Corporate law update: 24 February - 1 March 2024

This week:

• First company law reforms under the Economic Crime Act 2023 are to come into force on 4 March 2024
• Changes to the UK's Register of Overseas Entities under the Economic Crime Act 2023 are to come into force on 4 March 2024
• A minority shareholder in a company suffered unfair prejudice when the company failed to pursue an exit
• The Investment Association publishes its 2024 letter to remuneration committee chairs
• The Financial Reporting Council announces a review of its UK Stewardship Code
• The FTSE Women Leaders Review publishes its third annual gender balance report
• The House of Lords is asking for views on the UK's Modern Slavery Act 2015

First company law reforms to tackle economic crime to come into effect on 4 March 2024

Regulations have been published which will bring the first reforms to company law, set out in the recent Economic Crime and Corporate Transparency Act 2023, into force on Monday, 4 March 2024.

The key reforms in question are as follows.

• Prohibited company names. Companies will no longer be able to adopt a name that is intended to facilitate criminal conduct, which suggests a connection with a foreign government or which contains computer code. The Secretary of State will have the power to change a name which contravenes these restrictions.
• Challenges to company names. The power to challenge registered company names will be widened. Currently, a person can challenge the registered name of a UK company if its use in the UK would be likely to mislead members of the public in the UK. This will be expanded so that a person can challenge the name of a UK company if its use anywhere in the world would be likely to mislead members of the public anywhere in the world.
• Registered office addresses. Companies will need to ensure that their registered office is situated at an "appropriate address". The means an address to which the Registrar of Companies can send correspondence and at which receipt of correspondence can be acknowledged.
• Registered email addresses. New companies will need to supply a "registered email address" to Companies House. Existing companies will need to supply a registered email address with their next confirmation statement. This must be an email address to which the Registrar of Companies can send correspondence such that it comes to the attention of someone acting on behalf of the company. The email address will not be a matter of public record.
• Disqualified directors. It will not be possible to appoint as a director a person who has been disqualified as a director. If an existing director becomes disqualified, they will automatically cease to be a director. (This is not currently the case under statute, although a company's articles normally state that a director automatically vacates office if they become disqualified.)

Separately, the Company Names Tribunal has published a notice of upcoming changes to the ability to challenge a registered company name.

Access the Economic Crime and Corporate Transparency Act 2023 (Commencement No. 2 and Transitional Provision) Regulations 2024.

Read the Company Names Tribunal's notice on reforms to the company names challenge regime.

Register of Overseas Entities changes to tackle economic crime to come into effect on 4 March 2024

Regulations have been published which will bring the first reforms to the UK's Register of Overseas Entities (ROE), set out in the recent Economic Crime and Corporate Transparency Act 2023, into force on Monday, 4 March 2024.

Under the ROE regime, an overseas entity that holds or wishes to acquire registered real estate in the UK must register with Companies House and provide details of its beneficial owners.

The key reforms in question relate to disclosure of information about trusts and are as follows.

• Trusts in an overseas entity's ownership structure. Currently, where a beneficial owner of an overseas entity is a professional trustee, the overseas entity must disclose the trustee's details (which will be public) and details of the trust itself, its beneficiaries and any settlor and protector (which will not be public). This applies only to the first trustee "up the ownership chain".
  
  Under the reform, all trustees in an overseas entity's ownership chain (and, therefore, all trusts) will need to be disclosed. As before, however, whilst details of the trustee will be publicly available, other details of the trust will not.
• Nominee arrangements over land. Where an overseas entity holds land as nominee for another person, that other person will automatically be considered a beneficial owner of the overseas entity. If that other person is a legal entity, all of its own beneficial owners will also be beneficial owners of the overseas entity. This applies even if none of those persons actually controls the overseas entity.

These changes will affect overseas entities registering for the first time with effect from 4 March 2024.

For overseas entities that are registered before 4 March 2024, the information needs to be provided with the first update statement delivered after 4 June 2024.

Access the Economic Crime and Corporate Transparency Act 2023 (Commencement No. 2 and Transitional Provision) Regulations 2024.

Shareholder suffered unfair prejudice when company did not pursue exit

The High Court has found that a minority shareholder in a company had, in principle, suffered unfair prejudice when the company failed to pursue an exit by a contractual deadline specified in a shareholders' agreement.

In the case in question, the company and its shareholders had entered into a shareholders' agreement, which required the company and its investors to work together in good faith towards an exit no later than 31 December 2019 and to give good faith consideration to any opportunities for an exit during the meantime.

For this purpose, an exit was defined as a sale of the shares in the company, or a sale of its business and assets.

The company's chair, who was also an indirect shareholder, instructed a financial adviser to begin a sale process to realise the value in the company. However, it was clear that the adviser's instruction was not limited to pursuing an exit under the definition in the shareholders' agreement, but also included other options, such as further fundraising rounds and reorganisations. Nor was the instruction to deliver an exit by the time specified by the shareholders' agreement.

The chair maintained control over the sale process and kept other board members at a distance. In particular, he deliberately excluded one of the other minority shareholders by withholding information from him and by declining to engage properly with potential sale opportunities introduced by that shareholder.

The court found this behaviour amounted to a breach by the company of the shareholders' agreement. Through the chair's actions, the company had failed to work in good faith towards an exit by 31 December 2019, and it had failed to consider the opportunities presented by the minority shareholder.

These acts, in turn, had the potential to amount to behaviour that unfairly prejudiced the minority shareholder. Whether that ultimately turns out to be the case will depend on whether the opportunities presented by the minority shareholder would have been acceptable to the company's shareholders as a whole. This will be decided at a later hearing.

Read our separate in-depth piece for more detail about the High Court's decision that a failure to pursue an exit amounted to unfair prejudice.

Access the High Court's judgment on unfair prejudice in the context of a company exit in Saxon Woods Investments Ltd v Costa and others [2024] EWHC 387 (Ch).

Investment Association publishes 2024 letter to remuneration committee chairs

The Investment Association has published its annual letter to the chairs of listed company remuneration committees.

The IA's letter normally accompanies its annual updated Principles of Remuneration. However, this year, following feedback received during 2023, the IA has decided to postpone any update until later in 2024, pending a more fundamental review of the Principles.

You can read more about the Investment Association's letter to remuneration committee chairs in this separate piece by our colleague, Ras Berglund.

Read the Investment Association's 2024 letter to remuneration committee chairs.

FRC to review the UK Stewardship Code

The Financial Reporting Council (FRC) has confirmed that it is undertaking a fundamental review of the UK Stewardship Code, which was last updated in 2019, to ensure it supports growth and the UK's competitiveness.

The review follows the publication of the 2024 edition of the FRC's UK Corporate Governance Code, most provisions of which apply to financial years beginning on or after 1 January 2025.

The Stewardship Code sets out what the FRC considers best practice for institutional asset owners and asset managers when exercising their stewardship responsibilities. Like the FRC's UK Corporate Governance Code, it operates on a "comply or explain" basis. Certain asset managers are required to report against the Code under the Financial Conduct Authority's Conduct of Business Sourcebook. Other institutional investors can apply to become "signatories" to the Code and adopt it voluntarily.

The FRC is seeking views from all stakeholders on whether the Stewardship Code is being used in its current format by asset managers, asset owners and other signatories in a manner that drives better stewardship outcomes from engagement with issuers across all asset classes.

The review will be undertaken in three phases.

1. A targeted outreach to issuers, asset managers, asset owners and service providers.
2. A public consultation after the 2024 AGM voting season during the summer months.
3. Likely publication of the revised Stewardship Code in early 2025.

The current Stewardship Code will operate for the time being. The FRC will set out a clear implementation pathway for the revised Code in due course.

Read the Financial Reporting Council's announcement on a review of the UK Stewardship Code.

FTSE Women Leaders publishes third annual gender balance review

The FTSE Women Leaders Review has published its third annual report on women's representation on company boards, looking at progress against targets during 2023.

The Leaders Review was created in October 2021 to continue the work of its forerunner, the Hampton-Alexander Review, which had previously set a voluntary target of 33% female representation on FTSE 350 boards by the end of 2020.

Following the publication of its first report in February 2022, the Review made the following changes.

• It increased the target for FTSE 350 boards and leadership teams from 33% to 40% by the end of 2025.
• It encouraged FTSE 350 companies to have at least one woman as chair or senior independent director (SID) and/or one woman as CEO or finance director by 2025.
• It extended the targets beyond publicly traded companies to the top 50 private companies in the UK (measured by sales).

The latest report notes the following.

• Women account for 42.1% of FTSE 350 board positions (up from 40.2% in the previous year) and 35.2% of combined executive committee and direct reports.
• However, women account for only 15% of FTSE 350 executive director positions.
• Among FTSE 350 companies, women account for 53 chairs (down from 55 in 2022), 162 senior independent directors (up from 130 in 2022) and 21 CEOs (down from 55 in 2022).
• 67% of FTSE 350 companies have now achieved or exceeded the target of 40% of women on their board (an increase from 55% in the previous year).
• 68 FTSE 350 companies (19%) have now met or exceeded the harder target of 40% of women in leadership positions, two years ahead of schedule.
• There were no all-male boards among the FTSE 350.

46 of the UK's largest private companies provided data for the Review. The average proportion of women on their boards was 31%, the same as in 2022, which the Review attributes to the more static nature of private company boards. Around a third of the 46 companies had hit the 40% board target.

Read the FTSE Women Leaders Review's third annual report.

Call for evidence on the Modern Slavery Act

The House of Lords has launched a call for evidence on the UK's Modern Slavery Act 2015.

The initiative has been launched by a specialist committee tasked with reviewing the effectiveness of the Act.

The purpose of the inquiry is to consider the impact of the Act and whether it is needs improving.

The House of Lords is, in particular, asking for views on:

• whether the Act has kept up to date with developments in modern slavery and human trafficking within the UK and internationally; and
• the efficacy of the Act in relation to supply chains, sanctions, reporting and enforcement.

In terms of corporate reporting, a key provision of the Act is section 54. This requires larger commercial organisations that supply goods or services in the UK to publish an annual slavery and human trafficking statement (more commonly known as a "modern slavery statement").

The statement must outline the steps the organisation has taken in the previous financial year to ensure that slavery and human trafficking are not taking place in its supply chains or any part of its own business. If the organisation has taken no such steps, the statement must say this.

The deadline for responses is 27 March 2024.

Access the House of Lords' call for evidence on the Modern Slavery Act 2015.