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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
FRC publishes thematic review on earnings per share
On 8 September 2022, the Financial Reporting Council (FRC) published a thematic review which considers the requirement for listed companies to report earnings per share (EPS) in accordance with IAS 33 in their interim and annual reports. The report acknowledges the importance of EPS as a metric that is widely used by investors to compare a company’s performance over time and against its peers and highlights some of the areas where there is scope for improvement in companies’ reporting of EPS. Particular recommendations include:
- Companies should provide further information to explain the basis for the weighted average number of shares (for which IAS 33 does not require specific disclosures), since this is key to calculation of EPS.
- Judgements that have a material effect on EPS should be disclosed as a company may have made judgements about the substance of a share reorganisation or other arrangement that affects how it is treated in the EPS calculation.
FRC publishes thematic review on deferred tax assets
Following increased recognition of material deferred tax assets increased losses or reduced profits reported by companies after the COVID-19 pandemic has led to The FRC has also published (on 21 September 2022) another thematic review considering disclosures of deferred tax assets in listed companies' annual reports. The review updates FRC’s last review (published in 2016) of tax disclosures in companies’ annual reports. The report did not find any obvious issues in relation to the amount of deferred tax recognised but points out areas of disclosure that need improvement including:
- The lack of specificity of nature of evidence used to assess recoverability of net deferred assets.
- Minimal disclosure of the specific nature of key judgements, and major sources of estimation uncertainty, in relation to deferred tax assets and little disclosure on sensitivities to changes in assumptions or the range of possible outcomes within the next financial year.
Treasury Committee publishes report of responses to the future of financial services regulation
The House of Commons Treasury Committee has published a report which sets out (by way of appendices) responses received by the Committee to its initial report published in June 2022. Among other things, the Committee had recommended that the Treasury respect the principle of regulatory independence, and must not pressure the regulators to weaken or water down regulatory standards, and to continue to reject any calls for a growth and/or competitiveness objective to become a primary objective.
In its response, the government acknowledges this recommendation and maintains that regulatory independence remains central to its approach but also note that increased responsibility for the regulators “must be balanced with effective policy input and effective oversight from Parliament and government”.
Market Insights
Office of National Statistics publishes UK M&A statistics
The Office of National Statistics (ONS) has published its Q2 statistical bulletin relating to merger and acquisition (M&A) activity in the UK in the period from April to June 2022. Main findings include:
- a sizeable decrease in volume of completed transactions compared to the first quarter of 2022 (333 versus 449) and as compared to the second quarter of 2021 (500 in Q2 2021); and
- a significant month-to-month drop in number of M&A transactions in June 2022 (72) from May and April 2022 (130 and 131 respectively).
The suggestion is that increased economic uncertainty arising from the Russian invasion of Ukraine may have affected activity.
Case Law
Barclay-Watt v Alpha Panareti Public Ltd [2022] EWCA Civ 1169
Court of Appeal considers whether a director should be liable as joint tortfeasor with a negligent company
In this case, the Court of Appeal had to consider, in relation to a company's negligent conduct, whether one of two directors was also liable as a joint tortfeasor with the company. The claimants had appealed against the High Court’s decision that the first defendant (the company, Alpha Panaretti) was liable to the claimants as a result of its marketing of luxury properties in Cyprus, but that the second defendant, Mr Andreas Ioannou, a director of the company and “the driving force behind the marketing plan”, was under no personal liability for doing so.
The Court of Appeal dismissed the appeal, finding that Mr Ioannou was not liable as a joint tortfeasor. In his judgment, Lord Justice Males notes that the court needs to strike a balance between the principle that a company has separate and distinct legal personality from its shareholders, directors and officers, and it is in the interest of the commercial purposes served by the incorporated enterprise that shareholders and directors should generally benefit from the limited liability afforded by incorporation, and the potentially competing principle that a person should be liable for his tortious acts and should not escape liability merely because he is a director or officer of a company.