Essential Corporate News: Week ending May 1, 2020

FCA: Ensuring fair treatment of corporate customers preparing to raise equity finance

On April 28, 2020, the Financial conduct Authority (FCA) wrote a “Dear CEOs” letter to the CEOs of regulated entities, asking banks to treat corporate customers fairly when negotiating new or existing debt facilities in light of the COVID-19 pandemic. 

The letter notes that the FCA has heard reports that some banks are pressurising corporate clients to provide the bank with a role on an equity mandate that the client would not otherwise appoint them to, sometimes with few additional services being provided by the bank which still share the fee pool. The FCA requests that this practice cease immediately, noting that as well as distorting competition, undermining market confidence and calling firms’ integrity into question, the practice could breach FCA rules and Principles and be inconsistent with a bank’s obligations regarding the sharing of inside information under the Market Abuse Directive. 

Banks active in the equity and lending markets are asked to review their current systems and controls  to ensure they are appropriate for ensuring the proper treatment of clients, the identification and mitigation of conflicts of interest and the handling of inside information. The FCA will contact the relevant senior manager of any bank that has had a lending relationship and  equity role with any issuer that has recently raised significant equity capital to understand how the bank ensured the client was treated fairly and that inside information was handled appropriately.

(FCA, Dear CEO letter – Ensuring fair treatment of corporate customers preparing to raise equity finance, 28.04.2020)

Investment Association: Executive remuneration in UK-listed companies – Shareholder expectations during the COVID-19 pandemic

On April 27, 2020, the Investment Association published guidance for remuneration committees of UK-listed companies, setting out shareholder expectations on how remuneration committees should be reflecting the impact of COVID-19 on executive pay. The guidance notes that the impact of COVID-19 will be different for each company and while there are minimum expectations for all companies, individual circumstances and the impact on stakeholders need to be taken into account in each case.

Areas addressed in the guidance are as follows:

• Whether a company that has suspended or cancelled a dividend in relation to FY2019 should consider adjusting bonus outcomes for FY2019 – Some bonuses may have been paid before the dividend was cancelled, in which case remuneration committees should consider using discretion or malus provisions to reduce deferred shares related to the 2019 annual bonus or reflect this in FY2020 bonus outcomes.
• Whether shareholders would support performance conditions being adjusted to take account of COVID-19 – Investors do not expect remuneration committees to adjust performance conditions for annual bonuses or in-flight long-term incentive awards for the impact of COVID-19 but will expect remuneration committees to use discretion to link pay and performance and engage with shareholders over their use of discretion.
• Where 2020 LTIPs are already granted, how should remuneration committees ensure executives do not have a windfall gain – Where grants have been made and the share price fall is solely COVID-19-related, grant sizes do not need to be adjusted but discretion should be used to prevent windfall gains on vesting. The remuneration committee’s approach and factors to be considered in determining whether there has been a windfall gain should be set out in the next remuneration report and longer term individual share price underperformance should be accounted for (for example, if the share price was 30 per cent down in the year before the COVID-19 market reaction, an appropriate scaling back should be applied).
• Shareholder expectations of long-term incentive grant sizes and performance conditions for LTIP grants in coming months – Remuneration committees should consider whether to postpone grants but options are to grant as normal setting performance conditions and grant size currently, to grant as normal and set grant size now but set performance conditions within the next six months, or delay the grant and aim to make it within six months of the normal grant date. The approach taken should be explained to shareholders and the guidance outlines issues relating to performance conditions and grant size. 
• Shareholder expectations where company raises capital from shareholders or takes money from the government – This should be reflected in the executives’ remuneration outcomes. The wider employee context is very important and if employees are asked to take temporary pay reductions, executives should too.
• New remuneration policies at 2020 AGMs – Where companies have consulted shareholders they should not need to rewrite their new policy but should consider if proposing a variable pay increase is appropriate in 2020. For companies considering a new remuneration policy but impacted by COVID-19, substantial changes to the current policy are unlikely to be appropriate and significant changes should only be proposed when the future market environment is clearer. 

(Investment Association, Executive remuneration in UK listed companies – Shareholder expectations during the COVID-19 pandemic, 27.04.2020)

ICSA: Withdrawal or amendment of dividend resolution to Annual General Meeting – Guidance Note

On April 29, 2020 the Chartered Governance Institute of the Institute of Chartered Secretaries and Administrators (ICSA) published guidance for companies that conclude that it may no longer be appropriate to recommend or declare a dividend that is due to be put to shareholders for approval at the AGM, or that the dividend should still be paid but the amount reduced.

The Guidance Note looks at the following issues:

• The steps to be taken if a company wants to withdraw or amend its dividend resolution – This will depend on the company’s articles, whether the dividend is a final or interim dividend and whether the notice of AGM has been published at the time the decision to withdraw or amend the resolution is taken. The Guidance Note points out that once a final dividend has been approved by shareholders it cannot be withdrawn or amended.
• The treatment of proxy votes submitted before the resolution is amended to reduce the dividend – Proxies should aim to give effect to what the proxy would have wanted if faced with the amended resolution, so this is likely to mean voting in favour of the amended resolution where instructed to vote in favour of the original dividend resolution (and vice versa).
• Whether the relevant stock exchange announcement will need to say it contains inside information under the Market Abuse Regulation (MAR) – The company’s advisers should be consulted but it is likely a decision to withdraw or amend the dividend resolution will be inside information.
• Whether the stock exchange announcement about the dividend should also include a trading update – The Guidance Note states that while there is no legal requirement for this, many companies are giving a general update as to why the board has decided to withdraw or reduce the dividend. 
• Other considerations – Companies are advised to speak to their advisers to assess other opportunities open to them, given their particular dividend payment practice, the expectations of their shareholders and the provisions in their articles.

(ICSA: Withdrawal or amendment of dividend resolution to Annual General Meeting – Guidance Note, 29.04.2020)

Companies House: New emergency filing service

On April 27, 2020, Companies House updated its guidance for customers, employees and suppliers to announce that its emergency filing service can be used to upload and submit completed registrar’s powers forms to enable the following to be done:

• Apply for rectification by the registrar of companies (RP02A)
• Apply for rectification of a change of registered address (RP02B)
• Object to a request to rectify the register (RP03)
• Apply to remove material about a director (RP06)
• Apply to change a company’s disputed registered office address (RP07)
• Correct a director’s date of birth (RPCH01)

In light of this, Companies House has published guidance for companies that need to file a registrar’s powers document online that would usually be sent to Companies House in a paper format. This guidance has been created for the interim Upload a Document to Companies House service to enable paperless filing in response to the coronavirus (COVID-19) outbreak.

(Companies House, Upload a document to Companies House, 22.04.2020)