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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
Launch of consultation on the future of insolvency regulation
On 21 December 2021, the government launched a consultation inviting views from insolvency professionals and other interested parties on proposals to simplify regulation of the insolvency sector. The consultation seeks views on a number of proposals, including:
- The establishment of a single independent regulator to sit (with appropriate separation of duties) within the Insolvency Service.
- The extension of insolvency regulation to firms that offer insolvency services; the current regime only applies to individual insolvency practitioners.
- The creation of a public register of all individuals and firms that offer insolvency services.
- The development of a formal mechanism for compensation and redress where a party has been adversely impacted because of poor service or an error by an insolvency practitioner or firm.
- Amendment to the current requirements for insolvency practitioners to hold security to cover losses to creditors in the event of fraud or dishonesty.
The consultation will close on 25 March 2022.
2021 UK Spencer Stuart Board Index published
On 13 December 2021, Spencer Stuart published the 26th iteration of its UK Board Index. This index is intended to provide a comprehensive review of board composition and practices in FTSE 150 companies. Key findings include that:
- 11% of board members identified as ethnic minority directors
- 61% of board have at least one director from an ethnic minority
- 51% of non-executives are women
- 15 boards have a majority of women directors
FRC publishes report on corporate culture
The Financial Reporting Council (FRC) has published a report on corporate culture, building on its 2016 report on Corporate Culture and the Role of Boards, revised UK Corporate Governance Code and Guidance on Board Effectiveness. It draws on the experiences and views of leading companies and is intended to showcase some of the actions they are taking to better communicate their culture and link it to their strategic objectives.
FCA publishes Technical Note on ESG disclosures and reminds issuers on ESEF reporting
The Financial Conduct Authority (FCA) has published a Primary Market Technical Note (TN/ 801.2) which contains a helpful overview of disclosure obligations under Listing Rules, Disclosure Guidance and Transparency Rules and Market Abuse Regulation relating to ESG matters, including climate change, for listed companies.
The FCA has also published its 37th Primary Market Bulletin, which includes a reminder that companies in scope (issuers with securities admitted to trading on a regulated market, therefore excluding AIM-listed companies) must prepare their annual financial reports in the European Single Electronic Format (ESEF) for financial years starting on or after 1 January 2021. Issuers should review the relevant requirements as set out in DTR 4.1.
Government publishes responses to Review of UK Prospectus Regime and to consultation on power to block listings on national security grounds
On 16 December 2021, the government (HM Treasury) published a summary of responses to its July consultation on possible reforms to the UK’s prospectus regime. Overall, respondents indicated broad support for the government’s proposed reforms and agreed that reform would bring tangible benefits.. In particular, respondents welcomed the proposal to separate admissions to trading rules from those relating to public offers, noting this would avoid unnecessary duplication as under the current framework, and generally welcomed the proposed approach to delegating powers to the FCA, recognising the flexibility this would bring to rulemaking in this area.
HM Treasury has also published a summary of responses to its consultation on a power to block listings on national security grounds (published in June 2021). While broadly supportive, respondents highlighted the importance of a narrowly targeted, precautionary power which includes clear safeguards and does not impede the FCA’s role in the listing process. The government notes the early stage of development of its policy on the proposed power, and will continue to develop the policy and consult further in due course.
CMA publishes updated jurisdiction and procedure guidance
The Competition and Markets Authority (CMA) has published updated guidance on the operation of the merger control regime to reflect changes to the Enterprise Act 2002 following the National Security and Investment Act 2021 fully coming into force on 4 January 2022 (see Legislation below). This guidance applies to mergers from 4 January 2022, subject to certain transitional provisions.
Legislation
National Security and Investment Act 2021 now fully in force
On 4 January 2022, the National Security and Investment Act 2021 entered fully into force. Any acquisition or control of an entity operating in one of 17 specified sectors will now require mandatory clearance before the deal can complete. Acquisitions of entities not subject to the mandatory regime and of any asset which may give rise to national security concerns can be notified on a voluntary basis. Deals not notified may be called-in for review for up to five years, although this is reduced to 6 months from the date the Secretary of State becomes aware of the deal. The regime is not limited to non-UK purchasers and non-UK targets may be caught if there is a sufficient nexus the UK. It can also extend to corporate restructurings/reorganisations.
Rating and Directors Disqualification Bill receives royal assent
On 15 December 2021, the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill received royal assent, becoming the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021. The Act extends the scope of the present disqualification regime to include former directors of dissolved companies. Section 2 of the Act gives the Secretary of State and the official receiver powers to investigate the conduct of former directors of dissolved companies without a requirement to restore the company to the register beforehand. In addition, the Secretary of State has the power to commence disqualification proceedings against directors in appropriate circumstances and to seek compensation where their conduct has caused loss to creditors. The provisions of the Act extending the scope of the regime will come into force on 15 February 2022.
Case Law
Secretary of State for Business, Energy and Industrial Strategy v Selby & others [2021] EWHC 3261
High Court disqualifies directors under the CDDA 1986 and considers duties of non-executive directors
In this case, the High Court disqualified directors or de facto directors of a company (X E Solutions Ltd) for between 11 and 14 years under section 6 of the Company Directors Disqualification Act 1986 as they had allowed or caused the company, which was operating in the sale of certain chemical products used in water purification, to participate in missing trader intracommunity VAT fraud. Of note is the discussion on duties of a non-executive director given the Court’s finding that a fourth director, the non-executive chair, who had a more peripheral involvement in the day-to-day operations of the company, was unfit to be a director as had failed to inform himself about the company’s affairs, to investigate why its turnover had increased enormously, and to engage with HMRC once it launched an investigation into whether the company was involved in a VAT fraud.
Publications
Attracting more IPOs to London – New Listing Rules Come into Force
Slaughter and May has published a briefing analysing changes to the UK listing regime that came into effect on 3 December 2021, allowing companies to list on the premium segment with a certain type of dual class share structure and reducing the free float requirements from 25% to 10%.
Global carbon markets after COP26: The past, present and future
This publication considers the new rules on Article 6 of the Paris Agreement, agreed at COP26, which offer an international governance framework for deploying environmentally effective and transparent carbon markets.
International Accord on Tax, but What Will Happen Next?
Slaughter and May has published an article (first published in Tax Journal, 10 December 2021) taking stock of global corporate tax changes that have attracted attention over the course of 2021.