Corporate weekly highlights - 30 November 2017

This week’s edition of Corporate highlights includes analysis on the uncertain market conditions that have led to abandoned or postponed IPOs in November, findings from the FRC’s Financial Reporting Lab on boards managing risk and the publication of the timetable for companies converting to charitable incorporated organisations. Highlights also include the publication of new Practice Notes in the Accounts and reports topic area, as well as updated Precedents in our Private equity and Members topic areas.

Equity capital markets

Uncertain market conditions lead to pulled IPOs in November

Although initial public offering (IPO) activity has increased in 2017 compared with 2016, a number of planned Main Market flotations have been dropped in November 2017 as a result of reported uncertain and volatile IPO market conditions. This analysis examines the abandoned or postponed IPOs for Arqiva Group Limited, Cabot Credit Management Limited, Bakkavor Group plc and TMF Group plc.

Alexander Keepin, Partner at Berwin Leighton Paisner LLP, states that, ‘the last few months have been challenging for IPOs as evidenced by the announcements in November. Across the market we are seeing IPOs being considered as one of the options. However companies are willing to wait to achieve the valuations they are seeking or even in some cases run the IPO process alongside other funding opportunities or sale processes to optimise the valuation placed on the business’.

For further information, see News Analysis: Uncertain market conditions lead to pulled IPOs in November.

Corporate governance

Investors want more information on how boards manage risk

The Financial Reporting Council’s (FRC) Financial Reporting Lab (the Lab) has found that, while investors have noted improved information on risk, they also want a better understanding of how boards identify and manage risk to protect the sustainability of companies. The Lab issued a report looking at how better understanding of how boards identify and manage risk could protect the sustainability of companies.

The Lab found that, since the financial crisis, companies have made changes to their risk reporting and investors have experienced better engagement with them on how they are managing their risks. In addition, on the viability statement, companies have found the process of developing their statement to be helpful in better analysing their risk appetite, particularly by incorporating stress and sensitivity analyses into their risk management processes.

Phil Fitz-Gerald, director of the Lab, said: ‘It is clear that investors want comprehensive information on companies’ principal risk and viability reporting. They have said that risk disclosures have been more informative since the financial crisis but that more can be done to provide them with confidence that companies are managing their risk and considering their long-term prospects.

‘Many companies have significantly enhanced their risk management processes to ensure that boards are able to make a statement about their viability.  Investors encourage companies to be more transparent on how they have assessed the prospects of the company, how they have considered their principal risks, and what stress and scenario testing they have carried out to enable them to make their viability statement.'

For further information, see LNB News 23/11/2017 9.

Financial services regulation for corporate lawyers

IOSCO publishes good practices for the termination of investment funds report

The International Organization of Securities Commissions (IOSCO) has published a report which sets out good practices on the voluntary termination process for investment funds, ie collective investment schemes and other fund structures such as commodity, real estate and hedge funds.

The report recognises that investment funds terminate for many different reasons, all of which can have a significant impact on investors in terms of the cost associated with such an action or the ability of investors to redeem their holdings during the termination process. IOSCO therefore recognises the importance for investment funds to have termination procedures in place from an investor protection perspective. For this reason, IOSCO's Committee on Investment Management (Committee 5) has developed a set of good practices for the termination of investment funds which takes into account investors' interests during this process.

For further information, see LNB News 23/11/2017 89.

Company incorporation

Timetable for companies converting to charitable incorporated organisations published

The Charity Commission has released guidance about a phased timetable allowing charitable companies to convert to charitable incorporated organisations (CIOs) following legislative changes in Parliament on 23 November 2017. The changes mean that all CIOs will be listed on the Business names index, held by Companies House.

The much anticipated secondary legislation under the Charities Act 2011 contains three distinct elements: the Charitable Incorporated Organisations (Conversion) Regulations, the Charitable Incorporated Organisations (Consequential Amendments) Order and the Index of Company Names (Listed Bodies) (England and Wales) Order.

The Charity Commission (the Commission) is preparing a programme of work to support these changes.

For further information, see LNB News 28/11/2017 133.

Private M&A (asset purchase)

Withdrawal of draft Business Contract Terms (Assignment of Receivables) Regulations 2017

Parliament has announced the withdrawal of the draft Business Contract Terms (Assignment of Receivables) Regulations 2017. The Regulations proposed to deal with contractual terms which prohibit or restrict the assignment of receivables.

For further information, see LNB News 24/11/2017 73.

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New and updated content

New Practice Notes

We have published the following new pieces of content on LLP Accounts into the Accounts and reports topic area. These include guidance on the accounting regime for small, medium-sized and large LLPs and when an LLP’s accounts must be audited:

  1. LLP Accounts—an outline of the statutory framework
  2. LLP Accounts—individual and group accounts
  3. The small LLPs regime
  4. The micro-entities regime for LLPs
  5. The medium-sized LLPs regime
  6. The accounting regime for large LLPs
  7. Filing of LLP accounts and auditor’s reports
  8. When must an LLP’s accounts be audited?
  9. Small LLPs and micro-entity LLPs—audit exemption

Updated Precedents

We have updated the following Precedents in our Private equity and Members topic areas:

  1. Subscription and shareholders’ agreement
  2. Investment agreement—single investor

These Precedents have been updated to include drafting expanding provisions dealing with anti-corruption and anti-bribery legislation, to reflect anti-tax evasion legislation with the entry into force on 30 September 2017 of the Criminal Finances Act 2017.

Coming up

We have licensed the following guidance notes from ICSA:

  1. ICSA: The Governance Institute and The Investment Association – guidance note on Stakeholder Voice in Decision Making. The aim of this guidance is to help directors to understand and weigh-up the interests of their key stakeholders when taking strategic decisions. The guidance emphasises that stakeholder engagement, if taken seriously, will strengthen the business and promote its long-term success to the benefit of stakeholders and shareholders alike.
  2. ICSA: The Governance Institute guidance note on the EU General Data Protection Regulation This note provides an overview of the new legal landscape, and the strategic and practical considerations raised by the GDPR

ICSA guidance notes are widely regarded as beacons of best market practice for large listed companies. The notes are otherwise only available to ICSA members.

Dates for your diary

Date Subjects covered
30 November 2017 All AIM companies are required to register for an LEI code by 30 November 2017.
The LEI is a 20-digit, alpha-numeric code that enables identification of legal entities participating in financial transactions.  In order to comply with the Markets in Financial Instrument Directive (MiFID II) which requires market operators, such as the London Stock Exchange, to collate LEI codes for each issuer with securities admitted to trading, all AIM companies will be required to register for an LEI code by 30 November 2017. The AIM application form for admission of new securities to AIM has been amended to require an LEI.
See further: AIM Notice 47
End of November 2017 The FRC have announced that they will publish amendments to the current guidance for auditors when agreeing to the publication of preliminary announcements of annual results by the end of November 2017.
In April 2017, the FRC issued a discussion paper which looked at options for bringing Bulletin 2008/2 up to date. Options included: converting the guidance to an engagement standard; consulting with the UKLA to require auditors to follow FRC guidance; and mandating that statutory financial statement audits should be complete before auditors agree to the release of preliminary announcements.
Stakeholders are broadly content with current arrangements and the Financial Reporting Council (FRC) will therefore only make minor amendments to the current guidance for auditors when agreeing to the publication of preliminary announcements of annual results.
For further information, see LNB News 27/04/2017 96 and LNB News 25/10/2017 114.

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