Corporate weekly highlights—14 December 2017

This week’s edition of Corporate highlights includes proposed amendments to the Takeover Code, the issue of AIM Notice 49 by the LSE, the publication of Handbook Notice 50 by the FCA and the interim arrangements for MiFID II/MiFIR registers. Additional highlights include, amongst others, the Investment Association’s statement on virtual-only AGMs and news analysis on the FRC’s annual assessment of corporate reporting in the UK.

In this issue:

Public company takeovers

Equity Capital Markets

Financial services regulation for corporate lawyers

AGMs

Addition corporate updates this week

Daily and weekly news alerts

Public company takeovers

Takeover Panel responds to proposals requiring bidders to make fuller disclosure of takeover plans

Following its public consultation on statement of intentions launched earlier in 2017 (PCP 2017/2), the Code Committee of the Takeover Panel (the Code Committee) has published a response statement entitled ‘Statements of intention and related matters’ (RS 2017/2). The Code Committee has adopted the amendments proposed in PCP 2017/2, subject to certain modifications.

The Code Committee issued PCP 2017/2 on 19 September 2017, which set out proposed amendments to the Takeover Code (the Code) with regard to statements of intention by bidders and related matter (see Takeover Panel proposes requiring bidders to make fuller disclosure of takeover plans, LNB News 19/09/2017 128)).

A key amendment that the Code Committee has adopted relates to the amendment to Rule 24.2(a)(i) (and paragraph (a)(i) of the new Note 1 on Rule 2.7), which, with some minor amendments, expands the rule that requires the offeror to state its intentions regarding the offeree’s research and development functions, the balance of the skills and functions of the offeree’s employees and management, and the location of the offeree’s headquarters and headquarters functions. The expansion will further assist offeree company boards, employee representatives and pension scheme trustees in this regard.

In addition, the Code Committee has adopted the amendments to Rule 2.7 and Rule 25.9 as proposed in section 2(c) of the PCP 2017/2, which proposed that Rule 2.7 should require a firm offer announcement to state the offeror’s intentions with regard to the business, employees and pension schemes of the offeree company, as currently required by Rule 24.2 in relation to an offer document. The minor consequential amendments to certain other provisions of the Code set out in Appendix A of PCP 2017/2 have also been adopted.

The amendments to the Code introduced as a result of the response statement will take effect, and revised pages of the Code will be published, on 8 January 2018.

For further details on the key amendments, see LNB News 11/12/2017 102.

Proposed Takeover Code amendments on asset sales and other matters

Following its public consultation earlier this year (PCP 2017/1), the Code Committee of the Takeover Panel (the Code Committee) has published a response statement setting out amendments to the Takeover Code (the Code) relating to asset sales and other matters (RS 2017/1). The Code Committee has adopted the amendments proposed in PCP 2017/1, subject to certain modifications, and the amendments are effective from 8 January 2018.

The Code Committee issued PCP 2017/1 on 12 July 2017, which proposed amendments to the Code to, among other things, prevent an offeror or potential offeror from circumventing the Code by purchasing significant assets of an offeree (see Takeover Panel consults on proposed amendments to Takeover Code, LNB News 12/07/2017 111). The Code Committee has largely adopted those amendments as modified following responses from respondents to the consultation.

The key amendments include the amendment of Rule 2.8, which will enable an offeror to specify in any Rule 2.8 announcement (no intention statement) the circumstances in which the statement may be set aside.

Other amendments include a new Rule 2.8(f) which prohibits a person who has made a no intention statement within the preceding six months from purchasing, agreeing to purchase or making any statement that indicates it is interested in purchasing ‘significant assets’ from the offeree company.

For further details on the key amendments, see LNB News 11/12/2017 106.

Equity Capital Markets

London Stock Exchange issues AIM Notice 49

Pursuant to AIM notice 49, issued by the London Stock Exchange (LSE), the LSE has published a feedback statement to its discussion paper published on 11 July 2017 (AIM notice 46) reviewing the AIM rules, as well as a consultation on proposed changes. Comments on the proposed changes to the AIM rules and AIM rules for nominated advisers should be sent by 29 January 2018.

The purpose of the discussion paper was to invite feedback on various areas of the AIM rules for companies and the AIM rules for nominated advisers. The feedback statement sets out an overview of the responses received, the amendments proposed by the LSE and the LSE’s proposals for consultation.

Specifically, the LSE is consulting on proposals that formalise an early notification process for nominated advisers, provide guidance to nominated advisers on appropriateness considerations and require AIM companies to comply or explain against a recognised corporate governance code.

For further information, see LNB News 11/12/2017 114.

Financial services regulation for corporate lawyers

FCA publishes Handbook Notice 50

The Financial Conduct Authority (FCA) has published Handbook Notice No 50, which includes changes to the FCA Handbook made by the FCA Board on 7 December 2017, together with feedback on consultations that will not have a separate policy statement. Among other things, the instruments make further changes to the FCA Handbook necessary to implement the recast Markets in Financial Instruments Directive (MiFID II), which applies from 3 January 2018.

The Handbook Notice includes 15 instruments. In addition to the MiFID II changes, the instruments make changes to the Handbook to, among other things: reflect the amendment to the regulated activity of advising on investments which is specified in article 53(1) of the Regulated Activities Order, enable credit unions to receive a concession on the Money Advice debt service levy as if it had been applied since 2014/15 and ensure that authorised payment institutions and authorised electronic money institutions contribute towards the FCA's costs in processing their variations of permission.

The rule changes apply from the dates set out in the Handbook Notice.

For further information, see LNB News 08/12/2017 46.

Interim arrangements for MiFID II/MiFIR registers

From 3 January 2018, the date on which the majority of the provisions of MiFID II and MiFIR take effect, the European Securities and Markets Authority (ESMA) will be required to update existing registers maintained under MiFID I and maintain new registers required by MiFID II/MiFIR. ESMA is currently working on a new IT release for these registers for Q1 2018. Until the release is fully available, ESMA will publish, fortnightly, the latest information from the registers in an excel format which will be available for download.

The following existing registers are affected: regulated markets, multilateral trading facilities, systematic internalisers suspension and restorations (this register will be made available once a week in a pdf format). Some new registers are also affected and the central counterparties register will become obsolete and publication will cease. The register of shares admitted to trading on EU regulated markets will be replaced by the Financial Instruments Reference Data System.

ESMA will continue to monitor the data submitted to the registers and may make the files available outside of the fortnightly schedule, should the requirement arise. ESMA encourages market participants to review the data provided and contact their national competent authority in case of any data discrepancy.

For further information, see LNB News 08/12/2017 56.

AGMs

Virtual-only AGMs ‘detrimental to board accountability’, Investment Association says

In a new position statement, the Investment Association (IA) has outlined its position on virtual-only AGMs, highlighting that its members believe they are ‘not in the best interests of all shareholders and should not be used by investee companies, as their use could be detrimental to board accountability’.

The IA has said, among other things, that IA members are unlikely to be supportive of amendments to articles of association which allow for virtual-only AGMs. In addition, the IA has said members view AGMs and other shareholder meetings as fundamentally important to the exercise of their shareholder rights and as an integral component of the UK corporate governance system.

Further statements include that while investors are aware companies are keen to ensure their shareholder communications keep pace with developing technology, they believe that such technology should only be used in parallel with the in-person meeting, and should not lead to companies adopting a ‘virtual-only’ approach. Furthermore, ‘virtual-only’ AGMs remove this accountability due to the remoteness of participants. Investors believe that the public nature of AGMs and full attendance of the board is important to allow them to bring matters to the board’s attention. Removing this tool impairs the ability of investors to hold boards to account on behalf of their clients.

For further information, see LNB News 12/12/2017 29.

Addition corporate updates this week

Investment Association update their Principles of Remuneration

On 3 November 2017, the Investment Association published their 2018 Principles of Remuneration. The main changes centre around discretions, bonuses, shareholder consultation, transparency and long term incentive plans.

For further information, see Corporate news analysis piece: Investment Association update their Principles of Remuneration.

Standard of corporate reporting in UK remains ‘generally good’

The Financial Reporting Council (FRC) has published its annual assessment of corporate reporting in the UK, finding that the standard remains ‘generally good’, with some improvements in strategic reports. However, the FRC says companies can improve the clarity and completeness of the explanations they provide.

The FRC annual review provides an assessment of corporate reporting in the UK based on broad outreach and evidence. It was informed primarily by the FRC’s own monitoring work on cases opened in the year to 31 March 2017 and from more recently performed thematic reviews.

For further information, see LNB News 11/12/2017 26.

Financial Reporting Council updates guidance on auditor responsibilities

The Financial Reporting Council has amended its ISA (UK) 250 document, section A—Consideration of laws and regulations in an audit of financial statements. The amendments include a new appendix providing revised guidance on the auditor's responsibilities in respect of money laundering, terrorist financing and proceeds of crime legislation in the UK.

For further information, see LNB News 07/12/2017 95.

PERG publishes tenth annual report

The Private Equity Reporting Group (PERG), the body established to review the private equity industry’s conformity with the Walker Guidelines (the Guidelines), has published its tenth annual report on disclosure and transparency in private equity.

Some of the highlights of PERG’s review in the report include that in 2017, compliance by portfolio companies with the disclosure requirements set out in the Guidelines fell to 79% (2016: 86%), with PERG noting that private equity firms and their portfolio companies have been slow to embed the 2014 revisions to the Guidelines and have not kept up with the improving quality of reporting by the FTSE 350.

For further information, see LNB News 11/12/2017 115.

In brief: Excluding liability and extinguishing set-off (Philp and another v Cook)

Rosamund Baker, barrister at Selborne Chambers, considers the case of Philp and another v Cook, in which the High Court construed the effect of a contractual provision in a share purchase agreement which excluded the sellers’ liability for a breach of warranty where the buyer failed to notify the sellers of a claim within a certain period of time.

For further information, see full news analysis piece In brief: Excluding liability and extinguishing set-off (Philp and another v Cook).

Recovering unlawful redemption payments (DD Growth Premium 2X Fund (in official liquidation) v RMF Market Neutral Strategies (Master) Ltd (Cayman Islands))

The appeal from the Court of Appeal of DD Growth Premium 2X Fund (in official liquidation) v RMF Market Neutral Strategies (Master) Ltd (Cayman Islands) raised issues about the Cayman Islands’ company law, as it was between 1989 and 2011, in relation to payments by RMF Market Neutral Strategies of the premium due on the redemption of its shares. Ben Hobden, partner at Conyers Dill & Pearman, examines the case.

For further information, see full news analysis piece Recovering unlawful redemption payments (DD Growth Premium 2X Fund (in official liquidation) v RMF Market Neutral Strategies (Master) Ltd (Cayman Islands)).

Investors welcome auditor transparency, FRC finds

The Financial Reporting Council has published its latest thematic review of audit quality, finding that investors welcome auditor transparency on materiality in UK reporting. Investors also call for auditors to go further in their communications, explain the rationale and impact on the focus of the audit when the materiality threshold is higher than industry norms, use alternative performance measures as a basis and to be more specific with audit committees and in their public reports about the materiality judgements they have made and the impact on the scope, nature and extent of their audit work.

For further information, see LNB News 12/12/2017 36.

Charitable Incorporated Organisations (Consequential Amendments) Order 2017

The effect of the statutory instrument (SI 2017/1231) is to permit a community interest company to appeal a decision by the Charity Commission to refuse an application for its conversion into a charitable incorporated organisation and its registration as a charity. These changes are effective from 1 January 2018. (Updated from draft 8 December 2017).

For further information, see LNB News 11/09/2017 101.

Charities Act 2011 (Commencement No 3) Order 2017

The statutory instrument (SI 2017/1230) brings into force provisions in the Charities Act 2011, which enable existing corporate bodies to convert to become charitable incorporated organisations. It will enter into force on 1 January 2018.

For further information, see LNB News 08/12/2017 77.

Companies should unite in digitising company reporting, finds FRC

The Financial Reporting Council (FRC) Lab has found XBRL (extensible Business Reporting Language) to be an important technology in the digitisation of company reporting—benefiting production, distribution and consumption of listed company annual reports. Yet the Lab believes regulators, companies, investors and technology providers must unite to fully realise the potential of XBRL and to respond to the challenge of a new European Single Electronic Format for digital corporate reporting due in 2020.

For further information, see LNB News 13/12/2017 148.

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Dates for your diary

Date	Subjects covered
1 January 2018	Commission Regulation on IFRS 9 will apply to annual periods beginning on or after 1 January 2018 with earlier application being permitted. Commission Regulation (EU) 2016/2067 of 22 November 2016 has been published in the Official Journal. It amends Regulation (EC) No 1126/2008 adopting certain International Accounting Standards (IAS) in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council (known as the IAS Regulation), in order to adopt IFRS 9, 'Financial Instruments'. See further news, Commission Regulation on IFRS 9published in the Official Journal, LNB News 29/11/2016 22.
1 January 2018	The International Accounting Standards Board has issued several amendments to IFRS Standards and an Interpretation, which clarifies the requirements in particular Standards. The changes are part of the Board’s process to maintain IFRS Standards. Annual Improvements to IFRS® Standards 2014–2016 Cycle has made amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards and IAS 28 Investments in Associates and Joint Ventures. These will be effective from 1 January 2018. For further information, see Minor changes to IFRS Standards, LNB News 08/12/2016 90.
1 January 2018	The Listing Rule changes set out in the FCA’s Policy Statement: Review of the Effectiveness of Primary Markets: Enhancements to the Listing Regime, PS17/22, (published 26 October 2017) come into effect. The changes follow on from the FCA consultation paper CP17/4: Review of the Effectiveness of Primary Markets: Enhancements to the Listing Regime published in February 2017. In summary, the Listing Rule changes relate to: clarification to some of the eligibility requirements in Chapter 6 of the Listing Rules; the explicit reference to the FCA being able to waive the requirement for a clean working capital statement and a three year financial track record is being removed; small amendments to the concessionary routes for mineral companies and scientific research based companies are being made and a new concessionary route is being introduced for some property companies; classifying transactions for premium listed companies: small changes to the profits test and guidance on adjustments to assets and profits figures is being moved from a technical note into the Listing Rules; and the guidance for certain issuers on providing information in order to ensure that the listing of the company’s securities is not suspended upon a leak or announcement of a reverse takeover is being deleted as the FCA considers that proper price formation can take place based on the information disclosed under the Market Abuse Regulation. In addition, four new technical notes will come into force as well as amendments to four existing ones. For further information, see LNB News 26/10/17 108.

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