Motor vehicle changes to Franchise Code effective now
Regulations introducing a new automotive section into the Franchising Code of Conduct (Franchising Code) take effect from 1 June 2020.
Welcome to Essential Corporate News, our weekly news service covering the latest developments in the UK corporate world.
The EU Prospectus Regulation (2017/1129) was published in the Official Journal on June 30, 2017. It requires the European Commission to adopt delegated acts in a number of areas within 18 months of its entry into force. In February 2017, the European Securities and Markets Authority (ESMA) received requests for technical advice from the European Commission in a number of areas and on July 7, 2017 ESMA published three draft versions of ESMA’s technical advice in these areas.
Consultation paper on the format and content of the prospectus
While ESMA proposes largely maintaining the existing regime for prospectuses required when securities are offered to the public or admitted to trading on a regulated market, it does propose a number of alleviations to reduce the burden and costs on issuers. These include removing the requirement for a report by the auditors or independent accountants on profit forecasts.
ESMA has also developed draft requirements for a new Universal Registration Document which would operate as a type of shelf registration document. Its content requirements are based on those for the share registration document.
In relation to secondary issuance, ESMA proposes reduced disclosure in order to take greater account of publicly available information, particularly in the case of registration documents.
Consultation paper on content and format of EU Growth prospectus
ESMA has developed draft technical advice dealing with the format and content of the Small and Medium Enterprise (SME) focused EU Growth Prospectus. These identify the minimum disclosure requirements, their order of presentation and the format and content of the specific summary. ESMA has adapted individual disclosure items to take account of the size of issuers and the complexity of their operations in order to ensure a proportionate regime for SMEs.
The proposal consists of a schedule of registration document information and a separate schedule for information concerning the securities, each of which can be used for both equity and non-equity issuances.
Consultation paper on scrutiny and approval
This set of draft technical advice sets out criteria for scrutiny and procedures for approval and filing of the prospectus. ESMA proposes that standard criteria for scrutiny of the completeness, comprehensibility and consistency of the prospectus be adopted but that, beyond the standard criteria, national competent authorities will be able to have a certain level of flexibility to ensure investor protection.
The consultations close on September 28, 2017. ESMA will deliver the necessary technical advice to the European Commission by March 31, 2018.
On July 11, 2017 the London Stock Exchange (LSE) published AIM Notice 46, together with a discussion paper inviting feedback regarding proposed changes to the AIM Rules for Companies (AIM Rules) and the AIM Rules for Nominated Advisers (Nomad Rules). The proposals relate to early clarity for applicants and nominated advisers in the administrative process, consistency of approach across the nominated adviser community in respect of appropriateness considerations and appropriate levels of corporate governance. The discussion paper also provides detail as to how the LSE enforces the AIM Rulebooks and considers further supervisory powers and sanctions to ensure consistency of standards across the market within the LSE’s remit.
The LSE is seeking feedback on the proposals below:
Formalising the early notification process
The LSE is considering extending and codifying the existing early notification process whereby nominated advisers are required to approach the LSE at an early stage of a new application to discuss a company, where there are any atypical features or potential issues that may be of concern. In terms of formalising the process, the nominated adviser would be required to enter into confidential discussions with the LSE at an earlier stage in the Schedule One process, setting out key information regarding the company and its proposed admission to AIM. The discussion paper sets out some of the main types of information that would be essential to these discussions, including details of the company’s business and its country of incorporation and operation, details of its proposed board and any persons discharging managerial responsibilities who are not directors, significant shareholders pre-admission and expected post-admission and details of the shares not in public hands. The proposal would extend the practice of early discussions to all proposed admissions and codify this into the rules. However, the LSE makes it clear that this would not diminish a nominated adviser’s overall obligations to the LSE to be satisfied about a company’s appropriateness or its ongoing obligation to update the LSE about any new information or any changes of circumstances that arise during the admission process.
Guidance on when the LSE may exercise its AIM Rule 9 powers
While the nominated adviser is obliged to assess the appropriateness of an AIM company, the LSE has ultimate discretion to refuse or impose conditions on an admission if any issues identified prior to admission remain unaddressed. In practice, the LSE rarely needs to exercise this power as issues are either addressed satisfactorily or the application is withdrawn. However, to ensure consistency of approach from nominated advisers and to provide further certainty about the LSE’s expectations as to what nominated advisers should take into account when meeting their obligations, the LSE proposes to include in the Nomad Rules a non-exhaustive list of factors as guidance about the types of issues that may give rise to concern.
The discussion paper sets out those factors and they include concerns as to the good character, skills, experience or previous history of a director, key manager, senior executive, consultant or shareholder, formal criticism of the applicant and/or any of its directors by other regulators, governments, courts, law enforcement or exchange bodies and corporate structure or business models that give rise to concerns regarding appropriateness for a public market.
The development of AIM and eligibility criteria
The LSE is seeking views from stakeholders about whether the current entry criteria in terms of minimum size and percentage free float criteria remain appropriate:
Corporate governance for AIM companies
The LSE is particularly interested in stakeholder views on the following areas:
Standards of conduct and approach to non-compliance with the AIM Rulebooks
The discussion paper points out that the LSE’s remit is limited to its Rulebooks i.e. a company’s conduct in relation only to its AIM Rules obligations, or, in the case of a nominated adviser, the duties it owes to the LSE in its role as a nominated adviser. Matters such as directors’ duties, shareholder rights, takeover obligations, short selling, prosecution of market abuse cases and fraud in relation to AIM companies fall within the remit of other authorities. The discussion paper asks whether there are ways in which the LSE can helpfully educate market participants, particularly individuals, as to what the LSE can and cannot do in respect of its remit, beyond the information already available on its website.
Breaches of the AIM Rulebooks
The discussion paper sets out the approach of the LSE to potential breaches of the AIM Rules and the Nomad Rules. It sets out the tools it has available where there is evidence of a breach of those rules and asks whether there should be automatic fines for explicit breaches of the AIM Rules. If so, it seeks views on the types of breaches that the fines should be applied to and the appropriate level of fines. It also asks whether there are other changes to the Disciplinary Handbook that the LSE should consider.
Responses to the discussion paper are requested by September 8, 2017. The LSE will then consider the feedback and evaluate whether any changes to the AIM Rules or the Nomad Rules should be drafted for consultation.
On July 13, 2017, the Financial Conduct Authority (FCA) published consultation paper CP17/21 (the Consultation) setting out proposals to create a new category of premium listing for commercial companies controlled by a shareholder that is a sovereign country. In creating this new category the FCA hopes to make UK markets more accessible to sovereign controlled companies whilst ensuring protections remain in place where they are valued by investors.
Under the proposals set out in the Consultation, companies seeking a listing in the new category would largely be subject to the same eligibility requirements and ongoing obligations as any other commercial company with a premium listing, subject to the following key exceptions:
To qualify for the proposed new listing category, 30 per cent or more of the company’s voting rights would need to be controlled by a sovereign shareholder (i.e. the sovereign or other head of State in his/her public capacity, the government of that State, a department of that State, or an agency or special purpose vehicle of that State).
The Consultation notes that the small number of existing premium listed companies that would be eligible for the new category would be entitled to apply to transfer their listing if they wished to do so, but that this would require prior approval by a vote of independent shareholders (excluding the sovereign controlling shareholder and any other controlling shareholder).
The consultation closes on October 13, 2017 and the FCA expects to publish its new rules in a policy statement towards the end of the year.
On July 12, 2017 the Code Committee of the Takeover Panel (the Code Committee) published consultation paper PCP 2017/1 (the Consultation).
The Consultation proposes amendments to various aspects of the Takeover Code (the Code) in relation to the sale by an offeree company of assets in competition with an offer or possible offer, as well as certain other amendments regarding the use of social media, ‘no intention to bid’ statements made under Rule 2.8 and the dispensations from Rule 9.
The Consultation closes on September 22, 2017.
Asset sales in competition with an offer
The Consultation notes that the Code Committee is concerned that an offeror or potential offeror may be able to circumvent certain provisions of the Code (which would otherwise operate so as to prevent further, increased, or revised offers) by instead purchasing the assets of an offeree company. In this context, the Code Committee has reviewed the application of the Code to transactions under which, in competition with an offer, the board of an offeree company agrees to sell some or all of the company’s assets to a third party, and the Consultation sets out a number of proposed amendments to the Code intended to address this concern.
Preventing an offeror from circumventing the Code by purchasing significant assets of an offeree company
Where a person is subject to Rule 2.8 (Statements of intention not to make an offer), Rule 12.2 (Competition reference periods) or Rule 35.1 (Delay of 12 months) they are, during the period for which the relevant rule applies, restricted from, amongst other things, making further offers for the offeree company or making any statement which raises or confirms the possibility that an offer might be made. The Consultation proposes amendments to prevent persons circumventing the application of these restrictions by purchasing, agreeing to purchase, or making any statement which raises or confirms the possibility they are interested in purchasing, assets which are significant to the offeree company (with relative values of more than 50 per cent normally being regarded as ‘significant’) during the period for which the relevant rule applies.
The proposed amendments would also have the effect of preventing:
by purchasing, agreeing to purchase, or making any statement which raises or confirms the possibility they are interested in purchasing, assets which are significant to the offeree company for three months following the date on which (a) their offer lapsed (in the case of the first bullet above); or (b) they announced they had no intention of making an offer (in the case of the second bullet above).
Asset sales and other transactions subject to Rule 21.1 (Restrictions on frustrating action)
Where the board of an offeree company is considering selling assets to a third party, a number of Code provisions apply, in particular Rule 21.1 which (amongst other things and subject to certain exceptions) restricts the offeree company from taking frustrating action, selling or agreeing to sell assets of a material amount or entering into contracts outside the ordinary course of business unless the proposed action is approved by its shareholders in general meeting.
In the Consultation, it is proposed that Rule 21.1 be amended so as to:
Sales of all or substantially all of the offeree company’s assets in competition with an offer
The Consultation set outs various amendments to the Code in relation to circumstances where, in competition with an offer or possible offer, an offeree company board states that it is proposing to sell all or substantially all of the company’s assets and return all or substantially all of the company’s cash balances to shareholders. These include proposals that, in these circumstances:
The Consultation also proposes the introduction of a new Note on Rule 21.3 (Equality of information to competing offerors) to clarify that, where the board of an offeree company commences discussions in relation to the sale of all or substantially all of its assets during an offer (or following the date on which the board has reason to believe a bona fide offer might be imminent) Rule 21.3 will, subject to certain caveats, apply to information given by the offeree company to the potential asset purchaser(s).
Other proposed amendments
The Consultation also proposes amendments in a number of other areas including:
On July 7, 2017, the Panel Executive published Practice Statement No. 31 (Strategic reviews, formal sale processes and other circumstances in which a company is seeking potential offerors).
Practice Statement No. 31 describes the way in which the Panel Executive normally interprets and applies certain aspects of Rule 2 (Secrecy before announcement; the timing and contents of announcements), Rule 21.2 (Inducement fees and other offer-related arrangements) and Rule 21.3 (equality of information to competing offerors) where a company wishes:
Section 2 of the Practice Statement incorporates the relevant contents of Practice Statement No. 6 so that has been withdrawn. However, the Panel Executive has confirmed in Practice Statement No. 31 that if, at the time that a strategic review announcement which refers to an offer is made, the offeree company is not in talks with any potential offeror and is not in receipt of any approach with regard to a possible offer, this should be stated in the announcement.
Section 3 of Practice Statement No. 31 incorporates the relevant contents of Practice Statement No. 3 so that has been withdrawn. The Panel Executive has confirmed in Practice Statement No 31 that the announcement of the commencement of a formal sale process will be treated as equivalent to the announcement of the existence of a potential offeror to which information has been given. As a result, under Rule 21.3, following the announcement of a formal sale process, any information passed to any potential offeror participating in the process must, on request, be passed to a bona fide potential competing offeror, even if that party is not participating in the formal sale process.
A cross-reference in Practice Statement No. 20 has been updated to refer to Practice Statement No. 31.
On July 12, 2017 the European Securities and Markets Authority (ESMA) updated its Q&As on Alternative Performance Measures (APMs). The Q&As are intended to promote common supervisory approaches and practices in the application of the ESMA Guidelines on APMs published in June 2015 (the Guidelines). The Guidelines are aimed at promoting the usefulness and transparency of APMs included in prospectuses and/or regulated information.
The updated Q&As cover the following additional areas:
On July 7, 2017 the European Securities and Markets Authority (ESMA) published a consultation paper on the evaluation of certain elements of the Short Selling Regulation (Regulation 236/2012) (SSR). In January 2017, the European Commission sent a formal mandate to ESMA seeking technical advice on the evaluation of certain elements of the SSR and this advice must be delivered by December 31, 2017.
The consultation paper has been published to seek the views of market participants on the three main elements of the European Commission’s mandate, on the concerns they may raise and on possible ways forward to address them. These three elements are as follows:
Responses to the consultation paper are requested by September 4, 2017. ESMA expects to publish its final report on the technical advice on the evaluation of certain elements of the SSR to the European Commission by December 31, 2017.
On July 10, 2017 the Financial Reporting Council (FRC) invited audit committee members, companies, investors and audit firms to take part in a pilot project of the FRC’s Audit and Assurance Lab, to explore the role of the audit committee reporting in promoting audit quality.
The project will investigate how investors’ confidence in the audit can be maintained through:
The project will be got underway by July 2017. The Phase 1 project report will be published in time for consideration for December 2017 year-ends and will focus on the good practice elements of existing audit committee reporting, and encourage audit committees to consider adopting the practices, if appropriate, in the context of their own reporting. The Phase 2 project report will be published in the first half of 2018.
The Prospectus Rules (Miscellaneous Amendments) Instrument 2017 comes into force on July 20, 2017 and makes amendments to the Financial Conduct Authority’s (FCA) Handbook by way of amendments to the Glossary of definitions and the Prospectus Rules sourcebook.
The amendments made to the FCA Handbook reflect the provisions of the new Prospectus Regulation that are to apply from July 20, 2017 and update the definition of “ESMA Prospectus Questions and Answers” to refer to the most recent version of that document.
The provisions of the Prospectus Regulation which apply from July 20, 2017 relate to the exemptions from the obligation to publish a prospectus on the admission to trading on a regulated market of certain types of transferable securities.
Regulations introducing a new automotive section into the Franchising Code of Conduct (Franchising Code) take effect from 1 June 2020.
Following the introduction of the National Cabinet’s Mandatory Code of Conduct for SME Commercial Leasing Principles during the COVID-19 crisis (the Code) in early April, there has been much anticipation and speculation as to how each of the States and Territories would legislate to give effect to the principles of the Code.