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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.
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 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.
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.
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.
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  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)
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We have published the following Precedents to our Private M&A (share purchase) topic area:
New Q&As added this week:
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