Corporate law update: 1 - 7 July 2023

In this weeks update:

• The EU Foreign Subsidies Regulation comes into effect on 12 July 2023
• The Investment Association publishes new guidance for institutional investors on requisitioning a resolution at a general meeting of a UK company
• The Chartered Governance Institute publishes revised materials in respect of listed company boards that are undertaking a review with an external facilitator
• The Law Commission publishes its final report on the status of digital assets as property under English law

EU Foreign Subsidies Regulation comes into effect on 12 July 2023

The European Union's new Foreign Subsidies Regulation (the FSR) comes into force on Wednesday, 12 July 2023.

The FSR gives the European Commission a suite of new powers to tackle subsidies from non-EU countries. This will complement the EU's existing state aid powers, which address governmental support by EU member states.

The FSR introduces a system of mandatory pre-closing notification and review for any merger, acquisition or new joint venture if:

• the target, the joint venture or a merging party is established in the EU and has an annual EU turnover of at least €500m; and
• the companies involved in the operation received aggregate foreign financial contributions of more than €50m from non-EU countries in the three financial years prior to notification.

You can read more about the FSR in this separate in-depth piece by our colleagues.

Investment Association publishes guidance on requisitioning resolutions

The Investment Association has published new guidance to institutional investors on how to effectively requisition a shareholder resolution of a UK company.

The guidance follows a 2020 report from the Asset Management Taskforce on how to improve stewardship and responsible investment in the UK. For more information on that report, see our previous Corporate Law Update.

The new guidance provides institutional investors with an overview of the key steps required to effectively requisition a resolution where that is an appropriate escalation mechanism. It also sets out key considerations for investors at each stage, including legal considerations, investor networks, and internal and external stakeholders that may need to be consulted, and how best to word the resolution.

CGI publishes revised materials for listed company board reviews

The Chartered Governance Institute UK and Ireland has published a revised suite of materials for board reviews carried out by external advisers.

The revised materials follow a review by an independent working group chaired by Dr Ian Peters MBE, Director of the Institute of Business Ethics. They replace the previous 2021 editions of the materials.

A revised Code of Practice sets out standards for encouraging greater transparency of how individual reviewers conduct reviews. External reviewers can sign up to the Code voluntarily. Signatories are expected to report against it on an "apply and explain" basis.

Revised Principles of Good Practice for listed companies outline how an organisation should engage with its external reviewer to achieve the maximum benefit from the engagement and give assurance to the organisation's stakeholders.

Finally, revised Guidance on Reporting on Board Reviews provides guidance to listed companies on how to report on its external board reviews in its annual report, balancing stakeholders' requirements for information with the need to avoid breaching confidentiality.

Law Commission publishes final report on digital assets

The Law Commission has published its final report on digital assets, along with a summary.

The report analyses the nature of digital assets, such as cryptoassets, and what kind of property they comprise, reaching conclusions and giving recommendations for legal reform.

In particular, the Commission concludes that digital assets already form a category of property under English law, but it recommends clarifying this property status in legislation.

It also recommends convening a panel of technical experts, legal practitioners, academics and judges to provide guidance on evolving factual and legal issues relating to control of digital assets.

In relation to companies, the Commission recommends a review of the law governing the tokenisation of equity and other registered corporate securities by UK companies. The aim would be to confirm and (where appropriate) extend the technological facilities and operational arrangements for creating, transferring and using tokenised equity and other securities.

Finally, the report makes suggestions as to how English law should develop in relation to transfers of digital assets, intermediated holding arrangements and using digital assets as collateral.