Corporate weekly highlights—22 March 2018

This week’s edition of Corporate highlights includes news of draft legislation to amend UK merger thresholds for certain transactions impacting national security and a government consultation in relation to new proposals to improve the corporate governance of companies when they are in or approaching insolvency.

 

Public company takeovers

Government to amend UK merger thresholds for certain transactions impacting national security

On 15 March 2018, the UK government published a draft statutory instrument which (subject to approval by Parliament) will amend the share of supply notification threshold for the UK merger control regime (section 23 of the Enterprise Act 2002) for certain sectors impacting national security (namely the development or production of items for military or military and civilian use, quantum technology and computing hardware), so that the threshold can be met solely by the activities of the target. The government has also announced that it intends to reduce the turnover threshold to £1m for these sectors if parliament accepts the change to the share of supply threshold.  The CMA has launched a consultation on draft guidance on the proposed changes. The purpose of these changes is to enable the Secretary of State to intervene in mergers in these sectors which might give rise to national security implications.

The CMA’s consultation runs until 12 April 2018. For further information, see LNB News 16/03/2018 36.

House of Commons publishes overview of proposed Melrose acquisition by GKN

The House of Commons Library has published a debate pack providing an overview of the proposed takeover of GKN Plc by Melrose.

For further information, see LNB News 15/03/2018 141.

Corporate governance

BEIS launches consultation on insolvency and corporate governance

The Department for Business, Energy & Industrial Strategy (BEIS) has launched a consultation in relation to new proposals to improve the corporate governance of companies when they are in or approaching insolvency.

Following on from proposals to improve the corporate governance regime in relation to executive pay, strengthening the employee and wider stakeholder voice in the boardroom and corporate governance in large privately-held businesses, the consultation focuses on further improvements to the corporate governance framework to reduce the risk of major company failures occurring through shortcomings of governance or stewardship, and to strengthen the responsibilities of directors of firms when they are in or approaching insolvency.

The proposals include, among other things, clawing back money for creditors including workers and small suppliers by reversing inappropriate asset stripping of companies on the verge of insolvency, disqualifying and/or holding directors personally liable when found to have sold a struggling company or subsidiary recklessly or knowing it would fail, giving the Insolvency Service new powers to investigate directors of dissolved companies, consideration of the legal and technical framework within which decisions are made on payment of dividends, and strengthening the role and responsibilities of shareholders in stewarding the companies in which they have investments.

The consultation closes on 11 June 2018.

For further information, see LNB News 20/03/2018 121.

Equity capital markets

European Commission announces consultation on EU framework on public reporting

The European Commission has opened up a consultation that aims to gauge the effectiveness of the EU framework on public reporting by companies. The consultation is seeking views from a wide variety of stakeholders, particularly providers and users of financial and non-financial information.

The objectives of the consultation include assessing whether the EU public reporting framework is overall still relevant for meeting the intended objectives, adds value at the European level, is effective, internally consistent, coherent with other EU policies, efficient and not unnecessarily burdensome, as well as reviewing specific aspects of the existing legislation relating to public reporting as required by EU law.

The consultation ends on 21 July 2018.

For further information, see LNB News 21/03/2018 142.

ESMA publishes responses to its consultation on draft RTS under the Prospectus Regulation

ESMA has published the 28 responses received to its consultation on draft regulatory technical standards (RTS) under the new Prospectus Regulation (Regulation (EU) 2017/1129). The Prospectus Regulation requires ESMA to submit, by 21 July 2018, draft RTS on: key financial information for the prospectus summary, data for classification of prospectuses and the practical arrangements to ensure that such data is machine readable, provisions concerning advertisements, and situations in where a significant new factor, material mistake or material inaccuracy relating to the information included in the prospectus require a supplement to the European Commission.

For further information, see LNB News 21/03/2018 151.

ESMA TRV report for securities market says risks remain stable but high

In its latest report on trends, risks, and vulnerabilities (TRV), the European Securities and Markets Authority (ESMA) warns that markets, infrastructures and investors in the EU remain at risk, and says it has concerns about retail investors investing in speculative and risky products, such as virtual currencies and initial coin offerings.

The report, which covers the second half of 2017, finds that overall risk levels for the EU’s securities markets remained stable but at high levels for most risk categories. However, February 2018 saw severe market corrections and the return of equity market volatility, confirming ESMA’s prevailing concerns. On the other hand, the level of credit risk eased, from very high to high, reflecting a strengthening macroeconomic environment and higher credit ratings in several EU Member States. ESMA have identified four key risks in EU securities markets: market risk, credit risk, operational risk and retail investor risks associated with investments in virtual currencies and initial coin offerings.

For further information, see LNB News 20/03/2018 119.

Additional news—daily and weekly news alerts

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Dates for your diary

Date Subjects covered
30 March 2018 Following an AIM Rules Review Discussion Paper published in July 2017 and a Feedback Statement and Consultation in December 2017, the London Stock Exchange issued AIM Notice 50 which confirms changes to the AIM Rules for Companies and AIM Rules for Nominated Advisers (nomads). The changes come into force on 30 March 2018 (save for the requirement for AIM companies to disclose on their website how they comply with their chosen corporate governance code or the reasons for non-compliance which comes into force on 28 September 2018).
See LNB News 08/03/2018 129.
March 2018 The government intends to lay before Parliament draft secondary legislation implementing some of its proposed corporate governance reforms before March 2018.
For further information, see Corporate governance reforms aim to enhance public trust in business, LNB News 29/08/2017 122, and Corporate governance reforms to force companies to reveal pay gap, LNB News 29/08/2017 118.
April 2018 LIBOR: The LIBOR benchmark in the UK will be replaced by a reformed version of SONIA. SONIA is anticipated to move to a new basis by April 2018.
The Sterling Overnight Index Average (SONIA) reflects bank and building societies’ overnight funding rates in the sterling unsecured market. The Bank of England announced its plans to reform the SONIA benchmark in July 2015 and is currently in the process of this reform. The Bank consulted on its high level proposals for SONIA reform, publishing its response to consultation feedback in November 2015. Further consultations were issued in October 2016 and February 2017, seeking views on the detailed proposals for the reform of SONIA.
In March 2017 the Bank provided a summary of feedback from the consultations as well as setting out the specification of reformed SONIA which will be implemented in March or April 2018.
At a roundtable on sterling risk-free reference rates in London on 6 July 2017, the need for a transition away from sterling LIBOR towards SONIA was outlined. The reasoning was to build a safer financial system and to better match the risks that firms are hedging.
Bank of England executive director discusses the transition to SONIA, LNB News 17/07/2017 134.
FMLC comments on SONIA as risk-free reference, LNB News 12/10/2017 60.
FSB progress report on interest rate benchmark reforms, LNB News 10/10/2017 79.
April 2018 Corporate governance: employers with over 250 employees are required to publish their gender pay and bonus data.
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 news, LNB News 30/10/2017 36.

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