8 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
FCA publishes final rules on reforms to the UK listing regime
On 17 July 2024, the Labour government set out its legislative programme for the new parliamentary session in the King’s speech. The government is putting forward more than 35 bills and draft bills, focusing on growing the economy through the building of houses and infrastructure, the improvement of transport, the creation of jobs and a commitment to clean energy. Proposed policies and legislative measures of note to corporates include the following:
- Audit and corporate governance: the government will publish a draft Audit Reform and Corporate Governance Bill to strengthen the UK’s audit, corporate reporting and corporate governance regime. As long proposed, the legislation will replace the Financial Reporting Council with a new statutory regulator (the Audit, Reporting and Governance Authority) which will be granted oversight of the audit market and given powers to sanction company directors for serious failures in relation to their financial reporting and audit responsibilities.
- Employment rights: the government is proposing to implement in full the proposals in their ‘Plan to Make Work Pay’ (published May 2024), which promise the biggest reform to employment law in a generation, including introducing day 1 employment rights, expanding pay gap reporting, repealing the last government’s anti-strike laws, and introducing rights for employees to disconnect and to work flexibly.
- Digital information and smart data: the government will introduce a Digital Information and Smart Data Bill to create a framework for the safe development and deployment of new innovative uses of data, such as digital verification services and 'smart data' scheme, and include measures to modernise and strengthen the Information Commissioner's Office.
Law Commission publishes scoping paper on Decentralised Autonomous Organisations
On 11 July 2024, the Law Commission published a scoping paper on the characterisation of Decentralised Autonomous Organisations (DAOs) and how the law of England and Wales might accommodate them. Part of the “crypto ecosystem”, a DAO is a new type of online collaborative organisation that operates using rules expressed in computer code.
The Law Commission’s scoping study intends to explain what a DAO is, how a DAO might be categorised in law, and set out the options for legal reforms required to existing company law and other legislation in England and Wales to clarify their status. The paper does not yet make formal recommendations for law reform but does set out the view that there is no current need to develop a DAO-specific legal entity for England and Wales.
The scoping paper suggests that, among others, the following steps be taken to promote the growth of DAOs and the digitalisation of other organisations in England and Wales:
- a review of company law to identify reforms to make it easier for organisations to leverage distributed ledger technology (DLT) and other technology at the governance level of a legal structure and still meet compliance requirements; and
- a review of anti-money laundering regulation to consider whether the same policy objectives can be achieved in a manner more compatible with the use of DLT and other technology.
Government publishes template articles and circular wording as part of dormant assets scheme
On 17 July 2024, the government updated its Dormant Assets Scheme webpage and published a participant pack for use by publicly traded companies participating in the Dormant Assets Scheme. The scheme aims to reunite people with their financial assets, and where this is not possible, to direct the unclaimed sums to social and environmental initiatives across the UK. The Dormant Assets Act 2022 expanded the scheme to cover assets from the insurance and pensions, investment and wealth management, and securities sectors. The pack includes the following templates:
- draft explanatory notes to be included in an AGM circular or circular to shareholders proposing possible changes to the company’s articles of association to facilitate participation in the scheme; and
- draft supplementary articles of association, that would allow the company to sell dormant shares and transfer the proceeds (including unclaimed dividends) to the authorised reclaim fund operated under the scheme.
Legislation
EU AI Act published in the Official Journal
The EU’s AI Act (the “Act”) has been published in the Official Journal and will come into force on 1 August 2024. It is being called the world’s first comprehensive AI law, and focuses on responsible innovation, with wide extra-territorial scope, high penalties and prohibitions on certain types of AI which pose too great a risk.
The Act sets out a legal framework for the development, marketing and use of artificial intelligence in line with EU values. As a Regulation, it will have direct effect in EU member states. The Act is specifically designed to regulate “AI Systems”, which include machine learning models such as autonomous driving systems, natural language processing such as chatbots, and computer vision systems such as facial recognition and medical imaging.
In-scope organisations face fines of (the higher of) €35 million or 7% of global annual turnover in the previous financial year for violations of the prohibited AI practice rules, €15 million or 3% for violations of the Act’s obligations (including high-risk compliance obligations, fundamental rights impact assessment and transparency obligations) and €7.5 million or 1.5% for the supply of incorrect information. The Act will generally apply on 2 August 2026, after a 2 year transition period.
Market Insights
Practical Law publishes report on public M&A trends from first half of 2024
Practical Law has published its report on key trends, developments and highlights in in UK public M&A activity for the first half of 2024 (H1 2024). The report focuses on companies traded on the Main Market or on AIM which are subject to the Takeover Code. Key findings include:
- H1 2024 has seen an increase in higher value bids with 30 firm offers announced for Main Market or AIM companies that were subject to the Code, 10 of which had a deal value of over £1 billion;
- 43% of the firm offers announced in H1 2024 were private equity and other fund back bids or PE bolt on acquisitions, a slight decrease compared to the same period in 2023; and
- there have been various examples of shareholder activism and engagement in relation to bids and potential bids in H1 2024.
Case law
Little v Olympian Homes Ltd [2024] EWHC 1766 (Ch)
Court decides that no consideration required for contractual waiver
In this case, the High Court considered several points on the law relating to waivers. The applicants in this case had applied to set aside statutory demands for debt owed under personal guarantees to a facility agreement. The applicants asserted that the interest was not payable due to the existence of a contractual waiver, or otherwise a waiver by estoppel.
Although the contractual wavier argument failed, the Court highlighted that, contrary to what both parties believed, consideration is not an essential component of a contractual waiver, unless the waiver is characterised as a variation or amendment. The parties succeeded on the waiver by estoppel argument, so the statutory demands were set aside. The judge also made the point that emails will satisfy a contractual “in writing” requirement and are capable of being validly signed electronically.
Magee and others v Crocker and another [2024] EWHC 1723 (Ch)
Court decides novation (by conduct) not prohibited by "no dealings" clause
In this case, the High Court considered whether a provision stating that a party should not "assign … or deal in any way with, any of its rights under this agreement" without prior written consent, contained in a shareholders’ agreement (SHA), prevented an informal novation. The claimants were not party to the SHA as the original party had transferred its shares to another party and were instead trustees of the transferee.
The Court decided that the label of assignment that the parties had attached to the transaction was irrelevant and further, an informal novation was not prevented by the prohibition in the SHA on dealing with the contractual rights without written consent. The principle of ejusdem generis applied to the general words at the end of the clause, which related to assigning, granting encumbrances and subcontracting. This suggested a bilateral disposition involving a party to the SHA and a third party, rather than an agreement involving a consensual arrangement, such as a novation, which included both parties to the SHA and involved termination of the rights under the SHA rather than a disposition thereof involving a third party. The judge stated that the Court should be more cautious to conclude that there has been a novation where there a contract contains a “no dealings” clause, but this did not change the conclusion in this case.
Publications
UK Listing Regime Reforms: FCA Publishes Final Version of New Listing Rules
Slaughter and May has published a briefing on the new UK Listing Rules published by the FCA, which will come into force on 29 July 2024. The briefing considers how the changes will affect companies that have ordinary shares already listed, or that may be considering a listing, and highlights areas in which the FCA has modified its original proposals in response to market feedback.
EU AI Act to Enter into Force
Slaughter and May has published a briefing on the EU’s new AI Act. The briefing highlights some of the key aspects of the Act, considers what practical steps organisations can take now to comply with the Act, and details how the Act compares with the approach to AI regulation being taken in other jurisdictions like the UK and US.