Friday, 20 January 2017

Egypt: the Egyptian code of corporate governance

The codes and principles directory maintained by the European Corporate Governance Institute was updated earlier this month with a copy, in Arabic, of the Egyptian Code of Corporate Governance published last year: see here.

Thursday, 19 January 2017

UK: PLSA publishes updated Corporate Governance Policy and Voting Guidelines

The Pensions and Lifetime Savings Association has published an updated edition of its Corporate Governance Policy and Voting Guidelines: see here (pdf). Important changes have been made in respect of remuneration: the new guidelines recommend, for example, that where shareholders vote against a company's remuneration policy they should also oppose the re-election of the remuneration committee chair as a company director.

Wednesday, 18 January 2017

Gibraltar: the Private Foundations Bill 2017

A copy of the Private Foundations Bill 2017 has been published in the Gibraltar Gazette: see here (pdf). The Bill sets out the framework for the creation of private foundations in Gibraltar including the definition of foundations, the purposes for which they can be created, registration and accounting requirements and the duties of councillors.

Tuesday, 17 January 2017

UK: introducing the Private Fund Limited Partnership (PFLP) structure

Several days ago a draft of the Legislative Reform (Private Fund Limited Partnerships) Order 2017 was laid before Parliament together with an accompanying explanatory document: see, respectively, here (pdf) and here (pdf). An impact assessment has also been published: see here (pdf). The Order will be considered by the Parliamentary Regulatory Reform Committee and the Delegated Powers and Regulatory Reform Committee.

The purpose of the Order is to amend the Limited Partnerships Act 1907 to introduce a Private Fund Limited Partnership (PFLP) structure. The structure is intended for private investment funds (i.e., those not authorised to be promoted to retail consumers and structured as limited partnerships).

Monday, 16 January 2017

UK: Ministry of Justice seeks views on the case for new corporate economic crime offences

The Ministry of Justice published a press release last week titled "New crackdown on corporate economic crime" but all was not what it seemed at first sight, the opening line of the press release saying that "[a] call for evidence seeks views on whether further reform is needed...". The call for evidence, which focuses on criminal offences designed to punish and prevent economic crimes including fraud, false accounting and money laundering when committed by companies, is available here. Views are sought on the identification doctrine and, if needed, various reform options including the creation of new 'failure to prevent' offences adopting the model found in section 7 of the Bribery Act 2010.

Friday, 13 January 2017

India: SEBI guidance note on board evaluation

According to the Securities and Exchange Board of India, board evaluation in India is at a "nascent stage". For this reason, and against the background of the requirements in the Companies Act, 2013 and the SEBI (Listing Obligations and Disclosure Requirements)Regulations, 2015, SEBI has issued a guidance note on the nature and operation of board evaluation: see here (pdf).

Update (15 January 2017) - governance matters were discussed at the most recent meeting of SEBI's International Advisory Board: see here.

Thursday, 12 January 2017

Switzerland: Ethos publishes updated proxy voting guidelines and corporate governance principles

Ethos, the Swiss Foundation for Sustainable Development comprising Swiss pension funds and institutions, has published an updated edition of its proxy voting guidelines and corporate governance principles. An overview of the changes in the new edition is available in English here. A copy of the new guidelines and principles is available in English here (pdf).

Wednesday, 11 January 2017

UK: FRC report - developments in corporate governance and stewardship [and what next for the FRC?]

The Financial Reporting Council - the organisation responsible for the UK's Corporate Governance and Stewardship Codes (amongst many other things) - has published its annual report on developments in corporate governance and stewardship: see here (pdf).

It is reported that compliance with the UK Corporate Governance Code is high: 90% of FTSE 350 companies report that they comply with all, or all but one of the Code's 54 provisions. Full compliance has risen from 57% to 62% this year. The provision most frequently not complied with is B.1.2, which states that at least half the board, excluding the chairman, should comprise non-executive directors determined by the board to be independent.

The report is published in the year in which the twenty-fifth anniversary of the publication of the Cadbury Committee Code and Report will be marked; it was the Cadbury Committee that gave us 'comply or explain' that has since been a central pillar - indeed, foundation - of the UK's governance framework for large, listed companies since the early 1990s. A great deal has happened since the publication of the Cadbury Report and much has changed in the past year: a new prime minister in the UK who placed governance reform as part of her personal manifesto; a vote to leave the European Union; and two governance reviews are underway (see here and here), instigated for reasons that challenge the effectiveness of aspects of the UK's governance framework and, indeed, the role and effectiveness of the FRC in this regard. It is not, therefore, surprising to see today's FRC development report adopt a tone quite different from the developments report published last year.

Consolidation was the message last year - it was stated that no substantial changes were proposed to the UK Governance Code for the next three years - and no hint was given that the FRC sought wider powers. But from today's report we learn that the FRC "stands ready" to revise the Code; that it has established a Stakeholder Panel to "bring a broader range of perspectives into [its] ... policy-making and work" (the FRC's website does not, however, provide any information about the Panel, its members and the selection/recruitment process); and that the market model's "checks and balances" require reassessment and revitalisation. This is very welcome, against the background of debate about how best to achieve appropriate standards of governance and the extent to which the ethos of encouragement and reflection that 'comply or explain' seeks to promote can (and/or should) coexist with a stronger and wider enforcement role for the FRC.

Tuesday, 10 January 2017

Ireland: new code for community, voluntary and charitable organisations

Towards the end of last year an updated governance code for community, voluntary and charitable organisations was published by the Governance Code Working Group: see here (pdf). The new code, which is divided into versions for three types of organisation (small, medium and large), is accompanied by a set of stewardship guidelines: see here (pdf).

Monday, 9 January 2017

Singapore: MOF/ACRA consultation - AGMs, beneficial ownership and foreign companies seeking domicile

The Ministry of Finance and the Accounting and Corporate Regulatory Authority are consulting on proposed amendments to the legislation governing companies and limited liability partnerships. Amongst the proposals are the following: introducing a new regime for foreign companies wishing to be domiciled in Singapore; removing the requirement for private companies to hold an annual general meeting; and requiring companies and LLPs to hold and maintain beneficial ownership information and to make this available, on request, to law enforcement agencies. For further information is available here.

Friday, 6 January 2017

Denmark: recommendations on active ownership by institutional investors

The Committee on Corporate Governance has published recommendations regarding active ownership by institutional investors (aka a stewardship code): see here (Danish, pdf). The recommendations - there are seven of them and they have not yet been published formally in English - seek to promote long-term value creation; they came into effect at the start of the year.

Thursday, 5 January 2017

Netherlands: Commission report finds high compliance with code

The Dutch Corporate Governance Code Monitoring Committee published its annual governance code monitoring report at the end of December: see here (pdf). A summary is available here. The report found that compliance with the code by listed companies was high.

Wednesday, 4 January 2017

UK: England and Wales: substantial property transactions and the meaning of 'non-cash asset'

The Court of Appeal gave judgment last month in Granada Group Ltd v The Law Debenture Pension Trust Corporation Plc [2016] EWCA Civ 1289 and affirmed the first instance decision ([2015] EWHC 1499 (Ch)). A summary of the court's decision has been published by the ICLR: see [2016] WLR(D) 686.

The case concerned the operation of the rules requiring shareholder approval for certain transactions between companies and their directors (or those connected with the directors) involving non-cash assets . The meaning of "non-cash asset" was central and, in this regard, the court held (to quote the opening sentences from the ICLR summary):
As established by the authorities, section 739(2) of the Companies Act 1985 [now section 1163 of the Companies Act 2006, which defines "non-cash asset"] extended to rights that were not proprietary rights, provided that they could still be properly described as rights in or over property. An “interest in property” for the purposes of section 739(1) meant a proprietary interest ... An “interest” in property under section 739 was one that could be defined by reference to proprietary concepts, or at least by concepts that were legally recognisable and enforceable".

Tuesday, 3 January 2017

Australia: attribution, aggregation and unconscionable conduct

A few days before Christmas the Federal Court of Australia (Full Court) gave judgment in Commonwealth Bank of Australia v Kojic [2016] FCAFC 186. One of the issues before the court was whether the knowledge of officers and employees could be aggregated and attributed to a corporation for the purposes of finding that the corporation had acted unconscionably under section 51AB or section 51AC of the Trade Practices Act 1974 (or the equivalent provisions in the Australian Securities and Investments Commission Act 2001).

At first instance ([2016] FCA 368) the trial judge held that the knowledge of two bank employees should be aggregated and that the bank had acted unconscionably. The Full Court (Allsop CJ, Besanko and Edelman JJ) unanimously overturned this decision, in an important judgment exploring the scope for aggregation and the meaning of unconscionable conduct.

Friday, 23 December 2016

Season's greetings and best wishes for the new year

Season's greetings to all blog visitors and those receiving the daily email updates. I hope that you have found the contents useful and interesting over the past year.

Year ends are often a time for looking back and for reflection. You may not know that the blog has its origins in a monthly newsletter on governance that I produced for work colleagues about ten years ago. It quickly moved online - at the suggestion of a colleague now working in Australia - and the facility for daily email updates was added. My aim was to create a resource that would be useful for me, my students and my colleagues: a notepad of interesting developments to which I could return; a starting point for further research and inquiry; a way of keeping up-to-date.

What I did not envisage when I began was that the blog would be used more widely by academics across the world, by practitioners and by policymakers. Something else that I did not predict was my broadening purview. The blog started with a UK focus, but I am now particularly keen to provide updates from across the world (especially jurisdictions that do not receive much attention elsewhere) because these help to demonstrate, amongst other things, why context matters and why the UK framework is different from that found elsewhere. It can also help to illustrate similarities and, increasingly, the extent to which developments in one jurisdiction influence (appropriately or inappropriately) developments elsewhere.

I have resisted requests for advertising space (call me old fashioned, but I think that the presence of advertising can raise questions about the independence of the choices that are made about content) and, more regrettably, I have declined offers of guest contributions because I lack the time to act as editor. I do, however, welcome updates on developments from across the world and will happily acknowledge the contributor if a public acknowledgment is sought.  Whilst it's only me working on the blog, it is far from being a lonely endeavour. In this regard, I thank everyone who has been in contact with me during 2016: it has been wonderful to hear from you. Any and all feedback is welcome.

The first blog post and email update for 2017 will appear on January 3. A major task for the new year - and this is probably something I said I would do last year - will be updating the collections of links.

With best wishes for 2017,

Canada: update on governance reform legislation

A Bill that will, when enacted, make changes to the governance framework by amending the Canada Business Corporations Act, the Canada Cooperatives Act, and the Canada Not-for-profit Corporations Act, was introduced in the House of Commons earlier this year and received its first reading at the end of September. The Bill has now completed its second reading and has been referred to the Standing Committee on Industry, Science and Technology: see here. The second reading speeches can be read here.

The text of the Bill is available here and further information is available here and here. Among the changes proposed are those relating to the election of directors (including annual elections and votes for individual directors), the disclosure of information regarding board diversity and communications with shareholders.

Thursday, 22 December 2016

Europe: EMSA adopts Inline XBRL as format for annual financial reporting

Article 4(7) of the Transparency Directive 2004/109/EC, as amended by Directive 2013/50/EU, provides that with effect from 1 January 2020 all annual financial reports of issuers listed on regulated markets should be prepared in a single electronic format, providing that a cost-benefit analysis has been undertaken by the European Securities and Markets Authority. The Article also requires ESMA to develop draft regulatory technical standards to specify the electronic reporting format. ESMA announced yesterday that it had chosen Inline XBRL as the required format: see here.

Australia: review of whistleblower protections

The Australian Government has published a consultation paper as part of a review of tax and corporate whistleblower protections: see here (pdf). The Government's consultation is intended to complement the work of a recently established Parliamentary inquiry examining whistleblower protection in the corporate, public and not-for-profit sectors.

Wednesday, 21 December 2016

UK: The Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016

The Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016 were made a couple of days ago: see here or here (pdf). An explanatory memorandum is available here (pdf). The Regulations make amendments to Part 15 ("Accounts and Reports") of the Companies Act 2006 in order to implement article 1(1) and (3) of Directive 2014/95/EU on the disclosure of non-financial and diversity information by certain large undertakings and groups and article 23(1) of Directive 2013/34/EU on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings.

UK: Private Equity Reporting Group publishes ninth annual report

The Private Equity Reporting Group published its ninth annual report earlier this month: see here (pdf). The report provides a summary of conformity with the Guidelines for Disclosure and Transparency in Private Equity (often known as the "Walker Guidelines") following their introduction in November 2007. The quality of disclosures by portfolio companies covered by the Guidelines has fallen substantially: 57% of the sample (95% in 2015) were rated as good or higher. It's noted, however, that nearly half of the companies in this year's sample were new to the process.

Tuesday, 20 December 2016

UK: The Bank of England Act 1998 (Macro-prudential Measures) Order 2016

The Bank of England Act 1998 (Macro-prudential Measures) Order 2016 was made last week: see here (pdf). An explanatory memorandum is available here (pdf). The Order confers on the Financial Policy Committee the power to give directions to the Prudential Regulation Authority and Financial Conduct Authority to take action concerning loan-to-value ratios and interest coverage ratios for buy-to-let mortgages.

Monday, 19 December 2016

Japan: Council of Experts - opinion statement - recommendations for asset managers and asset owners

The Council of Experts Concerning the Follow-up of Japan’s Stewardship Code and Japan’s Corporate Governance Code has published a third Opinion Statement: see here (pdf). The purpose of this third Statement is to provide recommendations for asset managers and asset owners concerning the efforts they are encouraged to make if governance reforms are to move towards substance and away from form.

Friday, 16 December 2016

UK: FRC draft plan and budget 2017/18

The Financial Reporting Council yesterday published for public comment its draft plan and budget for 2017/18: see here (pdf). The document states that improvements are needed in the operation and enforcement of the UK Corporate Governance Code (for which the FRC is responsible). The same is said about relevant law and regulation. Potentially significant changes to the Code may be required. The FRC also says that it will seek to involve a wider group of stakeholder in its work next year.  In this regard I have a suggestion: is it time for the FRC to review its own governance arrangements including the composition of its board?

Pakistan: Senate strikes down Companies Ordinance 2016

The Companies Bill 2016, drafts of which were published for consultation earlier this year, became law (as the Companies Ordinance 2016: see herepdf) earlier this year when it was promulgated by the President in the exercise of a power provided by Article 89 of the Constitution. Ordinances so promulgated can be repealed under Article 89 by either the National Assembly or Senate. This has happened: in the Senate yesterday a motion was passed by 50 votes to 18 to disapprove the Ordinance: see here (pdf). The effect is that the Companies Ordinance 1984 is restored and it seems that the Companies Bill will now be debated in Parliament and will only become law if both Houses approve.

Thursday, 15 December 2016

OECD report: the liability of legal persons for foreign bribery

The OECD has published a stocktaking report on the liability of legal persons for foreign bribery: see here (pdf). The report seeks to map the features of the liability mechanisms adopted by the 41 parties to the Anti-Bribery Convention (35 OECD countries; 6 non-OECD countries: Argentina, Brazil, Bulgaria, Colombia, Russia, and South Africa). The report is usefully read alongside data on the enforcement of the Convention published last month: see here.

Wednesday, 14 December 2016

Jersey: a register of directors and other proposals

Last month the Assistant Chief Minister, Senator Philip Ozouf, published a statement outlining Jersey's proposals for the creation of a new register of directors as well as changes to the information on beneficial ownership held on the central register: see here (pdf).

Tuesday, 13 December 2016

UK: England and Wales: LLPs and derivative claims

Last week, in Harris v Microfusion 2003-2 LLP [2016] EWCA Civ 1212, the Court of Appeal gave judgment in a case concerning a derivative claim brought by a member of a limited liability partnership. The judgment is noteworthy for a couple of reasons: (1) the discussion of the fourth exception ("fraud on the minority") to the rule in Foss v Harbottle (1843) 2 Hare 461; (2) the endorsement it provides of several first instance authorities in this field including Abouraya v Sigmund & Ors [2014] EWHC 277 (Ch). With regard to the fourth exception, Lord Justice McCombe observed (para. [33]):
.... people are free to join as members of corporate entities upon whatever terms they choose, formulated in articles of association, partnership deeds for LLPs or shareholders' agreements. They are bound by such arrangements and if majority rule is provided for, the minority is bound by the wishes of the majority. The majority can choose to excuse breaches of duty by directors, provided that the majority have not used their voting powers to confer benefits upon themselves in breach of duty and are not using the self-same powers to prevent the company from recovering the loss caused to it, in effect expropriating the minority in the process. The constraints imposed by equity make an exception to the rule in Foss v Harbottle in cases where the controlling members are precluded from ratifying the relevant breach by exercise of their majority votes. Thus, the "fraud on the minority" exception prevents directors from improperly benefitting themselves at the expense of the company".

Monday, 12 December 2016

UK: England and Wales: the status of articles of association

The ICLR has provided a summary of the recent High Court decision Gunewardena v Conran Holdings Ltd [2016] EWHC 2983 (Ch), an important and interesting case on the status of articles of association and the significance (or otherwise) of registration: see here. To quote from the summary:
There was nothing in the statutory scheme in the Companies Act 1985, as amended, which vested articles provided to the registrar with the special quality of being the real articles for all purposes. If members resolved, on an amendment by special resolution, the articles, as amended, would become the new contract and the new articles and would essentially take effect as such immediately. Their status as articles did not depend on registration ... the actual sending of the documents to the Registrar of Companies, and their appearance thereafter on the register of the company, did not have the magical effect of making the relevant form the articles of the company if that form of articles did not accurately record the proper effect of special resolutions that had been passed".

Friday, 9 December 2016

Europe: shareholder rights in EU companies - revising the Shareholder Rights Directive

The EU's committee of permanent representatives (COREPER) has today endorsed an agreement between the Slovak presidency and European Parliament representatives in respect of a new Directive to amend the existing Shareholder Rights Directive (2007/36/EC). Further information, including a summary of the proposed amendments, is available here and here.

One of the amendments will require institutional investors and asset managers to develop and disclose their policy on engagement (or explain why they have chosen not to do so); it will also require them to describe how engagement activities are integrated in their investors strategy as well as how conflicts of interest are managed. This will place onto a statutory footing what some countries already require through stewardship codes (see, e.g., the UK Stewardship Code) and is a further example of the juridification of governance norms.

Thursday, 8 December 2016

Netherlands: new corporate governance code published

The Dutch Corporate Governance Code Monitoring Committee has today published a new edition of its corporate governance code. A copy of the code (in English) is available here (pdf). The Committee has published a document, in English, explaining the main changes made in the new edition of the code: see here (pdf). At the centre of the new code is long-term value creation and, whilst its focus is on companies with a two-tier board structure, chapter five is addressed to those companies (about 10%) that have chosen to have a single board.

Wednesday, 7 December 2016

UK: FRC seeks statutory oversight over directors through new code of conduct

The Financial Reporting Council today published a letter from its chief executive to the Parliamentary Business, Energy and Industrial Strategy Committee, explaining how its recommendations on governance reform - expressed to the Committee as part of its corporate governance inquiry - could be implemented: see here (pdf). In the letter the FRC states its view that a code of conduct for directors, sitting alongside the codified duties in the Companies Act 2006, should be developed and that this code should cover ethical standards. The FRC should have, it is argued in the letter, responsibility for this code and statutory oversight over directors subject to the code. Enforcement might, it is suggested, take place through existing legislation on the disqualification of directors.

If implemented these proposals would represent a major expansion of the remit and work of the FRC. Moreover, enforcement by legal process is very different from the underpinning ethos of the UK Corporate Governance Code which relies on market enforcement (i.e., shareholders) through the concept of comply or explain.

Tuesday, 6 December 2016

USA: PCAOB imposes its largest ever civil penalty

The Public Company Accounting Oversight Board has imposed its largest ever civil penalty ($8 million). The penalty was imposed on Deloitte Touch Tohmatsu Auditores Independentes, based in Brazil, in respect of charges for issuing materially false audit reports and attempting to cover up audit violations by altering documents. Further information is available here.

Monday, 5 December 2016

Ireland: the central register of beneficial ownership

The European Union (Anti-Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2016 were commenced last month: see here (pdf). The Regulations implement the requirement in Article 30(1) of the Fourth Anti-Money Laundering Directive (Directive (EU) 2015/849) for corporate and other legal entities to hold adequate, accurate and current information on their beneficial ownership. Further information is available on the Companies Registration Office website.

Friday, 2 December 2016

UK: IFRS and UK company law

The chairman of the House of Lords Economic Affairs Committee, Lord Hollick, has written to the chief executive of the Financial Reporting Council seeking answers to four questions concerning (a) the potential conflict between International Financial Reporting Standards and UK company law; and (b) the concept of prudence: see here (pdf). The letter comes not long after Local Authority Pension Found Forum wrote to FTSE350 chairmen (here, pdf), reiterating its belief that the FRC's position (here, pdf) should be disregarded if directors were to discharge their duties lawfully in preparing accounts and making lawful distributions.

Thursday, 1 December 2016

UK: CMA secures its first director disqualification for breach of competition law

The Competition and Markets Authority has secured its first disqualification of a company director for a competition law infringement: see here. The individual was managing director of a company that operated online and used automated repricing software to implement an illegal cartel.

Tuesday, 29 November 2016

UK: Government publishes corporate governance reform green paper

The much anticipated green paper on corporate governance reform was published this afternoon by the Government: see here (pdf). The paper seeks views on options for reform in three areas: the influence of shareholders on executive pay; the connection between boards and stakeholders including employees and small suppliers; and the extent to which governance norms that currently apply to large listed companies should be extended to the largest privately held companies.

Monday, 28 November 2016

UK: the regulatory framework for insurance special purpose vehicles

HM Treasury has published for public comment the following Regulations that will implement the new regulatory and tax framework for insurance special purpose vehicles (ISPVs), also known as insurance linked securities vehicles: the Risk Transformation Regulations 2017 (pdf) and Risk Transformation (Tax) Regulations 2017 (pdf). The Regulations are accompanied by a consultation paper: see here (pdf).

HM Treasury have decided, following an earlier consultation, that a protected cell company structure should be provided for multi-arrangement ISPVs. The duties of directors of protected cell companies will be the same as for other directors under the Companies Act 2006. The incorporation and registration of protected cell companies will be the responsibility of the Financial Conduct Authority.

The Treasury's consultation is taking place at the same time as a consultation on the authorisation and supervision of ISPVs by the Prudential Regulation Authority and Financial Conduct Authority: see their joint consultation paper here (pdf). This paper contains, amongst other things, a draft PRA supervisory statement and proposed amendments to the PRA Rulebook.

UK: Government green paper on corporate governance

The Financial Times newspaper reports that the Government's green paper on corporate governance will be published tomorrow and that this will set out proposals for, amongst other things, an advisory role for worker representatives on remuneration committees and the mandatory publication of pay ratios.

Friday, 25 November 2016

UK: The Purposeful Company - interim report on executive remuneration published

The Big Innovation Centre, as part of its Purposeful Company project, has today published an interim report on executive remuneration: see here (pdf). The report sets out to provide (to quote directly from it) "a provocative challenge to the received wisdom on executive pay". This challenge extends to some of the common policy proposals in this area (e.g., pay ratios).  Four policy proposals, with supporting rationale and analysis, are put forward for discussion (again, to quote directly from the report):
  • Shareholder guidelines and the UK Corporate Governance Code should enable companies to adopt simpler pay structures for CEOs based on long-term equity and debt holdings to encourage long-term behaviour and to avoid the unintended consequences of over-reliance on performance-based incentives.
  • Companies should be required to publish a Fair Pay Charter explaining policy and outcomes for wider employee pay and fairness and to engage with employees on its content including specified disclosures on pay comparisons.
  • The Directors’ Remuneration Reporting regulations should be updated to enable greater stakeholder understanding of a company’s maximum pay and relationship between pay and performance.
  • A binding vote regime should be triggered when companies lose, or repeatedly fail to achieve a threshold level of support on, the advisory remuneration vote.

Thursday, 24 November 2016

UK: OTS final report on a new business structure - the SEPA

The Office of Tax Simplification has published its final report on a new business structure - the Sole Enterprise with Protected Asset (SEPA) - that is designed to allow traders to protect their primary residence while continuing to operate as a sole trader. The OTS believes that the SEPA would obviate one of the principal non-tax reasons for incorporation - limited liability - and, as such, enable those trading through the SEPA to be subject to simplified tax and accounting requirements. It would, in other words, provide sole traders with what they seek when choosing to incorporate whilst retaining the simplicity of operating as a sole trader. A copy of the final report is available here (pdf).