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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
Register of Overseas Entities goes live
Following the coming into force of the provisions in the Economic Crime (Transparency and Enforcement) Act 2022 relating to the establishment of the Register of Overseas Entities on 1 August 2022, Companies House has announced that the Register has gone live.
Under the regime, overseas entities that hold or want to buy, sell or transfer land or property in the UK must apply to register with Companies House. As part of that process, overseas entities must identify, and provide information on, their beneficial owners and/or managing officers. Unregistered entities are prohibited from registering any transfer, grant of a lease of seven years or more, or grant of a charge with the Land Registry. The regime applies retrospectively to any overseas entity which holds UK property or land acquired on or after 1 January 1999. Such entities must register with Companies House by 1 January 2023. Overseas entities that have disposed of an in-scope property or land after 28 February 2022 will also need to register and give details of that disposal.
A brief overview of the register of overseas entities regime can be found in our client briefing published earlier this year.
BEIS publishes guidance on registration of overseas entities
On the same date, the Department for Business, Energy & Industrial Strategy (BEIS) published non-statutory technical guidance for the registration of overseas entities on the Register. Areas covered by the guidance include identifying beneficial owners, which beneficial owners are registrable and which are exempt, the meaning of significant influence or control in this context, as well as verification requirements.
FRC publishes good practice guidance for Company Meetings
The Financial Reporting Council (FRC) has published its guidance on good practice for company meetings. This takes the form of a series of Principles and specific actions that can be taken to achieve those Principles. Although written with AGMs as its focus, the guidance covers all forms of shareholder meetings. The Guidance sets out Principles that apply before, during and after the meeting.
- Before the meeting: Information disseminated before meetings must offer clear instructions to shareholders on how to attend and participate. Shareholders should be able to engage in the business of the meeting whether physical, hybrid or virtual (if allowed).
- During the meeting: Boards should provide updates at AGMs on matters raised by stakeholders groups that materially affect the company. Companies should seek the broadest access to and participation in meetings by a diverse range of shareholders. Shareholders should be able to cast real-time votes, or submit voting instructions in advance via proxies.
- After the meeting: Companies should be transparent with shareholders regarding matters discussed and raised by shareholders at meetings. Shareholder engagement should not be limited to an annual event.
FRC and FCA publish reports reviewing quality of TCFD disclosures and climate-related information
Following the introduction of new listing rules requiring premium listed companies to make climate-related disclosures consistent with the TCFD framework for accounting periods beginning on or after 1 January 2021, the FRC has published a report, alongside a report published by the Financial Conduct Authority, on the quality of climate-related information provided by premium-listed companies in their financial reports. While acknowledging the significant step forwards companies have made, the report noted that further improvements are needed. In particular, the report identified five ways in which companies could significantly improve their disclosures:
- providing more granular information about climate change effects on different business sectors and geographies;
- ensuring appropriate balance in the discussion of climate-related risks and opportunities;
- linking climate-related disclosures with other narrative disclosures;
- explaining how materiality has been applied to their TCFD disclosures; and
- connecting TCFD disclosures with their financial statements.
The findings from both reviews are also relevant to standard listed companies who are in scope of the climate-related disclosure requirements from accounting periods beginning on or after 1 January 2022.
FRC publishes fourth Annual Enforcement Review
On 28 July 2022, the FRC published its fourth Annual Enforcement Review which aims to provide a baseline for measuring its future enforcement performance and highlights key themes in past enforcement cases. The Review revealed that a record thirteen cases were resolved in the last year (2021/22) and record financial sanctions of £46.5 million (before settlement discounts) were imposed (up £16.7 million in 2020/21).
Legislation
Regulations relating to the Register of Overseas Entities made
On 27 July 2022, the Economic Crime (Transparency and Enforcement) Act 2022 (Commencement No. 3) Regulations 2022 were made, bringing into force the provisions in the Economic Crime (Transparency and Enforcement) Act 2022 relating to the establishment of the register of overseas entities on 1 August 2022. See above for more details on the Register.
The Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations 2022/870 relating to the implementation of aspects of the new register has also been made. These Regulations include provisions concerning the electronic delivery of documents to the Registrar, the protection of information, and provide that corporate trustees that are subject to their own disclosure requirements will fall within the definition of “registrable beneficial owner”.
Financial Services and Markets Bill 2022-23 published
The Financial Services and Markets Bill 2022-23 (along with Explanatory Notes) has been published and had its first reading in the Commons. The Bill implements the outcomes of the Future Regulatory Framework Review and, among other things, provides a legislative framework for the eventual revocation of all retained EU law relating to financial services. In the meantime, HM Treasury will have power to make targeted modifications to retained EU law.
Case Law
High Court determines meaning of PDMRs for purposes of section 90A FSMA
In this case, the High Court considered the interpretation of “persons discharging managerial responsibility” (PDMR) for the purposes of section 90A of the Financial Services and Markets Act 2000 (FSMA).
The claimants, institutional shareholders in the defendant, claimed breaches of section 90A of FSMA by the defendant. The defendants had applied to strike out the claimant’s allegations that certain individuals were PDMRs of the defendant. In considering whether or not to strike out the application, the Court had to consider the scope of PDMRs and, in particular, whether the concept of PDMRs was restricted to the de jure, de facto and shadow directors of a company, or whether it also included persons who were senior executives responsible for managerial decisions affecting future developments and business prospects of a company.
The Court found that, where the issuer had directors (as the defendant did), the definition of PDMR for these purposes was restricted to directors (whether de jure, de facto or (arguably) shadow directors). However, whether a person was a de facto director was inherently fact-specific, requiring a court to consider what the relevant individual actually did rather than merely considering the roles formally assigned to them in the corporate structure. In this case, the court held that the exercise of establishing this could properly be carried out only after disclosure of documents and a trial.
We will be taking a short break in August and there will be no Corporate Update on 18 August. Our next edition will be published in September 2022.