Corporate Law Update

In this week’s update: The Takeover Panel consults on amendments to the Takeover Code, the QCA annual revie of AIM company governance, a House of Common Library briefing on the dormant assets scheme, the FRC 2022/2023 areas of focus, Glass Lewis extends its guidance on executive remuneration during Covid-19 and ISS publishes its 2022 benchmark policy.

Takeover Panel consults on various amendments to the Code

The Takeover Panel has published a consultation (PCP 2021/1) setting out various proposed amendment to the City Code on Takeovers and Mergers (the Code).

The consultation closes on 18 February 2022, with the Panel expecting to set out the final amendments in Spring 2022.

The proposed changes are fairly technical. We have set the key proposed changes out below. If you require any further information, speak to your Macfarlanes partner.

  • A person who announces a possible offer for a public company would need to 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 is proposing to broaden the circumstances in which a potential offeror must make an announcement if it acquires shares in the target company after announcing a possible offer. An announcement will be required even if the potential offeror has not previously indicated its offer price or there are no competing offers.
  • A person who has made a mandatory offer (a “Rule 9 offer”) would be prohibited from acquiring further shares in the target company during the 14 days leading up to the unconditional date of an offer or the expiry of an acceptance condition invocation notice. This is to give offeree shareholders certainty over the offeror’s maximum shareholding after the offer closes.
  • The Panel is proposing to codify its existing practice that the 12-month “look-back” period for a mandatory offer, which determines the price at which a mandatory offer must be made, should end on the date on which an offer announcement should have been made (and not the date on which it was actually made).
  • The chain principle would be amended by removing the so-called “significant purpose” test and lowering the threshold under the so-called “significant interest” test from 50% to 30%.
  • The Panel is proposing to make changes to the circumstances in which a person can make another offer for a company after its preceding offer lapses. These are mainly technical or codify existing practice. However, one more substantive change would be to prevent an offeror from making a further offer for so long as there is a competing offer in play.
  • The same position would apply where a potential offeror makes a Rule 2.8 announcement (namely, that it does not intend to make an offer).
  • Clarification that custodians and depositaries will not be treated as holding interests in securities for the purposes of the Code.
  • There would no longer be any requirement to send hard copies of offer-related documents to the Panel and to the advisers to the parties to an offer. Instead, all documents would be sent in electronic form. In anticipation of making this change, the Panel has confirmed separately (in Panel Statement 2021/27) that it will no longer be accepting hard copies of documents.

QCA publishes AIM Good Governance Review 2021/2022

The Quoted Companies Alliance (QCA) and UHY Hacker Young have published their ninth annual AIM Governance Review. The Review examines key trends in the performance of AIM companies during 2021.

Key points arising out of the Review are set out below.

  • There was a gap between companies’ and investors’ views on existing capability to implement ESG. 73% of companies said they understand the impact of ESG on long-term financial performance, but only 50% of investors agreed.
  • Board performance reviews could improve. 22% of companies surveyed had no formal review. Only 22% were “proactive” in their approach, and these were mostly larger companies. The QCA Corporate Governance Code and the UK Corporate Governance Code both emphasise the need for regular board performance reviews. The QCA refers companies to its Board Performance Review Guide.
  • Disclosure against the QCA Corporate Governance Code was generally high in the areas of strategy, business model, risk management, stakeholder engagement and consideration, director independence and responsibilities, and alignment of corporate culture with strategy.
  • However, disclosure was poorer in relation to directors’ time commitments, how directors kept their skills up to date, board performance evaluation procedures, the involvement of external advisers, the evolution of the company’s governance framework, outcomes of shareholder votes, and action to be taken in response to significant shareholder votes against.
  • Very few companies identified those disclosures which they had omitted in their annual report.

House of Commons Library publishes briefing on dormant assets scheme

The House of Commons Library has published a briefing paper on the expansion of the UK’s Dormant Assets Scheme.

The Scheme allows participating banks and building societies to apply monies standing to the credit of long-dormant bank accounts towards charitable purposes if they are unable to establish contact with the owner of those monies. The monies are transferred to the Authorised Reclaim Fund – Reclaim Fund Limited – and, from there, distributed to good causes across the United Kingdom.

Under the expansion, the Scheme will apply to proceeds and distributions from other kinds of financial products and instruments, including insurance and certain retirement income policies, shares in collective investments and investment assets, and shares in certain publicly traded companies.

The Government published draft legislation in May 2021 to implement the new proposals. For more information, see our previous Corporate Law Update.

Macfarlanes is proud to have assisted the Government on the proposed expansion of the Dormant Assets Scheme

Other items

  • FRC publishes areas of focus for 2022/2023. The Financial Reporting Council (FRC) has announced its areas of supervisory focus for the forthcoming reporting year. Among other things, the FRC’s Corporate Reporting Review team will perform a thematic review of premium-listed companies’ disclosures against the Pillars and Recommendations of the Taskforce on Climate-related Financial Disclosures.
  • Glass Lewis extends Covid-19 executive pay guidance. Proxy advisor Glass Lewis has updated its guidance on executive compensation during the on-going Covid-19 pandemic, which it first published in January 2021. It has removed specific references in the guidance to fiscal years to clarify that the guidance will continue to apply throughout the course of the pandemic, particularly for companies and industries that continue to be affected.
  • ISS publishes 2022 benchmark policy. Proxy advisor Institutional Shareholder Services (ISS) has published its 2022 benchmark policy, which will apply to meetings held on or after 1 February 2022. The changes are substantially the same as proposed in ISS’ consultation last month. For more information on those changes, see our previous Corporate Law Update.