Tuesday 30 April 2019

Croatia: consultation on new corporate governance code

The Croatian Financial Services Supervisory Agency and Zagreb Stock Exchange have begun a consultation on a revised edition of their joint Corporate Governance Code. A copy of the revised Code is available here (pdf). The accompanying consultation paper and consultation questionnaire can be found, respectively, here (docx) and here (docx).

The revised Code applies to all companies whose shares are listed on the regulated markets of the Zagreb Stock Exchange and comes into force on 1 January 2020. Among the new recommended practices included within the Code are those concerning codes of conduct for supervisory and management board members; engagement with minority shareholders; and the setting of targets for the proportion of women on both boards (with annual reporting of progress towards those targets).

Monday 29 April 2019

Pakistan: a new corporate governance code for listed companies

The Securities and Exchange Commission of Pakistan has published, for consultation, a draft of a new corporate governance code for public listed companies. A draft of the Listed Companies (Code of Corporate Governance) Regulations, 2019, is available here.

Note: at the time of posting this note, links to the SEC website were not working (for me, at least) and I could not consult the Regulations. The SECP's Twitter page was unaffected, from where the below announcement was taken:

The Bahamas: the oppression remedy

The Judicial Committee of the Privy Council gave its opinion earlier this month in Galantis v Alexiou [2019] UKPC 15, on appeal from the Court of Appeal of the Commonwealth of The Bahamas. A summary of the opinion, which concerned sections 272 ("Continuation of liability") and 280 ("Restraining oppressive action") of the Bahamian Companies Act 1992 [here, pdf] - has been published by the ICLR: see here.

Friday 26 April 2019

South Korea: improving the functioning of annual general meetings

Proposals intended to improve the operation of annual general meetings have been published by the Financial Services Commission and the Ministry of Justice: see here (pdf). One of the problems identified is the concentration of AGMs over a short period of time. This is to be addressed by a change in the law limiting the number of AGMs that can be held on particular days.

It is also noted that it is unclear whether shareholders can receive a small gift or other incentive for attending an AGM because of the prohibition, under Article 467-2 of the Commercial Act, of the grant of pecuniary benefits to shareholders in connection with the exercise of their rights as shareholders. The Ministry of Justice proposes to remove this uncertainty by publishing an interpretation to make clear that shareholders can receive a benefit, of a value that does not breach social norms, for their participation at the AGM.

Other proposals address the information that shareholders receive and how they receive notice of the AGM.

OECD survey of corporate governance frameworks in the Middle East and North Africa

The OECD has published a survey of the corporate governance frameworks in the Middle East and North Africa: see here. The survey identifies, amongst other things, the sources of the governance framework (e.g., law; regulation) and responsibility for governance codes; it also highlights various shareholder rights (e.g., to convene a meeting) as well as board structure and composition requirements.

BCBS publishes Consolidated Basel Framework

The Basel Committee on Banking Supervision has published a consolidated version of its standards, titled The Basel Framework, containing the full set of standards that it has issued: see here. This version of the Framework has been published for consultation purposes because, as the BCBS separately explains, its production revealed some inconsistencies between standards as well as ambiguities that needed to be addressed, some through policy changes. The BCBS decided that it was best to consult on all such changes as part of the launch of the Consolidated Framework. The Framework is briefly explained in the below video (or on this page if the video below does not work).

France: a new regulatory regime for crypto-assets

France's financial market regulator, the Autorité des Marchés Financiers (AMF), has published a summary (in English) of the new regulatory regime for crypto-assets in France: see here.

Wednesday 24 April 2019

Japan: Council of Experts recommendations for the further promotion of corporate governance reform

The Council of Experts set-up to review Japan’s Corporate Governance Code and Stewardship Code has published an "opinion statement", directed at those subject to the Codes, with recommended areas for review: see here (pdf).

UK: England and Wales: bankruptcy and the concept of property

The ICLR has published a summary for the recent Court of Appeal decision Gwinnutt v George & Anor [2019] EWCA Civ 656: see here. While concerned with a case of personal insolvency, the decision contains wide-ranging discussion of the concept of property and for this reason it is likely to be of wider significance. To quote directly from the ICLR headnote:
A barrister’s fees, even when non-contractual, were “property” for the purposes of the 1986 Act and so vested in a trustee in bankruptcy. “Property” was explained in the widest of terms in section 436, but even that “definition” was inclusive rather than comprehensive. Unpaid fees, regardless of whether they were contractual, were capable of realisation. The fact that something could be realised or turned to account did not invariably make it “property”, but it pointed in that direction and, here, the expectation of payment was not founded on mere hope or morality but reflected the unique nature of non-contractual barristers’ fees. Payment of such a fee was not to be regarded as voluntary". 

Thursday 18 April 2019

UK: CMA report and recommendations - statutory audit market

The Competition and Markets Authority has today published its final report followng its statutory audit market study: see here (pdf). A summary of the final report is available here (pdf) and a press release highlighting the recommendations is available here. The recommendations include:
  • An operational split within (initially) the 'Big Four', requiring separate governance and management structures (e.g., a separate CEO and board; separate financial statements for the audit practice).  If this does not deliver the anticipated benefits, the case for a structural split should be revisited.
  • Mandatory joint audits, with challenger firms working with the 'Big Four' and having joint liability.
  • Greater regulation of audit committees by the new Audit, Reporting and Governance Authority (ARGA), the proposed successor of the Financial Reporting Council. ARGA should have the power to request information from audit committees and to issue public reprimands; it should have the power to appoint an observer on the committee.
  • A review of progress in five years, by the ARGA.

Wednesday 17 April 2019

UK: Transposition of the Fifth Money Laundering Directive

The Government has published a consultation paper concerning its transposition of the Fifth Money Laundering Directive (Directive (EU) 2018/843): see here (pdf). Implementation of the Directive will expand the scope of the current anti-money laundering framework within the UK, including with regard to crypto-assets.

Tuesday 16 April 2019

UK: FRC/ARGA - first Government remit letter published

One of the recommendations made by Sir John Kingman, in his review of the Financial Reporting Council, was that the Government should issue the FRC (and its propopsed successor: the Audit, Reporting and Governance Authority) with a remit letter, at least once during the lifetime of each Parliament, setting out "those aspects of economic policy that the regulator should have regard to when advancing its objectives and discharging its duties". It was also recommended that the FRC/ARGA should respond publicly to the remit letter. The first of these exchanges took place in March and have now been published: see here (pdf) and here (pdf).

UK: The Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) Regulations 2019

The Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) Regulations 2019 have been published in draft form: see here or here (pdf). The Regulations implement, in part, Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement.

More specifically, the Regulations will implement elements of articles 9a ("Right to vote on the remuneration policy") and 9b ("Information to be provided in and right to vote on the remuneration report") of the Directive to the extent that they are not already part of UK law. Further information is available in the explanatory memorandum accompanying the Regulations: see here (pdf).

Monday 15 April 2019

UK: PRA statements - managing the financial risks from climate change

The Prudential Regulation Authority has published a policy statement and supervisory statement regarding banks' and insurers' approaches to managing the financial risks from climate change: see, respectively, here and here.

The supervisory statement explains, to quote directly from it (para. 3.2): "The PRA expects a firm’s board to understand and assess the financial risks from climate change that affect the firm, and to be able to address and oversee these risks within the firm’s overall business strategy and risk appetite"

It also adds (at para. 3.4): "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) ...".

Friday 12 April 2019

Ireland: The Central Register of Beneficial Ownership of Companies and Industrial and Provident Societies

The Companies Registration Office has provided an update on the creation of the Central Register of Beneficial Ownership of Companies and Industrial and Provident Societies, following the making of the European Union (Anti-Money Laundering: Beneficial Ownership Of Corporate Entities) Regulations 2019: see here. These Regulations contain the obligations on companies to maintain beneficial ownership information as well as the framework for the operation of the new central register. They replace the European Union (Anti-Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2016.

The intention is that the Registrar of Companies will act as the Registrar of the beneficial ownership register and that online filing by companies will begin on 22 June 2019 (the date that Part 3 of the 2019 Regulations comes into force). The deadline for filing beneficial ownership information is five months after 22 June 2019, for companies incorporated before this date; companies incorporated on or after 22 June 2019 must file within five months of their incorporation.


In the UK, the House of Commons Library has recently published a short briefing paper on beneficial ownership registers: see here. The paper describes the registers that exist in the UK as well as the position that exists in the British Overseas Territories and the Crown Dependencies. Relevant EU law is also discussed.

UK: Stewardship Code consultation - responses published

The Financial Reporting Council published a consultation paper earlier this year setting out proposed changes to the UK Stewardship Code: see here. The consultation closed at the end of March and the responses received have now been published: see here. When the consultation was launched, the expectation was that the new Code would be published in the summer; the FRC's draft plan and budget for 2019/20, published last month, states that the new Code will be published in 2019/20.

Ireland: The Companies (Amendment) Act 2019

The Companies (Amendment) Act 2019 was signed into law yesterday by the President: see here. The Act will be published shortly on the Irish Statute Book website: see here. Meanwhile, further information - and a copy of the Bill that became the Act - is available on the Oireachtas website: see here. The Act is short and has a single principal purpose: to extend, in certain circumstances, the time permitted for the filing of an annual return; this is achieved by amending section 343 of the Companies Act 2014.

UK: The European Union (Withdrawal) Act 2018 (Exit Day) (Amendment) (No. 2) Regulations 2019

The European Union (Withdrawal) Act 2018 (Exit Day) (Amendment) (No. 2) Regulations 2019 were made yesterday: see here or here (pdf). They have amended section 20 of the European Union (Withdrawal) Act 2018 in order to provide a new date for the UK's departure from the European Union (exit day): 31 October 2019 at 11.00 pm. Further information is available in the accompanying explanatory memorandum: see here (pdf).

Thursday 11 April 2019

UK: England and Wales: accessory liability for breach of trust or fiduciary duty

A quick note, a little late in the day. The Court of Appeal gave judgment earlier in LLB Verwaltung (Switzerland) AG v Group Seven Ltd & Ors [2019] EWCA Civ 614 and held, amongst other things, that "In the light of [Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67], it must in our view now be treated as settled law that the touchstone of accessory liability for breach of trust or fiduciary duty is indeed dishonesty, as Lord Nicholls so clearly explained in [Royal Brunei Airlines v Tan [1995] 2 AC 378], and that there is no room in the application of that test for the now discredited subjective second limb of the Ghosh test [[1982] QB 1053]" (para. [57]).

Update (15 April 2019) - the ICLR has published a summary: see here.

Germany: consultation on a revised Corporate Governance Code - an update

Last November, 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). Further supporting materials were published at the time: see here (in German) or here (in English).

Earlier this month an update on the consultation and new Code was given in a speech by the Commission's chairman (Prof. Nonnenmacher). A copy of the speech was published a few days later on April 8: see here (pdf). An (official) English translation is not (so far) available.

My interpretation of the speech suggests that there may be a delay in the coming into force of new Code - originally planned for 10 June 2019 - should there be a delay in the coming into force of the legislation - ARUG II - implementing the Shareholder Rights Directive (2017/828). Depending on the delay in implementing ARUG II, the Commission is considering publishing a final draft of the new Code in May 2019, highlighting the changes it proposes to the draft published last year. This is not intended to open a second period of consultation, although Prof. Nonnenmacher has indicated the Commission's willingness to accept further feedback.

Wednesday 10 April 2019

UK: Brydon Review launches 'call for views' regarding audit quality and effectiveness

Earlier this year, the terms of reference for Sir Donald Brydon's review of the quality and effectiveness of the UK audit market were published: see here (pdf). These have been followed today by a 'call for views': see here (pdf). In very general terms, the review is seeking "views, supported by evidence wherever possible, on the extent of assurance that audit currently provides to the users of financial statements, and how it might develop to meet better those users’ needs and to serve the interests of other stakeholders and the wider public interest". It is stressed that attention should focus on the audit process and audit product. Views are particularly invited on how the statutory audit of public interest entities could be improved to provide greater assurance to shareholders and other stakeholders.

UK: England and Wales: parent company liability in tort for subsidiary company actions or omissions

The UK Supreme Court gave judgment today in Vedanta Resources PLC v Lungowe [2019] UKSC 20: see here (pdf). A summary of the judgment is available here (pdf). Of particular interest is that part of the judgment in which Lord Briggs (with whom Lady Hale, Lord Wilson, Lord Hodge and Lady Black agreed) considered the potential liability of a parent company in tort for the actions (or omissions) of its subsidiary companies.

Lord Briggs stated (at para. [49]) that parent company liability for the activities of subsidiary companies was not, of itself, a distinct category of liability in common law negligence.  He rejected the argument that a parent company could never incur a duty of care in respect of its subsidiaries' activities merely by the adoption of group-wide policies and guidelines and the expectation that the management of each subsidary would comply (para. [52]).  He further stated (at para. [53]):
Even where group-wide policies do not of themselves give rise to such a duty of care to third parties, they may do so if the parent does not merely proclaim them, but takes active steps, by training, supervision and enforcement, to see that they are implemented by relevant subsidiaries. Similarly, it seems to me that the parent may incur the relevant responsibility to third parties if, in published materials, it holds itself out as exercising that degree of supervision and control of its subsidiaries, even if it does not in fact do so. In such circumstances its very omission may constitute the abdication of a responsibility which it has publicly undertaken".

Tuesday 9 April 2019

UK: England and Wales: director liability for inducing breach of contract by their company

Judgment was given yesterday in Antuzis & Ors v DJ Houghton Catching Services Ltd & Ors [2019] EWHC 843 (QB).The judgment is noteworthy because of the discussion it contains of what has become known as the rule in Said v Butt [1920] 3 KB 497 - that a director will not be liable for inducing breach of contract by their company if they act bona fide within the scope of their authority - and the linked discussion of the duty imposed on directors to promote the success of the company under section 172 of the Companies Act 2006. It is also noteworthy in providing an example of a company secretary being found in breach of duty.

The facts of this and an earlier case have been well publicised by the media and involved, in the UK, the exploitation of people from Lithuania: see here. Employed by a company, DJ Houghton Catching Services Ltd, the Lithuanian workers - the claimants in the case - received less than the statutory minimum prescribed wages, worked extremely long hours, had payments withheld as a form of punishment, did not receive holiday pay and were subject to other unlawful deductions.

The trial judge (Mr Justice Lane) found, as a preliminary issue, that the director and company secretary were jointly and severally liable to the claimants for inducing the breaches of contract by the company. With regard to Said v Butt, Lane J. held that it was "the officer's conduct and intention in relation to his duties towards the company - not towards the third party - that provide the focus of the 'bona fide' enquiry" (para. [114]). The director and company secretary had, in the judge's view, acted in breach of section 172 and section 174 of the Companies Act 2006.

Monday 8 April 2019

UK: The Small Business, Enterprise and Employment Act 2015 (Commencement No. 7, Consequential, Transitional and Savings Provisions) Regulations 2019

The Small Business, Enterprise and Employment Act 2015 (Commencement No. 7, Consequential, Transitional and Savings Provisions) Regulations 2019 were made last week: see here or here (pdf). These bring into force, in Scotland, certain provisions of the 2015 Act including section 122 (abolition of requirements to hold meetings: company insolvency), section 124 (ability for creditors to opt not to receive certain notices: company insolvency), and section 126 (sections 122 to 125: further amendments) and Part 1 of Schedule 9. The Regulations are accompanied by a short explanatory note: see here.

Friday 5 April 2019

UK: Scotland: leave to act as a director while disqualified

Section 17 of the Company Directors Disqualification Act 1986 provides that an individual disqualifed from acting as a director may nevertheless seek the court's leave to act as a director. In a recent Scottish decision - Re Joseph Meng Loong Lee [2019] ScotSC 27, available here (pdf) - Sheriff Peter J. Braid granted leave for a disqualified director to act as a director of six companies. This number makes the decision unusual (leave had originally been sought to act in respect of 13 companies). The decision is also worth noting because of the discussion it contains about enforcement and, in particular, the lack of monitoring in respect of any conditions that are imposed as part of the grant of leave. In this regard, Sheriff Braid stated (para. [28]):
.... while the undertakings and conditions appear stringent, there is in fact no means of policing them. The pursuer is willing to undertake to comply with the conditions but it seems to me that does not add anything because he requires to comply with the order of the court in any event. While it is the Secretary of State who suggested the conditions, he has no intention of monitoring compliance, and to that extent the insistence on conditions may on one view be seen as something of a cosmetic exercise, with no teeth attached in the event of non compliance. ... it was previously the Secretary of State’s practice to ask the court to include in any order granting leave, a formula of words to the effect that in the event of any of the conditions attached to the order being breached, the permission granted by the court would immediately cease. However, Lady Wolffe declined to approve such wording in Buckley v Secretary of State for Business, Energy and Industrial Strategy [2017] CSOH 105 on the grounds that it would lead to uncertainty.  I respectfully agree with that approach, and the Secretary of State no longer requests that such wording be inserted into any interlocutor, but the consequence of that is that one possible theoretical safeguard which may have existed if such wording had been adopted, is no longer there.  The fact is that the effect of a breach of any of the conditions remains unclear". 

Thursday 4 April 2019

UK: Takeover Panel Instrument - The UK's Withdrawal from the EU

Last month, the Takeover Panel Code Committee published Response Statement 2018/2: The UK's withdrawal from the EU (here, pdf), explaining the Committee's proposed changes to the City Code on Takeovers and Mergers. At that time, the Instrument making these amendments had not been made. It has now been made - see here (pdf) - and the changes within it will take effect on exit day* should the UK leave the EU without a withdrawal agreement including a transition period.

* - Exit day

See Section 20 of the European Union (Withdrawal) Act 2018.

IOSCO final report - 'The Application of Behavioural Insights to Retail Investor Protection'

The International Organisation of Securities Commissions has published a (final) report titled The Application of Behavioural Insights to Retail Investor Protection: see here (pdf). The report contains a literature review as well as a survey of the 'behavioural insights' initiatives being undertaken by regulators. It notes, for example, the tendency of individuals to make different decisions when using an online interface as opposed to face to face interaction with another human being. It is also reported that regulators’ behavioural insights initiatives are at very different stages of development.

Singapore: a presumption of discount?

The Court of Appeal delivered judgment in Thio Syn Pyn v Thio Syn Kym Wendy [2019] SGCA 19 at the end of last month: see here (pdf). This is an important decision - and now leading authority - on an important aspect of the oppression remedy. More specifically, the court was required to consider, where oppression is established and a buy-out order is the remedy, whether there existed a presumption that the shares would be valued on a discounted basis where the company was not a quasi-partnership. The existence of such a presumption was rejected, the court stating (para. 33):
In our view, there does not appear to be an overarching principle or legal policy that justifies (as a general rule) the raising of a presumption of a discount in the context of non-quasipartnerships. None is to be found in the relevant case law or legal literature. Indeed, the latter strongly suggests otherwise. The question may be raised as to whether the proposition that the court concerned ought simply to look at all the facts and circumstances of the case in arriving at its decision as to whether a discount ought or ought not to be applied in the context of non-quasipartnerships is a viable principle to begin with. There is no conceptual objection to this proposition being a viable principle simply because it would have normative force inasmuch as it would be an objective universal or general starting-point for each court. Indeed, even if there were a presumption of a discount (which we hold is not the legal position), the court concerned would still be required to consider all the facts and circumstances of the case in order to decide whether such a presumption ought to be rebutted – in which case no discount would be applied". 

Wednesday 3 April 2019

UK: England and Wales: the power of the court to order a meeting

Judgment was given earlier this week in Schofield v Jones [2019] EWHC 803 (Ch). The case concerned an application under section 306 of the Companies Act 2006, which provides that where it is impracticable to call a meeting of a company, a director or shareholder can apply to the court for an order calling such a meeting. The directions that the court can make in such circumstances include, as stated by section 306(4), a direction that "one member of the company present at the meeting be deemed to constitute a quorum".

In the current case, a company had two shareholders: one a majority shareholder and also a director; the other a minority, and also a director. The quorum for shareholder meetings was two. Attempts by the majority shareholder to remove the other director by a resolution under section 168 of the 2006 Act were thwarted by that director's failure, qua shareholder, to attend shareholder meetings. The majority shareholder sought an order under section 306, including a direction that the quorum at the meeting should be one shareholder; this direction would enable the section 168 resolution to be passed. The order was granted and, in doing so, Judge Sally Barber stated (paras. [37] and [38]):

.... shareholders have a statutory right to remove a director by ordinary resolution under section 168 of the 2006 Act. Section 168 reflects a statutory policy that shareholders should be able to remove a director by ordinary resolution. This is not a case where there are any class rights at play. This is a case where the will of majority shareholder is being thwarted by the refusal of the minority to attend meetings of the Company so as to render the meetings inquorate. The statutory policy reflected in section 168 must, in my judgment, be afforded considerable weight in determining whether to grant relief under s306 to enable a meeting to be called for the purposes of removing a director.

The existence of concurrent s994 proceedings is not necessarily a bar to the grant of an order under s306 ... A fortiori, the mere fact that s994 proceedings have been threatened by the Respondent [the minority] does not preclude the granting of relief under s306. It is merely a factor to be weighed in the balance".

Tuesday 2 April 2019

UK: Brexit - list of made financial services statutory instruments

HM Treasury has updated its list of made financial services statutory instruments - secondary legislation - under the European Union (Withdrawal) Act 2018: see here.

UK: BEIS Committee proposes wide-ranging audit reforms

The Parliamentary Business, Energy and Industrial Strategy Committee has published its 'future of audit' report and recommendations: see here or here (pdf). A summary of the report's conclusions and wide-ranging recommendations can be found here. These were also outlined this morning in a speech by the Committee's chair, Rachel Reeves MP: see here.

The recommendations include: requiring auditors to present at company annual general meetings; encouraging the Competition and Markets Authority (CMA), as part of its statutory audit market study, to aim for the full legal separation of audit and non-audit services; if other remedies and reforms fail, the independent appointment of auditors should be considered; and the frequency of audit rotation should be increased by introducing a seven year, non-renewable, period of engagement.

The Committee also made recommendations concerning the creation of the proposed new regulator - the Audit, Reporting and Governance Authority (ARGA) - to replace the Financial Reporting Council (FRC). Current FRC board members, the Committee stated, should have no meaningful role in the reform process or management of ARGA. The Committee also stated its expectation that the new chair of the FRC (and subsequently ARGA), currently being recruited, would not be appointed until they had appeared before the Committee and the Committee had given its opinion.

Monday 1 April 2019

UK: BEIS publishes environmental reporting guidelines

The Department for Business, Energy and Industrial Strategy has published updated environmental reporting guidelines, to reflect new reporting obligations coming into force today: see here. The guidelines are intended principally for those companies and limited liability partnerships subject to the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 and the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018.