Corporate Update Bulletin - 28 November 2024

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
• Market Insights
• Case Law
• Publications

News

Glass Lewis publishes its 2025 UK proxy voting policy guidelines

On 14 November 2024, Glass Lewis published its 2025 UK Proxy Voting Policy Guidelines, which will apply to shareholder meetings held after 1 January 2025. The 2025 guidelines outline Glass Lewis’ approach to a variety of topics ahead of the 2025 AGM season. Key updates relate to:

• Diversity in board composition and tenure of directorship: The policy will recommend voting against re-election of nomination committee chairs of any main-market company that has failed to appoint at least two gender-diverse directors and of any FTSE250 company that has failed to appoint at least one ethnic minority director, in each case if the company fails to provide a compelling rationale for their failures. Reasons for extending the term of the chair beyond nine years will be reviewed on a case-by-case basis (rather than a general recommendation to vote against the nominations committee chair where the tenure of the chair of the board exceeded nine years and a delineated timeline for succession was not provided).
• Board oversight on AI: The policy will recommend voting against the re-election of accountable directors or other appropriate shareholder matters if board oversight and/or management of AI technologies is considered insufficient.
• Directors’ pension contributions and executive remuneration: The policy will generally recommend voting against the relevant remuneration proposal where executive pension contribution rates exceed those applying to the majority of the workforce. The guidelines also include a new section outlining Glass-Lewis’ assessment of ‘hybrid incentive plans’ in executive remuneration policies, specifically clarifying its expectations on disclosures relating to these plans. In consideration of recent changes to the Investment Association's Principles of Remuneration, potential dilution of over 5% over a ten-year period in relation to executive (discretionary) schemes will no longer generally lead to a recommendation to oppose equity awards.
• Multi-class share structures: Where such structures are adopted in connection with an IPO or spin-off or direct listing, the policy will recommend voting against the chair of the governance committee or a representative of the major shareholder up for election if the board did not also commit to submitting the structure to a shareholder vote at the  first shareholder meeting following the IPO or did not provide for a reasonable sunset of the structure (generally seven years or less).

The 2025 guidelines also include updated guidelines for shareholder proposals and ESG-related issues, which discuss Glass Lewis’ approach to evaluating shareholder proposals pertaining to companies’ use of AI technologies.

ISS consults on proposed changes to benchmark voting policies for 2025

On 18 November 2024, the Institutional Shareholder Services (ISS) launched a consultation in which it seeks feedback on the proposed changes to its international voting policies for 2025. The open comment period will run until 2 December 2024. Policy updates for the UK include:

• updates to policy relating to remuneration following the publication of the Investment Association’s (IA) Principles of Remuneration;
• updates to adjust references to share dilution limits, taking into account the IA Principles of Remuneration, and providing clarity on the ISS’s expectations regarding good market practice;
• updates for smaller quoted companies to reflect the revised QCA Corporate Governance Code, including suggestions for regular shareholder approval to be obtained for remuneration reports; and
• changes which reflect requirements for companies subject to the UK Listing Rules to report against specific gender and ethnic diversity targets on a ‘comply or explain’ basis.

Chancellor announces reforms to drive growth and competitiveness in financial services

On 14 November 2024, Chancellor Rachel Reeves, in her inaugural Mansion House 2024 speech, announced a package of reforms to enhance growth and competitiveness in the financial services sector. A range of supporting materials have also been published to accompany the Chancellor’s speech. The reforms include:

• revising the pensions system by merging defined contribution pension schemes and the Local Government Pension Scheme in England and Wales into mega funds to boost investment in business, infrastructure and clean energy;
• legislating to establish, by May 2025, the Private Intermittent Securities and Capital Exchange System (PISCES) (see below);
• modernising the Financial Ombudsman Service framework to provide clearer expectations for firms and consumers; and
• replacing the Senior Managers and Certification Regime, which was put in place to improve culture, governance and accountability within financial services firms, with a “more proportionate approach that reduces costs and frees up businesses to focus on growth”.

FCA publishes Primary Market Bulletin 52

On 15 November 2024, the Financial Conduct Authority (FCA) published Primary Market Bulletin 52 (PMB 52) in which it reminds issuers about the rules on identifying, safeguarding and announcing inside information. In particular, the FCA highlights recent observations from its live market monitoring concerning issuers’ ability to identify and make public information that constitutes inside information under the UK Market Abuse Regulations, and includes recommended actions for issuers to ensure they are well equipped to correctly identify inside information in scenarios where: (i) an issuer receives an approach from a potential bidder; (ii) an issuer becomes aware that revenue for the period is likely to fall materially below internal forecasts and consensus estimates while preparing its periodic financial information; and (iii) the issuer’s CEO is intending to resign and/or a successor is being sought.

PMB 52 also covers dissemination of information where an issuer holds meetings or calls with retail shareholders and dissemination of information if a payment information provider’s service is interrupted.

Government publishes response to consultation on PISCES

On 14 November 2024, HM Treasury published a response to its consultation paper on the proposed framework to regulate the Private Intermittent Securities and Capital Exchange System (PISCES), a new type of regulated trading platform that allows for the intermittent trading of private company shares on a multilateral system, together with a draft statutory instrument and accompanying policy note. The response confirms the government’s intention to proceed with PISCES largely in accordance with the approach set out in it March consultation. The government has confirmed that:

• only institutional investors, employees and investors who are high net worth individuals or certified sophisticated investors will be able to buy shares on PISCES;
• there will be no public market-style market abuse regime, but instead the FCA will create a bespoke disclosure regime and rules on pre- and post-trade transparency; and
• transfers of shares via a PISCES platform will be exempt from stamp duty.

Feedback on the draft legislation that will establish the PISCES sandbox and set the regulatory requirements for PISCES should be received by 9 January 2025.

European Commission publishes FAQs on sustainability reporting

The European Commission has published 90 FAQs on sustainability reporting under the Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Disclosure Regulation (SFDR). The FAQs include an overview of the sustainability information to be reported, a flowchart to determinate whether an entity is subject to sustainability reporting requirements and from which financial year, and discuss topics such as scope and application, exemptions and value chains.

Market Insights

PEG publishes monitoring report on use of revised Statement of Principles

On 22 November 2024, the Pre-Emption Group (PEG) published its 2023-2024 Annual Monitoring Report, its second report monitoring the use of its revised Statement of Principles, updated in 2022 (2022 Principles), on the disapplication of pre-emption rights for listed companies in the UK. The report examines the implementation of the 2022 Principles by FTSE 100 and FTSE 250 companies for meetings held between 1 August 2023 and 31 July 2024. Significant findings from the report include the following:

• 67.1% of the FTSE 350 companies with an AGM during the study period sought enhanced disapplication authority allowed under the 2022 Principles (up from 55.7% as noted in the PEG’s previous report).
• Of the companies which tabled a resolution seeking authority to disapply pre-emption rights, 64.1% sought it in relation to a specified capital investment (down from 65.7% as noted in the PEG’s previous report).
• Nearly all resolutions for disapplication authority were passed with more than 75% shareholder approval (332 of 334). Of the companies which tabled resolutions seeking disapplication authority for general corporate purposes, 75.4% passed with less than 5% votes against, and of those which sought disapplication for a specified capital investment, 49.5% passed with less than 5% against.

Case law

Standard Chartered plc v Guaranty Nominees Ltd and others [2024]

High Court considers implied term where reference made to LIBOR following cessation of publication of LIBOR

This is a significant test case brought under the Financial Markets Test Case scheme relating to the transition from LIBOR to alternative benchmark rates, in which the High Court had to determine the effect of the cessation of the publication of LIBOR on perpetual preference shares issued by the claimant bank (Standard Chartered) that provide for payment of dividends by reference to “three-month USD LIBOR”.

The Court held that it was necessary to imply a term that dividends should be calculated using the reasonable alternative rate to three-month USD LIBOR if the definition of “Three-month LIBOR” in the terms of those preference shares was no longer capable of operation. The argument of certain ADS holders who opposed the claim that there was instead an implied term which, subject to applicable laws and regulations and regulator’s consent, required Standard Chartered to redeem the preference shares was rejected by the Court. The judgment in this case is likely to have wider implications for the LIBOR transition in relation to so-called “tough legacy” contracts.

Allianz Funds Multi-Strategy Trust and others v Barclays plc [2024] EWHC 2710 (Ch)

Court strikes out claims by passive investors under section 90A FSMA for misleading statements in public documents

This case involved a shareholder class action brought by 460 institutional investors against Barclays Bank plc under section 90A/Schedule 10A of the Financial Services and Markets Act 2000 (FSMA). The claimants alleged that the bank published misleading information in a number of annual statements and prospectuses and was liable under FSMA. A number of claimants were tracker funds who invested in shares comprising part or all of an index and who may not have read the particular documents containing misleading information about a part of the index while carrying out their investments.

Claims by passive investors, representing around 60% of the total value of the claims, were struck out on the basis they could not show reliance on statements published by Barclays. Leech J held that ‘reliance’ under FMSA referred to the common law test of reliance, meaning that reliance was distinct from causation and was intended to be a separate requirement of liability. For express representations, the claimants must show that they read or heard the representation and understood it in a way that it was alleged to be false which caused them to act in a way which resulted in their loss. Therefore, the test could not be satisfied unless the investor or their representatives had read and considered that published information, or third parties who directed or influenced their investment decisions had read and considered that published information. As the tracker funds did not read or consider the relevant documents, their claim failed.

Secretary of State for the Department for Environment, Food and Rural Affairs v Public and Commercial Services Union [2024] UKSC 41

Supreme Court gives first judgement on third party right to enforce a contract conferred by the Contracts (Rights of Third Parties) Act

This is the first case concerning the Contracts (Rights of Third Parties) Act 1999 (the 1999 Act) to reach the Supreme Court. The presenting issue in this appeal relates to the circumstances in which a trade union have the right to sue as a third party for breach of a contract of employment between an employer and employee. The 1999 Act establishes a presumption that where a term of the contract confers a benefit on a third party who is expressly identified in that contract, that third party may in its own right enforce that term.  The Supreme Court reversed the Court of Appeal’s decision and held that the contract did not demonstrate that the parties’ intention was that the term should not be enforceable by the third party (so as to rebut the presumption), supporting the view that the presumption is strong. The judgment is a reminder that the 1999 Act should generally be excluded in contracts.

Publications

Countdown to compliance – Failure to prevent fraud guidance released

Slaughter and May has published a briefing on the government’s long-awaited Guidance on the new corporate offence of failure to prevent fraud. The briefing provides a recap on the offence, its significance, what the guidance says about reasonable procedures that organisations can put in place and their interaction with existing procedures, enforcement outlook, and what organisations should do now.

UK Stewardship Code consultation – Flexible principles not prescription

Slaughter and May has published a briefing on the FRC’s consultation on the proposed changes to the UK Stewardship Code 2020 that serves as a leading benchmark against which the investor community’s (and service providers such as proxy advisers) stewardship practices are reported. The briefing sets out and considers the proposed changes under the key themes of “Purpose, Principles, Process and Positioning” that form the basis of the FRC’s review of the Code.

EU capital markets rules amended by EU Listing Act: impact on equity and debt

Slaughter and May has published two separate briefings on the EU Listing Act, which comprises a package of reforms designed to make capital markets in the EU more attractive for companies and to facilitate access to capital, particularly for SMEs. The reforms will come into force in stages, with many taking effect on 4 December 2024 and the remainder over the next 18 months. The briefings look at how the changes will impact equity issuers (available here) and debt issuers (available here).