Thursday, 15 July 2021

Hong Kong: winding-up and dispositions of property - Court of Final Appeal considers section 182

Rather belatedly, I note a significant decision of the Court of Final Appeal from earlier this year - Hsin Chong Construction Company Ltd v Build King Construction Ltd [2021] HKCFA 14 - which provides important guidance on the operation of section 182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance. Section 182 provides that "In a winding up by the court, any disposition of the property of the company, including things in action, and any transfer of shares, or alteration in the status of the members of the company, made after the commencement of the winding up, shall, unless the court otherwise orders, be void". 

The Court of Final Appeal held, amongst other things, that the section's purpose was to preserve the company's property for distribution and, in deciding whether a disposition should be validated, the interests of the general body of creditors was of central importance. The analysis of the trial judge and Court of Appeal was rejected.  A summary of the decision, in English, is available here

Wednesday, 14 July 2021

Ireland: The Companies (Rescue Process for Small and Micro Companies) Bill 2021 - an update

The Companies (Rescue Process for Small and Micro Companies) Bill 2021, the purpose of which is to amend the Companies Act 2014 in order to introduce a new rescue process for small and micro companies, was introduced in the Dáil Éireann last month. A copy of the Bill, as introduced, is available here. Yesterday the Bill completed its passage through the Seanad Éireann and will become law on receiving the assent of the President. The explanatory memorandum published to accompany the Bill is available here (pdf). A copy of the Act will be published here in due course.

UK: FRC report - key facts and trends in the accountancy profession

The Financial Reporting Council has today published the latest edition of its annual publication Key Facts and Trends in the Accountancy Profession: see here (pdf). The report notes - and this comes as no great surprise - that only the 'Big Four' firms now undertake the external audits of FTSE100 companies. The report notes, nevertheless, that there has been an increase in the number of FTSE250 external audits completed by firms other than the 'Big Four'.

Tuesday, 13 July 2021

UK: England and Wales: company litigation, non-party costs orders and company directors

Judgment was delivered today by the Court of Appeal in Goknur Gida Maddeleri Enerji Imalet Ithalat Ihracat Ticaret Ve Sanayi AS v Aytacli [2021] EWCA Civ 1037. The decision is noteworthy because of what is said about the circumstances in which, under section 51 of the Senior Courts Act 1951, a director of a company may be personally liable for some - or all - of the company's costs liabilities in unsuccessful litigation.

Lord Justice Coulson delivered the only reasoned judgment (with which Dingemans and Lewison LJJ agreed) in which, after setting out a summary of the guidance provided by cases (para. [40]), he stated: "...without being in any way prescriptive, the reality in practice is that, in order to persuade a court to make a non-party costs order against a controlling/funding director, the applicant will usually need to establish, either that the director was seeking to benefit personally from the company's pursuit of or stance in the litigation, or that he or she was guilty of impropriety or bad faith. Without one or the other in a case involving a director, it will be very difficult to persuade the court that a s.51 order is just" (para. [41]).

UK: PRA statement on shareholder distributions by the largest banks

The Prudential Regulation Authority has, today, published an update in respect of its approach to distributions by the UK's largest banks: see here (pdf). The statement, which is made alongside the publication the latest Financial Stability Report from the Financial Policy Committee, notes that banks remain well capitalised and resilient; it is noted, too, that the level of uncertainty, while considerable, has reduced. As such, the PRA has decided to remove, with immediate effect, the additional restrictions (known as the extraordinary guardrails) put in place last year in respect of bank distributions.

Monday, 12 July 2021

BCBS: an interim assessment of the Basel reforms in the light of Covid-19

The Basel Committee on Banking Supervision has published an interim assessment of the impact of the implemented Basel reforms in light of the Covid-19 pandemic: see here (pdf). While acknowledging the difficulties in distinguishing between the effect of the reforms and the monetary and policy actions taken by authorities, the report concludes that the reforms (in particular the increased quality and quantity of capital and liquidity) helped banks to absorb (so far) the impact of the pandemic - suggesting (the report states) the reforms have achieved their broad objective of strengthening the resiliency of the banking system.

UK: FRC publishes revised quality management standards for auditors

The Financial Reporting Council has published three revised quality management standards covering audit firm responsibilities in respect of the design, inplementation and operation of quality management systems: see here. The individual standards are available here (pdf), here (pdf) and here (pdf). The feedback statement and impact assessment, which cover all three standards, can be found here (pdf). The standards are based on those approved by the International Auditing and Assurance Standards Board last year: see here.

Sunday, 11 July 2021

G20 communique - corporate governance

The G20 communique issued yesterday, following the meeting of finance ministers and central bank governors, has received much attention because of what has been agreed in respect of corporate tax reform: see here (pdf).

The communique is also worth noting because of what is said about corporate governance and the G20/OECD Principles of Corporate Governance. To quote directly: "We recognise that a more comprehensive assessment of environmental and climate-related macro-economic risks can help develop innovative solutions to make our economies more sustainable, resilient and inclusive. We recognise the importance of good corporate governance and well functioning capital markets to support the recovery. We look forward to the review of the G20/OECD Principles of Corporate Governance and ask the OECD to report back on progress at our first meeting in 2022".  

Ireland: CLRG publications - annual report // the impact of artificial intelligence

A copy of the 2020 annual report for the Company Law Review Group has recently been published on its website: see here (pdf). The report also contains - at annex 4 - a report by the Group on the potential impact of artificial intelligence on company law in the context of corporate governance.

Wednesday, 7 July 2021

UK: PRA/FCA discussion paper - diversity and inclusion in the financial sector

The Financial Conduct Authority and Prudential Regulation Authority have published a joint discussion paper titled "Diversity and inclusion in the financial sector – working together to drive change": see here (pdf). Published alongside the discussion paper is a literature review considering the impact of diversity and inclusion: see here (pdf). In the discussion paper several policy initiatives are identified, building on existing requirements or supervisory frameworks, including making senior leaders directly accountable for diversity and inclusion in their firms.  

Tuesday, 6 July 2021

UK: New edition (13th) of the Takeover Code published

The thirteenth edition of the UK Takeover Code has been published: see here or here (pdf). A summary of the changes made in the new edition can be found here (pdf). 

Monday, 5 July 2021

UK: FCA consultation - primary markets effectiveness review

The Financial Conduct Authority has, today, published a consultation paper the aim of which is to begin a broad discussion of the purpose and value of the UK listings regime alongside seeking views on specific proposals: see here (pdf).

The specific proposals include: [a] in certain circumstances allowing dual class share structures within the premium listing segment; [b] reducing the free float requirement from 25% to 10%; and [c] increasing the minimum market capitalisation for premium and standard listing segments for shares in companies other than funds from £700,000 to £50 million.  In addition, the paper notes that while no specific proposals are being put forward (at this stage) in respect of the track record requirements for listing, the FCA will be providing further information about its willingness to provide "flexibility" in respect of the existing requirements.

Friday, 2 July 2021

Australia: draft legislation - electronic execution of documents // hybrid and virtual shareholder meetings

The Treasury is consulting on draft legislation the purpose of which is to make permanent the temporary measures introduced, in response to the COVID-19 pandemic, concerning electronic execution of company documents and the holding of physical, hybrid and virtual shareholder meetings: see here.

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A short note:
If you are reading this update in an automated email, please note that the current provider - Google Feedburner - will withdraw this service at some point in July. New arrangements are being investigated in order that the service can continue: visit the blog website for the latest information.

OECD report: The Future of Corporate Governance in Capital Markets Following the COVID-19 Crisis

The OECD has published a report titled 'The Future of Corporate Governance in Capital Markets Following the COVID-19 Crisis": see here. Here is the report's executive summary: 

This report presents indicators and analysis of capital structures, corporate performance, the use of market-based financing, corporate ownership structures and payout policies over the last two decades. It reviews regulatory and financial support measures related to the COVID-19 crisis in the areas of corporate governance and corporate finance. It then presents key indicators relating to the non-financial corporate sector’s use of public equity and corporate bond markets during 2020, and reviews central bank policies related to the corporate bond markets. Using an analysis of structural weaknesses in both the public equity and corporate bond markets worldwide, the report focuses on the role that capital markets can play on the road to recovery and resilience. It also identifies key corporate governance policy issues that may require further attention in the post-crisis era.

Thursday, 1 July 2021

UK: Government sets out vision for financial services

Today, in his Mansion House speech and accompanying publications, the Chancellor has set out the Government's vision for the future of financial services in the United Kingdom.  A copy of the speech is available here and the document "A new chapter for financial services" is available here (pdf). Several consultations were also launched (or will shortly launch) including those relating to wholesale capital markets, the UK's prospectus regime and access to cash. In addition, a response to the October 2020 call for evidence in respect of Solvency II was published: see here (pdf). 

Housekeeping: a message for email subscribers

The current (free) service that I use to send automatic email updates to subscribers will end very soon - at some point this month, it seems.  I have not yet decided how to replace it, but will spend the next few weeks or so reaching a decision.  I will make further announcements on the blog website and (I hope) contact all current subscribers to explain what must done to continue receiving the updates.  If you stop receiving email updates, please don't take it personally but visit the blog website for an update!

With best wishes and thank you,
Robert. 

Wednesday, 30 June 2021

OECD publishes new edition of its Corporate Governance Factbook

The OECD has today published the 2021 edition of its Corporate Governance Factbook: see here or here (pdf). Individual chapters can be viewed/downloaded separately, including (in pdf): chapter 1 (the global market and corporate ownership landscape); chapter 2 (the corporate governance and institutional framework); chapter 3 (the rights of shareholders and key ownership functions); and chapter 4 (the corporate board of directors).

50 jurisdictions are included: all 38 OECD countries and Argentina, Brazil, China, Hong Kong, India, Indonesia, Malaysia, Peru, Russian Federation, Saudi Arabia, Singapore and South Africa.

Monday, 28 June 2021

UK: Companies House - companies register activities 2020 to 2021

Companies House has published its annual review of the companies register for the year ending 30 March 2021: see here. At the end of March 2021, the total register size was 4,716,126 (an increase of over 8% when compared with the end of March 2020). During the year there were 810,316 company incorporations - an increase of over 21% when compared with the previous year and a new record. 

Friday, 25 June 2021

UK: Review of the Securitisation Regulation - a call for evidence

The Government has published a call for evidence in respect of a review, launched today, of the (onshored) Securitisation Regulation: see here (pdf). The review is taking place because there is a legal obligation to do so under Article 46 of the Regulation (as amended by the Securitisation (Amendment) (EU Exit) Regulations 2019, where the original reference to the European Commission is replaced by a reference to HM Treasury). 

Australia: Court of Appeal of Western Australia considers the reflective loss principle

Last month I noted a decision of the New South Wales Court of Appeal concerning the (shareholder) reflective loss principle: Central Coast Council v Norcross Pictorial Calendars Pty Ltd [2021] NSWCA 75. The principle has been considered again, at appellate level, in a judgment handed down today by the Court of Appeal of Western Australia: Mineralogy Pty Ltd v Sino Iron Pty Ltd [No 2] [2021] WASCA 105.
 
The court (Buss P; Murphy and Beech JJA) found that the following principles emerged from the authorities (para. [268], to quote directly):
  • Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder to make good a diminution of the value of the shareholder's shareholding where that loss merely reflects the loss suffered by the company.
  • This will be so even if the company has declined or failed to take action to recover the loss.
  • If the company suffers loss, but has no cause of action to sue to recover that loss, a shareholder with a cause of action who suffers loss to the value of his shares may sue in respect of it.
  • The reflective loss principle does not prevent a shareholder suing for a loss suffered from a breach of duty owed to him or her where the loss is separate and distinct from the loss suffered by the company.
  • The principle extends to the case where both the company and the shareholder have a claim for breach of duty or breach of contract which caused the loss.

Thursday, 24 June 2021

Ireland: a new rescue regime for small companies

The Department of Enterprise, Trade and Employment announced, earlier this week, that the Government had approved the publication of the Companies (Rescue Process for Small and Micro Companies) Bill 2021: see here. The purpose of the proposed legislation is to amend the Companies Act 2014 in order to introduce a new rescue process for small and micro companies. An overview of the Bill's provisions is available here

Wednesday, 23 June 2021

Guernsey: GFSC publishes amended finance sector corporate governance code

The Guernsey Financial Services Commission has published an updated edition of its finance sector corporate governance code: see here (pdf). The new Code applies to financial years starting on and after 1 October 2021 and has been amended to include a new rule concerning climate change (5.2.1): "The Board should consider the impact of climate change on the firm’s business strategy and risk profile and, where appropriate in the judgement of the board, make timely climate change related disclosures". 

UK: England and Wales: the rule against reflective loss

As part of its WLR Daily series, the ICLR has published a case summary for a recent decision of the Court of Appeal - Broadcasting Investment Group Ltd & Ors v Smith & Anor [2021] EWCA Civ 912 - in which the rule against reflective loss was considered: see here.

UK: authorised firms, financial promotions and a new 'regulatory gateway'

The Government has confirmed, following a consultation, that it will - when parliamentary time allows - introduce legislation to require authorised firms to pass through a "regulatory gateway" before they are able to approve financial promotions by unauthorised firms: see here (pdf). This change is being made because of concerns with the effectiveness of the current regime under which no specific assessment is made of authorised firms approving such promotions.  

Tuesday, 22 June 2021

UK: The Financial Services Act 2021 (Commencement No. 2) Regulations 2021

The Financial Services Act 2021 (Commencement No. 2) Regulations 2021 were made today: see here or here (pdf). Their purpose is to bring into force, later this month or in July, various provisions of the Financial Services Act 2021 including those relating to benchmarks (sections 8 to 21 and schedule 5) and insider dealing and money laundering (section 34). Attached to the Regulations, but not formally part of them, is a note indicating those provisions of the 2021 Act that have already been brought into force: see here

Canada: Ontario - separate legal personality and the common employer doctrine

The Court of Appeal for Ontario gave judgment earlier this month in O'Reilly v. ClearMRI Solutions Ltd., 2021 ONCA 385. Of note is the discussion by Zarnett JA concerning the common employer doctrine and the separate legal personality of companies in group structures.  To quote directly (at [45] and [49]-[50]): 

Ontario law rejects a “group enterprise theory” under which related corporations that operate closely would, by that very fact, be considered to jointly own their businesses or be liable for each other’s obligations. Although the group might, from the standpoint of economics, appear as a unit or single enterprise, the legal reality of distinct corporations governs ... The common employer doctrine does not involve piercing the corporate veil or ignoring the separate legal personality of each corporation. It imposes liability on companies within a corporate group only if, and to the extent that, each can be said to have entered into a contract of employment with the employee ... Thus, consistent with the doctrine of corporate separateness, a corporation is not held to be a common employer simply because it owned, controlled, or was affiliated with another corporation that had a direct employment relationship with the employee. Rather, a corporation related to the nominal employer will be found to be a common employer only where it is shown, on the evidence, that there was an intention to create an employer/employee relationship between the individual and the related corporation ...".
 

UK: FCA consults on extending the reach of climate-related disclosure rules

Last December, the Financial Conduct Authority introduced a new disclosure rule requiring commercial companies with a UK premium listing to disclose in their annual report whether they had made disclosures consistent with the TCFD recommendations: see here. Today the FCA announced its intention to extend this disclosure regime to (1) standard listed companies and (2) asset managers, life insurers, and FCA-regulated pension providers - see, respectively, here and here.

Monday, 21 June 2021

UK: The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2021

The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2021 were laid before Parliament today and come into force tomorrow: see here or here (pdf). The accompanying explanatory memorandum - available here (pdf) - explains the Regulations' purpose as follows: "... to extend the duration of the temporary measures restricting the use of statutory demands and winding up petitions introduced by the Corporate Insolvency and Governance Act 2020 (c. 12) ... beyond their current expiration date of 30 June 2021 ... to 30 September 2021".

UK: England and Wales: unfair prejudice - a majority shareholder's petition and an order regulating the company's affairs

Judgment was delivered today by His Honour Judge Hodge, sitting as a judge of the High Court, in Macom GmbH v Bozeat & Ors [2021] EWHC 1661 (Ch). The case - a successful petition brought under sections 994-996 of the Companies Act 2006 (the unfair prejudice remedy) - is noted here because in two respects it is unusual: first, the petitioner was a majority shareholder; second, the relief provided was an order regulating the affairs of the company.

European Union: Prospectus Directive - damages

The Court of Justice of the European Union delivered judgment earlier this month in Bankia (Prospectus when securities are offered to the public or admitted to trading - Judgment) [2021] EUECJ C-910/19. A summary of the judgment has been published by the ICLR: see here. The Court of Justice held, to quote from the headnote of the ICLR summary, that: "an investor who had participated in an offer of securities in the context of which a prospectus had been published could legitimately rely on the information given in that prospectus and was, therefore, entitled to bring an action for damages, pursuant to article 6 of Parliament and Council Directive 2003/71/EC, on the grounds of the inaccuracy of that information, whether or not the prospectus was issued for that investor".

Friday, 18 June 2021

UK: The Payment and Electronic Money Institution Insolvency Regulations 2021

The Payment and Electronic Money Institution Insolvency Regulations 2021 were made yesterday and come into force on 8 July: see here or here (pdf). The accompanying explanatory memorandum is available here (pdf). The Regulations create a new special administration regime for payment and electronic money institutions.

UK: England and Wales: tort - negligence - determining the scope of duty and the extent of liability of professional advisers

The Supreme Court delivered judgment today in two related decisions - Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 and Khan v Meadows [2021] UKSC 21 - that, together, set out the framework for determining the scope of the duty of care, and the extent of liability, owed by professional advisers in the tort of negligence.  Each case was heard by the same panel of seven justices; summaries are available here and here.

Thursday, 17 June 2021

UK: England and Wales: Law Commission discussion paper - corporate criminal liability

Earlier this month, as part of its project considering corporate criminal liability, the Law Commission published a discussion paper: see here (pdf).  The paper does a number of things: it provides an overview of the current law and the criticisms made; it considers the approach taken in some other jurisdictions; and it identifies various reform proposals.  While the paper asks a number of questions, views are not - at this stage - sought on provisional proposals.  The questions asked are as follows: 
  1. What principles should govern the attribution of criminal liability to non-natural persons?
  2. Does the identification principle provide a satisfactory basis for attributing criminal responsibility to non-natural persons? If not, is there merit in providing a broader basis for corporate criminal liability?
  3. In Canada and Australia, statute modifies the common law identification principle so that where an offence requires a particular fault element, the fault of a member of senior management can be attributed to the company. Is there merit in this approach?
  4. In Australia, Commonwealth statute modifies the common law identification principle so that where an offence requires a particular fault element, this can be attributed to the company where there is a corporate culture that directed, encouraged, tolerated or led to non‑compliance with the relevant law. Is there merit in this approach?
  5. In the United States, through the principle of respondeat superior, companies can generally be held criminally liable for any criminal activities of an employee, representative or agent acting in the scope of their employment or agency. Is there merit in adopting such a principle in the criminal law of England and Wales? If so, in what circumstances would it be appropriate to hold a company responsible for its employee’s conduct?
  6. If the basis of corporate criminal liability were extended to cover the actions of senior managers or other employees, should corporate bodies have a defence if they have shown due diligence or had measures in place to prevent unlawful behaviour?
  7. What would be the economic and other consequences for companies of extending the identification doctrine to cover the conduct along the lines discussed in questions (3) to (5)?
  8. Should there be “failure to prevent” offences akin to those covering bribery and facilitation of tax evasion in respect of fraud and other economic crimes? If so, which offences should be covered and what defences should be available to companies?
  9. What would be the economic and other consequences for companies of introducing new “failure to prevent” offences along the lines discussed in question (8)?
  10. In some contexts or jurisdictions, regulators have the power to impose civil penalties on corporations and prosecutors may have the power to impose administrative penalties as an alternative to commencing a criminal case against an organisation. Is there merit in extending the powers of authorities in England and Wales to impose civil penalties, and in what circumstances might this be appropriate?
  11. What principles should govern the sentencing of non-natural persons?
  12. What principles should govern the individual criminal liability of directors for the actions of corporate bodies? Are statutory “consent or connivance” or “consent, connivance or neglect” provisions necessary or is the general law of accessory liability sufficient to enable prosecutions to be brought against directors where they bear some responsibility for a corporate body’s criminal conduct?
  13. Do respondents have any other suggestions for measures which might ensure the law deals adequately with offences committed in the context of corporate organisations?

Friday, 4 June 2021

UK: BEIS research paper - Executive pay and investment in the UK

The Department for Business, Energy and Industrial Strategy has published a new paper, as part of its research paper series, titled "Executive pay and investment in the UK": see here (pdf). To quote directly from the executive summary: 
Whilst there is good evidence to suggest that CEO performance targets do influence firm performance in a manner consistent with increasing CEO payout, it is much less clear that CEOs are influencing firm performance (and therefore their pay) by changing investment. There is some evidence of such investment decisions amongst certain firms, but less clear evidence of this behaviour across the wider FTSE All-Share group.  We note that the latter finding does not necessarily mean that CEO pay is correctly set in most large firms. Indeed, one reason why there is little need for CEOs to reduce investment to hit the threshold payout could be that threshold targets are too easy to hit. Still, the evidence does not suggest a systematic problem with executive pay causing underinvestment". 

Thursday, 3 June 2021

Monitoring Group: progress report - strengthening the international audit and ethics standard setting system

Last July the Monitoring Group published a set of recommendations the purpose of which was to strengthen the standard setting system in respect of international audit and ethical standards: see here (pdf). A progress report has now been published: see here (pdf). This notes that, following development of a transition plan, many aspects of implementation are underway. 


Ireland: CLRG report - liquidation and the provision of information to creditors (in particular employees)

As part of its work programme on the Companies Act 2014 and creditors' rights, the Company Law Review Group has recently published a report considering the provision of information to creditors generally and in particular employees: see here (pdf). Amongst the recommendations made in the report is one that would impose an obligation on liquidators and directors to ensure that creditors are made aware that they have the right for form and participate on a Committee of Inspection

OECD publishes new standard: transparency and disclosure by internationally active state owned enterprises

Under the banner of "Maintaining competitive neutrality", the OECD has published a voluntary standard containing a set of best practices for transparency and disclosure by internationally active state owned enterprises and their owners: see here (pdf). 

Monday, 31 May 2021

UK: England and Wales: Court of Appeal confirms that shares were not alloted at a discount

Section 580(1) of the Companies Act 2006 provides that "[a] company's shares must not be allotted at a discount". Last Friday, in Chalcot Training Ltd v Ralph [2021] EWCA Civ 795, the Court of Appeal unanimously upheld the trial judge's decision (at [2020] EWHC 1054 (Ch)), that shares issued as part of a tax avoidance scheme had not been issued in contravention of section 580.  In what is - I believe - the first appellate decision to consider section 580, Lewison LJ (with whom Arnold and Edis LJJ agreed) observed (paras. [43], [50] and [73]):

The idea behind the limited liability company is that people will be encouraged to be associated in a business enterprise if they are able to limit their personal liability for the debts of the enterprise. The way in which this is achieved is by the creation of a corporation with limited liability. What that means is that the personal liability of the members of the company is limited to the amount that they have subscribed or agreed to subscribe to the capital of the company. The capital in this instance is the company's nominal share capital. It is part of the very definition of a limited company in section 3 of the Companies Act 2006. That provides that a company is a company limited by shares if the liability of its members "is limited to the amount, if any, unpaid on the shares held by them." This fundamental feature of corporate liability has been recognised for a very long time. It was introduced by the Joint Stock Companies Act 1856; and repeated in the Companies Act 1862". 

"The prohibition on issuing shares at a discount to nominal value thus long pre-dated section 580. Although it was described as a "common law" prohibition, it is, I think, more accurately described as inevitably flowing from the statutory machinery for the creation of a limited liability corporation".

".... the mischief against which section 580 is directed (as confirmed by all the cases that we have been shown) is the depletion of the company's nominal share capital".

Friday, 28 May 2021

UK: England and Wales: resignation and the director's continuing duty to avoid conflicts of interest

Sitting as a Deputy Judge of the High Court, Mr Ashley Greenbank delivered judgment today in Burnell v Trans-Tag Ltd [2021] EWHC 1457 (Ch). The decision, while first instance, is nevertheless important because of the discussion it contains of section 170(2)(a) of the Companies Act 2006, which provides that a person ceasing to be a director continues to be subject to the duty in section 175 to avoid conflicts of interest as regards "the exploitation of any property, information or opportunity of which he became aware at a time when he was a director".

Deputy Judge Greenbank stated (at paras [411] and [412]):

... the extended duty imposed by s170(2)(a) is a continuing duty and ... it must therefore be possible for a breach of that continuing duty to be founded on acts which take place after a director has resigned his or her directorship. It follows that, following the introduction of the general duties by CA 2006, it cannot be an absolute requirement for a breach of the extended duty that a director's resignation must have been prompted or influenced by his or her wish to acquire a business opportunity of the company.

Such a conclusion is of course contrary to the reasoning in some of the cases which discuss the common law rules and equitable principles on which the general duty in s175 is based, in particular, that of Rix LJ in Foster Bryant Surveying Ltd v Bryant [2007] EWCA Civ 200 and Cockerill J in Recovery Partners GP Ltd v Rukhadze [2018] EWHC 2918 (Comm) ... However, the courts did not have to address in Foster Bryant or Recovery Partners the question of the interaction of the existing case law principles with the statutory code. My conclusion also, in theory, risks creating circumstances in which duties are extended beyond the scope of the duties imposed by common law rules and equitable principles on which the general duty is based and imposing liabilities for breach in cases where liability might not arise based on those principles. However, it is, in my view, an inevitable result of the codification.".

Thursday, 27 May 2021

European Union: Corporate reporting in the Capital Markets Union after Wirecard

Mairead McGuinness - the European Commissioner for financial services, financial stability and capital markets union - delivered a speech today titled "Corporate reporting in the Capital Markets Union after Wirecard": see here. The Commissioner used her speech to explain that a public consultation on corporate reporting would take place later this year and, in respect of what she termed the three "core pillars to high-quality reporting", she identified various issues that are likely to be considered. 

UK: the auditor's responsibilities relating to fraud in the audit of financial statements - updated standard

The Financial Reporting Council has today published an updated edition of ISA (240) - The Auditor's responsibilities Relating to Fraud in an Audit of Financial Statements: see here (pdf). The updated standard, which seeks to bring greater clarity regarding the auditor's obligations, is effective for audits of periods beginning on or after 15 December 2021.  

Wednesday, 26 May 2021

UK: The International Accounting Standards (Delegation of Functions) (EU Exit) Regulations 2021

The International Accounting Standards (Delegation of Functions) (EU Exit) Regulations 2021 came into force on 22 May: see here or here (pdf). The accompanying explanatory memorandum is available here (pdf). The purpose of the Regulations is to delegate to a new body - the UK Accounting Standards Endorsement Board - the responsibility for the adoption of international accounting standards (this function was conferred on the Secretary of State by The International Accounting Standards and European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2019 to replace the EU framework). 

Tuesday, 25 May 2021

UK: England and Wales: unfair prejudice petitions and changes in control during proceedings

Judgment was delivered several days ago in McMonagle v Harvey & Ors [2021] EWHC 1374 (Ch). While first instance, the decision is noteworthy because of the discussion it contains about whether those in control of a company can be unfairly prejudiced for the purposes of a petition presented under sections 994 to 996 of the Companies Act 2006 (the unfair prejudice remedy).

The petitioner had become the company's only director and de facto majority shareholder after his petition had been presented. While noting that the authorities suggest that there are limited circumstances in which a company's controller may bring a section 994 petition, ICC Judge Mullen said that no authority had been cited to support the proposition that a change in control during the proceedings should halt any consideration of the allegations of unfair prejudice where they had an effect on the company's value.

Friday, 21 May 2021

Canada: contract, voluntary associations and judicial intervention - the view of the Supreme Court

The Supreme Court delivered its judgment today in Ethiopian Orthodox Tewahedo Church of Canada St. Mary Cathedral v. Aga 2021 SCC 22. Judgment was delivered by Rowe J. (Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown, Martin and Kasirer JJ. concurring). A case summary is available here. To quote Rowe J. (at para, [49]): 
.... courts can only intervene in the affairs of a voluntary association to vindicate a legal right, such as a right in property or contract. Membership in a voluntary association is not automatically contractual. Even a written constitution does not suffice. Membership is contractual only where the conditions for contract formation are met, including an objective intention to create legal relations. Such an intention is more likely to exist where property or employment are at stake. It is less likely to exist in religious contexts, where individuals may intend for their mutual obligations to be spiritually but not legally binding. A voluntary association will be constituted by a web of contracts among the members only where the conditions for contract formation are met".

Thursday, 20 May 2021

Canada: CSA to consult on "broader diversity in corporate leadership"

The Canadian Securities Administrators have announced that they will consult later this year on the subject of "broader diversity in corporate leadership": see here. The aim, amongst other things, is to help determine whether the needs of Canadian investors have changed since the adoption by most CSA jurisdictions of the "women on boards" disclosure requirements

Wednesday, 19 May 2021

Laos: Guidelines on Corporate Governance for Listed Companies

A collaboration between the Lao Securities Commission and the International Finance Corporation has resulted in the publication of a set of corporate governance guidelines for listed companies. A copy of these guidelines - we might call them a code (and, as such, the first in Laos) - is available here (English, pdf) and here (Lao, pdf). The guidelines will operate, after an initial transition period, on the basis of 'comply or explain'.

Tuesday, 18 May 2021

Malta: MFSA feedback statement - the corporate governance framework for authorised firms and listed companies

In February 2020 the Malta Financial Services Authority published proposals for a new corporate governance framework for MFSA authorised firms and listed companies: see here (pdf). The proposed framework, on which views were sought, contained principles operating on the basis of 'apply and explain', to be supported by sector specific guidance and rules. A consolidated corporate governance code for authorised firms and listed companies was also proposed.

An update on these proposals, in the form of a feedback statement, was published today: see here (pdf). A short press release was also published: see here (pdf).  The statement explains that the proposed principles within the corporate governance framework for authorised firms will no longer be mandatory - as suggested by "apply and explain" - but will operate on what is described as a "best effort basis". The principles will be supported by binding rules and guidance notes. The feedback statement also sets out the structure of the proposed new MFSA corporate governance code. A consolidated code is no longer proposed.

Monday, 17 May 2021

Ireland: new corporate rescue regime for small companies // virtual shareholder meetings

The Department of Enterprise, Trade and Employment published a press release last week in which it announced that approval had been gained for the priority drafting of the Companies (Small Company Administrative Rescue Process and Miscellaneous Provisons) Bill 2021: see here. The Bill will amend the Companies Act 2014 in order to introduce a new rescue process for small and micro companies.

The Bill will also - hence the word miscellaneous in the title - make some other changes to the 2014 Act and the Industrial and Provident Societies Act 1893 including making permanent provisions for the holding of virtual meetings (such meetings were introduced as a temporary measure under the Companies (Miscellaneous Provisions) (Covid-19) Act 2020).

The press release highlights the key features of the Bill. 

Friday, 14 May 2021

UK: Supreme Court considers corporate veil piercing - again

Judgment was delivered today by the Supreme Court in Hurstwood Properties (A) Ltd & Ors v Rossendale Borough Council [2021] UKSC 16. The case provided the opportunity for the court - once more - to consider corporate veil piercing, against the background of its earlier decision in Prest v Petrodel Resources Ltd & Ors [2013] UKSC 34.

In Prest, Lord Sumption delivered the leading judgment and accepted that English law contained a principle that the corporate veil could be pierced in (very) limited circumstances - what he termed the "evasion principle".  There was, nevertheless, discussion amongst his fellow justices about whether the principle should remain - and, indeed, if it existed. 

In today's case we learn some more about current thinking.  Lords Briggs and Leggatt delivered the leading judgment (with whom Lords Reed, Hodge and Kitchen agreed) and observed:
 
[In Prest] Lord Walker of Gestingthorpe questioned whether “piercing the corporate veil” is a coherent principle or rule of law at all, as opposed to simply a label used to describe the disparate occasions on which some rule of law produces apparent exceptions to the principle of the separate juristic personality of a corporate body (para 106). Although this is not the occasion for reaching any final view, we are inclined to share Lord Walker’s doubts .... Even if there is an “evasion principle” which may in “a small residual category of cases” (per Lord Sumption) justify holding a company liable for breach of an obligation owed by its controlling shareholder, we are not ourselves convinced that there is any real scope for applying such a principle in the opposite direction so as hold a person who owns or controls a company liable for breach of an obligation which has only ever been undertaken by the company itself".

A summary of the case is available here and in the below recording (if the recording does not appear below, it can be viewed here): 

Thursday, 13 May 2021

UK: England and Wales: winding-up in the public interest

Judgment was delivered yesterday in Secretary of State for Business Energy And Industrial Strategy v Celtic Consultancy & Enterprises Ltd & Ors [2021] EWHC 1240 (Ch). The decision is noteworthy because of the trial judge's discussion of the circumstances in which winding-up on public interest grounds might be justified in respect of a company's inability to explain the basis on which it has received money.  The trial judge (HHJ Cawson QC) stated (paras. [128] and [129]): 
.... [it is argued that] a failure simply to explain the basis upon which monies are received cannot properly form the subject matter of a winding up petition presented on public interest grounds. There is force in this point, and in the main I consider that this must be right, but I do not consider that one can exclude there being circumstances in which a failure to explain might, in itself in the particular circumstances of the case, be indicative of the relevant company operating in an illegal or otherwise inherently objectionable way, or should be taken to be so indicative, such that the Court is entitled to proceed on the basis that the affairs of the Company have been, or are being, conducted in an inherently objectionable way so as to disclose a lack of probity."

Update (19 May 2021) - the ICLR has published a summary of the decision: see here.

Wednesday, 12 May 2021

UK: The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill

The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill received its first reading in the House of Commons today. A copy of the Bill, as introduced, is available here (pdf).

The accompanying explanatory notes - available here (pdf) - explain that the purpose of the Bill is to address "public concerns about the abuse of limited liability, by extending the powers of the Secretary of State and, in Northern Ireland, of the Department for the Economy to investigate the conduct of company directors to include former directors of dissolved companies, to commence disqualification proceedings against them where public interest criteria are met, and to seek compensation where their conduct has caused loss to creditors". 

Further information is also available in a press release from the Insolvency Service