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".

Monday 22 October 2018

UK: developments in auditing - a CMA study and FRC reviews

The Competition and Market Authority's invitation to comment, in respect of its market study of the statutory audit market, will close towards the end of October: see here (pdf). A review of the role of the external auditor - and the external audit report - is the focus of work being done by the Financial Reporting Council, as explained in its recent report on development in audit: see here (pdf).

Hong Kong: Court of Final Appeal dismisses Moody's appeal in credit rating liability case

The Hong Kong Court of Final Appeal delivered judgment earlier this month in Moody's Investors Service Hong Kong Ltd v Securities and Futures Commission [2018] HKCFA 42. A short summary (in English) is available here. Moody's appeal was unanimously rejected, the court thereby upholding the company's liability under section 193(1)(d) of the Securities and Futures Ordinance, Cap. 571 in respect of a report the production of which was regarded as an activity relating to the company's credit rating services.

Friday 19 October 2018

Ireland: the representation of companies before the courts

The Supreme Court gave judgment yesterday in Allied Irish Bank plc v Aqua Fresh Fish Ltd [2018] IESC 49. The court unanimously concluded (to quote directly from the judgment of Finlay Geoghegan J at para. [48]):
The so-called rule in Battle v. Irish Art Promotion Centre Limited [1969] I.R. 252, when complemented by the inherent jurisdiction and discretion of the Court to permit, in exceptional circumstances, representation of a company by a person who is not a lawyer with a right of audience, continues to be the law in this jurisdiction and is consistent with the Constitution."

USA: Updated Commonsense Corporate Governance Principles published

A couple of years ago a group comprising of well known company directors, investment managers and institutional investors published a series of corporate governance principles - described as 'commonsense' - for public companies. The principles covered the following: board composition and internal governance; board responsibilities; shareholder rights; public reporting; board leadership; management succession planning; compensation of management; and asset managers' role in corporate governance.

Yesterday a new version of the principles was published - see here (pdf) - and it was announced that Columbia Law School’s Millstein Center for Global Markets and Corporate Ownership would publish the principles and maintain, on its website, a list of companies and investors that have committed to them.

Thursday 18 October 2018

South Africa: Companies Amendment Bill published

The Department for Trade and Industry has published for public comment a draft of the Companies Amendment Bill: see here (pdf). The Bill will amend the current company law framework as found in the Companies Act, 2008 and Companies Regulations, 2011.

Zimbabwe: comments sought on the Companies and Other Business Entities Bill

The Parliament of Zimbabwe is seeking comments on the Companies and Other Business Entities Bill, which contains Zimbabwe's new company law framework and which has recently been gazetted: see here. A copy of the Bill is available here (pdf).

Wednesday 17 October 2018

IOSCO final report: equity capital raising - conflicts of interest and associated conduct risks

Following a consultation earlier this year, the International Organisation of Securities Commissions has now published its final report Conflicts of interest and associated conduct risks during the equity capital raising process: see here (pdf). The report identifies various risks and contains non-binding guidance for IOSCO members.

Ghana: company law reform - the Companies Bill 2018

Some sixty years after Professor Gower was appointed to chair a commission on company law reform in Ghana, the product of which was the Companies Act 1963, the introduction of a new company law framework has moved closer with the laying before Parliament of the Companies Bill 2018. A copy of the Bill, which when enacted will replace the 1963 Act, is available here (pdf). To focus on one part of the Bill, it is interesting to compare section 190 of the Bill - "Duties of directors" - with section 172 of the UK's Companies Act 2006.

Tuesday 16 October 2018

Lithuania: OECD report on corporate governance

As part of the process leading to Lithuania's accession to the OECD, a report on corporate governance in Lithuania has been prepared: see here.

Monday 15 October 2018

Jersey: the Limited Liability Companies Law

The availability of the LLC structure has moved closer with the adoption of the Limited Liability Companies (Jersey) Law 201- by the States last month (the next two stages are the sanction of Her Majesty in Council and registration by the Royal Court). A copy of the Act is available on the Jersey Legal Information Board website: see here.

UK: financial risk from climate change - what the PRA expects from boards

The Prudential Regulation Authority has today published for consultation a draft supervisory statement setting out its expectations of firms in respect of their approach to managing the financial risks from climate change: see here (pdf). The accompanying press release is available here (pdf). The PRA's expectation of the board is explained as follows (see para. 3.4 of the draft supervisory statement):

The PRA expects firms to have clear roles and responsibilities for the board and its relevant sub-committees in managing the financial risks from climate change. In particular, the board and the highest level of executive management should identify and allocate responsibility for identifying and managing financial risks from climate change to the relevant existing Senior Management Function(s) (SMF(s)) most appropriate within the firm’s organisational structure and risk profile, and ensure that these responsibilities are included in the SMF(s)’s Statement of Responsibilities. The PRA expects to see evidence that the board and its relevant subcommittees exercise effective oversight of risk management and controls. Further, the PRA expects the board to ensure that adequate resources and sufficient skills and expertise are devoted to managing the financial risks from climate change."

Blogging back to normality

I am pleased to report that regular posting has resumed after a break for reasons largely unexpected. The posts that follow will be a mix of the very up to date and those from the last few months that are important to note for the purposes of the record that this blog has become. With best wishes, Robert.