Included in this issue: Final guidance on failure to prevent tax evasion; UK’s largest companies urged to increase transparency around workplace diversity; Takeover Panel proposes requiring bidders to make fuller disclosure of takeover plans and more... 

Company Law

Final guidance on failure to prevent tax evasion

HMRC has published final guidance on the new criminal offence of failing to prevent the facilitation of tax evasion which came into force on 30 September.

The guidance sets out suggestions to be considered when creating and adopting "reasonable procedures" based on six “guiding principles” (being very similar to those underpinning the guidance on failing to prevent bribery and the guidance on reporting on transparency in supply chains). The six principles are:

• Risk assessment
• Proportionate procedures
• Top-level commitment
• Due diligence
• Communication and training
• Monitoring and review

The guidance contains suggested procedures, guidance on legal terminology employed by the new offence, case studies, and a helpful suggestion on reasonable procedures for lower risk SMEs.

Payment practices reporting

As previously reported, large businesses must publish information about their payment terms and practices. To access the Government's digital service to check whether your business needs to report, and to work out reporting periods and deadlines, click here. This takes the form of a short on-line questionnaire.

ICO clarifies common myths around data breach reporting under the GDPR

New reporting requirements being introduced by the General Data Protection Regulation (GDPR) will mean changes to the way businesses, organisations and even the Information Commissioner’s Office (ICO) identify, handle and respond to personal data breaches. This blog, published by the ICO, seeks to debunk common myths in the press around data breach reporting and offers practical advice to organisations on reporting data breaches to the ICO, the details to be provided, fines and the rationale behind the reporting.

Corporate Governance

Government response to BEIS Committee report

The government has published a detailed response to each of the recommendations made by the cross-bench BEIS Select Committee. In the main, this reaffirms the stance the government took and the proposals it made in its White Paper published earlier in September, a summary of which can be found here.

The response highlights the Select Committee recommendations that government does not intend to take forward.

In relation to directors' duties, particularly as regards listed companies, the government will not be proposing that a formal annual ratings exercise be undertaken in relation to annual reports as regards governance disclosure.

In relation to private companies, the government does not propose to introduce a formal complaints mechanism relating to any code of governance or principles it introduces.

In relation to executive pay, the government does not propose to:

• recommend the phasing out of the use of LTIPs; nor
• introduce a binding vote on executive pay awards the year following a vote against such awards of over 25% of votes cast.

In relation to the composition of boards, the government does not propose to mandate that, from May 2020, 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.

UK’s largest companies urged to increase transparency around workplace diversity

The Business Minister, Margot James, has urged the UK's largest companies to increase transparency around diversity policies and targets. The call to action comes ahead of the first meeting of the Business Diversity and Inclusion Group which has been formed to coordinate action to increase diversity and inclusion in business and build on the work of a number of government-backed reviews led by senior business leaders into workplace diversity.

The group will seek to establish what information listed companies could disclose to help tackle barriers in the workplace. The Financial Reporting Council is currently considering various proposals as part of a review of the UK Corporate Governance Code. We expect the consultation on changes to the Code to be published later this year.

ICSA and Investment Association publish guidance on stakeholder engagement by boards

ICSA: The Governance Institute (ICSA) and The Investment Association (IA) have published guidance to assist company boards think about how to ensure they understand and weigh up the interests of their key stakeholders when taking strategic decisions.

The guidance is designed to take board through the different elements involved in understanding and assessing the impact of a decision on key stakeholders. It is divided into seven sections dealing with: directors' duties; stakeholder identification; the composition of the board; induction and training of directors; how the board can ensure that it takes account of the impact on stakeholders in its discussions; the mechanics of engagement; and reporting and feedback. The authors believe that a focus on each of these elements is crucial and that each company's approach will be different and must be informed by its purpose, culture and values.

The guidance does not set out a comprehensive range of different approaches that should be considered but does set out some "core principles" which should guide boards (see below). The guidance also contains useful illustrative examples of how some companies have gone about achieving each of the different elements.

The guidance also notes the publication of the government's White Paper on Corporate Governance reform (click here for our overview of the proposals) in which it recommends that the UK Corporate Governance Code be amended to require listed companies to have either a designated non-executive director, a formal employee advisory council or a director appointed from the workforce, or to explain why they do not. The guidance covers each of these approaches. Further information on the guidance and its core principles can be found in our recent Governance & Compliance update published.

ICSA and the IA state that, if necessary, the guidance will be updated following further progress of the government's corporate governance reforms which are expected to come into effect in June 2018 and which will inevitably lead to significant changes being made to the UK Corporate Governance Code. In any event, they will review the guidance in the second half of 2019 to reflect companies' experience of applying it in practice.

Takeovers

Takeover Panel proposes requiring bidders to make fuller disclosure of takeover plans

The Takeover Panel (Panel) has issued a public consultation paper, PCP 2017/2, setting out proposed amendments to the Takeover Code (Code) with regard to statements of intention by bidders and related matters.

The key proposed changes to the Code include:

• all statements of intention by bidders in relation to the target's business must be made at the time of the Rule 2.7 announcement and not in the offer document as at present. This will mean that the Panel will need to pre-clear Rule 2.7 announcements and has potential timing implications for the announcement of deals;
• expanding the scope of intention statements to cover more politically sensitive issues - R&D, location of headquarters, employees and pensions and the make-up of the workforce among them;
• the bidder must delay posting its offer document for 14 days unless the target company consents to a shorter timetable. This allows time for a target to marshal its defence and also for the impact of the bidder's statements of intention to be fully considered by all interested parties; and
• the bidder must publicly announce whether it has complied with its intention statements 12 months after the deal completes. Thus, there is to be greater transparency and a tightening of the current regime.

Comments on the consultation should reach the Panel by 31 October 2017.

LSE publishes 2018 dividend procedure timetable

The London Stock Exchange (LSE) has issued its 2018 dividend procedure timetable. This sets out the requirements relating to the timing, content and headline of announcements, record dates, ex-dividend dates and payments for dividends in 2018. Listed companies and those with securities quoted on AIM should comply with this timetable when declaring and paying dividends to shareholders.

Legal Entity Identifiers required when filing regulated information with the FCA

By way of reminder, the requirement for issuers subject to DTR 6.2.2A – i.e. those with securities admitted to trading on a regulated market such as the main market of the LSE – to provide a Legal Entity Identifier (LEI) and classify the information in accordance with Annex 1 to DTR 6 is now in force. More information on LEIs and how to obtain them can be found here.

Equity Capital Markets

Vetting and approval of prospectuses: will the regulator change?

The European Commission has published proposals to reform the EU's supervisory structure marking the first step towards the creation of a single European capital markets supervisor. In doing so it may extend the European Securities and Markets Authority's (ESMA) role and powers in respect of prospectuses and market abuse so as to create a level playing field for issuers, speed up prospectus approvals and prevent forum-shopping

Of particular note is the proposal to amend the Prospectus Regulation and replace the need for approval of national competent authorities such as the FCA with that of ESMA in relation to, among others, prospectuses:

• for certain wholesale non-equity securities;
• relating to asset-backed securities; and
• drawn up by property companies, mineral companies, scientific research-based companies or shipping companies.

The EU Commission has charged the European Parliament and the Council to discuss and agree its proposals as a high priority, in order to ensure their entry into force before the end of 2019. Of course, the impact of Brexit on the proposals is unclear.

ESMA updates Q&A on interpretation of the Market Abuse Regulation

ESMA has published a further update to its Q&A on the EU Market Abuse Regulation (MAR). A new Q&A relates to Insider lists (Art 18, MAR) and clarifies that persons who act on behalf or account of an issuer and who come into possession of inside information have their own duty, distinct from that of an issuer, to keep an insider list. Conversely, where a third party keeps an insider list on behalf of an issuer, the issuer remains primarily responsible for it.

M&A

New CMA guidance to improve merger process

The Competition and Markets Authority (CMA) has announced the following changes, intended to provide additional guidance to merging companies, streamline the CMA's process and reduce the requirements on businesses:

• Additional guidance on CMA's use of initial enforcement orders (IEOs) IEOs are orders that may be put into place during its investigations to prevent merging companies from integrating in a way that could affect the outcome or interfere with the CMA’s ability to introduce any necessary measures. The guidance covers when these orders may typically be imposed; the form they will usually take; the types of derogations that the CMA is likely to grant; and the timing for imposing and revoking IEOs and granting derogations. There is also a revised template IEO derogation request letter.
• Revise Merger Notice Template: this makes a number of changes to the merger notice form making it clearer to understand and reducing the overall amount of information that businesses need to provide. It removes unnecessary questions and provides additional guidance on what information is and isn’t likely to be required by the CMA in any given case. Notwithstanding this additional guidance, the CMA continues to strongly encourage early engagement in pre-notification discussions, in particular where further clarification as to the specific nature or extent of information that should be provided in the case at hand might be useful. Notifying parties who have already submitted a draft merger notice to the CMA, or are in the advanced stages of preparing a draft merger notice for submission in the near future, can continue to use the previous merger notice template for the purposes of that case. The CMA would, however, generally expect any first draft merger notice submitted after 1 October 2017 to use the Revised Merger Notice Template.
• Revised guidance on the CMA’s mergers intelligence function: some minor amendments have been made to the CMA's guidance on its merger intelligence function, including clarification on the point at which merging companies who do not propose to notify their transaction to the CMA should submit a briefing note.

Case Law

Share purchase agreement: further assurance and implied duty to co-operate (High Court)

In Takeda Pharmaceutical Company Limited v Fougera Sweden Holding 2 AB, the High Court considered whether under the terms of a share purchase agreement, the seller was under an express or implied duty to provide the buyer with certain information relating to the ultimate investors in the seller's parent company for the purposes of negotiating the settlement of a tax dispute between the target company and the Danish tax authorities.