Included in this issue: FCA announces reforms to ensure UK primary markets remain effective, Frustrating action and talks during a Restricted Period, PLSA Corporate Governance Policy and Voting Guidelines 2018 and more...
Equity Capital Markets
FCA announces reforms to ensure UK primary markets remain effective
The Financial Conduct Authority (FCA) has published various amendments to the Listing Regime designed to ensure that the UK’s primary capital markets remain effective. The amendments to the Listing Rules and related technical notes are now in force. The main changes are:
- a re-ordering and clarification of the rules in Chapter 6 of the Listing Rules which deals with eligibility requirements for applicants to premium listing;
- the removal of the reference to the FCA's ability to waive the requirement for a clean working capital statement and for a three-year financial track record for new applicants (as it was never used in practice);
- the introduction of a new concessionary route to listing for certain property companies;
- a revision of the rules in Chapters 10 and 11 of the Listing Rules such that there is more scope for issuers to disregard an anomalous profits test in certain situations; and
- the removal, in most cases, of the rebuttable presumption of suspension when an issuer undertakes a reverse takeover.
Panel Statement 2018/2 re New Deputy Chairman and Panel Members
The Takeover Panel issued statement number 2018/2 confirming the appointment of Justin Dowley to succeed David Challen as a Deputy Chairman of the Panel.
Frustrating action and talks during a Restricted Period
The Takeover Panel has amended its public statements of practice in respect of certain situations where an approach has been made – although these amendments do not constitute material changes of practice.
Practice Statement 32 – frustrating action following an unequivocal rejection
New Practice Statement 32 clarifies the duration of a "cooling off" period that must elapse from the unequivocal rejection of an approach by an offeree company until the time when the offeree company may take action that would have constituted frustrating action under Rule 21.1, if the approach had not been unequivocally rejected.
The Panel will normally require two business days to elapse following unequivocal rejection – after this time, an offer will no longer be deemed to be imminent, and the offeree company can then embark on its preferred course of action. The Panel retains the discretion to amend this approach depending on the specifics of the case, so offeree companies are advised always to consult prior to taking the relevant action to ensure that there can be no doubt. An offeror company who has received an unequivocal rejection will in future need to be proactive within this two business day period in re-confirming its interest to ensure that it retains the protections of Rule 21.
Practice Statement 28 – entering into talks during a restricted period
Practice Statement 28 has been amended to reflect the recent changes to the application of Rule 2.8, and in particular the requirement to list in any Rule 2.8 "no-bid statement" the "carve outs" when a potential offeror may take certain actions prior to the expiry of the 6 month restricted period imposed by that rule. Most notably, a potential offeror may only make one approach to the offeree company during this period if it retained the "agreement of the offeree company" as a carve out to set the no-bid statement aside. This amend underscores the importance of considering the carve outs carefully prior to release of a no-bid statement following the recent Code changes in this area.
PLSA Corporate Governance Policy and Voting Guidelines 2018
The Pensions and Lifetime Savings Association (PLSA) has published the latest version of its Corporate Governance Policy and Voting Guidelines. Principal changes include:
- The addition of a new section on sustainability (section 13), which emphasises the importance of positive relations with key stakeholders to a company's long-term performance and highlights climate change as a key sustainability issue. Shareholders should consider voting against the annual report and accounts or the re-election of the chair where they believe that key stakeholder relationships are being neglected. A vote against the re-election of the chair should also be considered where shareholder attempts have failed to encourage companies in sectors affected by climate change to provide a detailed risk assessment and response to the effect of climate change on their business.
- In relation to auditor appointment (section 6), where an auditor has been in place for more than 20 years, a vote against the audit committee chair and auditor should be considered. In addition, a vote against the re-election of the chair of the audit committee, the re-appointment of the auditor and/or the remuneration of the auditor should be considered where non-audit fees paid to the auditor exceed 50% of the audit fee in consecutive years without an adequate explanation being provided.
A vote against the re-election of the chair should also be considered where shareholder attempts have failed to encourage companies in sectors affected by climate change to provide a detailed risk assessment and response to the effect of climate change on their business.
Overall, the PLSA's review of the most recent AGM voting season reveals that shareholder dissent at FTSE 350 AGMs has remained at relatively similar levels over the past two years with approximately 20% of companies experiencing a vote of 20% or more on one item of business.
Government investigates whether share buybacks used to inflate executive pay
The Department of Business, Energy and Industrial Strategy has asked PwC and the London Business School to undertake research to understand whether some companies are repurchasing their own shares to artificially inflate executive pay, how companies use share buybacks, and whether action is needed to prevent buybacks from being misused. The findings are expected to be published later in 2018.
Register of beneficial owners of overseas entities to go live by early 2021
As previously reported, the government intends to establish a public register of beneficial ownership of overseas legal entities that own or buy property in the UK, or that participate in central government contracts. The government's UK Anti-corruption Strategy 2017-2022 identified this as one of the six priorities for the period to 2022. BEIS has now confirmed the government's intention to produce a draft bill in the summer of 2018 with a view to the register going live in early 2021.
The aim of the register is to prevent the use of shell companies to launder illicit proceeds by helping law enforcement agencies track criminal funds. In addition, the register should provide the government with greater transparency on overseas companies seeking public contracts.
Narrative Financial Reporting
Narrative reporting: government response to Taylor Review of Modern Working Practices
The government's response highlights various issues which need to be addressed including in relation to:
- growth in productivity;
- real wage growth, particularly for the self-employed;
- income security, especially for those that work flexibly;
- regional imbalances as regards wages and employment rates; and
- general disparities in the labour market including in relation to gender, ethnicity and age.
The government believes that an effective corporate governance framework is essential if UK companies are to retain the trust of their workforce, investors and the public, hence the content of the Corporate Governance Reform Green Paper which seeks to strengthen several aspects of this framework to "ensure stronger and more visible board engagement with the workforce and other stakeholders". The Review went further in recommending the introduction of a duty on employers to report (and bring to the attention of the workforce) certain information on workforce structure. It also called on the government to require companies of a certain size to: make public their model of employment and use of agency services beyond a certain threshold; report on how many requests were received (and agreed to) from zero hours contract workers for fixed hours after a similar period; and report on how many requests from agency workers they received and agreed to for permanent positions after a certain period.
The government believes that many of its proposed reforms, particularly as regards stronger reporting of how directors have discharged their s.172 Companies Act 2006 duty, will meet these ends. Companies will need to be more specific about how their directors have, in complying with these duties, taken account of wider matters including the interests of employees, fostering relationships with suppliers (including self-employed contractors) and the importance of maintaining a reputation for high standards of business conduct. It is felt that this should drive greater transparency about workforce structures, particularly where these are an important aspect of a company's business model.
The government also proposes:
- working with the Financial Reporting Council to consider how guidance on the content of annual reports can be revised to encourage companies to provide a fuller explanation of their workforce model and practices; and
- reviewing the impact of current corporate governance reforms on reporting practice. If there is no change, the government will take further action, which could include a new requirement to publish a "People Report". This could bring together a range of existing employee-related reporting requirements including gender pay gap and diversity data, along with additional specific metrics relating to workforce structure.
The government notes the additional burdens that this would place on business, and is currently of the view that more comprehensive reporting under the existing and forthcoming legal framework is preferable. However, it seeks views on the potential value of such a report, to inform any future action.