Corporate Law Update: 14 - 20 October 2023
- The Government has decided to withdraw proposals for additional reporting for 750:750 entities
- When a Cayman Islands partnership became the general partner of a UK limited partnership, its partners did not automatically become partners of the UK partnership
- The Taskforce on Climate-related Financial Disclosures publishes its 2023 report on reporting against the TCFD Recommendations
- The FCA sets out its priorities for updating the UK’s asset management regime, including for AIFMs
- The European Commission adopts a law raising company size thresholds under EU law
- Companies House Direct and WebCHeck will close on 30 November 2023
- The Government is seeking views on the UK’s regulatory landscape, including interaction with the various regulators
The Government has announced that it is withdrawing draft legislation that would have introduced additional reporting requirements for so-called “750:750” entities.
The draft regulations – published in July 2023 – would have applied to each financial year of a company beginning on or after 1 January 2025 in which the company had 750 or more employees and turnover of £750m or more.
The regulations were designed to implement the outcome of the Government’s project on wider audit and corporate governance reform. They would have introduced requirements on companies to publish new resilience, audit and assurance policy, material fraud and distribution policy statements, as well as to disclose the level of distributable profits.
Following consultation with companies, the Government has now decided to withdraw these new reporting requirements and instead “pursue options to reduce the burden of red tape to ensure the UK is one of the best places in the world to do business”.
The decision comes after the Government concludes its call for evidence on the UK’s non-financial reporting framework, which, according to the Government, has identified a strong appetite from businesses and investors for reform, including to simplify and streamline existing reporting.
The Court of Appeal has held that, when a Cayman Islands limited partnership (the Cayman LP) became the general partner of an English limited partnership (the UK LP), the partners in the Cayman LP did not automatically become partners in the UK LP in their own right merely because the Cayman LP did not have separate legal personality.
By the same principle, the court also held that, when the UK LP’s business was transferred to a UK limited liability partnership (the UK LLP), the partners in the Cayman LP did not automatically become members in the UK LLP.
In the case in question, the Cayman LP had been set up to enable members and employees of an asset management firm to participate directly in investments held by the UK LP.
The general partner of the Cayman LP entered into the limited partnership agreement governing the UK LP in the name of, and on behalf of, the Cayman LP. The limited partners in the Cayman LP did not sign the limited partnership agreement for the UK LP.
The court said that, as a matter of law, it was possible for the partners in the Cayman LP to have become partners directly in the UK LP when the Cayman LP became the UK LP’s general partner.
However, whether this had happened depended on a mixture of legal and factual issues, including (most importantly) the extent to which the partners in the Cayman LP had agreed to participate in the business of the UK LP with a view to a profit.
There was no rule of law that the partners in the Cayman LP automatically became partners in the UK LP merely because the Cayman LP did not have separate legal personality.
In the circumstances, the court said that there was no evidence that the limited partners in the Cayman LP had intended to become partners in, or engage in the business of, the UK LP. Indeed, as limited partners, they were precluded form Cayman Islands law from doing so. As a result, they had not become direct partners in the UK LP.
The Taskforce on Climate-related Financial Disclosures (TCFD) has published its annual status report on company reporting against its recommended disclosures (the TCFD Recommendations).
The TCFD Recommendations are a set of eleven specific recommended disclosures designed to ensure consistency in climate change reporting by companies. The recommendations have now effectively been subsumed into the ISSB’s International Sustainability Standards S1 and S2.
Listed companies in the UK are required to report against the TCFD Recommendations or explain in what respects they have not done so. In addition, for financial years beginning on or after 6 April 2023, larger businesses in the UK must report several statutory climate risk disclosures that effectively incorporate most of the TCFD Recommendations.
The TCFD’s latest report covers annual reporting by 1,365 public companies worldwide. This includes 91 companies admitted to trading in the UK. The key points from the report are as follows.
- 58% of companies worldwide disclosed against at least 5 of the recommendations. Only 4% disclosed against all 11 recommendations. Disclosure was highest in Europe, with an average of 7.2 disclosures per company. This is not surprising, as the EU, Switzerland and the UK have now imposed some form of mandatory reporting on publicly traded companies.
- The most commonly reported disclosure (71% of companies) was the metrics the company used to climate-related risks and opportunities. An impressive 92% of European companies reported their metrics, versus 80% in Asia Pacific (APAC), 63% in the Middle East and Africa (MEA), and only 58% and 55% in North and Latin America respectively.
- The least reported disclosure (11% of companies) was the resilience of company strategy under different scenarios (“scenario-testing”). This is unsurprising, as scenario-testing has often been cited as the most challenging of the 11 recommended disclosures. Europe posted the highest number of companies that disclosed scenario-testing (24%), followed again by APAC (11%). Only 6% of North American companies followed suit.
Ashley Alder, Chair of the Financial Conduct Authority (FCA), has announced the Authority’s priorities for updating and improving the UK’s asset management regime.
The announcement is set in the context of the FCA’s new secondary statutory objective of facilitating the international competitiveness of the UK economy and its medium- to long-term growth. It confirms the following.
- Although the FCA’s evolving rulebook will diverge from EU regulations, the FCA will not pursue change purely for the sake of it. There will be sensible and proportionate sequencing.
- It intends to streamline the current Alternative Investment Fund Managers (AIFM) regime, creating a consistent set of rules across all types of asset manager, operating proportionately depending on the nature and scale of a firm’s business.
- In particular, the FCA is considering whether to ease some of the requirements on AIFMs, including the duty to report acquisitions and disposals of control of non-listed companies.
As a next step, the FCA will be consulting on the AIFM regime in 2024.
The European Commission has adopted a directive raising the thresholds for different company sizes under European Union law.
Under EU law, as under UK law, companies and groups are classified into one of four sizes – micro, small, medium and large – for each of their financial years according to their balance sheet total, net turnover and average number of employees during that year.
Size classifications are used principally to determine the nature and extent of a company’s or group’s public financial and non-financial reporting obligations.
The Commission has raised the balance sheet and turnover thresholds for all company sizes by 25% to reflect inflation within the eurozone. One consequence of this is that many companies that would otherwise have fallen within the EU’s sustainability reporting requirements will no longer do so.
The changes take effect for financial years beginning on or after 1 January 2024, but EU member states have the option of allowing companies within their jurisdiction to apply them to financial years beginning on or after 1 January 2023.
The proposals do not affect company size thresholds within the UK, but they may affect UK companies that are subject to EU financial and non-financial reporting requirements.
Companies House has confirmed that the Companies House Direct and WebCHeck services will both close on 30 November 2023.
Both services are being retired because they are no longer fit for purpose, do not meet appropriate accessibility standards and operate on outdated technology.
Companies House has instead directed customers to its free-to-use “Find and update company information” service. That service provides information on UK-registered companies, limited liability partnerships (LLPs) and limited partnerships, as well as on overseas companies and branches registered in the UK and overseas entities registered on the UK’s Register of Overseas Entities.
The Government has published a call for evidence seeking views on the general regulatory landscape in the UK. The consultation forms part of the Government’s broader project on smarter regulation.
The call for evidence does not focus on any particular sector or regulator, but rather asks for feedback on any regulator or regulatory framework within the UK or any part of it.
Particular items on which the Government is inviting comments include:
- how easy it is to navigate the current landscape of regulators and their objectives;
- how quickly regulators make decisions and whether they have the right skills to deliver effectively;
- how regulatory authorities are governed and how well they deliver outcomes and communicate their decisions; and
- whether there are international examples of best practice that regulatory authorities could adopt.
The call for evidence does not cover regulators in the financial services sector.
The Government has asked for feedback by 7 January 2024.