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).