Corporate weekly highlights—15 March 2018

This week’s edition of Corporate highlights includes news of the revised AIM Rules and Nomad Rules issued by the London Stock Exchange, analysis by Market Tracker on trends in delistings, a package of proposals announced by the European Commission as part of its Capital Markets Union initiative and news analysis on a Supreme Court decision dealing with the application of the statutory limitation period to a company’s claim against its directors for breach of their fiduciary duties. We also highlight four new Resource Notes published in our Equity Capital Markets (AIM) topic area.

Equity Capital Markets

London Stock Exchange issues revised AIM Rules and Nomad Rules

Following an AIM Rules Review Discussion Paper published in July 2017 and a Feedback Statement and Consultation in December 2017, the London Stock Exchange (LSE) has issued AIM Notice 50 which confirms changes to the AIM Rules for Companies (AIM Rules) and AIM Rules for Nominated Advisers (Nomad Rules). The changes come into force on 30 March 2018.

Both sets of amended rules are broadly in line with the proposals set out in the December 2017 Feedback Statement and Consultation (see London Stock Exchange issues AIM Notice 49, LNB News 11/12/2017 114). The changes to the AIM Rules cover formalising the early notification process of issues about an applicant AIM company, the requirement for AIM companies to report against a recognised corporate governance code and clarifying Rule 9 about the LSE’s powers to refuse an AIM admission or impose special conditions.

For further information on the amendments, see LNB News 08/03/2018 129.

Trends in Delistings

This News Analysis considers 171 companies that delisted from AIM between 1 February 2016 and 31 January 2018. The analysis examines the reasons cited by these companies for delisting and highlights the trends found over the period.

For further details, see News Analysis: Trends in Delistings: Most delistings on AIM are at the company’s request.

EU Capital Markets Union

European Commission issues proposals for package of measures to develop the CMU

The European Commission has announced a package of measures aimed at promoting alternative sources of financing and removing barriers to cross-border investments. The proposals which form part of its Capital Markets Union (CMU) initiative include:

  • a directive amending the UCITS Directive (2009/65/EC) and AIFMD (Directive 2011/61/EU) in relation to cross-border distribution of collective investment funds
  • a proposal for a regulation on facilitating the cross-border distribution of collective investment funds, which also amends Regulations No. 345/2013 and 346/2013
  • a proposal for an enabling EU framework on covered bonds
  • a proposal for an enabling framework on European crowdfunding service providers (ECSP) for businesses
  • a proposal on the law applicable to the third-party effects of assignments of claims
  • a communication on the applicable law to the proprietary effects of transactions in securities

The Commission has invited feedback from the public on the legislative proposal. The feedback period will close on 7 May 2018. A summary of the feedback will be presented to the European Parliament and the Council of the EU when they consider the proposal for adoption.

At the same time, the vice president of the European Commission, Valdis Dombrovskis, has given a speech on CMU, explaining the need for the acceleration of its implementation given the imminence of Brexit.

For further information, see LNB News 12/03/2018 133.

European Commission’s CMU plans could harm funding prospects, warns Invest Europe

Invest Europe has warned that the European Commission’s CMU plans, intended to improve cross-border capital investment flow in the EU, could limit future funding prospects for one in four companies seeking private equity investment. Invest Europe says proposed amendments preventing fund managers from sharing draft marketing materials with investors would impede their ability to negotiate a deal.

Invest Europe’s CEO, Michael Collins, said the changes could hinder private equity managers’ fundraising activities and the €50 billion of annual investment capital that they deliver. ‘This would be unwelcome for the large and small businesses across Europe that depend on this funding to grow.’

Invest Europe said it understood the Commission’s intentions to improve the marketing passports, but stressed that the documents are an important part of the ongoing dialogue between fund managers and investors, including pension funds and insurers. ‘Any legislative revisions need to take into account the way private equity operates,’ said Mr Collins.

For further information, see LNB News 13/03/2018 75.

Corporate Governance

309 FTSE 100 board positions held by women putting companies on track for 2020 target

The Department for Business, Energy and Industrial Strategy (BEIS) has released data marking International Women’s Day, revealing almost 29% of FTSE 100 board positions are held by women—a record number. The findings highlight that businesses are on track to reach the 2020 targets of having a third of board positions filled by women.

The data released finds more women are on the boards of the UK’s largest companies than ever before. The report has come as part of the government’s long-term industrial strategy to build a Britain fit for the future, with the ambition to help businesses create better, higher-paying jobs and ensure everyone can be successful in the workplace.

BEIS also notes that since gender reporting laws have come into force, more than 1,400 companies have reported their gender pay gaps revealing an overall pay gap of 18.4%.

The new laws require companies with more than 250 employees to report their gender pay gaps by April 4 (30 March for the public sector). The government has predicted that bridging the gender pay gap could add £150 billion to the UK economy by 2025.

For further information, see LNB News 08/03/2018 105.

ICSA calls for greater alignment between UK Corporate Governance Code and Companies Act

ICSA: The Governance Institute has called for greater alignment between the UK Corporate Governance Code (UKCG Code) and section 172 of the Companies Act 2006 (CA 2006). ICSA was responding to the Financial Reporting Council’s (FRC) consultation on proposed revisions to the UKCG Code.

Peter Swabey, policy and research director at ICSA, said: ‘We strongly support the FRC’s aim of using the code’s principles to underpin the long-term health of UK companies, but there are some areas where the code would benefit from greater alignment with CA 2006.

‘We are not opposed to further consideration of the balance of directors’ duties between shareholders and other stakeholders, but we do believe that the code should be aligned with the statutory requirement.’

For further information, see LNB News 08/03/2018 138.

Directors’ Duties

Supreme Court rules on application of Limitation Act to directors in breach of fiduciary duties (Burnden Holdings (UK) v Fielding and another)

The Supreme Court has held that company directors cannot rely on the statutory limitation period where they have benefited from a breach of duty involving a disposition of company property.

Section 21(1)(b) of the Limitation Act 1980 (LA 1980) provides that the limitation periods under the LA 1980 shall not apply to an action by a beneficiary under a trust, being an action to recover from the trustee trust property or the proceeds of trust property in the possession of the trustee, or previously received by the trustee and converted to his use.

The Supreme Court emphasised that company directors should be considered ‘fiduciary stewards’ and, as a result, should a director benefit (even indirectly) from a suspect transaction, the property can be regarded as having been ‘converted’ to their use for the purposes of LA 1980, s 21(1)(b). The action by Burden Holdings (UK) Ltd against the directors was therefore not time-barred.

Matthew Parfitt, of Erskine Chambers, examines the Supreme Court’s decision and considers its practical implications.

Burnden Holdings (UK) v Fielding and another [2018] UKSC 14,[2018] All ER (D) 151 (Feb)

See Case Analysis: Supreme Court rules on application of Limitation Act to directors (Burnden Holdings (UK) v Fielding and another).

Shareholder disputes

Court of Justice—where must a shareholder dispute take place? (E.ON Czech Holdings AG v Michael Dědouch)

This decision of the European Court of Justice explores a tension that exists under Council Regulation (EC) 44/2001 (Brussels I) regarding which Member State’s courts should have jurisdiction in certain shareholder disputes.

The general rule (set out in art 2(1) of Brussels I) is that a person should be sued in the Member State in which they are domiciled unless the regulation provides otherwise. In contrast art 22(2) of Brussels I provides that proceedings concerning the constitution of a company and the validity of its decisions should be determined in the Member State in which the company is incorporated.

The dispute related to the reasonable of the consideration offered by a German shareholder that was seeking to invoke minority buy-out provisions in a Czech company of which it was the majority shareholder. The Court of Justice found that this came within the exclusive jurisdiction of the Czech courts and so provides some clarity as to how the tension under Brussels I may be resolved. However, it leaves open the question of how far art 22(1) can reach into shareholder disputes which will often turn on prior contractual agreements between shareholders.

James Davies, barrister with 3 PB Barristers and Mediator with ADRg, examines the Court of Justice’s decision and considers its practical implications.

E.ON Czech Holding AG v Michael Dědouch and others C-560/16

See Case Analysis, Court of Justice—where must a shareholder dispute take place? (E.ON Czech Holdings AG v Michael Dědouch).

Corporate insolvency

Land Registry corporate insolvency guidance updated

HM Land Registry has updated its corporate insolvency guidance, which deals with applications involving corporate body insolvency. Sections 1, 2.3, 2.4. 2.5 and 5.1 have been updated to reflect the provisions of the Insolvency (Miscellaneous Amendments) Regulations 2017, SI 2017/1119, which bring insolvency procedures for limited liability partnerships into line with the changes already made to insolvency procedures for companies.

For further information, see LNB News 14/03/2018 122.

Additional news—daily and weekly news alerts

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.

New and updated content

New Practice Notes

We have published the following new Resource Notes, which highlight relevant commentary, analysis and resources on the application of the AIM Rules. These have been produced as part of an on-going project to split “AIM Resource Note—AIM Rules for Companies” into a series of shorter resource notes on smaller sections of the AIM Rules. The content is being updated and revised as part of the process:

  1. AIM Rules for Companies—Rule 1—Retention and role of a nomad
  2. AIM Rules for Companies—Rules 2, 3, 4, 5 and 6—Applicants for AIM
  3. AIM Rules for Companies—Rules 7, 8 and 9—Special conditions for certain applicants
  4. AIM Rules for Companies—Rules 10 and 11—Principles of disclosure and general disclosure of price sensitive information

Dates for your diary

Date Subjects covered
March 2018 The government intends to lay before Parliament draft secondary legislation implementing some of its proposed corporate governance reforms before March 2018.
For further information, see Corporate governance reforms aim to enhance public trust in business, LNB News 29/08/2017 122, and Corporate governance reforms to force companies to reveal pay gap, LNB News 29/08/2017 118.
April 2018 LIBOR: The LIBOR benchmark in the UK will be replaced by a reformed version of SONIA. SONIA is anticipated to move to a new basis by April 2018.
The Sterling Overnight Index Average (SONIA) reflects bank and building societies’ overnight funding rates in the sterling unsecured market. The Bank of England announced its plans to reform the SONIA benchmark in July 2015 and is currently in the process of this reform. The Bank consulted on its high level proposals for SONIA reform, publishing its response to consultation feedback in November 2015. Further consultations were issued in October 2016 and February 2017, seeking views on the detailed proposals for the reform of SONIA.
In March 2017 the Bank provided a summary of feedback from the consultations as well as setting out the specification of reformed SONIA which will be implemented in March or April 2018.
At a roundtable on sterling risk-free reference rates in London on 6 July 2017, the need for a transition away from sterling LIBOR towards SONIA was outlined. The reasoning was to build a safer financial system and to better match the risks that firms are hedging.
Bank of England executive director discusses the transition to SONIA, LNB News 17/07/2017 134.
FMLC comments on SONIA as risk-free reference, LNB News 12/10/2017 60.
FSB progress report on interest rate benchmark reforms, LNB News 10/10/2017 79.
April 2018 Corporate governance: employers with over 250 employees are required to publish their gender pay and bonus data.
All employers with over 250 employees are required to publish their gender pay and bonus data by April 2018. While some companies have already published their data and outlined how they will take action to close it, the Prime Minster has called on more companies to do the same and encouraged businesses with fewer than 250 employees to voluntarily publish their pay gap too.
See news, LNB News 30/10/2017 36.

Relevant Articles
Area of Interest