Pen & Graph

Essential Corporate News – Week ending December 14, 2018

Publication December 14, 2018


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

GC100: Directors’ Remuneration Reporting Guidance 2018

On December 10, 2018 the GC100 and Investor Group published an updated version of its directors’ remuneration reporting guidance. The second edition, published in August 2016, has been thoroughly reviewed and new material has been added to address the new reporting requirements required by the Companies (Miscellaneous Reporting) Regulations 2018 (2018 Regulations).

Key changes to the 2016 guidance include the following:

  • In section 2.2 (Annual Statement) it is made clear that the remuneration committee chair’s annual statement must summarise, for the financial year, any discretion which has been exercised in the award of directors’ remuneration. As a result, a possible new disclosure which should be considered is why the remuneration committee considered it appropriate to exercise discretion in a particular fashion and the impact on the payment of that exercise of discretion.
  • Section 3.1 (Single total figure of remuneration) has been amended to provide guidance on the new requirement for companies to disclose, in relation to short-term and long-term incentives, the amount, or an estimate of the amount, of the award that is attributable to share price appreciation and, where discretion has been exercised, how the award was determined and whether discretion has been exercised due to share price appreciation or depreciation.
  • A new section 3.9 has been added. This relates to pay ratio information in relation to the total remuneration of the CEO, as required by the 2018 Regulations. The guidance covers companies that are exempt from reporting on pay ratios, means of ensuring consistency in reporting over the 10-year cycle where headcount varies from year to year, the position where there is a change in CEO during a relevant reporting period, the position of the pay ratios table and supporting statements in the remuneration report, the methodology used to calculate the figures, changes in approach across multiple reporting periods and the various disclosure requirements. The guidance notes that where a remuneration committee considers that the ratio is not consistent with pay, reward and progression policies, investors will generally expect the remuneration committee to describe the intended necessary actions that it will take in order to address this issue.
  • Section 4.8 (Illustrations of the application of the remuneration policy) has been expanded to include a section on the impact of share price appreciation. Under the 2018 Regulations, companies are required to disclose in their remuneration policy, in relation to long-term incentives and other awards with performance measured over more than one financial year, an indication of the maximum remuneration receivable assuming share price appreciation of 50 per cent during the performance period. The guidance considers where the share price appreciation information should appear and the description of the basis of the calculation of the share price appreciation that must be included.

(GC100 and Investor Group, Directors’ Remuneration Reporting Guidance 2018, 10.12.18)

FRC: The Wates Corporate Governance Principles for Large Private Companies

On December 10, 2018 the Financial Reporting Council (FRC) published the final version of the Wates Corporate Governance Principles for Large Private Companies (Wates Principles). A draft of the Wates Principles was published for consultation in June 2018 in light of the requirement in The Companies (Miscellaneous Reporting) Regulations 2018 (Regulations), for financial years commencing on or after January 1, 2019, for all companies of a significant size, that are not currently required to provide a corporate governance statement, to include such a statement in their directors’ report. The Wates Principles are designed to help such companies comply with the Regulations.

The Wates Principles were developed by a coalition established by the FRC and chaired by James Wates CBE. Companies will be able to adopt them as an appropriate framework when making a disclosure about their corporate governance arrangements under the Regulations, following an “apply and explain” approach. Boards are encouraged to apply each Principle by considering them individually within the context of the company’s specific circumstances and then explain, in their own words, how they have addressed them in their governance practices.

The six Principles are:

  • Purpose and Leadership – An effective board develops and promotes the purpose of a company and ensures that its values, strategy and culture align with that purpose. The guidance states that directors should act with integrity and set the tone from the top and it now includes suggestions on how to monitor culture.
  • Board Composition - Effective board composition requires an effective chair and a balance of skills, backgrounds, experience and knowledge, with individual directors having sufficient capacity to make a valuable contribution. The size of a board should be guided by the scale and complexity of the company. The guidance suggests companies should consider separating the roles of chair and chief executive and it promotes the benefits of non-executive directors, as well as recommending that boards have a diversity and inclusion policy.
  • Director Responsibilities - The board and individual directors should have a clear understanding of their accountability and responsibilities. The board’s policies and procedures should support effective decision-making and independent challenge. The guidance now promotes a periodic review of governance policies and practices to ensure they remain fit for purpose.
  • Opportunity and Risk - A board should promote the long-term sustainable success of the company by identifying opportunities to create and preserve value and establishing oversight for the identification and mitigation of risks. The guidance is now split into sections on risk, opportunities and responsibilities and it deals with emerging risk and principal risks.
  • Remuneration - A board should promote executive remuneration structures aligned to the long-term sustainable success of a company, taking into account pay and conditions elsewhere in the company. The guidance suggests remuneration should be linked to company strategy, it suggests considering increased transparency in relation to remuneration policies and the possible use of a remuneration committee.
  • Stakeholder Relationships and Engagement - Directors should foster effective stakeholder relationships aligned to the company’s purpose. The board is responsible for overseeing meaningful engagement with stakeholders, including the workforce, and having regard to their views when taking decisions. The guidance refers to the FRC’s Guidance on the Strategic Report which refers to methods of engagement with the workforce and it points out different groups that may be stakeholders in certain circumstances.

The Introduction to the Wates Principles has been revised in light of feedback received in the consultation process. For example, more information is provided about the “apply and explain” approach, and it is made clear that groups should consider how they report on the governance of subsidiary companies to enable cross-referral. While reporting against the Wates Principles will only be applied to annual reports published from January 2020, the coalition group and the FRC plan to adjust them as needed in the future.

(FRC: The Wates Corporate Governance Principles for Large Private Companies, 10.12.18)

(FRC: The Wages Corporate Governance Principles for Large Private Companies - Consultation feedback paper, 10.12.18)

HM Treasury: Draft Official Listing of Securities, Prospectus and Transparency (Amendment) (EU Exit) Regulations 2019

On December 12, 2018 the draft Official Listing of Securities, Prospectus and Transparency (Amendment) (EU Exit) Regulations 2019 were published.

The draft Regulations are being made in order to addresses deficiencies in the Prospectus Directive (PD) and the Transparency Directive (TD) that arise from the UK leaving the EU. They ensure that the prospectus regime will be applicable to issuers making an offer to the public in the UK or applying to admit securities to a regulated market in the UK, and that the transparency framework will be applicable to issuers with securities traded on regulated markets in the UK, and will continue to operate effectively after exit day.

The draft Regulations replicate, as far as possible, the current effects of the prospectus regime, the transparency rules and the listing rules that apply across the EU, however changes include the following:

  • Approval of prospectuses – The draft Regulations propose to amend Part VI (Official listing) of the Financial Services and Markets Act 2000 (FMSA) so that prospectuses to be used in the UK after exit day will need to be approved by the Financial Conduct Authority (FCA). Issuers wishing to access the UK’s capital markets for offers to the public or admissions to a regulated market will, in future, be required to secure approval of their prospectuses from the FCA, irrespective of whether the prospectus has already been approved by an EEA member state.
  • Prospectuses approved pre-exit - Prospectuses passported into the UK before exit day will be approved for use in the UK until their validity expires. This means that only those prospectuses which are valid on exit day will be grandfathered and issuers will be able to supplement these where necessary during their validity, after approval by the FCA. Prospectuses which expire prior to exit day will not be eligible for use in the UK.
  • Equivalence determinations – HM Treasury will be allocated functions in relation to equivalence determinations of third country jurisdictions and will also be responsible for making equivalence decisions in respect of the accounting rules of third country jurisdictions for the purposes of the prospectus and transparency regimes. The FCA will have authority over technical assessments of third country regimes.
  • Corporate governance - The draft Regulations repeal section 1273 Companies Act 2006 which allows the Secretary of State to make regulations relating to EU corporate governance obligations on regulated market issuers.
  • Amending the Prospectus Regulation - The draft Regulations also include amendments to the Prospectus Regulation (809/2004), including adaptations relating to the minimum information to be included in a prospectus and its format, registration documents and historical financial information.

HM Treasury plans to lay the draft Regulations before Parliament before exit day but they will not take effect if the UK enters an implementation period.

(HM Treasury: Draft Official Listing of Securities, Prospectus and Transparency (Amendment) (EU Exit) Regulations 2019, 12.12.18)

(HM Treasury: Draft Official Listing of Securities, Prospectus and Transparency (Amendment) (EU Exit) Regulations 2019 explanatory information, 12.12.18)

BEIS: Limited partnerships – Response to consultation on reform of limited partnership law

On December 10, 2018 the Department for Business, Energy and Industrial Strategy (BEIS) published a response to its consultation on reforming the law of limited partnerships which was launched in April 2018.

The consultation document set out a range of proposals to reform limited partnership (LP) law, including stronger controls at the point of registration, requirements for additional information whilst the limited partnership is operating, as well as providing the Registrar of Companies with powers to strike off limited partnerships from the register under certain circumstances.

In its consultation response, BEIS highlights the themes arising from the responses received and the decisions it has taken in light of these. The response includes:

  • Confirmation of the Government's intention to require that presenters of applications to register LPs show that they are registered with an anti-money laundering supervisory body. The Government will seek to ensure that applications from overseas will be subject to equivalent standards and is considering options for achieving this. This could include limiting applications from overseas to those jurisdictions within the EEA. This approach will end direct registrations of LPs.
  • In relation to the principal place of business (PPoB) of LPs, the Government intends to request information on an LP's connection to the UK on application and on an ongoing basis. On application, the LP must provide a proposed UK PPoB. To demonstrate an ongoing connection, LPs will have to retain their UK PPoB, show continuing legitimate business activity at a UK address or show they engage the services of an agent registered with a UK anti-money laundering supervisory body. In addition, LPs will need to notify the Registrar of Companies if their method of demonstrating an ongoing UK connection changes.
  • The Government will require LPs to file a confirmation statement at least every 12 months and the information required on application will be expanded and confirmed in the confirmation statement. The Government will undertake further work to determine whether to require beneficial ownership information from corporate partners that do not already hold a persons with significant control (PSC) register.
  • The Government has decided not to require LPs to prepare accounts and reports in line with limited companies.
  • The Registrar will be given powers to strike off LPs that are dissolved or which the Registrar concludes are not in operation. The powers are to be subject to a robust notification procedure and the Government will consider the circumstances in which it would be appropriate to restore an LP.

BEIS plans to develop legislation to give effect to its proposals and intends to legislate when Parliamentary time allows. BEIS has committed to undertaking further work in a number of areas in order to determine exactly how some of the intended provisions would work in practice.

(BEIS: Limited partnerships - reform of limited partnership law consultation response, 10.12.18)

(BEIS: Limited partnerships - reform of limited partnership law consultation response press release, 10.12.18)

Recent publications

Subscribe and stay up to date with the latest legal news, information and events...