Tuesday 29 November 2016

UK: Government publishes corporate governance reform green paper

The much anticipated green paper on corporate governance reform was published this afternoon by the Government: see here (pdf). The paper seeks views on options for reform in three areas: the influence of shareholders on executive pay; the connection between boards and stakeholders including employees and small suppliers; and the extent to which governance norms that currently apply to large listed companies should be extended to the largest privately held companies.

Monday 28 November 2016

UK: the regulatory framework for insurance special purpose vehicles

HM Treasury has published for public comment the following Regulations that will implement the new regulatory and tax framework for insurance special purpose vehicles (ISPVs), also known as insurance linked securities vehicles: the Risk Transformation Regulations 2017 (pdf) and Risk Transformation (Tax) Regulations 2017 (pdf). The Regulations are accompanied by a consultation paper: see here (pdf).

HM Treasury have decided, following an earlier consultation, that a protected cell company structure should be provided for multi-arrangement ISPVs. The duties of directors of protected cell companies will be the same as for other directors under the Companies Act 2006. The incorporation and registration of protected cell companies will be the responsibility of the Financial Conduct Authority.

The Treasury's consultation is taking place at the same time as a consultation on the authorisation and supervision of ISPVs by the Prudential Regulation Authority and Financial Conduct Authority: see their joint consultation paper here (pdf). This paper contains, amongst other things, a draft PRA supervisory statement and proposed amendments to the PRA Rulebook.

UK: Government green paper on corporate governance

The Financial Times newspaper reports that the Government's green paper on corporate governance will be published tomorrow and that this will set out proposals for, amongst other things, an advisory role for worker representatives on remuneration committees and the mandatory publication of pay ratios.

Friday 25 November 2016

UK: The Purposeful Company - interim report on executive remuneration published

The Big Innovation Centre, as part of its Purposeful Company project, has today published an interim report on executive remuneration: see here (pdf). The report sets out to provide (to quote directly from it) "a provocative challenge to the received wisdom on executive pay". This challenge extends to some of the common policy proposals in this area (e.g., pay ratios).  Four policy proposals, with supporting rationale and analysis, are put forward for discussion (again, to quote directly from the report):
  • Shareholder guidelines and the UK Corporate Governance Code should enable companies to adopt simpler pay structures for CEOs based on long-term equity and debt holdings to encourage long-term behaviour and to avoid the unintended consequences of over-reliance on performance-based incentives.
  • Companies should be required to publish a Fair Pay Charter explaining policy and outcomes for wider employee pay and fairness and to engage with employees on its content including specified disclosures on pay comparisons.
  • The Directors’ Remuneration Reporting regulations should be updated to enable greater stakeholder understanding of a company’s maximum pay and relationship between pay and performance.
  • A binding vote regime should be triggered when companies lose, or repeatedly fail to achieve a threshold level of support on, the advisory remuneration vote.

Thursday 24 November 2016

UK: OTS final report on a new business structure - the SEPA

The Office of Tax Simplification has published its final report on a new business structure - the Sole Enterprise with Protected Asset (SEPA) - that is designed to allow traders to protect their primary residence while continuing to operate as a sole trader. The OTS believes that the SEPA would obviate one of the principal non-tax reasons for incorporation - limited liability - and, as such, enable those trading through the SEPA to be subject to simplified tax and accounting requirements. It would, in other words, provide sole traders with what they seek when choosing to incorporate whilst retaining the simplicity of operating as a sole trader. A copy of the final report is available here (pdf).

Wednesday 23 November 2016

UK: the effect of incorporations on tax receipts

The Autumn Statement was delivered today by the Chancellor and was accompanied by the publication by the Office for Budget Responsibility of its Economic and Fiscal Outlook: see here (pdf). The Outlook contains some interesting analysis considering the impact of company incorporation - in particular companies with a single director - on the amount of tax receipts (see Box 4.1 at page 121).  The OBR says that its modelling has underestimated the impact of incorporation on tax receipts, although it recognises that not all decisions to incorporate are motivated by tax.  The OBR's work in this area was commented upon by the Chancellor in a letter sent to the Office of Tax Simplification and published today: see here (pdf). The Chancellor said:
There are also wider issues with the different tax treatment of different forms of labour, highlighted by the growth in self-employment and the number of single person incorporations. This not only causes complexity but also - as the OBR has highlighted (in relation to the growth in incorporations) – is resulting in increased fiscal costs to the Exchequer. The Government will therefore also look at how it can ensure that the taxation of different ways of working and different forms of employee remuneration is fair, sustainable and efficient."

Europe: Commission proposes new insolvency Directive

The European Commission yesterday published its proposals for a new insolvency Directive, the purpose of which is to ensure that all Member States have key principles in place regarding restructuring and 'second chance' frameworks, and to increase the efficiency of existing insolvency procedures. For further information see: Proposal (pdf) | Q & A | Factsheet (pdf) | Country specific factsheets |.

Tuesday 22 November 2016

UK: consultation on new charity sector governance code for England and Wales

A consultation began earlier this month in respect of proposed changes to the code of governance for the voluntary and community sector: see here. It is proposed that the code should be renamed the "Charity Governance Code" (it is currently titled "Good Governance: a Code for the Voluntary and Community Sector"). A copy of the proposed new code, which will operate on the basis of 'apply or explain', is available here (pdf, English) and here (pdf, Welsh). Other changes are designed to place greater emphasis on board diversity and the role of the chair in promoting good governance.

Monday 21 November 2016

UK: The Prime Minister speaks about corporate governance

The Prime Minister, the Rt Hon Theresa May MP, delivered a speech today at the CBI annual conference: see here. The Prime Minister said some more about the forthcoming green paper on corporate governance, in particular the Government's position on worker representation on boards. Worker representation - if that is taken to mean the direct appointment of a worker or trade union representative to the board - will not be mandatory. Here's an extract from the speech:

But just as government needs to change its approach, so business needs to do so too.

For we all know that in recent years the reputation of business as a whole has been bruised. Trust in business runs at just 35% among those in the lowest income brackets. The behaviour of a limited few has damaged the reputation of the many. And fair or not, it is clear that something has to change. For when a small minority of businesses and business figures appear to game the system and work to a different set of rules, we have to recognise that the social contract between business and society fails – and the reputation of business as a whole is undermined. So just as government must open its mind to a new approach, so the business community must too. That is why we will shortly publish our plans to reform corporate governance, including executive pay and accountability to shareholders, and proposals to ensure the voice of employees is heard in the Boardroom.

The UK rightly has a strong reputation for corporate governance – the Cadbury, Greenbury and other reforms, built on the strong foundations of the Companies Act and the Corporate Governance Code, have made the UK a prime location for listing and headquartering. But we can’t stand still – we must continue to make improvements where these result in better companies and improved confidence in business on the part of investors and the public.

Much can be done by voluntary improvements in practice – in the representation of women on company Boards and in senior positions for example, or in broadening diversity. But where we need to go further we will. So there will be a Green Paper later this autumn that addresses executive pay and accountability to shareholders, and how we can ensure the employee voice is heard in the Boardroom.

This will be a genuine consultation – we want to work with the grain of business and to draw from what works. But it will also be a consultation that will deliver results. And let me be clear about some important points.

First, while it is important that the voices of workers and consumers should be represented, I can categorically tell you that this is not about mandating works councils, or the direct appointment of workers or trade union representatives on Boards. Some companies may find that these models work best for them – but there are other routes that use existing Board structures, complemented or supplemented by advisory councils or panels, to ensure all those with a stake in the company are properly represented. It will be a question of finding the model that works.

Second, this is not about creating German-style binary boards which separate the running of the company from the inputs of shareholders, employees, customers or suppliers. Our Unitary Board system has served us well and will continue to do so. But it is about establishing the best corporate governance of any major economy, ensuring employees’ voices are properly represented in Board deliberations, and that business maintains and – where necessary – regains the trust of the public.

There is nothing anti-business about this agenda. Better governance will help companies to take better decisions, for their own long-term benefit and that of the economy overall. So this is an important task. We will work with you to achieve it, and I know you will rise to the challenge".

France: AMF report on corporate governance and executive remuneration

France's financial market regulator, the Autorité des Marchés Financiers (AMF), has published its 2016 report on corporate governance and executive compensation. An overview, in English, is available here and a copy of the report, in French, is available here. A copy of the report in English is usually published within a couple of months of the report's original publication in French.

Friday 18 November 2016

Burma: new Companies Law - post consultation (fifth) draft published

The Directorate of Investment and Company Administratio has published, in English, an updated draft - the fifth, in fact - of the proposed new Companies Law: see here (pdf).

Thursday 17 November 2016

Pakistan: Companies Ordinance promulgated by the President

The Companies Bill 2016, drafts of which were published for consultation earlier this year, has become law.  The new Companies Ordinance - a copy of which is available here (pdf) - was promulgated by the President several days ago (in the exercise of a power provided by the Constitution). A short statement concerning the promulgation, from the Securities and Exchange Commission, is available here (pdf) and a short overview of the new Ordinance, from the Ministry of Finance, is available here.


I am grateful to Waseem Ahmad Khan, Additional Registrar of Companies, SECP, Islamabad, for bringing me news of the President's promulgation of the new Ordinance.

Wednesday 16 November 2016

UK: England and Wales: relief for unfair prejudice and petitioner misconduct

A shareholder seeking relief for unfair prejudice under section 994 of the Companies Act 2006 (the unfair prejudice remedy) need not come to the court with "clean hands".  To put this another way: misconduct by the petitioning shareholder does not preclude their petitioning for relief. This said, where a case of unfairly prejudicial conduct is successfully established, the court's willingness to grant an order for relief under section 996 is likely be influenced by the petitioning shareholder's behaviour. This is well illustrated by a decision of Mr Justice Morgan, handed down yesterday - Interactive Technology Corporation Ltd v Ferster & Ors [2016] EWHC 2896 (Ch) - in which no relief under section 996 was granted to the petitioning shareholder, notwithstanding a finding of unfair prejudice. The petitioning shareholder's misconduct was, in the judge's opinion, "many times graver" than that of the other parties.

Tuesday 15 November 2016

UK: Grant Thornton's annual review of corporate governance

Grant Thornton has published the latest edition of its annual review of FTSE350 corporate governance, drawing upon the information provided in annual reports: see here (pdf). The review considered 308 FTSE350 companies (at May 2016) with year ends between June 2015 and June 2016. All FTSE100 companies were included in the review together with 208 from the FTSE250.

Headline figures include 62% of companies claiming to comply fully with the UK Corporate Governance Code (director independence remains the main area of non-compliance). The quality of reporting remains variable. For example, 48% of companies do not express their values; 35% of companies provide only passing references to culture in their annual reports; and, more than half of the companies required to provide a viability statement gave only generic or basic insights into how viability was assessed, with only 5% providing detailed disclosure.

Monday 14 November 2016

UK: Tiering of UK Stewardship Code signatories

The Financial Reporting Council has published the results of an exercise that saw it rank signatories (of which there are almost 300) to the UK Stewardship Code into one of three tiers: see here. The ranking was done on the basis of the information provided in signatory statements. More than 120 signatories were placed in tier 1 - the top tier - because they were judged by the FRC to provide a good quality and transparent description of their approach to stewardship and explanations of an alternative approach where necessary. Those remaining in the bottom tier - tier 3 - in six months' time will be removed from the list of signatories because, in the FRC's view, their reporting fails to demonstrate commitment to the objectives of the Code.

Friday 11 November 2016

UK: England and Wales: winding-up in the public interest and punishment for past behaviour

Judgment was given yesterday in Re Caledonian Ltd [2016] EWHC 2854 (Ch). The case concerned an application by the Secretary of State for Business, Innovation and Skills (now Business, Energy and Industrial Strategy) for the winding-up of two companies under section 124A ("Petition for winding up on grounds of public interest") of the Insolvency Act 1986.

The trial judge, Mr Robin Dicker QC sitting as a Deputy Judge of the High Court, granted the Secretary of State's application, holding that the business of the companies had been conducted in a way that did not meet accepted minimum standards of commercial behaviour. Winding-up would, the Deputy Judge held, protect the public and also act as a punishment for past behaviour and mark the court's disapproval of that behaviour.

UK: England and Wales: unfair prejudice claims and wrongful dismissal

Judgment was given earlier this month by Mr Registrar Briggs in Wootliff v Rushton-Turner [2016] EWHC 2802 (Ch). The case concerned an application to strike out one of the heads - an allegation of wrongful dismissal from employment - in an unfair prejudice claim brought under section 994 of the Companies Act 2006. In a decision providing an excellent illustration of the wide application of section 994, the Registrar refused to strike out the claim relating to wrongful dismissal and observed (at paras. [35] and [38]):
The petitioner will have to show that the affairs of the Company have been conducted (by act, omission or proposed act or omission) in such a way that is both unfair and prejudicial to the interests of members. The service contract with the Company may be a reflection of the overall relationship and the interests of members. When the evidence is heard the court may or may not treat the separateness (the term used by Lord Scott [in Gamlestaden Fastigheter AB v Baltic Partners Ltd (Jersey) [2007] UKPC 26]) of the petitioner as member and the petitioner as employee as excluding him from relief for the relief sought. It may demonstrate that the petitioner as member and employee "formed part (and an essential part) of the arrangements entered into for the venture to be carried on" by the Company. If the evidence favours the petitioner this will overcome the objection that the petitioner is not pursuing the claim qua member ...

... In any event, if the claim for loss of salary (breach of contract) were to be commenced by an ordinary claim form, there could be no real objection to it being heard together with a petition for relief for unfair prejudice: the issues arise out of the same facts. In my judgment it would be inefficient, disproportionate, a waste of court resources and could lead to different findings of fact if such a claim were to be heard in a separate proceeding. As a matter of case management I would order the trial of all issues be heard together before a Registrar of the High Court."

Thursday 10 November 2016

UK: Implementing the EU Non-Financial Reporting Directive

The Government has published its response in respect of the consultation earlier this year on implementation of the Non-Financial Reporting Directive (2014/95/EU): see here (pdf). A short summary of the Government's position, and proposed actions, is available here.

Wednesday 9 November 2016

UK: Hampton-Alexander Review of women on boards - report and recommendations published

A report was published today by the Hampton-Alexander Review team: see here (pdf).  Several recommendations - endorsed by the Government - were made including that FTSE350 companies should aim for a minimum of 33% female representation on their boards by 2020. It is also recommended that FTSE100 companies should aim for a minimum of 33% female representation across their Executive Committee and in the Direct Reports to the Executive Committee by 2020.

The Financial Reporting Council has welcomed the report's publication - one of the review's recommendations was directed at the FRC - and added that "[in the] light of the current public debate on corporate governance, we stand ready to revise the UK Corporate Governance Code following the Government consultation": see here.

Tuesday 8 November 2016

UK: the Government's corporate governance consultation

The Government's corporate governance consultation is expected to begin by the end of the year. One proposal championed by the Prime Minister was requiring companies to have employee and customer representation on their boards. It now seems - if there is truth in media reports over the past couple of weeks, including a report in today's Times newspaper - that the Government has decided against compelling companies to appoint an employee to the board.

Monday 7 November 2016

Germany: Commission consults on amendments to the German Corporate Governance Code

The Corporate Governance Code Commission has published for public comment the amendments it proposes to make to the German Corporate Governance Code: see here. A copy of the Code, incorporating the proposed amendments, is available in English: see here (pdf).


I am grateful to Alan MacDougall and Francesco Navarrini of PIRC Ltd for bringing me news of the Commission's consultation.

Friday 4 November 2016

UK: Implementing the Fourth Money Laundering Directive - Article 30 and beneficial ownership information

The Department for Business, Energy and Industrial Stragegy has published a discussion paper setting out possible options for the implementation of Article 30 of the Fourth Money Laundering Directive (Directive (EU) 2015/849): see here (pdf). Article 30 requires, broadly put, that Member States maintain central registers in respect of the beneficial ownership of companies and other legal entities (e.g., unregistered companies, credit unions; building societies). The Government's position is that the UK's existing PSC regime meets most of the requirements of Article 30 but that some additions and amendments are needed including bringing additional entities within the regime.

UK: A Code for Sports Governance

A Code for Sports Governance was published earlier this week by UK Sport and Sport England: see here. The Code, which applies to organisations receiving funding from UK Sport and Sport England, is divided into principles and requirements. The requirements of the Code are mandatory and are found in three tiers (tier 1 representing the minimum level to be reached; tier 3 the highest level).

Thursday 3 November 2016

UK: BEIS committee corporate governance inquiry - publication of written submissions

The House of Commons Business, Energy and Industrial Strategy Committee (formerly the Business, Innovation and Skills Committee) launched a wide ranging corporate governance inquiry in September. Written submissions were invited, the deadline for which closed last month. The Committee has started to publish the responses on the inquiry website, noting that a lot of interest has been generated and a much larger number of submissions than usual were received: see here.

UK: The Parker Review on the Ethnic Diversity of UK Boards

The Parker Review yesterday published its report on the ethnic diversity of UK boards: see here (pdf). The report found that 8% of the 1,087 FTSE100 director positions were held by directors of colour, with seven companies accounting for over one third of these directors. Over half (53) of FTSE100 boards do not have any directors of colour. The report makes a number of recommendations including that all FTSE100 boards should have at least one director of colour by 2021. The same recommendation is made for FTSE250 boards but with a 2024 deadline.

Wednesday 2 November 2016

South Africa: King IV Report on Corporate Governance for South Africa

The Institute of Directors in Southern Africa and King Committee on Corporate Governance in South Africa published the King IV Report and Code yesterday: see here (pdf). King IV adopts "apply and explain" and has, therefore, moved away from "apply or explain". A press summary is available here.

Tuesday 1 November 2016

UK: The Financial Services and Markets Act 2000 (Ring-fenced Bodies, Core Activities, Excluded Activities and Prohibitions) (Amendment) Order 2016

The Financial Services and Markets Act 2000 (Ring-fenced Bodies, Core Activities, Excluded Activities and Prohibitions) (Amendment) Order 2016 was made last week and comes into force on December 1. The Order makes eighteen amendments to the ring-fencing regime, in order to address various issues that have arisen as banks make the structural changes demanded by the new regime. An overview of each of these amendments is available in the explanatory memorandum accompanying the Order: see here (pdf).