Corporate weekly highlights—19 October 2017

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.

Equity Capital Markets

LSE issues notice on legal entity identifier requirement for AIM companies

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.

Rio Tinto fined £27m by the FCA and facing SEC fraud charges for impairment loss failings

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.

Public Takeovers

Government could get power to intervene in mergers which raise national security concerns

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.

Corporate Governance

Less than ten per cent of FTSE 100 director positions held by people of colour

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.

Still more to do to tackle modern slavery despite progress

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.

Additional Corporate updates this week

Consultation on new energy and carbon reporting framework

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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New and updated content

New Precedent

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):

  1. Share buyback contract for an off-market share buyback by a private limited company—multiple completions

Dates for your diary

Date Subjects covered
20 October 2017 Deadline for comments on the exposure draft, FRED 68. The Financial Reporting Council (FRC) is proposing amendments to FRS 102, which would allow the tax effects of gift aid payments made by subsidiaries to their charitable parents to be taken into account at the reporting date, where it is probable that the payment will be made in the nine months following the reporting date. Comments are invited on the exposure draft, FRED 68, by 20 October 2017. See further news, LNB News 22/09/2017 26.
23 October 2017 Money Laundering:  The European Parliament will consider the proposed Fifth Money Laundering Directive (MLD5).The European Parliament has provisionally scheduled its plenary session commencing on this date for consideration of the proposed MLD5. See further news, LNB News 13/06/2017 83.
24 October 2017 The FRC is consulting on draft amendments to its guidance on the strategic report. The proposals seek to reflect the FRC’s desire to improve the effectiveness of section 172 of the Companies Act 2006. The FRC is requesting comments by 24 October 2017. Comments can be sent by email or by post to: Deepa Raval, Financial Reporting Council, 6th Floor 125, London Wall, London, EC2Y 5AS. See further news, LNB News 22/08/2017 83.
31 October 2017 The Takeover Panel has issued a public consultation paper, PCP 2017/2, setting out proposed amendments to the Takeover Code with regard to statements of intention by bidders and related matters. The key proposals include expanding the content requirements for offeror statements of intention with regard to the offeree’s business, employees and pension schemes and bringing forward the requirement for an offeror to make statements of intention at the time of its firm intention announcement. Comments on the consultation should reach the Panel by 31 October 2017.
See further news, LNB News 19/09/2017 128.

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