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Corporate Update is our fortnightly bulletin highlighting the latest legal and regulatory developments which we consider to be of relevance to in-house corporate counsel. If you would like to subscribe to this bulletin as a regular email, please click here.
In this issue
News
FCA publishes final rules on new annual statement on board diversity
On 20 April 2022, the Financial Conduct Authority (FCA) published Policy Statement 22/3 which sets out its final policy decision and rules on its proposals relating to diversity on boards and executive committees (set out in CP Paper 21/24). A new Listing Rule (LR 9.8.6(9)) will be introduced requiring in scope companies to make an annual 'comply or explain statement' on whether they have achieved prescribed board diversity targets at a specified date during the relevant accounting period. Companies must also publish numerical data on the sex or gender identity and ethnic diversity of their board and senior executive management and explain their approach to collecting the data required for the statement. Amendments from the consultation include the following:
- For the numerical disclosures, companies may report either on the basis of sex or gender identity, and the draft guidance on self-identification has been removed.
- Companies with board members or management situated in jurisdictions where local law prevents the collection or publication of relevant data may explain the extent to which it is unable to make the numerical disclosures.
The new rules will apply to financial years starting on or after 1 April 2022, although companies whose financial years began before then (from 1 January 2022) are encouraged to report on a voluntary basis.
FRC publishes new governance code
The Financial Reporting Council (FRC) has published a new Audit Firm Governance Code that aims to strengthen governance of the UK’s largest auditing firms. The revised Code applies to firms that audit public interest entities (PIEs). The FRC expects any auditor of one or more FSTE-350 companies, or any firm that audits 20 or more PIEs to apply the Code. The Code has been updated to reflect the operational separation of the largest audit firms, and also:
- separates the roles of the board chair and senior partner / chief executive;
- introduces new criteria for the composition of audit firm boards;
- brings a clearer distinction between independent non-executive directors and audit non-executive directors; and
- emphasizes the importance of long-term sustainability, culture, and employee engagement.
New guidance on the compliance and enforcement of the National Security and Investment Act 2021
On 11 April 2022, the Department for Business, Energy & Industrial Strategy (BEIS) published new guidance on the compliance and enforcement of the National Security and Investment Act 2021. The guidance provides information, and clarification, on various aspects of the regime including in relation to notices, orders, monitoring and verifying compliance, enforcement, and the processes relating to the legislation. Some key points in the guidance are:
- Information notices can be issued at any point during the transaction, including during contemplation of the acquisition before notification, before or after call-in, during the review, or after a final order has been made.
- Final orders can include structural and behavioural conditions and although there will be a publication notice for each final order, the order itself will not be published.
- In relation to civil monetary penalties, factors that affect "seriousness" and therefore the level of penalty include repeat or multiple breaches, negligence, fraud, intentional avoidance or circumvention, and impeding of the legislation.
Market Insights
Chartered Governance Institute publishes survey results on AGMs and executive remuneration
The Chartered Governance Institute has published the results of its survey on Annual General Meetings and executive remuneration. Of interest is the results on companies’ plans relating to the format of their AGMs. Of the companies surveyed, 49% said that they were planning a hybrid meeting, with 45% planning a physical only meeting and 6% planning a virtual only meeting.
Case Law
Re Smile Telecoms Holdings Ltd [2022] EWHC 740 (Ch)
Court sanctions restructuring plan involving the compromise of shareholders’ rights in an overseas company
The approval by the Court (Snowden LJ) of the proposed restructuring plan of Smile Telecoms Holdings Ltd (a company incorporated in Mauritius and registered as an overseas company in England under Part 34 Companies Act 2006) implemented via Part 26A of the Companies Act 2006 in this case was the first to exclude out-of-the-money stakeholders from voting on the plan, and the first to compromise shareholders’ rights in an overseas company.
In relation to a restructuring plan involving an overseas company in financial difficulty in which it was sought to compromise debts governed by English law and to alter the constitution or share capital of the company, this is usually achieved by means of parallel schemes in England and the relevant overseas jurisdiction in which the company is incorporated. What was novel here was that there was no parallel scheme or plan for the company in Mauritius. However, Snowden LJ did not consider that this ought, as a matter of principle, to cause him to decline to sanction the plan. The Court accepted that evidence produced to confirm the legalisation process and other procedural requirements applicable under Mauritius law showed that the provisions of the plan as regards alteration to the company's constitution and share capital were likely to be capable of being implemented in Mauritius.