Hong Kong: Companies Ordinance commencement date - March 3, 2014

The Companies Ordinance (Commencement) Notice 2013 was published in the Gazette last Friday, and provides that the great majority of the provisions within the new Companies Ordinance will come into force on March 3 next year: see here (pdf).

UK: England and Wales: companies cannot recover aggravated damages

The Court of Appeal gave judgment earlier today in Eaton Mansions (Westminster) Ltd v Stinger Compania De Inversion S.A. [2013] EWCA Civ 1308 and held that a company could not recover aggravated damages (i.e., damages for injury to feelings in respect of a wrong committed against it). In doing so the court held that Messenger Newspapers Group Ltd v National Graphical Association (1982) [1984] IRLR 397 had, in this regard, been wrongly decided.

UK: Competition Commission statutory audit market services inquiry - remedy implementation timetable published

The Competition Commission has published, in respect of its statutory audit services market inquiry, an administrative timetable for the implementation of its proposed remedies: see here (pdf). Draft Orders will be published for consultation in January 2014, with the aim being for them to come into force on 1 October 2014.

UK: England and Wales: challenging the validity of an administrator's appointment

The ICLR has provided a summary for the recent decision Closegate Hotel Development (Durham) Ltd. and another v McLean [2013] EWHC 3237 (Ch): see here. The headnote reads: "The prohibition on an officer of a company in administration exercising a management power absent the consent of the administrators contained in paragraph 64 of Schedule B1 to the Insolvency Act 1986, as inserted, did not deprive the directors of a company of the authority to cause the company to challenge the validity of the appointment of the administrators, nor was the exercise of such authority dependent upon the provision by the directors of an indemnity for costs."

UK: FRC 'calls to action' to improve the quality of disclosure in annual reports.

The Financial Reporting Council has made several 'calls to action', directed at the preparers of annual reports and auditors, the aim being to improve the quality of disclosure in annual reports: see here.

Best Practice Principles for Governance Research Providers - draft published for consultation

The Best Practice Principles for Governance Research Providers Group has published for consultation a draft of its Best Practice Principles for Governance Research Providers: see here (pdf). The core principles fall under the headings of service quality, conflict of interest management and communications policy and operate within a framework of 'comply or explain'.

UK: Law Commission consultation on the fiduciary duties of investment intermediaries

The Law Commission of England and Wales, as part of its project on the fiduciary duties of investment intermediaries, has published a consultation paper in which it seeks views on 22 questions: see here (pdf). A summary of the consultation paper is available here (pdf). The Commission has concluded that the law of fiduciary duties which applies to pension trustees is satisfactory but it has concerns with the way in which such duties apply to contract-based pension providers. The Commission rejects general reform of the law of fiduciary duties in order to introduce more certain duties, noting that:

... fiduciary duties are difficult to define and inherently flexible. We think that this is one of their essential characteristics: they form the background to other more definite duties, allowing the courts to intervene where the interests of justice require it ... If there is a need for greater clarity in some areas, we think it would be better to enact specific duties rather than attempt to codify an area of law which has always depended on the facts of the case." (paras. 14.62 and 14.64).

UK: England and Wales: fiduciary duties and shareholder acquiescence

The Court of Appeal gave judgment earlier today in Sharma v Sharma & Ors [2013] EWCA Civ 1287. At first instance it was held that a director of a dental company was not in breach of duty by acquiring certain dental practices for her own benefit rather than for the company. An appeal was made and unanimously dismissed by the Court of Appeal. Lord Justice Jackson (Floyd and McCombe LJJ concurring) found that the director's acquisition of the practices had taken place with the knowledge and acquiescence of the shareholders; she was not, therefore, liable for breach of the no-conflict rule (now found in section 175 of the Companies Act 2006). His Lordship's judgment is important because of what he says about consent, acquiescence and silence on the part of shareholders. He stated:

"When a court is considering what, if anything, can be inferred from a party's silence, the factual context is a matter of critical importance. If the surrounding circumstances are such that it would be unconscionable for a party to remain silent at the time and only raise his objections later, then I would have thought that assent can be inferred from silence" (para. [49]).

UK: Financial Services (Banking Reform) Bill 2013 completes Lords committee stage

The Financial Services (Banking Reform) Bill completed the committee stage in the House of Lords earlier this week: see here. It now proceeds to report stage (the date has not been fixed). A copy of the Bill, as amended at committee stage, is available here or here (pdf). The Bill contains, amongst other things, the framework for the ring-fencing of banking activities.

UK: FCA consultation paper - the regulatory framework for crowdfunding

The Financial Conduct Authority has published a consultation paper in respect of its proposed regulatory approach to crowdfunding and similar activities: see here (pdf). Responsibility for this area moves to the FCA from 1 April 2014 and its paper sets out the rules the FCA intends to apply to loan based and investment based crowdfunding.

India: Company law reform - Companies Act 2013, third tranche of draft rules published

The Ministry of Corporate Affairs has published for consultation a third tranche of rules that it proposes to make under the Companies Act 2013: see here. The rules are available here (.zip) and cover the following: acceptance of deposits by companies; inspection, inquiry and investigation by the Serious Fraud Investigation Office; and the operation of the National Financial Reporting Authority.

Singapore: Company law reform - part two of the Companies Amendment Bill 2013 published

Earlier this year, as part of its programme of company law reform, the Ministry of Finance published for consultation the first part of a draft Companies Amendment Bill 2013: see here. A summary of responses in respect of this consultation is expected in early 2014. This week further proposed amendments were published and several new areas identified for review: see here. The new amendments are set out in part two of the draft 2013 Bill: see here (pdf). A summary of these amendments is available here (pdf). A summary of the new areas for review is available here (pdf).

Europe: Single supervisory mechanism - ECB preparations begin with assessment of banks

The European Central Bank has published details of the assessment it will undertake in respect of the those banks it will directly supervise when its new supervisory responsibilities begin under the single supervisory mechanism: see here (pdf). The assessment will include, amongst other things, the following three related elements: (1) a supervisory risk assessment (to review key risks including liquidity, leverage and funding), (2) a review of asset quality and (3) a stress test in respect of the resilience of banks' balance sheets.

UK: BIS publishes business population estimates

The Department for Business, Innovation and Skills yesterday published its latest business population estimates: see here (pdf). At the start of 2013, there were an estimated 4.9 million private sector businesses in the UK, of which 62.6% were sole proprietorships, 28.5% companies and 8.9% ordinary partnerships. 99.9% of private sector businesses are classed as SMEs.

UK: Supreme Court decision on the equitable doctrine of marshalling

The Supreme Court gave judgment earlier today in Szepietowski v The National Crime Agency [2013] UKSC 65, in a decision considering the operation of the equitable doctrine of marshalling: see here or here (pdf). A summary of the court's decision is available here (pdf) and in the below video recording.

Update (29 October 2013) - a summary of the decision, provided by the ICLR, is available here.

Jersey: Court of Appeal upholds director's entitlement to exit payments

In AI Airports International Ltd. and PI Power International Ltd. v Pirrwitz [2013] JCA177 the Court of Appeal upheld a decision of the Royal Court that a former director of two companies was entitled to exit payments on his removal from office. The decision is an important one on directors' duties and in particular the ability of directors to approve remuneration including exit payments. Nugee JA noted (at para. [85]):

In the present case the Royal Court concluded, having heard the evidence, that the reason for the exit payments was to secure the loyalty and independence of the directors. This is undoubtedly a proper purpose of the power of the Board to fix remuneration ... The fact that in certain circumstances the exit payments might have been payable when the recipients might well be thought to be undeserving of them – circumstances that did not in fact occur – does not in my view invalidate the directors’ decision to authorise the Service Contracts in the form in which they did".

UK: Trades Union Congress calls for governance reforms

The Trades Union Congress has published a report titled Workers on Board - The case for workers’ voice in corporate governance, in which it argues that the UK corporate governance model requires reform and would benefit from stronger worker representation up to and including board level: see here (pdf). The report also makes the case for rewriting section 172 of the Companies Act 2006: it is argued that directors' primary duty should be the promotion of the long-term success of the company, with the interests of shareholders and stakeholders subject to secondary duties. It is also argued that shareholder voting right should be restricted to those who have been shareholders for two or more years.

Isle of Man: Foreign Companies Bill 2013 consultation - responses published

The Treasury has published a short document setting out the responses received in respect of the recent consultation on the Foreign Companies Bill 2013: see here (pdf). Some changes have been made to the Bill but a revised draft has not yet been published.

UK: The balance of competences between the UK and EU - the single market, free movement of services and company law

As part of its review of the balance of competences between the UK and European Union, the Government has published a call for evidence in the area of the single market and free movement of services: see here (pdf). Included is a question on company law: what is the effect of EU level company law legislation and the desirability or otherwise of further harmonisation?

UK: England and Wales: Madoff liquidators fail in claims against former directors for breach of duties

The judgment of Mr Justice Popplewell in Madoff Securities International Ltd v Raven & Ors [2013] EWHC 3147 (Comm) was given last Friday. The case concerned claims brought by the liquidators of Madoff Securities International Ltd., a London based company, against its former directors. Bernard Madoff was, at the relevant times, the company's chief executive and chairman. He also held the great majority of the voting shares in the company. The liquidators claimed, in respect of several payments made by the company, that the former directors had breached their duties, in particular those now found in section 172 ("Duty to promote the success of the company") and section 174 ("Duty to exercise reasonable care, skill and diligence") of the Companies Act 2006.

All of the claims against the directors failed. This should not, however, be taken to mean that none of the directors were found to have breached their duties: the judge found that several directors had breached section 174 by failing to address their minds to the question whether certain payments were in the interests of the company (see para. [264]). However, they had a defence: the transactions in question had been ratified by the unanimous approval of the voting shareholders.

The judgment contains much interesting dicta, in particular with regard to directors' duties and board decision making. To quote from the judgment (paras. [190] to [192]):

It is legitimate, and often necessary, for there to be division and delegation of responsibility for particular aspects of the management of a company. Nevertheless each individual director owes inescapable personal responsibilities. He owes duties to the company to inform himself of the company's affairs and join with his fellow directors in supervising them. It is therefore a breach of duty for a director to allow himself to be dominated, bamboozled or manipulated by a dominant fellow director where such involves a total abrogation of this responsibility ... In fulfilling this personal fiduciary responsibility, a director is entitled to rely upon the judgment, information and advice of a fellow director whose integrity skill and competence he has no reason to suspect ... Moreover, corporate management often requires the exercise of judgement on which opinions may legitimately differ, and requires some give and take. A board of directors may reach a decision as to the commercial wisdom of a particular transaction by a majority. A minority director is not thereby in breach of his duty, or obliged to resign and to refuse to be party to the implementation of the decision. Part of his duty as a director acting in the interests of the company is to listen to the views of his fellow directors and to take account of them. He may legitimately defer to those views where he is persuaded that his fellow directors' views are advanced in what they perceive to be the best interests of the company, even if he is not himself persuaded. A director is not in breach of his core duty to act in what he considers in good faith to be the interests of a company merely because if left to himself he would do things differently."

Europe: Council approves single supervisory mechanism

The Council of the European Union has approved the single supervisory mechanism for banking, under which the European Central Bank will have supervisory responsibility for banks within the Eurozone: see here.

UK: Supreme Court judgment next week in marshalling of securities case

The Supreme Court has announced that it will give judgment next Wednesday in Szepietowski (Nee Seery) v The National Crime Agency (on appeal from [2011] EWCA Civ 856), a case concerning the operation of the equitable doctrine of marshalling of securities.

UK: FRC Corporate Reporting Review Annual Report 2013

The Financial Reporting Council has published its Corporate Reporting Review Annual Report 2013, based on a review in 2012/13 of 264 sets of reports and accounts: see here (pdf). The FRC's view is that reporting by large public companies is good but that improvements need to be made by smaller listed companies.

UK: Competition Commission statutory audit services inquiry - final report published

On Monday this week the Competition Commission published a summary of its statutory audit services inquiry final report: see here. The final report has now been published: see here (pdf). The appendices and glossary have been published separately: see here (pdf).

Guernsey: GFSC consults on new governance rules for licensed insurers

The Guernsey Financial Services Commission is consulting on proposed changes to its regulations, rules and codes in respect of licensed insurers: see here. Amongst other things, the Commission proposes to replace the current Licensed Insurers’ Corporate Governance Code with a new set of rules, a draft of which can be found in appendix five of the consultation paper: see here (pdf).

UK: FCA policy statement - publishing information about enforcement warning notices

The Financial Conduct Authority has published its policy statement Publishing information about enforcement warning notices: see here (pdf). This sets out the approach that the FCA proposes to take in respect of its publication of information in respect of warning notices and the circumstances where anonymised information will be provided.

Ireland: Pledge to end 'stateless' Irish registered companies

In his budget statement delivered yesterday, Michael Noonan, the Minister of Finance, announced that the forthcoming Finance Bill would include a provision to prevent Irish registered companies from being 'stateless' for the purposes of their tax residency status: see here (pdf).

UK: Competition Commission statutory audit services market inquiry - summary of final report published

The Competition Commission has today published a summary of its final report for the inquiry into the statutory audit services market: see here (pdf). The final report will be published shortly. The Commission is recommending that FTSE 350 companies must put their statutory audit engagement out to tender at least every ten years. Companies should not, in its view, be able to delay tendering beyond ten years, something that is currently possible under the 'comply or explain' framework of the UK Corporate Governance Code. Indeed, the Commission believes that many companies would benefit from going out to tender every five years.

Changes are also recommended to the UK Corporate Governance Code and UK Stewardship Code in order to promote shareholder engagement, including he introduction of an advisory vote for shareholders in respect of the audit committee report.

Update (16 October 2013) - the final report and accompanying appendices and glossary have been published: see, respectively, here (pdf) and here (pdf).

Ireland: Authorisation requirements and standards for debt management firms

The Central Bank has published its Authorisation Requirements and Standards for Debt Management Firms, following a consultation earlier this year: see here (pdf). These include the Bank's expectations with regard to firms' governance arrangements.

UK: England and Wales: directors' duties under the Companies Act 2006

The Court of Appeal delivered its written judgment in Coppage v Safety Net Security Ltd [2013] EWCA Civ 1176 today. The judgment contains some brief discussion of the duties of directors now found in the Companies Act 2006 (albeit in the context of a question forming a ground of appeal on which the court declined to give an answer). Sir Bernard Rix, delivering the only reasoned opinion (with which Sir Stanley Burnton and Lord Justice Ryder agreed) stated (at para. [28]): "These new provisions both replace and build on common law rules and equitable principles. What is not clear, however, is how the new statutory provisions and the existing common law principles are intended to bed down together".

UK: FCA consults on CRD IV implementation for investment firms

The Financial Conduct Authority has published a consultation paper in which it sets out proposed changes to the FCA Handbook in respect of investment firms as part of the transposition of CRD IV: see here (pdf). In one of the chapters, the FCA sets out its proposals for implementing the limits on the ratio of variable to fixed components of remuneration: these are to be included in the Remuneration Code (SYSC 19A).

UK: The Credit Unions (Maximum Interest Rate on Loans) Order 2013

Section 11(5) of the Credit Unions Act 1979 imposes a maximum rate of monthly interest that a credit union may charge on an outstanding loan: one per cent or such other rate as may be specified. From 1 April 2014, the maximum rate becomes three per cent. This change will be brought about by the Credit Unions (Maximum Interest Rate on Loans) Order 2013, which was laid before Parliament earlier this week. An accompanying explanatory memorandum is available here (pdf).

UK: Company was a 'right to manage' company even though the letters 'RTM' were missing from its name

Section 73 of the Commonhold and Leasehold Reform Act 2002 explains when a company will be regarded as a right to manage (RTM) company. At issue before the Upper Tribunal (Lands Chamber) in Fairhold Mercury Ltd v HQ (Block 1) Action Management Company Ltd [2013] UKUT 487 (LC) was whether a company with the name 'HQ (Block 1) Action Management Company Limited' and meeting the requirements of section 73 was an RTM company where the letters 'RTM' were missing from its name. The Tribunal held that it could be regarded as an RTM company and rejected the argument that there was an overarching rule of public policy on the names of companies, supplementing the relevant statutory provisions, which if broken altered the status of a company.

IAIS commits to develop global insurance capital standard

The International Association of Insurance Supervisors has announced its intention to develop a risk based global insurance capital standard by 2016, with full implementation to begin in 2019 after two years of testing with supervisors and internationally active insurance groups: see here (pdf).

UK: England and Wales: directors' duties and shadow directors

In Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch), Mr Justice Lewison (as he then was) stated that the "indirect influence exerted by a paradigm shadow director who does not directly deal with or claim the right to deal directly with the company's assets will not usually, in my judgment, be enough to impose fiduciary duties upon him" (para. [1289]).

Today, in Vivendi SA Centenary Holdings III Ltd v Richards [2013] EWHC 3006 (Ch), a stronger position was taken by Mr Justice Newey in respect of the duties of shadow directors:

"... my own view is that Ultraframe understates the extent to which shadow directors owe fiduciary duties. It seems to me that a shadow director will typically owe such duties in relation at least to the directions or instructions that he gives to the de jure directors. More particularly, I consider that a shadow director will normally owe the duty of good faith (or loyalty) ... when giving such directions or instructions. A shadow director can, I think, reasonably be expected to act in the company's interests rather than his own separate interests when giving such directions and instructions". (para. [143]).

UK: Financial Services (Banking Reform) Bill - Committee stage, day one

The Financial Services (Banking Reform) Bill began its Committee stage in the House of Lords yesterday. The official record of debate - Hansard - is available here and here. Debate began with discussion of some of the governance implications of ring-fencing and the role of regulators in determining the governance arrangements of ring-fenced banks. Committee stage debate resumes on 15 October; the Bill's progress can be followed here.

UK: UKLA Primary Market Bulletin - edition seven published

The Financial Conduct Authority has published the seventh edition of the Primary Market Bulletin: see here (pdf). This explains the role and work of the UK Listing Authority under the new financial regulatory framework introduced in April.

UK: England and Wales: connected parties and section 41 of the Companies Act 2006

Judgment was given earlier this month in Sargespace Ltd v Eustace [2013] EWHC 2944 (QB). Amongst the matters touched upon, in an application for summary judgment, was the scope of section 41 of the Companies Act 2006 in respect of persons connected with a director under sections 252 and 253. The trial judge stated (at para. [36]): "However ironic it may be that a director's transactions with his wife can be set aside [under section 41] but his transactions with his mistress or even his fiancée cannot if they do not live together, that is the line which Parliament has drawn".

UK: Bank of England and FCA respond to PCBS final report recommendations

The Bank of England and Financial Conduct Authority have published their responses to the recommendations made in the final report of the Parliamentary Commission on Banking Standards: see, respectively, here (pdf) and here (pdf). The FCA and Bank have accepted many, but not all, of the Commission's recommendations. Further consultations by both are promised for 2014. In the Bank's response it is stated that the Prudential Regulation Authority does not believe that a director’s duties under the Companies Act 2006 would override his or her obligations to comply with relevant PRA requirements.

UK: BIS consults on options for reforming various company filing requirements

The Department for Business, Innovation and Skills has published a consultation paper setting out various reform options concerning the annual return, register of members, statements of capital and the disclosure of information in respect of subsidiaries: see here (pdf).

UK: Women on boards - statistics update

The Professional Boards Forum has published its latest BoardWatch data concerning the proportion of women on FTSE100 and FTSE250 boards: see here. Headline statistics for FTSE100 boards include: 19% female directors; 23.8% of non-executive directors are female; 6.1% of executive directors are female.

Germany: Act on Ringfencing and Recovery and Resolution Planning for Credit Institutions and Financial Groups

Earlier this year the Act on Ringfencing and Recovery and Resolution Planning for Credit Institutions and Financial Groups (Gesetz zur Abschirmung von Risiken und zur Planung der Sanierung und Abwicklung von Kreditinstituten und Finanzgruppen) was passed by the Bundesrat: see here (pdf). An overview, in English, is available here. The Act has, amongst other things, introduced a new criminal offence in respect of the failure of senior managers to meet certain diligence requirements: see here.

UK: Company and business names consultation - Government response published

Earlier this year the Government consulted on options for the reform of the regulations concerning company and business names: see here (pdf). The consultation period ended in May and, a few days ago, the Government published its response and proposed actions: see here (pdf). Amongst other things, merging the various statutory instruments is proposed, as is a reduction in the number of words which require prior approval to be used as part of a company's name.

Europe: Commission begins crowdfunding consultation

The European Commission has begun a consultation to explore how EU action, including a range of soft-law measures, could promote crowdfunding in Europe: see here.

Europe: ESMA and EBA publish their 2014 work programmes

The European Securities and Markets Authority has published its 2014 work programme: see here (pdf). An increase in ESMA's activities in the field of corporate governance is highlighted in response to proposals the European Commission is expected to make later this year as part of its company law and corporate governance action plan.

The European Banking Authority has also published its 2014 work programme: see here (pdf). The EBA's regulatory work in 2013 will primarily focus on CRD IV.

UK: IFRS, the 'true and fair' view and the Companies Act 2006

In 2011, the Financial Reporting Council published a paper in which it reiterated the importance of the 'true and fair' requirement under IFRS and UK GAAP: see here (pdf). In doing so, the FRC relied heavily upon a legal opinion written in 2008 by Martin Moore QC: see here (pdf). A more recent legal opinion, prepared by George Bompas QC at the request of a group of investors including the Local Authority Pension Fund Forum, raised questions about the FRC's position and called for Mr Moore's opinion to be reconsidered: see here (pdf). Today the Department for Business, Innovation and Skills supported the FRC"s position with regard to the centrality of the 'true and fair' view: see here. The FRC also published a response from Martin Moore QC in which he addressed the points made by George Bompas QC: see here (pdf).

UK: FCA proposals for consumer credit regulation

The Financial Conduct Authority has published a consultation paper setting out its detailed proposals for consumer credit regulation, responsibility for which it will have next year: see here (pdf).

UK: FRC publishes directors' remuneration consultation paper

The Financial Reporting Council has published a consultation paper on the subject of directors' remuneration: see here (pdf). Whilst welcoming views in respect of any aspects of the UK Corporate Governance Code relating to remuneration that require reform, the consultation paper also seeks views on three specific topics: clawback arrangements, whether non-executive directors who are also executive directors in other companies should sit on the remuneration committee, and actions companies might take if they fail to obtain a substantial majority in support of a resolution on remuneration.

UK: FInancial Services (Banking Reform) Bill - Committee stage amendments published by Government

The Financial Services (Banking Reform) Bill begins its Committee stage in the House of Lords on 8 October. The Government will be tabling various amendments to the Bill, details of which were published yesterday: see here. An overview of the proposed amendments, which introduce a wide range of new clauses, is available here (pdf). Amongst other things, the introduction of a new criminal offence is proposed in respect of a decision by a senior manager of a bank leading to bank failure. A short briefing note in respect of this offence is available here (pdf).

Europe: ESMA publishes final guidelines on reporting obligations of alternative investment fund managers

The European Securities and Markets Authority has published its final guidelines in respect of the reporting obligations for alternative investment fund managers under Articles 3(3)(d) and 24(1), (2) and (4) of the Alternative Investment Fund Managers Directive (2011/61/EU): see here (pdf).

UK: Bank of England publishes stress testing framework discussion paper

The Bank of England has published a discussion paper titled A framework for stress testing the UK banking system: see here (pdf). The paper sets out the main features of the Bank's proposed stress-testing framework, the purpose of which is provide a quantitative, forward-looking assessment of the capital adequacy of the UK banking system and individual institutions within it.