Corporate Update Bulletin - 17 October 2024

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
• Legislation
• Case Law
• Publications

NEWS

Department of Business and Trade publishes statement on UK’s Modern Industrial Strategy

On 14 October 2024, the Secretary of State for Business and Trade made a statement announcing: (i) the publication of a Green Paper setting out the government’s plans to deliver the UK’s ‘Modern Industrial Strategy’ and (ii) specific reforms to company law. The Green Paper details the government’s industrial strategy which constitutes a 10-year plan to drive sustainable growth founded on four key principles: (i) long-term stability; (ii) renewing commitment to free and fair trade; (iii) easing the investor journey; and (iv) being a strategic, growth-focused state. In its statement, the Secretary of State also announced certain reforms of interest to companies:

• The first set of reforms relate to the establishment of a corporate re-domiciliation regime (see below).
• The government will introduce legislation by the end of the year that will reform reporting requirements and uplift the monetary size thresholds for micro-entities and small and medium-sized companies, as well as making technical fixes to the UK’s audit framework. A consultation will be launched next year aimed at simplifying and modernising the UK’s non-financial reporting framework. As part of modernisation measures, the government will specifically be examining the potential for updating shareholder communication in line with technology and clarifying the law in relation to virtual AGMs.
• The government also committed to implementation of the outstanding recommendations from the Secondary Capital Raising Review to speed up and simplify the process for secondary capital raises, for example by reducing the minimum period required for a company to offer new shares to existing shareholders before offering them to the wider market from 10 working days to 7. 

The Investment Association publishes revised Principles of Remuneration

On 8 October 2024, the Investment Association (IA) released an update to its Principles of Remuneration, which represent its members’ views on the commonly accepted approach to executive pay. Following criticism that previous versions of the Principles were too prescriptive (in the context of the broader discussion surrounding UK’s global competitiveness and ability to retain talent), the Principles have been substantially overhauled, with an emphasis on greater flexibility. The update re-iterated that the Principles are not rules “that must be followed”, but guidelines seeking to foster good practice and alignment with investor expectations.

The revised Principles are intended to provide companies with greater scope for divergence and allow them to introduce more bespoke arrangements better suited to their needs, although the IA still recommends that a comprehensive explanation be provided to shareholders for any divergence. For more details on the revised Principles, please see our client briefing (see Publications below).

Expert Panel publishes report on corporate re-domiciliation regime

The Independent Expert Panel on Corporate Re-domiciliation (established to advise the government on how best to establish a UK corporate re-domiciliation framework) has published and presented to the government its final report on the introduction of a two-way re-domiciliation regime. The introduction of a re-domiciliation regime will make it possible for companies to move their place of incorporation to the UK, making it easier to relocate to the UK, but will require changes to company and tax law.

In the report, the Panel indicated its strong support for the introduction of a ‘two-way’ regime to allow overseas corporates to become a UK company and also to allow UK companies to re-domicile outside the UK. The report includes suggestions on how various components of the regime would work, including eligibility criteria, information required to be provided for a company to re-domicile, the application process, as well as how the company would be treated once it has re-domiciled to the UK for company law, tax, accounting and insolvency purposes. The government has stated that it intends to consult on a proposed regime design in due course.

LEGISLATION

Revised draft of the Reporting on Payment Practices and Performance (Amendment) (No.2) Regulations 2024 laid before Parliament

On 7 October 2024, a revised draft of the Reporting on Payment Practices and Performance (Amendment) (No.2) Regulations 2024, which are expected to become effective on 1 March 2025, were laid before Parliament. The revised regulations amend the Reporting on Payment Practices and Performance Regulations 2017 and the Limited Liability Partnership (Reporting on Payment Practices and Performance) Regulations 2017 specifically introducing a requirement for relevant companies and LLPs to publish additional information relating to retention clauses in qualifying construction contracts with suppliers for financial years beginning on or after 1 April 2025.

The Secretary of State for Business and Trade has also announced that it is to accelerate the introduction of secondary legislation requiring large businesses to disclose in their annual reports information regarding supplier payments.

EU Listing Act adopted by Council of the EU

On 8 October 2024, the Council of the EU announced that it has adopted the EU Listing Act, a legislative package designed to make EU public capital markets more attractive for EU companies and facilitate the listing of companies of all sizes (including small and medium enterprises) on European stock exchanges.

The package consists of a Regulation to amend the EU Prospectus Regulation, EU Market Abuse Regulation and EU MiFIR, as well as two Directives (one on multiple-vote share structures and the other amending MiFID II and repealing the 2001 Listing Directive). The various measures will be published in the Official Journal and enter into force 20 days later. Member States will have 18 months to transpose the Directive to amend the MiFID II Directive etc, and two years to transpose the Directive on multiple-vote shares.

CASE LAW

HMRC v Gould [2024] UKUT 00285 (TCC)

Upper Tribunal rules on whether payment of dividend creates an enforceable debt

In this case, the Upper Tribunal confirmed that where a company with Table A articles of association pays an interim dividend to one shareholder, another shareholder of the same class would have an enforceable debt against the company, subject to any agreement to the contrary. Generally, an interim dividend is not due and payable until it is actually paid and the First-tier Tribunal had held, among other things, that an interim dividend is not due and payable until it is paid, even if another shareholder of the same class has already received their interim dividend payment.

The Upper Tribunal’s decision specifically rested on the rationale that, as the declaration of a final dividend by a company in a general meeting gives rise to a debt payable by the company to its shareholders there is no reason why a resolution for payment of an interim dividend followed by payment to some shareholders would have a different effect. Following from the principle that shares of the same class confer the same rights and impose the same liabilities, if a shareholder is not paid their share of an interim dividend then a debt arises at the time the other shareholders are paid.

PUBLICATIONS

First look: The Employment Rights Bill

Slaughter and May has published a briefing on the Employment Rights Bill (published 10 October 2024) which seeks to implement key pledges from the Labour government’s Plan to Make Work Pay. The Bill brings forward 28 individual employment reforms, from introducing day one rights and greater protection against harassment, to tighter regulation of fire and rehire and zero-hours contracts.

The IA’s updated Principles of Remuneration

Slaughter and May has published a briefing on the Investment Association’s revised Principles of Remuneration, highlighting the main changes and areas of update. The tone and emphasis of the revised Principles is on greater flexibility, with the update re-iterating that the Principles are not prescriptive rules, but guidelines seeking to foster good practice and alignment with investor expectations.

New public offers and admissions to trading regime: Highlights from a sustainability perspective

Slaughter and May has published a briefing setting out and discussing the three proposals arising from the Financial Conduct Authority’s consultation paper (CP24/12) on the new regime relating to prospectuses based on the Public Offers and Admissions to Trading Regulations that will be of specific interest to issuers from a sustainability perspective.