Corporate weekly highlights—2 November 2017

This week’s edition of Corporate highlights includes FCA reforms to ensure primary market effectiveness, ESMA priorities for preparing and auditing financial statements, and ISS proposals with regard to virtual/hybrid shareholder meetings. New content includes the publication of a new private equity buyout transaction toolkit, a new limited partnership agreement precedent and updates to our short form SPA precedents.

Equity Capital Markets

FCA announces reforms to ensure UK primary markets remain effective

The Financial Conduct Authority (FCA) has published a package of measures (namely feedback statement FS17/3, policy statement PS17/22 and policy statement PS17/23) designed to ensure that the UK’s primary capital markets remain effective.

Feedback statement FS17/3 provides an overview of the feedback received in response to FCA discussion paper DP17/2. It identifies three areas that the FCA thinks merit further exploration and stakeholder engagement, including the relative positioning of standard versus premium listing, the provision of patient capital to companies that require long-term investment and retail access to debt markets. The FCA will publish proposals for consultation on these areas where appropriate in due course.

Policy statement PS17/22 makes a number of enhancements to the Listing Regime including clarifying the eligibility requirements for a premium listing, introducing a new concessionary route to premium listing for some property companies, updating how premium listed issuers may classify transactions and changing the FCA’s approach to the suspension of listing for reverse takeovers. These proposals received overwhelming support from market participants. These rule changes come into force on 1 January 2018.

Following consultation paper CP 17/5, which consulted on changes to improve the range, timeliness and quality of information available to investors during the IPO process, policy statement PS17/23 sets out final rules which seek to ensure that, before any connected research is released, a prospectus or registration document is published and providers of unconnected research have access to the issuer’s management. The policy statement also sets out new guidance to address the underlying conflicts of interest arising when analysts within prospective syndicate banks interact with the issuer’s representatives when an underwriting or placing mandate and subsequent syndicate positioning are being considered. These provisions will require changes to be made to the FCA’s Conduct of Business Sourcebook (COBS) and will take effect on 1 July 2018 in order to minimise potential disruption to existing or prospective IPOs.

For further information, see LNB News 26/10/2017 108.

ESMA sets out priorities for listed companies and auditors for 2017 financial statements

The European Securities and Markets Authority (ESMA) has published the priorities which listed companies and their auditors must consider when preparing and auditing their 2017 financial statements. These priorities are designed to reflect the relevance of the changes introduced by new accounting standards and to reflect the issues identified in the course of its enforcement activities.

The priorities are set out in the annual ‘Public statement on European common enforcement priorities’, through which ESMA aims to promote the consistent application of the International Financial Reporting Standards (IFRS).

ESMA also highlights that the 2017 year-end will be the first time that the requirements of the amended Accounting Directive (as transposed into national law) to disclose non-financial and diversity information will become applicable for certain large groups and undertakings. ESMA is of the view that issuers should meet these requirements in a way that provides the most useful information to users.

For further information, see LNB News 27/10/2017 58.

ESMA issues new Q&As on its alternative performance measures guidelines

The European Securities and Markets Authority (ESMA) has published six new questions in its Q&As on the implementation of its guidelines on the alternative performance measures (APMs) for listed issuers. The new Q&As clarify definitions, scope, reconciliation and how to apply the fair review principle. The guidelines apply to APMs disclosed by issuers or persons responsible for drawing up a prospectus.

APMs are financial measures of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework.

See LNB News 30/10/2017 89.

General meetings

ISS issues draft voting policy on the holding of virtual/hybrid shareholder meetings

Institutional Shareholder Services (ISS) is inviting comments on proposed new voting policies or policy changes in 13 voting policy areas.  One new proposed voting policy for 2018 relates to the holding of virtual and hybrid shareholder meetings. Comments on the new policy proposals are requested by 9 November 2017.

Under the proposed policy, ISS will generally recommend a vote for proposals that allow for the convening of a hybrid shareholder meeting and will generally recommend a vote against proposals that allow for the convening of virtual only shareholder meetings. This is to address concerns from some investors that completely virtual meetings could hamper meaningful discussions between shareholders and management.

See LNB News 30/10/2017 69.

Corporate governance

Prime Minister urges companies to act to close gender pay gap

The Prime Minister has announced a drive to improve workplace equality and called on companies to publish their gender pay gap data and take action to close it. The move comes as new figures published by the Office for National Statistics (ONS) show that, while the gender pay gap for full-time workers has fallen to a low of 9.1% (down from 9.4% in 2016), the UK’s overall gender pay gap has risen slightly to 18.4%.

All employers with over 250 employees are required to publish their gender pay and bonus data by April 2018. While some companies have already published their data and outlined how they will take action to close it, the Prime Minster has called on more companies to do the same and encouraged businesses with fewer than 250 employees to voluntarily publish their pay gap too.

See LNB News 30/10/2017 36.

Directors and company secretaries

Determining the period of director disqualification (Secretary of State for Business, Innovation and Skills v Rahman)

Discussing the judgment in Secretary of State for Business, Innovation and Skills v Rahman, Omar Ensaff, a barrister at No 5 Chambers in Birmingham, points out that the issue of the period of disqualification is very fact-specific. See News Analysis: Determining the period of director disqualification (Secretary of State for Business, Innovation and Skills v Rahman).

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New and updated content

New Toolkit

We have published a guide to private equity management buyout (MBO) transactions in the form of a transaction workflow toolkit:

  1. Private equity buyout transaction toolkit

New Precedents

We have published the following new Precedents into our Partnerships and Public company takeovers topic areas:

  1. Limited partnership agreement—private fund limited partnership
  2. Offer document—securities exchange offer provisions

Updated Precedents

In our Private M&A (share purchase) topic, we have updated both the buyer’s version and seller’s version of our short form share purchase agreement precedents to include a short form tax covenant (as a schedule) and short form tax warranties:

  1. Share purchase agreement—short form (buyer’s version)
  2. Share purchase agreement—short form (seller’s version)

Dates for your diary

Date Subjects covered
4 November 2017 Last day by which certain large companies and LLPs must publish information on payment practices and reporting, where required to do so by the Reports on Payment Practices Regulations 2017.
The Reports on Payment Practices Regulations 2017 require certain large companies and LLPs to prepare and publish information about their payment practices and performance in relation to 'qualifying contracts' twice per financial year on web-based service provided by or on behalf of the government within 30 days of the end of each reporting period.
Payment practices reporting guidance
9 November 2017 Institutional Shareholder Services (ISS) is inviting comments on proposed new voting policies or policy changes in 13 voting policy areas.  One new proposed voting policy for 2018 relates to the holding of virtual and hybrid shareholder meetings.
9 November is the deadline for submitting comments on the new policy proposals to ISS.
For further information, see LNB News 30/10/2017 69.
14 November 2017 Closing of the first part of the government’s consultation on intervening in mergers with national security implications.
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 closing in respect of the government’s proposal to amend 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’ share of supply to, or over, 25%.
For further information, see LNB News 17/10/2017 106.
30 November 2017 All AIM companies are required to register for an LEI code by 30 November 2017.
The LEI is a 20-digit, alpha-numeric code that enables identification of legal entities participating in financial transactions.  In order to comply with the Markets in Financial Instrument Directive (MiFID II) which requires market operators, such as the London Stock Exchange, to collate LEI codes for each issuer with securities admitted to trading, all AIM companies will be required to register for an LEI code by 30 November 2017. The AIM application form for admission of new securities to AIM has been amended to require an LEI.
See further news, AIM Notice 47
End of November 2017 The FRC have announced that they will publish amendments to the current guidance for auditors when agreeing to the publication of preliminary announcements of annual results by the end of November 2017.
In April 2017, the FRC issued a discussion paper which looked at options for bringing Bulletin 2008/2 up to date. Options included: converting the guidance to an engagement standard; consulting with the UKLA to require auditors to follow FRC guidance; and mandating that statutory financial statement audits should be complete before auditors agree to the release of preliminary announcements.
Stakeholders are broadly content with current arrangements and the Financial Reporting Council (FRC) will therefore only make minor amendments to the current guidance for auditors when agreeing to the publication of preliminary announcements of annual results.
For further information, see LNB News 27/04/2017 96 and LNB News 25/10/2017 114.

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