UK: The Queen's Speech - the Government's legislative programme

The State Opening of Parliament took place today with the Queen's Speech setting out the Government's legislative programme. The briefing notes accompanying the Speech, explaining in more detail the Bills that the Government intends to introduce, are available here (pdf). In the section of this document discussing the proposed Employment Bill, the following is said:

We will also develop proposals on company audit and corporate reporting, including a stronger regulator with all the powers necessary to reform the sector. These proposals aim to improve public trust in business, following the three independent reviews [see here, here and here] commissioned in 2018. It will also help workers employed by a large company in future to know how resilient it is".

Other proposals include the introduction of a new insolvency regime for airlines and further financial services legislation - the latter to include measures dealing with the selling of overseas investment funds in the UK and the UK's implementation of the Basel Framework standards following its departure from the European Union.

UK: Auditing - The Brydon review report and recommendations

The Brydon review's report concerning the quality and effectiveness of audit was published today: see here (pdf). It looks set to become a landmark publication in the development of the UK corporate governance framework. A list of the report's recommendations is available here (pdf). In its tone, and in the scope of the recommendations, the report calls for dramatic change. It extends beyond a narrow view of the audit process to consider the purpose of auditing (and the auditing profession) along with directors' reporting obligations and the role of audit committees.

Indeed, the report recommends the creation of a separate profession - corporate auditing - distinct from accounting, and operating within an overarching set of principles: the principles of corporate auditing.  It is recommended that the successor of the Financial Reporting Council - the Audit, Reporting and Governance Authority - should act as "midwife" for this new profession.

The report also recommends the adoption, in the Companies Act 2006, of this purpose of the statutory audit: “...to help establish and maintain deserved confidence in a company, in its directors and in the information for which they have responsibility to report, including the financial statements”.  Auditors should act in the public interest, the report states, and have regard to the interests of users beyond the shareholders. Moreover, the role of employees in the audit process is acknowledged with the recommendation that the directors seek the views of employees regarding the scope of any audit activity.

With regard to fraud, the report seeks to challenge the perception that auditors have no obligation to detect fraud and argue that they should endeavour to do so. It recommends that directors are subject to a new reporting duty: to set out the actions they have taken each year to prevent and detect material fraud. This would be subject to a corresponding duty, owed by the auditor, to state (1) how they have assured the directors' statement and (2) the additional steps they have taken to assess the effectiveness of the relevant controls and to detect any such fraud.

IOSCO: consultation - conflicts of interest during the debt capital raising process

The IOSCO has published a consultation paper in which views are sought on proposed guidance to address conflicts of interest and associated conduct risks during the debt capital raising process: see here (pdf).

UK: FRC publishes revised Auditing Standards

The Financial Reporting Council has today published revised Auditing Standards including a revised Ethical Standard: see here.

Antigua and Barbuda: Privy Council decision on unfair prejudice and insolvency

The Judicial Committee of the Privy Council delivered its opinion today in Stanford International Bank Ltd, Re (Antigua and Barbuda) [2019] UKPC 45. A summary is available here (pdf). The opinion is of particular interest because of the wide relevance of the central question before the Board: whether relief was available for oppressive or unfairly prejudicial conduct where a company was in liquidation. The Board held, by majority and with reference to authorities from across the Commonwealth, that such relief was not available. Lord Briggs (with whom Lord Wilson and Sir Andrew Longmore agreed) observed (paras. [56] and [57]):

There is nothing in section 204 [("Restraining Oppression")], construed as part of the [Antiguan International Business Corporations Act], which compels a conclusion that it provides relief in the context of insolvent liquidation. The breadth of the discretionary power given to the court and the broad range of stakeholders for whose benefit those powers may be exercised is perfectly consistent with an intention that they are designed and intended to be used entirely in the pre-liquidation context. Although it is difficult to discern a clear statutory prohibition of the use of those powers in an insolvency context, it is, in the Board’s view, fundamentally inappropriate that they should be so used.

This is mainly because relief from oppression or unfairly prejudicial conduct is conferred on essentially broad discretionary and equitable principles which simply cannot be made to fit within the implementation of the applicable insolvency scheme. The two frameworks (relief from oppression and the insolvency scheme) as described earlier in this judgment are simply incompatible with each other. They serve different objectives. One of them (the insolvency scheme) serves a recognised public interest whereas the other does not or, if it does at all, only to a much lesser extent, being concerned more with justice and equity as between stakeholders in the company’s affairs. The two frameworks are like chalk and cheese."

UK: FRC corporate reporting and audit quality review programme

The Financial Reporting Council has announced its 2020/21 corporate reporting and audit quality review programme see here.  Included in the programme is a review of IFRS16 disclosure (in the first year of implementation) and the effects on disclosure of the UK's departure from the European Union.

UK: Supreme Court considers meaning of 'adequate consideration'

The Supreme Court gave judgment last Wednesday in MacDonald v Carnbroe Estates Ltd (Scotland) [2019] UKSC 57. A summary of the judgment is available here (pdf). The court considered the meaning of the expression 'adequate consideration' as used in section 242 (Gratuitous alienations (Scotland)) of the Insolvency Act 1986 and unanimously held that it was to determined according to an objective test, with regard to the commercial justification of the transaction and assuming that the parties would be acting in good faith and at arm's length.

UK: FCA policy statement - PS19/28: Proxy Advisors (Shareholders’ Rights) Regulations implementation

The Financial Conduct Authority has published a policy statement in respect of the changes it will make to its Decision Procedure and Penalties manual (DEPP) and the Enforcement Guide (EG) following the new powers given to it by the Proxy Advisors (Shareholders’ Rights) Regulations 2019: see here (pdf).

UK: Updating the Charity Governance Code

The Steering Group responsible for the Charity Governance Code has announced that it proposes "a light 'refresh'" of the Code in 2020 and more extensive changes in 2023. A route map is being developed for the changes intended for 2023. Further information is available here.

India: Company Law Committee report published

The Committee set up in September by the Ministry of Corporate Affairs to consider certain aspects of the company law framework has published its first report, including recommendations, in respect of whether certain offences should give rise to criminal or civil liability: see here (pdf).

UK: FCA consultation - benchmark administrators and the SMR

The Financial Conduct Authority has published a consultation paper in which it sets out its proposals for the extension of the Senior Managers Regime to benchmark administrators: see here (pdf).

UK: England and Wales: The Re Duomatic principle | relieving a director of liability

Judgment was given yesterday by the Court of Appeal in Dickinson v NAL Realisations (Staffordshire) Ltd [2019] EWCA Civ 2146. The decision is noteworthy for two reasons.  First, the court held that section 1157 of the Companies Act 2006, which provides the court with the power to relieve a director from liability in "proceedings for negligence, default, breach of duty or breach of trust" is wide enough to include claims to enforce proprietary rights arising from the negligence, default, breach of duty or breach of trust.

Second, the court considered the Duomatic principle, which takes it name from Re Duomatic Ltd [1969] 2 Ch 365, and in which Buckley J said that "where it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be" (p. 373).  Lord Justice Newey assumed - as he did when a High Court judge in Rolfe v Bernard Samuel Rolfe Tulsesense Ltd [2010] EWHC 244 (Ch) - that the assent of the beneficial owner of a share could meet Duomatic requirements.