Monday 31 October 2011

UK: England and Wales: the court's discretion under section 996 of the Companies Act (2006)

Judgment was given last Friday in F&C Alternative Investments (Holdings) Ltd v Barthelemy [2011] EWHC 2807 (Ch). Amongst the matters was discussed was the scope of section 996 of the Companies Act (2006), under which the court is given the power to make an order on such terms as it sees fit in respect of unfairly prejudicial conduct. The trial judge stated that the discretion under section 996 was "very wide" and could include an order that a party should write to the Financial Services Authority to undo the effect of its unfairly prejudicial behaviour in pursuing an investigation.

Ireland: the Central Bank's revised consumer protection code

The Central Bank has published a revised edition of its consumer protection code: see here (pdf). The code takes effect on 1 January 2012 and applies to regulated entities (e.g., banks, insurance companies and intermediaries). In the view of the Central Bank, the revised code represents the most significant strengthening of consumer protection since the code was first published in 2006.

UK: the interpretation of commercial contracts - Rainy Sky judgment due this week

The Supreme Court has announced that it will hand down its judgment in Rainy Sky S. A. v Kookmin Bank this Wednesday: see here. According to the Supreme Court's summary of the case, it concerns the "proper role and application of considerations of business common sense when interpreting commercial contracts. In particular, whether such considerations form part of a single interpretative process or whether they are only to be applied as a second stage of analysis, after a textual analysis of the contract, and then only to exclude an absurd or irrational construction or to facilitate a choice between otherwise equally balanced textual constructions".

Update (2 November 2011): see this blog post for the judgment.

Friday 28 October 2011

UK: IDS research on FTSE100 director rewards

The rewards received by FTSE100 executive directors has received much media attention today, following the publication of research by Income Data Services. A summary of the research is available here (pdf), the much quoted headline from which reads: "FTSE 100 directors have seen their total earnings increase by an average of 49% in the last financial year, and are now averaging £2,697,664 per annum". The research is widely reported in today's newspapers: see, for example, The Guardian (here), Independent (here) and Daily Telegraph (here).

What much of the media coverage indicates is how complex reward structures have become in large companies, not helped by the fact that terms such as 'pay', 'remuneration' and 'earnings' lack precision. Indeed, the issue of transparency was one referred to by the prime minister when asked about the research. His comments are reported here by the BBC news website. The prime minister acknowledged that there was a problem with the way remuneration committees operate and, amongst other things, suggested that it was necessary to "strengthen the hand of shareholders". Yet despite these comments, it often seems as if the obvious questions are not asked. For example, what motivates directors? Is there too much disclosure?

It will be interesting to see what the Government proposes following its current consultation on directors' remuneration, which closes next month. The prime minister made his comments whilst in Australia where, earlier this year, the Corporations Amendment (Improving Accountability on Director and Executive Remuneration) Act 2011 became law, introducing the so-called 'two strikes and re-election' mechanism with regard to voting over the remuneration report. Would this be too radical for the UK?

Europe: Commission proposes new Accounting Directive

The European Commission has a published a proposal to repeal the current Accounting Directives, replacing them (and their amendments) with a single, new Directive: see here (pdf). The proposal contains provisions to reduce the disclosure required by small companies and, for medium and large companies, it is proposed that certain principles - such as substance over form and materiality - should be mandatory in respect of information in the financial statements.

Other proposals include removing the EU law requirement for small companies to have an external audit and increased disclosure obligations on some companies in respect to payments made to governments. The Commission also states in its proposal that it considered the mandatory adoption of the IFRS for SMEs but it has decided not to advance this as a proposal, noting that there was not much experience worldwide regarding this new standard and it would not necessarily result in simplification or reduction in the administrative burden for companies.

For further information see: Commission press release | FAQs | Impact assessment: part 1 (pdf) and part 2 (pdf) |

Thursday 27 October 2011

Europe: Commission proposes amendments to the Transparency Directive

The European Commission has a published a proposal to amend the Transparency Directive (2004/109/EC), following a consultation last year: see here (pdf). The Commission proposes, amongst other things, that the obligation on issuers to publish quarterly interim management statements should be abolished and Member States should be precluded from imposing such a requirement. For further information about this and the other proposals see: Commission press release | FAQs | Impact Assessment (pdf) | Summary of Impact Assessment (pdf) |

Wednesday 26 October 2011

Australia: equity market structure - ASIC publishes proposals

The Australian Securities and Investment Commission has published a consultation paper setting out further regulatory proposals concerning the structure of the Australian equity market: see here (pdf). Draft market integrity rules accompany the paper: see here (pdf). Amongst the areas covered by the paper are high frequency trading, the scope of best execution; and volatility controls for extreme price movements.

Tuesday 25 October 2011

UK: bank governance - 'control rights (and wrongs)'

The Wincott Annual Memorial Lecture was delivered yesterday in Westminster by Andrew Haldane, a member of the Bank of England's Financial Policy Committee and executive director for financial stability. Mr Haldane's speech was titled 'Control rights (and wrongs)' and in it he identified a governance fault-line regarding banks: control rights are exercised by shareholders although equity represents a small fraction of banks' balance sheets, and shareholders have risk-taking incentives which are out of line with other bank stakeholders. He argued that fundamental reform was needed to tackle the deep rooted incentive problems in banking. In this regard he made several suggestions, including extending voting rights beyond the shareholders; the use of performance metrics based on return on assets (rather than equity); and measures to address the tax advantage of debt.

UK: regulators, boards and shareholders - comments from the FRC's chairman

Earlier this month the chairman of the Financial Reporting Council, Baroness Hogg, delivered a speech at the Sarasin and Partners 6th Annual Responsible Investment Seminar. A copy of the speech is available here (pdf) and a webcast is available here (along with webcasts of the other seminar contributors, including Bob Monks). Baroness Hogg used part of her speech to consider the role of regulators and stated that it was "crucial that regulators do not usurp the role either of shareholders or of boards ... we obscure the responsibilities of directors (and for that matter, auditors) to shareholders at our peril".

Europe: insider dealing and market manipulation - Commission proposes Regulation and Directive

Last week the European Commission published proposals for a Regulation and a Directive on insider dealing and market manipulation: see, respectively, here (pdf) and here (pdf). The accompanying press releases are available here and here. Further background information is available here, including some FAQs.

The purpose of the Regulation is, amongst other things, to clarify which financial instruments and markets are covered by the market abuse regime and to extend its reach to include instruments admitted to trading only on a multilateral trading facility and other new types of organised trading facilities. The regime will also be extended to include attempts at market manipulation. A separate offence of attempted insider dealing is contained in the Regulation (the existing definition of insider dealing, in the Market Abuse Directive (2003/6/EC), already contains elements of attempted behaviour).

The Directive is particularly noteworthy because it is the first Commission proposal based on new Article 83, paragraph 2, of the Treaty on the Functioning of the European Union, which provides that Directives may be used to establish minimum rules regarding the definition of criminal offences and sanctions if this is essential for the effective implementation of EU policy in an area that has been subject to harmonisation measures. The Commission's proposed Directive sets out minimum rules regarding criminal sanctions for serious cases of market abuse.

UK: FTSE100 remuneration report votes

The Independent newspaper reports - see here - that "[with] more than two months left of 2011, 15 companies in the FTSE 100 have suffered investor votes of 20 per cent or more opposing remuneration reports or deliberately abstaining ... Only seven of Britain's top 100 companies suffered equivalent rebellions in all of 2010".

Monday 24 October 2011

UK: Competition Commission statement on audit market investigation

Following Friday's reference by the Office of Fair Trading, the Competition Commission has provided some preliminary information regarding its investigation into competition in the audit market: see here (pdf). In its announcement, the Commission explains that it is required to report by 20 October 2013 although it aims to complete its investigation before this deadline. The scope of its work will be set out in an issues statement and a timetable for its work will soon be published along with the names of those appointed to its inquiry group.

Friday 21 October 2011

UK: England and Wales: service of claim form on director of foreign company

The Court of Appeal gave judgment in SSL International Plc v TTK LIG Ltd [2011] EWCA Civ 1170 earlier this week. The opening paragraph of the summary of the case provided by the ICLR - available here - reads:

Service of a claim form on the director of a foreign company during his temporary visit to England did not constitute personal service of the claim form on the company, within CPR r 6.5(3)(b), where the company was neither resident nor carried on business in England and all its directors were resident overseas when the proceedings were purportedly served."

UK: Lord Turner's Mansion House speech and the role and powers of the FPC

Lord Turner, the chairman of the Financial Services Authority, delivered a speech yesterday in which he commented on the proposed new financial regulatory structure - the legislation for which is currently subject to pre-legislative scrutiny - and highlighted some of the issues which he believed required the particular attention of Parliament and society at large: see here. One such issue was the operation of the Financial Policy Committee and the powers it should be given.

UK: competition in the audit market - OFT reference to the Competition Commission

Earlier this year the Office of Fair Trading provisionally decided to refer the market for statutory audit services to large companies in the UK to the Competition Commission for investigation. The OFT today announced that its final decision was that a reference should be made: see here. For further background information see here.

Thursday 20 October 2011

USA: the Chapter 11 Bankruptcy Venue Reform Act of 2011

Last year, Professors Armour, Black and Cheffins published a paper titled 'Is Delaware Losing its Cases?' in which they reported on the Delaware courts' loss of market share in shareholder suits involving Delaware companies: see here. Against this background, it is interesting to note that one of the effects of the proposed Chapter 11 Bankruptcy Venue Reform Act of 2011 would be to reduce the situations in which companies incorporated in Delaware are able to file for bankruptcy there. The proposed Act - available here - was introduced in the House of Representatives in July and last month was subject to a hearing by the Committee on the Judiciary: see here. The Bill's progress can be followed here and a statement by its sponsor, Congressman Lamar Smith, is available here.

Wednesday 19 October 2011

UK: England and Wales: financial support directions and insolvency

The ICLR, as part of its free case summary service, has provided a summary for the recent Court of Appeal decision Bloom v The Pensions Regulator [2011] EWCA Civ 1124: see here. To quote the opening paragraph:

Neither the obligation to comply with a financial support direction issued by the Pensions Regulator under section 43 of the Pensions Act 2004 nor the obligation to pay the trustees of the relevant occupational pension scheme the sum specified in a contribution notice issued under section 47 of the 2004 Act, following non-compliance with the direction, constituted a provable debt in an administration or liquidation within the meaning of rule 13.12 of the Insolvency Rules 1986 where the direction was issued after the commencement of the insolvency process; such obligations ranked instead as an expense of the administration or liquidation."

The Pensions Regulator has welcomed the court's decision: see here.

Basel III implementation progress report

The Basel Committee on Banking Supervision has published its first progress report concerning the implementation of Basel III: see here (pdf). Further supporting materials are available here.

UK: competition in the audit market - OFT decision due on Friday

Earlier this year the Office of Fair Trading provisionally decided to refer the market for statutory audit services to large companies in the UK to the Competition Commission for a market investigation. The OFT's final decision is expected on Friday this week. For background information see here.

Tuesday 18 October 2011

New Zealand: criminalising breaches of directors' duties

The Companies and Limited Partnerships Amendment Bill has been introduced in Parliament: see here. One of the purposes of the Bill is to criminalise breaches of two of the duties owed by directors under the Companies Act (1993), by inserting the following new section (138A) in the 1993 Act:

(1) Every director of a company who does an act, or omits to do an act, in breach of the duty in section 131 (duty of directors to act in good faith and in best interests of company) commits an offence if he or she knows that the act or omission is seriously detrimental to the interests of the company.
(2) Every director of a company who does an act, or omits to do an act, in breach of the duty in section 135 (reckless trading) commits an offence if he or she knows that the act or omission will result in serious loss to the company’s creditors.
(3) A person who commits an offence under this section is liable on conviction to the penalties set out in section 373(4).”

An explanatory note for the Bill is available here.

UK: the future role of the Financial Reporting Council

The Department for Business, Innovation and Skills and the Financial Reporting Council (FRC) have today published a joint consultation paper seeking views on the future role of the FRC: see here (pdf). It is proposed, amongst other things, that the FRC should concentrate on those areas that are most important for the operation of capital markets, focusing on the interests of investors and directing its monitoring and enforcement activities on publicly traded and the largest private companies.

Monday 17 October 2011

Montenegro: some company law insights

Some interesting insights regarding company law, accounting and auditing in Montenegro are provided by the progress report recently published by the European Commission in respect of Montenegro's application for membership of the European Union: see here (pdf).

UK: The Prospectus Regulations 2011 - correction slip published

The Prospectus Regulations 2011 were made on 7 July, laid before Parliament on 8 July and came into force on 31 July: see here or here (pdf). The Regulations amended the Financial Services and Markets Act 2000 in order to implement part of Directive 2010/73/EU, the result of which is to increase certain thresholds regarding the circumstances in which a prospectus must be issued. A correction slip for the Regulations was published last week - see here (pdf) - and this explains that regulation 2 in the originally published Regulations should, in fact, have been number regulation one.

Friday 14 October 2011

USA: prohibiting proprietary trading - SEC publishes proposed rules

The Securities and Exchange Commission, in conjunction with the Federal Deposit Insurance Corporation, the Federal Reserve Board, and the Office of the Comptroller of the Currency, has published for comment proposed rules the purpose of which is to implement and clarify Section 619 ("Prohibitions on proprietary trading and certain relationships with hedge funds and private equity funds") of the Dodd-Frank Wall Street Reform and Consumer Protection Act: see here.

UK: the Company Remuneration Bill

The Company Remuneration Bill was introduced in the House of Lords last month by Lord Gavron. The Bill requires, amongst other things, that shareholders ratify certain decisions of the remuneration committee, by way of an ordinary resolution at an annual general meeting, prior to the implementation of those decisions. It also requires the annual report to state the ratio between the highest remuneration director or employee and the average remuneration of the lowest remunerated 10% of employees.

A copy of the Bill is available here (pdf) and its progress can be followed here. Without Government support the Bill stands little chance of becoming law. Moreover, the issue with which it deals is currently the subject of a Government consultation launched last month. This is not the first time that Lord Gavron has attempted to change the law in this area. In the 2008-9 session of Parliament, he introduced the Companies’ Remuneration Reports Bill (it failed to become law).

UK: private sector businesses in the UK - BIS estimates published

The Department for Business, Innovation and Skills has published its estimates of the number of private sector businesses in the UK at the start of this year - see here (pdf) - and reports that just under 28% of private sector businesses are companies.

Thursday 13 October 2011

UK: women on boards - a 6 month monitoring report

Cranfield University's School of Management published a report yesterday - see here (pdf) - which provides an update on companies' progress in meeting several of the recommendations made by Lord Davies in his report, Women on Boards, published in February this year.

The Cranfield report notes, amongst other things, that since Lord Davies' report was published, there have been 21 new female appointments to the boards of FTSE100 companies and the percentage of FTSE100 board positions held by women has increased from 12.5% to 14.2%. The 21 new female appointments represent 22.5% of all FTSE100 board appointments since 1 March 2011; the great majority of these new appointments (18) were to non-executive positions. The report also notes that only 33 FTSE100 companies have set targets for the percentage of female directors they intend to have on their boards.

FSB follow-up report on compensation practices

The Financial Stability Board has published a second review - see here (pdf) - of the progress made by national authorities and significant financial institutions in implementing the FSB's Principles for Sound Compensation Practices (here, pdf) and Implementation Standards, (here, pdf). Good progress, with more to be done, is the key message and, in this regard, the report makes several recommendations. A summary of the report and its recommendations is available in the accompanying press release: see here (pdf).

Wednesday 12 October 2011

USA: PCAOB proposes that engagement partner should be named

The Public Company Accounting Oversight Board yesterday voted to publish for comment proposed changes to its standards which would require: (a) the name of the engagement partner to be disclosed in the audit report and (b) disclosure of other accounting firms, and others not employed by the auditor, taking part in the audit: see here. The proposed amendments are available here (pdf).

The Board decided not to recommend that the engagement partner should sign the audit report, although one board member, Steven B. Harris, supported this recommendation, noting that "nothing focuses the mind quite like putting one's individual signature on a document". Mr Harris's statement, and that of his fellow board members, can be found here.

Tuesday 11 October 2011

UK: gender diversity on boards - proposed changes to the UK Corporate Governance Code

The Financial Reporting Council has today published a feedback statement in response to its recent consultation on board gender diversity: see here (pdf). The FRC is proposing to amend the UK Corporate Governance Code to require companies to include in their annual report a description of the board's policy on diversity, including any measurable objectives that have been set and progress towards meeting those objectives. A further amendment to the Code will provide that board evaluation should consider its diversity, including gender.

These changes will be included in a new edition of the Code which will apply to financial years beginning on or after 1 October 2012. This new edition has not yet been published because it is the FRC's intention to consult on further changes to the Code, with respect to audit committees and audit tendering, in early 2012.

Monday 10 October 2011

UK: Tribunal rules in Northern Rock shareholders compensation case

The Upper Tribunal (Tax and Chancery Chamber) Financial Services gave its opinion last Thursday in Northern Rock Applicants v Caldwell and HM Treasury [2011] UKUT 408 (TCC): see here (pdf). A summary, produced by the Tribunal, is available here (pdf) and another summary, provided by the ICLR, is available here. The applicants made various arguments, none of which the Tribunal accepted, regarding the basis on which the independent valuer had valued their shares. The Tribunal therefore held that the nil valuation given to the shares should stand.

Friday 7 October 2011

UAE: Dubai: Corporate Governance Code for SMEs

The Department of Economic Development, in conjunction with Hawkamah, has published a corporate governance code for small and medium sized enterprises: see here (pdf). The code is voluntary and contains nine pillars or principles. Pillar one provides, for example, "Adopt a formal corporate governance framework outlining the roles of the key bodies such as partners, shareholders, board of directors and management". The Code is organised into the following sections: policies and procedures; transparency and shareholder relations; board of directors; control environment (internal controls, audit and risk management); stakeholder relations; and family governance.

For the purposes of the Code, an SME is defined as one with a turnover of less than 250 million UAE dirhams and with fewer than 250 employees.

Hong Kong: Code of Conduct for SFC Licensed/Registered Persons

The Securities and Futures Commission has recently published an updated edition of its Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission: see here (pdf). The Code is used by the SFC when considering whether a licenced or registered person satisfies the requirement to be fit and proper.

Thursday 6 October 2011

UK: Audit Exemptions and Change of Accounting Framework - BIS consultation paper published

The Department for Business, Innovation and Skills has published a consultation paper titled Audit Exemptions and Change of Accounting Framework - see here (pdf) - in which it proposes, amongst other things, making the exemption from audit available to a larger number of SMEs and certain subsidiary companies. The impact assessments accompanying the consultation paper are available here.

IAASB consultation on auditor reporting - responses published

Earlier this year the International Auditing and Assurance Standards Board published a consultation paper titled Enhancing the Value of Auditor Reporting (see here, pdf). Responses have now been published: see here.

Wednesday 5 October 2011

Guernsey: Finance Sector Code of Corporate Governance

The Guernsey Financial Services Commission (GSFS) has published its Finance Sector Code of Corporate Governance: see here (pdf). The Code contains principles and guidance and comes into force on 1 January 2012. From 2012, companies will be required to produce an assurance statement, in which their directors confirm that they have considered the effectiveness of their governance arrangements and are satisfied with their degree of compliance with the Code's principles (or the alternative Codes accepted by the GFSC). Precisely when and how these statements should be provided has not yet been decided.

Europe: EBA internal governance guidelines published

The European Banking Authority (EBA) has published its Guidelines on Internal Governance: see here (pdf). The EBA expects competent authorities (e.g., the Financial Services Authority in the UK) to require institutions to comply with the provisions in the Guidelines, which are organised into six sections: corporate structure and organisation; management body; risk management; internal control; information systems and business continuity; and transparency.

In accordance with Article 16(3) of Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), competent authorities must tell the EBA whether they comply with the Guidelines or intend to comply. Where a competent authority will not comply it must inform the EBA and provide reasons for its non-compliance.

Tuesday 4 October 2011

UK: Commons Treasury Committee publishes FCA inquiry terms of reference

The House of Commons Treasury Committee has published the terms of reference for its Financial Conduct Authority inquiry: see here. Written submissions are sought in response to a good number of questions, including: are the FCA's objective clear and appropriate? Should the FCA have a primary duty to promote competition as recommended by the Independent Commission on Banking? Does the FCA have suitable powers?

The OECD-Asian Corporate Governance Roundtable - new priorities

New priorities for corporate governance reform have been agreed at the 2011 OECD-Asian Corporate Governance Roundtable which is currently taking place in Indonesia: see here.

Monday 3 October 2011

Ireland: DJEI publishes companies report

The Department of Jobs, Enterprise and Innovation has published its annual companies report, which provides a summary of the principal changes to the company law framework and an overview of forthcoming changes: see here (pdf).

UK: FRC chief executive reviews last year's revisions to the UK Corporate Governance Code

In a speech delivered last month, the chief executive of the Financial Reporting Council, Stephen Hadrill, commented on the impact of last year's changes to the UK Corporate Governance Code: see here (pdf). He also stated that the FRC would this month announce its response to the consultation it undertook regarding Lord Davies' recommendation that companies should publish their policies on gender diversity and their progress towards recruiting more women to senior board level roles.