Included in this issue: LSE confirms amendments to its Admission and Disclosure Standards; UK mergers: Consultation on proposals for new national security vetting regime; Gender pay gap favouring men must be closed, report says and more...

Equity Capital Markets

FCA amends Listing Rules and Disclosure Guidance and Transparency Rules

The Financial Conduct Authority (FCA) has published and brought into force minor amendments to the Listing Rules (LR) and the Disclosure Guidance and Transparency Rules sourcebook (DTR). The changes clarify that Premium Listing Principle 6 (LR Chapter 7) prohibits the continuation of a false market as well as its creation and that the diversity reporting requirements in DTR 7.2 can be satisfied by including a diversity report in a corporate governance statement published in any of the formats which the FCA allows.

ESMA updates MAR Q&A

The European Securities and Markets Authority (ESMA) has updated its Q&A document dealing with its interpretation of the Market Abuse Regulation (EU 596/2014) (MAR). In doing so, it has added three new questions (5.3 – 5.5) and related answers dealing with the ability for financial / credit institutions to delay the disclosure of inside information to the market under Article 17(5) of MAR – i.e. so as to "preserve the stability of the financial system".

LSE confirms amendments to its Admission and Disclosure Standards

The London Stock Exchange (LSE) has confirmed changes to its Admission and Disclosure Standards which became effective on 1 October 2018. The principal change enables depository receipts representing Chinese A-shares to be admitted to the LSE's main market for listed securities and traded through the LSE's International Order Book trading service. In addition, a rule has been introduced which requires an applicant to provide the LSE with a copy of admission documentation as soon as it has been published, which the LSE may, in turn, make available on its website.

AFME publishes guidance on providing issuer access to unconnected analysts

The Association for Financial Markets in Europe’s (AFME) Equity Capital Markets Division and the European Association for Independent Research Providers (Euro IRP) have published guidance for unconnected research analysts who may request access to, and other information relating to, prospective issuers under the FCA’s rules relating to IPOs, which came into force on 1 July 2018. The guidance details how syndicate banks can facilitate such access, and sets out market standard research guidelines which any such analysts gaining access are expected to sign. By way of reminder, the FCA's new rules require, among other things, that, if connected research analysts wish to be in communication with the issuer team, the syndicate banks on an IPO must ensure that a range of unconnected analysts also have the same opportunity.

Two AIM companies privately censured and fined for breaching Rules 10, 11 and 31 of the AIM rules

The LSE has privately censured and fined two AIM companies for breaching Rule 10 (Principles of disclosure), Rule 11 (General disclosure of price sensitive information) and Rule 31 (AIM company and directors' responsibility for compliance) of the AIM Rules for Companies.

The first AIM company was privately censured and fined £75,000 (discounted to £50,000 for early settlement) for providing an update on its progress as a business via social media instead of using an RIS in the first instance (thereby breaching Rule 10). In addition, it did not have an adequate social media policy to monitor its social media output (in breach of Rule 31).

The second AIM company was also privately censured and fined £75,000 (discounted to £50,000 for early settlement) for failing to keep its nominated adviser informed on its progress in appointing a successor nominated adviser, notwithstanding frequent requests for updates during the notice period (thereby breaching Rule 31). This information was needed so that the Nomad could inform the company of its disclosure obligations. 

Company publicly censured and fined for breaching Rules 10, 11 and 31 of the AIM rules

The LSE's AIM Disciplinary Committee has also publicly censured and fined MBL Group plc (MBL) for breaching Rules 10, 11 and 31 of the AIM Rules for Companies. The fine levied was £125,000 (discounted to £75,000 for early settlement). MBL had failed to notify price sensitive information to the market without delay as regards its deteriorating financial position (thereby breaching Rules 10 and 11). It also failed to seek the advice of its Nomad when appropriate to do so and have in place sufficient procedures, resources and controls to enable it to comply with its obligations (thereby breaching Rule 31).

LSE publishes changes to the AIM Disciplinary Procedures and Appeals Handbook

The LSE has issued AIM Notice 54 and published a revised AIM Disciplinary Procedures and Appeals Handbook (Handbook) on the back of its July consultation. The new rules are now in force. The Handbook sets out the procedures to be followed when the LSE wishes to start disciplinary proceedings against an AIM company or nominated adviser for breach of the AIM Rules for Companies or the AIM Rules for Nominated Advisers or when an AIM company or nominated adviser wishes to lodge an appeal against either a non-disciplinary decision or a warning notice issued by the LSE.

Minor consequential amendments have also been made to the AIM Rules for Companies.

Changes to NEX Exchange fast track admission rules now in force

The NEX Exchange implemented amendments to its rules ensuring parity between fast track and non-fast track issuers in terms of the information they are required to make available to investors on admission. NEX has also added NASDAQ as a qualifying market for the purposes of its fast track admission procedures. The full list of qualifying markets can be found here. 

Public M&A

Completion of auction process in relation to Sky offer

The long running battle between Comcast Corporation (Comcast) and Twenty-First Century Fox Inc. (Fox) for control of Sky plc (Sky) has finally ended with a very Takeover Panel-controlled auction process, which was established under Rule 32.5 of the Takeover Code to resolve the competitive bid situation between  the bidders.

The background to the auction, and terms of the auction procedure, were laid down by the Takeover Panel in PS 2018/15. The auction process concluded with Comcast making the highest offer, at £17.28 in cash per Sky ordinary share, compared with Fox's offer of £15.67. Fox subsequently announced that it would accept the Comcast offer in respect of its holding of approximately 39% of Sky shares currently in issue, or otherwise sell such shares to Comcast at the Comcast offer price.

UK mergers: Consultation on proposals for new national security vetting regime

The UK government has commenced the second stage of its planned reforms of the regime for protection of national security interests in connection with proposed mergers.

In June, the UK merger control notification thresholds for certain sectors impacting national security (namely military or dual-use goods which are subject to export control; quantum technology and computing processing units) were amended – for more detail, please read our June update. Whilst these amendments allow state intervention in smaller mergers in those sectors which might give rise to national security implications, the government believes that in order for it to be able to adequately intervene to prevent or mitigate risks to national security, a new regime is required that is separate from the existing merger control regime in the Enterprise Act 2002.

The new regime would apply to various 'trigger events', broadly meaning transactions involving the acquisition of control or significant influence over an entity or asset, without any turnover or share of supply tests applying. The proposals would create a new voluntary notification system, encouraging notifications from parties who consider that their transaction may raise national security concerns. The government would also have the power to call in transactions for review, including for a prescribed period (three to six months) after completion. The government expects around 200 notifications to be made each year, with an initial screening period of 15 to 30 working days in order to assess whether the transaction needs to be evaluated in more detail.

Once the government has called in a trigger event for a full national security assessment after initial screening, it will have 30 working days (which could be extended by a further 45 working days) in which to assess potential national security concerns and determine whether to impose conditions to prevent or mitigate risks or, as a last resort, to block or unwind the trigger event.

Responses to the consultation are required by 16 October 2018. 

Corporate Governance & Company Law

AIM guidance on corporate governance changes

While most AIM companies have complied with their "new" AIM Rule 26 obligation to disclose their governance arrangements by 28 September, we are aware that some are yet to comply. By way of reminder, the LSE has published guidance relating compliance with the new rules.

Government publishes findings on Insolvency and Corporate Governance

The Department of Business, Energy and Industrial Strategy (BEIS) has published the response to its consultation on the insolvency regime and related corporate governance matters.

As regards major corporate failure, BEIS intends to:

  • take forward measures to ensure greater accountability of directors of group companies when selling subsidiaries in distress – thus bringing into scope directors who had no reasonable belief that the subsidiary's stakeholders would be no worse off as a result of a sale than if the subsidiary entered into administration or liquidation;
  • enhance existing recovery powers of insolvency practitioners in relation to value extraction schemes; and
  • give the Insolvency Service the necessary powers to investigate directors of dissolved companies when they are suspected of having acted in breach of their legal obligations.

More generally, BEIS has confirmed that it will also:

  • Dividends – consider a comprehensive review of the UK's regime for declaring and paying dividends given the perceived complexity of the current regime. In doing so, it will consider introducing a new requirement for companies to disclose their distributable profits in their audited accounts and assess whether a 'solvency test' should be used instead of distributable profits as a determinant of whether a dividend can be paid. The Investment Association will also be asked to consider whether an annual vote on dividends should be mandated, so as to prevent companies circumventing the need for shareholder approval by only paying interim dividends.
  • Directors' duties – provide directors with greater access to training and guidance on their duties and consider the introduction of mandatory training.
  • Board evaluations – ask ICSA: The Governance Institute to explore, with others, ways to improve the quality and effectiveness of board evaluations.
  • Group structure – consider obliging groups of a 'significant size' to provide a group structure chart together with an explanation of how corporate governance is maintained within the group, potentially within the parent company annual report.
  • Directors of dissolved companies – take forward proposals to extend the current director disqualification regime to directors of dissolved companies.
Gender pay gaps favouring men must be closed, report says

The BEIS Select Committee (Committee) has published its gender pay gap report, having reviewed the first year's worth of corporate data published in April. In doing so the Committee focused on the adequacy and effectiveness of the gender pay gap reporting requirements, as well as the measures that businesses need to take in order to reduce and eliminate pay gaps themselves.

The Committee’s report also identifies the UK as having one of the highest gender pay gaps in Europe – while the median gender pay gap across the economy is 18% in favour of men at organisational level, new figures reveal that gender pay gaps of more than 40% are not uncommon in some sectors, with 78% of organisations reporting gender pay gaps in favour of men.

As a first step to reducing the gender pay gap, the Committee suggests that companies should be required to state why any pay gap exists and disclose what they are doing to close it. It also calls on the government to widen the net of organisations required to publish gender pay gap data to those with over 50 employees (reducing the current threshold from 250).

Diversity reporting in need of improvement

A research report published by the University of Exeter Business School, for the Financial Reporting Council (FRC), has found that, while the majority of the FTSE 100 companies have adopted policies on boardroom diversity, their reporting needs to improve on the basis that only 15% of them fully complied with the diversity reporting provisions of the UK Corporate Governance Code.

Draft Registration of Overseas Entities Bill

BEIS has published a response to its call for evidence on the proposed register of beneficial owners of overseas entities (similar to a PSC register) that own UK property or participate in UK government procurement. It has also published the draft Bill that will establish that register together with a consultation overview and Q&A document which seeks views on how the proposals should be implemented in practice. 

Private Equity

BVCA publishes 'Private Equity and Venture Capital Performance Measurement Survey 2017'

The British Venture Capital Association (BVCA) has published its annual survey demonstrating the performance of 'independent' UK private equity funds (those raised from external investors for VC and PE investment excluding listed private equity investment companies). 

Narrative Financial Reporting

Guidance on the Strategic Report published

The FRC has published an updated version of its Guidance on the Strategic Report, which is intended to serve as best practice guidance for all entities required to prepare a strategic report. The guidance has been updated to reflect changes in practice and other developments which have occurred since the guidance was first published in 2014. It also reflects the publication of The Companies (Miscellaneous Reporting) Regulations 2018, on which more detail can be found in our Governance & Compliance update, specifically as regards the obligation of 'large' companies to include 's.172(1) Companies Act 2006' statement in their strategic reports.

Streamlined energy and carbon reporting

Following its consultation and subsequent response, BEIS has published a draft of The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018. The Regulations propose changes to reporting requirements for quoted companies and introduce new reporting requirements for large unquoted companies and large LLPs to annually report on emissions, energy consumption and energy efficiency action in the UK. The Regulations will come into force on 1 April 2019 and, in effect, replace the abolished CRC energy efficiency scheme. Detailed guidance on how to comply with the new obligations is expected to be published in January 2019. This will build on the existing guidance which relates to mandatory greenhouse gas reporting.