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This week’s edition of Corporate highlights includes the latest Market Tracker Trend Report on AGM season 2018, plus news of the publication of the Wates Corporate Governance Principles for Large Private Companies, the government response to the BEIS consultation on limited partnership law reform, the Law Society/CLLS joint response to the Takeover Panel consultation on asset valuations, and ongoing Brexit developments.
Corporate governance; General meetings
Public company takeovers
Equity capital markets (AIM)
Private M&A (share purchase)
Financial services regulation for corporate lawyers
Additional Corporate updates this week
Lexis®PSL comments on key developments in 2018 and 2019
Additional news—daily and weekly news alerts
Dates for your diary
Our latest Market Tracker Trend Report, AGM season 2018, analyses market practice and trends emerging from the FTSE 350 annual general meeting (AGM) season 2018.
Key topics in the report include:
The report includes expert commentary from Will Chalk, Partner and Head of Corporate Governance at Addleshaw Goddard LLP, Jonathan Fletcher Rogers, Partner and Head of the Employee Incentives Team at Addleshaw Goddard LLP, Pavita Cooper, Founder of More Difference, and Peter Swabey, Policy & Research Director at ICSA: The Governance Institute.
A government-backed industry group chaired by James Wates CBE has launched a new corporategovernance code for large private companies. The Wates Corporate Governance Principles for Large Private Companies provide a framework to help these companies meet their legal requirements and promote their long-term success.
The document is framed around the following six core principles of good governance (principles) which are supported by guidance under each principle:
Large private companies will be able to voluntarily adopt the Wates Principles as an appropriate framework when making a disclosure about their corporate governance arrangements under the government’s new reporting requirement (see Companies (Miscellaneous Reporting) Regulations 2018, SI 2018/860 (2018 Regulations)). However, the Wates Principles will provide a useful tool for a wide range of companies (not just those covered by the new reporting requirement) to understand and adopt good practice in corporate governance.
The Wates Principles recognise that a ‘one-size-fits-all’ approach is not appropriate given the large variety of large private companies in the UK. Companies adopting the new principles should therefore follow them using an ‘apply and explain’ approach in a way that is most suitable for their particular organisation. Accordingly, boards should apply each principle by considering them individually having regard to the company’s specific circumstances. They should then explain in their own words how they have addressed them in their governance practices.
For further information, see: LNB News 10/12/2018 50.
The GC100 and Investor Group have updated their Directors' Remuneration Reporting Guidance to reflect changes to the directors’ remuneration reporting regime introduced by the 2018 Regulations, SI 2018/860, together with feedback received from other stakeholders.
The guidance was first published in 2013 to assist quoted companies in applying the directors' remuneration reporting requirements introduced by the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, SI 2013/1981. The guidance focuses on the practical aspects of implementing the requirements, with suggestions agreed as best practice by both companies and investors.
The primary areas in which the guidance has been updated relate to the exercise of discretion, considerations surrounding share price appreciation and reporting of pay ratios. However, the guidance covers the detailed reporting requirements of the directors’ remuneration report and remuneration policy.
The guidance could be found on the GC100 homepage.
For further information, see: LNB News 11/12/2018 86.
The Law Society and City of London Law Society (CLLS) have published a joint response to the Takeover Panel consultation (PCP 2018/1) on proposed amendments to Rule 29 of the Takeover Code (asset valuations).
Rule 29 of the Takeover Code (Code) requires that when a valuation of assets is given in connection with an offer, it should be supported by the opinion of a named independent valuer. While generally agreeing with the way in which Rule 29 is currently applied by the Panel Executive, the Code Committee felt that certain aspects of the Executive’s practice are not reflected in Rule 29 itself. The consultation paper included proposals to amend Rule 29 to more accurately reflect current practice and provide a more logical framework for the asset valuation regime.
In their comments, the Joint Working Group address: the ‘look back’ period in order for Rule 29 to apply; whether the reporting exemptions that apply under the Code for ordinary course forecasts should be replicated for asset valuations; and the requirement for directors of the offeror or offeree company to obtain confirmation that an updated valuation would not be materially different. In addition, the Joint Working Group suggests that clarifications from the Panel would be helpful with regard to: valuations included in the offer documentation but not subject to Rule 29 (whether a disclaimer is required); third party valuations not reported on in accordance with Rule 29 (whether they should be removed from the website); and which asset classes are inside or outside the resume.
For further information, see: LNB News 10/12/2018 98.
Corporate analysis: In this case, the High Court considered whether it had jurisdiction to approve two linked mergers under the Companies (Cross-Border) Mergers Regulations 2007 where the public notice of the proposed merger had failed to include certain prescribed information.
In the matter of MDNX Group Holdings Limited  EWHC 3396 (Ch).
Regulation 16 of the 2007 Regulations provides that the discretion of the court to make an order approving the completion of a cross-border merger arises only if the jurisdictional requirements sub-paragraphs (a)–(f) of regulation 16 are met. One of these requirements is that an order has been made under regulation 6 in relation to each UK merging company, ie the issue of the Pre-Merger Certificate.
The High Court held that the Pre-Merger Certificate issued by Judge Barnett fell within regulation 16(1)(b) and that the court did therefore have jurisdiction to make an order in respect of this merger. However, the order issued by Lord Ericht did not satisfy the requirements of regulation 16(1)(b) and the court did not have jurisdiction to approve this merger.
This case illustrates that when considering whether to approve a cross-border merger under the 2007 Regulations, the court will be reluctant to look behind the earlier order made at the Pre-Merger Certificate stage, even if that subsequent court knows that there is a question mark over whether the Pre-Merger Certificate should have been issued. However, where the earlier court order is qualified (as was the case here), it is unlikely that it will be treated as a Pre-Merger Certificate for the purposes of the 2007 Regulations. The term ‘Pre-Merger Certificate’ is limited to an order which states that the court is satisfied that all the pre-merger acts and formalities have been complied with.
For further information, see News Analysis: High Court considers procedural irregularities on cross-border merger.
The government’s response to its consultation Limited Partnership: Reform of Limited Partnership law, which sought views on how to limit the risk of misuse of limited partnerships (LPs) and the ways in which the law might be modernised, has been published and the consultation concluded. The government intends to take action to limit the potential misuse of LPs while ensuring that they remain attractive for legitimate business use, in particular as an investment vehicle.
The government intends to make it mandatory for new applicants for registration of LPs to demonstrate that they are registered with an anti-money laundering supervisory body and is also considering options to ensure that overseas applications will be subject to equivalent standards (eg limiting applications to EEA jurisdictions).
The government also intends to request information about a LP’s connection to the UK on application for registration and on an ongoing basis. On application for registration, a UK principal place of business must be provided and, with regard to demonstrating ongoing connection, the LP will need to:
Changes to a LP’s principal place of business or ways it demonstrates its ongoing connection to the UK will need to be notified to the Registrar.
The government further intend to introduce a requirement for LPs to file a confirmation statement at least every 12 months. The purpose is for the LP to confirm all details on the register are correct.
The Registrar will have new powers to strike off LPs that are dissolved or which it concludes are not carrying on business or in operation.
For further information, see: LNB News 11/12/2018 5.
SI 2018/1299: These Regulations are intended to ensure that any European Economic Interest Grouping registered in the UK immediately before Exit Day has a clear legal identity and can operate effectively on and after Brexit. A new legal form known as a UK Economic Interest Grouping is proposed.
These Regulations were made using the negative procedure and the final version of the Regulations is the same as the draft published on 31 October 2018.
For further information, see: LNB News 06/12/2018 81.
SI 2018/1296: These Regulations are intended to ensure that any European company (otherwise known as Societas Europaea) registered in the UK immediately before Exit Day has a clear legal identity and a domestic framework within which to operate on and after Brexit. A new corporate form known as a UK Societas is proposed.
The Regulations were made using the negative procedure and the final version of the Regulations is the same as the draft published on 31 October 2018.
For further information, see: LNB News 06/12/2018 74.
SI 2018/Draft: These draft Regulations have been laid before Parliament and published. The draft Regulations are being laid in order to address deficiencies in retained EU law in relation to market abuse arising from the withdrawal of the UK from the EU. The draft Regulations amend retained EU law relating to market abuse, including the Regulation 596/2014, EU Market Abuse Regulation (MAR), the tertiary legislation made under MAR, and the UK legislation which complemented MAR, to ensure that the relevant legislation continues to operate effectively at the point at which the UK leaves the EU.
For further information, see: LNB News 07/12/2018 138.
SI 2018/1321: This enactment is made in exercise of legislative powers under the European Union (Withdrawal) Act 2018 in preparation for Brexit. This enactment amends UK primary legislation and EU retained legislation in order to address deficiencies in retained EU law in relation to short selling, the selling of securities which are either borrowed or not owned by the seller, arising from the withdrawal of the UK from the EU. This ensures that the legislation continues to operate effectively at the point at which the UK leaves the EU.
The Regulations were made on 6 December 2018 using the affirmative procedure and the final version of the Regulations is the same as the draft published on 11 October 2018.
For further information, see: LNB News 11/10/2018 102.
HM Treasury has published an updated draft of the Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2018 (SI). In addition, HM Treasury also published updated explanatory information in relation to the SI. Both the SI and explanatory information update the previous drafts published by HM Treasury on 8 October 2018, but do not differ substantively from such previous drafts.
The SI will make amendments to retained EU law related to credit rating agencies to ensure that it continues to operate effectively in a UK context once the UK leaves the EU, in any scenario. The purpose of the SI is to ensure that the regime established under the UCITS IV Directive (2009/65/EC) for investment funds and their managers continues to operate effectively after Brexit.
The latest draft SI does not appear to differ substantively from the previous draft published on 8 October 2018 by HM Treasury.
For further information, see News Analysis: Brexit Financial Services updated collective investment schemes draft SI published—6 December 2018.
The CLLS and the Law Society have published their joint response to the Financial Conduct Authority (FCA)'s Consultation Paper 18/28 (CP18/28) on Brexit: proposed changes to the Handbook and Binding Technical Standards (BTS), published in October 2018.
CLLS and the Law Society agree with the proposed changes to the Short Selling Regulation BTS as set out in CP18/28 and have no further comments to raise.
In relation to the draft guidance on the FCA's approach to EU non-legislative materials, CLLS and the Law Society comment that, as regards EU non-legislative material, the FCA might consider implementing a mechanism for market participants with urgent queries to obtain guidance on its interpretation of the non-legislative material, perhaps by way of a designated hotline or email address which would be available for a finite period of time until the regulatory position is sufficiently clear for markets to operate confidently in the new regime. Any answers provided to market participants through this process could be published on a 'no-names' basis in the FCA's Knowledge Base.
For further information, see: LNB News 10/12/2018 109.
The London Stock Exchange’s (LSE) AIM Disciplinary Committee has publicly censured and fined Bushveld Mineral Limited (Bushveld) for breaching Rules 11 (general disclosure of price sensitive information) and 31 (AIM company and directors' responsibility for compliance) of the AIM Rules for Companies (AIM Rules). The breaches related to a reverse takeover transaction pursuant to which Bushveld was required to place a significant amount of money with its lawyers (subject to an undertaking) to be released to the counterparty upon fulfilment of certain conditions (such money amounting to a material sum in the context of Bushveld’s financial position). Bushveld failed to inform its nominated adviser when the undertaking was given (the trigger event giving rise to a without delay notification requirement under Rule 11), instead informing the nomad several weeks later.
The LSE determined that Bushveld breached Rule 11 by failing to comply with its disclosure obligations to notify the nomad without delay when the undertaking was given, and breached Rule 31 by failing to provide the nomad with information on the undertaking in circumstances where Bushveld knew (or ought to have known) that this was information that the nomad had reasonably requested and needed in order to carry out its responsibilities to the LSE.
For further information, see: LNB News 07/12/2018 115.
The Quoted Companies Alliance has published the results of its Small & Mid-Cap Sentiment Index for H2 2018, the outcome of a survey completed by 105 small/mid-size UK quoted companies and 47 advisory companies in October/November 2018.
Key findings of the survey include that 47% of small and mid-caps are looking to raise capital in the next 12 months (an increase from 28% in December 2017 and the highest level since March 2016). Also, 67% of companies and 72% of advisors believe the new AIM Rule 26 (requiring companies to report against a recognised corporate governance code) will improve the integrity of AIM.
For further information, see: LNB News 11/12/2018 90.
From 12 December 2018, Companies House will check the details of proposed directors, secretaries, members and people with significant control in new applications to register UK companies, European companies (SEs), limited liability partnerships and Scottish limited partnerships for any matches to an individual or corporate body which has had financial sanctions imposed on it by the UN (Designated Person).
If Companies House believes that these details sufficiently match a Designated Person, the application will be rejected and the applicant will have the chance to resubmit their application with evidence that the person is not a Designated Person.
For further information, see: LNB News 06/12/2018 94.
The Institutional Shareholder Services (ISS) has published guidelines for proxy voting in UK and Ireland. Previously using the voting guidelines of the Pensions and Lifetime Savings Association, ISS has operated a standalone policy for the UK and Ireland since 2015. The new guidelines are effective for meetings on or after 1 February 2019.
For further information, see: LNB News 07/12/2018 106.
The Financial Reporting Council (FRC) has published its Thematic Review on the work performed by auditors to meet their reporting responsibilities for ‘Other Information’ in the annual report.
The FRC highlights that the Other Information (the strategic report, the directors’ report, the corporategovernance statement and most of the directors’ remuneration report, often referred to as the ‘front end’) has grown in importance as investors increasingly focus on it to help with their investment decisions. In the FRC’s view, many users of annual reports believe that the whole of the annual report has been audited and do not understand that auditors’ work in relation to the Other Information is different from their work in relation to the financial statements.
The Thematic Review (which looked at policies and procedure applied on a sample of 30 audits of companies with a premium listing on the LSE) found that, in the absence of prescriptive requirements in auditing standards and audit firm procedures, the nature, extent and quality of the work performed by audit teams on the Other Information varies considerably between and within audit firms.
The FRC expects auditors to place greater emphasis on their review of key non-financial information, increasing their scepticism and paying more attention to the completeness of information, particularly in relation to principal risk disclosures and their linkage to viability statements, as well as requiring boards to prepare documentation to support key areas such as the viability statement.
The FRC proposes to look again at the changes made to auditing standards in relation to Other Information as part of its post-implementation review.
For further information, see: LNB News 06/12/2018 87.
The appeal concerned the true construction of the indemnity provisions in a share sale agreement, which provided for the sale of the entire share capital of a company that provided financial advice to retail customers. The defendants (the indemnifying parties) had argued that the claimants had not complied with the requirements for giving notice of their indemnity claim. The dispute concerned the requirement (in the agreement) for notice to be given 'specifying the details and circumstances giving rise to the Claims or Claims and an estimate in good faith of the total amount of such Claim or Claims' (the bracketed words). The Court of Appeal, Civil Division, ruled, among other things, that the word 'Claim' in the bracketed words did not extend to an indemnity claim, as the defendants had contended. Accordingly, the court dismissed their appeal against the dismissal of their application for summary judgment on the claimants' indemnity claim, which arose out of two reviews required by the FCA under section 166 of the Financial Services and Markets Act 2000.
Restructuring & Insolvency analysis: Key issues explored in the Court of Appeal’s decision in Global Corporate Ltd v Hale include unlawful dividends, the quantum meruit claim and judges’ approach to litigants in person. Lawrence McDonald, barrister at Exchange Chambers (and counsel for the appellant), discusses these key issues and the implications of the Court of Appeal’s decision.
For further information, see News Analysis: When the repayment of dividends is unlawful and when judges’ interrogations become inappropriate (Global Corporate Ltd v Hale)
European regulators should get tougher on policing of initial coin offerings (ICOs), the chief executive of the FCA said this week, as he pointed to recent enforcement action taken by the US Securities and Exchange Commission to protect consumers.
Andrew Bailey said the FCA is concerned about the market in ICOs, which give investors digital tokens rather than stock as a form of investment in a startup company. European regulators should look closely at the work being done by the US watchdogs in a legal crackdown on abuse and fraud in the growing digital currency industry, he said.
The FCA is planning to launch a consultation next year on whether to ban the sale of derivatives based on some types of cryptoassets to individual consumers after the government raised concerns.
For further information, see News Analysis: FCA's Bailey sees US crackdown on ICO market as model.
Commercial analysis: A recent High Court ruling in Katara Hospitality (a company incorporated in Qatar) v Guez found that a document must explicitly state that it is a deed to be considered a deed. Michael Budd, associate at Weightmans, discusses the implications of this case.
This case indicates that in the absence of express wording that a document is intended to be a deed, the court sets high standards for what it will consider to be evidence that the parties intend a document to be treated as a deed for the purposes of section 1(2) of the Law of Property (Miscellaneous Provisions) Act 1989. Even the use of words typically included in a deed (but excluding the word itself) will apparently not result in the court considering that a document is a deed. It is therefore recommended always to expressly state a document is executed as a deed.
For further information, see News Analysis: When is a deed considered a deed? (Katara Hospitality v Guez and another).
Lexis®PSL Corporate have published their end of year comment, which considers their standout legal development in corporate in 2018 and previews anticipated talking points in 2019. See: Corporate—Lexis®PSL comments on key developments in 2018 and 2019.
In view of the impending departure of the UK from the EU, we have also published our comments on the key developments on Brexit in 2018 with horizon scanning into 2019. See: Brexit—Lexis®PSL comments on key developments in 2018 and 2019.
This document contains the highlights from the past week’s news. To receive all our news stories, whether on a daily or a weekly basis, amend your personal settings within your ‘News’ tab on the homepage by clicking on either ‘Email’ or ‘RSS’ (depending on how you prefer to receive them) on the right hand side of the blue banner.
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New Q&As added this week:
To view analysis of the latest deals in the market and the underlying transaction documents, use our Market Tracker deal analysis tool.
To read about the latest corporate announcements, see our Market Tracker weekly round-up—7 December 2018.
To read about the latest issues and developments which we are following in Market Tracker, see our latest blog post: Market Tracker weekly bulletin—5th December 2018
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