Monday, 30 November 2015

Pakistan: new company law framework - draft of Companies Bill 2015 published

In March 2013, the Securities and Exchange Commission of Pakistan (SECP) announced the start of a review of the company law framework in Pakistan: see here. Progress stuttered but was restarted earlier this year and has now culminated in the publication of a draft Companies Bill 2015, the purpose of which is to amend and consolidate Pakistan's core company law framework: see here (pdf). Comments on the draft Bill, which will replace the Companies Ordinance 1984, should be sent to the SECP (

Clause 209 sets out the duties of directors; subsection 2 provides: "A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment".

A copy of the draft Bill was presented by the SECP's chairman, Zafar Hijazi, to the Finance Minister, Senator Mohammad Ishaq Dar, on Saturday:

Friday, 27 November 2015

UK: Supreme Court judgments next week

The Supreme Court has announced that judgment in two corporate/commercial cases - Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited and Eclairs Group Limited v JKX Oil Gas Plc - will be handed down next Wednesday: see here. The first case concerned an alleged implied term in a commercial lease; the second concerned the scope of a provision in a company's articles giving the directors the power to impose restrictions on shareholders voting and the limitations imposed on the directors in the exericse of that power.

Thursday, 26 November 2015

Europe: Commission proposals for the European Deposit Insurance Scheme

The European Commission has published its proposals - in the form of a Regulation - for a European Deposit Insurance Scheme. A copy of the proposed Regulation is available here (pdf). For further information see: FAQs| Press release| Press conference video recording|.

UK: The Autumn Statement - some company aspects

The Government's mid-year budget report - known as the Autumn Statement - was delivered yesterday: see here. This contained various announcements relating to corporate taxation, and confirmed the Government's intention to introduce a new corporate criminal offence - the failure to prevent tax evasion - which will be committed where the company fails to prevents its agents from criminally facilitating tax evasion. The Government has also confirmed, following a consultation earlier this year, that it will require large businesses to publish their tax strategies as they relate to, or affect, UK taxation. What is not clear is whether the Government will go ahead with the proposal that there should be a named individual, at board level, with responsibility for this strategy.

Wednesday, 25 November 2015

USA: PCAOB budget and strategic plan for 2015 to 2019

The Public Company Accounting Oversight Board has submitted its budget and strategic plan for 2015 to 2019 to the SEC for approval: see here. Copies will be published once approved by the SEC. Meanwhile, an indication of the contents of the plan can be gained from the short speeches delivered by the PCAOB board members at their meeting to approve the budget and plan: see here. Chairman Doty commented:

I believe we will be in a position very soon to finalize our rule to provide greater transparency in execution of the audit, through identification of the engagement partner and other accounting firms that participate in the audit. We should also, in 2016, see a new proposal to expand the standard form auditor's report, as well as new proposals on audit procedures related to using the work of other auditors, using the work of specialists, and auditing accounting estimates, including fair value measurements. We will also continue our outreach to audit committees in 2016, including by looking for ways to help them be effective in overseeing the audit, for example, through wider use and continued evaluation of appropriate audit quality indicators".

Tuesday, 24 November 2015

UK: audit reform legislation - updated regulations published

Last month the Department for Business, Innovation and Skills published a consultation paper in respect of the legislation necessary to implement the changes that have been made to the EU statutory audit framework: see here (pdf). A draft of the proposed Statutory Auditors and Third Country Auditors Regulations 2016 was also published. This draft has since been updated and now includes the proposed amendments to chapter 4 ("Removal, resignation etc of auditors") of Part 16 of the Companies Act 2006: see here (pdf).

Monday, 23 November 2015

UK: FCA consults on DTR amendment - delaying the disclosure of inside information

The Financial Conduct Authority has published a consultation paper in which it proposes amending one part of its Handbook: DTR 2.5 ("Delaying the disclosure of inside information"). It is proposed to remove the last sentence of DTR 2.5.5G in order to make clear that an issuer may have a legitimate reason to delay disclosure in circumstances other than the non-exhaustive examples listed in DTR2.5.3R or the circumstances described in DTR2.5.5AR.

UK: BIS consultation - a revised financial reporting framework for LLPs

The Department for Business, Innovation and Skills has published a consultation paper in which it sets out proposals to introduce a revised financial reporting framework for limited liability partnerships, including the introduction a new micro-entity regime for LLPs: see here (pdf).

Friday, 20 November 2015

IOSCO final report - standard and guidance on the transparency of firms that audit public companies

The International Organization of Securities Commissions has published its final report Transparency of Firms that Audit Public Companies: see here (pdf). The final report contains a statement and guidance. In the statement, the IOSCO identifies what it believes are the elements of a high quality audit firm transparency report. The guidance is intended to support the statement.

Thursday, 19 November 2015

UK: PRA/FCA review into the failure of HBOS plc

The long awaited review into the failure of HBOS plc (now part of the Lloyds Banking Group), begun by the (now) disbanded Financial Services Authority and completed by the Prudential Regulation Authority and Financial Conduct Authority, was published this morning: see here (pdf).

The review concluded that the board and senior management of HBOS failed to set an appropriate strategy and failed to challenge a flawed business model which relied on continuous growth without due regard to the risks involved. Ultimate responsibility for the bank's failure rested with the board and senior management. This said, there were flaws in the FSA's supervisory approach which meant that it did not appreciate the full extent of the risks being taken by HBOS and which meant that it was not in a position to intervene before it was too late.

Part 3 of the report focuses on governance and culture; it notes how the board's performance was impaired by its composition (in particular the fact that the non-executive directors lacked sufficient experience and knowledge of banking, and there did not appear to be a systematic process in place whereby the NEDs were updated on banking, regulatory or governance matters on an ongoing basis). The review also saw no evidence - for 2005, 2006 and 2007 - that board evaluations had been undertaken, despite statements that this had been done in the annual report and accounts.

Accompanying publication of the review is a separate report by Andrew Green QC into the FSA's enforcement actions following the failure of HBOS: see here (pdf). Mr Green concludes that the scope of the FSA's enforcement investigations was not reasonable - it should have been wider - and that it's decision-making process was materially flawed.

Wednesday, 18 November 2015

UK: FCA review into competition in the asset management industry

The Financial Conduct Authority has published the terms of reference for its investigation into competition in the asset management industry: see here.

Tuesday, 17 November 2015

BCBS report on finalising its post financial crisis reforms

The Basel Committee on Banking Supervision has published a short report in which it provides an update on the work it has done this year finalising its post financial crisis reforms: see here (pdf).

Monday, 16 November 2015

France: new edition of the AFEP/MEDEF corporate governance code for listed companies

A revised edition of the AFEP/MEDEF code of corporate governance for listed companies has been published: see here (pdf, French). A copy of the code in English is not yet available.

Friday, 13 November 2015

UK: England and Wales: when will a director owe a fiduciary duty to individual shareholders?

Judgment was given yesterday by Mr Justice Nugee in Sharp v Blank [2015] EWHC 3220 (Ch). The decision contains a review of English and Commonwealth case law exploring the circumstances in which a director may be held to owe a fiduciary duty to individual shareholders.

Thursday, 12 November 2015

UK: England and Wales: unfair prejudice, trust and confidence and winding-up

Judgment was given today in Apex Global Management Ltd & Anor v FI Call Ltd & Ors [2015] EWHC 3269 (Ch). The decision is noteworthy because of the discussion it contains concerning the operation of the unfair prejudice remedy (sections 994 to 996 of the Companies Act 2006), particularly the question of whether a section 994 petition is appropriate in all cases where the trust and confidence of the parties in a quasi-partnership has broken down. The trial judge, Hildyard J., held that the breakdown must be in consequence of some breach of either a legal right or equitable constraint affecting the conduct of the company's affairs. Insulting behaviour, his Lordship noted, would not ordinarily be sufficient unless, perhaps, the situation was one where one quasi-partner had so denigrated the activities of another quasi-partner regarding the latter's conduct of the company's affairs as to make their constructive continuation in the quasi-partnership unrealistic.

With regard to the court's discretion under section 996, Hildyard J. held that it could extend to adjusting the proportion of distributions upon a winding-up, although he made clear that the court should not ordinarily make a winding-up order under section 996.

Wednesday, 11 November 2015

Singapore: arbitration and the unfair prejudice remedy

The Court of Appeal has provided guidance on the relationship and interaction between arbitration proceedings and those for oppression/unfair prejudice under section 216 of the Companies Act. It did so in a judgment, Tomolugen Holdings Ltd v Silica Investors Ltd [2015] SGCA 57, handed down at the end of last month and referring to authorities from England and other jurisdictions including Australia and Canada: see here (pdf). The decision is now one of the leading authorities on section 216.

Tuesday, 10 November 2015

France: AMF report on governance and executive compensation

AMF has published its 2015 report on corporate governance and executive compensation: see here. A copy of the report, in French, is available here


Monday, 9 November 2015

UK: FCA/HMT policy statement - Transparency Directive and DTR changes

The Financial Conduct Authority and HM Treasury have published a joint policy statement on the implementation of the Transparency Directive Amending Directive (2013/50/EU) and other Disclosure Rule and Transparency Rule (DTR) changes, including feedback on the earlier consultation paper (CP15/11) and final rules: see here (pdf). A copy of the Instrument making changes to the DTR is available here (pdf).

Friday, 6 November 2015

UK: A legal framework for "transformer vehicles" - the first steps

The Bank of England and Financial Services Bill, which received its second reading in the House of Lords at the end of October, begins committee stage next Monday. A marshalled list of the amendments to be moved at this stage has been published: see here or here (pdf). One of the amendments being moved by the Government will add a new section to the Financial Services and Markets Act 2000 and its purpose is to give HM Treasury the power, through secondary legislation, to create a framework for companies described as "transformer vehicles". A protected cell regime is clearly envisaged: the proposed new section makes clear that secondary legislation can include provisions for the vehicle to comprise different parts having their own legal personality separate from that of the vehicle. Here is the formal definition of "transformer vehicle" contained in the amendment:

Note: The Bill also makes changes to the governance of the Bank of England, including the creation of a Prudential Regulation Committee, and also extends the reach of the Senior Managers Regime. Further information is available in the explanatory notes that have been published to accompany the Bill: see here or here (pdf). A copy of the Bill as introduced is available here or here (pdf). The progress of the Bill can be followed here.

UK: FCA consultation - handbook changes and the Market Abuse Regulation

The Financial Conduct Authority has published a consultation paper in which it sets out policy proposals and handbook changes in relation to its implementation of the Market Abuse Regulation (2014/596/EU): see here (pdf).

Wednesday, 4 November 2015

BCBS update on Basel III implementation

The Basel Committee on Banking Supervision has published its ninth update on the implementation of the Basel III regulatory reforms: see here (pdf). The update notes that all of the 27 jurisdictions comprising the Basel Committee have final risk-based capital rules in place, and all but two members have published final LCR regulations. Members are now turning to the implementation of the leverage ratio, the systemically important banks framework and the net stable funding ratio.

Tuesday, 3 November 2015

UK: Governance and the role of Boards - a speech by Andrew Bailey

Andrew Bailey, the Chief Executive Office of the Prudential Regulation Authority and Deputy Governor (Prudential Regulation) of the Bank of England, delivered a speech today titled "Governance and the role of Boards": see here (pdf). A particular focus of the speech was the role of non-executive directors and their relationship with the executive.  Mr Bailey said, with regard to the PRA's supervisory role, that the PRA would "always be cautious of Executives who seem to see Non-Executives as some form of threat; the really effective Executives are those who see their Non-Executive colleagues' experience and knowledge as a means of improving the effectiveness of the Board's judgment through constructive support and challenge".

Monday, 2 November 2015

Australia: Financial System Inquiry - Government response

The final report of the Financial System Inquiry was published last December. The Inquiry was given terms of reference that included developing proposals to promote a competitive and stable financial system, contributing to growth. The Government's response was published last month: see here (pdf). The great majority of the Inquiry's recommendations have been accepted and an agenda published for their implementation. With regard to the governance of superannuation funds, the Government has stated its support for the introduction of criminal sanctions for directors who fail to meet their duty to act in the best interests of members.

Friday, 30 October 2015

UK: Bank of England and Financial Services Bill - second reading

The Bank of England and Financial Services Bill received its second reading in the House of Lords earlier this week. Hansard, the record of debate, is available here. The Bill now proceeds to committee stage, the date for which has not yet been announced.

The Bill makes changes to the governance of the Bank of England, including the creation of a Prudential Regulation Committee, and also extends the reach of the Senior Managers Regime. Further information is available in the explanatory notes that have been published to accompany the Bill: see here or here (pdf). A copy of the Bill as introduced is available here or here (pdf). The progress of the Bill can be followed here.

Kenya: Companies Act 2015 - copy published in Kenya Gazette

The Companies Act 2015, which contains Kenya's new company law framework, was signed into law last month by the President. A copy of the Act has since been published in a special issue of the Kenya Gazette Supplement: see here (pdf).

Thursday, 29 October 2015

UK: Supreme Court judgment next week in penalty clause cases

The Supreme Court has announced that judgment will be given next Wednesday in two cases - Cavendish Square Holding BV v Talal El Makdessi and ParkingEye Limited v Beavis - in which it was argued that certain clauses were penalty clauses and therefore unenforceable: see here.

UK: BIS consultation - audit reform legislation

The Department for Business, Innovation and Skills has published a consultation paper in respect of the legislation necessary to implement the changes that have been made to the EU statutory audit framework: see here (pdf). A draft of the proposed Statutory Auditors and Third Country Auditors Regulations 2016 has also been published: see here (pdf).

Ireland: general meetings, resolutions and shareholder expressions of opinion

Earlier this month judgment was given in Petroceltic International PLC v Worldview Capital Management SA [2015] IEHC 612 by Mr Justice Abbott sitting in the High Court. The case arose following a disagreement between a company's directors and some of its shareholders in respect of a plan for fund-raising. The decision is noteworthy because it required the trial judge to consider an important aspect of corporate governance: the balance of power between the shareholders in general meeting and the board of directors.

More specifically, at issue was the legitimacy of certain resolutions - tabled by shareholders (including the company's largest shareholder) at an extraordinary general meeting (EGM) that they had requisitioned - which provided that those voting in support did not approve of (i) a bond issue and (ii) the company incurring new borrowing or issuing any debt securities.  These resolutions, it was argued by the shareholders, were not designed to direct the board to act in a particular way or to bind or constrain the directors in the exercise of their powers under the articles of association; they were instead designed to give the shareholders the opportunity to express an opinion on what was being proposed by the board.

The court granted an injunction which prevented the shareholders from requisitioning the EGM and tabling the resolutions. In doing so, the judge explained (at para. [29]):
To allow resolutions “for the expression of opinion” which in varying degrees would amount to a de facto restraint or impediment in market terms would be adding an intolerable risk to the jungle of risks faced by those working in the commercial world, so that the creation of value added such as employment, product, interest, and profit would, be greatly hampered. It was submitted by the defendants that to deny the possibility of such resolutions expressing opinions would amount to 'disenfranchisement and marginalisation' of the members on key issues and the suppression of their freedom of expression and the damage which would result to the members from that course of events is self evidently inestimable; and further, that it was 'counter intuitive' that shareholders cannot collectively express an opinion on the matter of concern in an era of increasing incorporate democracy and shareholder activism. However, the artificial construct of the company does, in fact, in an ordered way restrict the decision making powers of the shareholders. The articles of association of any company may in particular cases increase such involvement with decision making and therefore aid democracy of shareholders but it is difficult to envisage any changes however liberal which would not at least in some way seek to put order on the expression of shareholders views so that such expression did not have the direct or indirect effect of altering the way in which the company did business as it was intended by articles, statute and regulation, or (as in this case) to have to face de facto market impediments engendered by such 'expressions of opinion'."

UK: Women on boards - five year summary and new recommendations from Lord Davies

In February 2011, Lord Davies published recommendations to increase the proportion of women on FTSE100 boards, with a target for FTSE100 companies of at least 25% female representation by 2015. The recommendations were endorsed by the Government. That target has been met: in a report published today, Lord Davies notes that 26.1% of FTSE100 board positions are occupied by women: see here (pdf). It is also reported that there are now no all male FTSE100 boards.

The report also recommends a new voluntary target for women's representation on FTSE350 boards: a minimum of 33% to be achieved within the next five years. This has been endorsed by the Government: see here.

Wednesday, 28 October 2015

UK: The Financial Reporting Council's strategy for 2016/19

The Financial Reporting Council - the organisation responsible, amongst other things, for the UK Corporate Governance Code and UK Stewardship Code - has published its strategy for the period 2016/19: see here (pdf). The strategy states, with regard to governance and stewardship, that the FRC will continue to promote [a] governance and corporate cultures that support the long-term success of companies and [b] effective investor stewardship and engagement between companies and investors. It also states the FRC's aim not to make changes to the UK Corporate Governance Code during 2016/19 (and longer if possible).

Tuesday, 27 October 2015

UK: FRC discussion paper - board succession planning

The Financial Reporting Council has published a discussion paper on board succession planning: see here (pdf). The paper seeks to identify suggestions for good practice and to examine how the nomination committee can play an effective role.

Monday, 26 October 2015

Jersey: pooling the assets of companies in liquidation

Last month the Royal Court (Samedi division) confirmed that it had the power to order the pooling of the assets of two companies in liquidation (one in Jersey and the other Guernsey): see Representation of Huelin Renouf Shipping [2015] JRC 206. In the same month, and in the connected proceedings, the Royal Court (Ordinary division) in Guernsey held that it had same the power: see here.

Friday, 23 October 2015

Europe: valued added tax and Bitcoin exchanges

Last year HMRC in the United Kingdom published a briefing note considering the tax treatment of income received from, and charges made in connection with, activities involving Bitcoin and other cryptocurrencies: see here. This note took the view that no value added tax would be due on the value of Bitcoins when exchanged for a traditional currency such as sterling: see here. This position was endorsed yesterday by the Court of Justice in Skatteverket v David Hedqvist (Case C-264/14), which considered the operation of the Value Added Tax Directive (2006/112/EC) in respect of a proposed business consisting of the exchange of traditional currency for Bitcoins and vice versa. A summary of the court's opinion is available here (pdf).

Thursday, 22 October 2015

UK: Consultation on the tax deductibility of corporate interest expenditure

As part of the Government's work leading to a new business tax road map, HM Treasury has published a consultation paper seeing views on the rules for the deductibility of interest: see here. The paper sets out the Government's position on proposals in this area - Action 4, Limiting Base Erosion Involving Interest Deductions and other Financial Payments - recently published by the OECD as part of its Base Erosion and Profits Shifting Project: they are seen by the Government as an appropriate response and views are now sought on how they should be implemented. It is unlikely that new rules would be introduced before 1 April 2017.

UK: The Bank of England's approach to stress testing the UK banking system

The Bank of England has published a document setting out its approach to stress testing the UK banking system: see here (pdf). Covering the period to 2018, the document explains that the Bank's approach is designed to be explicitly counter cyclical: the severity of testing, and associated regulatory capital buffers, will therefore vary with the state of the financial cycle.

Wednesday, 21 October 2015

Europe: European Commission says Fiat and Starbucks received selective tax advantages in breach of state aid rules

In June 2013 the European Commission began investigating the tax ruling practices of certain Member States; its inquiry broadened to all Member States in December 2014. The extent to which such practices breach state aid rules has been a major focus. Today the Commission announced its position regarding the selective tax advantages given to Fiat in Luxembourg and Starbucks in the Netherlands: they are illegal under the state aid rules, see here. The full decisions have not yet been published.

Other investigations taking place, in the context of state aid, include Apple in Ireland and Amazon in Luxembourg.

Tuesday, 20 October 2015

UK: FRC has "significant concerns" with HMRC proposal for named director to have responsibility for tax strategy

Earlier this year HMRC published a consultation paper titled Improving Large Business Tax Compliance: see here. Amongst the proposals set out in the paper was one for legislation to require large businesses to publish their tax strategy as it relates to (or affects) UK taxation, and for this strategy to be "formalised, articulated and owned" by an executive director within the business. The latter has proved controversial. Indeed, the Financial Reporting Council, referring to the board's collective responsibility, says that it has "significant concerns" with HMRC's proposal for a named individual be responsible: see here (pdf).

Monday, 19 October 2015

Australia: independent contractors and fiduciary duties

The Federal Court gave judgment earlier this month in SBA Music Pty Ltd v Hall (No 3) [2015] FCA 1079. The case provides a good illustration of the circumstances in which an independent contractor, with significant management responsibilities, can be subject to statutory and fiduciary duties. The trial judge, Justice Wigney, observed: "Where reliance is placed on an independent contractor in relation to tasks of special responsibility critical to the financial and reputational well-being of the enterprise, such reliance and the trust that it involves may cause the contractor to owe fiduciary duties" (para. [14]).

Friday, 16 October 2015

UK: FRC consultation - guidance on the going concern basis of accounting and reporting on solvency and liquidity risks

The Financial Reporting Council is consulting on guidance on the assessment of, and reporting on, the going concern basis of accounting and solvency and liquidity risks: see here (pdf). This guidance is intended specifically for companies not applying the UK Corporate Governance Code.

UK: Supreme Court judgment next week - did a freezing order apply to the right to borrow money?

The Supreme Court will give judgment next Wednesday in JSC BTA Bank v Ablyazov. At issue was whether a chose in action - a right to borrow money pursuant to a facility agreement - was an "asset" for the purposes of a standard form freezing order. The Court of Appeal unanimously held that it was not (see [2013] EWCA Civ 921, noted: [2013] WLR(D) 305) and here).