Corporate weekly highlights—19 January 2017

Welcome to the weekly highlights from the Lexis®PSL Corporate team for the week ending 19 January 2017, which provide news updates and a comprehensive list of dates for your diary. This week’s edition features: the Pensions and Lifetime Savings Association’s (PLSA) updated edition of its Corporate Governance and Policy Voting Guidelines; ICSA: The Governance Institute and the Investment Association’s joint initiative to help boards take account of employee views; the draft Legislative Reform (Private Fund Limited Partnerships) Order 2017; the government’s call for evidence on limited partnerships; the Department for Business, Energy and Industrial Strategy’s (BEIS) research on audit exemption take-up; the government’s plans for dealing with directly applicable EU laws following Brexit; and case analysis of a High Court decision considering the right to rescind where all conditions have not been discharged.

Headlines (News updates & analysis)

Corporate governance

PLSA calls for more accountability over executive pay

The PLSA says pension funds are concerned by the pay gap between executives and ordinary workers, and has published an updated edition of its Corporate Governance Policy and Voting Guidelines, calling on investors to take a tougher stance on those who set executive pay policy.

The guidelines aim to promote the long-term success of the companies in which the PLSA’s members invest and ensure that the board and management of these companies are held accountable to shareholders, such as pension funds.

The new guidelines recommend that if shareholders vote against a company’s remuneration policy, they should also oppose the re-election of the remuneration committee chair as a company director.

Initiative will help boards take account of employee views

A joint project has been launched by ICSA: The Governance Institute and the Investment Association. It aims to help boards take account of employee and other stakeholder views when making decisions. The two bodies will publish practical guidance in the second quarter of 2017 to enhance understanding of the interests of key groups in accordance with board duties under the Companies Act 2006. The guidance will cover the ways in which companies can identify non-executive directors with relevant stakeholder experience, the processes by which boards can receive the views of their key stakeholders, and how training and induction can be used to enhance the directors' understanding of their duties.

The Financial Reporting Council (FRC) has welcomed the initiative.

Limited partnerships

Legislative Reform (Private Fund Limited Partnerships) Order 2017

HM Treasury has published a draft of The Legislative Reform (Private Fund Limited Partnerships) Order 2017 (LRO) and an accompanying explanatory note. The LRO would amend the Limited Partnerships Act 1907 (LPA 1907) to introduce a private fund limited partnership (PFLP) structure. This structure will be available to private investment funds.

The draft LRO enables a limited partnership which is an investment fund to be designated as a PFLP. It amends some provisions of LPA 1907 as they apply to PFLPs and to partners in PFLPs. The aim is to reduce the administrative and financial burdens that impact these funds under the current limited partnership structure.

The changes come into force on 6 April 2017.

Government seeks better understanding of limited partnerships

Following a recent increase in the number of limited partnerships registered in Scotland in comparison to those registered in England, Wales and Northern Ireland, the government has expressed concerns that some of them are being used for criminal activity. A call for evidence has been launched seeking views on possible reasons for the increase and whether changes are needed to the wider framework. In particular, the government is seeking views and evidence on, the types of economic uses they are used for; what the legal characteristics are that might act as the enabler to possible criminal activity, and other characteristics or requirements within Limited Partnerships law.

The deadline for responses is 17 March 2017.

Audit and auditors

Research highlights audit exemption take-up

Research commissioned by BEIS has found that between 62% and 90% of all UK-registered companies were likely to have taken up audit exemptions in 2015. Other key findings included the following: respondents indicated that while the exemptions are seen as a valuable resource, some companies are concerned about the risk of negative impacts for the confidence of lenders and stakeholders; the key motivation for taking up audit exemptions is to save money and time, but in some cases these savings are insufficient to offset potential negative consequences; audit exemptions were expected to benefit UK companies by at least £4.6bn in 2015; most companies have benefited or expect to benefit from taking up audit exemptions, although perceived savings are significantly higher than actual savings, and there is strong support for audit exemptions to continue with similar eligibility criteria, however thresholds should be monitored over time and increase in line with inflation.

Brexit related developments

‘Directly applicable’ EU laws—what will Brexit mean for them?

Thousands of EU laws are directly applicable to the UK, which is a major issue to be dealt with under the Brexit process. If no specific provision is made for EU laws that are directly applicable, they will no longer apply in the UK as soon as the European Communities Act 1972 is repealed. The government says the proposed ‘Great Repeal Bill’ will make provision for the body of existing EU law and obligations to be ‘converted’ into UK law. A House of Commons Library Briefing Paper, ‘Legislating for Brexit: the Great Repeal Bill’ explains how directly applicable laws will need to be ‘saved’ to ensure they continue to operate until the government decides what to do with them.

Case analysis

Right to rescind where all conditions have not been discharged (Dooba Developments Ltd v McLagan Investments Ltd)

In the case Dooba Developments Ltd v McLagan Investments Ltd [2016] EWHC 2944 (Ch) the High Court was asked to construe a clause in a property sale and purchase agreement which gave either party a power of rescission ‘if all of the Conditions have not been discharged...by the Longstop Date’.

The case turned on the issue of whether, on the proper construction, the power to rescind arose if any one or more of the Conditions remained undischarged at the longstop date (as McLagan Investments Ltd contended) or whether the power to rescind arose only if none of the Conditions had been discharged by the longstop date (as Dooba Developments Ltd argued).

The judge regarded the merits of either side's arguments as finely balanced. However, the judge, taking a literal construction of the provision decided that the right to rescind only applied where none of the Conditions had been satisfied by the longstop date.

Although, on the facts of this case, the agreement contained different, overlapping provisions, it highlights the importance of ensuring that there is no ambiguity when drafting provisions dealing with the right to rescind a contract for failure to discharge conditions. The case highlights the ambiguity of the word 'all' when used in a negative context and the importance of ensuring that such right to rescind is effective if 'any' of the conditions are not satisfied.

Dates for your diary

Date Subjects covered
1 February 2017 The Institutional Shareholder Services Inc's final 2017 benchmark voting policy changes will apply to shareholder meetings taking place on or after 1 February 2017.
1 February 2017 The government has published draft tax legislation to implement policies published at Summer Budget 2015, Budget 2016 and Autumn Statement 2016 in Finance Bill 2017. Consultation on the draft legislation will run until 1 February 2017.
2 February 2017 The consultations on the Financial Conduct Authority's decision making process under the Money Laundering Regulations 2007 and the Co-operative and Community Benefit Societies Act 2014 close on 2 February 2017.

Relevant Articles
Area of Interest