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Welcome to Essential Corporate News, our weekly news service covering the latest developments in the UK corporate world.
On April 5, 2017 the House of Commons Business, Energy and Industrial Strategy (BEIS) Committee published a report on its inquiry into corporate governance. This inquiry was announced in September 2016. The inquiry examined whether the UK corporate governance framework is still fit for purpose, whether it provides the right structures to assist businesses in making high quality decisions for the long term, taking fully into account the wider interests of society, and how good behaviour can be embedded in business through cultural change and persuasion.
The BEIS Committee believes that the system of corporate governance in the UK is still strong and remains an asset to the country’s reputation for doing business. It does not believe that there is a case for a radical overhaul of corporate governance in the UK, but that there is scope for significant improvements in order to address the changing nature of company ownership in a globalised economy, and its report contains a number of recommendations, including the following:
Promoting good corporate governance
The FRC, Institute of Directors and Institute for Family Business should develop, with private equity and venture capital interests, an appropriate code with which the largest privately-held companies would be expected to comply. They should contribute to the establishment of a new body to oversee and report on compliance with that code. Further, the new code should include a complaint mechanism, under which the overseeing body could pursue with the company any complaints raised about compliance with the code. The scheme should be funded by a small levy on members. Should this voluntary regime fail to raise standards after a three year period, or reveal high rates of unacceptable non-compliance, then a mandatory regulatory regime should be introduced.
Composition of boards and diversity
On April 5, 2017 the Department for Business, Energy and Industrial Strategy (BEIS) published a call for evidence seeking views on the proposals for a register of beneficial ownership information for overseas companies or other legal entities that own or buy UK property or participate in UK central government procurement.
The call for evidence follows BEIS’ March 2016 discussion paper on enhancing transparency of beneficial ownership information of foreign companies undertaking certain economic activities in the UK. The discussion paper particularly focussed on how an approach of requiring foreign companies to provide information on their beneficial ownership before they buy land/property or bid on a contract with the UK Government could be implemented. The Government wanted the obligations on foreign companies to be broadly similar to those on UK companies as required by the “persons with significant control” or PSC regime. The discussion paper suggested that Companies House could manage a new register with the requisite information or it could be operated by a private sector organisation or another independent public body.
Following the discussion paper, the Government announced in May 2016 that it intended to introduce a register of the beneficial owners of overseas companies owning UK property or engaging in UK government procurement. This call for evidence seeks views on the proposals and on the design of the policy and its impact.
Objectives and scope of the new register
BEIS objective is to create a new register that:
BEIS proposes including all legal entities that can hold properties or bid on central government procurement contracts in the scope of the new register’s requirements.
Registering information – property
BEIS intends to ensure that overseas entities cannot buy or sell property in the UK unless they have provided information about their beneficial owners for the new register. In respect of property already owned by an overseas entity, BEIS intends for this restriction to be reflected by a note on the title register for the property. Entities wishing to buy property will have to register their beneficial ownership information with Companies House. If their application is successful they will be allocated a registration number. This number will be required in order to register title to the property at the appropriate Land Registry. Entities that already own property will be given a transitional year in which they will be free to choose whether to disclose the information or dispose of their property.
Registration – procurement
The new register will operate in a similar way in relation to procurement as it does with property purchases. Once the register is in place, overseas entities that wish to take part in central government procurement contracts will need to supply beneficial ownership information before the contract can be finalised.
The requirements of the PSC register were developed through extensive consultation with stakeholders, including business and legal sectors, and have been well received. BEIS therefore believes that the PSC register requirements provide a good balance between providing transparency and the cost to business of compliance. Given this, and the similarities between the new overseas register and the PSC register, BEIS proposes to require the same information about beneficial owners as is required of people with significant control. The information will have to be updated at least every two years.
BEIS wants to ensure that overseas entities that own property in the UK comply with the new register requirements. The system outlined in the call for evidence achieves this using controls over property. If an entity does not supply the right information to Companies House it will not get an overseas registration number. Without this number it will not be able to buy property, and it will not be able to sell, lease or place a charge against any property it already owns. Some entities might be content to own property that is restricted in this way; the powers over the property might not act as enough of an incentive to comply with the law. Because of this, the Government is considering whether it would be appropriate to create a criminal offence for entities that still own property at the end of the transitional period but have not complied with the new register requirements by that time.
The new overseas register will be publicly accessible to ensure transparency and increase ease of scrutiny by law enforcement bodies and transparency groups. There are, however, some situations where making information about an individual public would put that individual at risk of harm or would create a wider public safety risk. This builds on a principle in the PSC register. The PSC register has a protection regime which allows a company or individual to apply to have information about an individual with significant control suppressed if the individual is at risk of violence or intimidation as a result of that information being made public.
BEIS proposes to provide for a beneficial owner or managing officer to apply to have their information suppressed on the new register in similar circumstances. However, BEIS also considers that because the new overseas register will relate to individual properties, the risk of harm to an individual or others may be increased by the individual’s association with the property being known and BEIS wishes to consult on whether a more extensive regime may be appropriate for the new overseas register as it may include individuals’ residential addresses.
Third party protections
BEIS wants to ensure that where an entity does not comply with the register requirements and has defaulted on a loan secured on the property, the lender can still enforce its security by repossessing and disposing of the property but it asks how it can best ensure that only legitimate lenders can repossess and dispose of a property with a restriction against it.
(BEIS, A register of beneficial owners of overseas companies and other legal entities: Call for evidence on a register showing who owns and controls overseas legal entities that own UK property or participate in UK government procurement, 05.04.17)
On April 5, 2017 the House of Commons and House of Lords' Joint Committee on Human Rights published a report discussing human rights and business. The report follows the Joint Committee’s June 2016 announcement of an inquiry into human rights and business, to consider progress made by the UK Government in implementing the United Nations Guiding Principles on Business and Human Rights, by means of the National Action Plan that was published in 2013 and revised in May 2016. The Joint Committee then published an open call for evidence focussing on four main issues: the National Action Plan, Government engagement with business and human rights, monitoring transparency and compliance, and access to remedy.
The report notes the following:
On March 31, 2017 the Financial Conduct Authority (FCA) published its Handbook Notice No. 42 which sets out its response to feedback received on its December 2016 Quarterly Consultation Paper, CP 16/39.
The Quarterly Consultation paper set out proposals for new rules to be added to Chapter 6 of the Disclosure Guidance and Transparency Rules sourcebook (DTRs) to enable the FCA to comply with the requirements in articles 7 and 9 of the Regulatory Technical Standards (RTS) on the Transparency Directive (1004/019/EC) concerning the European Electronic Access Point (EEAP).
The FCA is proceeding with its proposals and the final instrument is in substantially the same form as the draft published with the Quarterly Consultation paper.
In light of feedback received to the consultation, namely that issuers and Primary Information Providers will require at least six months to prepare for the changes, the DTR changes will come into force on October 1, 2017. Issuers will not need a Legal Entity Identifier to file regulated information with the FCA before that date.
On April 3, 2017 the Financial Reporting Council (FRC) published revised operating procedures for reviewing company reporting together with a Feedback Statement and some revised Frequently Asked Questions (FAQs).
The revised operating procedures follow a consultation published by the FRC in October 2016, and no substantial changes have been made to the consultation draft. The changes implement new ways of working to address requests for more transparency about Corporate Reporting Reviews (CRRs) and their outcomes, and to enhance the efficiency of CRR procedures without compromising the quality of decision-making. Additional changes have resulted from requests for greater transparency in respect of the review process and clarity in the content of the operating procedures.
The FRC makes the following observations in the Feedback Statement:
The revised operating procedures took effect on April 1, 2017.
On April 3, 2017 the Council of the EU announced that it has adopted a Directive aimed at strengthening shareholders' engagement in big European companies by amending the Shareholder Rights Directive (2007/36/EC).
Only minor amendments have been made to the text adopted by the European Parliament on March 14, 2017. The new Directive establishes specific requirements to encourage shareholder long-term engagement and increase transparency. The new requirements will apply to:
The Directive will enter into force on the twentieth day following its publication in the Official Journal of the EU and member states will then have up to two years to incorporate the new provisions into domestic law.
On April 5, 2017 the European Parliament resolved to adopt an amended version of the European Commission's proposal for a regulation for a new Prospectus Regulation to repeal and replace the existing Prospectus Directive (2003/71/EC) and the existing Prospectus Regulation (809/2004).
Previously, the Parliament had resolved in September 2016 to adopt the proposal with amendments. In December 2016, the European Commission announced that an informal trialogue agreement had been reached on the proposal and the agreed text was sent to the European Parliament and the Council for a final vote.
Amendments made to the European Commission’s first proposal include:
The Regulation must now be adopted by the European Council. The Regulation will then enter into force on the twentieth day after its publication in the Official Journal and will largely apply from 24 months after the date of its entry into force. Article 1(3) and 3(2) will apply from 12 months from its entry into force and points (a), (b) and (c) of Article 1(5) will apply from the date of its entry into force.
(European Parliament, European Parliament legislative resolution of 5 April 2017 on the proposal for a regulation of the European Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading (COM(2015)0583 – C8-0375/2015 – 2015/0268(COD)), 05.04.17)
On April 5, 2017 the European Securities and Markets Authority (ESMA) published a report on shareholder identification and communication systems. The report presents a general assessment of the level of harmonisation of national regulatory frameworks for shareholder identification and communication systems across the European Economic Area (EEA) and aims to provide input to the European Commission in relation to the preparation of the implementing acts to specify minimum requirements on the process, format and timeline for shareholder identification and transmission of information as required by the Shareholder Rights Directive II (SRD II).
ESMA’s recommendations include:
On April 5, 2017 the Statutory Auditors and Third Country Auditors Regulations 2017 were published. The Regulations make some amendments to the Statutory Auditors and Third Country Auditors Regulations 2016, which fully transposed amendments to the Statutory Audit Directive (2006/43/EC) and the Audit Regulation (Regulation 537/014).
The amendments include:
The Regulations come into force on May 1, 2017, apart from Regulation 13(4)(b) which comes into force on October 1, 2018.
On March 31, 2017 the Legislative Reform (Private Fund Limited Partnerships) Order 2017 was published in its final form. The purpose of the Order is to amend the Limited Partnerships Act 1907 to introduce a Private Fund Limited Partnership (PFLP) structure. This structure will be available to private investment funds which are structured as limited partnerships, for example, private equity and venture capital funds. It is designed to reduce the administrative and financial burdens that impact these funds under the current limited partnership structure.
The final order was made on March 29, 2017 and is in substantially the same form as the draft Order, published in January 2017. The Order came into force on April 6, 2017.
COVID-19 has had and will continue to have impacts on virtually every corporation in Canada and globally.
As business resumes in the workplace and circumstances change, American companies must be ready.