Friday 31 May 2019

UK: ICSA consults on the effectiveness of the independent evaluation of listed company boards

In the statement published last year following its insolvency and corporate governance consultation, the Department for Business, Energy and Industrial Strategy stated that it had invited ICSA to convene a group with the purpose of identifying ways to improve the quality and effectiveness of board evaluations: see here (pdf, para. 1.66). The group has been formed and a day or so ago published a consultation paper: see here (pdf). The paper begins by seeking views on the purpose of board evaluation before summarising the evidence regarding current practice. It then invites suggestions and views on various matters and proposals, including a code of practice for the providers of board evaluation services and voluntary principles for listed companies when engaging external reviewers.

Thursday 30 May 2019

UK: IA report - Shareholder votes on dividend distributions in UK listed companies

Last year, when responding to the feedback received in respect of its insolvency and corporate governance consultation, the Department for Business, Energy and Industrial Strategy stated that it was "concerned at what appears to be a growing trend for companies to pay only interim dividends which, under most articles of association, do not require shareholder approval": see here (pdf, para. 1.52).* The Investment Association was asked to assess and report on the prevalence of this practice and this it did a few days ago with the publication of its report Shareholder votes on dividend distributions in UK listed companies: see here (pdf).

The IA's sample contained 628 companies: the constituents of the FTSE All-Share as at 1 January 2018 that held an AGM between 1 December 2017 and 30 November 2018. This sample included 98 FTSE 100 companies, 249 FTSE 250 companies and 281 FTSE SmallCap companies. The IA found that of those companies paying dividends, 22% did not seek shareholder approval. The majority of such distributions were interim dividends: 92% of companies not seeking a shareholder resolution were distributing interim dividends only.

The IA's findings lead it to call on companies to publish a distribution policy, in respect of which the IA will establish a working group to develop best practice guidance. The group will also consider whether there should be a mandatory vote on this policy and/or yearly distributions. The guidance is expected in the autumn this year.


* - See, for example, Article 70 of the Model Articles for Public Companies - available here.

China: guidelines for the articles of association of listed companies

The China Securities Regulatory Commission has issued an updated edition of its guidelines for the articles of association of listed companies. A copy of the new guidelines, in English, is available here (pdf).

Wednesday 29 May 2019

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

The Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) Regulations 2019 were made a few days ago and come into force on 10 June: 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 can be found in the accompanying explanatory memorandum (here, pdf) and transposition note (here, pdf).

Saudi Arabia: CMA publishes amended Corporate Governance Regulations

The Capital Market Authority has adopted an amended edition of its Corporate Governance Regulations: see here (pdf, English). Further information, including related company law changes, is available here.

Tuesday 28 May 2019

IOSCO consultation report - Issues, Risks and Regulatory Considerations Relating to Crypto-Asset Trading Platforms

The International Organization of Securities Commissions has published a consultation report titled Issues, Risks and Regulatory Considerations Relating to Crypto-Asset Trading Platforms: see here (pdf). The report identifies measures that can be adopted to address the identified risks in the context of the following considerations: access; safeguarding participant assets; conflicts of interest; operations; market integrity; price discovery; and technology.

Friday 24 May 2019

Belgium: the new 2020 Belgian Code on Corporate Governance

The Corporate Governance Committee has published a new edition of its corporate governance code ("the 2020 Code"): see here (pdf, Dutch), here (pdf, English) or here (pdf, French). The new Code applies to reporting years beginning on or after 1 January 2020, replacing the Code published in 2009. A list, in English, of the changes contained in the new edition is available here (pdf) and a more general summary can be found in the press release available here (pdf, English).

UK: FRC plan and budget 2019/20

The Financial Reporting Council has published its plan and budget for 2019/20: see here (pdf). The work needed to establish the FRC's successor - the Accounting, Reporting and Governance Authority - is the first of five strategic priorities identified.

UK: England and Wales: fraudulent trading and directors' duties

Judgment was delivered by ICC Judge Mullen yesterday in Pantiles Investments Ltd & Anor v Winckler (Rev 1) [2019] EWHC 1298 (Ch). The case concerned claims brought by a liquidator against a company's former director under section 212 ("Summary remedy against delinquent directors, liquidators, etc.") and section 213 ("Fraudulent trading") of the Insolvency Act 1986 (and this involved consideration of the general duties of directors under the Companies Act 2006).

The judgment is noteworthy in providing examples of the breach of section 172 ("Duty to promote the success of company") of the 2006 Act as well as fraudulent trading. The trial judge also recognised, in the context of the fraudulent trading claim under section 213, that the test for dishonesty was as set out by the Supreme Court in Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67.

Thursday 23 May 2019

Australia: perceptions of audit quality among professional investors

The Financial Reporting Council and Auditing and Assurance Standards Board have published a report containing the results of a survey among 47 professional investors of their perceptions of audit quality: see here (pdf). Over 90% of respondents regarded audit quality in Australia as either "average" or "above average" when asked for their overall view of audit quality. This perception of audit quality was influenced by various factors, the three most important being the quality of financial reporting disclosures, reported episodes of fraud within audited companies and the quality of information within the auditor's report.


The report is available on the FRC and AUASB websites. The report I accessed today on the FRC website was watermarked throughout as a 'confidential draft' whereas the report published on the AUASB website was not. The link provided above is to the report on the AUASB website.

IFIAR publishes annual audit inspections survey

The International Forum of Independent Audit Regulators has published its annual inspection findings survey: see here (pdf). IFIAR members from 45 jurisdictions took part in the survey. The survey reports that 37% of the audits of public interest entities inspected by members had at least one "finding" (generally understood to be a significant failure to satisfy the requirements of auditing standards).

Wednesday 22 May 2019

Germany: new edition of German Corporate Governance Code published

DCGK, the Corporate Governance Code Commission, has today published a new edition of the German Corporate Governance Code: see here. A copy of the new Code, in English, will be published shortly. A press release, in English, explaining the key changes contained in the new Code is available here (pdf).

UK: Draft Registration of Overseas Entities Bill - pre-legislative scrutiny report published

The Joint Parliamentary Committee appointed to conduct pre-legislative scrutiny of the Draft Registration of Overseas Entities Bill has published its final report: see here or here (pdf). The purpose of the Bill is to require all overseas entities owning land in the UK to identify and register information concerning their beneficial owners. The Committee concluded that the Bill is "timely, worthwhile, and, in large part, well drafted" but makes various recommendations for further improvement. A summary of these recommendations is available here.

UK: Scotland: The Companies Act 2006 (Scottish public sector companies to be audited by the Auditor General for Scotland) Order 2019

The Companies Act 2006 (Scottish public sector companies to be audited by the Auditor General for Scotland) Order 2019 was made yesterday by the Scottish Ministers and comes into force on 24 May: see here or here (pdf). The accompanying policy note is available here (pdf). The purpose of the Order is to provide that the accounts of ILF Scotland are to be audited by the Auditor General for Scotland.

Tuesday 21 May 2019

New Zealand: audit quality - perceptions and expectations

The Financial Markets Authority has today published the results of its first research project to explore perceptions of audit quality. Views were sought from investors, directors, managers and auditors. The research reveals very clear differences of opinion - and of expectations - between these groups over (for example) the extent of auditor independence from management, competition and choice in the audit market, and trust in the audit profession. A copy of the report is available here (pdf) and a summary is available here (pdf).

BCBS report on implementation of the Basel III standards

The Basel Committee on Banking Supervision has published its sixteenth report on the implementation of the Basel III standards by member jurisdictions: see here (pdf).

Thursday 16 May 2019

UK: England and Wales: Ofwat consultation - licencing and mandatory governance requirements

Ofwat - the regulator for the water sector in England and Wales - published its updated Board leadership, transparency and governance principles earlier this year: see here (pdf). These new principles, replacing those first published in 2014, came into force last month. This month - this week, in fact - the regulator announced the start of a consultation in respect of its intention to make several of the new principles mandatory by amending the licences of the largest regulated water companies: see here (pdf).

Wednesday 15 May 2019

UK: The Proxy Advisors (Shareholders’ Rights) Regulations 2019

The Proxy Advisors (Shareholders’ Rights) Regulations 2019 were laid before Parliament yesterday and come into force on 10 June: see here or here (pdf). The Regulations are accompanied by an impact assessment and explanatory memorandum: see, respectively, here (pdf) here (pdf). The Regulations introduce a new transparency framework for proxy advisors; as the memorandum explains (para. 2.1):
This instrument transposes Article 3j of the revised EU Shareholder Rights Directive (SRD II) into UK law, in line with the UK’s obligations as a member of the EU. Article 3j of SRD II places requirements on proxy advisors, which primarily offer voting services and/or advice to shareholders in publicly listed companies, to make certain disclosures about the way in which they conduct their business". 

Under the framework being introduced by the Regulations, the Financial Conduct Authority will become responsible for enforcing the new requirements placed on proxy advisors, including the obligation to disclose publicly the code of conduct* that has been adopted (with an explanation provided if a code is not adopted). Proxy advisors will be required to notify the FCA if they fall within the new framework and the FCA will maintain a public list.

* - The BPP Group is currently revising its Best Practice Principles for Shareholder Voting Research. The review is expected to be completed next month; an update on the review was published last month: see here.

Tuesday 14 May 2019

Isle of Man: corporate governance requirements for insurance intermediaries

In November last year, the Isle of Man Financial Services Authority published for consultation a draft corporate governance code for insurance intermediaries: see here (pdf). The consultation closed in January and the IOMFSA has since announced that it will "take account of feedback ... when incorporating the governance requirements proposed in CP18-07/T08 into consolidated regulatory requirements for intermediaries, which will be subject to further consultation in due course".

Monday 13 May 2019

UK: KPMG Report - Executive Remuneration in AIM Listed Companies

KPMG has published a report surveying executive remuneration in AIM listed companies: see here (pdf). One of the research findings concerned the governance code adopted by such companies. Under Rule 26 of the AIM Rules (here, pdf), AIM listed companies are required to disclose: which governance code the board has decided to apply; how compliance with that code is achieved; and the reasons for any departures from the chose code. The KPMG report notes that, of the 50 largest AIM companies by market capitalisation, 42% have adopted the UK Corporate Governance Code and 58% have adopted the QCA Corporate Governance Code. A different picture is painted when more companies are considered. Research by the QCA published last year, which surveyed all AIM listed companies, found 89% following the QCA Code, 6% following the UK Corporate Governance Code and 5% following other codes: see here.

Friday 10 May 2019

Singapore: the new variable capital company framework - further consultation

The Variable Capital Companies Act 2018 - setting out a new corporate form in Singapore for investment funds - was passed last year: see here. Last month, the Monetary Authority published a consultation paper concerning further aspects of the new framework, including the criteria that will be used to determine whether a director (or proposed director) of a variable capital company is "fit and proper" to act as such: see here.

Myanmar: recommendations to improve corporate governance practices

A joint report considering the governance of 24 companies has been published by the International Finance Corporation, the Securities and Exchange Commission, the Yangon Stock Exchange and the Directorate of Company Investment and Company Administration: see here (pdf). The report's analysis is based on the ASEAN Corporate Governance Scorecard (here, pdf) and included all of the companies listed on the Yangon Stock Exchange (five in total), four private companies and fifteen public companies. The public and private companies were selected for reasons including economic significance or their potentially becoming listed. It is worth noting that, according to data published earlier this year, the number of companies registered in Myanmar is approximately 61,600.

The report, which surveyed companies before the new Companies Law came into force, notes that governance practices are at a "nascent stage" of development. A large number of recommendations for improvement are made, including the development of a corporate governance code (to operate on the "comply or explain" basis). Other recommendations seek improvements in the quality and quantity of the information that is disclosed; improvements in monitoring and enforcement powers are also suggested.

Thursday 9 May 2019

UK: England and Wales: directors and officers insurance was capable of recovery through service charge

The Upper Tribunal (Lands Chamber) gave judgment yesterday in Chiswick Village Residents v Southey [2019] UKUT 148 (LC). One of the issues before the Tribunal was whether a lessee was liable to pay, as part of his service charge, an expense to cover the cost of the insurance for those lessees acting as directors of the company owning the freehold. The First-tier Tribunal held that this expenditure could not be included but the Upper Tribunal disagreed. 

The Upper Tribunal held that the provision in the lease covering the insurance expenses that could be recovered as part of the service charge - “Effecting insurance against the liability of the Lessor to third parties and against such other risks and in such amount as the Lessor shall think fit (but not against the liability of individual tenants as occupiers of the flats in the Building).” - could not be given a wide interpretation whereby "the liability of the Lessor" included the liability of its directors and officers. It held, however, that this provision contemplated the Lessor company obtaining insurance against liabilities of persons other than itself and that, in the context of the case, without insurance cover for the directors it would be difficult to find individuals willing to act as such or for the company to function at all.

Wednesday 8 May 2019

Ghana: The Companies Act 2019

It is now over sixty years since Professor Gower was appointed to chair a commission on company law reform in Ghana, the product of which was the Companies Act 1963. A new company law framework, to replace the 1963 Act, was placed before Parliament last year: the Companies Bill 2018. Media reports suggest that the Bill has been passed and the new company law framework - the Companies Act 2019 - will become law on receiving the President's assent: see here. The Parliament website has yet to be updated with further information.

Update (6 August 2019) - The President's assent has been given: see here.

Australia: ACSI calls for Stewardship Code for all institutional investors

The Australian Council of Superannuation Investors has called for the introduction of a Stewardship Code applying to all institutional investors in Australia, as part of a wider review of the regulatory framework for stewardship: see here (pdf).

UK: The AIC Code of Governance for Investment Companies

A belated post. Earlier this year the Association of Investment Companies published a new edition of its Code of Governance for Investment Companies. Further information about the Code is available here but registration is required to obtain a copy. The Code is intended for UK, Guernsey and Jersey member companies.

Tuesday 7 May 2019

Malaysia: Securities Commission publishes inaugural corporate governance monitor report

The Securities Commission has published its first corporate governance monitor report: see here. The report provides information on a wide range of governance practices among listed companies, including board diversity and adoption of new best practice recommendations in the 2017 edition of the Malaysian Corporate Governance Code. It notes, for example, that among 930 listed issuers, just under 16% of directors were female and a little over 24% of independent board positions have been held by the same director for more than 9 years.

Monday 6 May 2019

UK: Government consultation 'Corporate Transparency and Registration Reform'

The Department for Business, Energy and Industrial Strategy has published a consultation paper titled Corporate Transparency and Registration Reform: see here (pdf). The paper sets out reforms to the company incorporation process within the UK, in particular the information and checks that are necessary to ensure the accuracy of the information on the register concerning directors, shareholders and those with significant control.

Views are sought on extending the powers of Companies House so that it can query information that is filed, seek further evidence and share information with other agencies. The paper also seeks views on proposals to limit the power, under section 392 of the Companies Act 2006, to shorten a company's accounting reference period; this mechanism, the paper states, is being used abusively by some in order to delay the availability of financial information.

The press release accompanying the consultation paper carries the headline "Companies House reforms consultation launched today" but it is important to note that the paper also seeks views on aspects of company law not immediately obvious from this focus on Companies House. The best example of this is a question that may well prove controversial: should there be a cap on the number of directorships that one person can hold? The paper states: " unlikely that a person could reasonably be considered to be performing their duties as a company director where they are holding large numbers of directorships ... The government is therefore considering the introduction of a cap on the number of directorships that an individual may hold concurrently" (at para. 237).

Views are also sought on the extension of section 124A of the Insolvency Act 1986 - which provides that the Secretary of State may seek to wind-up a company or limited liability partnership on public interest grounds - to limited partnerships. This suggestion follows other proposals published last year on the reform of limited partnership law: see here (pdf).

Friday 3 May 2019

UK: LAPFF survey of workforce engagement methods under the UK Corporate Governance Code

The new edition of the UK Corporate Governance Code, published last year, contains a new provision on board engagement with the company's workforce and states that at least one of the following methods should be adopted: (a) the appointment of a director from the workforce; (b) the creation of a formal workforce advisory panel; (c) designating a non-executive director with specific responsibility for engagement. Under the comply or explain principle, and also as this new provision explicitly reiterates, if the board decides not to adopt one of these methods, it is required to explain what alternative arrangements are in place and why these are seen as effective.

Earlier this week, LAPFF published a report - see here (pdf) - in which it explained the results of its research exploring whether and how companies propose to comply with this new provision on engagement. The headline finding is that two-thirds of companies in the survey have said that they will comply and, of these companies, the majority will appoint a designated non-executive director.

Thursday 2 May 2019

Canada: the CBCA and the 'best interests of the corporation'

The Federal Budget was delivered earlier this year and among the proposals in the accompanying legislation - Bill C-97 - are those making amendments to the Canada Business Corporations Act: see here.

One of these will amend section 122 ("Duty of care of directors and officers"), which provides (in subsection (1)) that "Every director and officer of a corporation in exercising their powers and discharging their duties shall (a) act honestly and in good faith with a view to the best interests of the corporation; and (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances".

A new subsection - 122(1.1) - will be added titled "Best interests of the corporation" and this will state:
When acting with a view to the best interests of the corporation under paragraph (1)‍(a), the directors and officers of the corporation may consider, but are not limited to, the following factors:

(a) the interests of (i) shareholders, (ii) employees, (iii) retirees and pensioners, (iv) creditors, (v) consumers, and (vi) governments;

(b) the environment; and

(c) the long-term interests of the corporation.

Wednesday 1 May 2019

UK: Tax Tribunal decides that preference shares were part of company's ordinary share capital

The First-tier Tribunal (Tax) gave its decision a few days ago in Warshaw v Revenue & Customs [2019] UKFTT 268 (TC). The central question before Tribunal Judge John Brooks was whether the preference shares held by a taxpayer, Mr Warshaw, were regarded as "ordinary share capital" within the definition provided by section 989 of the Income Tax Act 2007: "all the company's issued share capital (however described), other than capital the holders of which have a right to a dividend at a fixed rate but have no other right to share in the company's profits". If Mr Warshaw's shares fell within this definition, the company in which he held the shares would have been his "personal company" under section 169S(3) of the Taxation of Chargeable Gains Act 1992 (as amended) and he would have been entitled to entrepreneurs relief.

The shares in question gave a right to a dividend and no other rights to share in the profits. This right was set out in the articles of association as follows:
“In priority to any other class of shares, each Preference Share shall have the right to a fixed cumulative preferential dividend (“the Preference Dividend”) which shall accrue on a daily basis from the dividend commencement date at the rate of 10 per cent per annum on the aggregate of (i) the subscription price of such Preference Share and (ii) the aggregate amount of Preference Dividend that has previously compounded and not yet paid. The Preference Dividend accruing on each Preference Share shall be compounded on each anniversary of its dividend commencement date to the extent not previously paid.”

Did these shares give a right to a dividend at a fixed rate? Mr Warshaw's counsel argued that because the rate of dividend was calculated by reference to any previously unpaid dividends, the preference shares did not have a right to a dividend at a fixed rate. Counsel for HMRC argued that there was a right to a dividend at a fixed rate because the rate at which the dividends were paid remained fixed at 10% even if the base in respect of which they were paid varied.

Judge Brooks agreed with Mr Warshaw's counsel and allowed the taxpayer's appeal: Mr Warshaw was, therefore, entitled to entrepreneur's relief because his preference shares fell within the definition of "ordinary share capital" under section 989. Judge Brooks stated: "if, as in the present case, at the time the preference shares are issued the Articles of Association provide that only one of these, the percentage element, is fixed and the amount to which that percentage is to be applied may vary, those shares cannot be regarded as having a right to a dividend at a fixed rate and are therefore ordinary share capital as defined by s 989 ITA" (para. [19]).

An appeal by HMRC seems inevitable.