Corporate weekly highlights—18 October 2018

This week’s edition of Corporate highlights includes news of a Code Committee consultation on proposed changes to Rule 29 of the Takeover Code and a Department for Business, Energy and Industrial Strategy consultation on proposed ethnicity pay reporting, plus our research on which corporate governance code AIM companies are choosing to follow.

In this issue:

Public company takeovers

Code Committee issues public consultation on proposed changes to Rule 29 (asset valuations)

The Code Committee of the Takeover Panel (Code Committee) has published a consultation on proposed amendments to Rule 29 of the Takeover Code (Code) which relates to asset valuations (PCP 2018/1). The deadline for sending comments is 7 December 2018.

Rule 29 requires that when a valuation of assets is given by a party to an offer ‘in connection with an offer’ an independent valuer’s opinion must be provided in support of that valuation. The proposals follow on from the Panel Executive’s review of the purpose and operation of Rule 29. Although the Code Committee agrees with the way that Rule 29 is applied in practice by the Executive, certain aspects of the Executive’s practice are not currently reflected in Rule 29.

The Code Committee proposes deleting the current Rule and replacing it with one which has been drafted broadly so that it is clear that in addition to applying to property valuations it also applies to valuations of other classes of assets, in particular to mineral, oil and gas reserves and unquoted investments.

The proposals include:

  1. that, unless the Panel considers the valuation is not material to the offeree shareholders making a properly formed decision on the merits and demerits of the offer, Rule 29 should apply to an asset valuation published by the offeree or securities exchange offeror (as appropriate) (a) during the offer period, (b) in the 12 months preceding the commencement of the offer period, or (c) more than 12 months prior to the commencement of the offer period where attention is drawn to that valuation in the context of the offer
  2. clarifying the Executive’s practice that Rule 29 has principally been applied to valuations of land, buildings, plant or equipment, mineral, oil or gas reserves and unquoted investments
  3. the introduction of certain requirements, including the requirement for a valuation report on underlying assets in certain circumstances, the requirement for a valuation report and its content requirements and the requirements a valuer must satisfy
  4. where the date on which the assets were valued differs from the date of the document or announcement in which the valuation is published, either a statement by the directors of the offeree or securities exchange offeror (as appropriate) that the valuer has confirmed that an updated valuation would not be materially different or, where this statement cannot be made, the publication of an updated valuation

For further information, see: LNB News 17/10/2018 81.

Corporate governance

QCA Code emerges as AIM companies’ first choice under new reporting requirements

Corporate analysis: From 28 September AIM companies are required to report against a recognised corporate governance code. In this research, we look at which governance codes companies are choosing to adopt and consider the factors that are influencing this choice. The analysis includes market commentary from Martin Webster and Gareth Jones, partners at Pinsent Masons and Edward Craft, partner at Wedlake Bell.

Our research found a clear majority of companies adopting the QCA Code in preference to the UKCG Code, particularly outside the AIM 100.

For the top 50 AIM companies (ie those with market capitalisations of approximately £495m or higher):

  1. 40% report against the UKCG Code
  2. 58% report against the QCA Code
  3. 2% report against an overseas corporate governance code

For the top 50–100 AIM companies (ie those with market capitalisations between approximately £260m–£495m):

  1. 20% report against the UKCG Code
  2. 80% report against the QCA Code

For all AIM companies (which catches companies with market capitalisations ranging from £150,000 to £4.8bn):

  1. 6.5% report against the UKCG Code
  2. 89.5% report against the QCA Code
  3. 4% report against an overseas governance code

For further information, see News Analysis: QCA Code emerges as AIM companies’ first choice under new reporting requirements.

Accounts and reports; Corporate governance

Consultation launched on ethnicity pay reporting

The Department for Business, Energy and Industrial Strategy is seeking views on ethnicity pay reporting by employers, setting out options and asking questions on what ethnicity pay information should be reported by employers to allow for meaningful action, who should be expected to report and other next steps.

Consultation questions include:

  1. what type of ethnicity pay information should be reported that would not place undue burdens on business but allow for meaningful action to be taken?
  2. what supporting or contextual data (if any) should be disclosed to help ensure ethnicity reporting provides a true and fair picture?
  3. should an employer that identifies disparities in their ethnicity pay in their workforce be required to publish an action plan for addressing these disparities?
  4. for a consistent approach to ethnicity pay reporting across companies, should a standardised approach to classifications of ethnicity be used? What would be the costs to your organisation?
  5. what size of employer (or employee threshold) should be within scope for mandatory ethnicity pay reporting?

For further information, see the consultation paper.

The deadline for submissions is 11 January 2019.

For further information, see: LNB News 11/10/2018 75.

Brexit

Brexit bulletin—UK government publishes fourth tranche of technical notices on no deal Brexit

The Department for Exiting the European Union has published the fourth tranche of technical notices designed to inform individuals, businesses and public bodies in the UK of the implications of exiting the EU in March 2019 without a deal in place. The 29 additional documents published on 12 October 2018 cover a range of subjects including EU funding for overseas territories, transport, import/export regulation, business regulation, product labelling and safety, consumer rights, energy regulation and travel.

The notices are published in the government collection: How to prepare if the UK leaves the EU with no deal. An overarching guidance document accompanying the collection seeks to put the notices into context, see: UK government’s preparations for a no deal scenario.

The latest notices published include the following notices of particular relevance to corporate lawyers:

Structuring your business if there’s no Brexit deal―setting out the implications and actions for businesses and legal entities which operate across the UK-EU border, or have taken the form of a European specific entity, including plans for ensuring a functioning regulatory framework for companies and that mirrors, as far as possible, the same laws and rules that are currently in place (based on retaining relevant EU rules and regulations governing companies and other legal entities operations within the EU Single Market).

Accounting and audit if there’s no Brexit deal―setting out the implications and high level guidance for accounting, corporate reporting and audit, again including plans for ensuring a functioning regulatory framework for companies and that mirrors, as far as possible, the same laws and rules that are currently in place.

The UK government warns that its technical notices are meant for guidance only and individuals, businesses and organisations should consider whether they need separate professional advice before making specific preparations.

For further information, see: LNB News 12/10/2018 107.

Short Selling (Amendment) (EU Exit) Regulations 2018

SI 2018/Draft: These draft Regulations are laid in exercise of legislative powers under the European Union (Withdrawal) Act 2018 in preparation for Brexit. They amend UK primary legislation and EU retained legislation in order to address deficiencies in retained EU law in relation to short selling and certain aspects of credit default swaps arising from the withdrawal of the UK from the EU. This ensures that the legislation continues to operate effectively at the point at which the UK leaves the EU. It comes into force on exit day.

For further information, see: LNB News 11/10/2018 102.

Equity capital markets (Main Market)

ESMA publishes EEA prospectus activity report for 2017

The European Securities and Markets Authority (ESMA) has published its annual report on prospectus activity in the European Economic Area (EEA) for 2017 (encompassing both debt and equity offerings). The report shows that in 2017 the number of prospectus approvals across the EEA increased by around 1.9% compared to 2016 (from 3,499 to 3,567), putting an end to a decade-long decline observed since the start of the financial crisis. In line with 2016, in 2017, around 40% of the prospectuses approved were in the form of base prospectuses and 91% were drawn up as single documents as opposed to tripartite prospectuses. Almost 74% of prospectuses approved in 2017 related to non-equity securities with the most frequent security type being debt securities with a denomination of at least €100,000.

For further information, see LNB News 15/10/2018 63.

Additional Corporate updates this week

New form to report suspicious company activity and related guidance published

Companies House has published a new form to report suspicious company activity, alongside updated guidance which now refers to this new form. The new form can be used to report unauthorised director appointments, addresses or other suspicious activity.

The updated guidance can be found here.

For further information, see: LNB News 12/10/2018 14.

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Trackers

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

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

Latest Q&As

New Q&As added this week:

  1. Does an option to acquire more than 25% of the issued share capital of a company make the option holder a person with significant control prior to exercise?
  2. How can a private company limited by shares with a sole member approve an off-market share buyback contract?

Useful information

To view analysis of the latest deals in the market and the underlying transaction documents, use our Market Tracker deal analysis tool.

To read about the latest corporate announcements, see our Market Tracker weekly round-up—12 October 2018

To read about the latest issues and developments which we are following in Market Tracker, see our latest blog post: Market Tracker weekly bulletin—19 October 2018.

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