10 min read
Welcome to the latest edition of Corporate Update, our fortnightly bulletin offering a five-minute read of the latest developments which we consider relevant to corporate counsel. Please get in touch with your usual contact if you want to explore any of the topics covered in more detail. If you would like to subscribe to this bulletin as a regular email, please click here.
In this issue:
NEWS
Revised CGI code of practice for board reviewers and board review reporting guidance for listed companies
On 4 July 2023, the Chartered Governance Institute published a revised Code of Practice for board reviewers (Code of Practice), Principles of Good Practice for listed companies using external board reviewers (Principles of Good Practice), and guidance for listed companies on reporting on board performance reviews (Guidance). Revisions to each of the Code of Practice, Principles of Good Practice and Guidance include the following:
- Code of Practice: Reviewers should have adequate internal procedures to ensure reviews are conducted in accordance with the Code of Practice. Reviewers should also assess the contribution of the chair as well as individual directors and any succession issues of the board.
- Principles of Good Practice: Reviewer appointments should normally be a matter for the nomination committee (rather than a single board member or employee) and where appropriate, the decision should be ratified by a full board. Potential conflicts of interest should be fully disclosed in the annual report with an explanation of why the company believes the reviewer to be independent.
- Guidance: Disclosures in the annual report should include identifying independent board members who were the reviewer’s escalation point.
IA publishes new guidance on requisitioned shareholder resolutions
On 29 June 2023, the Investment Association (IA) published its Guidance: Effective requisitioning of shareholder resolutions, which provides institutional investors with an overview of the steps required to effectively file a shareholder resolution with a UK company with a view to encouraging institutional investors to use requisitioned resolutions more proactively. For each stage within the indicative timeline of the process, the Guidance discusses the main considerations for investors and any potential legal and operational barriers, as well as practical advice on addressing those barriers.
The IA recognises that requisitioned resolutions should be viewed as a continuation of an investor’s wider stewardship approach and may be appropriate in certain circumstances, including where it has exhausted other stewardship activities.
FRC Lab publishes insight report on disclosure of dividends
On 29 June 2023, the Financial Reporting Council (FRC) Lab published Insight Report: Disclosure of dividends revisited, which updates its previous Project Report: Disclosure of dividends – policy and practice published in November 2015.
The Report notes that the upcoming legislative proposals to introduce new reporting requirements for public interest entities with at least 750 employees and £750 million in annual turnover to disclose their distributable reserves and explain the board’s long term approach to the amount and timing of shareholder returns.
The Report revisits themes from the previous 2015 report but reconsiders them in light of the current economic environment (and the need to reflect new macroeconomic factors such as inflation and high interest rates, as well as entity-level factors such as a company’s investment in green transition). Companies are encouraged to explain and contextualise any dividend-related disclosure, and to explain how a policy will affect a company’s growth strategy.
UK and EU sign MoU on regulatory cooperation in financial services
On 27 June 2023, the UK and EU signed a memorandum of understanding (MoU) on regulatory cooperation in financial services which will establish a Joint EU-UK Financial Regulatory Forum for HM Treasury and the European Commission to discuss regulatory matters of mutual interest. It is intended that the Forum will meet at least semi-annually and/or when the parties deem necessary.
Law Commission publishes final report on Digital Assets
Following its call for evidence (published May 2021) and its consultation paper (published July 2022), the Law Commission has published its final report for the UK Government on proposals for law reform of digital assets (including crypto-tokens and cryptoassets).
The report concludes that reform in relation to digital assets should be primarily through the development of common law, as it is sufficiently flexible to recognise a distinct “third” category (neither a “thing in action” nor a “thing in possession”) of personal property that can better recognise, accommodate and protect the unique features of certain digital assets. It recommends limited statutory law reform only to confirm the existence of this “third” category and remove any uncertainty. The report also recommends making arrangements for industry experts to provide technical and legal guidance on digital assets
Responses to the FCA’s proposed listing regime changes published
The Financial Conduct Authority’s (FCA) consultation on reforms to the UK’s equity listing regime (CP 23/10), which proposes radical reform to the existing UK listing regime by replacing the current standard and premium listing share categories with a single listing category for commercial company issuers of equity shares, has attracted responses from various industry groups:
- The City of London Law Society and the Law Society of England and Wales joint working party has published a Response which addresses specific questions raised in CP 23/10 on various aspects of the proposal to have a single listing category. The working party generally supports a move towards a more flexible, disclosure-based approach but also has mixed views on, and raise concerns with, a number of proposals. The working party is also broadly in favour of the proposed removal of the shareholder approval requirement for Class 1 and related party transactions.
- The Pensions and Lifetime Savings Association has criticised the proposals in its Response, taking the view that they would weaken shareholder rights by removing certain key checks and balances, in particular for asset owners and retail investors without necessarily making London a more competitive listing venue. A similar point is made in an open letter to the FCA from ten of the largest pension schemes.
- The Quoted Companies Alliance has also published Feedback, which broadly supports the suggested approach for increasing the accessibility of listing. Nevertheless, it expresses concern for small and mid-cap listed companies, and high-growth focused businesses, which it states have not had their needs sufficiently considered.
The FCA will consult further on the proposals, including draft Listing Rules, in Autumn 2023.
LEGISLATION
Financial Services and Markets Act 2023 receives Royal Assent
The Financial Services and Markets Act 2023, which makes provisions updating the UK’s regulatory framework for financial services and implements the outcomes of the Future Regulatory Framework Review, received Royal Assent on 29 June 2023. The Act revokes retained EU law relating to financial services and enables HM Treasury and financial services regulators to replace it with legislation specifically designed for UK markets. Significant areas of focus for the Act include:
- Delivery of the UK Government’s Edinburgh Reforms, including the implementation of Lord Hill’s UK Listing Review which aims to simplify the UK prospectus regime.
- Introduction of new secondary objectives for the Financial Conduct Authority and the Prudential Regulation Authority, coupled with greater regular reporting requirements and a focus on cost-benefit analyses.
- Removal of certain restrictions on wholesale markets to implement outcomes of the Wholesale Markets Review.
- Regulation of cryptoassets.
- Establishment of ‘sandboxes’ to facilitate the use of new technologies such as blockchain in financial markets.
Retained EU Law (Revocation and Reform) Act 2023 receives Royal Assent
On 29 June 2023, the Retained EU Law (Revocation and Reform) Act 2023 also received Royal Assent. The Act ends the special status of retained EU Law in the UK statute book and contains powers for retained EU Law to be more easily amended, revoked and replaced over time.
The controversial ‘sunset clause’, which would have repealed all retained EU Law unless expressly excluded, has instead been replaced by a schedule listing approximately 600 pieces of specified legislation which will be revoked by 31 December 2023. Nonetheless, it remains the case that the wider effect of the Act, including the abolition of the principle of supremacy of EU law may have some unintended consequences (as an example - see blog item in “Publications” below).
MARKET INSIGHTS
Practical Law publishes report on public M&A trends from first half of 2023
Practical Law has published its report on trends and highlights in UK public M&A activity from the first half of 2023 (H1 2023). The report focuses on companies traded on the Main Market or on AIM which are subject to the Takeover Code. Key findings include:
- 2023 has seen a relatively slow start amid difficult economic conditions, although activity picked up slight in the second quarter of 2023. 25 firm offers were announced for Main Market or AIM companies, compared to 27 over the same period in 2022. There have been very few high value deals, with only three having a value over £1 billion.
- Shareholder activism continue to be a feature, with occasions where shareholders have not been supportive of a bid, even where recommended.
- There was a greater proportion of private equity backed bids in H1 2023, with just over half of firm offers announced being private equity backed.
PUBLICATIONS
The potential of hydrogen: A guide to key European markets
Slaughter and May has published the 2023 edition of the Hydrogen Guide in collaboration with the firm’s Best Friends network. The guide reviews the changing regulatory landscape across the hydrogen value chain in seven key European jurisdictions and is intended to assist developers, investors and other market participants to navigate the regulatory frameworks for hydrogen across the value chain from production to end-use and the emerging standards for low carbon hydrogen.
Blog: Has the UK just reintroduced its 1.5% stamp duty charge on share issues?
Mike Lane (partner, tax) has published a blog post commenting on how the Retained EU Law (Revocation and Reform) Act 2023 appears to have reintroduced (with effect from 1 January 2024) the 1.5% “season ticket” stamp duty charge on certain capital raisings, unless the government legislates to maintain the status quo. This is one (possibly unintended) consequence of the abolition of the principle of supremacy of EU law and an early statement of policy would be welcomed.