Corporate Law Update: 2 - 8 March 2024
08 March 2024This week:
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- The first round of company law reforms under the Economic Crime Act 2023 are extended to limited liability partnerships (LLP)
- New measures have come into effect to make it easier to remove incorrect information held at Companies House
- The Council of the European Union blocks the proposed EU Corporate Sustainability Due Diligence Directive
- The court confirms that statutory limitation periods apply to petitions for unfair prejudice
- The Pre-emption Group publishes a report on the application of its 2022 Statement of Principles on disapplying pre-emption rights
Company law reforms extended to limited liability partnerships
On Monday, 4 March 2024, regulations were published which applied the first company law reforms, set out in the recent Economic Crime and Corporate Transparency Act 2023, to limited liability partnerships (LLP), beginning that day.
The final regulations follow draft regulations published in December 2023.
The regulations make the following key changes to LLPs, most of which mirror the corresponding changes for companies.
- An LLP must ensure that its registered office is situated at an “appropriate address” where it can acknowledge receipt of documents.
- An LLP must also provide, with its next annual confirmation statement, a registered email address to which Companies House can send electronic communications.
- It is not possible to register an LLP under a name designed to facilitate criminal purposes, which suggests a connection with a foreign government, or which contains computer code.
- A person may not be a member of an LLP if they are disqualified from acting as a company director. If a member becomes disqualified, the members of the LLP are required to remove that member. If they fail to do so, they commit a criminal offence.
This last point is important for existing LLPs. There is no power to expel a member of an LLP under statute. The members of an LLP can do so only if the LLP agreement permits them to.
LLPs and their members will therefore need to consider whether they need to amend their existing LLP agreement to ensure they can remove a member who becomes disqualified from acting as a company director. One way to achieve this is to introduce a provision into the LLP agreement stating that a person automatically ceases to be a member of the LLP in those circumstances.
You can access the Limited Liability Partnerships (Application of Company Law) Regulations 2024 here. However, the Regulations are not straightforward to follow, as they amend previous regulations which, in turn, apply modifications to the Companies Act 2006. If in doubt, therefore, you should contact your legal adviser for more information.
New measures in force to correct inaccuracies at Companies House
Among the company law reforms that came into force on Monday, Companies House now has greater powers to address incorrect and inconsistent information on the various registers it keeps.
To this end, Companies House has published new guidance on removing information held by it. The guidance states that the Registrar of Companies will remove information if she is satisfied that:
- information in a document is false;
- a document has been sent without the company’s knowledge or authorisation; or
- a document records a transaction that never occurred.
A person can apply to Companies House to remove information if:
- that person’s details have been used without their knowledge or authorisation;
- a filing has been made in respect of that person’s company without its authority; or
- a filing reflects a transaction that did not occur.
The applicant will need to provide details of the information they want removed. The application will need to include as much information and supporting evidence as possible.
To apply to remove information, a person must contact Companies House using one of the contact methods provided. There is no specific form to be used. In the case of a dispute between more than one person, Companies House may require a declaration or order of the court to proceed.
Separately, Companies House has now provided a new Form RP08, to be used when applying to remove information or material that was not properly delivered to Companies House.
This power is wider and allows any person to apply to Companies House to remove information that has been filed but should not have been.
Read the new Companies House guidance on applying to remove information from Companies House
Access new Companies House Form RP08 to apply to remove information at Companies House
European Council rejects proposed corporate sustainability due diligence measures
The Council of the European Union has rejected proposals to require large businesses to carry out due diligence to identify impacts on human rights and the environment.
In June 2023, we reported that the European Parliament had formally adopted its negotiating position with regard to the proposed EU Corporate Sustainability Due Diligence Directive (CSDDD). That Directive would have required very large EU companies, and certain non-EU companies, to carry out targeted due diligence on their own operations and those of their subsidiaries and partners.
However, the Council has rejected the Parliament’s proposals, effectively leaving the proposals in limbo pending the upcoming European Parliament elections in June 2024.
It is rare for the Council of the European Union to outright block legislation proposed by the Parliament in this manner. The move appears to follow concerns emanating from certain EU Member States, most notably Germany and, more recently, France, about the impact of the proposals on the competitiveness of EU businesses.
Watch the press conference on the EU Corporate Sustainability Due Diligence Directive
Court clarifies limitation period applies to unfair prejudice petitions
The Court of Appeal has settled an area of uncertainty under UK law, clarifying that petitions for unfair prejudice under the Companies Act 2006 are subject to statutory limitation periods.
Under the Limitation Act 1980, certain types of legal claim in the UK are barred after a stipulated period of time has passed. Normally, this is six years or 12 years, depending on the type of claim.
For some time, it had been assumed that no statutory limitation periods applied to unfair prejudice petitions. This meant that respondents to a petition have historically had to persuade the court to use its discretion not to award a remedy where a petitioner has delayed in bringing proceedings.
However, in THG plc v Zedra Trust Company (Jersey) Ltd [2024] EWCA Civ 158, the Court of Appeal confirmed that statutory limitation periods do apply to unfair prejudice petitions.
But, to add confusion and complexity, the length of the limitation period will vary depending on the remedy a petitioner is seeking from the court. In other words, there is no single limitation period for bringing an unfair prejudice petition.
Access the Court of Appeal’s decision on limitation periods on unfair prejudice decisions in THG Group plc v Zedra Trust Company (Jersey) Ltd [2024] EWCA Civ 158
Pre-emption Group publishes annual review of compliance with its Principles
The Pre-emption Group (PEG) has published a report monitoring use of its Statement of Principles for disapplying pre-emption rights on issues of shares.
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 suggested limits within which companies can disapply statutory pre-emption rights.
PEG last updated its Statement of Principles in November 2022 following the UK’s Secondary Capital Raising Review. In doing so, it raised the thresholds above which listed companies are expected to issue shares on a pre-emptive basis (and below which they do not need to apply pre-emption rights).
The Principles permit listed companies to issue up to 10% of their share capital non-pre-emptively for general capital purposes and a further 10% for an acquisition or specified capital investment (both raised from a previous threshold of 5%). In each case, the company can also allot a further 2% non-pre-emptively for a “follow-on issue” designed for retail shareholders, provided that certain “soft” pre-emption rights are applied.
The Principles are not binding on listed companies, but they guide shareholders on how to vote on resolutions to disapply statutory pre-emption rights. In practice, they are closely followed.
The report covers FTSE 350 AGMs held between 4 November 2022 and 31 July 2023, encompassing a total of 289 companies. The key findings are as follows.
- 55.7% of FTSE 350 companies sought the enhanced disapplication authority under the revised Principles. However, most FTSE 100 companies (61%) stuck with the old 5% thresholds, whereas most FTSE 250 companies (64%) utilised the new 10% thresholds or exceeded the thresholds.
- 65.7% requested authority for both general corporate purposes and a specified capital investment.
- 98.3% saw all their disapplication resolutions passed by shareholders.
Read the Pre-emption Group’s press release on the application of its revised Statement of Principles
Read the Pre-emption Group’s 2022 Statement of Principles on pre-emption rights (opens PDF)
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