Welcome to the weekly highlights from the Lexis®PSL Corporate team for the week ending 6 April 2017, which provide news updates and a comprehensive list of dates for your diary. This week’s edition features: the BEIS Committee’s recent report on corporate governance; the FRC’s revision of operating procedures for reviewing corporate reporting; a review of sanctions imposed under the FRC's enforcement procedures; the European Council’s adoption of an amending directive on shareholders’ rights; the FCA’s 17th edition of its Primary Market Bulletin; the CLLS’s response to the MoJ’s call for evidence on corporate liability for economic crime; and the news that the EU seeks to ensure the UK's 'orderly withdrawal'. It also covers three analysis pieces on the forthcoming changes to the criminal money laundering regime, as well as recent cases, Dickinson v NAL Realisations Ltd and Born London v Spire Production Services. This update is part of the Lexis®PSL Corporate team’s news offering. Some of the links require a LexisPSL subscription. If you are not a subscriber, you can take a free trial here. Headlines (News updates & analysis) Corporate governance BEIS Committee Report–Businesses must shape up on corporate governance to restore public trust Immediate action must be taken by businesses on corporate governance, executive pay—including long-term incentive plans (LTIPs)—and boardroom diversity in order to address a growing lack of trust by the public in business, according to a report published by the House of Commons Business, Energy and Industrial Strategy (BEIS) Committee. The report, while recognising the overall strength of the UK corporate governance system, notes the damage caused to the public’s confidence in recent years by high-profile failings and a dramatic ratcheting up of executive pay, while pay growth for the majority of UK workers is stagnant. The BEIS Committee recommends a series of actions on executive pay, as well as: a new and stronger voluntary code of governance for private companies; better reporting by companies on how directors fulfil their duties and responsibilities; and a major expansion of the role and powers of the FRC, with a new rating system for companies to be assessed for their corporate governance performance. The report also recommends that the government should set May 2020 as the target date by which at least half of all new appointments to senior and executive management level positions in the FTSE 350 and all listed companies should be women. For details see news, LNB News 05/04/2017 66. Financial reporting and audit FRC revises operating procedures for reviewing corporate reporting The Financial Reporting Council’s (FRC) Conduct Committee has approved a revised set of its operating procedures for reviewing corporate reporting. The revised procedures follow a public consultation, and aim to increase the transparency of the Committee’s processes by permitting publication of the names of those companies whose reports and accounts it has reviewed, once the cases are closed. The procedures also allow for more executive-led decision-making, with a view to making them more efficient and effective. Overall, respondents to the FRC’s consultation supported the proposed changes to the content and structure of the operating procedures. The revised operating procedures take effect on 1 April 2017. For details see news, LNB News 03/04/2017 110. FRC commissions independent review of sanctions An independent review of sanctions imposed under the FRC's enforcement procedures has been launched in response to stakeholder feedback. The FRC has announced that the review will consider issues such as the relevance of FRC guidance, fairness and the effectiveness of sanctions, and whether sanctions safeguard the public interest and deter wrongdoing. The review coincides with the approach of the FRC’s one-year anniversary as the UK’s competent authority for audit. The independent panel will issue a call for evidence and seek evidence from a range of relevant organisations and individuals. Further announcements will follow as the review progresses. For details see news, LNB News 30/03/2017 27. Shareholder Rights Directive New EU directive encourages shareholder engagement The European Council has adopted a directive aimed at strengthening shareholders' engagement in big European companies. It encourages transparent and active engagement by shareholders of listed companies by reviewing the current Shareholder Rights Directive (2007/36/EC). The Council has said the financial crisis revealed many shareholders supported managers' excessive short-term risk taking. The revised directive is intended to rebalance this situation and to create sustainability of companies. Under the new directive: shareholders will have the right to vote on the remuneration policy of the directors of their company; intermediaries will have to facilitate the exercise of the rights by the shareholder, including the right to participate and vote in general meetings; institutional investors and asset managers must develop and publicly disclose a policy on shareholder engagement; proxy advisors will be subject to transparency requirements; and companies will have to announce publicly material transactions at the time of the conclusion of the transaction. The new directive will be published in the EU's Official Journal. Member states will have up to two years to incorporate the new provisions into domestic law. For details see news, LNB News 03/04/2017 138. Equity capital markets FCA proposes guidance on sponsor conflicts in latest Primary Market Bulletin The Financial Conduct Authority (FCA) has published the 17th edition of its Primary Market Bulletin (PMB), in which it addresses the feedback received from its 2014 call for views on sponsor conflicts and proposes some changes to its guidance for sponsors on identifying and managing sponsor conflicts of interests. The proposed new guidance includes the following changes with respect to sponsor conflicts of interest: when considering perceived conflicts, sponsors should assess the circumstances from the point of view of a theoretical reasonable market user; the factors that sponsors should take into account when a transaction involves the provision of finance, including a metric to determine when the loan size is material; contact between the sponsor team and another part of the sponsor group may be appropriate where the sponsor team needs information about finance being provided by the sponsor's group, but such contact should be carefully managed; and the exceptional circumstances where a sponsor should contact the FCA at the earliest opportunity to discuss conflicts of interest. The PMB also discusses some recent consultations and other developments, including, the UK Financial Reporting Standards (FRS) 102, the new TR-1 form, legal entity identifiers, and the Shareholder Rights Directive. Finally, the PMB provides an update on the Debt market forum report. For details see news, LNB News 31/03/2017 118. Economic crime CLLS questions proposed changes to corporate criminal liability The City of London Law Society (CLLS) has published a response to the Ministry of Justice's call for evidence on corporate liability for economic crime. The response was prepared by the CLLS’s Corporate Crime and Corruption Law Committee. The Committee is of the view that the evidential basis for a wide-ranging change to the identification doctrine in English law is lacking. Moreover, the Committee feels the underlying policy question of whether the existing requirement to establish corporate mens rea through a directing mind should be replaced with negligence based liability or strict liability needs careful examination. Of the options for reform, requiring the prosecution to establish that the company failed to prevent economic crime is preferred. There is a broad consensus among corporate crime practitioners that the government will opt for this option. Nevertheless, the Committee says regulatory reform and effective individual accountability regimes are likely to be more effective in driving changes in corporate conduct. For details see news, LNB News 03/04/2017 125. Brexit related developments EU seeks to ensure the UK's 'orderly withdrawal' The Council of the European Union has emphasised in draft negotiating guidelines that the main purpose of the Brexit negotiations will be to ensure the UK’s 'orderly withdrawal'. The guidelines call for a phased approach to negotiations that ensures as much clarity and legal certainty as possible to 'citizens, businesses, stakeholders and international partners'. The Council has confirmed settling the status of EU and UK citizens will be a matter of priority. The guidelines also emphasise that negotiations seek to prevent a 'legal vacuum' for EU businesses trading with the UK. A financial settlement to determine the UK’s legal and budgetary commitments will also be sought. For details see news, LNB News 31/03/2017 132. Relevant updates from other practice areas Corporate Crime New landscape of anti-money laundering and related reforms In this analysis, Robin Booth, special counsel at BCL Solicitors, and John Binns, partner at the firm, consider the forthcoming changes to the criminal money laundering regime They state that the broad picture is clearly one of a determination by the EU and UK authorities to create an ever more hostile environment for money laundering and terrorist financing, based increasingly on a partnership between law enforcement authorities and the private sector. For details see News Analysis: New landscape of anti-money laundering and related reforms. Restructuring & Insolvency In consideration of creditors (Dickinson v NAL Realisations Ltd) In this analysis, James Barker, barrister at Enterprise Chambers, explores the decision in Dickinson v NAL Realisations Ltd and argues that the law around when directors of a company have to consider the interests of creditors is in a state of evolution. This is the first reported decision on the question of whether an arrangement whereby a sum equivalent to the purchase price is loaned by the selling shareholders to the purchasing company (for a share buyback)—without any money actually changing hands—constitutes compliance with section 691(2) of the Companies Act 2006 (CA 2006). In relation to the enlivening of creditors interests in relation to CA 2006, s 172(3), it is also the first time that consideration has been given to the question of whether creditors’ interests are engaged when a company faces a genuinely disputed claim which, if successful, will or may bring the company down. Mr Dickinson has appealed the decision which is scheduled to be heard at the Court of Appeal by 13 February 2018. For details see News Analysis: In consideration of creditors (Dickinson v NAL Realisations Ltd). Employment Employee liability information need not say if particulars are contractual (Born London v Spire Production Services) This analysis examines the case, Born London v Spire Production Services. The EAT ruled in this case that in a service provision change under TUPE 2006, the employee liability information that must be provided by the transferor to the transferee need not state whether the particulars of employment provided in respect of the employees are contractual or non-contractual. For details, see News Analysis: Employee liability information need not say if particulars are contractual (Born London v Spire Production Services). Dates for your diary Date Subjects covered 6 April 2017 The Reporting on Payment Practices and Performance Regulations 2017 and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017 come into force. Under the Small Business, Enterprise and Employment Act 2015, s 3 the government is committed to require certain large companies and Limited Liability Partnerships (LLPs) to report twice yearly on payment performance and practices. For further information, see Reporting payment practices and performance, LNB News 02/12/2016 100 and LNB News 02/02/2017 161. 6 April 2017 The Draft Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 come into force. Under these draft Regulations, employers with at least 250 employees are now required to publish four measures of information, based on a ‘snapshot’ of pay information taken on 5 April each year. Please note that the requirement for employers to publish the information will not come into force until around April 2018. For further information, see LNB News 06/12/2016 168. 6 April 2017 The Legislative Reform (Private Fund Limited Partnerships) Order 2017 (LRO) comes into force. The purpose of the LRO is to amend the Limited Partnerships Act 1907, introducing the concept of limited partnerships which are designated as private fund limited partnerships (PFLPs). This type of vehicle will be available to private investment funds. For further information, see LNB News 17/01/2017 168, LNB News 17/01/2017 217, LNB News 29/03/2016 130, LNB News 17/01/2017 168 and Proposed changes to the UK limited partnership framework. 12 April 2017 The deadline for comments on the HM Treasury's policy consultation on the draft Money Laundering Regulations 2017. For further information, see LNB News 15/03/2017 133.