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
Companies House publishes guidance on removing applications to remove an overseas entity from the register
Companies House has published guidance on applications to remove an overseas entity from the Register of Overseas Entities. Under section 9 of the Economic Crime (Transparency and Enforcement) Act 2022, an overseas entity that is not, or is no longer a registered proprietor of relevant land in the UK can apply to be removed from the Register. The guidance provides information about when such applications can be made, the searches that should be carried out at the Land Registry and the information that needs to be provided in making such an application, including whether someone has become a registrable beneficial owner or managing officer.
Government publishes response to review of National Security and Investment Act 2021
On 18 April 2024, the government published its response to the Business and Trade Committee’s submission to the National Security and Investment Act Call for Evidence 2023. The Call for Evidence was launched to give business, investors and other stakeholders the chance to share their views on how the national security and investment regime has been operating.
In response to the feedback, the government has outlined a series of actions that it will take in 2024 to improve the framework. These include:
- publishing an updated Section 3 Statement in May, to help businesses better understand when the government may intervene in a transaction and why;
- consulting on updating the definitions for the 17 sensitive areas of the economy that trigger mandatory notification requirements;
- considering technical exemptions from mandatory notification for the appointment of liquidators, official receivers and special administrators; and
- improving the operational processes of the national security and investment regime.
Takeover Panel proposes narrowing the scope of companies to which the Takeover Code applies
On 24 April 2024, the Code Committee of the Takeover Panel published a public consultation paper (PCP 2024/1) proposing to narrow the scope of companies to which the Takeover Code applies under section 3 of the Introduction to the Code. The proposed framework will result in the Code applying only to companies which are registered and listed (or were recently listed) in the UK whereas, under the current regime, the Code also applies to certain UK-registered unlisted companies.
More specifically, the Code will apply to companies with a registered office in the UK, the Channel Islands or the Isle of Man if any of the company’s securities are admitted to trading on a UK regulated market, a UK multilateral trading facility, or a stock exchange in the Channel Islands or the Isle of Man or if the company was UK-listed at any time during the three years prior to the “relevant date” (broadly, the date on which an announcement is made of an offer or possible offer for the company). As is the case currently, the Code will not apply to companies with their registered office outside the UK, the Channels Islands or Isle of Man. The residency test, under which certain unlisted companies would fall within scope if they have their place of central management and control in the UK, Channel Islands or Isle of Man, will be abolished.
The Code Committee has requested responses to the proposals by 31 July 2024 and will publish a response setting out the final text of the amendments to the Code later this year.
FCA publishes Primary Market Bulletin 48
On 26 April 2024, the Financial Conduct Authority (FCA) published Primary Market Bulletin 48, its newsletter for primary market participants. This edition covers changes proposed to the Knowledge Base in relation to the listing regime, including rules for sponsors, in conjunction with recent consultation paper CP23/31 – Primary Market Effectiveness Review.
The Bulletin also confirms final changes to three technical notes relating to sponsor competence under Listing Rule 8, coinciding with changes to that Rule which were consulted on as part of the wider consultation on proposals to reform the listing regime in CP23/31 (and which came into force on 26 April 2024). It also includes a draft version of the Procedures, Systems and Controls Confirmation Form that the FCA proposes to introduce for issuers to submit to them at admission.
New penalty regime available to Registrar for Companies Act offences
Following the coming into force of the Economic Crime and Corporate Transparency Act 2023 (Financial Penalty) Regulations 2024, the Registrar of Companies will be able to impose direct financial penalties for a wider range of offences under the Companies Act 2006 from 2 May 2024. This new regime will exist alongside the criminal sanctions regime and will allow the Registrar to impose penalties of up to £10,000 for a relevant offence.
Currently, obligations in the Companies Act 2006 relating to the functions of the Registrar are primarily enforced through the criminal justice system, with the Registrar only able to impose financial penalties for the late filing of accounts. Companies House will publish guidance on how it will exercise its new powers.
Proposed amendments to EU MAR, the EU Prospectus Regulation and other EU legislation
The European Parliament has formally adopted at first reading a Regulation to amend the EU Prospectus Regulation, the EU Market Abuse Regulation and EU MiFIR, a Directive on multiple-vote share structures in companies that seek a listing on an EU MTF, and a Directive to amend MiFID II and repeal the Consolidated Admissions and Reporting Directive (CARD).
These form part of the package of measures that make up the EU Listing Act aimed at simplifying the listing rules and establishing a more cost-efficient regulatory regime for companies that want to list on public stock exchanges in the EU. Amendments proposed under the Regulation include the removal of the requirement to make an announcement immediately if the inside information that arises relates to intermediate steps in a protracted process. Instead, an issuer will have to announce such information only when the process is complete. The Directive on multiple-vote share structures will allow companies with multiple-vote shares to list on an SME Growth Market, while the Directive to amend MiFID II will allow the re-bundling of payments for research and execution of orders.
Case Law
Onecom Group Ltd v Palmer [2024] EWHC 867 (Comm)
Breach of warranty claims not time barred by contractual limitation in sale and purchase agreement
In this case, the High Court considered whether a buyer’s warranty claims were time barred by a contractual limitation in the sale and purchase agreement relating to the purchase of the entire share capital of a company (F2P (Group) Ltd), in order to determine whether to allow an application by the defendant to strike out the claimant’s statement of case and/or for summary judgment.
The defendant (the seller of F2P (Group) Ltd) had applied to strike out and/or for summary judgment of the claimant buyer’s claims alleging breach of warranty, on the grounds that the claims were time-barred by the contractual limitation in the agreement. The limitation stated that the buyer would have to commence legal proceedings within six months of notifying the seller of the claims, except for claims involving contingent or unquantifiable liabilities, where the seller would need to commence proceedings within six months of the date on which “such claim becomes an actual liability or becomes capable of being quantified”. The price being paid for the shares was a multiple of EDITDA, with a cash sum at completion, as well as an earn out arrangement. The parties could not agree the earn-out amount, so the matter was referred for expert determination in accordance with the agreement.
The High Court found that the buyer’s warranty claims were not time-barred by the contractual limitation, because when they were notified, the claims were not actual claims or capable of quantification, as the earn-out consideration still needed to be determined in an expert determination process. The Court reasoned that there was a risk of double recovery unless the warranty claims awaited the outcome of the expert determination. The Court also reasoned that this approach did not cause all warranty claims to remain contingent or unquantifiable until the earn-out was quantified, and this would only occur where the warranty claims were based on circumstances that also affected the earn-out amount.
Publications
Getting Ready Series: Exploring upcoming ESG regulatory developments
Slaughter and May has launched the “Getting Ready” series which explores upcoming ESG regulatory developments in order to help companies to grapple with the volume of sustainability reporting obligations across the UK, EU and globally. The series will explain the ‘What’, ‘When’, ‘Who’ and ‘Why’ of what is coming, and how companies can get ready.
The first briefing in the series focuses on the Transition Plan Taskforce Disclosure Framework for corporate transition plans, considering the framework and supporting guidance and setting out what businesses should do to prepare. The second briefing discusses the Taskforce on Nature-related Financial Disclosures (TNFD) disclosure framework, which is expected to set the global standard for reporting on nature and biodiversity by corporate and financial institutions.