Corporate Law Update

• The Government publishes legislation to make changes to the UK’s merger control regime
• The Government publishes legislation to regulate significant digital markets undertakings
• The BVCA publishes a report on the contribution of UK private equity and venture capital
• The Financial Reporting Group publishes terms of reference for the Pre-emption Group
• Draft legislation is published to give Companies House power to issue fines for failing to comply with the Register of Overseas Entities

Government publishes draft changes to UK merger control regime

The Digital Markets, Competition and Consumer Bill has been introduced into Parliament.

Among other things, the Bill would implement changes to the UK’s merger control regime proposed by the Government in April 2022. (See our previous Corporate Law Update for more information.) These include the following.

• Raising the “turnover test” threshold. The threshold for the “turnover test” would be raised from £70m to £100m (to account for inflation). Broadly speaking, acquisitions of target businesses with turnover above this threshold would be subject to potential scrutiny by the Competition and Mergers Authority (CMA).
• New “combined test”. There would be a new test (which would be principally focused on acquirers) under which a merger could be subject to scrutiny if:
  • one of the merging enterprises has both a share of supply of at least 33% of a particular category of goods or services in the UK or a substantial part of the UK and UK turnover or more than £350m; and
  • some other enterprise concerned in the merger is carried on by a UK business or body, carries some or all of its activities in the UK, or supplies goods or services in the UK.
• De minimis exemption. A merger would fall completely outside of the UK merger control regime if the UK turnover of each merging party is less than £10m.

The Bill is currently making its way through the initial stages of House of Commons, following which it will move to report stage for more detailed consideration.

Government proposes new “digital markets” acquisition notification regime

The Digital Markets, Competition and Consumer Bill would also introduce a new regime requiring certain acquisitions within the UK’s digital markets to be notified in advance.

Under the new regime, the Competition and Markets Authority (CMA) would have the power to designate an undertaking as having strategic market status (SMS) in respect of a digital activity.

To make a designation, various conditions would need to be satisfied, including that the undertaking has substantial and entrenched market power and a position of strategic significance, and either global turnover of more than £25bn or UK turnover of more than £1bn.

In effect, this means that the CMA will be looking to designate only the very largest digital services undertakings.

Designation could result in restrictions on how the undertaking carries out its business.

In addition, a designated undertaking would be required to file a report with the CMA before it acquires a material interest in a UK-connected body corporate. This would occur where the undertaking intends to increase its stake in the body corporate above certain thresholds or pays £25m or more to acquire a new or larger stake. There would also be provisions dealing with joint ventures.

The regime would not, strictly speaking, prevent a designated undertaking from making an acquisition without CMA approval. However, an undertaking would not be able to do so unless it first files its report with the CMA and the CMA accepts that report.

The Bill is currently making its way through the initial stages of House of Commons, following which it will move to report stage for more detailed consideration.

BVCA publishes report on economic contribution of PE and VC

The British Private Equity and Venture Capital Association (BVCA), together with EY, have published a new report on the economic contribution of UK private equity and venture capital.

The report notes that the PE- and VC-backed jobs in the UK has increased by 13% to 2.2m workers since 2021 (equivalent to around 7% of all jobs in the UK).

The BVCA also reports that PE- and VC-backed businesses directly generate £137bn of GDP, a 34% increase since its last report (equivalent to 6% of the UK’s total GDP).

Pre-emption Group terms of reference published

The Financial Reporting Council (FRC) has published new terms of reference for the Pre-emption Group (PEG), following one of the recommendations of the UK Secondary Capital Raising Review.

(For more information on the UK Secondary Capital Raising Review, see our previous Corporate Law Update.)

PEG is an industry group that sets out guidance, in the form of its Statement of Principles, on the UK’s statutory pre-emption rights regime, under which companies wishing to raise finance by issuing new shares must first offer those shares to their existing shareholders. In particular, the Statement of Principles sets out limits within which companies can disapply statutory pre-emption rights.

The terms of reference set out the following (among other things).

• The role of PEG, namely to monitor practice on disapplication of pre-emption rights and compliance with its Statement of Principles and provide the market with a view on what is acceptable practice when raising capital non-pre-emptively.
• Membership of PEG, namely fourteen memberships who are representative of key stakeholders in the UK’s capital markets (with seats reserved for representatives from AfME, the QCA, the 100 Group, the ACT and the PLSA).
• Nominations for the chair and new members of PEG.
• Meetings of PEG, which will take place twice a year to consider market developments, and revisions to the Statement of Principles and PEG’s annual report on pre-emption, with additional meetings as required.

Civil fines to come for failing to comply with the Register of Overseas Entities

The Government has published draft regulations which will give Companies House the power to levy monetary penalties for failure to comply with the requirements to register on the UK’s Register of Overseas Entities (ROE).

Overseas entities that hold certain types of real estate in the UK are required to register on the ROE and provide details of their beneficial owners (and, in some cases, managing officers and any trusts in their corporate structure). Information on the entity, its beneficial owners and its managing officers is publicly available at no cost. (Information on trusts is not publicly available.)

Under the proposed power, if Companies House believes a person has committed an offence under the ROE regime, it would be able to send that person a “warning notice” explaining why it believes an offence has occurred and giving the person at least 28 days to make representations.

If, after that period, Companies House is satisfied beyond reasonable doubt that the person has committed an offence, it will be able to issue a monetary penalty up to the maximum amount of any fine a court could impose for that offence.

Assuming the draft order becomes law, the new power would come into effect on 21 June 2023.