Planning guidelines and targets for renewable energy in Australian markets
Victoria and South Australia are tightening their guidelines and planning policies for renewable energy facilities.
Welcome to Essential Corporate News, our weekly news service covering the latest developments in the UK corporate world.
Two sets of Regulations have now been published in relation to section 54 of the Modern Slavery Act 2015. Section 54 requires companies conducting business in the UK, which supply goods or services and which have an annual turnover above the prescribed threshold, to publish an annual human trafficking and slavery statement.
The Modern Slavery Act 2015 (Commencement No. 3 and Transitional Provision) Regulations 2015 provide that section 54 comes into force on October 29, 2015 but does not have effect in respect of a financial year ending before March 31, 2016. However, companies with a financial year end of March 31, 2016 or later will need to publish such a statement.
The Modern Slavery Act 2015 (Transparency in Supply Chains) Regulations 2015 are in the same form as the draft regulations published in September 2015. These Regulations confirm that the required total turnover figure is £36 million or above and provide that a commercial organisation’s total turnover is the turnover of that organisation and the turnover of any of its subsidiary undertakings. The definition of subsidiary undertakings reflects that already used in section 1162 Companies Act 2006. Turnover means the amount derived from the provision of goods and services, deducting any trade discounts, value added tax and any other taxes based on the amounts so derived.
On October 29, 2015 the Home Office published Transparency in Supply Chains etc. - A practical guide (the Guidance) under section 54(9) of the Modern Slavery Act 2015 (the Act). Section 54 of the Act requires certain businesses to produce a statement setting out the steps they have taken to ensure there is no modern slavery in their own business and their supply chains. If an organisation has taken no steps to do this, their statement should say so. The measure is designed to create a level playing field between those businesses, whose turnover is over a certain threshold, which act responsibly and those that need to change their policies and practices. The Guidance sets out the basic requirements of the legislation, provides direction on how the Government expects organisations to develop a credible and accurate slavery and human trafficking statement each year, and sets out what must be included in such a statement.
Every organisation carrying on a business in the UK with a total annual turnover of £36m or more will be required to produce a slavery and human trafficking statement for each financial year of the organisation.
The Modern Slavery Act 2015
The Guidance notes that, for the purposes of section 54 of the Act, ‘supply chain’ has its everyday meaning.
The Act specifically states that the statement must include “the steps the organisation has taken during the financial year to ensure that slavery and human trafficking is not taking place in any of its supply chains, and in any part of its own business”. The Guidance points out that when the Act refers to ensuring that slavery and human trafficking is not taking part in any part of its supply chain, this does not mean that the organisation in question must guarantee that the entire supply chain is slavery free. Instead, it means an organisation must set out the steps it has taken in relation to any part of the supply chain (that is, it should capture all the actions it has taken).
Since the provision requires an organisation to be transparent about what is happening within its business, if an organisation has taken no steps to ensure slavery and human trafficking is not taking place they must still publish a statement stating this to be the case.
Who is required to comply?
The Guidance makes it clear that the Government expects that whether a body or partnership can be said to be carrying on a business in the UK will be answered by applying a common sense approach. Similarly, by applying a common sense approach, organisations that do not have a demonstrable business presence in the UK will not be caught by the provision. Likewise, having a UK subsidiary will not, in itself, mean that a parent company is carrying on a business in the UK, since a subsidiary may act completely independently of its parent or other group companies.
Where the turnover of a franchisee is above the £36m threshold the Guidance notes that they will be required to produce a slavery and human trafficking statement in their own right. In addition, the Guidance notes that each parent and subsidiary organisation (whether it is UK based or not) that meets the requirements must produce a statement of the steps they have taken during the financial year to ensure slavery and human trafficking is not taking place in any part of its own business and in any of its supply chains. If a foreign subsidiary is part of the parent company’s supply chain or own business, the parent company’s statement should cover any actions taken in relation to that subsidiary to prevent modern slavery. Where a foreign parent is carrying on a business or part of a business in the UK, it will be required to produce a statement.
Writing a slavery and human trafficking statement
In writing the slavery and human trafficking statement, the Government suggests:
The structure of a statement
Section 54(5) of the Act sets out a list of non-exhaustive information that may be included in a statement so as to paint a detailed picture of the steps the organisation has taken to address and remedy modern slavery. This comprises:
Annex E to the Guidance provides information on the type of activity that could be included under each heading and why such information would be useful in a statement. This is intended as a guide only.
Commencing the provision
Businesses with a year-end of March 31, 2016 will be the first businesses required to publish a statement for their 2015-16 financial year. These organisations will be required to produce a statement covering the full financial year of the organisation. However, the Guidance notes that where an organisation has only recently undertaken activities they may choose to produce a statement that indicates that activity undertaken covers a particular part of the financial year.
The Government expects organisations to publish their statements as soon as reasonably practicable after the end of each financial year and encourages organisations to report within six months of the organisation’s financial year end.
Approving a statement
The statement must be approved and signed by a director, member or partner of the organisation. The Guidance points out that the person who is required to sign the statement depends on the type of organisation. For a body corporate (other than a limited liability partnership), the statement must be approved by the board of directors and signed by a director (or equivalent). Where the organisation is a limited liability partnership it must be approved by the members and signed by a designated member. For a limited partnership, registered under the Limited Partnerships Act 1907, a general partner must sign it and if the organisation is any other kind of partnership, a partner must sign it.
Publishing a statement
The statement must be published on an organisation’s website with a link in a prominent place on the homepage. The Guidance acknowledges that, in some instances, where there is a complex organisational structure, an organisation may have more than one outward-facing website. For organisations where there is more than one website, the Government recommends placing the statement on the most appropriate website relating to the organisation’s business in the UK. Where there is more than one relevant website, the Government recommends placing a copy of the statement or a link to the statement on each relevant website in order to increase transparency and ensure recognition for the efforts the business is making.
The Guidance also points out that the Act is clear that the link must be in a prominent place on the home page itself. A prominent place may mean a modern slavery link that is directly visible on the home page or part of an obvious drop-down menu on that page. The Guidance states that the link should be clearly marked so that the contents are apparent. A link such as ‘Modern Slavery Act Transparency Statement’ is recommended.
On October 28, 2015 the London Stock Exchange (LSE) published an article in Inside AIM in relation to the Market Abuse Regulation (MAR), which contains disclosure obligations that will apply to all issuers admitted to European growth markets, including AIM.
The key disclosure obligations in MAR relate to the disclosure of inside information and disclosure of deals by persons discharging managerial responsibilities and closely associated persons. MAR will also introduce mandatory close period rules. The article sets out the LSE’s initial thoughts on how it expects the MAR obligations to sit alongside the disclosure obligations in the AIM Rules for Companies (the AIM Rules).
The disclosure obligations under MAR will be within the remit of the Financial Conduct Authority (FCA), as the UK competent authority. The LSE has given consideration as to whether it remains appropriate to retain the disclosure provisions contained within AIM Rule 11 following the implementation of MAR and has concluded that retaining a disclosure rule in the AIM Rules is important to the integrity of AIM and the maintenance of an orderly market. AIM Rule 11 also continues to reinforce the LSE’s expectations of AIM companies to provide equality of information on a timely basis so that investors can make informed investment decisions. Despite this meaning that AIM companies will have obligations to both AIM Regulation and the FCA, the LSE believes that retaining AIM Rule 11 should not materially change a company’s approach to disclosure compared to existing market practice. To minimise duplication, the LSE explains that, for example, in respect of real time disclosure, it envisages that AIM Regulation will continue to have discussions with nominated advisors and will co-ordinate with the FCA as necessary.
MAR comes into force on July 3, 2016 and will supersede the existing Market Abuse Directive.
On October 23, 2015 the Financial Conduct Authority (FCA) published a Handbook Notice setting out its response to the feedback received on its Quarterly Consultation No. 9 (the Quarterly Consultation) and two accompanying final instruments: FCA 2015/50 (the Handbook Administration (No 39) Instrument 2015), and FCA 2015/51 (the Corporate Governance Code and Miscellaneous Amendments Instrument 2015). The Quarterly Consultation contained, among other things, proposed amendments to the Listing Rules (LRs) and Disclosure and Transparency Rules (DTRs) to take account of the implementation of the revised UK Corporate Governance Code published in September 2014. A number of stylistic changes were also proposed to the DTRs.
The final instruments largely follow the same form as the drafts included in the Quarterly Consultation. The FCA has decided to proceed with the proposed changes to the LR requirements on going concern, which stipulate that the current reporting requirement should be amended so that it is explicit that both the decision on the appropriateness of adopting the going concern basis of accounting and the provision of information to shareholders about the economic and financial viability of the entity and the directors’ stewardship and governance of the entity should be addressed in the annual financial report disclosures. Statements should also continue to be prepared in accordance with the FRC’s Guidance on Risk Management, Internal Control and Related Financial and Business Reporting published in September 2014, and this will be a mandatory requirement. In relation to feedback that the proposed LR goes beyond the comply or explain principle of the UK Corporate Governance Code, the FCA notes that the LR provisions regarding going concern are longstanding, and already constitute a mandatory disclosure requirement. The FCA does not agree that it is imposing substantively new requirements or introducing a new liability regime and believes that the requirement to prepare the relevant statements in accordance with the FRC’s Guidance is appropriate.
There are some minor amendments that have been made, which include changes to the following:
The changes came into force on October 23, 2015 apart from the changes to the title of LR 9.7A, and to DTR 8, which will come into force on November 1, 2015 and December 1, 2015 respectively.
On October 28, 2015 the Department for Business, Innovation and Skills (BIS) published a consultation paper on the implementation of the EU Statutory Audit Directive and Regulation. The new Directive applies to all audits required by EU law and the Regulation applies to all audits of public interest entities (PIEs) which include credit institutions, insurers, issuers of securities on regulated markets in the EU and other entities designated by member states. The Regulation will apply from July 17, 2016 and the Directive needs to be transposed into UK law by then. This consultation sets out the Government’s proposals for the transposition and on legislative provisions needed as part of the application of the Regulation. It follows a discussion document published by BIS in December 2014 and consultation activity being undertaken by the Financial Reporting Council (FRC), Financial Conduct Authority and the Prudential Regulation Authority.
Areas discussed in the consultation paper include the following:
Audits which are affected
The Government has decided not to take up the member state option to include additional entities within the definition of a PIE so it proposes that only entities with securities admitted to trading on a regulated market, banks, building societies and insurers will come within the definition. Companies traded on AIM will not be PIEs.
Under the new Directive all UK entities whose accounts are now required to be audited under EU law will be affected by certain of the Directive’s requirements. This will impact unlisted banks, building societies and insurers and the changes will be introduced through amendments to Part 42 Companies Act 2006 (CA 2006). Draft regulations setting out these changes will be published for comment by BIS in due course and similar amendments are to be made to limited liability partnership specific legislation for those entities that are subject to the Directive in EU law.
Regulation of audits
As announced in the House of Lords in July 2015, the FRC will be the UK’s designated competent authority with ultimate responsibility for all regulatory tasks provided for by the regulatory framework but it will be able to delegate tasks to existing recognised supervisory bodies.
Length of audit engagements
It is proposed that audit engagements should not extend beyond ten years unless a tender process (in which the audit committee recommends at least two choices for auditor to the board and states a justified preference for one of them) is conducted after ten years. The audit engagement could then be extended up to another ten years. While joint auditor appointments can be made, this will not extend the maximum duration of an audit engagement beyond ten years without a tender process being conducted. Once the maximum duration of an audit engagement period has expired, neither that auditor nor any member of its network within the EU will be able to audit the PIE for the next four years.
Proposed exemptions from mandatory tendering are where:
However, where an exemption applies, the maximum period the new auditor could be appointed would be ten years, after which the PIE would have to change auditors or tender the audit engagement.
In the December 2014 discussion paper, BIS suggested linking the maximum duration of the audit engagement to a disclosed plan on retendering in the PIE’s annual report. Respondents did not favour this so the proposal is not being taken forward but BIS notes that the FRC proposes advance notice of tendering and an explanation of changes on the timing of the proposed tender as good practice.
In exceptional circumstances it is suggested that the FRC should be able to permit an incumbent auditor an extension of a maximum of two years where a public tendering process is conducted so the total maximum period of an engagement could, in certain circumstances, be 22 years.
Updated guidance on the transitional provisions in relation to audit engagement tenders is to be published in due course.
Removal of auditors
The new Directive enables shareholders representing five per cent or more of the voting rights or share capital, the competent authority and other bodies of national entities (where provided in national legislation, and the Government will not take up this option) to bring a claim in court to dismiss a PIE’s auditor where there are “proper grounds” for doing so. The Government does not intend to prescribe what “proper” or “improper” grounds are but it will be stated in draft legislation to be published in due course that divergence of opinions on accounting treatments or audit procedures will not be “proper grounds”.
Restrictive clauses in contracts with third parties
The new Directive and Regulation prohibit contractual clauses which restrict the ability of shareholders to appoint an auditor by, for example, limiting the choice to certain categories or lists of statutory auditors or audit firms. The Government intends to provide that such clauses have no legal effect and while the relevant part of the Regulation is not effective until June 17, 2017 the Government notes that in practice the prohibition of the relevant contractual clauses will be from June 17, 2016 given the new Directive takes effect then. As a result, the Government is of the view that audit committees will need to state that their recommendation is free from influence and no contractual clause has been imposed on them from June 17, 2016 although the requirement on a PIE to notify the FRC of any attempt by a third party to impose a prohibited clause will not take effect until June 17, 2017.
BIS has published a draft of The Statutory Auditors and Third Country Auditors Regulations 2016 with the consultation paper. Responses to the consultation are requested by December 9, 2015.
On October 29, 2015 the Department for Business, Innovation and Skills (BIS) published Lord Davies’s final report which summarises the voluntary, business led, approach to increase representation of women on FTSE 100 boards since his first “Women on Boards” report in 2011. The report notes what successes there have been and where improvement is needed and it includes a checklist for companies working on improving gender balance, as well as goals for beyond 2015.
The report acknowledges that the FTSE 100 has reached the target of 25 per cent representation of women on boards, and that this is a significant milestone, however, with a longer term aim of achieving better gender balance on FTSE 350 boards, further work and a renewed focus is required.
The report is divided into three sections:
Approach and ambition
The report considers the UK's voluntary, business-led approach to encouraging an increase of the number of women on UK boards, as opposed to imposing quotas as other countries have done. The report considers that quotas are not a perfect solution but notes that quotas have led to faster progress in some countries and that the UK FTSE 100 is sixth in terms of female representation in Europe, behind a number of countries, some of which have quotas in place. It comments that if the UK does not progress beyond the current 26 per cent of females on FTSE 100 boards, the UK will fall behind other countries in the near future.
The report lists those FTSE 100 companies that have consistently led the way on gender diversity at board level as well as those that have made the most progress since 2011.
The report also cites executive search firms as being a major driver of progress, through development of its standard Voluntary Code of Conduct, now endorsed as best practice by over 80 firms, and the 2014 Enhanced Code of Conduct. Within executive search, firms pointed to a number of factors that have been important in increasing representation of women on FTSE boards, including:
The report urges investors to be more engaged in this area and to consider, via voluntary and collaborative efforts, establishing their own best practice guidelines to improve the gender balance on FTSE boards.
The report points to female employment having increased faster in the UK than any other G7 country and notes that today 682 women in total sit on boards across the FTSE 350, compared to only 289 in 2011. However women only represent 19.6 per cent of executive directors in the FTSE 100. Nomination committees and search firms are urged to draw future directors from outside the corporate and professional services sectors.
The report goes on to set out Lord Davies’s five next step recommendations, as follows:
On October 27, 2015 the Financial Reporting Council (FRC) published a discussion paper which focuses on board succession for executives and non-executives of those companies to which the UK Corporate Governance Code applies. The paper is the result of discussions with a wide range of interested parties and analysis of other research. Its aim is to look at the key issues, to identify suggestions for good practice and, more specifically, to examine how the nomination committee can play its role effectively. Views are sought on the issues and questions posed in the discussion paper.
The discussion paper is divided into six sections which the FRC has identified as important in relation to succession planning, and a number of questions are raised in relation to each of those sections. These are as follows:
Responses are requested by January 29, 2016. The FRC will publish a feedback statement based on the responses received and will consider whether any further action is needed.
On October 23, 2015 the European Securities and Markets Authority (ESMA) published an update to its questions and answers on the Transparency Directive. The last version of the Q&As was published in April 2012. The update has added, revised, and deleted questions as set out below.
On October 27, 2015 the European Securities and Markets Authority (ESMA) published a public statement on improving the quality of disclosures in IFRS financial statements following growing concern over their relevance. ESMA stresses the need for clear and concise disclosures which are company specific and for boiler-plate templates to be avoided, highlighting that the size of annual reports often makes it hard for users to identify key information in them.
ESMA believes the following principles should be considered in making disclosures in annual reports:
ESMA also encourages auditors to contribute to the process, by encouraging issuers to focus on materiality and on entity-specific and relevant information in the financial statements.
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