Corporate Law Update: 7 - 13 May 2022

13 May 2022

In this week’s update: the government’s legislative agenda, changes to the Takeover Code, the BVCA’s 2021 review, changes to vertical block exemptions under UK competition law and the Treasury consults on a framework for companies to develop net zero transition plans.

UK Government sets out legislative agenda in Queen’s Speech

HRH The Prince of Wales has delivered the Queen’s Speech for 2022 on behalf of Her Majesty the Queen, setting out the UK Government’s legislative proposals for the current Parliamentary session.

The Government has also published a more detailed set of background briefing notes to explain its legislative agenda.

The key proposals in the areas of corporate and commercial law are set out below.

Corporate transparency and economic crime

  • The Government intends to introduce a new Economic Crime and Corporate Transparency Bill. This will supplement the Economic Crime (Transparency and Enforcement) Act 2022, which was enacted this year but most parts of which are yet to be brought into effect.
  • The Bill in part follows from the Government’s recent white paper on improving corporate transparency in the UK (see our previous Corporate Law Update). New measures will include enabling the Registrar of Companies to check, remove or decline information submitted to or on the UK’s companies register, mandatory identity verification for directors and persons with significant control (PSCs) of UK entities, and “tackling the abuse of limited partnerships”.
  • The Bill would also create powers to seize and recover cryptoassets more quickly and easily by creating a civil forfeiture power.

Reforming the financial markets

  • A new Financial Services and Markets Bill would revoke financial services laws inherited from the European Union and replace them with new regulation designed for the UK.
  • It would also reform the rules regulating the UK’s capital markets to promote investment, as well as introducing additional protections for investors and users of financial products to make them safer and support the victims of scams.

Audit reform

  • A new Audit Reform Bill would finally establish the long-awaited Audit, Reporting and Governance Authority (the ARGA), which will replace the Financial Reporting Council as the UK’s primary regulator of audit, financial and non-financial reporting and corporate governance.
  • It would also introduce a framework for managed shared audits, in which challenger firms would undertake a share of the work on large-scale audits. The scheme follows the Government’s March 2021 consultation on governance and audit (see our previous Corporate Law Update).
  • The largest private companies would be brought within the definition of “public interest entity”, subjecting these entities to greater reporting requirements, such as a requirement to publish an annual non-financial and sustainability information statement.

Modern slavery

  • A new Modern Slavery Bill would strengthen the regime under which commercial organisations that do business in the UK are required to publish an annual modern slavery statement.
  • The Bill would create areas of mandatory reporting. At the moment, the Modern Slavery Act 2015 sets out specific areas on which organisations may report, but these are voluntary.
  • It would also require organisations to publish their modern slavery statement in the Government’s modern slavery statement registry. Again, this is currently voluntary. The law simply requires an organisation to publish its modern slavery statement on its website.

Data protection

  • A new Data Reform Bill would create a “pro-growth and trusted UK data protection framework” that reduces burdens by focussing on privacy outcomes rather than “box-ticking”.
  • The Government envisages the Bill creating a clearer regulatory environment for personal data use that will fuel responsible innovation and drive scientific progress by simplifying the rules around research.
  • In particular, the Bill would allow data to be shared more efficiently between public bodies so as to improve the delivery of public services, including healthcare and security.

New rules for digital markets

  • A new Digital Markets, Competition and Consumer Bill would introduce new competition rules for digital markets. The Bill would give the Digital Markets Unit “powers to proactively address the root causes of competition issues in digital markets”.
  • The Bill would also introduce a new regime to “address the far-reaching market power of a small number of very powerful tech firms”. This would involve subjecting a small number of firms that have substantial market strength in particular digital activities to enhanced rules and obligations to “ensure they cannot abuse their dominant positions”.
  • The Bill would enhance consumer protections in digital markets by preventing fake online reviews, tackling “subscription traps” created by auto-renewals and improving the quality of alternative dispute resolution mechanisms for consumers.

Reforming retained EU law

  • Finally, the Government intends to introduce a new Brexit Freedoms Bill to enable law inherited from the European Union (“retained EU law”) to be amended more easily using secondary legislation. (The European Union (Withdrawal) Act 2018 already gives the Government power by secondary legislation to amend retained EU law to remedy any “deficiencies”. Any new legislation would presumably expand the purposes for which the Government can amend EU law.)
  • The Bill would also remove the supremacy of retained EU law as it still applies in the UK. (UK courts are currently required to interpret retained EU law in accordance with pre-Brexit case law and Directives. The new Bill would presumably modify this going forward.)

Takeover Panel implements various changes to the Takeover Code

The Takeover Panel has published a statement confirming that it has made various changes to the City Code on Takeovers and Mergers (the Code) proposed in two recent consultations.

All the changes are fairly technical. If you require any further information, please speak to your Macfarlanes partner.

Miscellaneous changes to the Code

In Response Statement RS2021/1, the Panel has confirmed numerous miscellaneous changes proposed in its consultation in December 2021. For more information on that consultation, see our previous Corporate Law Update.

The Panel has decided to implement its proposals as set out in the consultation, with amendments, through Instrument 2022/2.

The amendments are mostly minor. One amendment of note concerns the new requirement under which a person who announces a possible offer for a company must specify any minimum level or particular form of consideration they are required to offer by virtue of Rule 6 or Rule 11 of the Code.

The Panel has acknowledged comments that, at the time it is required to make this statement, a potential offeror may not be aware of any acquisitions made by persons acting in concert with it that trigger the requirement to offer a minimum level or particular form of consideration.

It has therefore clarified that, in those circumstances, the potential offeror must instead disclose the information “as soon as reasonably practicable” and, in any event, before it makes its opening position disclosure (OPD).

The Panel has also clarified that an offeree company will not be required to include this information if it makes an announcement that commences an offer period.

Acquiring shares through anonymous order books

In Response Statement RS2022/1, the Panel has confirmed changes proposed in its consultation in February 2022 to remove the restriction on acquiring shares through anonymous order books. For more information on that consultation, see our previous Corporate Law Update.

The Panel has implemented its proposals as set out in the consultation through Instrument 2022/4.

Document fees and charges

Finally, the Panel has published Instrument 2022/3, which makes certain amendments to the “Documents Charges” section of the Code.

In particular, the amendments explain that the calculation of the value of an offer should include only shares in the offeree company already in issue and should exclude any shares in the offeree company held by the offeror.

All the changes described above come into effect on 13 June 2022.

BVCA publishes 2021/2022 annual review

The British Private Equity and Venture Capital Association (BVCA) has published its annual review for 2021-2022, titled “A year of transformation”.

The review summarises the proprietary research, policy engagement, events, and other activity the BVCA conducted over the preceding year.

Specific topics covered in the review include building awareness of private capital’s public value, demonstrating economic and social value, advancing the industry’s ESG agenda, and demonstrating commitment to the path to Net Zero.

Changes to vertical block exemptions confirmed

Legislation has been published to make changes to the vertical block exemptions under UK competition law. These exemptions permit certain arrangements between players at different levels of the supply chain that might otherwise be considered anti-competitive and, therefore, unlawful.

The legislation follows a consultation by the Government in February 2022. (For more information, see our previous Corporate Law Update.) It closely mirrors the draft in the consultation earlier and will take effect from 1 June 2022 until 31 May 2028.

Government seeks views on private sector carbon transition plans

The UK’s Transition Plan Taskforce (the TPT) is seeking views on a proposed sector-neutral framework for private sector entities to transition to a low-carbon economy.

The TPT (a unit within HM Treasury) was launched this year to develop a “gold standard” for UK climate transition plans.

As part of its work, it will develop a sector-neutral framework to help financial institutions and companies across all sectors prepare rigorous transition plans to support the UK’s transition to net zero, including through disclosures on how they will achieve pledged targets.

Supplementing this framework, the TPT has also been tasked with developing sectoral transition plan templates for financial sub-sectors and key real economy sectors, as well as recommendations on using transition plans.

What is a transition plan?

A transition plan (also called a “net-zero transition plan”) is a defined strategy that outlines the steps a company or other organisation intends to take to move and adapt to a low- or zero-carbon economy.

A transition plan should go beyond merely aspirational statements and set out key milestones for the organisation to achieve and key performance indicators (KPIs) that it is on track towards its transition (such as targets for reducing greenhouse gas emissions). It should also set out tangible steps the organisation will take to achieve those targets (such as investment in low-carbon infrastructure and remodelling supply chains).

The TPT has proposed the following definition of a “transition plan”:

“A transition plan sets out how an organisation will adapt as the world transitions towards a low carbon economy. It should set out a) high-level targets the organisation is using to mitigate climate risk, including greenhouse gas reduction targets (e.g. a net zero commitment), b) interim milestones, and c) actionable steps the organisation plans to take to hit those targets.”

The TPT is now seeking evidence to assist with developing this framework. In particular, it is asking for views on the items set out below.

  • Whether stakeholders agree with the TPT’s proposed definition of a transition plan (see box above) and any potential alternative definitions.
  • The likely key users of, and key use cases for, transition plans.
  • The sectors for which the TPT should develop tailored transition plan templates and the order in which it should prioritise those sectors.
  • The extent to which it should consider issues beyond a firm’s contribution to economy-wide decarbonisation, and any potential tension between entity-level and economy-wide decarbonisation goals.
  • Which financial and non-financial frameworks and processes the TPT should consider.
  • Where companies should disclose information on their transition plans (for example, in their annual financial report, in a separate sustainability report or as a stand-alone strategy).
  • How prescriptive should the sector-neutral framework be, balancing the need for flexibility in how firms disclose their plans with the potential for easier comparison that comes with prescriptive templates (including standardised data and metrics).
  • What specific challenges small and medium-sized enterprises (SMEs) foresee when preparing or using transition plans and how the framework can address these concerns.
  • How guidance developed by the TPT can balance the need to minimise costs whilst encouraging companies to develop strategies to maximise benefits for all.
  • Whether the three principles for transition plans proposed by the TPT (namely: align with economy-wide net-zero transition; focus on concrete actions that emphasise the near term; and transparent and periodic reporting and verification) are appropriate and any other principles it should consider.
  • How can the TPT design its standards and guidance in a way that reflects differences between approaches taken in different jurisdictions.
  • The specific elements and building blocks the TPT proposes to include in the framework, whether there are any additional elements it should consider, and whether any elements pose potential substantial barriers to implementation.

The TPT has asked for responses by 13 July 2022 using a dedicated feedback form. Please see the call for evidence for more details.