Corporate Law Update
- The Government responds to the CJEU’s recent decision on public disclosure of beneficial owners of legal entities
- Parliament seeks views on the FCA’s recent proposed changes to structured digital reporting
- Companies House reveals its plans to introduce software-only filing of annual accounts
- The BVCA revises its standardised documents for early-stage venture capital investment
- The Investment Association publishes its shareholder priorities and IVIS approach for 2023
- The Investment Association publishes its new Share Capital Management Guidelines
In December 2022, we reported that the Court of Justice of the European Union (CJEU) had reached a landmark decision that legislation requiring that details of the beneficial owners of European Union (EU) legal entities be made available to the general public was invalid as it stood.
The principal reason was that the law allowed members of the public to access information on beneficial owners without needing to show any “legitimate interest” in obtaining that information. This was inconsistent with the purpose of the EU law in question, namely to tackle money laundering.
At the time, we mused on the potential impact of the CJEU’s decision on the UK’s own public beneficial ownership registers, namely the persons with significant control (PSC) register and the Register of Overseas Entities (ROE).
For more information on that decision and our own thoughts, see our previous in-depth article.
The Government has now published a supplementary memorandum, which sets out its views on the effect of the CJEU’s decision, as well as the compatibility of the PSC and ROE regimes with human rights legislation, including (specifically) the European Convention on Human Rights (ECHR).
The memorandum also deals with changes to the PSC regime proposed in the Economic Crime and Corporate Transparency Bill (currently making its way through Parliament), which would abolish company PSC registers and instead migrate all information to a central public register. (For more information on the Bill, see our previous in-depth article).
In short, the Government has said that, in its view, the PSC regime (both as it currently stands and as it would be modified by the Bill) and the ROE regime are proportionate and fully compliant with the ECHR. As such, it has no plans to amend either regime to restrict public access to beneficial ownership information to circumstances where an applicant can show a “legitimate interest”.
It remains the case that a PSC of a UK entity, or a beneficial owner of an overseas entity registered on the ROE, can apply for their details to be hidden from public view if, in certain circumstances, disclosure of those details would place the individual at serious risk of violence or intimidation. There is also a separate mechanism for applying for total exemption from the regimes in the interests of national security or preventing or detecting serious crime.
The supplementary memorandum states these protections will continue under the new Bill and, indeed, might even be expanded.
Parliament has published a call for evidence on proposals by the Financial Conduct Authority (FCA) to make changes to parts of its Handbook.
The House of Commons Treasury Sub-Committee on Financial Services Regulations is asking for views on (among other things) the FCA’s recent consultation on reforms to the requirement for certain UK issuers to prepare their annual accounts and reports using structured digital reporting formats. For more information on that consultation, see our previous Corporate Law Update.
The Sub-Committee has said it welcomes industry and other potentially affected parties getting in touch with specific concerns about the FCA’s consultations.
It has asked for submissions by 21 February 2023.
Companies House has published a blog setting out its plan to require all companies to file their accounts using software, rather than via paper or online services. When it becomes law, the Economic Crime and Corporate Transparency Bill (which is currently making its way through Parliament) will give the registrar of companies the power to mandate how companies file their annual accounts. Companies House intends to remove all other routes for filing accounts and will accept only accounts filed via software. Companies House believes that software filing offers many advantages: it enables wider tagging of accounts data, making it easier for users to search and analyse accounts, and it is a cost-effective and sustainable means of filing accounts. Companies House encourages companies that have not already done so to make the change to software filing now.
The British Venture Capital Association (BVCA) has published revised versions of its model documents for use in early stage venture capital investments, comprising model articles of association and subscription and shareholders' agreements.
The Investment Association (IA) has published its shareholder priorities for 2023, including the approach its research and monitoring arm, IVIS, will take to colour-topping issuers.
The key points are set out below.
- IVIS will continue to amber-top any companies that do not make disclosures in their annual report against all four pillars of the Recommendations of the Taskforce for Climate-related Financial Disclosures (TCFD).
- IVIS will monitor closely the quality of disclosures around climate-related targets, including whether companies have disclosed the framework or methodologies used to set their targets.
- Companies should disclose how climate-related scenario analysis impacts their business model and strategy.
- IVIS will continue to monitor whether companies have stated that the directors considered the relevance of climate and transition risks associated with the transition to net-zero when preparing and signing off on the company accounts.
- Audit committees will be expected to provide targeted disclosures on the following three areas: (i) how they have assessed the quality of the audit, (ii) how the auditor has demonstrated professional scepticism and (iii) how the auditor has challenged management’s assumptions where necessary.
- For 2023, IVIS will increase its 2022 gender diversity targets by 2% in line with its aim of meeting the targets proposed by the FTSE Women Leaders Review by 2025.
- IVIS will red-top FTSE 350 companies where women represent 35% or less of the board and 30% or less of the executive committee and their direct reports.
- IVIS will maintain its approach to red-topping FTSE Small Cap companies where women represent 25% or less of the board and 25% or less of the executive committee.
- IVIS will assess whether companies are meeting the new requirement under Listing Rule 9.8.6(9)R for companies to disclose on a ‘comply or explain’ basis whether at least one of four senior positions on the board (chair, chief executive, senior independent director or chief financial officer) is held by a woman. At this stage, IVIS will not colour top on this issue. For more on this new Listing Rules requirement, see our previous Corporate Law Update.
- IVIS is not changing its approach to ethnic diversity for 2023. IVIS will continue to red-top FTSE 100 companies that have not met the Parker Review target of one director from a minority ethnic group. IVIS will continue to amber-top FTSE 250 companies that do not disclose either the ethnic diversity of their board or a credible action plan to achieve the Parker Review targets by 2024.
- IVIS will monitor areas of the annual report which reflect engagement with stakeholders on the cost-of-living crisis.
The Investment Association (IA) has updated its Share Capital Management Guidelines (Guidelines) for the first time since 2016. The new Guidelines reflect the recommendations of the Secondary Capital Raising Review (SCRR), published in July 2022, and support the updated Pre-emption Group (PEG) Statement of Principles, published in November 2022. For more information on the updated PEG Statement of Principles, see our previous Corporate Law Update.
The Guidelines continue to advise that IA members will regard as routine an authority to allot up to two-thirds of a company’s existing issued share capital. In line with the recommendations of the SCRR, however, the Guidelines now specify that any amount in excess of one-third of a company’s existing issued share capital should be applied to fully pre-emptive offers of all forms, whereas previously this authority extended only to fully pre-emptive rights issues. The Guidelines acknowledge that, for many retail shareholders, rights issues continue to be their preferred method of fully pre-emptive capital raising.
The Guidelines support the new PEG Statement of Principles, which allows the annual disapplication of statutory pre-emption rights of up to 20% of the issued share capital and an additional 4% for a follow-on offer. In line with the new Statement of Principles, the Guidelines recognise that "capital hungry companies" (companies that need to raise larger amounts of capital more frequently) may need to exceed these limits. IVIS will red-top companies (other than "capital hungry companies") that seek a routine disapplication of pre-emption rights in excess of 24% of the issued share capital. IA members also expect companies seeking to disapply pre-emption rights up to 24% of the issued share capital to follow the template resolutions in the Statement of Principles and to confirm in the notice of meeting that they will abide by the shareholder protections and approach to follow-on offers set out in Part 2B of the Statement of Principles. IVIS will red-top a company that fails to meet these expectations.