Included in this issue: Corporate Governance Reform – Government publishes nine point plan; Financial Conduct Authority publishes Primary Market Bulletin No. 18; FRC consults on changes to its strategic report guidance and more... 


Corporate Governance and Company Law

Corporate Governance Reform – Government publishes nine point plan

The Department of Business, Energy and Industrial Strategy has published the Government's response to its November 2016 Green Paper on corporate governance reform. This takes into account the April 2017 Report of the Department's Select Committee.

By way of reminder, the aim of the Green Paper consultation was to consider what changes might be appropriate in the UK's corporate governance regime to help ensure improved business performance and create "an economy that works for everyone". The Government's response sets out nine principal proposals for reform across three specific aspects of corporate governance:

  • Executive pay;
  • Strengthening the employee, customer and supplier voice; and
  • Corporate governance in large privately-held businesses.

For more detail, commentary and next steps, please see our Governance & Compliance update.

Shareholders flex their muscles in 2017 AGM season to reduce FTSE pay

The Investment Association has published an analysis of the 2017 AGM season voting which revealed that:

  • FTSE100 companies saw a 35% decrease in 2017 remuneration resolutions that received over 20% dissent compared with 2016;
  • FTSE250 companies saw a 100% increase in companies getting 20% or more of votes against their remuneration resolutions compared to 2016;
  • FTSE350 companies overall saw a 200% increase in votes against a Director re-election; and
  • 6 FTSE350 companies withdrew resolutions on pay ahead of the company AGMs to avoid a shareholder rebellion.

Equity Capital Markets

Financial Conduct Authority publishes Primary Market Bulletin No. 18

The Financial Conduct Authority, in its role as the UK Listing Authority (UKLA), has published its 18th Primary Market Bulletin.

The Bulletin notes the re-organisation of the UKLA into two separate departments:

  • the Primary Market Oversight Department is responsible for, among other things, supervision of sponsors and real-time and post-event monitoring of listed issuers; and
  • the Listing Transactions Department is responsible for all transaction review functions and management of the Official List.

Existing arrangements for contacting the UKLA are unchanged. A new ESS system with enhanced functionality for the comments process will be in operation from on 4 September 2017 and replace faxed comments.

The Bulletin also launches a consultation on three new technical guidance notes for sponsors on their obligations to ensure directors understand their responsibilities and obligations under the listing rules, disclosure requirements and transparency rules (as required by LR 8.3.4R); that directors have established procedures to enable an issuer to comply with its obligations on an ongoing basis (as required by LR 8.4.2R(3)); and that these procedures are not adversely impacted when an issuer undertakes certain transactions (as required by LR 8.4.12R(2)). Consequential amendments are also proposed to the note on a sponsor's obligations on financial position and prospects procedures.

The FCA is also consulting on new technical notes relating to quantified financial benefits statements and FRS 102 cash flow statement exemptions as well as amendments to its technical notes on profit forecasts and estimates and exemptions from the requirement to prepare a prospectus. The consultation closes on 11 October 2017.

The FCA is adopting the changes to its technical notes on shareholder obligations and Sponsors: conflicts of interest as proposed in Bulletin No. 17. 

Company Law

Corporate offence of failing to prevent tax evasion – in force from 30 September

The Criminal Finances Act 2017 has created two new tax-related criminal offences for UK companies and partnerships, as well as foreign companies and partnerships with employees or agents in the UK. You can find a more detailed briefing from our Tax team here. The effective date for these offences is 30 September 2017. In summary:

  • the offences are intended to create UK corporate criminal liability for a company or partnership where that entity's employee, agent, or service provider is engaged in criminal facilitation of tax evasion (which is already an offence at the level of the facilitator);
  • there is a potentially unlimited fine for those convicted of either offence;
  • the offences are ones of strict liability so no intention is required on the part of the organisation, nor is it relevant whether the organisation receives any financial benefit from the tax evasion or the facilitation. However, there is a corporate defence if 'reasonable procedures' have been put in place to prevent the criminal facilitation, similar to the existing Bribery Act defence. HMRC issued draft guidance on the offences and expects all UK organisations to carry out a risk assessment and, in most circumstances, have board-level sign off on particular policies and procedures designed to prevent such criminal facilitation; and
  • the offences can apply where foreign taxes are evaded, or (if UK taxes are being evaded) even where the organisation in question is outside of the UK.

Financial Reporting

FRC consults on changes to its strategic report guidance

The Financial Reporting Council (FRC) has published a consultation paper setting out draft amendments to its Guidance on the Strategic Report, which was first published in June 2014. The proposed amendments are not intended as a fundamental review of the Guidance but aim to update it to reflect changes to the strategic report requirements made by the Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016, which apply in relation to the financial years of companies and qualifying partnerships beginning on or after 1 January 2017. For further information, please see our Governance & Compliance update.

Case Law

Request by member of public to inspect Register of Members and proper purpose (Court of Appeal)

The recent Court of Appeal case of Fox-Davies v Burberry plc [2017] EWCA Civ 1129 upheld the High Court's ruling that the applicant (in this case a claimant tracing company) did not have a proper purpose in seeking to inspect and copy the register of the company's members under section 116, Companies Act 2006. It contains useful obiter guidance on what might qualify as a "proper purpose".

The case underlined the fact that the onus is on the company to show that a purpose is "improper"; the test of whether a purpose is improper is objective - it is made by the court on the basis of its evaluation of the purpose; that in deciding whether a purpose is proper, it may be necessary to look at both the objective and the means of achieving that objective; that the test is the same for requests by members or non-members; and the test does not depend on whether the request is in the interests of the shareholders.

Court of Appeal considers validity of non-compete clause that extended to minor shareholdings in competitor

In the case of Tillman v Egon Zehnder Ltd [2017] EWCA Civ 1054 the Court of Appeal has set aside an injunction upholding a six-month non-compete restrictive covenant. The restriction sought to prevent the employee from being concerned or interested in any competing business for a period of six months from termination, but did not contain an express limitation allowing the employee to hold a minor shareholding in a competing business for investment purposes (which it is common practice). Given that the phrase "interested in" included holding one share in a publicly quoted company, this rendered the restriction impermissibly wide, and therefore void. The court rejected an argument that the words "or interested" could be deleted or severed from the relevant provision in order to leave a valid restriction. Although the case concerned a contract of employment, the judgment will also be of interest to those drafting or negotiating restraint of trade clauses in commercial contracts, such as the restrictive covenants in share purchase agreements.

Key contacts

Will Chalk

Will Chalk

Head of Corporate Governance
United Kingdom

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Sukhraj Dhillon

Sukhraj Dhillon

Professional Support Lawyer, Corporate Finance
London

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Nicky Higginbottom

Nicky Higginbottom

Professional Support Lawyer, Corporate
Leeds

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