Corporate weekly highlights—22 June 2017

Welcome to the weekly highlights from the Lexis®PSL Corporate team for the week ending 22 June 2017, which provide news updates and a comprehensive list of dates for your diary. This week’s edition features: the Takeover Panel’s statement concluding that no mandatory offer is required for Petropavlovsk plc; the FRC’s latest audit reviews on the quality of audits by FTSE 350 companies; and analysis considering the fourth Anti-Money Laundering Directive and its risk-based approach. 

Headlines (News updates & analysis)

Public company takeovers

Panel Executive concludes that activist shareholders and proposed directors are not acting in concert

In Panel Statement 2017/10 the Takeover Panel (Panel) considered whether certain shareholders and proposed new directors of Petropavlovsk (Company) should be treated as acting in concert under Note 2 on Rule 9.1 of the Takeover Code (Code) and, if this was the case, whether they had triggered a mandatory bid obligation under the Code as a result of their acquiring shares in the Company.

Note 2 on Rule 9.1 of the Code provides that the Panel will normally presume shareholders who requisition the consideration of a ‘board control-seeking’ proposal at a general meeting together with their supporters as at the date of the requisition to be acting in concert with each other and with the proposed directors. Such parties will be presumed to have come into concert once an agreement or understanding is reached between them in respect of a board control-seeking proposal with the result that subsequent acquisitions of interests in shares by any member of the group could give rise to an offer obligation.

In determining whether a proposal is board control-seeking, the Panel will have regard to a number of factors, including the following: the relationship between any of the proposed directors and any of the shareholders proposing them or their supporters; the number of directors to be appointed or replaced compared with the total size of the board; the board positions held by the directors being replaced and to be held by the proposed directors; the nature of the mandate, if any, for the proposed directors; whether any of the activist shareholders, or any of their supporters, will benefit, either directly or indirectly, as a result of the implementation of the proposal other than through its interest in shares in the company; and the relationship between the proposed directors and the existing directors and/or the relationship between the existing directors and the activist shareholders or their supporters.

The Panel concluded that three of the four proposed new directors were (for the purposes of Note 2 on Rule 9.1) independent of the shareholders proposing them and that one of the directors was not independent owing to his employment by one of the activist shareholders. As a result the Panel concluded that the resolutions proposed by the shareholders were not ‘board control-seeking’ (for the purposes of Note 2 on Rule 9.1) and, accordingly, that these shareholders and proposed new directors should not be considered to be acting in concert and that therefore there was no requirement for a mandatory offer to be made.

For details see news, LNB News 15/06/2017 82.

Accounts and audit

FTSE 350 audits 'getting better, but further action needed', says FRC

The quality of audits of FTSE 350 companies in the UK is improving, but there is more to be done, according to the latest audit reviews undertaken by the Financial Reporting Council (FRC). The latest audit reviews show 81% of FTSE 350 audits reviewed in 2016/17 were categorised as requiring no more than limited improvements, in comparison to 77% in 2015/16. The FRC has set a target of at least 90% by 2018/19.

However, the review also showed a higher proportion of audits reviewed outside the FTSE 350 required more than limited improvements. The FRC has found no overall change in audit quality across all the audits it reviewed.

The FRC has issued reports on the largest six audit firms. The reports set out identified areas of good practice, key areas requiring improvement and the actions each firm proposes to take.

In July 2017, the FRC intends to publish its annual 'Developments in Audit' report. This will provide additional commentary on the outcome of its 2016/17 audit inspection work.

For details see news, LNB News 15/06/2017 60.

Relevant updates from other practice areas

Corporate Crime

The fourth Anti-Money Laundering Directive—a risk-based approach

The EU’s fourth Anti-Money Laundering Directive (EU) 2015/849 comes into force on 26 June 2017. In this analysis, criminal defence lawyer, Peter Binning, who specialises in fraud and regulatory litigation at niche practice, Corker Binning, says the Directive places greater emphasis on a risk-based approach to prevent money laundering and terrorist financing at all levels.

For details see News Analysis: The fourth Anti-Money Laundering Directive—a risk-based approach.

Dates for your diary

Date Subjects covered
23 June 2017 Deadline for comments on the FRC's discussion paper on the role of auditors and preliminary announcements. The FRC has issued a discussion paper which considers the role of auditors and preliminary announcements of annual results, with a particular focus on the LSE main market. For further information, see LNB News 27/04/2017 96.
23 June 2017 Deadline for responses on the first proposal in the FCA's fifth Markets in Financial Instruments Directive II (MiFID II) consultation paper (CP17/8) concerning the extension of MiFID II standards to OPS firms. It proposes changes to the FCA Handbook in the following areas: application of MiFID II standards relating to inducements, best execution and taping to OPS firms, which are exempt from MiFID II; changes to DEPP and EG to reflect various aspects of MiFID II, including the extension of the FCA's enforcement powers to cover persons subject to UK implementing legislation; and consequential amendments to the Handbook based on proposals in CP16/29, and guidance on the use of third parties where firms are required to submit financial instrument reference data or commodity derivative position reports. For further information, see LNB News 31/03/2017 156.
26 June 2017 The final text of Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast) (the Recast Regulation) comes into force.
The Recast Regulation entered into force from 26 June 2015 but only applies to relevant insolvency proceedings from 26 June 2017. For further information, see News Analysis: Recast Regulation on insolvency in force from 26 June 2015.
26 June 2017 The Fourth EU Money Laundering Directive (EU) 2015/849 will be implemented.
The directive introduces new measures to combat money laundering, tax evasion and terrorist financing. For further information, see News Analysis: New landscape of anti-money laundering and related reforms.
Further dates To look further ahead, see: Corporate horizon scanning—2017 and beyond.

Relevant Articles
Area of Interest