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This week’s edition of Corporate highlights includes the issue of AIM notice 47 by the LSE, the FCA handing down a £27m fine to Rio Tinto plc for breaching Disclosure and Transparency Rules, potential changes to the Enterprise Act 2002 and findings of the Parker Review Committee on Board diversity.
The London Stock Exchange (LSE) has issued AIM Notice 47 which requires all AIM companies with securities admitted to trading on AIM to have a legal entity identifier (LEI) code. This is to ensure compliance with the obligations under the Markets in Financial Instrument Directive (MiFID II) and Market Abuse Regulation (MAR), which require market operators, such as the LSE, to collate LEI codes for each issuer with securities admitted to trading.
The LEI connects to key reference information that enables clear and unique identification of legal entities participating in financial transactions. An existing AIM company is required to register for an LEI by 30 November 2017. The AIM application form for the admission of new securities to trading to AIM has been amended to require an LEI.
See news story, LNB News 13/10/2017 69.
The Financial Conduct Authority (FCA) has fined Rio Tinto plc £27.4m for breaching Disclosure and Transparency Rules by failing to carry out an impairment test and to recognise an impairment loss on the value of mining assets it had acquired in its 2012 interim results. In the US, the company and two former executives face Securities and Exchange Commission (SEC) fraud charges. Both the US and UK actions relate to the Mozambique investment made by the mining firm in 2011. The FCA found that had Rio Tinto complied with its obligation to carry out the test, a material impairment would have been required to have been disclosed at the time of its 2012 half year financial reporting. Rio Tinto’s financial reporting was therefore inaccurate and misleading.
The SEC has also charged Rio Tinto and two former executives—chief executive Thomas Albanese and chief financial officer Guy Elliott—with fraud, saying the company and the executives failed to follow accounting standards and company policies to accurately value and record assets.
For further information, see LNB News 18/10/2017 100.
The government has proposed new powers to intervene in mergers which raise national security concerns, including those involving smaller businesses. There is a particular focus on companies which design or manufacture military and dual use products, and parts of the advanced technology sector. The government has further proposed measures it believes will allow for better scrutiny of transactions that may raise national security concerns. This may involve introducing a mandatory notification regime for foreign investment in areas involving national defence. The consultation is in two parts—the first part closes on 14 November 2017, the second part on 9 January 2018.
The government has proposed amending the Enterprise Act 2002 to lower the threshold whereby ministers can scrutinise investment to businesses with a UK turnover of over £1m and remove the requirement for a merger to increase a business’s share of supply of, or over, 25%. This part of the consultation closes on 14 November 2017. The second part to the consultation focuses on longer term reforms which would see enhanced scrutiny of transactions which may raise national security concerns, such as increasing the risk of espionage, sabotage, or the ability to exert inappropriate leverage.
For further information, see LNB News 17/10/2017 106.
The Parker Review Committee, headed by Sir John Parker, has found only 8% of the 1,087 director positions in the FTSE 100 are held by people of colour despite the UK population being made up of 14% of people from a non-white ethnic group. These findings come as the Committee releases its final report and recommendation on the ethnic and cultural diversity of UK boards, which urges businesses to make improvements. It believes changes must be made in boardrooms as that is ‘where leadership, stewardship and corporate ethics are of utmost importance’.
Sir John Parker believes: ‘Today’s FTSE 100 and 250 boards do not reflect the society we live in, nor do they reflect the international markets in which they operate.’
The Committee have suggested key recommendations for UK businesses. These include, among other things, increasing the ethnic diversity of UK boards by proposing each FTSE 100 board to have at least one director from an ethnic minority background by 2021 and for each FTSE 250 board to do the same by 2024, developing a pipeline of candidates and plan for succession through mentoring and sponsoring, and enhancing transparency and disclosure to record and track progress against the objectives.
For further information, see LNB News 12/10/2017 56.
The Home Office has set out several examples of progress made in the fight against modern slavery, including investment in law enforcement and the introduction of the Modern Slavery Act 2015 (MSA 2015). In its 2017 annual report on modern slavery, however, the Home Office says there is still more to be done and outlines a number of future responses the government aims to make.
The Home Office has announced three new measures to improve the way in which victims of modern slavery are identified and supported, as part of a broader package of reforms to be announced at a later date.
New guidance on modern slavery awareness and a resource page for modern slavery training have also been published.
For further information, see LNB News 17/10/2017 94.
The government is consulting until 4 January 2018 on a simplified energy and carbon reporting framework for energy-intensive companies and possibly LLPs from April 2019, to follow abolition of the CRC energy efficiency scheme and introduction of corresponding increases in rates of climate change levy.
The government announced at Budget 2016 that it would abolish the CRC energy efficiency scheme after 2019, incorporating the ‘price signal’ into the climate change levy in the form of increased CCL rates from April 2019. Climate change agreement participants would also receive an increased discount from April 2019.
The current consultation proposes a simplified reporting framework that will be UK-wide and implemented through the Companies Act 2006 as part of companies’ annual reports. The proposals for mandatory reporting will not, however, apply to the public sector at this stage.
For further see news, LNB News 12/10/2017 83.
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We have the following new precedent in our Share capital topic area (Produced in partnership with Glafkos Tombolis and Vidya Rao of Kemp Little LLP):
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