6 min read
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
Covid-related temporary measures for listed and AIM company accounts withdrawn
The Financial Conduct Authority (FCA) has withdrawn the temporary measures that were introduced in response to the Covid-19 pandemic in 2020 to provide listed companies with certain reliefs relating to their financial reporting, disclosure of working capital statements and holding of general meetings. As announced in the FCA’s Primary Market Bulletin 39, the following measures will be removed with effect from 28 June 2022:
- additional time to publish annual and half-yearly accounts (previously companies had an extra 2 months for annual accounts and an extra month for half-yearly accounts);
- revised approach to working capital statements in prospectus or circulars; and
- exceptions to the requirement to hold a general meeting to approve Class 1 and related party transactions.
Similarly, the London Stock Exchange has also announced in Inside AIM (published 23 March 2022) the withdrawal of temporary measures relating to the publication of annual and half-yearly accounts for AIM companies from 28 June 2022.
Insolvency Service removes remaining temporary Covid-19 measures
The Insolvency Service has confirmed that the temporary measures introduced to deal with Covid-19, which expired on 31 March 2022, will not be extended. The remaining restriction since September 2021 related to the use of winding up in relation to small businesses and commercial tenants. From April 2022, the insolvency regime will return to its pre-pandemic position, and creditors are no longer barred from bringing winding up petitions unless they can prove that the non-payment of the debt is not related to the pandemic.
FCA consults on permitted electronic formats for annual reports
On 25 March 2022, the FCA published Consultation Paper 22/5 which proposes minor changes to the Disclosure Guidance and Transparency Rules allowing listed companies to use a more up to date electronic format for their annual financial reports. The FCA proposes changing the definition of UKSEF (the UK version of the European Single Format) used in DTR 4.1.14 (requiring companies listed on UK regulated markets to publish their annual financial reports in machine-readable format for financial years starting on or after 1 January 2021 – which must then be filed with the National Storage Mechanism (NSM)) so that it refers to the recently issued version 2 of the UKSEF taxonomy. The new version reflects changes in IFRS for tagging notes to financial statements.
The change is intended to take effect on 3 May 2022. As the NSM cannot accept both versions of the UKSEF taxonomy, the FCA would accept filings using version 1 of the UKSEF taxonomy only up to (and including) 29 April 2022. Responses to the consultation are requested by 8 April 2022.
Legislation
The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 and the Limited Liability Partnerships (Climate-related Financial Disclosure) Regulations 2022 come into effect
New regulations (available here and here) extending the scope of climate-related disclosures come into effect for companies and limited liability partnerships (LLPs) with account dates starting on or after 6 April 2022. The obligations on companies and LLPs to make climate-related disclosures in line with the TCFD framework in the Strategic Report now apply to:
- high turnover companies (defined as having turnover of £500m or more and employing more than 500 people);
- large LLPs (subject to the same turnover and employee test as high turnover companies);
- traded or banking LLPs which have more than 500 employees;
- all UK companies that are currently required to produce a non-financial information statement, being UK companies that have more than 500 employees and have either transferable securities admitted to trading on a UK regulated market or are banking companies or insurance companies; and
- UK registered companies with securities admitted to AIM with more than 500 employees
The Department for Business, Energy & Industrial Strategy (BEIS) has previous published non-binding guidance on the new regulations.
Case Law
Hashmi v Lorimer-Wing [2022] EWHC 191 (Ch) (also known as Re Fore Fitness Investments Holdings Ltd)
Court considers Model Articles in the context of sole director companies
In this case, the High Court held that Article 7(2) of the private company Model Articles which permits a company to be run by a sole director only operates where no provision of the articles requires the company to have more than one director. In the case at hand, a bespoke article did create such a requirement and had the effect of defeating Article 7(2). This meant that a sole director could not manage the company generally but could only act to make appointments and thereby reinstate the quorum.
This may have implications for companies which adopt Model Articles since on the issue of quorum, Article 11(2) of the Model Articles (which provides for a quorum of two for directors’ meetings) is substantively identical to the bespoke article in question and will likely operate in a similar way and override Article 7(2) unless amended.
Integral Petroleum SA v Bank GPB International SA [2022] EWHC 659 (Comm) (24 March 2022)
Court dismisses application to strike out claim on basis of ambiguous language in no variation clause
This case relates to an oral variation of a contract where the facility agreement prohibited oral modifications. The parties had orally agreed a repayment plan but it had not been agreed in writing as required by the variation clause.
The variation clause provided that "any term of the Finance Documents may be amended or waived with the agreement of the Borrower or Lender in writing". The High Court (Moulder J) held that it was ambiguous as to whether the wording meant that:
- A variation was not valid unless agreed in writing; or
- An oral variation was valid if evidenced in writing.
The judge decided this was a question for trial and the factual context could not be determined without oral evidence and cross-examination. The claimant therefore had not established that the defendant had no real prospect of defending the counterclaim and struck out the application for summary judgment. Although decisions on interpretation are highly context-specific, the judgment is a useful illustration of where the language of a simple clause can create doubt over meaning. Parties should consider checking the wording of their variation clauses for this ambiguous wording, particularly if the intention is to invalidate oral variations
Publications
Nature-related financial disclosures - prototype reporting framework
The Taskforce on Nature-related Financial Disclosures (TNFD) was established in response to the growing appreciation of the need to factor nature into business and financial decision making. The TNFD has now published a prototype reporting framework. This builds on, and is structured in a similar manner to, the TCFD framework. Slaughter and May has published a client briefing to help businesses navigate the new framework and the key concepts and processes.