Corporate law update: 8 - 14 March 2025

This week:

• Companies House publishes new dates for the commencement of voluntary identity verification and ACSP applications
• Earn-out determinations under a share sale agreement were not validly served because they did not comply with the contractual notice stipulations
• Draft regulations are published to ease the burden of directors' remuneration reporting for quoted companies
• The Parker Review publishes its annual report on ethnic diversity in public and large private company senior management
• FTSE Russell announces changes to the rules for inclusion in the FTSE UK series indices
• The FRC launches a new facility for viewing and searching structured digital financial reports
• The Government updates its guidance on the UK's invoice payment practices reporting regime

Companies House updates timetable for identity verification

Companies House has updated its transition plan timetable to provide new dates for identity verification (IDV) for directors and other individuals, and for authorised corporate service provider (ACSP) applications.

The updated timetable states that, from 18 March 2025, Companies House should be able to carry out checks on ACSPs to authorise them to carry out verification services.

A firm will be eligible to become an ACSP if it is registered in the UK and subject to the UK's anti-money laundering regime. ACSP status will be required to verify an individual's identity and to file documents on behalf of another person.

The timetable also states that, from 8 April 2025, Companies House should be able to allow individuals to voluntarily verify their identity.

Access the updated Companies House transition plan for identity verification and ACSPs

Earn-out calculations served by email did not comply with contractual notice provisions

The High Court has held that two earn-out calculations prepared by the buyer under a share sale agreement were not validly communicated to the sellers because they were not sent in accordance with the contractual notice provisions.

Hughes v CSC Computer Sciences Ltd [2025] EWHC 302 (Comm) concerned a share sale and purchase agreement (SPA), under which CSC acquired the shares in a trading infrastructure services company from certain individual sellers.

The parties agreed that part of the purchase price would be deferred and paid after completion in two tranches. The amount of each tranche would be calculated based on the target company's financial performance over those two years, amounting to a form of earn-out.

Under the earn-out mechanism, the buyer would prepare an earn-out "determination" for Year 1 after completion of the sale and "submit" it to the sellers. The sellers would then have an opportunity to dispute the buyer's calculation. The same process applied to the determination for Year 2.

The buyer prepared the earn-out determinations and emailed them to the sellers and their legal advisers. The sellers claimed that the earn-out determinations did not comply with the "notices" clause in the SPA. That clause stated:

"Any notice or other communication under or in connection with this Agreement shall be in writing and shall be delivered personally or sent by first class post pre-paid recorded delivery (or air mail if overseas) or by fax to the party due to receive the notice or communication as follows..."

The notices clause required communications governed by it to be served personally (i.e. by hand), by post or by fax. However, in this case, both earn-out determinations had been served only by email.

The court agreed that the earn-out determinations were governed by the notices clause. The clause was drafted in very broad terms and captured all types of communication.

The judge conceded that some types of non-material communications might fall outside the ambit of the notices clause. However, the earn-out determinations were part and parcel of the calculation of the purchase price and so were material communications that fell within the clause's scope.

From here on in, the decision was simple. The notices clause did not contemplate service of notices or other communications by email. The buyer had not served personally, by post or by fax, and so both earn-out determinations were invalid.

The court did find that the sellers were prevented (estopped) from denying the Year 1 determination, because they had actively contested it and engaged in discussions. However, they were not estopped from denying the Year 2 determination because they had specifically raised questions at the time as to its validity.

The judgment highlights the need to check notices provisions carefully before sending contractual communications and to ensure they are complied to the letter.

You can read more about the decision that earn-out determinations did not comply with contractual notice provisions, along with some practical tips, in our separate in-depth piece.

Access the High Court's decision in Hughes v CSC Computer Sciences that earn-out determinations did not comply with contractual notice provisions

Draft legislation published to alleviate quoted company remuneration reporting

Draft regulations have been published which, if made, would simplify the framework under which quoted UK companies are required to report on their directors' remuneration arrangements.

The draft explanatory memorandum (EM) to the draft regulations states that various requirements introduced to comply with EU law would be repealed because they overlap with pre-existing and continuing UK law requirements.

The changes would mainly affect the directors' remuneration report (DRR), which a quoted company is required to publish annually. They include the following key proposed changes.

• Director pay change. The requirement to disclose a comparison of each director's annual pay change with average employee pay change would be removed, on the basis this "overlaps" with a more detailed requirement to disclose the company's CEO pay ratio. The effect of this change would be to limit executive pay comparison to the CEO and not each individual director.
• Single figure total table. This table, which sets out each director's total remuneration, would be simplified by removing columns for total fixed and total variable remuneration. This should not reduce transparency, as those columns are merely totals of figures required in other columns.
• Share options. The DRR would no longer need to specifically call out changes to the exercise price or date for share options, on the basis that there is already adequate disclosure on options.
• Website publication. Currently, a company must ensure its DRR remains published on its website for 10 years. The regulations would change this to require publication until the DRR for its following financial year is published, bringing this in line with website publication requirements for the rest of a company's annual reports and accounts.
• Vesting and holding periods. The regulations would remove the requirement to disclose vesting and holding periods for share-based awards, on the basis that disclosure is required under the UK Corporate Governance Code. The Code operates on a "comply or explain basis". Technically, therefore, this would convert a mandatory disclosure requirement into an optional one, although we would expect most Main Market listed companies to continue to disclose this information.
• Directors' service contracts. Companies would no longer need to disclose the duration of their directors' service contracts. However, any contract for longer than two years would continue to require shareholder approval, and the UK Corporate Governance Code continues to require (albeit on a comply-or-explain basis) directors to stand for re-election every year.
• Payments outside the remuneration policy. Currently, payments to directors that fall outside a company's approved directors' remuneration policy (DRP) are prohibited. To make such a payment, a company must obtain shareholder approval for an amended policy. The regulations would change this to permit payments outside the policy provided they are approved by a shareholder vote (effectively reverting to the position before 2019).

The regulations will also remove the requirement to publish a DRR and DRP for "unquoted traded companies". Currently, this applies to a handful of companies admitted to the London Stock Exchange's Specialist Fund Segment.

Access the draft Companies (Directors' Remuneration and Audit) (Amendment) Regulations 2025 (opens PDF)

Access the explanatory memorandum for the directors' remuneration amendment regulations (opens PDF)

Parker Review publishes its latest report on ethnic diversity in senior management

The Parker Review Committee, led by Sir John Parker, has published its latest update report on progress towards improving ethnic diversity among the senior management of UK companies.

The Committee was established in 2015 to conduct an official review into levels of ethnic diversity on UK company boards. Its recommendations have been refined over time and are now as follows.

• There should be at least one ethnic minority director on each FTSE 100, FTSE 250 and large private company board by 2021, 2024 and 2027 respectively.
• FTSE 350 companies should set a target by December 2023, to be achieved by December 2027, for senior management who self-identify as being in an ethnic minority.
• Companies should develop mechanisms to identify, develop and promote people from ethnic minorities and set objectives for pipeline development.
• A company's annual report should describe its policy on ethnic diversity. Companies that do not meet recommendations by the relevant date should explain why in their annual report.

The latest report sets out progress made against the recommendations as at December 2024, based on a census of FTSE 350 boards and the 50 largest private companies. (All FTSE 100 companies, 236 FTSE 250 companies and 34 private companies responded to the census.)

The report notes the following key points.

• At least one ethnic minority director. 95% of FTSE 100 companies have met their target (the deadline for which was 2021), which is a 1-point drop from 2023. 82% of FTSE 250 companies met their target by the deadline of 31 December 2024 (up from 70% in 2023). With three years to go now, 48% of private companies surveyed have hit the target (up from 44% in 2023).
• Ethnic minority representation on boards. Ethnic minorities accounted for 19% of FTSE 100 directorships (no change from 2023), 15% of FTSE 250 directorships and 13% of private company directorships (but slightly up from 2023).
• Ethnic minority representation in senior management. Ethnic minorities represented 15% of wider senior management in FTSE 100 companies and 13% in FTSE 250 companies (both slightly up from 2023), and 13% in private companies.

Access the Parker Review reports landing page

Read the Parker Review report for 2024 (opens PDF)

FTSE Russell adjusts criteria for FTSE UK series index inclusion

FTSE Russell has announced that it is slightly adjusting its rules for inclusion in its FTSE UK series indices.

Inclusion in one of FTSE Russell's indices - particularly the FTSE 100 or FTSE 250 - is often a key driver for companies in choosing a listing venue.

From September 2025, the FTSE UK indices will open to companies whose securities are traded in non-sterling currencies (such as euros or US dollars). FTSE Russell notes that, currently, no companies are eligible for inclusion on the basis of this change, but that the change may have a longer-term impact on the composition of its indices.

FTSE Russell is also intending to modify its fast entry thresholds for companies with an investable market capitalisation of at least £1bn so as to ensure inclusion within the appropriate index within five trading days following an IPO.

Read the announcement on changes to the rules for inclusion in the FTSE Russell UK indices

FRC launches beta version of digital financial reports viewer

The Financial Reporting Council (FRC) has launched a beta version of a new digital financial reports viewer. The viewer enables users to search an organisation's annual report and accounts if they have been structured and tagged using iXBRL.

Under Rule 4.1.15R of the Financial Conduct Authority's Disclosure Guidance and Transparency Rules (the DTR), an issuer whose securities are admitted to a regulated market (such as the London Stock Exchange Main Market) must prepare its annual report and accounts in XHTML format.

Moreover, under DTR 4.1.16R to 4.1.18R, if the issuer prepares consolidated financial statements under UK IFRS, EU IFRS or an equivalent standard, it must mark up certain parts of its annual report and accounts with XBRL mark-up language using inline XBRL (iXBRL) specifications within a recognised taxonomy.

Aside from this, there is no general requirement on UK organisations to prepare their accounts in XHTML or using XBRL, and businesses may file their accounts with Companies House in PDF format.

However, HM Revenue & Customs requires businesses that file their tax returns online to mark any accompanying financial statements up using XBRL, and so businesses may find it easier to file marked-up accounts with Companies House. Indeed, the FRC reports that, out of 3.1m accounts published annually at Companies House, 88% are available in iXBRL format.

The FRC has also published a video introduction to the new viewer. It has asked for feedback during the beta phase to inform further developments and improvements.

Read the FRC's press release on its new beta version digital financial reports viewer

Access the FRC's new beta version digital financial reports viewer

Watch the FRC's video introduction to its new beta version digital financial reports viewer

Updated guidance published on invoice payment practice reporting

The Government has updated its guidance on the UK's regime for reporting on invoice payment practices.

Large UK companies and limited liability partnerships (LLPs) are required to publish a half-yearly report setting out their practice for paying supplier invoices, as well as statistics for their actual performance in paying invoices over the preceding year.

The guidance has been updated to reflect changes that will come into effect on 1 April 2025, which will require more details to be disclosed in relation to retention clauses in construction contracts.

The updated guidance also includes new worked examples.

Access the Government's guidance on the UK's invoice payment practices reporting regime