Thursday, 30 July 2015

Europe: ECB publishes volume II in the series 'The Legal Framework for Banking Supervision'

The European Central Bank directly supervises over 100 of the largest banks in the Euro area, as part of the Single Supervisory Mechanism which came into operation last November. In December 2014, the Bank published the first volume in a publication series titled The Legal Framework for Banking Supervision: see here (pdf). Volume II in the series was published earlier this month and is available here (pdf).

UK: FRC publishes 2014/15 annual report and accounts

The Financial Reporting Council - the organisation responsible, amongst other things, for the UK Corporate Governance Code - has published its annual report and accounts for 2014/15: see here (pdf). The report sets out the FRC's strategy and identifies the principal risks that may impact on that strategy. It also provides an overview of the FRC's activities over the past year, together with a series of 'effectiveness indicators'. The priorities for the year ahead are also explained. A short video, below, explaining the work of the FRC has also been published.

Wednesday, 29 July 2015

New Zealand: Corporate Governance Forum created and Guidelines published

A corporate governance forum has been set up by several institutional investors in New Zealand: see here and here (pdf). The Forum has published a set of corporate governance guidelines, building on the Financial Market Authority's Corporate Governance Principles and Guidelines, and explaining what its members regard as best practice: see here (pdf).

UK: FCA thematic review results - financial benchmarks - oversight and controls

The Financial Conduct Authority has published the results of its thematic review of firms’ oversight and controls in relation to financial benchmarks: see here (pdf). The review found that all firms had made changes but all had further work to do. In the FCA's view, in many firms change had lacked urgency and progress in improving oversight and controls had been slow. A summary of the review's findings is available here.

UK: 'Who owns the company?' - a speech by Andy Haldane

Andy Haldane, the chief economist at the Bank of England, delivered a speech earlier this year titled Who owns the company? A copy of the speech was published on the Bank's website yesterday, a few days after Mr Haldane's television interview in which he reflected on governance and the role of shareholders: see here or here (pdf).

In his speech, Mr Haldane explored the origins of the public company, identified the potential incentive problems among stakeholders and considered how policy actions could mitigate those problems. He concluded:
Challenges to the shareholder-centric company model are rising, both from within and outside the corporate sector. These criticisms have deep micro-economic roots and thick macro-economic branches. Some incremental change is occurring to trim these branches. But it may be time for a more fundamental re-rooting of company law if we are to tackle these problems at source. The stakes - for companies, the economy and wider society - could scarcely be higher".

Whilst the ideas and criticisms that Mr Haldane identified are not new, it is noteworthy that he should choose to highlight them (making clear that he was not necessarily expressing the views of the Bank or the Monetary Policy Committee). One thing that is missing from his speech, in which he traced the rising dominance of shareholder primacy and briefly considered section 172 of the Companies Act 2006, is the influence of the City Code on Takeovers and Mergers in reinforcing the position of shareholders. 

Tuesday, 28 July 2015

FSB publishes second annual report

The Financial Stability Board has published its second annual report: see here (pdf). This provides an overview of the FSB's past activities as well as highlighting current and future work. According to the FSB, the scale of misconduct in some financial institutions has risen to a level that could create systemic risks. For this reason, the FSB is assessing the potential of various reforms to reduce the likelihood of misconduct, including in the areas of risk governance, compensation structures and benchmarks.

UK: Bank of England chief economist reflects on shareholders and corporate governance

Last Friday the Bank of England chief economist, Andy Haldane, was interviewed on the BBC Newsnight television programme. His comments on company law, corporate governance and the role of shareholders have been widely reported, not least because he questioned shareholder primacy: see, for example, here and here. The interview can be watched below (or here, opens in new window).

PS: The Bank of England has launched a blog, titled Bank Underground.

Monday, 27 July 2015

Kenya: a new company law framework - the Companies Bill 2015 introduced in the National Assembly

Last year a Bill containing a new company law framework - the Companies Bill 2014 - was introduced in the National Assembly: see here (pdf) . It was, however, withdrawn by its sponsor (Hon. Aden Duale MP) earlier this year in order that an amended version could be introduced: see here. This amended Bill - now known as the Companies Bill 2015 - received its first reading last month and, earlier this month, began the second reading stage. A copy of the Bill as introduced (and as published in the Kenya Gazette) is available here (pdf). The Bill's progress can be followed here.

Part IX of the Bill deals with company directors, including their duties. Clause 144 sets out the duty to promote the success of the company, a duty that is worded in almost identical terms to section 172 of the UK's Companies Act 2006. There are other similarities.

Friday, 24 July 2015

UK: Limited Partnerships Act 1907 - HMT consultation on proposed reforms for 'private fund limited partnerships'

HM Treasury have published a consultation paper setting out proposed changes to the Limited Partnerships Act 1907 in respect of what will be known as 'private fund limited partnerships': see here (pdf). The 1907 Act will be amended to provide, amongst other things, a non-exhausitve list of activities that a limited partner in a private fund limited partnership may undertake without being considered to be taking part in the management of the business (and, as such, retaining limited liability). A draft of the Legislative Reform (Limited Partnerships) Order 2015 accompanies the paper: see here (pdf).

UK: HMRC consultation - Improving Large Business Tax Compliance

Her Majesty's Revenue and Customs published a consultation paper earlier this week titled Improving Large Business Tax Compliance: see here (pdf). The paper sets out three main proposals: [1] a requirement, through law, for all large businesses to publish their tax strategy; [2] a voluntary code of practice on taxation for large businesses; and [3] a targeted 'special measures' regime, directed at those large businesses that do not engage with HMRC in an open and collaborative manner or persistently undertake 'aggressive tax planning'. What is meant by aggressive tax planning is explained in the paper: "Tax avoidance or aggressive tax planning involves bending the rules of the tax system to gain a tax advantage that Parliament never intended" (see annex c).

With respect to the first proposal, the intention is that there should be a named individual, at board level, responsible for the strategy and, in the words of the consultation paper, "owning and signing off" this strategy. Views are sought on what should be in the strategy and subject to disclosure. The paper suggests that the tax should strategy should cover a business’s attitude to tax risk, its appetite for tax planning, and its approach to its relationship with HMRC.

The factors influencing businesses' tax strategy have recently been explored in an HMRC research report titled Exploring Large Business Tax Strategy Behaviours: see here (pdf). Some of the research findings are referred to in the consultation paper.

Thursday, 23 July 2015

UK: Bank of England Bill - consultation paper published

HM Treasury yesterday published a consultation paper in respect of the new Bank of England Bill: see here (pdf). The paper seeks views on various proposals, the purpose of which, to quote from the paper, will be to "further strengthen the Bank’s governance, transparency and accountability, enhance the ability of the Bank to discharge its macroprudential, micro-prudential, and monetary policy responsibilities in a coordinated way, and ensure that the UK’s crisis management arrangements keep pace with developments in resolution policy" (para. 1.7).

Wednesday, 22 July 2015

UK: Takeover Panel - publication of the 2014/15 annual report and accounts

The Takeover Panel today published its annual report and accounts for the year to 31 March 2015: see here (pdf). The report notes that the 2014/15 year was one of significantly increased public mergers and acquisitions activity, a notable feature of which was the increase in larger transactions: there were 11 transactions of over £1billion in value announced in 2014/15 (only three such deals were announced in the previous year).

UK: Supreme Court - publication of JKX Oil and Gas plc judgment postponed

Last week it was announced that the Supreme Court would hand down its judgment today in Glengary Overseas Limited v JKX Oil & Gas Plc. This has not happened and a new hand down date is currently unavailable.

The hearing before the Supreme Court took place in three sessions on the 18th and 19th of May this year: these can be viewed on the Supreme Court's website here, here and here. A summary of the Court of Appeal decision ([2014] EWCA Civ 640) is available here. A summary of the first instance decision of Mr Justice Mann ([2013] EWHC 2631 (Ch)) is available here.

Tuesday, 21 July 2015

UK: Government statement on audit and auditor regulation

The Government published a written ministerial statement yesterday in respect of its recent consultation on audit and auditor regulation: see here or here (pdf). In the statement, the Government announced that it would require all public interest companies (e.g., listed companies) to put their audit out to tender at least every ten years and change their auditor at least every twenty years. Several other policy decisions were also explained, including making the Financial Reporting Council the UK competent authority for audit regulation under Directive 2014/56/EU (amending Directive 2006/43/EC). A further consultation paper, in which the Government will respond to the earlier consultation responses, is due later this year.

Netherlands: new edition of the NCR Governance Code for Cooperatives

The Dutch Council for Cooperatives, NCR, has recently published a new edition of its governance code for cooperatives: see here. A copy of the new code, in English, is available here (pdf).

Canada: Economic Plan 2015 - corporate governance proposals

As part of the Economic Action Plan 2015, announced earlier this year, the Canadian Federal Government is proposing several governance related amendments to the Canada Business Corporations Act: see here. The purpose of these amendments, to quote directly from the action plan, is:
" ....to promote gender diversity among public companies, using the widely recognized 'comply or explain' model of disclosure currently required for TSX-listed companies and by most provincial securities regulators. Amendments will also be proposed to modernize director election processes and communications with shareholders and to strengthen corporate transparency through an explicit ban on bearer instruments, through which the identity of the owner can be concealed. Amendments to related statutes governing cooperatives and not-for-profit corporations will also be introduced to ensure continued alignment among federal laws".

Monday, 20 July 2015

UK: Supreme Court judgment this week - directors' powers and proper purposes

Five judgments will be handed down by the Supreme Court this Wednesday, in what is the penultimate week of the Trinity Term. One of them - Glengary Overseas Limited v JKX Oil & Gas Plc - will be of particular interest to corporate lawyers, and is set to become one of the most important decisions on the exercise of directors' powers and what is known as the proper purposes principle or rule. A summary of the Court of Appeal decision ([2014] EWCA Civ 640) is available here. The hearing before the Supreme Court, which took place in three sessions spread over the 18th and 19th of May this year, can be watched on the Supreme Court's website: see here, here and here.

Jersey: JFSC consultation on regulatory law amendments

The Jersey Financial Services Commission has published a consultation paper setting out a miscellany of proposed amendments to the laws that regulate the financial services industry and other non-financial businesses and professions in Jersey: see here (pdf). One of the proposed amendments seeks to make more consistent the framework whereby auditors pass to the Commission information relating to regulated businesses.

Friday, 17 July 2015

Germany: Retail Investor Protection Act comes into force

A week or so ago the Retail Investor Protection Act (Kleinanlegerschutzgesetz) came into force. A copy of the Act, in German, is available here. Amongst other things, the Act has given BaFin - the federal financial supervisory authority - new powers to restrict or prohibit the sale of certain products; it has also introduced new obligations for the providers of capital investments. Further information, in English, is available here.

UK: FRC publishes new financial reporting standard for micro-entities

The Financial Reporting Council yesterday published amendments to several existing accounting standards, including FRS102, and also a new financial reporting standard, FRS105, for micro-entities: see here. As a result of these changes, the Financial Reporting Standing for Smaller Entities (FRSSE) is being withdrawn. The FRC has also published a document providing an overview of the financial reporting framework that will apply to accounting periods beginning on or after 1 January 2016: see here (pdf).

Isle of Man: 'corporate common sense' and the construction of the articles of association

Judgment was given several days ago by His Honour Deemster Doyle in Origo Partners plc v Brooks Macdonald (Case 49 of 2014, High Court). The decision is one of the most important Manx authorities on the construction of a company's articles of association. The case concerned an application for a declaration under section 217 of the Companies Act 2006 in respect of the articles of a public company, Origo Partners plc, with a London Stock Exchange AIM listing and registered under the 2006 Act.

Broadly put, there were two rival interpretations in respect of the meaning of "75% resolution" within the company's articles: did such a resolution require [a] at least 75% of the voting rights cast in respect of the resolution, or [b] at least 75% of the total voting rights (whether voted or not)? Deemster Doyle held that it was the former and in doing so observed (at paras. 126 and 127):
....the construction I have placed on the articles is consistent with market practice and the one which most accords with corporate common sense ... The proper construction of the articles ... allows corporate management a degree of confidence and increases the likelihood that its sensible plans will not be stalled by lack of voter turnout; it saves on management time in regular proxy chasing and may avoid the practical difficulties and commercial obstacles associated with such time-wasting and costly chasing; it reduces additional uncertainty for stakeholders, particularly investors, and it assists in providing a company flexibility to address unforeseeable circumstances where a shareholder vote is required. It also ensures that the affairs of Origo can progress rather than stagnate and it ensures that resolutions are passed on the basis of the wishes of active and constructive shareholders willing and able to participate in the affairs of their company, rather than allowing votes to non-active shareholders not constructively participating to count effectively as a "no" vote with the disastrous default position being that the required majority is never reached and Origo cannot progress in accordance with the majority votes exercised by its members".

Thursday, 16 July 2015

UK: consultation on new corporate criminal offence - the failure to prevent the facilitation of tax evasion

Four consultation papers were published today by HMRC under the title of 'Tackling offshore evasion': see here. One of these papers seeks views on a new corporate criminal offence - the failure by a company or partnership to prevent the facilitation of tax evasion - and is available here (pdf). This new offence is modelled on one of the criminal offences introduced by the Bribery Act 2010: the failure by a commercial organisation to prevent bribery.

Ireland: floating charges, express crystallisation and preferential debts

The Supreme Court gave judgment earlier this month in In the matter of J.D. Brian Ltd (in Liquidation) t/a East Coast Print and Publicity [2015] IESC 62. This is an important - and, for the time being, leading - decision on the operation of section 285 of the Companies Act 1963 (now section 621 of the Companies Act 2014). It seems, however, likely that it will be overturned by legislative amendment.

Section 285 provides for certain debts to be granted preferential status (and therefore a priority) in a winding-up. It also provides, in subsection 7(b), that such preferential debts, "so far as the assets of the company available for payment of general creditors are insufficient to meet them, have priority over the claims of holders of debentures under any floating charge created by the company, and be paid accordingly out of any property comprised in or subject to that charge" (italics added).

At issue before the Supreme Court was this italicised phrase. The Supreme Court unanimously held that it meant a floating charge that existed at the commencement of the winding up: it did not include a charge that on creation was a floating charge but had been converted into a fixed charge, by virtue of express crystallisation in accordance with the terms of the debenture, prior to the commencement of the winding up. Justice Mary Laffoy (with whom  Justices Clarke and Charleton concurred) stated (at para. 78).
To read s. 285(7)(b) as entitling preferential creditors to priority for the priority debts specified in s. 285 over the claims of a debenture holder whose charge has crystallised into a fixed charge prior to the commencement of the winding up and to have those debts discharged out of property which at the time is subject to the fixed charge, by reason of the fact that the fixed charge evolved from a floating charge, in my view, would be to rewrite s. 285(7)(b). It is clear on the face of subs (7) that the operative time for the assessment of entitlement to priority in accordance with para. (b) is in the winding up, that is to say, after the winding up order is made. If the Oireachtas had intended that the holder of a debenture who, at the time of the assessment, has a fixed charge, but that fixed charge is the result of the crystallisation of a floating charge which occurred prior to the commencement of the winding up, should lose priority for its claims to the priority debts and that the priority debts should be paid out of property comprised in what at the commencement of the winding up was a fixed charge, that should have been provided for in para. (b) of subs. (7). In my view, as it stands, para. (b) cannot be read to achieve that end".

Justice Laffoy was nevertheless not happy with the result of this interpretation, but added that its effect could be rectified by amending legislation (something, she noted, that had been done in other jurisdictions including the United Kingdom: see section 175 of the Insolvency Act 1986 and the definition of floating charge provided by section 251).


Sweden: consultation on changes to the Swedish Corporate Governance Code

The Swedish Corporate Governance Board has published for consultation a revised version of the Swedish Corporate Governance Code: see here. A copy of the new Code, in English, is available here (pdf). A marked-up copy, in English and showing the changes, is available here (doc).

Wednesday, 15 July 2015

UK: Takeover Panel consultation papers - acting in concert and the restriction and suspension of voting rights

The Takeover Panel published two consultation papers yesterday. The first paper sets out the Panel's intention to introduce three new presumptions to the definition of 'acting in concert' in the Takeover Code, the intention being to codify the existing practice of the Panel Executive: see here (pdf). The second paper contains proposed amendments to the definition of 'voting rights' in the Code in relation to the restriction and suspension of voting rights: see here (pdf). Amongst the amendments in this second paper are those intended to remove the scope for a company to issue suspended voting shares as a means of avoiding the normal application of Rule 9 (the mandatory offer and its terms) of the Code.

Jersey: consultation on the regulation of virtual currencies

The States of Jersey has published a consultation paper seeking views on how best to provide a regulatory framework for virtual currencies: see here (pdf). The paper contains a useful summary of regulatory action that has been taken in other jurisdictions.

Italy: new edition of the Corporate Governance Code for Listed Companies

Several days ago the Italian Corporate Governance Committee published a revised edition of its Corporate Governance Code for Listed Companies. A copy of the new Code, in Italian, is available here (pdf). A copy is also available showing the amendments and additions: see here (pdf). A copy of the Code in English will be published soon: see here.

Update (15 July 2015) - the Code is now available in English: follow the above link or click here (pdf).

Tuesday, 14 July 2015

UK: Government consultation - gender pay gap disclosure

The Government published a consultation paper today seeking views on the content of new regulations that will require employers with at least 250 employees to publish information about the pay of their male and female employees: see here (pdf). The power to create these regulations is found in Section 78 ("Gender pay gap information") of the Equality Act 2010. Views are being sought on, amongst other things, how best to present gender pay gap information; the frequency of publication; and where the information should be published.

USA: Judge Easterbrook - how does corporate law protect investors?

Judgment was given earlier this month in Corre Opportunities Fund, LP v. Emmis Communications Corp. (No. 14-1647, 7th Cir. 2015). The case was before circuit judges Flaum, Easterbrook and Kanne. A copy of the judgment is available here (pdf). A summary is available here. Judge Easterbrook delivered the panel's opinion and in doing so reflected on the role of competition in corporate law as a means of protecting investors (pp. 9-10):
Confident assertions along the lines of 'state X’s rule Y is bad for investors, so Y should be stamped out' have run through corporate law and commentary since Governor Woodrow Wilson persuaded New Jersey’s legislature to replace investors’ contractual arrangements with mandatory prescriptions, and businesses responded not by using New Jersey’s rules but by reincorporating in the more permissive Delaware. Doubtless many corporate rules are bad for investors, but the way to find them is by competition and price adjustments, not judicial attempts to suppress federalism. The process of competition has yielded substantial benefits. See Roberta Romano, The Genius of American Corporate Law (1993). Indiana’s willingness to allow corporations to vote their own shares may be good, or it may be bad, but the ability to negotiate for better terms, or invest elsewhere, rather than judicially imposed 'best practices,' is how corporate law protects investors"

Monday, 13 July 2015

UK: PRA consults on implementation of leverage ratio framework

Last month the Financial Policy Committee issued a direction and recommendation to the Prudential Regulation Authority concerning the leverage ratio framework for major UK banks and building societies: see here (pdf). The PRA is now consulting on how it will implement the UK's leverage ratio framework: see here (pdf). Further background information is available here.

Basel Committee publishes revised Corporate Governance Principles for Banks

The Basel Committee on Banking Supervision has published a revised edition of its Corporate Governance Principles for Banks: see here (pdf). The accompanying press release, available here, explains some of the changes that have been included in the new edition, including an expansion of the guidance on the role of the board of directors in overseeing the implementation of effective risk management systems.

Friday, 10 July 2015

UK: England and Wales: relief for unfair prejudice

Judgment was given yesterday by the Court of Appeal in Thomas v Dawson [2015] EWCA Civ 706. The case concerned a claim for relief under the unfair prejudice remedy (Part 30 of the Companies Act 2006) in a company with two shareholders, each holding a single share. The company was balance sheet insolvent. The two shareholders represented themselves before the trial judge: they were litigants in person. The trial judge ordered that the petitioning shareholder be granted an option to purchase the other shareholder's share in the company for £55,000. The petitioning shareholder appealed, arguing that the share was worthless and should be transferred at a nominal value.

The court unanimously upheld the decision of the trial judge, finding no procedural unfairness. In the court's view the trial judge's solution was in certain respects unusual; it nevertheless fell well within the ambit of discretion conferred by section 996 of the Companies Act 2006. In this regard, the court endorsed the dictum of Oliver LJ in Re Bird Precision Bellows Limited [1986] Ch 658 that, in granting relief for unfair prejudice, the court was given "...a very wide discretion to do what is considered fair and equitable in all the circumstances of the case, in order to put right and cure for the future the unfair prejudice which the petitioner has suffered at the hands of the other shareholders of the company" (p. 669).

Thursday, 9 July 2015

UK: Summer Budget announcements

The Chancellor of the Exchequer delivered his second budget of the year yesterday: see here. A copy of the budget report - known as the red book - is available here (pdf, 6.39 MB). Amongst the many changes announced - which included future reductions in corporation tax; the introduction of a new regime for the taxation of dividends; and a new tax on banking sector profit - was one relating to the legal framework governing limited partnerships. To quote directly from the red book, the Government plans to "publish a consultation paper on technical changes to limited partnership legislation to enable private equity and venture capital investment funds to more effectively use the limited partnership structure"  (para. 2.184).

Wednesday, 8 July 2015

USA: SEC concept release - audit committee reporting obligations

The Securities and Exchange Commission has published a concept release in which it seeks views on the current audit committee disclosure obligations and, in particular, whether improvements can be made in the information provided in respect of the audit committee's responsibilities and activities: see here (pdf).

UK: England and Wales: permission granted to continue a derivative claim

Judgment was given yesterday by Mr Justice Morgan in Bhullar v Bhullar [2015] EWHC 1943 (Ch). The case concerned an application for permission to continue a derivative claim, under Part 11 of the Companies Act 2006, involving a family that is already well known to company lawyers (see [2003] EWCA Civ 424). Permission to continue was granted in respect of certain payments made to another company but the judge concluded that it was not appropriate to grant a pre-emptive indemnity as to costs out of company assets. The judgment contains some brief discussion of double (or multiple) derivative claims (the trial judge proceeded on the basis that the court had the jurisdiction to permit such claims).

Tuesday, 7 July 2015

Israel: Israel Securities Authority launches electronic voting system

The Israel Securities Authority (ISA) has launched an electronic voting system to make it easier for shareholders to exercise their voting rights: see here. According to the ISA, "[over] 58% of the public who own securities do not exercise their voting rights in shareholders' meetings. More than one third of the decisions were adopted in meetings in which less than 30% of these companies' public shareholders voted".

UK: PRA and FCA rules and publications - strengthening individual accountability in banking

Further publications, including final policy and supervisory statements, were published today by the Financial Conduct Authority and Prudential Regulation Authority as part of the introduction of the new Senior Manager and Certification Regimes: see here and here. In one of the documents published by the FCA, it is consulting on the possible extension of the certification regime to wholesale market activities: see here (pdf).

Monday, 6 July 2015

Australia: directors, calculated risks and the duty of care and diligence

The Federal Court of Australia gave judgment last month in Australian Securities and Investments Commission v Mariner Corporation Ltd [2015] FCA 589. Amongst the matters considered by the trial judge, the Hon Justice Beach, was the duty of care and diligence imposed on company directors by section 180 of the Corporations Act 2001. With regard to the role of directors, Justice Beach observed (para. [452], emphasis in the original):
... one expects management including the directors to take calculated risks. The very nature of commercial activity necessarily involves uncertainty and risk taking. The pursuit of an activity that might entail a foreseeable risk of harm does not of itself establish a contravention of s 180. Moreover, a failed activity pursued by the directors which causes loss to the company does not of itself establish a contravention of s 180".

Friday, 3 July 2015

UK: SMEs and the Bribery Act 2010

The Government has published the results of research undertaken to assess SMEs' awareness of the Bribery Act 2010: see here (pdf). Interviews were undertaken with 500 SMEs that export (95%) or plan to export within the next five years (5%). Just over half (278 or 56%) of the SMEs reported that they had heard of the Bribery Act 2010 by name; of the 222 (44%) that had not heard of the Act by name, 24% were nevertheless aware of the offence introduced by the Act of failing to prevent bribery.

UK: PRA announces deposit protection changes

Changes to the depositor and policyholder protection provided by the Financial Services Compensation Scheme (FSCS) were announced today by the Prudential Regulation Authority: see here. The changes are being made by the Deposit Guarantee Scheme (Amendment) Regulations 2015 and their effect is to maintain, for the majority of depositors currently covered by the FSCS, the existing level of deposit protection (£85,000) until the end of the year (after which the amount becomes £75,000). Other changes also come into effect today, including protection in respect of temporarily high balances (e.g., where money is received following a house sale, or funds received from an inheritance or divorce).