Corporate weekly highlights—5 April 2018

This week’s edition of Corporate highlights includes news of the publication of the first part of ESMA’s technical advice under the Prospectus Regulation, ESMA’s update of Q&As on prospectus-related issues to include a new Q&A on profit forecasts and revised remedies from Fox published in relation to its proposed takeover of Sky.

Equity capital markets

ESMA submits first part of technical advice under the Prospectus Regulation

The European Securities and Markets Authority (ESMA) has published the first part of its technical advice (TA) under the Prospectus Regulation. The TA covers the areas of format and content of prospectuses, the EU Growth Prospectus, and the scrutiny and approval of prospectuses. In developing the advice, ESMA has taken into account responses to three consultation papers published on 6 July 2017.

On format and content of prospectuses, the TA largely proposes to maintain the requirements of the existing prospectus regime. In response to consultation feedback, ESMA has decided to withdraw its proposals for a mandatory cover note, a ‘how to use the prospectus’ section and a stand-alone use of proceeds section. It has also decided that the risk factors section should remain at the beginning of the prospectus after the summary. Although the majority of respondents asked for the audit report on profit forecasts and profit estimates to be retained, ESMA has decided to delete the requirement.

ESMA proposes standard criteria fo scrutiny of the completeness, comprehensibility and consistency of the prospectus, while giving national competent authorities a certain level of flexibility. The TA also sets out procedures for the approval and filing of the prospectus, largely based on the existing provisions of the Commission Delegated Regulation 2016/301.

The TA sets out the minimum disclosure requirements for the EU Growth Prospectus, the order in which they should be presented, and the format and content of the specific summary. ESMA has made a number of changes to its proposals for the EU Growth Prospectus in response to consultation feedback.

The TA was developed in response to a mandate from the European Commission of 28 February 2017. ESMA submitted the TA to the Commission on 28 March 2018 in line with the deadline indicated in the mandate. Subject to endorsement by the Commission, the technical advice will form the basis for the delegated acts to be adopted by the Commission by 21 January 2019.

For further information, see LNB News 03/04/2018 79.

ESMA adds new Q&A on profit forecasts

ESMA has updated its Q&As on prospectus-related issues to include a new Q&A on profit forecasts. It clarifies how to identify profit forecasts in the context of prospectuses, notably by explaining the definition included in the Prospectus Regulation No 809/2004 and by providing examples on what may or not constitute a profit forecast.

ESMA notes that although the Prospectus Regulation (EU) 2017/1129 will become applicable on 21 July 2019, repealing Prospectus Regulation 809/2004, the definition of a profit forecast should be carried over to the new prospectus regime.

For further information, see LNB News 28/03/2018 90.

Public company takeovers

CMA merger: Two revised remedies from Fox published in relation to Fox’s proposed takeover of Sky

On 3 April 2018, the CMA published two proposals from 21st Century Fox, Inc (Fox) aimed at removing media plurality fears over Fox’s anticipated acquisition of the 61% shares in Sky it does not already own. Under the first proposal, Fox would ring-fence Sky News, making it a distinct company within Sky, run by the head of Sky News. Fox has also said it will fund Sky News for at least 15 years, up five years on its previous offer and ten years more than its original proposal. Fox's second proposal involves divestiture of Sky News to Disney. This would remove media plurality concerns and ease the way for Disney's proposed $66bn (£47bn) takeover of Fox, including all of Sky. In January 2018, CMA provisionally found that the transaction is not in the public interest due to media plurality concerns, namely that if the deal went ahead as proposed, it would lead to the Murdoch Family Trust (MFT), which controls Fox and News Corporation (News Corp), increasing its control over Sky, so that it would have too much control over news providers in the UK across all media platforms (TV, radio, online and newspapers), and therefore too much influence over public opinion and the political agenda. Other news outlets serving UK audiences would not be sufficient to moderate or mitigate the increased influence of the MFT if the deal went ahead. The CMA's preferred remedy would be the prohibition of the transaction. The CMA has until 1 May 2018 to report to the Secretary of State for Digital, Culture, Media and Sport, Matt Hancock, who will make the final decision.

For further information, see LNB News 03/04/2018 55.

Accounts and reports

March 2018 UK and Ireland accounting standards issued

The Financial Reporting Council (FRC) has issued the March 2018 editions of all UK and Ireland accounting standards, reflecting triennial review amendments issued in December 2017, and other amendments made since the previous editions were issued.

The FRC has also issued a revised Foreword to Accounting Standards reflecting changes to legislation that prescribe the FRC as the accounting standard setter for the Republic of Ireland (previously Chartered Accountants Ireland).

See news story, LNB News 28/03/2018 84.

Additional Corporate updates this week

Implications for liability of parent companies over subsidiaries (Okpabi v Royal Dutch Shell)

Christa Band, partner, and Stephen Lacey, senior PSL, at Linklaters LLP, analyse how the Court of Appeal determined the circumstances in which a parent company will be liable for the negligence of its subsidiaries. In particular, they look at the impact of group policies and identity in such determinations.

Okpabi v Royal Dutch Shell [2018] EWCA Civ 191

Okpabi is the latest judgment in a series of recent cases relating to when a parent company may be held liable for the activities of its subsidiaries. It involved claims brought in the English courts against Royal Dutch Shell Plc (RDS) and a Shell Group company, Shell Petroleum Development Company of Nigeria Ltd (SPDC), by local communities affected by oil in the Niger Delta.

The claimants’ case in respect of RDS was that it owed them a duty of care in negligence for alleged acts/omissions committed by SPDC. This issue was before the court as part of a challenge to the court’s jurisdiction in which it had to assess whether the claim was at least arguable, and whether it should be allowed to proceed.

The Court of Appeal the first instance finding that the case against RDS was not strong enough to proceed. The leading judgment by Simon LJ identified proximity as the central issue in the case. In that respect, he looked at a number of centralised, or group level, control features by which the claimants sought to establish that RDS had control over SPDC’s operations. In his view, none of the evidence went far enough to show any exercise of actual control over SPDC’s operations by RDS that would be sufficient to establish a duty of care. He distinguished between a parent company which controls the material operations of a subsidiary with one which issues mandatory policies intended to apply throughout a group. In his view, that latter action cannot mean that a parent has taken control of the operations of a subsidiary so as to establish a duty of care.

The authors view the decision as consistent with previous understanding as to the existence of a duty of care on the part of a parent company for the activities of its subsidiaries, in particular the place of group policies/identity in such cases.

See News Analysis piece, Implications for liability of parent companies over subsidiaries (Okpabi v Royal Dutch Shell)

Additional news—daily and weekly news alerts

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New and updated content

We have published the following Precedents to our Private M&A (share purchase) topic area:

  1. GDPR compliant data protection warranties—share purchase agreement and asset purchase agreement
  2. GDPR compliant data protection due diligence enquiries—share purchase and asset purchase

Dates for your diary

Date Subjects covered
6 April 2018 Audit: Co-operative and Community Benefit Societies Act 2014 (Amendments to Audit Requirements) Order 2018 comes into force on this date.
The Co-operative and Community Benefit Societies Act 2014 (CBSA 2014) is amended to increase the thresholds below which registered societies under CBSA 2014 are able to disapply the requirement to conduct an audit from £2.8m in assets and £5.6m of turnover to £5.1m in assets and £10.2m of turnover in order to assimilate with the thresholds for companies qualifying as small in relation to a financial year as provided in the Companies Act 2006.
See news, LNB News 08/03/2018 94.
6 April 2018 Audit: The remaining provisions of the Statutory Auditors Regulations 2017 come into force on this date.
SI 2017/1164: Legislation is made to continue the implementation of Audit Directive and Audit Regulation on the audit of limited companies and other undertakings which are classified as ‘public interest entities’ (PIE), that is, entities whose securities are traded on a regulated market, credit institutions and insurance undertakings. The changes further align the audit and accounting framework for LLPs with that of companies. The changes are effective from 1 January 2018, remainder on 6 April 2018.
See news, LNB News 01/12/2017 90.
10 April 2018 Corporate governance: Submissions of evidence to the House of Commons Business, Energy and Industrial Strategy (BEIS) Committee on gender pay gap reporting close on this date.
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 passed on 4 April 2018.
The Committee is seeking written evidence on gender pay gap reporting—for example, whether the annual information related to pay required under the Equality Act 2010 is sufficient? Should any further information be required?
The evidence can be uploaded via the online portal and should be submitted by 10 April 2018.
See news, LNB News 23/03/2018 82.
April 2018 LIBOR: The LIBOR benchmark in the UK will be replaced by a reformed version of the Sterling Overnight Index Average (SONIA). SONIA is anticipated to move to a new basis by April 2018.
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.
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.

Latest Q&As

New Q&As added this week:

  1. What are the consequences of a member of a limited liability partnership receiving a secret commission from a client?

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Area of Interest