OFAC revokes so-called U-turn authorization for Cuba-related financial transactions
OFAC published a final rule that modifies the Cuban Assets Control Regulations to revoke the so-called "U-turn" authorization.
Welcome to Essential Corporate News, our weekly news service covering the latest developments in the UK corporate world.
On December 2, 2016, the Department for Business, Energy and Industrial Strategy (BEIS) published a document explaining how the Government will implement the duty on large businesses to report on their payment practices, policies and performance, as required by section 3 of the Small Business, Enterprise and Employment Act 2015. Proposals for implementing the reporting requirement and draft secondary legislation were published in November 2014 and the summary of responses was published in March 2015. Following consideration of the written consultation responses and additional views received through ongoing stakeholder discussions and research, BEIS has published a new, revised set of draft regulations, together with draft regulations relating to limited liability partnerships (LLPs).
The draft regulations cover the following:
Businesses to be covered
The duty to report will be mandatory and will apply to large UK companies and large LLPs. This means individual companies, whether private, public or quoted and LLPs which exceeded two or all of the following thresholds on both of their last two balance sheet dates will have to report:
Contracts to be covered
Large companies and LLPs must publish information about their payment practices and policies in relation to contracts for goods, services or intangible assets (including intellectual property) and connected to the carrying on of the business. Other kinds of contracts, including business to consumer contracts and contracts for financial services will not be covered. Contracts will also have to have a significant connection with the UK to be covered by the duty to report.
Frequency of reporting
Businesses will have to report every six months. The first report will be due 30 days after the end of the first six months of their financial year, and the second reporting period will end at the same time as the financial year of the business, with the second report due 30 days afterwards.
Formal location of report
Businesses will have to publish their reports on a web based service to be provided by the Government which is currently being developed, rather than on their own website.
Enforcement and criminal sanctions
While the main enforcement of the duty to report will be through “behavioural change” mechanisms such as public pressure and companies, suppliers and other third parties comparing the reports and publicising information, the draft regulations provide that failure to publish a report is a criminal offence, with the company and directors liable to a fine on summary conviction. All directors will be liable unless they can show they took all reasonable steps to ensure the requirement would be met and it will also be an offence to publish false or misleading information.
Director approval will be required to ensure the accuracy of the information. A director (or designated person for an LLP) will be responsible for signing off the report.
The report will need to include the payment terms of the business, including the standard contractual length of time for the payment of invoices, the maximum contractual payment period and any change to standard payment terms and whether suppliers have been notified or consulted on these changes. The process of dispute resolution related to payment will also need to be reported on.
Statistics to be provided
Businesses will have to report on the average time taken to pay invoices from the date of receipt of the invoice, on the percentage of invoices paid within the reporting period which were paid in 30 days or fewer, between 31 and 60 days and over 60 days, and the proportion of invoices due within the reporting period which were not paid within agreed terms.
Statements to be included
The report will need to set out whether the business offers e-invoicing, whether it offers supply chain finance, whether its practices and policies cover deducting sums from payments as a charge for remaining on the supplier’s list and whether the business has done this in the reporting, and whether the business is a member of a payment code, and the name of the code.
BEIS expects the regulations to come into force in April 2017.
Responding to requests from respondents to the consultation that the Government issue guidance on how to comply with the reporting requirements, BEIS notes that this guidance will be published at the same time as the regulations are laid in Parliament.
On December 6, 2016 the draft Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 were published, following the Government Equalities Office’s consultation in February 2016 which included a draft version of the Regulations. The Regulations have been amended significantly since that draft.
The Regulations impose obligations on employers with 250 or more employees to publish information relating to the gender pay gap in their organisation. This information must be published within 12 months beginning with the “snapshot date” of April 5 each year, so the first information will need to be published before April 5, 2018 in respect of 2017. In particular, employers will be required to publish:
Additionally, Regulation 14 requires the employer to make and sign an accompanying written statement to confirm that this information is accurate. Both the information and written statement must be published on the employer’s website for at least three years from the date of publication and on a website designated by the Secretary of State (Regulation 15).
The Regulations are due to come into force on April 6, 2017.
Draft clauses for the Finance Bill 2017 were published on December 5, 2016. Responses to consultations on key areas were also published. Taken together these provide important detail on reforms to the substantial shareholding exemption (SSE), interest deductibility and loss relief which will be effective from April 1, 2017. The picture is still not complete with further drafting on detailed areas promised by the end of January 2017 and amendments likely during the course of the Bill but the following are points to be aware of on corporate transactions.
Substantial Shareholding Exemption
The Government consulted on reforms to the SSE over the summer. The tenor of the consultation was how to make the UK more attractive as a holding company jurisdiction and a number of possible reforms were mooted. The draft Finance Bill provisions set out how the SSE will be reformed. The changes are good news for corporates and certain institutional investors and will apply from April 1, 2017.
Key points to note:
Corporate interest deductibility: PFI and PPP projects
The proposals work to limit the corporation tax relief for funding costs which is available to groups with net interest expense in excess of £2 million. For such groups, the tax relief for net interest expense is capped at 30 per cent of UK taxable earnings (a higher cap can apply if the group’s net interest to earnings ratio in the UK is less than that of the worldwide group). There is a ‘public benefit infrastructure exemption’ (PBIE) which takes certain project companies outside the interest restriction. During the consultation process, the scope and form of this exemption was the subject of extensive comment as infrastructure projects, being long-term, highly-leveraged and finely-tuned financially, were seen as particularly susceptible to the new proposals. This was a particular concern because of the speed with which this restriction is being introduced (from April 2017).
The draft provisions on the PBIE will not be published until the end of January 2017 but there are two key points to note from the Government’s response to the consultation:
Use of carried-forward loses
The reforms include a restriction which has the effect of limiting the amount of annual profit that can be relieved by carried forward losses to 50 per cent. However, in a welcome move to flexibility, the proposed reforms allow losses incurred on or after April 1, 2017 to be carried forward and set against taxable profits of different activities within a company and its group members (rather than requiring, as at present, that these are streamed).
It is worth noting that the draft provisions also tighten the existing rules against loss-buying in that trading losses will be extinguished where a company suffers a “major change” in the nature or the conduct of its trade within five years of a change in its ownership – this is an extension of the existing rule, which currently only applies in the three year period following a change in ownership.
It is also worth noting that the new rules will allow, for the first time, carried forward losses of an acquired company to be available for surrender into the new group (these are currently only available for use against the profits of that company) but, again to discourage loss-buying, this will only be allowed from the date five years after acquisition.
On December 2, 2016, the Financial Conduct Authority (FCA) published its latest Quarterly Consultation paper. Chapter 6 of the Quarterly Consultation sets out proposed 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 Transparency Directive requires the European Securities and Markets Authority (ESMA) to develop and operate an EEAP to provide fast access to, and make available to end users, all regulated information filed by issuers under the Transparency Directive on a non-discriminatory basis. The EEAP will be a web portal accessible through ESMA’s website. It must be established by January 1, 2018 and member states have to ensure access to their national central storage mechanisms (officially appointed mechanisms or OAMs) through the EEAP. The RTS set out various elements required to implement the EEAP and intend that regulated information filed with OAMs from January 1, 2017 will be fully searchable once the EEAP goes live on January 1, 2018.
Article 7 of the RTS introduces the requirement for OAMs to use legal entity identifiers (LEIs) as the unique identifiers for all issuers. While there is an obligation arising under the RTS for each OAM to use LEIs as unique identifiers for all issuers, there is no corresponding obligation in the RTS for an issuer to obtain an LEI. Article 9 of the RTS requires OAMs to classify all regulated information in accordance with section B of the RTS Annex. However, the OAM itself will not necessarily know what type of regulated information the issuer is filing unless the issuer provides classification details to the OAM.
To deal with these issues, the FCA proposes adding new rules in DTR 6.2 under the heading “Filing of information with FCA” to require issuers to supply an LEI and classify regulated information in accordance with the RTS Annex when they file regulated information with the FCA. This will enable the FCA to fulfil its obligations as the UK’s OAM under Articles 7 and 9 of the RTS. As a result, issuers will have to provide the FCA with their LEIs when they file regulated information and the classifications of regulated information to meet the requirements in section B of the RTS Annex will be set out in a new annex to DTR 6.
Even though the regulatory obligations on issuers to use LEIs and classify regulated information will not apply until January 2018, the FCA will encourage issuers to do so from January 1, 2017 so that the regulated information which they file from that date is searchable through the EEAP when it becomes operational. The FCA also points out that if, when classifying regulated information, more than one of the classes or sub-classes in the table to be set out in DTR 6 is applicable, then all relevant classes and sub-classes should be notified as some regulated information could potentially fall within more than one class or sub-class and if issuers only have to choose one classification, this will not make regulated information fully searchable (for example, an annual report containing inside information).
The FCA notes that to enable it to meet its obligations in the RTS from early in 2017, the consultation period for these proposals is one month.
On December 1, 2016 the Competition and Markets Authority (CMA) announced that it had secured the first disqualification of a director of a company found to have infringed competition law. Daniel Aston, managing director of Trod Limited, has given a disqualification undertaking not to act as a director of any UK company for five years.
Under the Company Directors Disqualification Act, the CMA can seek the disqualification of an individual from holding company directorships where that individual has been a director of a company which has breached competition law. The CMA has the power to apply to the court for an order disqualifying the director but it also has the ability to accept a disqualification undertaking from a director instead of bringing proceedings and a disqualification undertaking has the same legal effect as a disqualification order.
This disqualification follows the CMA’s decision on August 12, 2016 that Trod Limited had breached competition law by agreeing with one of its competing online sellers that they would not undercut each other’s prices for posters and frames sold on Amazon’s UK website. Trod was fined £163,371. As Mr Aston was the managing director of Trod at the relevant time, and because he personally contributed to the breach of competition law, the CMA considered that his conduct made him unfit to be a company director for a specified period. The disqualification undertaking given by Mr Aston is available on the CMA’s web pages.
On December 1, 2016 the Pensions and Lifetime Savings Association (PLSA) published its 2016 AGM report. This focuses on the issue of executive remuneration and includes an analysis of remuneration-related votes at FTSE 350 AGMs between September 2015 and August 2016, as well as the results of a PLSA survey examining the views of pension fund investors on executive pay.
The key findings in the report are as follows:
Overall dissent on remuneration-related votes did not change dramatically in 2016. Average dissent on remuneration reports and remuneration policies put to a vote was slightly under 8 per cent across the FTSE 350, a similar level to that in 2015 and 2014. However, the report notes that there were a number of prominent shareholder revolts at high profile companies and of the five FTSE 100 companies with the highest level of dissent on a remuneration-related vote in 2016, none were prepared to acknowledge that they had got their approach to remuneration wrong in their subsequent statements addressing the votes.
PLSA member survey
The findings from this survey suggest asset owners are concerned by the size of executive pay packets, not just their structure.
From the results, the PLSA has identified four key conclusions:
The PLSA will update its corporate governance policy and voting guidelines in line with the findings. Specifically the PLSA will look to introduce stronger recommendations into the guidelines on the re-election of remuneration committee chairs, in order to remedy the disconnect between votes against pay practices and those against the individuals responsible for overseeing them.
On December 7, 2016 the Quoted Companies Alliance (QCA) and UHY Hacker Young published their annual review of corporate governance behaviour, which focuses on the disclosures made by 100 small and mid-size quoted companies taken from the Main List, AIM and ISDX and compares these disclosures against the minimum disclosures set out in the QCA Corporate Governance Code for Small and Mid-Size Quoted Companies (the QCA Code).
The results were discussed with a group of institutional investors at a roundtable discussion and the QCA has used the feedback received to create five recommendations for companies to follow in order to improve the way they address corporate governance disclosures.
The recommendations for companies are as follows:
On December 9, 2016 the Financial Reporting Council (FRC) published a consultation paper on its corporate reporting research activities. The FRC undertakes corporate reporting research to identify and assess opportunities for improving the quality of financial reporting and is seeking views of FRC stakeholders on the corporate reporting issues that the FRC should consider researching in the immediate future.
The FRC identifies four topics that it believes provide an opportunity to make a significant contribution. These are:
The FRC is requesting responses to the consultation by March 30, 2017.
On December 8, 2016 the Companies Act 2006 (Distributions of Insurance Companies) Regulations 2016 were published, together with an explanatory memorandum. The Regulations amend Part 23 of the Companies Act 2006 (CA 2006) by inserting a new section for life insurance companies authorised in accordance with the Solvency II Directive (Directive 2009/138/EC), which came into force on January 1, 2016.
The new section (833A) provides a formula for calculating the realised profit or realised loss of such a firm, based on its net assets, but after also deducting certain assets of such a firm that cannot reasonably be considered distributable. The section has a similar effect to the draft section suggested by HM Treasury in its October 2016 consultation on distributable profits of long-term (life) insurers.
The Regulations come into force on December 30, 2016 and will have effect for distributions made on or after that date by reference to relevant accounts prepared for any period ending on or after January 1, 2016.
On 5 September 2019, Professor John McMillan AO’s Final Report (Report) on the operation of the Narcotic Drugs Act 1967 (ND Act) was tabled in Parliament. Section 26A of the ND Act required the Minster to cause a review of the operation of the ND Act to be undertaken.