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Essential Corporate News – Week ending February 3, 2016

Publication February 3, 2016


Introduction

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

BEIS: Guidance on the duty to report on payment practices and performance

On January 31, 2017 the Department for Business, Energy and Industrial Strategy (BEIS) published the final version of its guidance on the duty to report on payment practices and performance (the Guidance), which follows on from its November 2014 consultation paper on this duty and the subsequent Government response, published in December 2016.

The Guidance relates to the Reporting on Payment Practices and Performance Regulations 2017 and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017, the most recent drafts of which were published on February 2, 2017.  These Regulations were made under section 3 of the Small Business, Enterprise and Employment Act 2015 and the Limited Liability Partnerships Act 2000, and introduce a duty on the UK’s largest companies and limited liability partnerships (LLPs)  to report on a half-yearly basis on their payment practices, policies and performance for financial years beginning on or after April 6, 2017. The Guidance discusses which entities need to report, what needs to be reported, where the information needs to be reported, when the information needs to be reported and what period it needs to cover.

Who needs to report

The reporting requirement applies to large companies and large LLPs which exceed certain size criteria. Qualifying companies will exceed two or all of the thresholds, which are: £36 million annual turnover; £18 million balance sheet total; and 250 employees. The companies and LLPs in scope of the reporting requirement are referred to in the Regulations as “qualifying companies” and “qualifying LLPs”. In the context of the reporting requirement, ‘company’ means a company formed and registered under the Companies Act 2006 (CA 2006) or previous legislation and ‘LLP’ means a limited liability partnership registered under the Limited Liability Partnerships Act 2000. Entities which are not companies or LLPs under these definitions are not required to report.  Businesses incorporated outside the UK are also not required to report.

The information for the reporting requirement should be prepared on an individual company or individual LLP basis, not at a group level. The reporting requirement is not met if the information is provided on a group basis.

What needs to be reported

Businesses in scope of the reporting requirement must prepare and publish information about their payment practices and performance in relation to qualifying contracts (and the Guidance considers what qualifying contracts are), for each reporting period in the financial year. The information for each reporting period must reflect the policies and practices which have applied during that period and the business’s performance for that period.

The report must be published on a web-based service provided by or on behalf of the Government within 30 days of the end of the reporting period. It must contain the information required by the Regulations and must be approved by a named company director or (for LLPs) a designated member.

A business and its directors (or designated members of an LLP) could be prosecuted if it fails to provide a report within the required timescale or if that report includes misleading, false or deceptive statements.

The Guidance summarises the information to be reported on which comprises certain narrative descriptions, statistics and statements and it considers the detail required in each case.

When the information needs to be reported and what period it covers

Businesses in scope must prepare and publish information about the payment practices and policies which they have applied during a reporting period, and their payment performance in that reporting period. In a financial year there will normally be two reporting periods. The first is the six calendar months starting on the first day of the business’ financial year, so if a financial year started on the 5th of a month, the last day of that reporting period would be the 4th of the month, six months later. The second reporting period starts on the day after the first period ends, and runs until the end of the financial year.

(BEIS, Duty to report on payment practices and performance: Guidance to reporting on payment practices and performance, 31.01.17)

Reporting on Payment Practices and Performance Regulations 2017 and Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017

On February 2, 2017 revised drafts of the Reporting on Payment Practices and Performance Regulations 2017 and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017 were published. These Regulations follow previous drafts published in December 2016 with the Government’s response to its consultation on the duty to report on payment practices and performance.

Changes from the previous draft Regulations for companies include:

  • Regulation 4 (Approval of the information) – This Regulation has been updated to clarify that a director must approve the information before it is published. 
  • Regulation 8 (Failure to publish a report) – The updated Regulations have removed the provision that stated it was not a defence to prove that the information in question was not prepared as required by Regulation 3.
  • Regulation 11 (Review) – This Regulation requires that the Secretary of State must review the Regulations before April 6, 2022, and the updated draft has removed the requirement that subsequent reviews should take place at intervals not exceeding five years.
  • Paragraph 12 – A new paragraph has been inserted in the Schedule to the Regulations which requires the name of the director of the qualifying company who has approved the reporting information to be published with that information.

The draft Regulations have been laid before Parliament and it is intended they will enter into force on April 6, 2017.

(Reporting on Payment Practices and Performance Regulations 2017, 02.02.17)

(Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017, 02.02.17)

ESMA: Updated Q&A on the Market Abuse Regulation

On January 27, 2017 the European Securities and Markets Authority (ESMA) published an updated version of its Q&A on the Market Abuse Regulation (MAR), which includes new questions on calculating the price of options granted for free to managers or employees under Article 19 of MAR and how Commission Delegated Regulation (EU) 2016/958 on investment recommendations and statistics under MAR should be applied.

Managers’ transactions

In the section on managers’ transactions, ESMA includes a new question on the rules to calculate the price of options granted for free to managers or employees for the purpose of the notifications and disclosure of managers’ transactions under Article 19 of MAR.

ESMA notes that, according to Article 10(2)(b) of Commission Delegated Regulation (EU) 2016/522, such transactions have to be notified under Article 19(1) of MAR. The value of these transactions needs to be taken into consideration for the purpose of calculating the cumulated amount of the transactions of a person discharging managerial responsibility (PDMR) or a person closely associated to a PDMR, to assess whether the threshold referred to in Article 19(8) and (9) of MAR has been crossed, hence triggering the duty to notify and disclose all subsequent transactions.

It states that the price to consider for the received options should be based on the economic value assigned to the options by the issuer when granting them.

Investment recommendation and information recommending or suggesting an investment strategy

In this section, ESMA provides answers to several questions on the application of Commission Delegated Regulation (EU) 2016/958. ESMA clarifies that:

  • when a recommendation refers to several issuers independently the requirements of the Delegated Regulation will apply independently to every issuer that is the subject of the recommendation;
  • where a recommendation refers to several financial instruments independently the requirements of the Delegated Regulation will apply to each financial instrument that is the subject of the recommendation; and
  • if a recommendation relates to a derivative referencing an index of financial instruments, the derivative itself should be treated as a financial instrument subject to the requirements of the Delegated Regulation, and not the individual instruments that comprise the index.

(ESMA, Questions and Answers: On the Market Abuse Regulation, 27.01.17)

ESMA: Q&A on ESMA Guidelines on Alternative Performance Measures

On January 27, 2017 the European Securities and Markets Authority (ESMA) published a new set of Q&A relating to its Guidelines on Alternative Performance Measures (APMs) (the Guidelines) published in June 2015. The purpose of the Q&A is to promote common supervisory approaches and practices in the application of the Guidelines which are aimed at promoting the usefulness and transparency of APMs in prospectuses and/or regulated information.

The Q&A addresses:

  • the applicability of the Guidelines to prospectuses comprising documents published before and on or after July 3, 2016;
  • measures presented simultaneously inside and outside financial statements;
  • financial measures calculated exclusively using figures stemming from financial statements;
  • interim financial reports;
  • segment information;
  • labels used on APMs; and
  • the concept of “corresponding previous periods”;

The Q&A will be updated where relevant as and when appropriate.

(ESMA, Questions and answers: ESMA Guidelines on Alternative Performance Measures (APMs), 27.01.17)


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