Corporate Law Update: 18 - 24 November 2023

24 November 2023

This week:

FRC publishes annual review of corporate governance reporting

The Financial Reporting Council (FRC) has published its annual review of corporate reporting.

The review covers reporting by 100 premium-listed companies that are required by the Financial Conduct Authority’s Listing Rules to comply or explain against the UK Corporate Governance Code.

The FRC reports the following findings from its review:

  • there were “too many examples of unconvincing boilerplate reporting” which did not meet stakeholder needs. Companies should state how any alternative arrangements delivered benefits;
  • there was little year-on-year improvement in the quality of reporting on risk and internal controls. The majority of companies did not demonstrate robust systems, governance and oversight;
  • there was a commendable focus on workforce engagement. The FRC would like companies to build on stakeholder engagement reporting by reflecting on feedback and its impact on decisions;
  • reporting on governance outcomes should be strong, clear and informative and not simply repeat generic language; and
  • companies should focus on actual practices, rather than policies and procedures, and avoid box-ticking to demonstrate that they are well-governed and sustainable and able to deliver investment, growth and competitiveness.

Read the FRC’s 2023 Review of Corporate Governance Reporting (opens PDF)

Glass Lewis publishes 2024 voting guidelines

Shareholder proxy advisor Glass Lewis has published its 2024 UK Benchmark Policy Guidelines.

The Guidelines set out the basis on which Glass Lewis will advise shareholders how to vote on resolutions proposed by FTSE listed companies during the 2024 AGM season.

Areas of enhanced focus in 2024 include director attendance at board meetings (with Glass Lewis recommending voting against the re-election of any director who fails to attend at least 75% of board meetings), interlocking directorships, director accountability for climate-related issues, and cyber risk oversight.

The updated guidelines also provide clarification on matters the proxy advisor will take into account when issuing recommendations for votes on annual reports and accounts and director remuneration reports and policies, as well as the application of the guidelines to standard-listed companies.

Read the Glass Lewis 2024 Benchmark Policy Voting Guidelines for the United Kingdom (opens PDF)

FCA censures company for market abuse due to inaccurate financial statements

The Financial Conduct Authority (FCA) has censured a company for market abuse due to understatements in its financial statements.

The company had a premium listing and was admitted to trading on the Main Market of the London Stock Exchange. It was therefore subject to the UK Market Abuse Regulation.

In March 2019, it published its financial report for the year ending 31 December 2018. The report showed total group debt of $1.99bn. However, in fact, the total debt was $5.91bn.

In August 2019, it published financial statements for the six months ending 30 June 2019. Those statements showed group debt of $2.1bn, but the debt was, in fact, $6.2bn.

The errors stemmed from the dual sets of partial accounting records kept by the company throughout the period in question, which included spreadsheets that recorded certain borrowings as “non-showing”. The result was that they were not included in figures reported to the market.

In addition, the company had guaranteed supply chain facilities for another group company. These were related party transactions that should have been shown in its financial statements but were not.

After discovering these issues, the company entered into administration. The FCA therefore declined to impose a fine on the company, as it would detract from funds available to creditors.

Read the FCA’s final notice and censure on a company for market abuse stemming from inaccurate financial statements

Government confirms next steps for invoice payment reporting

The Government has provided more detail on the changes it intends to make to the current regime under which large businesses report on their invoice payment practices.

In January 2023, the Government launched a call for evidence on the regime, which requires large businesses in the UK to publish half-yearly reports setting out their practice for paying supplier invoices, as well as statistics for their actual performance in paying invoices over the preceding year.

Read our previous Corporate Law Update for more information on the Government’s call for evidence on invoice payment practice reporting.

The regime is currently due to expire on 6 April 2024.

In October 2023, the Government announced that it had decided to extend the regime and to make modifications to the statistical data that businesses are required to report.

The Government has now issued the formal response to its call for evidence, which confirms the following.

  • The regime will be extended for seven years. Unless extended again, it will expire on 6 April 2031.
  • As well as reporting the total volume of payments due (which is currently required), businesses will need to report the total value of payments due in each reporting period that have not been paid within agreed terms.
  • Changes to reported statistics will make clearer what proportion of late payments relate to disputed invoices and the intersection between payment dates and supply chain finance.

The next step is for the Government to make new regulations amending and extending the regime. We will report on these when they are published.

Read the Government’s official response and next steps on the UK’s invoice payment practice reporting regime

Court confirms historic company names can be challenged

The High Court has confirmed that a person can object to a company name that was adopted before the procedure for challenging a company name came into force.

Lidl Logistics Ltd v Lidl Stiftung & Co KG [2023] EWHC 2760 (Ch) concerned a logistics company – Lidl Logistics Ltd – which had been incorporated in 2004.

In October 2008, section 69 of the Companies Act 2006 came into force. Section 69 allows a person to object to a company’s name if (broadly speaking) it is the same as a name in which that person has goodwill, or is so similar that its use in the United Kingdom would be likely to mislead.

(Under changes made by the Economic Crime and Corporate Transparency Act 2023, this will be expanded to cover the use of a name outside the United Kingdom as well. Those changes are yet to be brought into effect.)

In 2022, Lidl Stiftung, the company that ultimately owns the well-known supermarket chain across Europe and the United States, objected under section 69 to Lidl Logistics’ name on the grounds that it was too similar to the name of the supermarket chain and caused confusion.

Lidl Logistics argued that Lidl Stiftung had no right to challenge its name, because Lidl Logistics had been incorporated in 2004, before section 69 came into force, on the basis that there was a presumption that new legislation does not operate retrospectively.

The court disagreed. There was nothing in section 69 to suggest it could not operate retrospectively. The process itself built in sufficient protections to ensure that a company that had registered a name before section 69 came into force was not unfairly treated.

You can also read our in-depth piece on a recent decision on the mechanism for challenging company names for more information.

Access the decision in Lidl Logistics Ltd v Lidl Stiftung & Co AG [2023] EWHC 2760 (Ch)