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Essential Corporate News – Week ending December 25, 2015

Publication December 25, 2015


Introduction

Welcome to Essential Corporate News, our weekly news service covering the latest developments in the UK corporate world.

BIS: Government response to feedback received on the draft Register of People with Significant Control Regulations

On December 17, 2015 the Department for Business, Innovation and Skills (BIS) published the Government’s response to feedback received on its consultation paper published in June 2015, which sought views on the draft Register of People with Significant Control Regulations (the Regulations) and a number of other issues. The response sets out how the Government plans to take the Regulations forward in the light of the results of the consultation process and it outlines how policy proposals have been developed and adapted since the consultation paper was published.

The Government response confirms the following:

  • Companies not required to keep a people with significant control (PSC) register: The Government will exempt UK companies from having to maintain a PSC register where they have voting shares admitted to trading on a regulated market in an European Economic Area (EEA) state. The Government is satisfied that companies listed on certain markets in Japan, the USA, Switzerland and Israel are subject to sufficiently similar disclosure requirements to DTR5 issuers (which are also excluded from the PSC requirements) and that this information is publicly accessible, and therefore UK companies with voting shares admitted to trading on these markets will also be exempt from having to maintain a PSC register.
  • Legal entities that are subject to their own disclosure requirements – relevant legal entities: There are circumstances where a company can include a legal entity in its PSC register instead of a person –these circumstances generally include when an entity is subject to its own disclosure requirements. In its response, the Government states that it will include UK and non-UK legal entities that have voting shares admitted to trading on a regulated market in an EEA state and certain markets in Japan, the USA, Switzerland and Israel in the list of entities that are subject to their own disclosure requirements.
  • Recording the nature and extent of control: A person is a PSC of a company if they meet at least one of the five conditions for significant control set out in the new Schedule 1A to the Companies Act 2006. The Regulations proposed requiring the register to show all of the five conditions for control a PSC meets and, where appropriate, an indication of the extent of control. To achieve this, the Regulations proposed three bands to give an indication of the extent of a PSC’s control to be included on the register. The Government will retain this approach, but will change the Regulations so that if a person already meets one of the first three specified conditions, the company does not have to record in its PSC register if and how the person meets the fourth specified condition concerning significant influence or control.
  • Other information to be noted on the register: There may be situations where a company has no PSC because there is no individual or legal entity in relation to the company who fulfils any of the five conditions for significant control. The Regulations proposed requiring companies to make a note in their PSC register in this circumstance. The Government will keep this requirement but redraft the Regulations to make them easier to understand in light of feedback received.
  • Fees that companies can charge for providing copies of entries in their register: The Government, based on the strong support from responses, will prescribe a fixed fee per request of £12.
  • The protection regime: The Regulations set out a process for protecting PSCs’ residential addresses, and due to strong support, the Government intends to proceed with this and also intends to put in place the proposed application process for protecting secured information. The Government will provide clear guidance explaining the protection regime to help companies understand whether an application can be made for a PSC of their company. The Government has also extended the 28 day limit during the transitional period for an individual to cease to be a PSC to 12 weeks, so that individuals will be able to comfortably take the necessary steps to divest interests in a company.
  • Warnings and restrictions notices: The Regulations set out mandated content of the warning and restrictions notices to be sent to suspected PSCs by the company. The Government will retain this policy and will provide sample draft notices as part of the guidance on the PSC register requirements.
  • Foreign limited partnerships holding shares or rights in a UK company: Where an English limited partnership holds shares or rights in a UK company, limited partners that do not take part in the management of that limited partnership will not meet the first three conditions for significant control just by virtue of being a limited partner. The response states that this provision will apply to participants in foreign arrangements similar to limited partners in an English limited partnership, who do not take part in the management of that arrangement.
  • Corporations sole and others: The final Regulations will apply the PSC register provisions relating to individuals appropriately to corporations sole, governments or government departments, international organisations and local authorities.
  • Societas Europaea: UK registered Societas Europaea will be required to keep a PSC register, and the Government has developed draft Regulations to apply to these entities which will come into force at the same time as the Regulations for companies.
  • Limited liability partnerships: The Government intends to apply the PSC regime to limited liability partnerships (LLPs) on the same timeframe as companies and proposes that the conditions for significant control of an LLP should be based on: rights over surplus assets on winding up; voting rights in an LLP, in terms of rights conferred on members in relation to matters to be decided by a vote of the members; rights to appoint or remove the majority of those involved in management of the LLP; and other significant influence or control, to be explained in statutory guidance. These LLP regulations will ensure that the PSC regime applies to LLPs as it does to companies in 2016.

The Government intends to lay the People with Significant Control Regulations before Parliament in January 2016, along with regulations to include LLPs in the regime. The Government also intends to publish finalised versions of the statutory and non-statutory guidance for companies, LLPs and PSCs in January 2016.

(BIS, The Register of People With Significant Control: Scope, Nature and Extent of Control, Fees, the Protection Regime, and Warning and Restrictions Notices - Government response, 17.12.15)

BIS: Draft statutory and non-statutory guidance for companies and LLPs on the meaning of significant influence or control for the purposes of the PSC regime

On December 21, 2015 the Department for Business, Innovation and Skills (BIS) published draft guidance for consultation on the new requirement for companies and limited liability partnerships (LLPs) to maintain a register of people with significant control (PSC). The draft guidance includes: statutory guidance for companies on understanding the meaning of “significant influence or control” in the context of companies, statutory guidance for LLPs on understanding the meaning of “significant influence or control” in the context of LLPs, a summary of the non-statutory guidance for companies and LLPs on the PSC requirements, and the non-statutory guidance for companies and LLPs on the PSC requirements.

The draft statutory guidance for companies on the meaning of “significant influence or control” provides that a person has significant control over a company if one of the specified conditions are satisfied. The first three specified conditions require the holding of more than 25 per cent of the company’s shares or voting rights in the company or the right to appoint or remove the majority of the board of directors. The fourth and fifth specified conditions require a person to have “significant influence or control” either over the company itself or over the activities of a trust or a firm which meets any of the other specified conditions in relation to the company. The statutory guidance then goes on to discuss the following:

  • how the guidance should be used;
  • the meaning of significant influence and control;
  • the right to exercise significant influence or control;
  • the actual exercise of significant influence or control;
  • fourth condition safe harbours relating to significant influence or control;
  • trusts and firms and the right to exercise/the actual exercise of influence or control; and
  • fifth condition safe harbours relating to significant influence or control.

The draft statutory guidance for LLPs on “significant influence or control” covers similar matters.

The draft non-statutory guidance discusses the regime for registering PSCs, identifying PSCs, information to be entered on the PSC register, updating PSC information, public and protected information, companies keeping the information on their own register at Companies House, understanding the PSC conditions in detail, and when companies are unable to get information for the PSC register.

Comments on the draft guidance are requested by January 11, 2015.

(BIS, Statutory Guidance on the meaning of “significant influence or control” in the context of companies, 21.12.15)

(BIS, Statutory guidance on the meaning of “significant influence or control” in the context of Limited Liability Partnerships (LLPs), 21.12.15)

(BIS, Summary guide for companies – Register of people with significant control, 21.12.15)

(BIS, People with Significant Control: Guidance for Companies and LLPs, 21.12.15)

ESMA: Follow-up report on the development of the Best Practice Principles for Providers of Shareholder Voting Research and Analysis

On December 18, the European Securities and Markets Authority (ESMA) published a follow-up report and accompanying press release on the development of the Best Practice Principles for Providers of Shareholder Voting Research and Analysis. The Best Practice Principles (the Principles) were published in March 2014 by the Best Practice Principles for Governance Research Providers (BPPG), following ESMA’s February 2013 report recommending that the proxy advisory industry develop a code of conduct in order to foster greater understanding and assurance among stakeholders in terms of what can rightfully be expected from proxy advisors.

The follow-up report makes the following observations:

  • In terms of the width of the Principles’ impact, ESMA observes that most of the proxy advisory industry has signed up to the Principles. However, there are some further players in the industry which might fall within their scope. ESMA considers that a broader sign-up to the Principles would positively contribute to establishing the Principles as the prevailing standard in the industry.
  • ESMA considers that the Principles themselves are overall in line with the expectations set out in its 2013 report, that compliance statements, while of varying length and detail, contain the greater part of the minimum information which ESMA expected and that the Principles have to date had a certain amount of impact on the market, mainly in terms of enhanced clarity for different stakeholders on how proxy advisors operate.
  • With regard to the governance approach of the industry group behind the Principles, while the process surrounding the drafting of the Principles met ESMA’s governance expectations, the governance to date regarding the on-going functioning of the Principles is viewed less positively and constitutes the main area in which ESMA encourages the industry group to take further steps. The BPPG would benefit from a clearer and more robust structure, and ESMA suggests a number of arrangements that could contribute to these goals. Furthermore, ESMA would welcome a clearer structure for the monitoring of the Principles.

As with its 2013 report, ESMA will communicate the information in the follow-up report to the European Commission.

(ESMA, Follow-up on the development of the Best Practice Principles for Providers of Shareholder Voting Research and Analysis, 18.12.15)

LSE: AIM Notice 43 – Confirmation of new Rule books and feedback on AIM Notice 42

On December 22, 2015 the London Stock Exchange (LSE) published AIM Notice 43, which provides feedback on Aim Notice 42 and confirms changes to the Aim Rules and AIM Note for Investing Companies. The revised AIM Rules for Companies and AIM Note for Investing Companies were also published.

The LSE notes that the proposals put forward in AIM Notice 42 to amend AIM Rule 8 (investing companies), AIM Rule 15 (fundamental changes of business), the Guidance Notes on AIM Rule 15 and paragraph 5.2 of the AIM Note for Investing Companies were positively received and the changes will be implemented as proposed.

The revised AIM Rules for Companies and AIM Note for Investing Companies will be effective from January 1, 2016.

(LSE, Feedback on Aim Notice 42 and Confirmation of Changes to Aim Rules, 22.12.15)

(LSE, AIM Rules for Companies – January 2016, 22.12.15)

(LSE, Mark-up: AIM Rules for Companies – January 2016, 22.12.15)

(LSE, AIM Note for Investing Companies – January 2016, 22.12.15)

(LSE, Mark-up: AIM Note for Investing Companies – January 2016, 22.12.15)


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