Friday 26 February 2021

UK: FRC guidance - improving the quality of 'comply or explain' reporting

The Financial Reporting Council has today published guidance designed to help companies improve the quality of their 'comply or explain' reporting in respect of the UK Corporate Governance Code: see here (pdf). In the guidance document, it is noted:
One of the most concerning findings from our review [here, pdf]was that many companies were not transparent about their compliance with the Code. Several companies in our sample, including some that claimed full compliance with the Code, on further investigation had not acknowledged departure from one or more Provisions of the Code .... We were disappointed with the quality of the explanations provided by companies for non-compliance with the Provisions of the Code and struggled to find robust explanations. Our sample identified 74 cases of non-compliance with the Code, but we found only four explanations that we considered high quality and offered an insight into the companies’ approach to good governance. The majority of explanations were inadequate, and in one instance, not given at all".

UK: Administration - pre-pack sales to connected parties - draft legislation before Parliament

A draft of the secondary legislation - The Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021 - that will introduce mandatory, independent scrutiny for certain pre-pack administration sales, is currently before Parliament. The (draft) explanatory memorandum, available here (pdf), states (para. 6.1): 
This instrument imposes conditions that must be satisfied before an administrator of a company in administration is able to make a substantial disposal of company property to a person who has a connection with the company. The conditions are that the company’s creditors must have considered and approved the proposed disposal, or, alternatively, that an independent and suitably-qualified person has provided a report to the administrator which considers whether the proposed disposal is reasonable in the circumstances. The instrument also requires that, if the report concludes that the proposed disposal is not reasonable, this must be disclosed to the company’s creditors".

The Regulations are subject to the draft affirmative procedure and their progress can be followed here

Thursday 25 February 2021

UK: England and Wales: the reflective loss principle and former shareholders

Judgment was delivered yesterday by Sir Nigel Teare, sitting as a judge of the High Court, in Allianz Global Investors GmbH & Ors v Barclays Bank Plc & Ors [2021] EWHC 399 (Comm). I note the decision here because of the discussion it contains of the rule against reflective loss, most recently considered by the UK Supreme Court in Sevilleja v Marex Financial Ltd (Rev 1) [2020] UKSC 31. The trial judge held that the rule against reflective loss - sometimes called the rule in Prudential Assurance Co. Ltd v Newman Industries [1982] Ch. 204 - did not bar claims by former shareholders against third parties for damages in respect of losses that had been transferred or passed on to them by the company. The context was, the trial judge noted, one where the company would not be expected to be dealing with a claim for compensation in respect of those losses. 

Wednesday 24 February 2021

UK: FTSE board diversity - fifth and final report from the Hampton-Alexander Review

The Hampton-Alexander Review published its fifth and final report today. The report notes that the voluntary target set five years ago - for women to occupy a third of FTSE100, 250 and 350 board positions by the end of 2020 - has been met. A copy of the report is available here (pdf) and a press release is available here (pdf). A press release from the Department for Business, Energy and Industrial Strategy has also been published: see here.

Tuesday 23 February 2021

UK: FRC updates its principles for the operational separation of the audit practices of the ‘Big 4’

The Financial Reporting Council today published updated principles in respect of the operational separation of the audit practices of the Big 4: see here (pdf). The FRC also confirmed that, having reviewed these firms' implementations plans, it was content for them to move to the next stage of implementation: see here.

Monday 22 February 2021

UK: directors' duties, delegation and oversight - a view from the Judicial Committee of the Privy Council

The Judicial Committee of the Privy Council delivered its opinion today in Byers v Chen (British Virgin Islands) [2021] UKPC 4: see here or here (pdf). The case concerned a claim by liquidators against a former director of a company. Of particular interest is what the Board had to say about directors' duties (at para. [92]): 
It has been held in a number of cases, correctly, in the Board’s opinion, that a director may not knowingly stand by idly and allow a company’s assets to be depleted improperly: see, for example, Walker v Stones [2001] QB 902, at 921D-E per Sir Christopher Slade; Neville v Krikorian [2006] EWCA Civ 943; [2007] 1 BCLC 1, paras 49-51 per Chadwick LJ; Lexi Holdings v Luqman [2007] EWHC 2652 (Ch), paras 201-205 per Briggs J (as he then was). To the contrary, a director who knows that a fellow director is acting in breach of duty or that an employee is misapplying the assets of the company must take reasonable steps to prevent those activities from occurring".

Singapore: special resolution required to voluntarily wind-up company, Court of Appeal rules

In holding that a special resolution of the members was required, the Court of Appeal - in Superpark Oy v Super Park Asia Group Pte Ltd [2021] SGCA 8, available here (pdf) - rejected the argument that a third route was available in addition to the two circumstances outlined within section 290(1) of the Companies Act. The court stressed the "substantial and meaningful" distinction between compulsory and voluntary winding-up - a distinction that, in its view, would be elided if a company's creditors were able to do away with the requirement for the members of the company to have passed a special resolution for voluntary winding up as required by section 290(1).

Note: section 290(1) has been replaced by a provision expressed in largely identical terms: section 160 of the Insolvency, Restructuring and Dissolution Act 2018, which came into force on 30 July 2020.

Friday 19 February 2021

UK: England and Wales: directors, bribery and section 176 of the Companies Act 2006

Judgment was delivered yesterday in Kings Security Systems Ltd v King & Anor [2021] EWHC 325 (Ch). While first instance, it is nevertheless noteworthy for the trial judge's discussion of whether the introduction of section 176 ("Duty not to accept benefits from third parties") of the Companies Act 2006 had removed the availability of tort based claims against a director in respect of bribery. The trial judge, Andrew Lenon QC, held that section 176 did not have this effect, observing that if section 176 had indeed removed the ability to bring such claims:

.... the liability of the briber and the liability of the bribed director would be governed by different rules. In the absence of clear words, I do not consider that this was the intention of the legislator. Even if the effect of section 170(3) is to substitute the general duties for the tort of bribery ... section 170(4) provides that 'the general duties shall be interpreted and applied in the same way as common law rules or equitable principles, and regard shall be had to the corresponding common law rules and equitable principles in interpreting and applying the general duties.' The law relating to bribery therefore remains relevant. Advancing a separate cause of action in bribery where there are grounds for claiming a breach of section 176 of the 2006 Act may, however, add nothing more than colour". 

UK: Corporate Insolvency and Governance Act 2020 (Coronavirus) (Change of Expiry Date) Regulations 2021

A draft of the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Change of Expiry Date) Regulations 2021 was laid before Parliament on 11 February under the affirmative procedure. The accompanying (draft) explanatory memorandum - available here (pdf) - explains the purpose of the Regulations as follows (para. 7.1): 
This instrument extends the expiry date of the period during which the power in section 20 [of the Corporate Insolvency and Governance Act 2020] can be used, from 30 April 2021 to 29 April 2022. The section 20 power enables the Secretary of State to make regulations temporarily modifying corporate insolvency or governance legislation for various purposes in connection with mitigating the impact of coronavirus. An example of a previous exercise of this power is the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations 2020/1349

Further information is also available in the announcement made earlier this week by the Department for Business, Energy and Industrial Strategy: see here

Thursday 18 February 2021

Jersey: Royal Court considers shareholder remedies

I note, a little belatedly, an important judgment of the Royal Court (Samedi division) on shareholder remedies from earlier this year: Financial Technology Ventures II (Q) LP and Ors v ETFS Capital Limited and Tuckwell [2021] JRC025.  The judgment contains a detailed exposition of the principles concerning the unfair prejudice remedy (Article 141(1) of the Companies (Jersey) Law 1991) and winding-up on just and equitable grounds (Article 155(1)), drawing heavily on (non-binding) English authorities.

The court (Deputy Bailiff MacRae and Jurats Olsen and Christensen) accepted that the company's affairs had been conducted in an unfairly prejudicial manner in respect of the actions taken by the company's founder and chairman, who held (directly or indirectly with his wife) 58% of the company's issued share capital. These actions - described by the court as being part of a scheme designed to drive the plaintiffs out of the company - included those designed to secure the removal of independent directors and unilaterally changing the business of the company.

Wednesday 17 February 2021

UK: FRC publishes 21/22 draft plan, strategy and budget

A few days ago the Financial Reporting Council published its draft plan, strategy and budget for 2021/22: see here (pdf). Alongside the work being done to create ARGA - the new Audit, Reporting and Governance Authority - the document notes the intention to "[u]ndertake assessments of performance against the UK Corporate Governance Code, the UK Stewardship Code and the Wates Corporate Governance Code for Large Private Companies. Subject to the outcome of Government consultation [a white paper is expected soon, the Financial Times has reported], consult on revisions to the UK Corporate Governance Code and associated guidance ahead of legislation"


Monday 15 February 2021

UK: Scotland: unfair prejudice petitions - the reasonable offer and abuse of process

The Court of Session (Outer House) delivered its opinion in Cheyne and Cheyne v Cheyne Engineering Ltd and Balmoral Group Holdings Ltd [2021] CSOH 17 last week. This is an important decision on the operation in Scotland of the unfair prejudice remedy - sections 994 to 996 of the Companies Act 2006 - because of the confirmation it provides of the court's power to dismiss an unfair prejudice petition as an abuse of process where a reasonable offer has been made for the petitioner's shares.  To quote Lord Ericht (at para. [57]): 
The unfair prejudice provisions in the Companies Act 2006 apply in both Scotland and England. The remedies given are equitable, and the court has a wide discretion. In these circumstances it seems to me that it is inherently desirable that there is consistency between the approach of the Scottish and English courts. Accordingly, in my opinion, where the respondent to an unfair prejudice petition makes a reasonable offer which gives the petitioner all the remedy which the petitioner could realistically expect to obtain, and the petitioner refuses the offer and continues with the litigation, it is competent in Scotland for the court to dismiss the petition as an abuse of process. I reserve my opinion as to whether dismissal for abuse of process for refusal of an offer would be competent in Scotland in any petition or action other than an unfair prejudice petition". 

Friday 12 February 2021

UK: England and Wales: Supreme Court on parent company liability for actions of subsidiary companies

A belated (and overdue) return to the blog, to report the delivery today, by the Supreme Court, of its judgment in Okpabi v Royal Dutch Shell Plc [2021] UKSC 3: see here or here (pdf).  A summary of the judgment is available here (pdf). 

The Supreme Court unanimously held that the Court of Appeal (in [2018] EWCA Civ 191) had erred in law in several respects, thereby opening the way for the claim to be brought in England against the UK incorporated parent company in respect of environmental harm caused by a Nigerian subsidiary.  It was wrong, the Supreme Court held, to approach the question of whether a parent company owed a duty of care in respect of the conduct of its subsidiaries by reference to any generalised assumption or presumption. Moreover, the Court of Appeal had focused unduly on the question of control by the parent company; what mattered, the Supreme Court stated, was the extent to which the parent took over, or shared with the subsidiary, the management of the relevant activity (something that control by the parent might demonstrate, but not necessarily).  The Supreme Court also held that, to the extent that the Court of Appeal had suggested that the parent company's promulgation of group wide policies or standards could never in itself give rise to a duty of care, that was inconsistent with Lungowe v Vedanta Resources plc [2019] UKSC 20.

An oral summary of the Supreme Court's decision was delivered by Lord Hamblen: see below.