Government announces new measures to tackle late payment to small businesses

The Small Business Minister, Kelly Tolhurst, has launched a call to evidence on proposed new measures to address the issue of large companies abusing their position in the market by delaying payments to small businesses. The call for evidence closes on 29 November 2018.

Almost a quarter of UK businesses have reported that late payments threaten their survival. Research conducted by the Federation of Small Businesses has determined that if this issue is addressed then £2.5bn could be added to the economy and an extra 50,000 businesses could remain open each year. The proposed measures include promoting innovative technologies, such as the latest accounting software, to assist small firms with the management of their payments processes. They aim to encourage trade bodies to highlight best and worst practices in payment behaviour in an effort to provide practical improvements and help small businesses grow.

The call for evidence seeks views on:

1. the experiences of businesses in relation to their payment practices
2. how successful existing payment practices are
3. what improvements may be made to existing payment practices
4. whether new measures should be introduced to encourage a responsible payment culture

For further information, see: LNB News 04/10/2018 64.

Building Societies Association publishes guidance on revised UK Corporate Governance Code

The Building Societies Association (BSA) has published guidance for building societies on the revised UK Corporate Governance Code (UKCG Code), which was issued in July 2018 and applies to reporting years starting on or after 1 January 2019. The 2018 UKCG Code is addressed to companies with a premium listing, but the Prudential Regulatory Authority expects building societies to ‘have regard to’ the UKCG Code in their corporate governance arrangements.

The BSA guidance is intended to assist building societies in having regard to the UKCG Code. The BSA guidance is in the form of red text boxes, inserted within the relevant sections of the UKCG Code and follows a ‘by exception’ approach, in that it refers only to those elements of the UKCG Code that are either not considered to be relevant to building societies, or which raise particular issues for building societies considered worthy of discussion.

For further information, see: LNB News 05/10/2018 107.

ICSA poll reveals concerns about practicalities of workers on boards

A poll by ICSA: The Governance Institute and recruitment specialist, The Core Partnership, has found that 70% of companies feel that having workers on boards would not be a good idea. This follows the new recommendation in the 2018 UKCG Code that workers be included on boards, so companies can hear the ‘workforce voice into the boardroom’.

The 2018 UK Code, which was issued in July 2018 and applies to reporting years starting on or after 1 January 2019, suggests companies could use one or more of these methods to engage with the workforce:

1. a director appointed from the workforce
2. a formal workforce advisory panel, or
3. a designated non-executive director

For further information, see: LNB News 10/10/2018 72.

FRC announces new strategic programme to serve the public interest

The Financial Reporting Council (FRC) has unveiled a strategic programme of work that aims to ensure that audit better serves the public interest.

The reform programme looks to address fundamental issues related to falling trust in businesses and the effectiveness of audit. In light of recent company failures, the FRC proposes to strengthen the requirements that apply to auditors when they are considering if an organisation is a going concern. It also proposes to look at whether the responsibilities of auditors in assessing companies’ statements on longer-term viability should be increased and whether auditors should publicly report on the ‘realism of assessments’ made by companies.

In addition, the FRC will review auditors' work on the front half of the annual report to determine whether they are doing enough to conclude it is not materially misstated. Stakeholders’ need for information in corporate reports and the extent to which this information needs to be assured will be considered.

The programme also involves work on auditor independence, audit quality and the future needs of investors. The FRC notes that it has adopted a programme of audit firm monitoring and strengthened its enforcement capacity so that cases will be concluded more quickly. In connection with this, it has revised its sanctions framework to levy penalties that reflect the gravity of the issue.

For further information, see: LNB News 08/10/2018 76.

CMA market study: Immediate review of statutory audit market launched

On 9 October 2018, the Competition and Markets Authority (CMA) announced the launch of its study into the UK statutory audit market.

The CMA will examine whether the audit sector is working well for the economy and investors and if it is competitive and resilient enough to maintain high quality standards. The study will focus on audit choice and switching, the long-term resilience of the audit sector and the incentives in place between audited companies, audit firms and investors.

The CMA invites comments on the issues raised and will scrutinise any proposals for tackling those issues. It intends to consult on its provisional views by the end of the year and complete its work as soon as possible thereafter. A letter from the CMA Chairman, Lord Tyrie, to the Rt Hon Greg Clark, Secretary of State for Business, Energy and Industrial Strategy, indicating the scope of the CMA's market study has also been published.

The CMA has launched the study following concerns about statutory audits, particularly following the collapse of construction firm Carillion and the criticism of those charged with reviewing the organisation’s books, as well as recent poor results from reviews of audit quality.

For further information, see: LNB News 09/10/2018 16.

New Precedents

We have published these new Precedents in our Private equity topic:

1. Leaver provisions—articles—private equity or venture capital
2. Reserved matters provisions—shareholders’ agreement—private equity or venture capital
3. Return of capital provisions—articles—private equity or venture capital
4. Board control provisions—shareholders’ agreement and articles—private equity or venture capital