This week’s edition of Corporate highlights includes news on ESMA’s update to the MAR Q&As, Institutional Shareholder Services 2018 benchmark policy updates and three corporate governance stories on corporate reporting and combating the gender pay gap. We also have an updated Getting the Deal Though: Private M&A in 2018 practice note in our international topic area.
Equity Capital Markets
ESMA updates MAR Q&As
The European Securities and Markets Authority (ESMA) has updated its Q&A document regarding the implementation of the Market Abuse Regulation (MAR). ESMA has added two new Q&As, which relate to the interpretation of Article 19 on insider dealing and the types of ‘transaction’ by a person discharging managerial responsibilities (PDMR) prohibited during a closed period.
The first of the new Q&As clarifies that the insider dealing prohibition contained in Article 14 of MAR applies during closed periods referred to in Article 19(11) of MAR in the same way as it does at any other time, and must therefore be complied with by PDMRs. It further notes that this means that when an issuer allows a PDMR to trade under Article 19(12) of MAR, the general insider dealing provisions still apply and the PDMR must always give consideration as to whether the relevant transaction would constitute insider dealing.
The second of the new Q&As: (a) clarifies that he types of ‘transaction’ by a PDMR prohibited during a closed period under Article 19(11) of MAR are the same as those types of transaction subject to the notification requirements set out under Article 19(1) of the same regulation, and (b) further notes that Article 19(11) of MAR only applies to a PDMR when conducting transactions on its own account or for the account of a third party whereas the notification of transactions required under Article 19(1) of MAR also applies to persons closely associated to a PDMR.
For further information, see LNB News 21/11/2017 48.
Thematic reviews aim to improve corporate reporting and auditing
The Financial Reporting Council (FRC) has announced that, in 2018/19, it will supplement its routine monitoring programme with a series of thematic reviews of corporate reports and audits. The objective of the supplementary reviews is to stimulate improvement in corporate reporting and auditing.
The thematic reviews will be of certain aspects of corporate reports and audits where there is particular shareholder interest, and scope for improvement and learning from good practice.
The corporate reports and audits selected for review in 2018/19 will have regard to priority sectors, these include the financial services, oil and gas, general retailers and business support services.
For further information, see LNB News 01/01/0001 2138.
Accounts and Reports
Institutional Shareholder Services publishes 2018 benchmark policy updates
Institutional Shareholder Services (ISS) has published its 2018 benchmark policy updates. The updated policies will generally be applied for shareholder meetings on or after 1 February 2018. The principal change is the introduction of a new policy to deal with the evolving practice of virtual shareholder meetings, where the ISS generally recommends against proposals that allow for the convening of virtual-only shareholder meetings, ie a shareholder meeting that is held exclusively through the use of online technology without a corresponding physical, in-person meeting. Other changes include ones around: (a) the policies on director overboarding, which the ISS has now clarified, (b) audit and remuneration committee composition, where the ISS has clarified that such committees should be solely comprised of independent directors, (c) threshold levels for long-term incentive plans (LTIPs) and (d) share issuances without pre-emption rights.
For further information, see LNB News 17/11/2017 94.
Report shows ‘lack of clarity’ and ‘disparities’ in FTSE-100’s workforce reporting
The Pensions and Lifetime Savings Association (PLSA) has found a lack of clarity and substantial disparities in the FTSE-100’s corporate reporting practices on workforce-related issues. As well as this, the report also shows FTSE-100 companies are rarely willing to disclose information about their workforces and often only do so if legally required. The research, conducted with Lancaster University Management School, aims to find the composition, stability, skills and capabilities and engagement levels of pension funds investee companies’ workforce. 90% of schemes believe this information is determinant of their long-term performance.
The report shows, among other things that: (a) 43% of companies report how employees added value to company strategy, whereas in contrast 91% discussed the workforce in relation to risk management, (b) 4% of companies provide a breakdown of workforce by full-time and part-time workers and only 7% provide data or policies on their use of agency workers and (c) 64% of companies disclose mechanisms for dialogue between the workforce and senior management but only 9% reference trade union coverage.
For further information, see LNB News 20/11/2017 91.
Commission outlines eight priorities for combating gender pay gap
The European Commission has outlined an action plan to ‘step up’ ongoing measures to tackle the gender pay gap in 2018/19. The plan includes eight areas the Commission intends to prioritise for action which include: (a) improving the application of the equal pay principle, (b) combating segregation in occupations and sectors, (c) better valorising women’s skills, efforts and responsibilities, (d) unveiling inequalities and stereotypes, and (e) enhancing partnerships to tackle the gender pay gap..
A third of EU Member States adopted the Evaluation report of the pay transparency recommendation in 2014, which includes measures to increase pay transparency. However these appear to be ‘entirely absent’.
In 2018, the Commission will also be addressing the need to clarify the legal provisions on equal pay that are in the Directive on equal treatment between women and men in employment and occupation (Directive 2006/54/EC).
For further information, see LNB News 21/11/2017 13.
Additional Corporate updates this week
Zavarco plc v Nasir; Nasir v Zavarco plc
This case, which was heard in the High Court (Chancery Division), dealt with issues including those relating to: the proper payment method for the allotment of shares, circumstances when forfeiture of allotted shares may occur, and whether on the facts of the case a shareholder might be entitled to relief under section 606 of the Companies Act 2006 (CA 2006).
The facts of the case centred around a company, Z, which was incorporated in England and Wales. On incorporation, N had 30% of the shares in Z, which came to 360 million shares. S held 70% of the shares. Following incorporation, the whole of the ordinary share capital in a Malaysian telecommunications company, ZB, was transferred to Z. The ordinary issued shareholders of ZB included N and nominees of N.
The issue arose in the case as to whether N was obliged to pay up the 360 million shares that he had received on the incorporation of Z in cash, or whether it had been arranged or agreed that the par value would be satisfied by the transfer to Z of shares in ZB and, if it had been, what the legal consequences of that might be.
The High Court held among other matters on the facts of the case that: (a) N had been obliged to pay in cash for shares in Z, (b) Z was entitled to forfeit N’s shares, (c) Z was not estopped from asserting that N‘s shares were unpaid, (d) N’s application for relief under the CA 2006, s 606 should be dismissed, due in part to the fact N’s shares had been taken in Z on its date of incorporation, and at the date of incorporation Z had not received the ZB shares from N and (e) Z was not under an obligation to make restitution to N.
For further information, see Zavarco plc v Nasir; Nasir v Zavarco plc.
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New and updated content
New practice note
We have published the following updated practice note from our international topic area:
We have licensed the following guidance notes from ICSA:
- ICSA: The Governance Institute and The Investment Association – guidance note on Stakeholder Voice in Decision Making. The aim of this guidance is to help directors to understand and weigh-up the interests of their key stakeholders when taking strategic decisions. The guidance emphasises that stakeholder engagement, if taken seriously, will strengthen the business and promote its long-term success to the benefit of stakeholders and shareholders alike.
- ICSA: The Governance Institute guidance note on the EU General Data Protection Regulation This note provides an overview of the new legal landscape, and the strategic and practical considerations raised by the GDPR
ICSA guidance notes are widely regarded as beacons of best market practice for large listed companies. The notes are otherwise only available to ICSA members.
Dates for your diary
|30 November 2017||All AIM companies are required to register for an LEI code by 30 November 2017.
The LEI is a 20-digit, alpha-numeric code that enables identification of legal entities participating in financial transactions. In order to comply with the Markets in Financial Instrument Directive (MiFID II) which requires market operators, such as the London Stock Exchange, to collate LEI codes for each issuer with securities admitted to trading, all AIM companies will be required to register for an LEI code by 30 November 2017. The AIM application form for admission of new securities to AIM has been amended to require an LEI.
See further news, AIM Notice 47
|End of November 2017||The FRC have announced that they will publish amendments to the current guidance for auditors when agreeing to the publication of preliminary announcements of annual results by the end of November 2017.
In April 2017, the FRC issued a discussion paper which looked at options for bringing Bulletin 2008/2 up to date. Options included: converting the guidance to an engagement standard; consulting with the UKLA to require auditors to follow FRC guidance; and mandating that statutory financial statement audits should be complete before auditors agree to the release of preliminary announcements.
Stakeholders are broadly content with current arrangements and the Financial Reporting Council (FRC) will therefore only make minor amendments to the current guidance for auditors when agreeing to the publication of preliminary announcements of annual results.
For further information, see LNB News 27/04/2017 96 and LNB News 25/10/2017 114.
New Q&As added this week:
- Is it possible to make manuscript amendments to the consideration clause of a stock transfer form after execution?
- Does the allotment of preference shares in exchange for the assignment of a loan receivable fall within the remit of s 583(d) or (e) and so constitute ‘cash consideration’?
- Does a bonus issue constitute an allotment of shares for non-cash consideration for the purposes of sections 93 and 593 of the Companies Act 2006?
- Does a PSC register need to be updated twice on a transfer of shares (to reflect the initial transfer of equitable title, and subsequently, the transfer of legal title)?