Corporate Update Bulletin - 3 October 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
• Legislation

NEWS

Companies House publishes guidance on the new civil penalties regime and enforcement policy

On 27 September 2024, Companies House published guidance on its approach to issuing financial penalties under the civil penalties regime created by the ECCTA 2023 (Financial Penalty) Regulations 2024. The Regulations, which came into force in May 2024, confer a power on the registrar of companies to impose a financial penalty, instead of pursuing criminal prosecution, for relevant offences (which include most Companies Act offences other than those relating to company secretaries, audit, and resolutions and meetings). Companies House had indicated that it will not exercise its new power until guidance is published.

The guidance sets out when financial penalties can be imposed and the steps that Companies House may take prior to imposing a penalty, including the issuance of warning notices, information on the ability to make, and deadlines for representations to the registrar, as well as how penalties will be calculated and the appeal process. 

The guidance should be read in the context of the new enforcement policy published by Companies House in relation to its wider enforcement powers to facilitate its new objectives introduced by the Economic Crime and Corporate Transparency Act 2023. Companies House has stated that it will take a risk-based proportionate and targeted approach towards enforcement, noting its duty both to secure compliance and hold persons with Companies Act duties to account for significant failures, but also have regard for economic growth and the impact of its actions on businesses. The policy includes a compliance framework setting out how Companies House will consider what enforcement or other action may be appropriate, which suggests a more pro-active approach in communicating issues of non-compliance although it remains to be seen how this will be borne out in practice.

FCA publishes Primary Market Bulletin 51

The Financial Conduct Authority (FCA) has published Primary Market Bulletin 51 (PMB 51) which sets out feedback from its consultation in Primary Market Bulletin 48 (PMB 48), and subsequent changes to the Knowledge Base on the listing regime to reflect the new listing regime which came into force on 29 July 2024. In PMB 48, the FCA consulted on proposed changes to guidance in its Knowledge Base (including technical notes relating to the sponsor regime).

PMB 51 confirms which UK Listing Rules technical notes are being finalised without amendments, which are being finalised with amendments, and which are being deleted or carried forward to a future bulletin. It also confirms which sponsor regime technical notes are being amended and which will be consulted on further.

FRC publishes Annual Review of Corporate Reporting

On 24 September 2024, the Financial Reporting Council (FRC) published its Annual Review of Corporate Reporting which sets out its key findings on its surveillance of UK companies’ annual report and accounts during the year ended 31 March 2024. The report also sets out the FRC’s expectations and suggested areas of improvement for the upcoming 2024/2025 reporting period. While the FRC found that the quality of corporate reporting across FTSE 350 companies reviewed in 2023/2024 has been maintained, there was evidence of a widening gap in reporting quality between FTSE 350 companies and other companies. In particular, the FRC noted:

• Queries in relation to the impairment of assets and the cash flow statements each arose in over 10% of all cases opened over the year, accompanied by an increased number of restatements in these areas, although restatements were predominantly made by companies outside the FTSE 350.
• A “disappointing” increase in the number of restatements related to the presentation of primary statements in addition to the cash flow statement.
• In relation to sustainability reporting, comparatively fewer compliance issues in premium-listed companies’ reporting against the Taskforce for Climate-related Financial Disclosures (TCFD) framework were identified. However, companies continue to find this area challenging, with lack of clarity around statements of consistency with the framework being the most common issue identified.

European Commission clears first deal under the Foreign Subsidies Regulation

The European Commission has cleared the acquisition by a state-controlled UAE company (e&) of PPF Telecom Group BV (excluding its Czech business) under the Foreign Subsidies Regulation (Regulation (EU) 2022/2560). Under the Regulation, companies are required notify to the Commission concentrations (i.e. mergers and acquisitions) involving a financial contribution by a non-EU government where (i) the acquired company, one of the merging parties or the joint venture generates an EU turnover of at least €500 million and (ii) the foreign financial contribution involved is more than €50 million.

Approval is conditional on full compliance with the commitments offered by the parties. As the first in-depth merger investigation, and clearance, under the Regulation in respect of an M&A deal this provides a useful example of how the Regulation may be applied.

LEGISLATION

Retained EU Law (Revocation and Reform) Act 2023 (Commencement No. 2 and Saving Provisions) Regulations 2024 revoked

The Retained EU Law (Revocation and Reform) Act 2023 (Commencement No. 2 and Saving Provisions) (Revocation) Regulations 2024, was published on 17 September 2024 and came into effect on 18 September 2024. The Regulations revoke the earlier Retained EU Law (Revocation and Reform) Act 2023 (Commencement No. 2 and Saving Provisions) Regulations 2024 (REULA Commencement No. 2 Regulations).

The revocation means that section 6 of the Retained EU Law (Revocation and Reform) Act 2023, which would have introduced statutory tests for the UK appeal courts to use when considering whether to depart from any assimilated EU and domestic case law, and which would have come into force on 1 October 2024, would no longer do so for the time being. The reasons for the revocation are not entirely clear, although the Department of Business and Trade has sent a letter to the Bar Council, stating that it will look at this issue again “in the wider context of its work to reset UK relations with the EU" and that it remains open for the government to bring section 6 into force at some point in the future.