase for the Companies Ordinance Rewrite began today and will last until 6 August 2010. A consultation paper has been published - see here (pdf) - along with parts of the draft Companies Bill (see here). A full list of the phase two consultation questions is available here (pdf).

UK: England and Wales: wrongful trading and risk taking in the film industry

Judgment was given in Singla v Hedman [2010] EWHC 902 (Ch) at the end of last month. The trial judge found the sole director of a company guilty of wrongful trading under Section 214 of the Insolvency Act (1986), where the director caused the company to enter into an agreement for producing a film where the company had insufficient funds to meet its obligations under the agreement.

One interesting aspect of the case was the director's suggestion (in a witness statement) that his actions were not unusual and that because film-making was risky it was inevitable that creditors would be owed money when film companies failed. This received short shrift from the trial judge, who observed that the director's statement suggested "a remarkably low standard of corporate responsibility in the film industry as being normal. There is however in my view no special low standard for people in the film industry" (para. [105]).

Thursday 6 May 2010

Saudi Arabia: Corporate Governance Regulations

The codes directory maintained by the European Corporate Governance Institute has been updated to include a copy, in English, of the Corporate Governance Regulations for the Kingdom of Saudi Arabia, published by the Capital Market Authority: see here.

The Xstrata plc annual general meeting

The Xstrata plc annual general meeting was held yesterday in Switzerland (the company's shares are listed on the London and Swiss Stock Exchanges). Much attention was focused on resolution 3 - the approval of the company's remuneration report - given the controversy over remuneration policy at the company. Just over 70% of shareholders voted on this resolution and of those 31% voted against the report. This is noteworthy given that such resolutions are usually passed with little dissent. The AGM results are available here (pdf). For further background about remuneration at the company, see here.

Wednesday 5 May 2010

Brazil: fourth edition of IBGC governance code published

The Brazilian Institute of Corporate Governance published the fourth edition of its Corporate Governance Code of Best Practice last year. A copy, in English, has recently been added to the codes directory maintained by the European Corporate Governance Institute: see here.

Tuesday 4 May 2010

Bahrain: corporate governance code published

The Kingdom of Bahrain's Ministry of Industry and Commerce has published a corporate governance code: see here (pdf). The code contains nine principles with supporting directives and recommendations. For example, principle 5 provides that the company "shall remunerate directors and officers fairly and responsibly". This principle is supported by the directive that the board should establish a remuneration committee. A recommendation provides that all plans for performance-based incentives should be approved by the shareholders.

The code will initially apply to public companies but it is intended that it should, in due course, apply to all operating joint stock companies incorporated under the Bahrain Commercial Companies Law. The subject of enforcement is explained in the code's introduction. Whilst the code is based on the comply or explain approach, the introduction notes that market based monitoring alone is not sufficient and identifies other bodies and mechanisms which should perform this function including the Central Bank of Bahrain and shareholder litigation.

UK: Financial Services Act 2010 - explanatory notes published

Explanatory notes for the Financial Services Act (2010) have been published today on the OPSI website: see here (html) or here (pdf).


[a] Section 4 of the Act provides that HM Treasury "may make provision by regulations about the preparation, approval and disclosure of executives’ remuneration reports". An executive remuneration report is defined as one "containing information about (a) the remuneration of relevant executives of an authorised person, or (b) anything connected with the remuneration of relevant executives of an authorised person". The directors of a company authorised by the Financial Services Authority fall within the definition of relevant executives.

[b] Section 6 of the Act inserts a new section (139A) into the Financial Services and Markets Act (2000), which imposes a duty on the FSA to make rules requiring persons authorised under the FSMA, or a class of authorised persons identified in FSA rules, to have and implement a remuneration policy.

UK: England and Wales: Guernsey limited partnership not a company or 'hybrid' company

Last month, in Pillar Securitisation SARL & Ors v Spicer & Anor (Court Administrators) [2010] EWHC 836 (Ch), Mrs Justice Proudman held that administrators had not been validly appointed in respect of a limited partnership formed under the Limited Partnership (Guernsey) Law 1995 (available here, pdf) and which was a body corporate.

The administrators’ appointment had been made on Form 2.10B, which applied where the appointment was made in respect of a company. Mrs Justice Proudman held that a limited partnership was not a company under Guernsey law or within the definition of a company provided in Schedule B1 of the Insolvency Act 1986. Her Ladyship held that legislation was needed for the partnership to fall within the Schedule B1 definition. She also rejected the argument, based on a beneficent construction of the rules about prescribed forms, that the limited partnership should be regarded as a “hybrid” company because it was a body corporate with legal personality: "I do not think there is such a thing as a hybrid" she observed (para. [38]).

Monday 3 May 2010

UK: election 2010 - women on company boards - more from the Conservatives

With election day fast approaching, the Conservative Party has today pledged to introduce "new rules" to "get more women onto boards of public companies". The Party is not proposing that a certain proportion of board directors should be female but is instead proposing - in its Contract for Equalities document, available here (pdf) - that:

We will require the long list for directorship appointments to include 50 per cent female candidates. This will help ensure that companies recruit from a diverse pool of candidates. It will apply to executive directors as well as non-executive directors. We will require all non-executive director positions to be advertised to ensure that talented potential candidates have the chance to apply for boardroom vacancies".

Some questions and observations: do the Conservatives mean public companies or listed companies? What form will these rules take (board diversity is something being considered by the Financial Reporting Council as part of its review of the Combined Code)? Main Principle A.4 of the Combined Code provides that "[t]here should be a formal, rigorous and transparent procedure for the appointment of new directors to the board". It does not, however, follow that board posts are advertised, a point recognised by Principle A.4.6:

A separate section of the annual report should describe the work of the nomination committee, including the process it has used in relation to board appointments. An explanation should be given if neither an external search consultancy nor open advertising has been used in the appointment of a chairman or a non-executive director".