Included in this issue: Government updates guidance on Modern Slavery Act statements, Business Contract Terms (Assignment of Receivables) Regulations 2017, New data protection advice service available for small organisations and more...

Modern Slavery

Government updates guidance on Modern Slavery Act statements 

The Government has updated its practical guide to publishing a supply chain transparency statement as required by the Modern Slavery Act 2015. This intends to build on experience since 2015, and include more explanation of what best practice looks like. This AG article, prepared by Katie Kinloch from our Commercial team, reviews what has changed and in particular notes that the Government could have gone further.

The Business & Human Rights Resource Centre has also published an analysis of the reports of the 100 largest UK-listed companies. Findings reveal some leading companies taking robust action, including Marks & Spencer, Sainsbury's & Unilever but, in their opinion, evidence more for others to do. The BHRC also calls on the government to improve monitoring & enforcement and provide company incentives to comply through public procurement rules.

Assignment of Receivables

Business Contract Terms (Assignment of Receivables) Regulations 2017 

As previously reported, the Small Business Enterprise and Employment Act contains provisions allowing, among other things, a prohibition on any provision that prevents a party from assigning its right to payment. The intention was to allow small businesses to raise finance by accessing receivables and being in a position to assign them. The revised draft regulations retain the prohibition in relation to receivables and apply to contracts for the supply of goods, services or intangible assets.

A receivable is defined as "a right (whether or not earned by performance) to be paid any amount under a contract (other than an excluded contract) for the supply of goods, services or intangible assets". This is a wide description and could, in theory, capture more bespoke contracts such as share and asset sale agreements.


New data protection advice service avaliable for small organisations

The Information Commissioner’s Office (ICO) will launch a dedicated advice line on 1 November 2017 to help small organisations to prepare for the implementation of the General Data Protection Regulation (GDPR). Organisations should dial the ICO helpline on 0303 123 1113 and select 'option four'. 

Payment Practices Reporting

BEIS updates reporting guidance 

The Department of Business, Energy and Industrial Strategy (BEIS) has published updated guidance relating to the duty to report on payment practices and performance which applies to relevant companies and LLPs in relation to financial years beginning on or after 6 April 2017. Changes to the January 2017 version of the guidance include:

  • further guidance on whether a contract has a "significant connection" with the UK;
  • additional guidance on the disclosure of early settlement discounts and expanded guidance on the maximum payment period; and
  • specific examples of reporting statistics when supply chain finance is used.

Corporate Governance

ISS consultation on virtual / hybrid shareholder meeting policy

Institutional Shareholder Services (ISS) has published its 2018 benchmark policy review in which it is seeking views on the addition of a new policy to its UK/Ireland and European Voting Guidelines dealing with virtual and "hybrid" shareholder meetings (i.e. a meeting held both virtually and physically). ISS proposes a policy under which it will generally recommend a vote FOR proposals that allow for the convening of a hybrid shareholder meeting, and AGAINST proposals that call for the convening of a virtual-only shareholder meeting. The proposals echo concerns that "virtual-only" meetings may hinder meaningful exchanges between management and shareholders. Comments are requested by 9 November 2017.

Consultation on best practice principles for shareholder voting research launched

The Best Practice Principles Group for Shareholder Voting Research is consulting on whether its principles and supporting arrangements need to be revised in light of the experience of implementing them, as well as market and regulatory developments since the Principles were introduced in 2014.

Parker Review final report on ethnic diversity on boards

The Parker Review Committee has published its final report into the ethnic diversity of UK boards, following its consultation launched in November 2016. The recommendations made in the final report remain unchanged from those made in the consultation version.

Equity Capital Markets – Rules and practice

Legal Entity Identifier requirement for AIM companies 

By way of reminder, the Disclosure Guidance and Transparency Rules sourcebook was amended (from 1 October 2017) to require a company with securities admitted to trading on a regulated market, such as the main market of the London Stock Exchange (LSE), to provide an LEI to the Financial Conduct Authority (FCA) when it files regulated information.

The LSE has also published AIM Notice 47 setting out the requirement for AIM companies to have an LEI code so as to ensure compliance with the obligations under MiFID II and the Market Abuse Regulation, which require market operators, such as the LSE, to collate LEI codes for each issuer with securities admitted to trading.

The notice links to a help sheet which sets out the steps required to obtain an LEI. If an existing AIM company has not registered for an LEI, it must do so by 30 November 2017.

The notice also states that the AIM application form for admission of new securities to trading has been amended to require an LEI. The amended form is now available on LSE's website and will be applicable to all AIM companies and prospective applicants seeking admission to trading on AIM.

Equity Capital Markets – Disciplinary action

Rio Tinto fined for breach of DTRs in relation to impairment loss failings

The FCA has fined Rio Tinto plc £27.4m for breaching Disclosure and Transparency Rules by failing to account correctly for high-value mining assets when publishing its interim results.

AIM public censure and fine for breach of AIM Rules for Companies

The LSE has publicly censured and imposed a fine of £85,000 on Exchange and Management Resource Solutions plc for breaching Rules 10, 22 and 31 of the AIM Rules for Companies.

In the context of a proposed reverse takeover which was to be funded through a debt facility, certain directors became aware of concerns as to the availability of those funds and yet did not notify the company's finance director or its Nomad. The company also misled the LSE as to the timing of completion and did not mention its funding issues in discussions with the Exchange.

When the finance director became aware of the funding issues, he immediately informed the company's Nomad and trading in the company's securities was suspended. The proposed acquisition did not proceed.

The LSE determined that the company had breached:

  • AIM Rule 10 in failing to include mention of its funding difficulties in its notifications.
  • AIM Rule 31 by failing to keep its Nomad informed and by failing to seek its Nomad's advice on the AIM Rules.
  • AIM Rule 22 as the board (at the time of the events and not the current board) did not fully co-operate with the LSE during its investigation.

 Financial Reporting

FRC Corporate Reporting Annual Review 2017

The Financial Reporting Council (FRC) has published its Annual Review of Corporate Reporting for 2016/2017. Whilst it notes that the standard of corporate reporting, particularly by the largest listed companies, remains generally good, it states that the quality of reporting, especially in Strategic Reports, is not always as high as it could be. The review also reflects the increasing calls for more transparency about how a company has thought about its long-term success and how directors discharged their s.172 Companies Act 2006 duty to consider stakeholders in their decision-making. 

The review also focuses on:

  • Risk reporting and viability statements. The FRC notes that further improvements in this area remain a key priority for investors and the Financial Reporting Lab plans to publish a report on risk and viability reporting later this year.
  • Brexit and the need for companies to consider how their assessment of the potential impact on their business has developed over the year and make appropriate disclosures to reflect their latest analysis.
  • Critical judgements and estimates. The FRC states that boilerplate and generic disclosures should be avoided - value can be improved by providing more granular information about a smaller set of judgements and estimates which had a significant impact on results and explaining why certain assets were subject to significant risk of material change.

ESMA updates Q&As on APMs

The European Securities and Markets Authority (ESMA) has published updated Q&As on its guidelines on Alternative Performance Measures (APMs), adding six new questions and answers. The new questions deal with various issues including:

  • the definition of APMs;
  • the scope of the APMs guidelines;
  • carrying out numeric reconciliations; and
  • how to apply the fair review principle to APMs.
FRC Lab second implementation study on disclosure of dividends

The FRC’s Financial Reporting Lab has published an implementation study setting out its review of dividend disclosures in 2016 annual reports after investor calls for better disclosure.

In addition to examples of best practice in dividend policy disclosure, the report sets out examples of good practice in disclosing factors relevant to setting dividends, the level of distributable reserves and the link between those reserves and risk. The study also recommends ways in which disclosures could be developed in the future.

Public M&A

Government publishes Green Paper on national security implications of foreign ownership of UK business

The government has published a consultation dealing with the national security implications of foreign ownership or control of UK businesses.

The review goes far beyond the defence sector, stating the government's belief that national security concerns arise in respect of utilities, transport, communication and other services, the loss of which would cause substantial disruption to daily life in the UK.

The Green Paper treads a careful line between ensuring that Britain remains open for business post-Brexit but also increasing the degree of protection the government may offer on national security grounds. The government recognises the risk that too much interference could produce a regime that deters inward investment.

As regards the Takeover Code, the Green Paper reiterates that the interests of all stakeholders should be born in mind when considering the merits of a takeover, and it references the s.172, Companies Act 2006 duty of directors to take all stakeholders into account when making such a decision. It also endorses the recent Takeover Panel consultation paper to force bidders to commit their intentions earlier and in more detail on bids. The government also intends to include "clawback" provisions in grants to R&D businesses whereby the money will have to be paid back on a change of control if the recipient-company ceases to be eligible for the grant funding.

The Green Paper proposes various short term measures including, in relation to the Enterprise Act 2002, lowering the turnover thresholds for deals in the defence and "advanced tech" sectors so that the Competition and Markets Authority can scrutinise more mergers. The Paper notes that more significant changes in the shorter term are constrained by EU rules.

In the longer term and, specifically post Brexit, the Paper looks at ways in which the government can exert influence. One such proposal is to extend the government's reach by bringing asset deals and establishment of new ventures in critical industries within the government's remit. Another proposal is to make all deals in certain critical sectors – e.g. nuclear, telecoms – subject to mandatory filing, again widening the scope of government intervention.

The reason for increasing the scope of influence is explicitly stated as being "to impose conditions on the deal or in extremis to block it altogether" – a clear signal that undertakings will be the remedy of choice for the government in most circumstances.

The consultation in relation to short term measures closes on 14 November 2017. Responses in relation to the longer-term proposals may be submitted until 9 January 2018.

Key Contacts

Nicky Higginbottom

Nicky Higginbottom

Principal Knowledge Lawyer, Corporate
Leeds, UK

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