Corporate weekly highlights—29 March 2018

This week’s edition of Corporate highlights includes news of the government response to the call for evidence on the proposed beneficial ownership register of overseas companies, publication of the Financial Reporting Council’s three year strategy, an inquiry into gender pay gap and executive pay in the private sector and two pieces of case analysis.

Company disclosures, records and registers

Government response to new beneficial ownership register of overseas companies

The government has released its response to the call for evidence on proposals for a register showing beneficial ownership of overseas companies and other legal entities that own UK property or participate in UK government procurement. The document sets out how the government plans to implement the register in the light of responses received and views gained through the wider consultation process. It also outlines how policy proposals have developed since April 2017. The government plans to develop legislation to create the new register publishing a draft Bill for scrutiny in summer 2018 and intends that the register will be operational in 2021.

The government proposals include that:

  1. all legal forms which can hold properties will be within the scope of the new register’s requirements, while ensuring that there is flexibility to permit exemptions for types of entity if this seems appropriate
  2. the definition of beneficial owner will be aligned to the definition of people with significant control (PSC) in the PSC regime
  3. entities that are not similar to UK companies limited by shares should use the adaptations listed in the call for evidence to identify their beneficial owners
  4. there should be a system of statutory restrictions and putting notes on the land register, backed up by criminal offences, in order to ensure compliance.

For further information, see LNB News 23/03/2018 57.

Corporate Governance

Financial Reporting Council prioritises update of UK Corporate Governance Code in three-year strategy

The Financial Reporting Council (FRC) has published its three-year strategy for 2018–2021, outlining its priorities including a comprehensive update of the UK Corporate Governance Code and Stewardship Code. The FRC aims to publish an updated code in summer 2018. Proposals include that company boards should, amongst other things, establish a company’s purpose, strategy and values and satisfy themselves that these and their culture are aligned and gather views of and listen to the workforce.

The FRC also plans to consult on a new code for larger private companies with the aim of encouraging high standards of corporate governance and reflect the impact that large privately-owned companies have on society and the economy, by promoting issues such as best practice in corporate governance and reporting arrangements.

The FRC’s priorities for the coming year also include a review of how audit should in future serve the public interest, a new system for audit firm monitoring and supervision and work to promote transparency and integrity in business. To assess the progress of its strategic priority to monitor audit quality the FRC will take account of a range of indicators including findings from the FRC’s annual audit quality reviews.

For further information, see LNB News 26/03/2018 105.

Inquiry will examine gender pay gap and executive pay in private sector

The House of Commons Business, Energy and Industrial Strategy (BEIS) Committee has launched an inquiry to look at the gender pay gap and executive pay in the private sector. The inquiry comes amid concerns about the overall level of executive pay and bonuses and as the deadline for gender-pay gap reporting is soon approaching on 4 April 2018.

Issues the Committee will examine include the compliance of businesses with reporting requirements on the gender pay gap, whether the regulations are properly capturing the salaries of staff and what measures should be taken against companies which do not comply with reporting requirements. The inquiry will also check on the implementation of the Prime Minister’s undertaking to crack down on excessive executive pay.

For further information, see LNB News 23/03/2018 82.

Company director fined for falsifying company information

A company director has been fined for falsifying company information about his firms in what is thought to be the ‘first ever’ UK conviction of its kind, under laws that came into force in 2009. Kevin Brewer incorporated John Vincent Cable Services Ltd in 2013, making former business secretary Vince Cable a director and shareholder without his knowledge. Brewer later formed another company in 2016, naming directors and shareholders without their knowledge. Brewer has been ordered to pay over £12,000 for breaking section 1112 of the Companies Act 2006 which sets out the criminal offence of providing false information to the company registrar.

For further information, see LNB News 23/03/2018 32.

Public company takeovers

Debate over sale of Melrose Industries continues

The government has released letters between the Department for Business, Energy and Industrial Strategy and Melrose Industries Plc, concerning Melrose’s proposed takeover of GKN plc. The correspondence includes details of certain post-offer undertakings that Melrose is intending to provide in connection with the transaction. This is only the second occasion on which post-offer undertakings have been provided by a bidder. The undertakings have been agreed with, and are legally enforceable by, the Takeover Panel.

For further information, see LNB News 28/03/2018 76.

Additional Corporate updates this week

The rule against reflective loss—its ambit and exceptions (Breeze v Chief Constable of Norfolk Constabulary)

This case is concerned with the rule against reflective loss, a principle which debars a claimant from claiming for a loss which is ‘reflective’ of the loss of a company. If the company could bring a claim to recover its loss and thereby restore the position of the claimant, then the company and not the claimant is the proper party to bring the claim. In this case, the defendant had allegedly caused the company to fail as a result of the defendant’s wrongdoing. In such a case, the judge considered it to be realistic for a claimant other than the company to bring an otherwise reflective claim on the basis that the defendant had allegedly disabled the company from bringing its own claim.

For further information, see The rule against reflective loss—its ambit and exceptions (Breeze v Chief Constable of Norfolk Constabulary).

LRH Services Ltd (in liquidation) v Trew and others

In this case the defendant directors of the claimant company had breached their duties to exercise reasonable skill and care, and to act in good faith to promote the claimant's success. The Chancery Division further held that a solvency statement had been invalid, and the dividend declared and capital reduction made on the basis of it unlawful.

For further information, see LRH Services Ltd (in liquidation) v Trew and others.

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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