Thursday 28 April 2011

Singapore: director disqualification and corporate governance

A copy of the High Court decision Ong Chow Hong (alias Ong Chaw Ping) v Public Prosecutor [2011] SGHC 93, delivered earlier this month, has been published on the Singapore Law Watch website: see here. The case is noteworthy because of the interesting discussion of the purpose of the regime for the disqualification of directors, the relationship between disqualification and corporate governance standards, as well as the duties of listed company directors. It concerned the disqualification of the chairman of a listed company following a breach of Section 157(1) of the Companies Act (the chairman had approved the release of a public announcement concerning the company without reviewing its contents).

The trial judge, with reference to the disqualification regimes in the UK and Australia, concluded that in Singapore the predominant purpose of disqualification was the protection of the public (the judge below held that the purpose was predominantly punitive) and proceeded to note that this "shield of protection" had two sides (paras. [22] and [23]):

"On one hand, the public ought to be protected from an individual who has failed to discharge his obligations qua director. This side of protection may be viewed as specific protection, or what I would prefer to term as the “thin” definition of protection. To date, case law in Singapore appeared to have been largely focused on this narrower aspect of protection as being the only appropriate consideration. On the other hand, there is another side of protection that has been overlooked. This side is equally, if not even more, significant in some matters, particularly those involving listed companies. This is the need to generally protect the public from all errant directors by an uncompromising reaffirmation of the expected exemplary standards of corporate governance".

The trial judge held that the one year period of disqualification originally imposed was inadequate and doubled its length. In reaching this decision, the trial judge made these comments on directors' reliance on others (para. [34]):

Directors of listed companies in Singapore have to appreciate that our present disclosure based regime requires accurate and prompt disclosure to function effectively. It would never be sufficient or acceptable for a director to say that he expected his co-directors to do “right” by the company. Every director has to ensure that he discharges his responsibilities with due diligence in all pertinent matters. Therefore, any reliance on professionals or any reliance placed on “specialised” directors must be balanced against the responsibility that the law placed upon every individual director to bring to bear their own judgment in evaluating the advice received. Directors cannot adopt a silo approach and invariably seek shelter behind other “specialised” directors on the notion of reliance ..."

Note: the next update will be on Tuesday, May 3.

Wednesday 27 April 2011

UK: England and Wales: parent company owed duty of care to employee of subsidiary

Earlier this month, in Chandler v Cape plc [2011] EWHC 951 (QB), the trial judge held that a parent company (Cape plc) owed a duty of care to one of the employees of a subsidiary company (Cape Products). A copy of the judgment is not yet available on BAILII but has been published by Devereux Chambers: see here (Word). A short summary of the case has been published by LexisWeb: see here. Before considering whether a duty of care was owed, in accordance with the three stage test in Caparo Industries Plc v Dickman [1990] 2 AC 605, the trial judge made these important points (para. [66]):

... it is necessary to dispel certain possible misunderstandings which might arise in cases of this type or upon a cursory reading of this judgment. First, the fact that the Claimant was owed a duty of care by Cape Products does not prevent such a duty arising between the Claimant and other parties. No doubt, the fact that a duty situation exists between the Claimant and his employer is a factor to be taken into account when deciding whether another party owes the Claimant such a duty. But, to repeat, the existence of the duty between the Claimant and his employer cannot preclude another person being fixed with a duty of care. Second, the fact that Cape Products was a subsidiary of the Defendant or part of a group of companies of which the Defendant was the parent cannot mean by itself that the Defendant owes a duty to the employees of Cape Products. So much is clear from Adams v Cape Industries plc [1991] 1 AER 929. Equally, the fact that Cape Products was a separate legal entity from the Defendant cannot preclude the duty arising. Third, this case has not been presented on the basis that Cape Products was a sham – nothing more than a veil for the activities of the Defendant. Accordingly, this is not a case in which it would be appropriate to 'pierce the corporate veil' ".

Tuesday 26 April 2011

UK: England and Wales: execution of documents by a company

The ICLR, as part of its free case summary service, has provided a summary for the recent Court of Appeal decision Williams v Redcard Ltd. [2011] EWCA Civ 466: see here. To quote from the ICLR's headnote for the decision:

Under section 44 of the Companies Act 2006 a company document could validly be signed by signatories acting for the company even though the execution did not take place either with the common seal of the company or by expressly being signed 'for or on behalf of the company' ".

Switzerland: Governance Guide for Families and their Businesses

The codes and principles index maintained by the European Corporate Governance Institute has been updated to include a copy in English of the Governance Guide for Families and their Businesses published by Vereinigung der Privaten Aktiengesellschaften (VPAG), Prager Dreifuss and Continuum AG: see here (pdf).

Thursday 21 April 2011

UK: FSA consults on remuneration code guidance

The Financial Services Authority has published for consultation guidance on its Remuneration Code: see here. Included with the guidance are tools to help firms comply with the Code which, the FSA states, firms can begin to use immediately.

Note on Easter updates: the next update will appear on Tuesday, 26 April.

Wednesday 20 April 2011

Qatar: a couple of codes added to ECGI index

The codes and principles index maintained by the European Corporate Governance Institute has been updated to include a copy of the corporate governance code for companies listed on markets regulated by the Qatar Financial Markets Authority - see here (pdf) - and a copy of the corporate governance guidelines for banks and financial institutions published by the Qatar Central Bank: see here (pdf).

Ireland: Misjudging Risk: Causes of the Systemic Banking Crisis in Ireland

The Commission of Investigation into the Banking Sector in Ireland has published its final report. The report, titled Misjudging Risk: Causes of the Systemic Banking Crisis in Ireland, is available here (pdf). The report highlights much, including governance failings at Anglo and INBS, a herd mentality at other banks and difficulties for individual board members of such banks, particularly those without banking experience, to express a view different to the majority view of the board.  One of the main lessons identified by the report goes to the heart of governance: there should exist fora and incentives for leadership and staff to discuss openly and challenge strategy and its implementation. To quote directly from the report: "[it] must become respectable and welcome to express professionally argued contrarian views". With regard to bank directors, the report states:

... the selection of management and board members in ... banks may need even more attention than before. It is the impression of the Commission that long, preferably practical, experience in financial markets has a tendency to promote not only competence but also financial prudence. Banks might do well, in the long run, to ensure that their senior management has, or at least has close access to, extensive lending and risk management expertise; more banking experience in boards would also prove useful. Authorities might also do well to make even greater use of experienced practitioners, domestic and foreign, in various roles".

Tuesday 19 April 2011

UK: the registration of charges - issues to be resolved before preparation of draft regulations

Earlier this month the Department for Business, Innovation and Skills published a document seeking views on some issues to be resolved before it prepares draft regulations in respect of the proposed reforms of the registration of charges regime: see here (pdf).

Monday 18 April 2011

USA: Wall Street and the Financial Crisis - Senate report published

The US Senate report Wall Street and the Financial Crisis: Anatomy of a Financial Collapse was published last week: see here (pdf).

Friday 15 April 2011

Guernsey: finance sector governance code - updated draft published

Guernsey's Financial Services Commission has published for a consultation a further draft of its finance sector corporate governance code: see here (pdf). The Commission's intention is that the final version of the code should take effect on 1 January 2012, thereby replacing guidance on corporate governance published by the Commission in 2004 (available here, pdf).

Thursday 14 April 2011

Europe: revising the Accounting Directives

The European Commission yesterday published 12 actions for the Single Market in 2012: Together for new growth, a Communication setting out its proposals in respect of the Single Market Act: see here (pdf). One of theses actions is a revision of the Accounting Directives, the purpose of which (to quote from the Communication): to reduce the administrative burden stemming from accounting requirements on micro- and small public limited companies and limited liability companies. The potential savings generated by this proposal amount to EUR 1.5 billion per year for 1.1 million small companies and EUR 5.2 billion per year for 5.9 million micro-enterprises. These savings would be mainly due to easier financial reporting requirements on these micro- and small enterprises. In addition, the review of the Directives will also improve the clarity and comparability of the financial statements of small- to large-sized companies across the EU. In addition, the Commission proposal to exempt micro-enterprises from the provisions of the accounting Directives should be adopted by the Council and the Parliament".

Wednesday 13 April 2011

New Zealand: update on financial regulation reform

The Financial Markets Authority, which will amongst other things take over the functions of the Securities Commission and Government Actuary, will begin operating on 1 May, the Commerce Minister has announced: see here. The minister's announcement reports that the relevant legislation, the Financial Markets (Regulators and KiwiSaver) Bill, was passed unanimously by Parliament on 7 April.

Tuesday 12 April 2011

Australia: ASIC's draft guidelines on prospectus disclosure

ASIC has published a paper in which it sets out for consultation draft guidance on how to word and present prospectuses and other documents in a ‘clear, concise and effective’ manner as required by Section 715A of the Corporations Act (2001): see here (pdf).

UK: Scotland: director owed fiduciary duties to shareholders

A recent post - see here - on the Edinburgh Centre for Commercial Law Blog by David Cabrelli discusses Park's of Hamilton's (Holdings) Ltd. v Campbell [2011] CSOH 38; 2011 G.W.D. 8-196, in which Lord Hodge held that a director owed a fiduciary duty towards the company's shareholders.

Monday 11 April 2011

UK: the ICB's interim report

The Independent Commission on Banking published its interim report this morning, setting out its current and provisional views on possible reforms to improve stability and competition in UK banking: see here (full report, pdf) or here (summary, pdf). A press release is available here (pdf).

Friday 8 April 2011

UK: ICLR summary for Farstad case

The ICLR has, as part of its WLR Daily service, provided a summary of the Supreme Court decision Farstad Supply A/S v Enviroco Limited, which has given earlier this week: see here.

Fiona Beale, at Brodies LLP in Edinburgh, helpfully tells me: "[t]he ICLR case summary report is slightly misleading. It mentions that the parent company had pledged its entire shareholding in Enviroco (true) but readers might interpret this to mean that any Scots law pledge of an entire shareholding will lead to the same result (false). The important point is that ASCO only held 50% of the issued shares in Enviroco and it had pledged those shares. Therefore Enviroco was having to rely on s736(1)(c) of the Companies Act 1985 which requires both membership and control of voting rights. If ASCO had held over 50% of the shares and pledged them (with the usual share pledge provisions regarding voting, etc - see the provisions in what is now Schedule 6 to the 2006 Act), Enviroco could have relied on section 736(1)(a) and membership would have been irrelevant".

South Africa: Companies Act delay announced

The Department of Trade and Industry has announced a delay in the coming into force of the Companies Act 2008: see here (pdf).

Thursday 7 April 2011

France: AMF recommendation on proxy advisors

Autorité des marchés financiers (AMF), the financial regulator, has published Recommendation No. 2011-06 on proxy advisory firms: see here (in English, pdf). The purpose of the Recommendation is to secure greater transparency with regard to the operation and role of proxy advisors. To quote from the Recommendation (paras. 7 and 8):
The AMF acknowledges the important role of proxy advisors, the structure of their market and the fact that the services they provide and the recommendations they issue are part of a contractual relationship with their customer. However, it appears that the voting recommendations issued by one or more such firms can have an impact on the passing of certain resolutions at General Meetings. This is why the AMF considers it necessary to ensure that this profession is exercised under transparent conditions, by firms that provide high-quality work.

As the authority responsible for monitoring the quality of information provided to investors, the AMF has established this recommendation for proxy advisors. The recommendation addresses the issues of establishing and implementing voting policies, issuing voting recommendations, communicating with listed companies, and preventing conflicts of interest. The AMF encourages the relevant parties to make their best efforts to implement this recommendation starting in 2011 and to mention this compliance on their website, and in any event, recommends implementing these provisions for the 2012 general meetings season. The AMF also requests that proxy advisors submit a progress report on their implementation of this recommendation".

Wednesday 6 April 2011

UK: company not a subsidiary following share pledge

The Supreme Court handed down its judgment in Farstad Supply A/S v Enviroco Limited earlier today: see here (pdf). A press summary is available here (pdf). The Supreme Court unanimously held that where the shares in a company had been pledged, that company ceased to be a subsidiary company within the meaning of Section 736 of the Companies Act (1985) (see now Section 1159 and Schedule 6 of the Companies Act (2006)) because the company which pledged the shares ceased to be a member.

UK: cutting clutter in annual reports - FRC report

The Financial Reporting Council has today published a report titled Cutting Clutter: Combatting Clutter in Annual Reports: see here (pdf). The report defines clutter as including [a] immaterial disclosures that inhibit the ability to identify and understand relevant information and [b] explanatory information that remains unchanged from year to year. It identifies some of the causes of clutter and provides those preparing annual reports with practical aids for reducing clutter, giving ideas for how disclosures might look without the clutter, and factors to consider when planning the annual report process.

Greece: SEV's corporate governance code for listed companies

The Hellenic Federation of Enterprises (SEV) has published a new edition of the corporate governance code it published ten years ago: see here (English, pdf) or here (Greek, pdf).

Tuesday 5 April 2011

Europe: the Commission's EU corporate governance green paper

The European Commission published its corporate governance green paper today: see here (pdf). FAQs in respect of the consultation are available here. As expected, the paper is wide-ranging: views are sought on boards; shareholders and proxy advisers; enforcement and 'comply or explain'.

UK: financial regulatory reform - update from the FSA

The chief executive of the Financial Services Authority, Hector Sants, has written to firms providing an update on the changes being made as part of the reform of the UK's financial regulatory framework: see here (pdf). Mr Sants notes that the FSA has replaced its Supervision and Risk business units with a Prudential Business Unit and a Conduct Business Unit and that later this year more information will be provided regarding the high-level philosophies of the new regulatory bodies.

Monday 4 April 2011

UK: Commons Treasury report published: 'Competition and choice in retail banking'

The House of Commons Treasury Committee published its report Competition and Choice in Retail Banking on Saturday: see here. The report argues that those banks which are regarded as too important to fail are also too big for fair competition. Measure to promote increased competition are demanded and the report urges the Independent Commission on Banking to seriously examine whether there is a case for further structural reforms, over and above the RBS and Lloyds Banking Group divestments, to reduce concentration and promote competition. The Commission will publish its interim report next week, on 11 April.

UK: Supreme Court decision in Farstad v Enviroco due this week

The Supreme Court has announced that its decision in Farstad Supply A/S v Enviroco Limited, on appeal from [2009] EWCA Civ 1399, [2010] 1 BCLC 477, will be given this Wednesday (6 April): see here. The Supreme Court was required to consider whether a company whose parent company had pledged its controlling shares in the alleged subsidiary to a bank as security remained a subsidiary of that parent company within the meaning of Section 736 of the Companies Act (1985) (now see Section 1159 and Schedule 6 of the Companies Act (2006)).

Friday 1 April 2011

UK: greater transparency for pre-pack sales in administration

In a written ministerial statement published yesterday - available here and here (pdf) - the Parliamentary Under-Secretary of State for the Department for Business, Innovation and Skills, Mr Edward Davey, announced proposals to increase transparency with regard to so-called 'pre-pack' sales in administration. Mr Davey stated:

I recognise that pre-pack sales offer a flexible and speedy means of rescue and can be the best way of maximising returns for creditors. I do not wish to outlaw them. But they must be done fairly and reasonably. Where such sales are at undervalue, creditors get less than they should. Competitors who pay their debts in full also suffer. I want to make sure that creditors have a fair chance to have their voice heard. I also want to enable others to scrutinise such transactions after the event to ensure that deals being struck are fair in the circumstances.

In order to inject greater transparency into the process I intend to require administrators to give notice to creditors where they propose to sell a significant proportion of the assets of a company or its business to a connected party, in circumstances where there has been no open marketing of the assets. This will enable creditors to express concerns, which the administrator would need to consider, or to make a higher offer for the assets, and in cases where the circumstances justify it, apply to the court for injunctive relief. These options can be exercised before the sale has taken place, and therefore reflect concerns raised by stakeholders in their responses to the consultation.

The new requirements will apply not just to pre-packs but to any sales back to connected parties in an administration where there has been no open marketing of the assets. Administrators already need to provide a detailed explanation of why a pre-pack sale was undertaken to creditors in compliance with professional standard Statement Of Insolvency Practice 16. These will in future need to be included in their administration proposals which are lodged at Companies House, making the information available to business as a whole, including, for example, credit reference agencies. This information may be of particular interest to suppliers and others considering doing business with the purchasing company. Administrators will also need to confirm that the sale price represents, in their view, best value for the creditors".

UK: England and Wales: is a computer record a "book or paper"?

The Court of Appeal has held, in R v Taylor [2011] EWCA Crim 728, that computer records fall within the expression "any book or paper affecting or relating to the company's property or affairs" within Section 206(1)(c) of the Insolvency Act (1986). The ICLR has provided a summary of the decision here.

UK: Treasury Committee report 'Competition and Choice in Retail Banking' due tomorrow

The House of Commons Treasury Committee has announced that it will publish tomorrow its report Competition and Choice in Retail Banking: see here.