Friday 21 December 2018

Canada: Supreme Court considers separate legal personality and action in respect of harms suffered by companies

The Supreme Court gave judgment earlier this month in Brunette v Legault Joly Thiffault, s.e.n.c.r.l., 2018 SCC 55. A summary of the case is available here. By majority, the Court concluded (at para. [51]):
The principles of procedural and corporate law in Quebec bar shareholders from exercising rights of action that belong to the corporations in which they hold shares. Shareholders may institute proceedings, however, if they can demonstrate (1) a breach of a distinct obligation, and (2) a direct injury that is distinct from that suffered by the corporation in question. These requirements reflect the essential principles of civil liability under the C.C.Q. [Civil Code of Qu├ębec] and provide shareholders having a direct and personal interest with a means to seek damages against third-party defendants".

Thursday 20 December 2018

Hong Kong: section 729 of the Companies Ordinance (Cap 622)

Judgment was given earlier this week in Ge Qingfu and Others v L & A International Holdings Ltd and Others (17/12/2018, HCMP2222/2016) [2018] HKCFI 2742. This is an important decision on the operation of section 729 ("Court may order remedies") of the Companies Ordinance (Cap 622) that came into force in 2014 (about which, see here). Section 729 is found within Part 14 ("Remedies for Protection of Companies’ or Members’ Interests"), Division 3, of the Ordinance and provides the court with the power to provide remedies in respect of, inter alia, directors' breaches of fiduciary duty. A key issue before the court was the scope of section 729. The trial judge (Mr Recorder Pow SC) stated (at paras. 115 and 116):
... section 729 is a new piece of legislation not to be shackled by its predecessors or forerunners.  I find that the Australian authorities are not applicable to the interpretation and application of our new section 729. I also disagree with the author of the Brief Notes [here, pdf].  My interpretation is consistent with the fact that the title for Division 3 (ie sections 728 to 730) is 'Remedies for others’ Conduct in relation to Companies etc' and the title for section 729 is 'Court may order remedies'.  The Court’s power to grant relief under Division 3 is not confined or parasitic to the Court’s power of granting injunction.  In my judgment, the wordings of section 729 are unambiguous ....".

... this Court has both the jurisdiction and power to award damages in accordance with the terms of that section irrespective of whether the Court would have been prepared to grant any injunction.  In my judgment, damages could be awarded when: (1) an application is made by a member or a creditor to the Court pursuant to section 729; (2) it is established by evidence that the interest of this member or creditor are or have been affected by the relevant conduct identified in section 728(1), (4) and/or (5); and (3) the circumstances are such that the Court finds it just and proper to exercise its power under section 729(1)(b) to order the person (who committed the relevant conduct) to pay damages to 'any other person'.  These circumstances could include those justifying the award of damages in addition to or in substitution for a grant of injunction.

Furthermore, in my judgment, the person to be awarded damages is not even confined to that 'member or creditor' making the application". 

Tuesday 18 December 2018

UK: Government announces audit market review (the Brydon Review)

The Government today announced that Donald Brydon, currently the chairman of the London Stock Exchange Group, will lead a review of the quality and effectiveness of the UK audit market: see here. Whilst the review's detailed terms of reference have not been published, the Government's announcement explains that the review has been "tasked with recommending what more can be done to ensure audits meet public, shareholder and investor expectations" and that it will "build on the findings of two parallel reviews ... the independent review by Sir John Kingman of the industry’s scrutiny body – the Financial Reporting Council (FRC); and the Competition and Market Authority’s (CMA) market study looking at the effectiveness of competition in the audit market, both published today".

UK: CMA statutory audit enquiry - draft proposals published

The Competition and Market Authority has today published an update paper as part of its market study of the statutory audit market: see here. Views are sought on proposed remedies including enhanced regulatory scrutiny of audit committees; the introduction of mandatory joint audits; introducing a cap on market share; and requiring the full structural or operational split between audit and non-audit services.

UK: Kingman review proposes new regulator to replace the Financial Reporting Council

The independent review of the Financial Reporting Council - aka the Kingman Review - published its final report today: see here (pdf). The principal recommendation is dramatic but not entirely unexpected: replace the FRC with a new regulator. This new regulator, provisionally called the Audit, Reporting and Governance Authority, is recommended to have the following strategic objective: "To protect the interests of users of financial information and the wider public interest by setting high standards of statutory audit, corporate reporting and corporate governance, and by holding to account the companies and professional advisers responsible for meeting those standards”.

There is, of course, much of interest in the Report. It finds, for example, that the FRC has been an effective custodian of the UK Corporate Governance Code, and the Code is still regarded as "world-leading". But a different view is taken of the UK Stewardship Code, the Report describing it as a "major and well-intentioned intervention" but one that "is not effective in practice".

Alongside the Report, a letter from Sir John Kingman to the Secretary of State for Business, Energy and Industrial Strategy has been published. This letter, available here (pdf), sets out Sir John's view on whether there is a case for fundamental change in who appoints company auditors.

Monday 17 December 2018

UK: Supreme Court refuses permission to appeal in director's conflicts of interest case

The Supreme Court has, according to a final notice issued by the Financial Conduct Authority, refused the permission to appeal application brought by Angela Burns from the judgment of the Court of Appeal in Burns v The Financial Conduct Authority [2017] EWCA Civ 2140, [2018] 1 WLR 4161. The Supreme Court's decision is unsurprising, albeit disappointing for those - me included - who would have welcomed (indulgently) consideration at final appellate stage of directors' duties, conflicts of interest and the position of a non-executive director.

Friday 14 December 2018

UK: England and Wales: Law Commission consultation - reinvigorating commonhold

Earlier this week the Law Commission for England and Wales published a consultation paper setting out proposals for the reform of Commonhold, a form of property ownership created by the Commonhold and Leasehold Reform Act 2002. A copy of the consultation paper is available here (pdf). A summary is available here (pdf). A legislative history of commonhold is available here (pdf).

The Commission has - to focus on one part of its paper - endorsed the continued use of the UK company law framework for the commonhold association (see para 7.23).  In the Commission's view, the association should continue to be a company registered under the Companies Acts, with limited liability and taking the form of a company limited by guarantee (see para. 7.41). The Commission nevertheless seeks views, and makes proposals, regarding certain aspects of the company law framework including, for example, whether any company law requirements (e.g., filing accounts and making an annual confirmation statement) should be relaxed for commonhold associations.

Thursday 13 December 2018

Finland: working group to review corporate governance code

The Securities Market Association has announced the formation of a working group to review the Finnish Corporate Governance code. Further information, in Finnish, is available here.

Sweden: Swedish Corporate Governance Board Annual Report 2018

Earlier this year the Swedish Corporate Governance Board published, in English, a copy of its annual report for 2018: see here (pdf). The report explains the Board's activities, the results of a survey exploring how companies have applied the Swedish Corporate Governance Code. It also states that a review of the Code is underway in order to present, if appropriate, proposed amendments next year.

Wednesday 12 December 2018

UK: The Companies, Limited Liability Partnerships and Partnerships (Amendment etc.) (EU Exit) Regulations 2018

The Companies, Limited Liability Partnerships and Partnerships (Amendment etc.) (EU Exit) Regulations 2018 (here, pdf) were considered by the Sifting Committees last month and both recommended that the Regulations should be subject to the affirmative procedure and not the negative procedure.

In its report (here, pdf), the House of Commons European Statutory Instruments Committee stated (at para. 1.5):
Despite the Government’s assurance that the instrument 'makes no significant changes to the nature of the UK’s company law framework', the Committee believes that there are issues that the House will want to debate. Some of the issues have not been fully exposed previously as the Explanatory Memorandum [here, pdf] states that the Government 'has not been able to publicly consult in order to minimise sensitivities in advance of negotiations with the EU.'".

The House of Lords Secondary Legislation Scrutiny Committee, in its report (here, pdf), noted the following (paras. 1 and 2):
While the Department [for Business, Energy and Industrial Strategy] asserts that the instrument seeks to preserve the company law framework unchanged as far as possible and appropriate, some of the proposed changes nevertheless appear to be significant ... Given the importance of the draft Regulations for the continued and effective operability of the UK company law framework after exit, the House may expect the opportunity to debate the instrument".

UK: FRC Review Advisory Group and the powers of the FRC

The minutes of the November meeting of the Financial Reporting Council Review (known as the Kingman Review) Advisory Group were published today: see here (docx). Amongst the items of note is one concerning the response to the Group's call for evidence concerning the powers of the Financial Reporting Council. The minutes note that, with regard to the argument that the FRC ought to be able to act against all directors, "there was more unanimity on this point from respondents to the call for evidence than on any other matter". The minutes also record the approval of draft recommendations in this area by the Group.

Minutes from all of the Group's meetings are available here.

UK: Government confirms reforms to the law on limited partnerships

In April this year the Government published a consultation paper setting out proposed reforms to the law governing limited partnerships: see here (pdf). Earlier this week the Government published its response and confirmed that it would, when Parliamentary time permits, introduce legislation to bring about its proposals: see here (pdf). The proposals include requiring all limited partnerships to produce a confirmation statement at least every 12 months; expanding the information required on the registration of a limited partnership; and requiring those making a new registration to provide evidence of registration with an anti-money laundering supervisory body.

UK: Brexit - financial services legislation - list of made statutory instruments

HM Treasury has today created an online list of financial services statutory instruments that have been made under the European Union (Withdrawal) Act 2018 and which were subject to the affirmative procedure: see here. The list includes, for example, the Short Selling (Amendment) (EU Exit) Regulations 2018 and the Financial Regulators' Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018.

UK: The European Economic Interest Grouping (Amendment) (EU Exit) Regulations 2018

The European Economic Interest Grouping (Amendment) (EU Exit) Regulations 2018 were made and laid before Parliament earlier this month. A copy of the Regulations is available here and here (pdf). The explanatory memorandum is available here (pdf). The Regulations will, on exit day, convert each European Economic Interest Grouping (EEIG) registered in the UK to a new corporate form: the UK Economic Interest Grouping or UKEIG.

UK: The European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2018

The European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2018 have now been made and laid before Parliament. A copy of the Regulations are available here and here (pdf). The explanatory memorandum is available here (pdf). The Regulations will cause all European public limited liability companies - better known as Societas Europaea - registered in the UK to be converted to a new corporate form - UK Societas - on exit day.

Qatar: QFMA consults on new governance code

The Qatar Financial Markets Authority has published for consultation a new governance code for funds listed on the Qatar Stock Exchange: see here (in English, pdf).

UK: Wates Corporate Governance Principles for Large Private Companies

The Wates Corporate Governance Principles for Large Private Companies were published earlier this week: see here (pdf). Further information about the Principles is available here (pdf).

Friday 23 November 2018

China: new edition of the Code of Corporate Governance for Listed Companies

A revised edition of the Code of Corporate Governance for Listed Companies, published by the China Securities Regulatory Commission, was issued earlier this year. A copy of the new Code is available here (Chinese, pdf). A copy in English has not yet been published by the CSRC but Glass Lewis have provided a short overview of the changes introduced in the new edition: see here. It is also worth noting that the Shanghai Stock Exchange amended its listing rules this year to require the establishment of audit committees by listed companies: see Article 3.1.6 in the revised rules, available here (English, pdf).

Thursday 22 November 2018

UK: The Official Listing of Securities, Prospectus and Transparency (Amendment) (EU Exit) Regulations 2019

The Government has published a policy note in respect of the forthcoming Official Listing of Securities, Prospectus and Transparency (Amendment) (EU Exit) Regulations 2019: see here. The note explains that the Regulations will seek replicate, as far as possible, the current effects of the prospectus regime, and the transparency rules.

For further information about financial services legislation under the European Union (Withdrawal) Act 2018 - including a policy note on the proposed Market Abuse (Amendment) (EU Exit) Regulations 2018 - see here.

UK: FRC review of audit and ethical standards

The Financial Reporting Council is seeking views on the effectiveness of the changes made in 2016 to its auditing and ethical standards: see here.

Tuesday 20 November 2018

UK: The Insolvency (Amendment) (EU Exit) Regulations 2018

The Insolvency (Amendment) (EU Exit) Regulations 2018 were laid in draft form before Parliament yesterday as part of the draft affirmative procedure: see here. The Regulations can be viewed here or here (pdf). They are made under section 8(1) of the European Union (Withdrawal) Act 2018 and make amendments to legislation in the field of cross-border insolvency in consequence of the UK's withdrawal from the European Union. A more detailed explanation of the amendments being made is available in the accompanying explanatory note: see here.

Monday 19 November 2018

UK: BEIS Committee launches future of audit inquiry

The House of Commons Business, Energy and Industrial Strategy Committee has begun a new inquiry on the future of audit: see here. The inquiry will, to quote directly from the information provided about it, "focus on the likely impact of the CMA market study and the review of the FRC (by Sir John Kingman) in improving quality and competition in the audit market and reducing conflicts of interest". Written submissions are invited and should be received by 11 January 2019: see here.

Friday 16 November 2018

Hong Kong: HKEX review of listed issuers' corporate governance practice disclosures

HKEX has published the latest edition of its review of listed issuers' corporate governance practice disclosures: see here (pdf). The review surveyed 400 randomly selected issuers, exploring the extent of compliance with the provisions of the Corporate Governance Code. It is interesting to see that the provision of the Code with the lowest compliance rate - 64% - was A.2.1 which provides that the roles of chairman and chief executive should not be held by the same person.

Ireland: Corporate Governance Requirements for Investment Firms and Market Operators

The Central Bank has published its Corporate Governance Requirements for Investment Firms and Market Operators: see here (pdf). The Requirements are intended to supplement and support the MiFID regime, and take effect from 1 July 2019.

Thursday 15 November 2018

India: Committee report - regulating audit firms and networks

The Committee formed by the Ministry of Corporate Affairs to examine the regulatory framework and liability of audit firms, and to make reform recommendations, has published its report: see here (pdf). The Committee considered the role and powers of the new National Financial Reporting Authority, noting the delay in creating this new audit regulatory (Rules are still being made - see, e.g., those published earlier this week here, pdf).

Wednesday 14 November 2018

Singapore: Variable Capital Companies Act 2018 published

The Variable Capital Companies Act 2018 - setting out a new corporate form in Singapore for investment funds - received the President's assent on 31 October and has now been published in the Government Gazette: see here (pdf). A copy of the Act is also available on the Singapore Statutes Online website: see here.

Tuesday 13 November 2018

UK: Hampton-Alexander Review - third annual report published

The Hampton-Alexander Review published its third annual report yesterday: see here (pdf). The report notes that the number of women on FTSE100 boards has exceeded 30% for the first time, although it is noted that the number of women occupying CEO roles across the FTSE350 is lower than last year (12, down from 15). Within the FTSE350, only five boards are all male; there are, however, 75 boards with only woman on the board.

Monday 12 November 2018

UK: The Third Parties (Rights Against Insurers) Act 2010 (Consequential Amendment of Companies Act 2006) Regulations 2018

The Third Parties (Rights Against Insurers) Act 2010 (Consequential Amendment of Companies Act 2006) Regulations 2018 were made earlier this month: see here or here (pdf). The purpose of the Regulations is to amend section 1030 of the Companies Act 2006 in order to permit an insurer of a company, where that company has been dissolved for more than six years, the right to restore the company to the register of companies. At present such an application can be made, but only within six years of a company's dissolution. Further information about the proposed change, and the reasons for it, can be found in the accompanying explanatory memorandum available here (pdf).

Friday 9 November 2018

Germany: Commission consults on revised edition of German Corporate Governance Code

Earlier this week the Corporate Governance Code Commission published for consultation a revised edition of the German Corporate Governance Code: see here (German, pdf) or here (English, pdf).

The opportunity has been taken to restructure the Code and to place greater emphasis on companies' disclosure of their governance arrangements. Key principles are now more clearly identified, alongside supporting recommendations. The principles will operate on the basis of 'apply and explain', with the recommendations operating on the basis of 'comply or explain'. For further information about this change, and the others that have been proposed (particularly concerning remuneration), see the supporting materials available here (in German) or here (in English).

Thursday 8 November 2018

UK: BEIS publishes updated guidance for the Companies (Miscellaneous Reporting) Regulations 2018

The Department for Business, Energy and Industrial Strategy has today published updated guidance concerning the Companies (Miscellaneous Reporting) Regulations 2018: see here. The Regulations contain several new reporting obligations including the requirement for certain large companies to include in their strategic report a "section 172(1) statement". This statement, to quote directly from article 4 of the Regulations, "describes how the directors have had regard to the matters set out in section 172(1)(a) to (f) when performing their duty under section 172 [of the Companies Act 2006]".

Wednesday 7 November 2018

UK: BREXIT and the UK corporate law framework (incl. accounting, audit and takeovers)

The purpose of this post is to provide an update concerning the statutory instruments that are being published in order to prepare the UK's corporate law framework for the UK's departure from the European Union. Information concerning the legislative changes being made to the financial regulatory framework under the European Union (Withdrawal) Act 2018 can be found here (and, in respect of the role of regulators and their handbooks, see here and here; the latter link includes news of the temporary permissions regime).

I started, earlier this week, by noting the publication in draft form of the Companies, Limited Liability Partnerships and Partnerships (Amendment etc.) (EU Exit) Regulations 2018. These Regulations (and their accompanying explanatory memorandum) have been withdrawn because, to quote the relevant Government website, there was "not enough information in the EM [explanatory memorandum]". The Regulations have since been laid again and were published yesterday: see here.

Draft legislation concerning statutory audit and accounts and reports has now been published. A draft of the Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2018 is available here, with a draft explanatory memorandum available here (pdf). These Regulations will make amendments to the legislation that implemented the EU Audit Directive (e.g., Part 42 ("Statutory auditors") of the Companies Act 2006); amendments will also be made to the retained UK version of the EU Audit Regulation.

A draft of the Accounts and Reports (Amendment) (EU Exit) Regulations 2018 is available here, with a draft explanatory memorandum available here (pdf). These Regulations will make amendments to Part 15 ("Accounts and Reports") of the Companies Act 2006.

The Takeovers (Amendment) (EU Exit) Regulations 2019 have also been published (replacing an earlier draft): see here, with the draft explanatory memorandum available here (pdf). The purpose of these Regulations is to amend Part 28 ("Takeovers etc") of the Companies Act 2006 in order to create what the explanatory memorandum calls a "freestanding domestic takeovers regime". The proposed, connected changes that will be made by the UK's Takeover Panel to the Takeover Code were explained in a consultation paper published earlier this week: see here (pdf).

OECD report: flexibility and proportionality in corporate governance

The OECD has published a report titled Flexibility and Proportionality in Corporate Governance: see here. The report covers 39 jurisdictions and, in respect of seven areas - pre-emption rights; board composition, committees and qualifications; say on pay and remuneration disclosure; related party transactions; disclosure of periodic financial information; major shareholding disclosure; and takeovers - provides a descriptive account of the extent to which the governance frameworks permit flexibility and are proportionate (i.e., is something other than 'one size fits all' permitted and, if so, what determines this?). The results are based on the information received directly from jurisdictions through an online questionnaire.

UK: England and Wales: unfair prejudice - court orders buyout by petitioner

A copy of the judgment in Goodchild v Taylor [2018] EWHC 2946 (Ch) was added to the BAILII database yesterday. The case concerned a petition brought under section 994 of the Companies Act 2006 by Mr Goodchild, one of two directors and equal shareholders in a company (Taylor Goodchild Ltd) formed to provide legal services.

The trial judge found that the company's other shareholder and director, Mr Taylor, had failed to act in the best interests of the company and to avoid conflicts of interest: he had broken his duties as a director. This conduct was held to be unfairly prejudicial for the purposes of section 994. The remedy ordered under section 996 was unusual and provides a good example of the breadth of the court's discretion: Mr Taylor was ordered to sell his shares to Mr Goodchild; the usual remedy under section 996 is one requiring the petitioner to be bought out.

Tuesday 6 November 2018

Canada: OSFI publishes revised Corporate Governance Guideline

The Office of the Superintendent of Financial Institutions has published a revised edition of its Corporate Governance Guideline: see here (pdf). Further information about the Guideline, including the revisions made, is available in the accompanying news release (here, pdf) and letter sent to federally regulated financial institutions (here, pdf).

Monday 5 November 2018

UK: Scotland: gender representation on public authority boards

The Gender Representation on Public Boards (Scotland) Act 2018 (Commencement No. 1) Regulations 2018 were laid before the Scottish Parliament today and bring into force, on 1 December, certain provisions of the Gender Representation on Public Boards (Scotland) Act 2018 including section 2 (key definitions)section 7 (guidance on the operation of the Act) and schedule 1 (public authorities).

The Act contains a gender representation objective for public authority boards - 50% of non-executive members who are women - and will, when fully in force, impose duties on those appointing such members to give, in specified situations, preference to female candidates where this will help achieve (or make progress in achieving) the gender representation objective. The explanatory notes accompanying the Act are available here (pdf).

Friday 2 November 2018

UK: BREXIT and companies legislation

Drafts of two statutory instruments have recently been published, the purpose of which is to prepare aspects of the UK's company law framework for the UK's departure from the European Union. These instruments have been made under the European Union (Withdrawal) Act 2018 and, before they are laid before Parliament, will go through the sifting process.

The first is the European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2018: it can be viewed here (pdf) and the accompanying explanatory memorandum is available here (pdf). These Regulations will provide a temporary framework for any European Public Limited Liability Companies - known as Societas Europaea - that remain registered in the UK on the day the UK leaves the European Union: such companies will be converted into "UK Societas", a new corporate form (albeit one that is not expected to be particularly attractive).

The second is the Companies, Limited Liability Partnerships and Partnerships (Amendment etc.) (EU Exit) Regulations 2018: it can be viewed here (pdf), with the accompanying explanatory memorandum available here (pdf). The purpose of this instrument is to amend the Companies Act 2006 and secondary legislation made under the Act, as well as revoking certain Regulations. The changes being made are described in the explanatory memorandum as miscellaneous and do not relate to accounting or audit which will be the subject of separate statutory instruments (to be published here and/or here in draft form); their purpose is to deal with the deficiencies in retained EU law (e.g., references to the EU or EEA in the legislation which are no longer appropriate).

Update 1 (7 November 2018): The Companies, Limited Liability Partnerships and Partnerships (Amendment etc) (EU Exit) Regulations have been withdrawn, to be replaced with new Regulations and a new Explanatory Memorandum: see here (pdf) and here (pdf).

Update 2 (7 November 2018): A draft of The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2018 is now available here, with a draft explanatory memorandum available here (pdf).

Update 3 (7 November 2018): A draft of The Accounts and Reports (Amendment) (EU Exit) Regulations 2018 is now available here, with a draft explanatory memorandum available here (pdf).

Hong Kong: section 300 of the Securities and Futures Ordinance

The Hong Kong Court of Final Appeal delivered judgment a couple of days ago in Securities and Futures Commission v Lee Kwok Wa and others [2018] HKCFA 45. A summary, in English, is available here.

The case concerned section 300 of the Securities and Futures Ordinance, Cap 571, which provides that "[a] person shall not, directly or indirectly, in a transaction involving securities, futures contracts or leveraged foreign exchange trading - (a) employ any device, scheme or artifice with intent to defraud or deceive; or (b) engage in any act, practice or course of business which is fraudulent or deceptive, or would operate as a fraud or deception".

The court held that "transaction" should be given a wide meaning, interpreted with reference to the purpose of section 300: to outlaw fraudulent conduct in securities transactions. It also held that the phrase "transaction involving securities" should be interpreted to include any dealings with a view to profit or avoidance of loss by the use of inside information (including, for example, the opening a securities account for the purpose of trading in securities).

Thursday 1 November 2018

UK: British Academy Future of the Corporation Project - A Framework for the Future

The British Academy has published, as part of its Future of the Corporation Project, a report in which it is argued that the future of business should be based on three connected principles: corporate purpose; trustworthiness; and an enabling culture. Five "levers" are identified in order to bring about change: ownership; corporate governance; regulation; taxation; and investment. The report provides the foundation for the work that will follow: developing policy recommendations.

A copy of the report is available here (pdf). A special edition of the Journal of the British Academy contains research underpinning the report: see here.

Wednesday 31 October 2018

Tuesday 30 October 2018

UK: FRC launches major review of corporate reporting

The Financial Reporting Council has today announced the start of a major project exploring the future of corporate reporting: see here. Nominations for membership of the project advisory group are being sought: see here (pdf). The following themes have been identified for consideration: the information needs of investors and other stakeholders; the purpose of corporate reporting and the annual report; the different forms of corporate communication; the role of financial and non-financial reporting; the role of technology; and the role of assurance.

The FRC expects that the outcome of the project will be a "series of calls for action for changes to regulation and practice" as well as a "thought leadership paper consolidating the outcomes of the project" during the second half of 2019.

UK: Budget day - insolvency and corporate announcements

The Government's 2018 Budget was presented yesterday. Copies of all of the budget documents are available here, here and here. A couple of proposals were announced concerning insolvency and corporate law.

The first is the introduction, from 6 April 2020, of a new class of preferential creditor in the context of company insolvency. This new preferential creditor will be HMRC in respect of the taxes collected by companies on behalf of employees and customers.  Further information about this change (including details of the current ranking of creditors) is available here (pdf).

The second is the announcement that with effect from the date on which the Finance Bill 2019-20 receives Royal Assent (as the Finance Act 2020, the Act relating to the 2019 Budget), directors will, in certain cases be jointly and severally liable for company tax liabilities. The budget report (at para. 4.19) states, somewhat vaguely, that this will arise in cases of " avoidance, evasion or phoenixism ... where there is a risk that the company may deliberately enter insolvency".

Monday 29 October 2018

Netherlands: first edition of the Dutch Stewardship Code

Last year, Eumedion - the foundation representing institutional investors in the Netherlands - published for consultation a draft Stewardship Code. The finalised edition of the Code - the first Dutch Stewardship Code - was published over the summer: see here (in English, pdf).

Italy: new edition of the Corporate Governance Code for Listed Companies

A copy, in English, of the revised Corporate Governance Code for Listed Companies, published earlier this year by the Italian Corporate Governance Committee, is now available: see here (pdf). A copy of the Code with the amendments highlighted is also available: see here (pdf).

Norway: NUES publishes new edition of the Norwegian Corporate Governance Code

Following a consultation earlier this year, the Norwegian Corporate Governance Board (NUES) has now published an updated edition of the Norwegian Corporate Governance Code for Listed Companies: see here (in English, pdf). A copy of the new Code, with the changes highlighted, is available here (in English, pdf).

Friday 26 October 2018

UK: GC100 guidance on the duty of directors to promote the success of the company

GC100 - the "voice of general counsel and company secretaries working in FTSE 100 companies" - has published guidance on the duty imposed on all directors to promote the success of the company under section 172 of the Companies Act 2006: see here (pdf). A copy of the news release accompanying the guidance is available here (pdf).

The GC100 was invited to publish its guidance as one of the outcomes of the Government's corporate governance reform green paper. The guidance focuses on how to comply with the section 172 duty, in particular the requirement, in promoting the success of the company for the benefit of its members, to have regard to various factors including the interests of the company's employees, the impact on the community and environment and the need to act fairly as between members of the company.

Canada: CSA review of women on boards

The Canadian Securities Administrators (CSA) have published their fourth review of women on boards and in executive officer positions: see here (pdf). The review covered the disclosures made by 648 issuers with year-ends between 31 December 2017 and 31 March 2018 (the disclosures being a requirement of National Instrument 58-101 Disclosure of Corporate Governance Practices). The review found that 15% of board positions were occupied by women, with 66% of issuers having at least one woman on their board; 218 issuers had no women on their board.

Thursday 25 October 2018

UK: Takeover Panel consults on amendments to Rule 29 of the Takeover Code

Earlier this month the Takeover Panel Code Committee published a consultation paper setting out proposed changes to Rule 29 ("Asset valuations") of the City Code on Takeovers and Mergers: see here (pdf). The intention is that Rule 29 should be amended in order that it better reflects the current practice of the Panel Executive. The intention is not, therefore, to alter materially the manner in which Rule 29 is currently applied.

Wednesday 24 October 2018

UK: FRC publishes annual review of corporate governance and reporting

The Financial Reporting Council has today published its annual review of corporate governance and reporting: see here (pdf). With regard to governance it is noted that reported compliance with the UK Corporate Governance Code is high: 95% of FTSE350 companies report that they comply with all but one or two of the Code's provisions. However, the report notes (in a tone that seems stronger and more explicit than in previous years) that such high levels of compliance are not necessarily an indication of high standards of governance. It is also stated that companies remain reluctant to provide clear explanations in respect of areas of non-compliance with the Code's provisions.

It should be noted, to quote directly from the review, that the FRC's "... assessment of corporate governance is ... based largely on evidence gathered through research conducted by external parties" (p.3). This is, perhaps, surprising not least because the evidence relied upon - some of the reports on governance published by the large accounting firms - will have been prepared for a different purpose.  And, at a time when the relationship between the FRC and the accounting firms is under scrutiny, the appropriateness of such (narrow) reliance ought to be questioned.  The FRC explains it reliance on external parties' research as stemming from the fact that its monitoring of annual reports does not include corporate governance statements because it lacks the power to challenge and gain changes in such statements.  This is, to the say the least, surprising given the central role of the FRC within the UK corporate governance framework.

India: Insolvency Law Committee report on cross-border insolvency

The Insolvency Law Committee established by the Ministry of Corporate Affairs has published its second report: see here (pdf). The report focuses on cross-border insolvency and makes recommendations for the adoption, with some modifications, of the UNCITRAL Model Law on Cross Border Insolvency.

Tuesday 23 October 2018

New Zealand: can a minority shareholder's refusal to endorse a special resolution be unfairly prejudicial?

Earlier this year - on 22 August to be precise - New Zealand's highest appellate court, the Supreme Court, delivered judgment in Baker v Hodder [2018] NZSC 78. A media summary is available here (pdf). The judgment is noted here for reasons that do not emerge strongly from the media summary: the discussion of the extent to which a majority shareholder is able to seek relief in respect of a minority's refusal to endorse a special resolution.

The facts were these. The company's shareholders and directors were family members: the Bakers and the Hodders; the Hodders held 70% of the shares and the Bakers the remaining 30%. An important transaction - the sale of a farm - was proposed requiring a special resolution under section 129 ("Major transactions") of the Companies Act 1993. The Bakers agreed to sign a written resolution if certain conditions were met; without their approval a special resolution could not be passed.

The Bakers decided not to grant their approval, whereupon the Hodders brought an action under section 174 ("Prejudiced shareholders") of the 1993 Act, which permits a shareholder to seek relief where "... the affairs of a company have been, or are being, or are likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, or are likely to be, oppressive, unfairly discriminatory, or unfairly prejudicial to him or her in that capacity or in any other capacity".

The trial judge, Ellis J, held that the Bakers' refusal was unfairly prejudicial and ordered the Bakers to sign the resolution; she also refused to stay her decision to permit the Bakers to appeal. The farm was sold. The Court of Appeal declined to hear the Bakers' appeal, taking the view that the case was moot given that the farm had been sold.

The Supreme Court unanimously held that the Court of Appeal should have heard the Bakers' appeal which, though moot, raised issues of sufficient importance - including the interaction between sections 129 and 174 of the 1993 Act - to justify the Court of Appeal exercising its discretion to hear the appeal. The Court further held that it was inappropriate to order the Bakers to sign the resolution: this was, the Court held, "usurping their position as shareholders" (para. [72]). A little earlier in the judgment, it was observed (paras. [70] and [71]):
...s 174 applies where the affairs of the company have been, are being or are likely to be, conducted in a manner that is oppressive, unfairly discriminatory or unfairly prejudicial to the party claiming under s 174. Although this language is not obviously apt where the oppression complained of consists of a shareholder invoking the right to decline to approve a major transaction under s 129, s 174(3) contemplates that a s 174 order may be made against a person other than the company, including a shareholder. That could be taken as suggesting that s 174 could apply where a shareholder or group of shareholders refuses to approve a major transaction under s 129. Even if s 174 did apply in such a situation, however, the power to make an order under that section would need to be exercised with great caution.

One situation in which it may be appropriate to make an order under s 174 against a minority shareholder who refuses to approve a major transaction is where there are particular circumstances that mean the minority shareholder is breaching a duty owed to the company or to another shareholder or an understanding among shareholders as to the ongoing conduct of the affairs of the company. There may be others; it is not necessary for us to reach a definitive view on that in the present case".