HM Treasury: Power to block listings on national security grounds – Economic Crime Plan, Action 19
On June 7, 2021 HM Treasury published a consultation document in relation to its intention to take a precautionary power to block listings on national security grounds, which will be complementary to existing sanctions powers and the existing anti-money laundering framework in the UK. This follows a ministerial statement on the subject in November 2020 when it was announced that, as part of the Government’s July 2019 Economic Crime Plan, HM Treasury had considered the case for a Government power to block listings on UK financial markets on the grounds of national security and the conclusion was that there are possible scenarios in which a proposed listing may potentially give rise to national security concerns.
The consultation document includes the following illustrative scenario in which the Government may consider use of the power to be appropriate:
Company A is an energy and technology company based in Country A. Country A was recently under UN sanctions for its nuclear programme and these were lifted only recently. Country A’s Energy Minister partly owns Company A. Proceeds from the listing will be used to further Country A’s nuclear weapon capability and enable Country A to accelerate its nuclear weapons programme.
Scope of the new power
The circumstances and rationale for intervention are to be covered more extensively in a further consultation. However, the Government states that, when taking this new power, it does not intend to impose significant additional requirements or barriers for the vast majority of companies and it anticipates that this power will only be used in a very small number of remote cases.
It is intended that the scope of the power will include all initial equity listings and admissions on UK public markets, but it would not apply to secondary trading. As a result it will include: shares, securities representing equity such as Global Depositary Receipts (GDRs), and convertible securities; regulated markets and MTFs (including for example the SME Growth Markets or the Aquis Exchange) that allow primary equity listings; and, initial public offerings and non-traditional listings structures, such as introductions and Special Purpose Acquisition Companies (SPACs).
It is not currently intended to include listed debt securities (beyond convertible securities) within the scope of this power, but views on this are sought and the Government may further consider this as the policy develops. It is noted that the power would not extend to delisting companies which have already listed.
Possible new disclosures required
To help screen possible listings, the Government is proposing that companies intending to list would have to make certain additional disclosures with regard to:
- Information about the issuer
- Business overview
- Major shareholders
- The offer
It believes these disclosures are likely to already be made elsewhere in the listings process, particularly where companies are obliged to produce a prospectus, so does not consider that these additional disclosures should present a significant burden for companies. The Government also anticipates that these disclosure requirements will have a minimal effect on companies eligible for a prospectus exemption given the other routine disclosures that are made throughout the listings or admission process, for example in order to be admitted to trading on an MTF. However, the Government recognises that companies can make use of the exemptions for a prospectus to legitimately reduce regulatory requirements as part of listing so it is seeking views on the disclosures proposed.
The Government is considering an early disclosure option for those companies seeking assurance before they choose to list in the UK. Companies might be permitted to submit the additional information required at the point at which they have appointed a sponsor, nominated adviser or other key representatives for their listing process. Companies would then be able to update this information if it was to change late in the process.
Responses to the consultation are requested by August 27, 2021.
(HM Treasury, Power to block listings on national security grounds – Economic Crime Plan, Action 19, 07.06.2021)
Law Commission: Corporate criminal liability – Discussion Paper
On June 9, 2021 the Law Commission published a Discussion Paper (DP) on the subject of the criminal liability of legal persons, such as companies and limited liability partnerships. Currently such legal persons usually may only be convicted of a criminal offence if is an offence without any fault element (a “strict liability” offence), or because an individual or group of individuals who are very senior within the organisation has the necessary fault element. The Law Commission is seeking views on whether the law should be reformed in this regard.
Among other things, the DP considers the general law on criminal liability of corporations, specific legislation on criminal liability, the procedural rules for corporate prosecutions, corporate liability under civil law, alternative approaches to criminal liability elsewhere in the world, the sentencing of corporations, criminal liability of directors and other individuals for corporate misconduct, and relevant recent developments.
The DP is being published with a call for evidence rather than consulting on provisional proposals at this stage as information on the likely impact of any reforms can only be assessed by taking evidence from firms, prosecutors and others. As a result, the DP sets out a series of questions on the merits and impact of potential changes to the law on criminal liability either through reform of the general principle or the introduction of ‘failure to prevent’ offences that hold corporations liable for the misconduct of their employees and agents.
Responses are requested by 31 August, 2021.
(Law Commission: Corporate criminal liability – Discussion Paper, 09.06.2021)
Pensions Regulator: Consultation in relation to contribution notices and approach to dividend payments
The Pensions Regulator is consulting over a draft code of practice designed to explain in what circumstances it would expect to issue a “contribution notice”. A contribution notice requires the recipient (which could be a company or individual) to pay a specified amount into a defined benefit (DB) pension scheme.
The draft code of practice confirms that paying a dividend or a return of capital by the sponsoring employer of the scheme are events which could lead the Pensions Regulator to issue a contribution notice if it considers it reasonable in the circumstances to do so. The Pensions Regulator gives as an example a significant dividend paid to a parent company which:
- is much larger than dividends paid in previous years,
- exceeds the company’s net profit generated during the same reporting period, and
- has a material impact on the “employer covenant” supporting the pension scheme.
However, it is not clear that only dividends that share some or all of these characteristics would be at risk of triggering a contribution notice. No guidance or comfort is offered about how the Pensions Regulator would view more “usual”/ordinary course dividends, or dividends which do not eradicate profit and/or which do not impact upon covenants.
The fact that dividends and returns of capital are specifically called out reinforces the point that companies with DB pension schemes should go through a careful decision-making process before taking such action and carefully document their rationale. Unfortunately the draft code does not really help companies to identify the line between “reasonable” dividends and “unreasonable” dividends.
The closing date for the consultation is July 7, 2021.
(The Pensions Regulator, Draft Code 12: Contribution Notices: Circumstances in relation to the material detriment test, the employer insolvency test and the employer resources test, 27.05.2021)
(The Pensions Regulator, Consultation document for Code of Practice 12: Contribution Notices, 27.05.2021)