Wednesday 31 October 2012

UK: Government responds to Nuttall Review recommendations and consults on share buyback proposals

In July this year the Nuttall Review published its final report (herepdf). The review's purpose was to identify barriers to employee ownership and make recommendations. Three broad barriers were identified - a lack of awareness, a lack of resources and actual (or perceived) legal, tax and regulatory complexities - and 28 recommendations were made. Yesterday the Government published its response to these recommendations: see here (pdf). A consultation paper was also published setting out possible reforms to the Companies Act 2006 rules regarding share buybacks: see here (pdf).

Tuesday 30 October 2012

UK: England and Wales: derivative claims and wrongdoer control

The ICLR has provided a summary for the recent High Court decision Bamford v Harvey [2012] EWHC 2858 (Ch): see here. A copy of the decision has not yet been published on BAILII. The headnote from the ICLR's summary reads as follows: " 'Wrongdoer control' of a company was not an absolute preclusive condition for the bringing of a derivative claim [under Part 11 of the Companies Act 2006]. However, where proceedings clearly could have been brought in the name of the company and no objection was raised on that ground, they should be so brought."

Update (5 November 2012) - a copy of the judgment has been added to BAILII: see here.

Monday 29 October 2012

UK: England and Wales: upholding the Salomon principle in Family Division proceedings

The Court of Appeal gave judgment last Friday in Petrodel Resources Ltd & Ors v Prest [2012] EWCA Civ 1395. The majority (Patten and Rimer LJJ) allowed the appeal and provided an exceptionally strong endorsement of the consequences flowing from the company's separate legal personality. Rimer LJ observed (paras. [154] and [155]:
Salomon is House of Lords authority affirming the distinction between the separate legal personalities of a company and its corporators. It makes no difference to such distinction that the company has a single corporator with total control over its affairs. It is a feature of the principle that a company's assets belong beneficially to the company and that its corporators have no interest in, or entitlement to, them. It is a further feature of it that such assets cannot be looked to in order to satisfy the personal obligations of the corporators, any more than the latters' personal assets can be looked to in order to satisfy the obligations of the company. In special circumstances, in particular in the winding up of an insolvent company, there may be a statutory basis for requiring the corporators to contribute personally to the company's assets, for example if they have misapplied its assets or engaged in wrongful or fraudulent trading (see sections 212 to 214 of the Insolvency Act 1986). Exceptions of that nature are, however, irrelevant for present purposes.

Subject to exceptions such as those, and to cases in which it is legitimate to pierce the corporate veil, the separate corporate identity of a company is a fact of legal life that all courts are required to recognise and respect, whatever jurisdiction they are exercising. It is not open to a court, simply because it regards it as just and convenient, to disregard such separate identity and to appropriate the assets of a company in satisfaction either of the monetary claims of its corporator's creditors or of the monetary ancillary relief claims of its corporator's spouse. Salomon precludes any such approach; and the same was made clear by the House of Lords in Woolfson and by the Court of Appeal in Adams, Ord and VTB. The obiter dicta in Nicholas to different effect are inconsistent with Salomon, Woolfson, Adams, Ord and VTB and advance no reasoning why a different principle should apply in the family jurisdiction as compared with other jurisdictions. The Salomon principle must apply equally to all jurisdictions. A one-man company does not metamorphose into the one-man simply because the person with a wish to abstract its assets is his wife."

Update (29 October 2012) - a summary of the decision has been produced by the ICLR: see here.

Update (24 January 2013) - a copy of the High Court decision has today been added to the BAILII database: see here.

Friday 26 October 2012

UK: Financial Services Bill completes committee stage in the Lords

The Financial Services Bill completed the committee stage in the House of Lords on Wednesday this week. It now proceeds to report stage. A copy of the Bill, as amended at committee stage, is available here (pdf). A short summary of the final day's debate is available here and the official record of debate, Hansard, is available here. For further information about the Bill, and to track its progress, see here.

UK: banking reform and 'too big to fail' - in the right direction but insufficient in degree?

Andy Haldane, the Executive Director for Financial Stability at the Bank of England, delivered a speech yesterday titled On being the right size: see here (pdf). His topic was the 'too big to fail' problem in financial regulation and he argued that it was premature and probably over optimistic to believe that the problem had been solved by recent initiatives. In the course of his speech, Mr Haldane considered past and current reform initiatives, including structural reforms such as the ring-fencing of banking activities. With regard to ring-fencing proposals, he asked a pertinent question: would the required level of cultural separation be achieved within the banking group? He ended is speech by considering other policy options and concluded: "Existing change initiatives are right in direction, but may be insufficient in degree. There may be a distance to travel before banking is the right size."

Russia: boards, takeovers and ADR in the securities market

The OECD Russia Corporate Governance Roundtable has met this week. Some of the meeting documents have been published in English, including the following (all in pdf): [1] Board formation: nomination and election in OECD countries and Russia [2] Legal issues with acquisition of major stakes in Russian companies and [3] Alternative dispute resolution mechanisms in the securities market.

Thursday 25 October 2012

Board member nomination and election - OECD report published

The OECD has published a report titled Board member nomination and election which provides information for 26 jurisdictions and more detailed coverage of Indonesia, Korea, the Netherlands and the United States of America: see here.

Australia: the AGM and shareholder engagement - CAMAC updates its discussion paper

Last month the Corporations and Markets Advisory Committee published a discussion paper on the subject of shareholder engagement and the annual general meeting: see here (pdf). CAMAC will be updating the information in the discussion paper up until the time at which its final report is published. Its first update has been published: see here.

Europe: gender quotas for boards - legislative proposals delayed

A consultation on possible measures to address the gender imbalance on company boards took place earlier this year. Legislative proposals were expected earlier this week but it appears that the Justice Commissioner, Viviane Reding, was unable to secure the agreement of her fellow Commissioners: see here. Revised proposals have been promised for later this year; Viviane Reding has tweeted: "gender balance directive postponed ... I will not give up".

Wednesday 24 October 2012

UK: the future of computer trading in financial markets

Two year ago a project was begun, sponsored by HM Treasury and led by the Government Office for Science under the direction of the Government's Chief Scientific Adviser (Professor Sir John Beddington) to consider, amongst other things, the effects of high frequency trading on financial markets: see here. A final report for the project - titled The Future of Computer Trading in Financial Markets: An International Perspective - was published yesterday: see here (pdf). An executive summary is available here (pdf). The report notes that high frequency trading may have modestly improved the functioning of markets in some respects but accepts that policymakers are justified in being concerned with the possible effects of high frequency trading on instability in financial markets. Regulatory measures are suggested to address these concerns.

Tuesday 23 October 2012

UK: annual reports, the chairman's statement and the role and effectiveness of the board

Grant Thornton has published the findings of research looking at governance related disclosures in the chairman's statement within 242 annual reports: see here (pdf). The research found, amongst other things, that a quarter of the reports did not include any comment by the chairman on governance. The preface to the UK Corporate Governance Code 2010, in paragraph 7, states: "Chairmen are encouraged to report personally in their annual statements how the principles relating to the role and effectiveness of the board (in Sections A and B of the new Code) have been applied".

Grant Thornton's research forms part of its FTSE 350 Corporate Governance Review 2012 which will be published in December 2012.

Monday 22 October 2012

UK: the PRA's approach to regulation

A seminar was held today by the Bank of England and Financial Services Authority with regard to the regulatory approach of the new Prudential Regulation Authority. A video recording of the seminar, including discussion and questions and answers, is available here. The seminar follows the recent publication of documents setting out the Prudential Regulation Authority's approach to the regulation of banks and insurers.

Singapore: first reading for the Securities and Futures (Amendment) Bill

The Securities and Futures (Amendment) Bill was read for a first time last week in Parliament. A copy of the Bill, including explanatory notes, is available here (pdf). Further background information is available here (pdf). The purpose of the Bill is, amongst other things, is to introduce new frameworks for the regulation of trade repositories, clearing facilities and derivatives.

Friday 19 October 2012

UK: FSA Board report into the failure of RBS - Treasury Committee inquiry report published

The House of Commons Treasury Committee has published its findings in respect of its inquiry concerning the Financial Services Authority Board's report into the failure of RBS: see here (pdf). The headline conclusion is that the FSA should and could have intervened in the takeover of ABN AMRO by Royal Bank of Scotland. An overview of the Committee's report is available here. The report contains a number of other conclusions and recommendations. In the Committee's view, for example, current rules bias enforcement activity towards technical breaches to the detriment of the most important regulatory failures. The Committee also notes that the FSA's report will be of long-term value for those involved in the regulation and corporate governance of banks.

Europe: introducing the single supervisory mechanism - timetable agreed

A timetable for the introduction of the single supervisory mechanism, including a new supervisory role for the European Central Bank over banks in the Eurozone, was agreed yesterday by the European Council: see here (pdf). The Council concluded that the legislative framework should be agreed by 1 January 2013 with implementation later in 2013.

UK: Enterprise and Regulatory Reform Bill - update

The Enterprise and Regulatory Reform Bill 2012-2013 received its third reading in the House of Commons on Wednesday and now proceeds to the House of Lords: see here. The Bill contains, amongst other things, provisions concerning directors' remuneration including the proposed binding shareholder vote on remuneration policy.

Thursday 18 October 2012

UK: Government proposals for reforming the structure of narrative reporting

The Department for Business, Innovation and Skills has published for consultation a draft of the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 through which changes to the narrative reporting framework will be made: see here (pdf). Amongst other things, the Regulations introduce the requirement for companies to produce a separate Strategic Report in place of the Business Review currently found in the Director's Report (small companies will be exempt). The Regulations will require quoted companies to include in their Strategic Report information that is currently not required in the Business Review including, for example, a break down by gender of the number of directors, managers and employees within the organisation.

UK: Government consults on 'employee owner' proposals

The Department for Business, Innovation and Skills has published for consultation further details regarding the proposal to introduce a new form of employment status (the 'employee owner'): see here (pdf). Under the proposals, which received a mixed reception when announced last month, employee owners will forgo certain employment rights in return for receiving shares in the company.

UK: Banking Standards Committee hears from Paul Volcker and invites comment on draft Financial Services (Banking Reform) Bill

Paul Volcker, a former chairman of the Federal Reserve, was questioned yesterday by members of the Parliamentary Commission on Banking Standards. A video recording of the session, which lasted for just under 2 hours, is available here and a transcript will soon be available here. The Guardian newspaper has reported some of Mr Volcker's comments, particularly with regard to the efficacy of ring-fencing: see here. The Commission has also published a call for evidence in respect of its pre-legislative scrutiny of the draft Financial Services (Banking Reform) Bill published by the Government late last week: see here.

Wednesday 17 October 2012

UK: Wheatley Review of LIBOR - Government response

The Government has published its response to the recommendations made by Martin Wheatley with regard to the reform of the London Inter-Bank Offered Rate (LIBOR) setting process: see here (pdf). Mr Wheatley's ten recommendations have been accepted in full and various amendments are proposed to the Financial Services Bill currently before Parliament. The Government has also announced that Baroness Hogg, the chairman of the Financial Reporting Council, will lead a panel to find a new organisation to administer LIBOR (thereby replacing the BBA).

UK: Competition Commission statutory audit services investigation - updated timetable published

The Competition Commission has published a revised administrative timetable for its statutory audit services market investigation: see here (pdf). The Commission's provisional findings are now expected in January next year.

Tuesday 16 October 2012

UK: financial regulation reform - the approach of the new PRA and FCA

In the past few days the Financial Services Authority, in conjunction with the Bank of England, has published documents setting out the approach to be taken by the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) under the new financial regulatory framework being introduced next year (and in relation to which legislation is currently before Parliament).

In the first document, available here (pdf) and titled Journey to the FCA, information is provided about how the FCA will use its new powers and how its approach will differ from that of the FSA. The launch of this document was accompanied by a speech by the chief executive designate of the FCA, Martin Wheatley, at an event organised by Thomson Reuters. Speeches were also delivered by the chairman designate of the FCA, John Griffith-Jones, and the Financial Secretary to the Treasury, the Rt Hon Greg Clark MP. A video recording of the event, at which Martin Wheatley and John Griffith-Jones were questioned, is available here.

With regard to the PRA, two documents have been published setting out the approach to be taken by the PRA with regard to the supervision of banks (see here, pdf) and the supervision of insurers (see here, pdf).

UK: ICSA consultation - improving engagement practices between companies and institutional investors

The Institute of Chartered Secretaries and Administrators, in conjunction with the Investor Stewardship Working Party (a group of six institutional investors), has published a consultation paper titled Improving engagement practices between companies and institutional investors: see here (pdf). The purpose of the consultation is to seek views on various matters in order to prepare guidance on good engagement practice.

Monday 15 October 2012

UK: Government publishes draft of the Financial Services (Banking Reform) Bill

Last Friday the Government published a draft of the Financial Services (Banking Reform) Bill: see here (pdf). The purpose of the Bill, amongst other things, is to establish the framework for the ring-fencing of activities within banking groups. The Bill will be subjected to pre-legislative scrutiny by the Parliamentary Commission on Banking Standards, chaired by Andrew Tyrie and scheduled to report by 18 December.

UK: FRC publishes disclosure framework discussion paper

The Financial Reporting Council has published a discussion paper titled Thinking about financial reporting disclosures in a broader context: see here (pdf). The purpose of the paper is to seek views on what is a described as a 'road map' for the development of a disclosure framework for financial reporting. In its discussion paper the FRC states, amongst other things, that disclosures within financial reports need to be re-focused on their purpose: providing investors with information that is useful for making their resource allocation decisions and assessing management’s stewardship.

Friday 12 October 2012

Europe: inauguration of the European Stability Mechanism

The European Stability Mechanism, a permanent crisis resolution mechanism for the Eurozone countries, was inaugurated earlier this week following the signing of a Treaty in February this year: see here. A copy of the Treaty is available here (pdf). For further information about the ESM, see here and the FAQs available here (pdf).

UK: Lord Turner's Mansion House speech

Lord Turner, the chairman of the Financial Services Authority, delivered a speech last night at the Mansion House in London: see here. He took the opportunity to reflect on his time at the FSA (which began in September 2008), the causes of the financial crisis and the faults in theory and policy. Lord Turner also highlighted the regulatory reforms underway in the United Kingdom and the move towards a closer banking union in the Eurozone. The survival of the Eurozone required, he stated, a banking union with some fiscal integration.

Hong Kong: Companies Ordinance - consultation on subsidiary legislation

Hong Kong's new Companies Ordinance was passed by the Legislative Council in July this year (a copy, as published in the Hong Kong Gazette, is available here). A consultation - the first of two scheduled for this year - has now begun in respect of the subsidiary legislation required by the new Ordinance: see here (pdf). Further background information is available here.

Thursday 11 October 2012

UK: SFO revised policies - facilitation payments, business expenditure (hospitality) and corporate self-reporting

The Serious Fraud Office has revised its policies in respect of facilitation payments, business expenditure (hospitality) and corporate self-reporting: see here.

BCBS Progress report on Basel III implementation

The Basel Committee on Banking Supervision has published an updated report in which it reports on Basel III implementation: see here (pdf). Further background information is available here.

Wednesday 10 October 2012

Ireland: the Credit Union Bill 2012

The Credit Union Bill 2012 was introduced into the Dáil Éireann at the end of last month. A copy of the Bill, as introduced and including an explanatory memorandum, is available here (pdf). The Bill provides for a new regulatory framework for credit unions, including the composition and role of the board of directors, and reflects recommendations made by the Commission on Credit Unions earlier this year (see here, pdf).

UK: Financial Services and Markets Act 2000 (Short Selling) Regulations 2012

The Financial Services and Markets Act 2000 (Short Selling) Regulations 2012 were laid before Parliament yesterday and come into force on 1 November: see here or here (pdf). Further information about the Regulations is available in the accompanying explanatory memorandum: see here (pdf).

Tuesday 9 October 2012

UK: Financial Services Bill - Committee stage debate resumes

The House of Lords resumed its consideration of the Financial Services Bill yesterday at Committee stage. Hansard, the official record of debate, is available here and a video recording of the debate is available here. At the start of debate, Lord Sassoon, the Commercial Secretary to the Treasury, was asked to comment on the implementation of the recommendations made in the Wheatley Review of LIBOR. He responded: "Should the Government decide to accept Martin Wheatley's recommendations in full, we anticipate that the clauses which would implement the review will indeed be debated at the Report stage of this Bill, and the draft clauses will be published in good time in advance of that date" (Hansard, col. 830).

India: financial regulation reform - FSLRC proposals published

The Financial Sector Legislative Reforms Commission, formed last year by the Ministry of Finance, has published a concept paper in which it sets out proposals for a new financial regulatory framework, including the creation of a new agency - the Unified Financial Agency - to replace four existing agencies (SEBI, FMC, IRDA and PFRDA): see here (pdf). A press release is available here (pdf).

Canada: TSX listed companies and the election of directors

The Toronto Stock Exchange (TSX) has received permission from the Ontario Securities Commission to make various amendments to Part IV of the TSX Company Manual in respect of the rules regarding the election of directors of listed issuers: see here. The new rules require, amongst other things, directors to be elected individually and annually.

Monday 8 October 2012

UK: Competition Commission update regarding statutory audit services market investigation

The Competition Commission has published a short progress report with regard to its statutory audit services market investigation: see here (pdf). Initial (but not necessarily final) views are offered by the Commission in this report, including: there is a distinct market for the supply of statutory audit services to FTSE350 companies, separate from the supply of the same services to private and smaller listed companies; there are barriers to entry which limit the ability of Mid Tier firms to constrain the competitive offerings of the Big Four firms; and there is a clear information asymmetry between shareholders (as principals) and auditors (as agents).

The Commission has also published further working papers, including the following (each in pdf): Nature and strength of competition in the supply of FTSE 350 audits; Profitability (part one); Price concentration analysis; Evidence relating to the selection process: tendering, annual renegotiations and switching; Evidence of tacit coordination; and Barriers to entry: international networks.

Friday 5 October 2012

India: company law reform - an update

The Government's Press Information Bureau reports that the Union Cabinet has agreed amendments to the Companies Bill 2011: see here. This should mean that the Bill can be reintroduced into the Lok Sabha during the forthcoming winter session of Parliament.

One of the amendments approved by the Cabinet concerns corporate social responsibility. Clause 135(5) of the Bill, as originally drafted, read: "The board of every company [meeting certain size thresholds], shall make every endeavour to ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy". The Cabinet has tightened the drafting of this provision by removing the words "make every endeavour to".

Singapore: company law reform - an update

Five years ago this month the Ministry of Finance appointed a steering committee to review the Companies Act 1967. The committee's final report was published last April and contained 217 recommendations relating to directors, shareholder rights, capital maintenance, accounts, company administration and charges: see here (pdf). The Ministry of Finance consulted on these recommendations and earlier this month the outcome of this consultation was published: see here (pdf).

The great majority of the committee's recommendations have been adopted. For example, the Ministry of Finance has accepted the committee's view that corporate directorships should not be introduced in Singapore and that the Act should contain an express provision providing that by ordinary resolution a private company director can be removed from office. MOF has also agreed with the committee's view that it would not be desirable to codify exhaustively directors' duties and that public companies should be able to issue non-voting shares and shares with multiple votes. A draft of the Bill to amend the 1967 Act is planned for publication early next year.

Thursday 4 October 2012

UK: FSA consults on handbook changes in respect of approved persons and the new PRA and FCA

The Financial Services Authority is consulting on changes to the FSA Handbook in preparation for the creation of new regulators - the Prudential Regulation Authority and Financial Conduct Authority, with their own rulebooks - under the new financial regulatory framework that is scheduled to come into existence next year: see here (pdf). The changes focus on the approved persons regime.

Wednesday 3 October 2012

UK: some governance proposals from the Labour Party

In a speech delivered yesterday, at the Labour Party's annual conference, the Labour Party leader, Ed Miliband MP, made several governance related proposals including restricting the voting rights of recently acquired shares in the takeover context: see here.

UK: premium listed companies with a controlling shareholder - some proposals from the FSA (and other matters)

Yesterday the Financial Services Authority published a consultation paper titled Enhancing the effectiveness of the listing regime: see here (pdf). The paper is divided into two parts. The first part contains the amendments the FSA proposes to make to the Listing Rules, Prospectus Rules and the Disclosure Rules and Transparency Rules following an earlier consultation. The second part of the paper contains some new proposals for further amendments to the Listing Rules the purpose of which is to enhance the effectiveness of the listing regime. These focus in particular on companies seeking a premium listing where there is a controlling shareholder and, in this regard, four proposals are particularly noteworthy.

First, the FSA proposes that companies with a controlling shareholder seeking a premium listing should be required to have a board where [a] the majority of the directors are independent or [b] an independent chairman and independent directors together comprise at least half the board. This would be a mandatory requirement and a continuing obligation. Second, the FSA proposes that the independent directors of such companies should be subject to a dual voting mechanism whereby their election would be dependent on obtaining the approval of [a] the shareholders as a whole and [b] the independent shareholders. Third, such companies would be required to have a relationship agreement in place to govern the relationship between the company and its controlling shareholder, setting out legally binding requirements regarding the day to day running of the company and the terms of transactions between the company and the shareholder. Fourth, the FSA is proposing changes in respect of the voting rights and powers of premium listed shares. In particular, it is proposed that only those shares that are premium listed should be eligible to participate in a vote that the company is required to undertake by virtue of its premium listing.

Tuesday 2 October 2012

Europe: reforming the structure of the EU banking sector

The High Level Expert Group on Reforming the Structure of the EU Banking Sector, established by Internal Market Commissioner Barnier under the chairmanship of Erkki Liikanen, the Governor of the Bank of Finland, published its final report and recommendations today: see here (pdf). The Committee recommends the formal separation of banks' riskier activities (including proprietary trading) from depositing taking, through the creation of separate legal entities within banking groups. Recommendations regarding bank governance and risk management are also made. A video recording of the press conference at which the report was launched is available here.

Jersey: mismanagement, misconduct and the scope of the unfair prejudice remedy

Earlier this year, in Prestigic (Wisley) Nominees Limited v JTC Management Limited [2012] JRC097, the Royal Court (Samedi division) considered the scope of Jersey's unfair prejudice remedy as found in articles 141 to 143 of the Companies (Jersey) Law 1991 (these provisions are in substance identical to the UK's unfair prejudice remedy: see sections 994 to 996 of the Companies Act 2006). The Royal Court's decision is noteworthy because of the firm line taken with regard to the conduct for which relief may be sought under the unfair prejudice remedy. In this regard, Commissioner Clyde-Smith stated:

"... we accept .... that we should distinguish between relief for mismanagement of the affairs of the Company and relief for misconduct and that it is only actions in relation to the former that fall properly within the ambit of the unfair prejudice provisions. Indeed, we note that in [Re Chime Corp Ltd. (2004) 7 HKCFAR 546], Lord Scott of Foscote described the use of an unfair prejudice petition to circumvent the rule in Foss-v-Harbottle where the nature of the complaint is misconduct rather than mismanagement as an abuse of process." (para. [43]).

Europe: ESMA's work plan for 2012-2015

The European Securities and Markets Authority has published its work plan for 2012-2015: see here (pdf). ESMA intends 2013-2015 to be the period during which it consolidates its position as a key part of the EU's system of financial supervision.

Monday 1 October 2012

South Africa: publication of the Financial Services Laws General Amendment Bill

The National Treasury has published a copy of the Financial Services Laws General Amendment Bill: see here (pdf). An explanatory memorandum is available here (pdf). The Bill was tabled in Parliament at the end of last month. A Treasury press release, which provides an overview of the Bill's purpose, is available here (pdf). The Bill addresses some of the weaknesses in the financial regulatory framework identified in the Treasury's policy paper A safer financial sector to serve South Africa better, published last year (see here, pdf). It does not, however, provide for the move to a twin peaks model of financial regulation: legislative proposals in this respect are expected next year.

Staying with theme of financial regulation in South Africa it is worth noting that the National Treasury, in conjunction with the Financial Services Board, has recently published for consultation a proposed framework for the regulation of hedge funds in South Africa: see here (pdf).