Equity Capital Markets
FCA first fine under MAR for late disclosure of inside information
The Financial Conduct Authority (FCA) has fined AIM investment company Tejoori Limited (Tejoori) £70,000 for failing to inform the market of inside information as required by Article 17(1) of the Market Abuse Regulation (MAR). This is the first fine the FCA has imposed on an AIM company for late disclosure following the introduction of MAR on 3 July 2016.
Tejoori breached Article 17(1) of MAR because it did not release an announcement about its shareholding in BEKON Holding AG (BEKON) as soon as possible after being informed on 12 July 2016 that there was a reasonable expectation that it would be required to sell its shares in BEKON for no initial consideration and with only a possibility of receiving deferred consideration that was materially lower than Tejoori’s valuation of its investment.
Tejoori notified the FCA of its breach of Article 17(1) of MAR, providing an account of the events and it co-operated fully with the investigation. Tejoori agreed to settle at an early stage and qualified for a 30% discount under the Authority’s executive settlement procedures. Without this the financial penalty would have been £100,000.
Tejoori has now cancelled its admission to trading on AIM.
For further information, see LNB News 14/12/2017 54.
ESMA consults on Prospectus Regulation RTS
The European Securities and Markets Authority (ESMA) has opened a consultation on draft regulatory technical standards (RTS) under the new Prospectus Regulation (Regulation (EU) 2017/1129). The new Prospectus Regulation requires ESMA to submit draft RTS, by 21 July 2018, on subjects including key financial information for the prospectus summary, data for classification of prospectuses and provisions concerning advertisements.
Feedback is sought by 9 March 2018.
For further information, see LNB News 15/12/2017 74.
ESMA updates MAR Q&As
The ESMA has updated its Q&A document regarding the implementation of the Market Abuse Regulation (MAR). New Q&A 11.1 clarifies the time span for the calculation of the CO2 equivalent emissions and rated thermal input that should be considered to determine whether a participant in the emission allowance market is subject to MAR under Article 17(2).
The answer details that a participant in the emission allowance market should use a calendar year period (one-year period that begins on January 1 and ends on December 31) for the annual calculation of the carbon dioxide equivalent emissions and the rated thermal input (RTI) of 31 December of the same year. The calculated emissions over a given year or the RTI as of 31 December of a given year should be assessed against the minimum thresholds of 6 million tonnes a year of equivalent carbon dioxide or the minimum RTI threshold of 2,430 MW specified in Article 5(1)(a) and (b) of Commission Delegated Regulation (EU) 2016/522 which was published in the Official Journal of the EU on 5 April 2016.
For further information, see LNB News 14/12/2017 164.
Annual General Meetings
Public Register shows over one-fifth of FTSE companies had shareholder rebellions
The Investment Association (IA) has today launched the world’s first ever Public Register (Register) of listed companies which have had significant shareholder rebellions. The Register includes details of FTSE All-Share companies which have encountered shareholder opposition to pay awards and other resolutions of 20% or more. The Register also includes details of any resolutions which were withdrawn by a company prior to the meeting.
The Register was included in the government’s proposals for corporate governance reform in August 2017 (see LNB News 29/08/2017 118 and LNB News 29/08/2017 122) and a key purpose of the Register is to focus attention on how these companies respond to the concerns of their investors.
It will highlight the public statements made by the companies on the Register and how they have addressed shareholders’ concerns. Almost one third (31%) of companies named on the register have provided a public response explaining how they are addressing their shareholders’ concerns. Revelations from the data include over 22% of FTSE All-Share companies feature on the register and almost 38% of resolutions listed on the Register are due to high votes against pay-related resolutions.
Chris Cummings, chief executive of the IA, said: ‘The data gathered for the Public Register reveals the true scale of investor concern and shows shareholders flexing their muscles by exercising their votes’.
For further information, see LNB News 19/12/2017 94.
Public Company Takeovers
Takeover Panel Executive comments on Disney’s agreement to acquire 21st Century Fox
Following the announcement by Disney of its definitive agreement to acquire 21st Century Fox, the Takeover Panel Executive is considering the chain principle under Rule 9 of the Takeover Code. The Executive is seeking the views of the independent directors of Sky. It expects to make an announcement soon as regards the chain principle.
For further information, see LNB News 14/12/2017 150.
Audit and Auditors
Financial Reporting Council strategy extends oversight of audit profession
The Financial Reporting Council (FRC) has published its three-year strategy for 2018–2021 and its budget for the 2018/19 financial year. The strategy includes a proposal to extend the FRC’s oversight of the audit profession with new monitoring and supervisory arrangements for the largest audit firms and aims to deliver increased confidence and public trust in UK companies in line with its mission to promote transparency and integrity in business.
The FRC’s strategy includes a revised UK Corporate Governance Code and a proposal by the FRC to extend its oversight of the audit profession. The FRC will not increase the amount it raises through its preparers, insurance and pension levies compared with 2017/18.
For further information, see LNB News 19/12/2017 47.
Directors and company secretaries
ICSA: The Governance Institute publishes report on board packs
A report published by ICSA: The Governance Institute and Board Intelligence has found that board packs are too long and backward looking to be properly effective.
Eighty governance professionals representing organisations of all sizes and sectors were surveyed on how the preparation of reports and other papers that are discussed at board meetings operates in order to understand the challenges involved. The main findings were that board packs are too long, too backward looking, internally focused and operational to enable board members to engage in forward-looking and strategic conversations. They are also time-consuming to produce.
For further information, see LNB News 19/12/2017 99.
Unlimited fines for employers which breach gender pay gap reporting rules
The Equality and Human Rights Commission has published its draft enforcement strategy for the gender pay gap reporting regulations, which warn that uncompliant firms could face unlimited fines and convictions. The enforcement strategy is open for consultation until 2 February 2018. Responses to the consultation should be made via online survey.
The Strategy explains that the Commission may, among other things, investigate suspected breaches of the regulations by private and voluntary sector employers and offer them the opportunity to enter into a formal agreement to comply as an alternative to continuing with the investigation.
For further information, see LNB News 20/12/2017 50.
Additional Corporate updates this week
Corporate annual round-up 2017 has been published
We are pleased to announce that the Corporate annual round-up 2017 has been published.
This year’s annual round-up reviews some of the most significant developments of 2017 and previews what is on the horizon for 2018. This includes the government’s recommended corporate governance reforms, the introduction of private fund limited partnerships, new prospectus regulation and proposed amendments to the Takeover Code. Also included are updates on LexisNexis® Corporate’s content, including news of exciting developments from the past year and what is coming up in the next 12 months.
The round-up can be accessed here: Corporate annual round-up 2017 has been published.
Law Commission’s 13th programme of law reform—Corporate aspects
The Law Commission is required to submit programmes of law reform to the Lord Chancellor, pursuant to the Law Commissions Act 1965. The Commission has recently published its 13th programme of law reform and have chosen 14 projects for their new programme. The projects in the programme include electronic signatures, intermediated securities, modernising trust law for a global Britain, and smart contracts.
For further information, see LNB News 15/12/2017 105.
Ball (liquidator of PV Solar Solutions Ltd) and another v Hughes and another
The first applicant was the liquidator of the second applicant company, PV Solar Solutions Ltd (the company), which had traded in the supply and installation of solar panels. The liquidator made an application under section 212 of the Insolvency Act 1986 (IA 1986), alleging that, in causing the company to enter into arrangements purporting to be a tax avoidance scheme in March 2012 and, thereafter, applying three unjustifiable credit entries (credits 1, 2 and 3) against their directors' loan accounts with the company. The applicants argued that the respondents had acted in breach of their duties as directors of the company, and should be ordered to repay or restore that sum, together with compound interest, on a joint and several basis.
There were five issues to be determined by the courts. First, whether the withdrawal of remuneration by the respondents from the company had been in breach of its articles of association (articles). Second, whether, as the first respondent submitted, even if there had been no members resolution expressly authorising the respondents to withdraw sums by way of remuneration, the respondents had to be taken to have approved of them, by way of an informal resolution under the principles established in Re Duomatic Ltd  1 All ER 161. Third, the scope of the directors’ duty, under section 172(3) of the Companies Act 2006 (CA 2006), to act in the interests of the creditors of the company. Fourth, whether the respondents had, on the facts, breached their duties as directors of the company. Fifth, whether respondents could rely on the fact that they had taken advice on the company or insolvency law implications of causing the company to engage in the Lazarus scheme, or to apply the credits at the material time, and whether they would be entitled to the sums forming the subject of credits 1 and 2 on a quantum meruit basis.
The respondent directors, by effecting three credits against their directors' loan accounts with the second applicant company, had acted in breach of their fiduciary duty to act in the best interests of the creditors of the company, contrary to CA 2006, s 172. The Chancery Division so held on an application by the company's liquidator. The court further ruled that the directors had misapplied the company's assets for their own benefit and had failed to exercise their powers for proper purposes, contrary to CA 2006, s 171, and were, accordingly, misfeasant for the purposes of section 212 of the Insolvency Act 1986. The directors were ordered, jointly and severally, to repay the sum of £758,020 to the company, together with interest.
For further information, see Ball (liquidator of PV Solar Solutions Ltd) and another v Hughes and another.
Additional news—daily and weekly news alerts
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New and updated content
We have updated the following Precedent in our Private Equity topic area:
Dates for your diary
|1 January 2018||Commission Regulation on IFRS 9 will apply to annual periods beginning on or after 1 January 2018 with earlier application being permitted.
Commission Regulation (EU) 2016/2067 of 22 November 2016 has been published in the Official Journal. It amends Regulation (EC) No 1126/2008 adopting certain International Accounting Standards (IAS) in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council (known as the IAS Regulation), in order to adopt IFRS 9, 'Financial Instruments'.
See further news, Commission Regulation on IFRS 9published in the Official Journal, LNB News 29/11/2016 22.
|1 January 2018||The International Accounting Standards Board has issued several amendments to IFRS Standards and an Interpretation, which clarifies the requirements in particular Standards. The changes are part of the Board’s process to maintain IFRS Standards. Annual Improvements to IFRS® Standards 2014–2016 Cycle has made amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards and IAS 28 Investments in Associates and Joint Ventures. These will be effective from 1 January 2018.
For further information, see Minor changes to IFRS Standards, LNB News 08/12/2016 90.
|1 January 2018||The Listing Rule changes set out in the FCA’s Policy Statement: Review of the Effectiveness of Primary Markets: Enhancements to the Listing Regime, PS17/22, (published 26 October 2017) come into effect.
The changes follow on from the FCA consultation paper CP17/4: Review of the Effectiveness of Primary Markets: Enhancements to the Listing Regime published in February 2017. In summary, the Listing Rule changes relate to: clarification to some of the eligibility requirements in Chapter 6 of the Listing Rules; the explicit reference to the FCA being able to waive the requirement for a clean working capital statement and a three year financial track record is being removed; small amendments to the concessionary routes for mineral companies and scientific research based companies are being made and a new concessionary route is being introduced for some property companies; classifying transactions for premium listed companies: small changes to the profits test and guidance on adjustments to assets and profits figures is being moved from a technical note into the Listing Rules; and the guidance for certain issuers on providing information in order to ensure that the listing of the company’s securities is not suspended upon a leak or announcement of a reverse takeover is being deleted as the FCA considers that proper price formation can take place based on the information disclosed under the Market Abuse Regulation. In addition, four new technical notes will come into force as well as amendments to four existing ones.
For further information, see LNB News 26/10/17 108.
|3 January 2018||The European Commission has extended the deadline for the application of MiFID II by a year to 3 January 2018, and a Committee of the European Parliament has agreed to the changes. The reason given for the extension is based on the complex technical infrastructure which needs to be set up for the MiFID II package to work effectively. The MiFID regime was created in response to the financial crisis to help forge a more competitive and integrated EU financial market, covering securities markets, investment companies and intermediaries.
For further information, see LNB News 10/02/2016 82 and LNB News 22/08/2016 80.
|3 January 2018||ESMA has published a briefing summarising the technical data reporting requirements under MiFID II and MiFIR, as well as related reporting requirements under the Market Abuse Regulation. The briefing clarifies which entities will be responsible for reporting different categories of data, which regulator it must be reported to, and when the reporting requirement commences.
For further information, see AIM Notice 48.
|3 January 2018||AIM Rule 26 will be amended from 3 January 2018 to provide that certain regulatory information (eg prospectuses, financial reports, announcements containing inside information) must be available on the AIM company’s website for five years.
For further information, see AIM Notice 48.
|3 January 2018||The change in deadline of application of MiFID II has implications for MAR. Certain provisions in MAR, such as those relating to the new concept of small and medium-sized growth markets, that are dependent on MiFID II will not apply until this date.
For further information, see Proposed amendments to the Markets in Financial Instruments Regulation.
|3 January 2018||On 27 June 2017 the FCA published a Policy Statement PS17/13 ‘Investment and corporate banking: prohibition of restrictive contractual clauses’ which sets out rules to ban contractual clauses that restrict competition. The FCA has found that some small primary market clients face pressure to reward their bank or corporate broker with future primary market services even where they might be better off with an alternative supplier. The FCA states that these types of clauses can restrict a client’s choice in future transactions and may hinder effective competition in the interest of those clients.
Changes are being made to the Conduct of Business sourcebook (COBS) and to the Glossary of definitions in the FCA Handbook.
This follows the FCA consultation set out in its Consultation Paper CP 16/31 ‘Investment and corporate banking: prohibition of restrictive contractual clauses’ and the FCA ‘Investment and corporate banking market study’ MS15/1. The new rules come into effect for agreements entered into on or after 3 January 2018.
For further information, see LNB News 27/06/2017 127.
|4 January 2018||The HM Treasury’s consultation in 2015 found significant support for mandatory reporting of energy use, but also highlighted the need for simplification.
The government announced at Budget 2016 that it would abolish the CRC energy efficiency scheme after 2019, incorporating the ‘price signal’ into the climate change levy in the form of increased CCL rates from April 2019. Climate change agreement participants would also receive an increased discount from April 2019.
The current consultation proposes a simplified reporting framework that will be UK-wide and implemented through the Companies Act 2006 as part of companies’ annual reports. The proposals for mandatory reporting will not, however, apply to the public sector at this stage.
For further information, see LNB News 12/10/2017 83 and HM Treasury’s consultation: Reforming the business energy efficiency tax landscape.
New Q&As added this week:
- Is there a requirement to notify a change in the manner in which a PDMR holds their interest in an issuer under Article 19 of the Market Abuse Regulation where there is no change in beneficial ownership, eg where the PDMR's shareholding in the issuer has changed from one nominee account to another?
- If a company does not have the funds to repay share capital and is making an application for voluntary strike off, does there have to be a formal waiver from a parent company in respect of repayment of the share capital?
- How does a company cancel a share and transfer it to authorised share capital?
For access to our Market Tracker deal analysis tool, click on the link in the Tools menu under the Key Resources tab on the Corporate homepage.
To read about the latest corporate announcements, see our Market Tracker weekly round-up: Market Tracker weekly round-up—15 December 2017.