Corporate weekly highlights—28 June 2018

Corporate weekly highlights—28 June 2018

This week’s edition of Corporate highlights includes Investment Association analysis of increasing shareholder concerns over director accountability, investors’ calls to reassess how performance metrics are reported, and the Royal Assent of the European Union (Withdrawal) Bill. We have also recently published a checklist summarising the reporting requirements for different categories of companies under the draft Companies (Miscellaneous Reporting) Regulations 2018.

In this issue:

Corporate governance

Shareholder concerns over director accountability are on the rise

Investment Association (IA) analysis has found that, at the midway point of the 2018 AGM season, shareholder concerns over director accountability are increasing. The analysis shows that 94 companies have been added to the Public Register in 2018, 34 of which were added due to director-related resolutions, compared to just 21 at the same point in 2017, an increase of 62%.

Other key points include:

  1. a total of 94 companies have been added to the Public Register in 2018 (being the register established and run by the IA of FTSE All-Share companies which have received more than 20% votes against any resolution at an AGM or GM and which also includes details of any shareholder resolutions which were withdrawn by a company prior to the relevant AGM or GM)
  2. the number of individual director-related resolutions with more than 20% votes against rose from 27 in 2017 to 54 in 2018
  3. there are 28 instances of companies appearing on the Public Register in 2017 and 2018 for the same resolution, and
  4. 74% of companies added to the Public Register so far in 2018 (55% in 2017) acknowledged shareholder dissent in their AGM results and spelled out actions they intend to take, indicating that the Public Register is effective in driving accountability

Andre Ninian, director of stewardship and corporate governance at the IA, said ‘[a]n emerging trend midway through this year’s AGM season is the increase in directors receiving high votes against their re-election. Directors are getting a very clear message from shareholders that they will be held accountable for their actions.’

For further information, see LNB News 26/06/2018 63.

Investors call for reassessment of how performance metrics are reported

The Financial Reporting Council’s Financial Reporting Lab (the Lab) has issued a new report which is the outcome of the first phase of the Lab’s project on performance metrics. It concludes that investors are calling on companies to reassess how they report their performance metrics in order to ensure that the metrics are clearly aligned to the company’s strategic goals, transparent on how they are calculated and provide sufficient information that allows comparisons to be made to previous years’ performance.

The report, ‘Reporting of Performance Metrics’ (the Lab Report), sets out investors’ views on the reporting of performance metrics. Views were received from a range of UK and international institutional investors, analysts and retail investors. The Lab Report includes a framework and set of questions for companies and their boards to consider when deciding on how they report their performance, based on the following five principles: that performance metrics be ‘aligned to strategy’, ‘transparent’, ‘in context’, ‘reliable’ and ‘consistent’.

The Lab Report supplements the European Securities and Markets Authority (ESMA)’s ‘Guidelines on Alternative Performance Measures’ published in 2015 (See LNB News 30/06/2015 128).

The next phase of the project will seek to identify examples of how these principles can be put into practice.

For further information, see LNB News 22/06/2018 90.

Additional Corporate updates this week

Brexit Bulletin—European Union (Withdrawal) Bill receives Royal Assent

The European Union (Withdrawal) Bill received Royal Assent on 26 June 2018. Following over 250 hours of parliamentary debate, and over 1,400 tabled amendments, the final text of the European Union (Withdrawal) Act 2018 will reflect several changes to the version originally introduced in the House of Commons in July 2017. Now that the government’s flagship Brexit legislation has become law, the government’s legislative preparations will begin to intensify in the coming weeks as departments start laying secondary legislation in Parliament. It is anticipated that around 800 pieces of secondary legislation will be introduced under the enabling powers in the European Union (Withdrawal) Act 2018. The government has announced that it will start this process by introducing a tranche of legislation to repeal the European Union Act 2011 as agreed in Parliament.

Alongside the secondary legislation anticipated under the European Union (Withdrawal) Act 2018, government departments are also working on a further package of primary legislation to deliver policy changes required as a result of Brexit.

For further information, see News Analysis: Brexit Bulletin—European Union (Withdrawal) Bill receives Royal Assent.

Additional news—daily and weekly news alerts

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New and updated content

New checklist

We have published a new checklist summarising the reporting requirements for different categories of companies under the draft Companies (Miscellaneous Reporting) Regulations 2018. See Checklist: Companies (Miscellaneous Reporting) Regulations 2018—which companies are affected?

Dates for your diary

Date Development
29 June 2018 Late Payment of Commercial Debts (Scotland) Amendment Regulations 2018 come into force.
This statutory instrument amends The Late Payment of Commercial Debts (Scotland) Regulations 2002, SSI 2002/335, by replacing an existing provision which allows representative bodies to challenge certain ‘grossly unfair’ contractual terms or practices on behalf of small and medium sized enterprises (SMEs). The new provision clarifies that certain representative bodies are able to decide whether to take action to bring proceedings to challenge the use of certain grossly unfair terms or practices in, or in relation to, contracts on behalf of any size business undertaking (ie not just SMEs), provided that the contract is one to which the Late Payment of Commercial Debts (Interest) Act 1998applies.
See LNB News 21/05/2018 75
1 July 2018 Changes to the Conduct of Business Sourcebook (COBS) set out in the FCA’s Policy Statement—reforming the availability of the information in the UK equity IPO process, PS 17/23, (published 26 October 2017) come into effect.
The changes follow on from the FCA consultation paper CP17/5: Reforming the availability of information in the UK equity IPO process (published on 1 March 2017). The FCA is aiming to restore the centrality of the prospectus or registration document in the IPO process and to create the necessary conditions for unconnected IPO research to be produced.
See LNB News 26/10/2017 108
1 July 2018 FCA—rules for a new category within the premium listing regime to cater for companies controlled by a shareholder that is a sovereign country come into force.
The consultation paper (CP17/21) followed on from discussion paper 17/2, ‘Review of the effectiveness of primary markets’, which discussed the role of listed primary markets and the structure of the UK listing regime in supporting that role.
The new premium listing category includes the same investor protections applicable to companies in the existing premium listing category with two modifications, which the FCA considers appropriate for companies of this type: modified related party rules: the sovereign controlling shareholder would not be considered a related party for the purposes of the UK listing rules; and the controlling shareholder rules would not apply to companies in the new category in respect of the sovereign controlling shareholder.
See LNB News 13/07/2017 135
16 July 2018 Revised UK Corporate Governance Code—following its December 2017 consultation, the FRC will publish a revised version of the UKCG Code to apply to premium listed companies with accounting periods beginning on or after 1 January 2019. Note: source for this specific date is a calendar entry on the FRC website.
21 July 2018 EU public reporting framework—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 consultation ends on 21 July 2018.
See LNB News 21/03/2018 142
23 July 2018 Limited partnerships—the government has released a consultation seeking views on proposed reforms to the regulatory regime governing limited partnerships. The consultation will close on 23 July 2018.
This consultation follows the government's earlier call for evidence in relation to limited partnerships, which closed in March 2017. The aim of the call for evidence was to gain a better understanding of how limited partnerships are used, legitimately or otherwise, and if the legislative framework that underpins the limited partnership regime remains fit for purpose. It was launched in response to a significant increase in registrations of limited partnerships in Scotland and allegations that Scottish limited partnerships in particular were being used for illicit purposes.
The government hopes that the reforms proposed in the consultation will limit the risk of limited partnerships being used for criminal activities. It is also taking the opportunity to consider ways in which the law governing these vehicles could, or should, be brought more in line with the law governing limited companies, which has been regularly reviewed and amended over time.
See LNB News 30/04/2018 149
23 July 2018 Closing date for FCA consultation on changes to its guidance on periodic financial information and inside information—the FCA sought feedback for the proposed change to its technical note FCA/TN/506.2—periodic financial information and inside information.
The guidance is likely to be of most relevance to issuers of transferable securities and their advisers, investors and other persons who interact with the FCA.
See LNB News 11/06/2018 115
24 July 2018 Audit—closing date for the International Organization of Securities Commissions (IOSCO) consultation on good practices for audit committees in supporting audit quality, which is intended to assist audit committees of issuers of listed securities in promoting and supporting audit quality.
See LNB News 24/04/2018 113.
25 July 2018 European Commission proposed changes to the Market Abuse Directive and the Prospectus Regulation for SME Growth Markets—last day for feedback on proposals.
In an effort to cut red tape for small and medium sized companies listing on SME Growth Markets, the EC issued a proposal on 24 May 2018 for a new Regulation which would make the following changes to the Market Abuse Regulation and the Prospectus Regulation:

  1. Insider lists—issuers on SME Growth Markets only to be required to produce lists of a more limited group of people having access to inside information (permanent insiders)
  2. delay in disclosing inside information—SME Growth Market issuers only liable to justify their reasons for delaying the publication of inside information upon the request of the competent authority
  3. dealings by PDMRs—issuers on SME Growth Markets would only be required to notify the public of dealings in their securities by persons discharging managerial responsibilities (PDMRs) two business days after receiving notification from the PDMR

Trackers

To track key legislative and regulatory developments, see our Trackers:

  1. MiFID II—timeline
  2. Market Abuse—timeline
  3. Prospectus Regulation tracker
  4. Transparency Directive tracker
  5. Listing Rules tracker
  6. Disclosure Guidance and Transparency Rules Sourcebook tracker
  7. Prospectus Rules tracker
  8. Small Business, Enterprise and Employment Act 2015 tracker

Latest Q&As

New Q&As added this week:

  1. Can a company pay for or indemnify one of its directors in relation to a fine which has been imposed on such director following civil or criminal proceedings?
  2. Can a private limited company increase its share capital to not less than the authorised minimum required by section 91 of the Companies Act 2006 and apply for a trading certificate after it has re-registered as a public limited company?
  3. Can the write-off of a loan made by one company to another be a distribution under Part 23 of the Companies Act 2006, where both the lending company and the borrowing company have the same majority shareholder?

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: Market Tracker weekly round-up—22 June 2018.

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