UK: women on FTSE350 boards

Later this month - June 27, to be precise - the latest announcement concerning the number of women on FTSE350 boards will be made. In November 2016, the Hampton-Alexander review called for a minimum of 33% of FTSE350 board positions to be occupied by women. Ahead of the June 27 announcement, some of the explanations offered by CEOs and Chairs for not appointing women have been published (as heard by members of the Hampton-Alexander review team) have been published and these indicate why progress has been slow in some quarters. The comments included: "I don't think women fit comfortably into the board environment"' and "Most women don't want the hassle or pressure of sitting on a board".

India: SEBI's review of the regulatory framework governing credit rating agencies

The Securities and Exchange Board of India began a consultation on the regulatory framework applicable to credit rating agencies last autumn: see here. An update was provided yesterday, including the publication of new guidelines: see here.

Pakistan: the Limited Liability Partnership Regulations, 2018

The Limited Liability Partnership Regulations, 2018, were notified earlier this month: see here (pdf). The Regulations add to the new framework - the Limited Liability Partnership Act, 2017 (pdf) - and contain provisions concerning the incorporation of LLPs.

New Zealand: Members' Bill seeks to provide clarity concerning 'dry shares'

One of the members' bills recently successful in the ballot of those to be introduced was the Companies (Clarification of Dividend Rules in Companies) Amendment Bill. The Bill was introduced by Todd Muller MP - a copy is available here. The explanatory note can be viewed here. The purpose of the Bill is to make it clear that a company's constitution can create a class of shares in which some carry the right to dividends and others (known as 'dry shares') do not. This will be done through amending section 53 of the Companies Act 1993. The explanatory note accompanying the Bill cites as the classic example of such dry shares as being those belonging to a shareholder in a cooperative where the shareholder no longer supplies the cooperative.

UK: England and Wales: the scope of corporation tax relief for a predecessor company's losses

In 2009, Leekes Ltd acquired the entire share capital of another company, Coles of Bilston Ltd, with the Coles business being incorporated into that of Leekes. Coles had been loss making and Leekes was entitled under tax legislation to offset those losses against its trading income (see, now, section 944 of the Corporation Tax Act 2010).

The question for the Court of Appeal in a judgment given yesterday - Leekes Ltd v HM Revenue & Customs [2018] EWCA Civ 1185 - was whether these losses could be offset against (a) the trading income of the whole Leekes business or (b) the trading income derived from the business acquired from Coles. The court was unanimous in holding that it was (b). Lord Justice Henderson observed that this:

... is the only construction which the ordinary and natural meaning of the statutory language can bear, and it produces an obviously sensible result. If the construction advanced by Leekes [(a)] were correct, the result would be to place the successor company in a more favourable position than the predecessor, because it would enable the successor to utilise the accumulated losses of the predecessor against trading income derived from a business which the predecessor had never carried on. It is hard to think of any sensible reason why Parliament should have wished to confer such an advantage on the successor to a trade, and (had it done so) there would have been obvious potential for tax avoidance and the development of a thriving secondary market in corporate trading losses" (para. [28]).

Ireland: Central Bank consults on governance requirements for investment firms and market operators

The Central Bank has published a second consultation paper concerning the corporate governance requirements for investment firms and market operators: see here (pdf). The consultation paper seeks to update the current requirements to deal with the consequences of MiFID II including the European Union (Markets in Financial Instruments) Regulations 2017 and the joint EBA and ESMA Guidelines on the assessment of the suitability of members of the management body andkey function holders.

UK: England and Wales: 'the purpose' and transactions defrauding creditors

Judgment was given today by the Court of Appeal in JSC BTA Bank v Ablyazov & Anor [2018] EWCA Civ 1176. The judgment is noteworthy because of what is said about the operation of section 423 ("Transactions defrauding creditors") of the Insolvency Act 1986. Section 423 applies only where a transaction has been entered "for the purpose - (a) of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or (b)of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make" (emphasis added). With regard to "the purpose", Lord Justice Leggatt observed:

I agree with the point made in McPherson's Law of Company Liquidation (4^th Edn, 2017), para 11-116, that there is no need to put a potentially confusing gloss on the statutory language. It is sufficient simply to ask whether the transaction was entered into by the debtor for the prohibited purpose. If it was, then the transaction falls within section 423(3), even if it was also entered into for one or more other purposes. The test is no more complicated than that" (para. [14]). 

UK: Labour Party launches review of the auditing and accounting regulatory framework

The Labour Party has announced that it has commissioned a review, by Professor Prem Sikka, of the regulatory framework for auditing and accounting: see here. Professor Sikka has been asked to develop proposals to "reform and reinvigorate" the regulatory system.

Australia: launch of the Australian Asset Ownership Stewardship Code

The Australian Asset Owner Stewardship Code was published yesterday by the Australian Council of Superannuation Investors: see here (pdf). Further information about this new Code is available in the accompanying FAQs (here, pdf) and media release (here, pdf).

Norway: NUES consults on changes to the Norwegian corporate governance code

The Norwegian Corporate Governance Board (NUES) is consulting on proposed changes to the Norwegian corporate governance code: see here (pdf, English).

UK: Lords ad hoc committee to examine the Bribery Act 2010

An ad hoc, post-legislative scrutiny committee has been set up by the House of Lords to consider the Bribery Act 2010: see here. The committee's membership was announced today: see here. The chair will be Lord Saville of Newdigate, a former Supreme Court Justice. In very broad terms, the committee will explore whether the Act has achieved its objectives in terms of convictions and awareness of the Act among small and medium sized enterprises: see here.

UK: BEIS/WP Committees publish joint second Carillion report

The second, joint report concerning the collapse of Carillion plc has been published by the Work and Pensions and Business, Energy and Industrial Strategy committees: see here or here (pdf). Various recommendations are made, including referring the statutory audit market to the Competition and Markets Authority; a focus on a more active and interventionist approach in the next edition of the UK Stewardship Code; and a more prominent role for regulators, including the Financial Reporting Council which, it is argued, should become more proactive and aggressive.

Canada: corporate governance reform - Bill receives Royal Assent

The Bill introduced to make changes to the governance framework - by amending the Canada Business Corporations Act, the Canada Cooperatives Act, and the Canada Not-for-profit Corporations Act - has become law having received Royal Assent earlier this month: see here. A copy of the new Act is available here. A short press release, from the Canadian Government, has also been published: see here.

Ireland: a governance code for charities

The Charities Regulator has announced that it will, later this year, publish a governance code for charities: see here (pdf). The creation of such a code was one of the principal recommendations made in the Report of the Consultative Panel on the Governance of Charitable Organisations (here, pdf).

UK: ACCA publication - the tenets of good corporate governance

The ACCA has published a report titled Tenets of Good Corporate Governance: see here (pdf). To quote directly from it, the report "...sets out key issues for companies to think about when considering their long term business model and strategy. It examines the interrelation between businesses and the context in which they operate, encouraging them to embrace good practice that facilitates long term growth".

UK: Deloitte LLP fails to be re-appointed at SIG plc annual general meeting

The annual general meeting of SIG plc was held yesterday: see here (pdf). Of note - because it is rare to see - is the rejection by the shareholders of the resolution to re-elect the external auditors (Deloitte LLP). The shareholders voted: 108,962,143 (For); 395,827,122 (Against); and 371,198 (Withheld). The board has announced that a tender of the audit engagement will now take place.

UK: First PRA/FCA case under the Senior Managers Regime - Mr James Staley and what is expected of a CEO

The first case brought by the Prudential Regulation Authority and Financial Conduct Authority under the Senior Managers Regime has seen the chief executive of Barclays Group, Mr James Staley, fined £642,430. Mr Staley was found to have breached Individual Conduct Rule 2 - the requirement to act with due skill, care and diligence - in respect of his attempt to identify the author of an anonymous letter, purporting to be from a Barclays shareholder, in which various allegations were made (some of which concerned Mr Staley). A copy of the final notice is available here (pdf) and this contains the following observations on the expectations of the CEO (paras. 4.3 to 4.6):

The CEO is the most senior executive director on the board, and therefore has a crucial role to play in ensuring that their firm meets the standards expected of it. A CEO is expected to identify conflicts of interest and be appropriately alert to potential whistleblowing situations. As such, they are expected to demonstrate the highest standard of integrity and to act with due skill, care and diligence in carrying out their functions.

The CEO has responsibility for proposing strategy to the board and for delivering the strategy as agreed. Further, the CEO has, with the support of the executive team, primary responsibility for setting an example to the firm’s employees, and communicating to them the expectations of the board in relation to the firm’s culture, values and behaviours. 

Further, a CEO of an authorised firm must comply with ICR 2, acting with due skill, care and diligence at all times in performing their role. The standard is an objective one and requires a CEO to exercise the degree of due skill, care and diligence as a reasonable CEO would exercise in like circumstances.

The steps that a person needs to take to comply with ICR 2 will be informed by, amongst other things, the circumstances, the specific nature of their role and their experience. Given the crucial role of the CEO, the expectations of the CEO will be more exacting than for other employees of their firm. This is consistent with the CEO’s responsibility for setting an example to the firm’s employees. For example, where a CEO is faced with circumstances that might undermine the impartiality of their judgement, they need to ensure that appropriate standards of probity and governance are maintained".  

UK: England and Wales: High court sanctions Lloyds ring-fencing scheme

Earlier this month, in Lloyds Bank Plc & Ors R(ring-fencing transfer scheme) (Rev 1) [2018] EWHC 1034 (Ch), Mr Justice Hildyard sanctioned the proposed ring-fencing transfer scheme for Lloyds Bank. This is the second time that the High Court in England and Wales has done so; the first was in March: Re Barclays Bank Plc And Woolwich Plan Managers Ltd, Re [2018] EWHC 472 (Ch), [2018] WLR(D) 158.

In this first decision the Chancellor noted various factors that ought to be taken into account by the court in exercising its discretion, one of which was:

The design of a ring-fencing transfer scheme is a matter for the board of the bank concerned. There may be many possible approaches to the design of a statutorily-compliant ring-fencing transfer scheme that will affect stakeholders differently. The choice is for the directors of the bank concerned, acting properly in accordance with their duty under section 172(1) of the Companies Act 2006 (which is to act in the way they consider, in good faith, would be most likely to promote the success of the company having regard to matters including those specified in that subsection)."

The Lloyds decision is of interest because Mr Justice Hildyard chose to add what he termed a "reservation" or "gloss" in respect of the courts' acceptance of the judgment of directors in proposing a particular scheme:

I accept that the court will give considerable latitude to commercial decisions of a board which has appeared properly to address the correct question and acted in accordance with its duties under statute and common law. I accept, more particularly, that where there are different designs of scheme, none of which leaves people materially adversely affected, or no more so than is reasonably necessary to achieve the ring-fencing purpose, the choice is for the promoters (and thus the directors) to make.

However, I would wish to emphasise that when the second part of the Statutory Question [see section 109A(4) of the Financial Services and Markets Act 2000] is being addressed, the question is not whether any adverse effect is greater than is reasonably necessary given the constraints of the particular scheme design, but whether that adverse effect is such as to be greater than reasonably necessary in order to achieve the statutory purpose. If the adverse effect appears material, and it appears likely that another scheme design would have avoided the adverse effect, that may call in question the scheme design chosen; and the court would not be required to accept the directors' choice (albeit that it would then also have to consider potential adverse effects of other designs). In other words, the greater the adverse effect, the more justified the scrutiny of the scheme design, and the less may be the readiness of the Court to accept the commercial judgment of the directors". 

Zimbabwe: copy of the Companies and Other Business Entities Bill now available

A copy of the Companies and Other Business Entities Bill, which contains Zimbabwe's new company law framework, is now available on the Parliament website: see here.

IOSCO: consultation report - good practices for audit committees in supporting audit quality

The International Organisation of Securities Commissions has published a consultation report titled Good Practices for Audit Committees in Supporting Audit Quality: see here (pdf). The report, as its title suggests, proposes various features that an audit committee should have in order to promote and support audit quality.  These include the qualities, qualifications and experience of audit committee members.

Update (17 January 2019) - the final report has now been published: see here (pdf).

Australia: ASX consults on fourth edition of its corporate governance principles and recommendations

The ASX Corporate Governance Council has begun a consultation in respect of the publication of a fourth edition of its corporate governance principles and recommendations. The documents published as part of the consultation are available here.

UK: QCA publishes new edition of its corporate governance code

The Quoted Companies Alliance has published an updated edition of its governance code for small and mid-size quoted companies in the UK: see here. Copies of the code are not freely available.

UK: BEIS consultation paper - reform of limited partnership law

The Department for Business, Enterprise and Industrial Strategy has published a consultation paper seeking views on various proposals concerning limited partnerships (including Scottish limited partnerships) the aim of which is reduce the risk of abuse: see here (pdf). The paper notes, for example, the National Crime Agency finding of a disproportionately high volume of suspected criminal activity involving Scottish limited partnerships.

UK: The Companies (Disclosure of Address) (Amendment) Regulations 2018

The Companies (Disclosure of Address) (Amendment) Regulations 2018 were made at the end of last month and are now in force: see here. The purpose of the Regulations is to amend the Companies (Disclosure of Address) Regulations 2009 in order to introduce a new confidentiality regime in respect of residential addresses held on the register of companies. No longer will it be necessary for an individual to show that that there is a serious risk of violence of intimidation arising from a company's activities in order to remove from the public register their residential address. Further information is available in the accompanying explanatory memorandum (here, pdf) and announcement from Companies House.