Corporate law update: 30 October - 5 November 2021

In this week’s update: Final statement on the use of call-in powers under the UK’s national security regime, details of new mandatory climate-related financial reporting, an FRC Lab report on voluntary disclosures against the TCFD recommendations, a consultation on a new regime to allow companies to redomicile in the UK, the FTSE Women Leaders Review is announced and a few other items.

• The Government publishes a final statement of how it expects to use its call-in power under the UK's new national security regime
• The Government publishes details of new mandatory climate-related financial reporting for UK companies and LLPs
• The FRC's Financial Reporting Lab publishes a report on the quality of voluntary disclosures to date against the TCFD Recommendations
• The Government is consulting on a new regime to allow non-UK entities to redomicile in the UK without changing legal form
• The Government announces the FTSE Women Leaders Review to continue the work of the Hampton-Alexander Review
• The BVCA publishes its position on and commitment to achieving Net Zero
• The EFTA court considers whether a communication via the internet can amount to an "offer of securities to the public" requiring a prospectus
• The FRC publishes its annual review of corporate reporting and sets out its areas of focus for 2021/2022
• The FCA publishes a climate change adaptation report, with specific recommendations for listed companies

Government publishes guidance on call-in power under new national security regime

The Government has published its final statement of policy intent setting out how it expects to use its call-in power under the UK's new national security screening regime.

The Government has previously announced that the regime, set out in the National Security and Investment Act 2021, is to take effect from 4 January 2022.

The regime gives the Government the power to "call in" certain acquisitions of, or investments in, entities and assets that may pose a risk to the UK's national security. It also introduces a requirement to notify the Government of proposed acquisitions and investments in 17 "sensitive sectors".

The Government previously consulted on a draft of the statement of policy intent in July this year. See our previous Corporate Law Update for more information.

The final statement broadly mirrors the draft statement published in July, albeit with various changes of detail. The Government's official consultation response notes certain more substantive changes to the policy statement.

• The Government has clarified that it does not consider state-owned entities to be inherently risky and has amended the statement to reassure parties that most loans and conditional acquisitions will not be called in.
• The statement clarifies that the Government will assess all three relevant risk factors (target risk, acquirer risk and control risk) when deciding whether to call an acquisition in, but that it may exercise its call-in power based solely on two or only one of those risk factors.
• Finally, the Government has reiterated that words such as "economic prosperity" and "reputation" in the statement do not change the fact that the Government will use its call-in power only in connection with national security and not to further competition or economic objectives.

Framework published for mandatory climate disclosures by large companies

The Government has announced the final details of the long-awaited new framework under which the largest UK companies and limited liability partnerships (LLPs) will be required to make climate-related financial disclosures (CRFDs) in their annual report.

The announcement follows the Government's consultation on the first stage of its proposals to extend mandatory reporting against the disclosure framework published by the Financial Stability Board's Taskforce on Climate-related Financial Disclosures. For more information on that consultation, see our previous Corporate Law Update.

Alongside its announcement, the Government has published an official response paper, draft regulations to bring the regime into force and an accompanying draft explanatory memorandum. The Government also intends to publish non-binding Q&A to assist with reporting.

The Government has decided to implement its proposals largely as set out in the consultation, but with two changes. First, the new CRFD regime will be aligned more closely with the TCFD Framework. Secondly, and of critical importance to businesses, it has decided to require scenario analysis.

The new proposals will apply to companies admitted to a UK regulated market (such as the London Stock Exchange's Main Market), AIM companies, and private companies and limited liability partnerships (LLPs) with turnover above £500m.

For full details of the proposals, see our separate summary piece.

FRC publishes report on TCFD reporting ahead of the new regime

The Financial Reporting Council's Financial Reporting Lab has published a report analysing reporting against the framework published by the Financial Stability Board's Taskforce on Climate-related Financial Disclosures (the TCFD Framework).

The report has been published deliberately in anticipation of the new regime for mandatory climate-related financial reporting by UK entities (see item above). Although premium-listed commercial companies are now required to report against the TCFD Framework, the first disclosures will not be published until 2022.

The Lab's report therefore focuses on voluntary disclosures to date against the TCFD Framework. However, the recommendations in the report are likely to be of use to companies that will need to report against the TCFD Framework in the future (whether under the Financial Conduct Authority's Listing Rules or the new mandatory regime).

The key points arising from the report are set out below.

• Scenario analysis. The Lab encourages companies to give comfort that they have considered a range of scenarios and outcomes, to provide information on process, inputs, assumptions, actions and responses and to give clear information on the outcome of stress tests. Scenarios should be linked clearly to disclosures on related principal risks. Companies should explain circumstances specific to them and not provide generic narrative.
• Relationship with SECR. The report notes metrics under the Streamlined Energy and Carbon Reporting (SECR) regime may not include all entities within a group. SECR disclosures may not, therefore, be the most appropriate metrics to provide TCFD disclosure unless they are representative of the whole group's emissions.
• Presenting information. It is not always clear how companies decide which climate information to include in their annual reports and which to include in a standalone sustainability, climate change or TCFD report. Premium-listed companies should consider where to site disclosures, particularly given they will need to explain why information is stated outside the annual report. Reference to disclosures outside the annual report should be easily available, ideally using hyperlinks within the annual report.
• Questions for companies. The report contains a useful appendix of more granular questions that company boards can ask themselves when assessing disclosures against the specific TCFD recommendations.

Government consults on corporate redomiciliation to the UK

The Government is consulting on introducing a new regime to allow companies incorporated outside the UK to "redomicile" by changing their place of incorporation to the UK.

The term "redomiciliation" can describe a number of processes and transitions. Here, it describes the process by which a company or other legal entity incorporated in a particular jurisdiction moves its place of incorporation of registration (that is, it "redomiciles") to a different jurisdiction. This process is also often described as "migration" or "continuation".

Redomiciliation is already possible in many jurisdictions, including Australia, Belgium, the British Virgin Islands (BVI), Canada, Cyprus, Guernsey, Jersey, Luxembourg, Malta, New Zealand, Portugal, Singapore, Switzerland, and several states within the United States. Alongside this, a business that incorporates as a European company (a "societas europaea") can seamlessly migrate between different European Economic Area (EEA) countries.

However, it is currently not possible for a non-UK entity to redomicile in the UK, nor for a UK entity to redomicile outside the UK. Instead, to move a business to the UK, it is necessary to establish a new UK entity, which then acquires either the business and assets of the non-UK entity, or to impose a new holding company incorporated in the UK. In both cases, however, this is not a true redomiciliation, but rather a migration of the business through an asset or share sale.

To address this, the Government is proposing a new regime under which non-UK entities would be able to redomicile in the UK. The Government believes this will increase the UK's attractiveness as a destination to locate business, bring increased investment and skilled jobs into the UK, increase demand for professional services within the UK, enhance the UK's innovation base, develop the UK's capital markets and improve corporate governance and transparency within the UK.

Notably, the Government is not currently proposing to allow entities to redomicile from the UK into a jurisdiction outside the UK. A UK entity that wishes to migrate offshore would need to undertake one of the traditional, more complex routes described above. The Government has, however, asked for views on whether outward redomiciliation from the UK should also be permitted.

For full details of the proposals, see our separate summary piece.

The Government has asked for responses by 7 January 2022.

Government announces new five-year review into women's representation in listed companies

The Government has announced the creation of a new five-year review aimed at increasing opportunities for women within the UK's largest companies.

The new FTSE 350 Women Leaders Review will follow on from the work of the previous Hampton-Alexander Review, whose work concluded this year (see our previous Corporate Law Update).

In its final report, the Hampton-Alexander Review reported broadly positive results, noting that women now made up 40% of non-executive directors on FTSE 350 boards and 34.3% of board positions overall, and that there were no longer any all-male boards. However, the report also noted that 32 FTSE 100 companies and 139 FTSE 250 companies were yet to reach the target of 33% female representation on their boards, and that women accounted for only 14% of executive directors.

The FTSE Women Leaders Review has opened an online portal for FTSE 350 companies to submit gender data from Monday 1 November until Tuesday 30 November 2021. The first annual report under the new review will be published in February 2022.

Further information is available on the FTSE Women Leaders website.

Other items

• BVCA affirms commitment to Net Zero. The British Private Equity and Venture Capital Association (BVCA) has published its position on reaching Net Zero. The announcement affirms the BVCA's commitment to ensuring that the UK's private equity and venture capital industry plays a leading role in global efforts to eliminate the causes and combat the effects of climate change and sets out steps the BVCA is taking to help achieve this.
• The EFTA court considers offers of securities via the internet. The European Free Trade Association (EFTA) court has issued a decision on when an offer of shares through the internet can amount to a public offer of securities that requires a prospectus under the EU Prospectus Regulation. The court said that a communication can still be a public offer even if the full terms and conditions of the offer are not included. Even more importantly, it found that an offer through the internet which is "freely accessible" is addressed to an unlimited number of people, meaning that the frequently-used "150 person" exemption in the Regulation cannot apply. The decision has no force in the UK, and the UK courts are not obliged to follow it. However, it may be persuasive if the issue arises in the UK, and UK issuers should be mindful of it.
• FRC publishes annual review of corporate reporting. The Financial Reporting Council (FRC) has published its annual review of corporate reporting for 2020/2021. The review also sets out the "top ten" areas in which the FRC believes improvement is needed. These include judgements and estimates, revenue and cashflow statements. The FRC has also published its year-end bulletin of key corporate reporting matters, setting our areas on which the FRC will focus in the next year.
• FCA publishes climate change adaptation report. The Financial Conduct Authority (FCA) has published a report setting out how listed companies are adapting to climate change. Among other things, the report cites challenges listed companies may face in formulating and meeting net zero commitments, as well as principles which listed companies might consider when setting their commitments. The report also reiterates the FCA's intention to extend climate reporting to standard-listed companies.