Corporate weekly highlights—14 June 2018

This week’s edition of Corporate highlights includes the new Market Tracker Trend Report—Dividends, a new precedent in the Private Equity topic and news stories on the draft Companies (Miscellaneous Reporting) Regulations 2018 and BEIS FAQs on the draft regulations. It also includes a news story on the FRC’s consultation on a proposed corporate governance code for large private companies (known as the Wates Corporate Governance Principles for Large Private Companies).

Share capital

Market Tracker Trend Report—Dividends

The Lexis®PSL Corporate team has published a Market Tracker Trend Report on dividends. This report looks at market practice across the FTSE 350 for the payment of dividends.

Some of the questions addressed in the report include:

  1. what mix of final, interim and special dividend payments is made across the FTSE 350
  2. how frequently FTSE 350 companies pay dividends
  3. how quickly a dividend payment is made following: its first announcement; in the case of a final dividend, the date of the AGM notice and the AGM itself, and crucially, the record date, and
  4. whether companies are adhering to the recommended timeframe for payment of dividends set out in the London Stock Exchange (LSE) Dividend Timetable

The Lexis®Nexis Market Tracker team conducted research to answer these questions and uncover details of how FTSE 350 companies are paying final, interim and special dividends to their shareholders. The team interviewed the Stock Situations Team of the LSE for its views on the LSE Dividend Timetable, and Peter Swabey of ICSA: The Governance Institute (ICSA) contributed both commentary and to the methodology of the report. Commentary has also been provided by international law firm Pinsent Masons LLP, who must also be credited for the idea of producing the report in the first place.

The Lexis®Nexis Market Tracker team hopes that the report gives companies and their advisers some clarity on current market practice for payment of dividends and assistance in navigating an area which is currently lacking in formal commentary and guidance.

You can view the full report on the Corporate blog.

Corporate governance; Accounts and reports

Companies (Miscellaneous Reporting) Regulations 2018

On 11 June 2018, the government published draft secondary legislation (Companies (Miscellaneous Reporting) Regulations 2018 (draft Regulations)) which, if approved by Parliament, will introduce new reporting requirements on executive pay, corporate governance arrangements and how directors have had regard to the matters set out in section 172(1)(a)–(f) of the Companies Act 2006 (CA 2006) in the exercise of their duties. In addition, the draft Regulations clarify that small community interest companies must report on their directors’ remuneration.

The purpose of these new reporting requirements is to build confidence in the way that large private and quoted companies are run and, with respect to the clarification that small community interest companies must report on their directors’ remuneration, to rectify a gap created when Schedule 2 to the Small Companies and Group (Accounts and Reports) Regulations 2008, SI 2008/409 was revoked.

If approved by Parliament, the draft Regulations will amend parts of the CA 2006, the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations, SI 2008/410 and the Community Interest Company Regulations 2005, SI 2005/1788.

The draft Regulations will amend CA 2006 so that large public and private companies will be required to explain in the strategic report how their directors have had regard to the matters set out in CA 2006, s 172(1)(a)–(f), which includes employees and other stakeholders. This requirement will apply to all companies which fall outside the scope of the small or medium-sized accounting regimes. Companies will need to make their section 172(1) statement available on a website.

The draft Regulations will amend the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations, SI 2008/410 so as to (among other things) require:

  1. additional information in the directors’ report in relation to a company’s engagement with its employees, and suppliers, customers and others in a business relationship
  2. companies which in a financial year have more than 2,000 employees, or a turnover of more than £200m and a balance sheet total of more than £2bn, to provide a statement of corporate governance arrangements in relation to that year
  3. quoted companies with more than 250 employees to report annually on the ratio of CEO pay to the average pay of their UK workforce

Subject to Parliamentary approval, for the most part the draft Regulations will apply to companies with accounting periods beginning on or after 1 January 2019.

For further information, see LNB News 11/06/2018 77. In relation to requirements for companies to report on the CEO pay gap, see LNB News 11/06/2018 121.

Government publishes FAQs relating to new corporate governance reporting requirements

The Department for Business, Energy & Industrial Strategy (BEIS) has published a list of frequently asked questions (FAQs) relating to the draft Regulations. The purpose of the FAQs is to help companies and interested stakeholders understand how they will be affected by the new corporate governance reporting requirements in the draft Regulations.

The draft Regulations will not become law until approved by Parliament. However, BEIS recognises the importance of providing companies and stakeholders with as much time as possible to understand the changes to the law proposed by the draft Regulations and hopes the FAQs will be helpful in this regard.

BEIS further notes that the FAQs are intended to be a factual explanation of the draft Regulations and are not intended to be comprehensive, noting that companies should not rely on the FAQs for legal guidance on how the reforms will affect them.

The FAQs do not cover the provisions affecting small community interest companies.

For further information, see LNB News 13/06/2018 105.

FRC publishes consultation on Wates Corporate Governance Principles for Large Private Companies

The Financial Reporting Council (FRC), on behalf of James Wates CBE, has published a consultation on corporate governance principles for large private companies, which closes on 7 September 2018. Development of the principles follows the Government’s 2016 Green Paper and the BEIS Select Committee’s report of April 2017 which considered the need for improved transparency and accountability in this area.

Known as the Wates Corporate Governance Principles for Large Private Companies, the principles are the result of significant debate and exploration, including a review of similar codes in other countries and consultation with experts and representative bodies. Large private companies will be encouraged to follow six principles to inform and develop their corporate governance practices and adopt them on an ‘apply and explain’ basis. The six principles are: purpose; composition; responsibilities; opportunity and risk; remuneration; and stakeholders.

The final version will be published in December 2018.

For further information, see LNB News 13/06/2018 102.

New category under premium listing regime to apply to companies controlled by a sovereign country

The Financial Conduct Authority (FCA) has published a feedback statement to its consultation issued in July 2017 on proposals to create a premium listing category for sovereign-controlled companies, which the FCA believes could greatly benefit investors if corporate issuers agree to meet these additional premium requirements.

The proposals include relaxing two areas of the current premium listing regime for sovereign controlling shareholders. First, there will not be a requirement for a binding controlling shareholder agreement. Second, there will not be a requirement for an advance sponsor opinion or advance approval by independent shareholders of certain transactions with the sovereign or its associates.

For further information, see LNB News 08/06/2018 87.

FCA consults on proposed guidance on periodic financial information and inside information

The FCA is consulting on a proposed change to its technical note FCA/TN/506.2—Periodic financial information and inside information. The proposed changes cover the delay in the disclosure of inside information under Article 17(4) of the Market Abuse Regulation. Feedback is sought by 23 July 2018.

In the proposed amended technical note, the FCA emphasises that the requirement under the Market Abuse Regulation to disclose inside information applies even when issuers are in the process of preparing periodic financial reports and that issuers should not adopt a blanket approach regarding the assessment of the status of information they hold. Issuers are expected to exercise judgment and conduct assessments in good faith.

For further information, see LNB News 11/06/2018 115.

Public company takeovers; Private M&A

UK mergers: Amended merger thresholds for certain transactions impacting national security now in force

The amendments to the UK merger control regime’s notification thresholds for certain sectors impacting national security (namely military or dual-use goods which are subject to export control, quantum technology and computing processing units) have entered into force on 11 June 2018. For these sectors only, the share of supply threshold has been amended so that it can be met solely by the activities of the target and the turnover threshold has been reduced to £1m (from £70m). The purpose of these changes is to enable the Secretary of State to intervene in mergers in these sectors which might give rise to national security implications.

For further information, see LNB News 11/06/2018 30.

Financing for corporate lawyers; share capital

Joint working party of Law Society committees publishes guidance notes on guarantees, intra-group loans and distributions

A joint working party of the Company Law Committee of the Law Society of England and Wales and the Company Law and Financial Law Committees of the City of London Law Society (the Joint Working Party) has published two guidance notes on distributions. The first note considers whether a guarantee of a parent company or fellow subsidiary's debt (without payment of an appropriate fee) will be a distribution, while the second considers whether an intra-group loan on off-market terms will be a distribution. The Joint Working Party has emphasised that these notes do not constitute advice.

The guidance notes have been produced in response to the current guidance issued by the Institute of Chartered Accountants in England and Wales on distributions, TECH 02/17BL (April 2017), which states that such intra-group transactions will result in a distribution being made.

For further information, see LNB News 07/06/2018 98.

Additional Corporate updates this week

Don’t lose sight of the forest for the trees—interpreting entire agreement clauses (NF Football Investments Limited v NFFC Group Holdings Limited)

Dispute Resolution analysis: This case analysis, written by Richard Hanke, barrister at 3 VB London, examines the recent NF Football Investments Limited v NFFC Group Holdings Limited case which addressed the question of whether or not an entire agreement clause can operate to preclude a claim based on pre-contractual misrepresentations. Master Bowles held that an entire agreement clause in a share purchase agreement did have that effect, such that the misrepresentation claim should be struck out as bound to fail.

The key takeaway from the decision is that (as emphasised by Master Bowles) the determination of questions of contractual interpretation will always depend upon the particular language used and their context.

For further information, see Case Analysis: Don’t lose sight of the forest for the trees—interpreting entire agreement clauses (NF Football Investments Limited v NFFC Group Holdings Limited).

Additional news—daily and weekly news alerts

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New and updated content

New precedent

We have published the following new precedent in our Private Equity topic area: Pre-emption on issue provisions—articles of association—for shareholders’ agreement.

Dates for your diary

Date Development
21 June 2018 Capital Markets Union: Consultation on amendments to the Markets in Financial Instruments Directive (MiFID II) delegated act on SME growth markets (Commission Delegated Regulation (EU) 2017/565 on SME Growth Markets) closes.
The proposed amendments as set out in the consultation will now be sent to the European Parliament and the Council for their scrutiny. They are part of the European Commission’s plans to adapt existing EU rules on access to public markets (as announced in the Mid-Term Review of the CMU Action Plan in June 2017), which will also include amendments to the Market Abuse Regulation and the Prospectus Regulation in due course.
See News: Capital markets union: broadening access to market-based finance for SMEs.
29 June 2018 Late Payment of Commercial Debts (Scotland) Amendment Regulations 2018 come into force.
This statutory instrument amends The Late Payment of Commercial Debts (Scotland) Regulations 2002, SSI 2002/335, by replacing an existing provision which allows representative bodies to challenge certain ‘grossly unfair’ contractual terms or practices on behalf of small and medium sized enterprises (SMEs). The new provision clarifies that certain representative bodies are able to decide whether to take action to bring proceedings to challenge the use of certain grossly unfair terms or practices in, or in relation to, contracts on behalf of any size business undertaking (ie not just SMEs), provided that the contract is one to which the Late Payment of Commercial Debts (Interest) Act 1998 applies.
See LNB News 21/05/2018 75.
1 July 2018 Changes to the Conduct of Business Sourcebook (COBS) set out in the FCA’s Policy Statement: Reforming the availability of the information in the UK equity IPO process, PS 17/23, (published 26 October 2017) come into effect.
The changes follow on from the FCA consultation paper CP17/5: Reforming the availability of information in the UK equity IPO process (published on 1 March 2017). The FCA is aiming to restore the centrality of the prospectus or registration document in the IPO process and to create the necessary conditions for unconnected IPO research to be produced.
See LNB News 26/10/2017 108.
1 July 2018 FCA: Rules for a new category within the premium listing regime to cater for companies controlled by a shareholder that is a sovereign country come into force on this date.
The consultation paper (CP17/21) followed on from discussion paper 17/2, ‘Review of the effectiveness of primary markets’, which discussed the role of listed primary markets and the structure of the UK listing regime in supporting that role.
The new premium listing category includes the same investor protections applicable to companies in the existing premium listing category with two modifications, which the FCA considers appropriate for companies of this type: modified related party rules: the sovereign controlling shareholder would not be considered a related party for the purposes of the UK listing rules; and the controlling shareholder rules would not apply to companies in the new category in respect of the sovereign controlling shareholder.
See LNB News 13/07/2017 135.


To track key legislative and regulatory developments, see our Trackers:

  1. MiFID II—timeline
  2. Market Abuse—timeline
  3. Prospectus Regulation tracker
  4. Transparency Directive tracker
  5. Listing Rules tracker
  6. Disclosure Guidance and Transparency Rules Sourcebook tracker
  7. Prospectus Rules tracker
  8. Small Business, Enterprise and Employment Act 2015 tracker

Latest Q&As

New Q&As added this week: Is a share buyback carried out by a company under the Companies Act 1985 void, where the shareholders entered into a share buyback contract, but did not have that contract approved by a special resolution?

Relevant Articles
Area of Interest