Corporate weekly highlights—21 February 2019

This week’s edition of Corporate highlights includes the latest updates on Brexit, a new European Regulation on conflicts of interest relating to European venture capital funds, the announcement of the terms of reference of the Brydon review of the UK audit market, new Investment Association guidance on irredeemable preference shares and various cases relevant to corporate practitioners.

In this issue:

Brexit

Private equity

Financial services regulation for corporate lawyers

Audit

AGMs

Directors and company secretaries

Company disclosures, record and registers

Share Capital

Partnerships

Additional news—daily and weekly news alerts

Dates for your diary

Trackers

Latest Q&As

Useful information

Brexit

Law Applicable to Contractual Obligations and Non-Contractual Obligations (Amendment etc) (EU Exit) Regulations 2019

SI 2019/Draft: These draft Regulations are laid in exercise of legislative powers under the European Union (Withdrawal) Act 2018 (EU(W)A 2018) in preparation for Brexit. These draft Regulations are being proposed to make amendments to legislations in the field of private international law and, in particular, amend legislation determining the law applicable to contractual and non-contractual obligations in the case of conflict of laws. This draft instrument will address issues created by the UK leaving the EU so that they will continue to operate effectively after EU Exit. It comes into force on exit day.

For further information, see: LNB News 14/02/2019 48 - (a subscription to Lexis®PSL is required).

Changes to Companies House forms and company registration process in the event of a no deal Brexit—no deal Brexit guidance

The government has published two new guidance notes for businesses and stakeholders. The first relates to changing company registrations, and the second relates to proposed changes to Companies House forms. Both guidance notes relate to the position in respect of such matters, if the UK leaves the EU without a deal in place. Some of the changes are subject to Parliamentary approval and the guidance may change depending on the terms upon which the UK leaves the EU, so stakeholders are advised to monitor the relevant Companies House web pages for updates.

For further information, see: LNB News 14/02/2019 112 - (a subscription to Lexis®PSL is required).

Examining the impact on international treaties and trade relationships

Public Law analysis: Debate over the post-Brexit trading relationship of the UK and the rest of the world has been among the liveliest of discussions emanating from the Brexit debate. With much of the comment drawn from conjecture and limited information publicly available, Alex Stojanovic, researcher at the Institute for Government, cuts through the noise and examines the UK’s preparations and contingency planning for ensuring continuity of its trading relationships post-Brexit.

For further information, see News Analysis: Brexit—examining the impact on international treaties and trade relationships - (a subscription to Lexis®PSL is required).

Market Abuse (Amendment)(EU Exit) Regulations 2019

SI 2019/310: These Regulations were made on 18 February 2019 in exercise of legislative powers under the European Communities Act 1972 and EU(W)A 2018 in preparation for Brexit. The Regulations have been made in order to address deficiencies in retained EU law in relation to market abuse arising from the withdrawal of the UK from the EU. The Regulations amend retained EU law relating to market abuse, including the Regulation (EU) 596/2014, Market Abuse Regulation (MAR), the tertiary legislation made under MAR, and the UK legislation which complemented MAR, to ensure that the relevant legislation continues to operate effectively at the point at which the UK leaves the EU. It comes into force partly on the day after the day on which these Regulations are made and fully on exit day. (Updated from exit day in draft.)

For further information, see: LNB News 07/12/2018 138 - (a subscription to Lexis®PSL is required).

HMT updated Policy Note on Financial Services (Implementation of Legislation) Bill sets out additional safeguards

HM Treasury (HMT) has published a revised Policy Note on the Financial Services (Implementation of Legislation) Bill. The Bill would provide the power, in a no-deal scenario, for the UK to implement and make changes to a specified list of ‘in-flight files’. The Policy Note outlines the Bill's purpose and provides detail on the 'in-flight files' specified in the Bill itself. Following its passage through the House of Lords, the Policy Note has been revised with additional safeguards which include more stringent reporting requirements to enhance Parliamentary scrutiny, and limitations to the Bill's power of adjustment. It also sets out changes to the Bill adopted in the House of Lords.

For further information, see: LNB News 20/02/2019 40 - (a subscription to Lexis®PSL is required).

Private equity

Council of the EU publishes Level 2 measure under EuVECA Regulation

The Council of the EU has published Commission Delegated Regulation supplementing Regulation (EU) 345/2013 of the European Parliament and of the Council with regard to conflicts of interest in the area of European venture capital funds (C(2019) 664 final) which was adopted by the European Commission on 4 February 2019. Regulation (EU) 345/2013 sets out the conditions on which investment funds may use the European Venture Capital Fund label. Article 9(5) of Regulation (EU) No 345/2013 lays down an empowerment for the Commission to adopt delegated acts specifying: (a) the types of conflict of interest referred to in Article 9(2), and (b) the steps that managers of qualifying venture capital funds must take, in terms of structures and organisational and administrative procedures in order to identify, prevent, manage, monitor and disclose conflicts of interest. Regulation C(2019) 664 final sets out, among other things: (a) a list of the types of conflict of interest in the context of qualifying venture capital funds, (b) the obligation on the part of the managers of qualifying venture capital funds to establish, implement and maintain an effective conflicts of interest policy, (c) the steps to be taken as part of the procedures and measures preventing and managing conflicts of interest, and (d) provisions pertaining to the requirements of the managers of qualifying venture capital funds to adopt strategies for the exercise of voting rights to prevent conflicts of interest. Regulation C(2019) 664 final is to enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. In addition, its application is deferred to six months following the date of its entry into force.

For further information, see LNB News 14/02/2019 67 - (a subscription to Lexis®PSL is required).

Financial services regulation for corporate lawyers

RPC publishes opinion on the Prospectus Regulations 2018 impact assessment

The Regulatory Policy Committee (RPC) published on 13 February 2019 an opinion on HM Treasury’s (HMT) impact assessment (IA) on the Financial Services and Markets Act 2000 (Prospectus and Markets in Financial Instruments) Regulations 2018, SI 2018/786. Among other things, the opinion, which is dated 16 May 2018, considers the impact at the time of the proposed introduction of the Regulations. The RPC rates the IA as fit for purpose.

For further information, see: LNB News 14/02/2019 36 - (a subscription to Lexis®PSL is required).

Audit

Terms of reference of Brydon review of UK audit market announced

The Department for Business, Energy and Industrial Strategy (BEIS) has published the terms of reference for the independent review by Sir Donald Brydon into the quality and effectiveness of the UK audit market. The review, launched in December 2018 (see: LNB News 18/12/2019 51), will explore audits as a product and what they should be in the future, as well as addressing the audit expectation gap.

For further information, see: LNB News 18/02/2019 17 - (a subscription to Lexis®PSL is required).

AGMs

Shareholder dissent increases in 2018 AGM season over FTSE 100 pay and director re-election

An increase in shareholder rebellions over FTSE 100 pay and the re-election of directors in the 2018 AGM season has placed 120 companies on the Investment Association’s (IA) Public Register. By the end of July 2018, the IA saw a 9% increase in companies experiencing shareholder dissent, compared to 110 companies in the same period in 2017, while a total of 237 individual resolutions were added to the Public Register in 2018, up 25% from 2017.

For further information, see: LNB News 18/02/2019 64 - (a subscription to Lexis®PSL is required).

Directors and company secretaries

Stobart Group Ltd v Tinkler

Company—Director. In the case of Stobart Group Ltd v Tinkler [2019] All ER (D) 82 (Feb)[2019] EWHC 258 (Comm), the Commercial Court made rulings of fact in a case concerning the removal of the defendant, Mr Tinkler (T), the claimant company’s former chief executive, from the board of such company. Among other things, the court held that T had breached his fiduciary duties as a director in four ways: (i) speaking to the company’s significant shareholders and criticising the board’s management and the group’s business and agitating for the chairman’s removal; (ii) improperly sharing confidential budget information; (iii) writing a letter to shareholders and communication to employees; and (iv) orchestrating a letter to the board by the executive leadership team and a petition by employees. Four directors of the company (F, B, C and W) were also held to have breached their duty to act for proper purposes by deciding to make a transfer of 5.3m shares to an employment benefit trust. However, it was also held that there was no basis to conclude that the four directors had acted in breach of duty in removing T as a director of the company. The Commercial Court further held that T’s dismissal had been a lawful and valid act.

Company disclosures, record and registers

How to rectify register for company with no directors or shareholders (Ellott v Cimarron UK Ltd)

Corporate analysis: Eleanor Temple, barrister at Kings Chambers, examines the decision of the High Court in Ellott v Cimarron UK Ltd [2017] EWHC 3872 (Ch), ordering rectification of the register of members of the respondent company following the death of its sole director and shareholder so as to enter the names of the applicant former husband and two employees, in accordance with the deceased's will, even though there had not yet been a grant of probate. The judgment (which dates from December 2017 but which has only recently been made available) confirms the route by which it is possible for an executor to become registered as a member of a company following the death of a sole shareholder or director of the company, without being required to wait for the grant of probate, even in cases where the company is balance-sheet (although not cash-flow) insolvent. The reason for the court's decision was so that an executor can be allowed to administer the business and affairs of the company urgently in order that debts can be paid and the trading of the business is not interrupted or destroyed.

For further information, see News Analysis: How to rectify register for company with no directors or shareholders (Ellott v Cimarron UK Ltd) - (a subscription to Lexis®PSL is required).

Share Capital

Investment Association sets out guidelines relating to irredeemable preference shares

The Investment Association (IA), the representative body for the UK asset management industry and institutional investors in listed companies, has published guidelines relating to the redemption or cancellation of irredeemable preference shares. The IA notes that the guidelines provide a useful guide to shareholder expectations and good practice and, if followed, will enable engagements on issues concerning the redemption or cancellation of irredeemable preference shares to be efficient and effective. The guidelines are to be read as of general application to listed companies and follow the central principle that issuers must follow a fair process and have regard to fair market practice, when seeking to redeem or cancel irredeemable preference shares.

For further information, see: LNB News 19/02/2019 94 - (a subscription to Lexis®PSL is required).

Partnerships

Upholding of partnership agreement puts smile on dentist’s face (Patel v Patel)

Corporate analysis: In this case, the High Court granted an appeal against an arbitration award that found that the partners in a dental partnership had, through course of dealings, agreed to vary the profit sharing terms of the partnership agreement. The decision shows that a high threshold must be crossed for the courts to infer an intention to vary a partnership agreement through the partners’ course of dealings.

For further information, see News Analysis: Upholding of partnership agreement puts smile on dentist’s face (Patel v Patel) - (a subscription to Lexis®PSL is required).

Additional news—daily and weekly news alerts

This document contains the highlights from the past week’s news. To receive all our news stories, whether on a daily or a weekly basis, amend your personal settings within your ‘News’ tab on the homepage by clicking on either ‘Email’ or ‘RSS’ (depending on how you prefer to receive them) on the right hand side of the blue banner.

Dates for your diary

Date Development
27 March 2019 Deadline for comments on CP19/7: Consultation on proposals to improve shareholder engagement.

On 30 January 2019, the Financial Conduct Authority (FCA) issued CP 19/7 which proposed regulatory measures to implement parts of the revised Directive 2017/828, Shareholder Rights Directive (SRD II). The SRD II aims to promote effective stewardship and long-term investment decision-making primarily through better transparency of engagement policies and investment strategies across the institutional investment community. The proposed measures implement the provisions of SRD II for FCA-regulated life insurers and asset managers, and for issuers of shares in respect of related party transactions.

LNB News 30/01/2019 105.
28 March 2019 Deadline for comments on CP19/6: Changes to align the FCA Handbook with the EU Prospectus Regulation.

On 29 January 2019, the FCA published CP 19/6. The majority of the changes proposed involve reproducing text from the Prospectus Regulation directly into the new sourcebook. The FCA assumes that an implementation period will be agreed on the UK leaving the EU and that EU law will continue to apply in the UK until the end of the implementation period.

LNB News 29/01/2019 71.
29 March 2019 At 11.00 pm on 29 March 2019 UK time (which will be 00.00 am CET on 30 March 2019), the Treaty on European Union (TEU) and the Treaty on the Functioning of the European Union (TFEU) shall cease to apply to the UK, along with all other EU primary and secondary law and the UK's withdrawal from the EU (Brexit) will be achieved.

On 29 March 2017, the UK Prime Minister gave formal notification of the UK's intention to withdraw from the EU, commencing the withdrawal process under Article 50 of TEU. Article 50 of TEU prescribes a two-year period for the UK and the EU to negotiate the terms of Brexit, which may be extended by agreement.

Brexit: UK Article 50 TEU notification starts the clock—what happens now?
29 March 2019 Deadline for comments on the Financial Reporting Council’s (FRC) proposed revision to the UK Stewardship Code.

In January 2019, the FRC announced intention to overhaul the UK Stewardship Code (the Code). On 30 January 2019, the FRC issued a consultation paper setting out its proposed new Code along with a summary of the changes from the existing Code.

LNB News 30/01/2019 105.

Trackers

To track key legislative and regulatory developments, see our Trackers - (a subscription to Lexis®PSL is required):

Latest Q&As

New Q&As added this week - (a subscription to Lexis®PSL is required):

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—15 February 2019.

 

 

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