Welcome to the weekly highlights from the Lexis®PSL Corporate team for the week ending 16 February 2017, which provide news updates and a comprehensive list of dates for your diary. This week’s edition features: the FCA’s consultations on UK primary capital markets and Listing Rules; ESMA’s new Q&A tool, the House of Commons Work and Pensions Committee’s recommendations on corporate governance; the FRC’s update report on audit practices; the London Stock Exchange Group’s guidance on environmental, social and governance reporting; the news that Thomas Cook has scrapped its share incentive plan; case analysis of a High Court decision considering whether the Chairman of scheme meeting can disallow votes in manipulative share splitting instances; the CBI and Clifford Chance’s report on trade scenarios following Brexit; and analysis of the recent HBOS criminal case. Headlines (News updates & analysis) Equity capital markets FCA consults on UK primary capital markets and Listing Rules The Financial Conduct Authority (FCA) has published a discussion paper, ‘Review of the Effectiveness of Primary Markets: The UK Primary Markets Landscape’ (DP17/2). The FCA is interested in views on: the current split between standard and premium listing, supporting the growth of science and technology companies, the listing of debt securities and debt multi-lateral trading facilities, and retail access to debt markets. The FCA have also published a consultation paper, ‘Review of the Effectiveness of Primary Markets: Enhancements to the Listing Regime’ (CP17/4). The proposed changes include: the premium listing eligibility requirements, the classification of transactions by premium listed issuers, and the FCA’s approach to suspending an issuer’s listing when a reverse takeover has been announced or leaked. The papers are part of the FCA’s 2016/17 Business Plan commitment to review the structure of the UK’s primary markets to ensure they continue to serve the needs of issuers and investors. Comments and responses are requested by 14 May 2017. ESMA publishes new Q&A tool The European Securities and Markets Authority (ESMA) has launched a new Q&A tool. It is designed to provide easy access to stakeholders to consult existing Q&As and submit new questions. The tool is available on the new 'questions and answers' page, which contains an overview of all Q&As developed by ESMA per legislative act and instructions on submitting new questions to ESMA. The tool allows ESMA to collect and address publicly questions from stakeholders with the purpose of ensuring the consistent and effective day-to-day application of European Union law within ESMA’s remit. From 9 February 2017 any new question should be submitted by completing the Q&A submission form and sending it to Info.ESMA@esma.europa.eu. Corporate governance Stronger governance rules needed for large private firms and those with over 5,000 DB pension members, says WPC On 28 April last year the House of Commons Work and Pensions Committee (the Committee) launched its joint inquiry into the collapse of BHS and the origins of its large pension scheme deficit. In response to the government's consequent consultation on corporate reform, the Committee has now made the following recommendations. Firstly, the Financial Reporting Council Corporate Governance Code, which currently applies only to public listed companies, should be extended to large private companies, such as John Lewis and Pret a Manger, and those with over 5,000 defined benefit pension scheme members. Secondly, pension scheme trustees, who must act in the interest of scheme beneficiaries, should be added to section 172(1) of the Companies Act 2006. Thirdly, future Insolvency Service reports should be published when there is significant public interest in publication. Audit Strong governance and leadership needed for improved audit quality The Financial Reporting Council (FRC) has published an update on its previous report, ‘Developments in Audit’. The update report highlights that, while progress has been made, audit firms need to focus on the pace of improvement in audit quality and consistency. The FRC says justifiable confidence in audit is underpinned by sound and effective enforcement. The FRC’s update, published six months after it became the UK’s Competent Authority for Audit, concludes that the FRC will review the governance and culture at audit firms over concerns about the handling of conflicts of interest and delivery of improvements in audit quality. Reporting practices Guidance emphasises importance of ESG reporting Recommendations for good practice in environmental, social and governance (ESG) reporting have been set out in guidance issued by the London Stock Exchange Group (LSEG). The guidance has been issued in response to calls from investors for a more consistent approach to ESG reporting. The guidance highlights eight priorities for ESG reporting: strategic relevance, investor materiality, investment grade data, global frameworks, reporting formats, regulation and investor communication, Green Revenue reporting and debt finance. Overall, the LSEG guidance emphasises the importance of providing high quality ESG information and engaging investors on sustainability-related issues. Share incentive plans Thomas Cook scraps bonus scheme following shareholder revolt Thomas Cook has scrapped a bonus scheme after more than a third of investors who cast their votes at the company’s annual general meeting rejected the long-term strategic share incentive plan (SSIP). Shareholders rebelled against the company’s SSIP, under which the CEO could be awarded a bonus of 225% of his basic annual salary, which rose to £703,800 in 2016. The rebellion comes days after an influential shareholders’ group issued a warning to investors over Thomas Cook’s payouts to executives. Case analysis Chairman of scheme meeting can disallow votes in manipulative share splitting instances (Dee Valley Group plc) In the case, Dee Valley Group plc  EWHC 184 (Ch) the High Court considered whether the Chairman of a class meeting directed by the court in the context of a scheme of arrangement was right to disallow the votes of 434 individual shareholders who voted against the scheme where there had been share splitting. This is the first case in which a share-splitting exercise was undertaken in order to defeat a scheme of arrangement between a company and its shareholders. The key issues included: what test should be applied to determine if the votes of members at a members' class meeting directed by the court were valid, were the votes of the Individual Shareholders at the Court Meeting valid, and whether they should have been counted by the Chairman, whether the court had a discretion to approve the scheme and whether it should do so as a matter of discretion. The case was significant because it was the first case in which a share-splitting exercise was undertaken with the apparent object of defeating a scheme of arrangement between a company and its members. The court's findings provide clarity over the issue of share splitting and what actions companies can take to prevent manipulative share splitting which could potentially hamper the use of schemes to facilitate takeovers. Schemes remain the deal structure of choice for implementing takeovers so practitioners will welcome the court's decision. Brexit related developments Report to assist business plan for Brexit negotiations The Confederation of British Industry (CBI) and Clifford Chance have produced a report, which assesses the trade scenarios for Brexit and their potential impact on UK businesses. The report gives a factual overview of the legal situation, and is designed to support businesses to plan for the different scenarios in relation to the UK and the rest of the world. It also includes answers to frequently asked questions and a list of practical considerations for businesses looking to trade with the EU, after Brexit. Relevant updates from other practice areas Corporate Crime Uncovering HBOS corruption, money laundering and fraudulent trading In this analysis, Jasvinder Nakhwal, partner at Peters & Peters, and legal researcher, Craig Hogg, explain the background to a high profile case and consider the judgment. In the case, a former Halifax Bank of Scotland (HBOS) manager, along with a number of his associates, were given prison sentences for their part in a £245m loan scam. Dates for your diary Date Subject 17 February 2017 Deadline for responses to the government's Green Paper on corporate governance reform, which seeks views on three areas where the government is considering updating the UK’s corporate governance framework. 17 February 2017 Deadline for comments on the FRC's consultation on its draft plan and budget for 2017/18. A key focus of the FRC’s work will be its monitoring and enforcement activities to ensure the UK’s reputation for high standards of corporate governance and reporting and its standing as a global centre of excellence for accountancy, audit and actuarial work. 17 February 2017 Deadline for responses to The Financial Conduct Authority's fourth and final consultation paper (CP16/43) on the implementation of Markets in Financial Instruments Directive 2014/65/EU (MiFID II) and the Markets in Financial Instruments Regulation 600/2014/EU (MiFIR). 27 February 2017 Deadline for comments on the second consultation paper (CP43/16) published by Prudential Regulation Authority (PRA) on the implementation of MiFID II. The consultation paper proposes changes to the PRA Rulebook and supervisory statements relating to new management body and organisational requirements. There are also proposed changes to granting authorisations in respect of operating an organised trading facility, emission allowances and structured deposits.