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In this issue
News
FRC publishes update on Guidance on the Strategic Report
On 16 June 2022, the Financial Reporting Council (FRC) published an updated version of its Guidance on the Strategic Report. The updated Guidance now addresses the requirement for publicly quoted companies, large private companies and LLPs to disclose climate-related financial information in line with the TCFD Recommendations in their annual reports for financial years beginning on or after 6 April 2022. Amendments were also made to the definition of a public interest entity (PIE) to align it with the existing legislation
BEIS publishes first report on National Security Investment Act 2021 regime
On 16 June 2022, the Department of Business, Energy and Industrial Strategy (BEIS) published its first annual report on the National Security Investment Act 2021, covering the period from commencement of the Act (4 January 2022) to 31 March 2022.
In the three-month period covered by the report:
- 222 transactions were notified to the Investment Security Unit.
- 17 transactions were called in for further assessment, and 14 were still under assessment as at 31 March 2022.
- 24 working days is the average time to call in mandatory notifications
- 23 working days is the average time to call in voluntary notifications
Law Commission publishes options paper on reforms to corporate criminal liability
On 10 June 2022, the Law Commission published a paper outlining options for reform to the law on corporate criminal liability. The paper sets out several potential reforms, including:
- Increasing the scope of attributing liability to a company if a member of senior management engages in, consents to or connives in an offence.
- A requirement for large companies to report on anti-fraud procedures (the Government has confirmed it will proceed with this proposal).
- Introducing a new offence of failure to prevent fraud by an employee or agent if the company has failed to put appropriate measures in place.
- Introducing other new “failure to prevent” offences e.g. failure to prevent human rights abuses, ill-treatment or neglect and computer misuse.
The option remains for maintaining the status quo (which generally requires an individual to be the "directing mind and will" of the company before their criminal acts can be attributed to the company). However, approaches based on the principle of respondeat superior, under which the criminal acts of any employee can be attributed to a company, where they were committed in the course of their employment and with an intention to benefit the company, were ruled out by the Law Commission.
Legislation
Commencement regulations relating to Economic Crime (Transparency and Enforcement) Act 2022 made
The Economic Crime (Transparency and Enforcement) Act 2022 (Commencement No. 2 and Saving Provision) Regulations 2022 were made on 9 June 2022 and came into force on 15 June 2022. These Regulations bring into force Part 3, Chapter 1 of the Economic Crime (Transparency and Enforcement) Act 2022 which enables civil monetary penalties to be imposed on a strict liability basis for breaches of financial sanctions that are committed after 15 June 2022.
Case Law
Court orders winding up of publicly traded company on the grounds of loss of purpose or substratum
In this case, the High Court considered a petition to wind up a public company (Klimvest plc) traded on Alternext, on just and equitable grounds under section 122(1)(g) Insolvency Act 1986. In what is believed to be the first order of this kind for a publicly traded company, the High Court ordered the just and equitable winding up of the company on grounds of loss of purpose or substratum.
The company’s core business was the design and marketing of training, support and translation software for computer applications. It sold all its assets to a private equity buyer in 2019, following which two of the three founder shareholders disagreed with the other on the future direction of the company. One of the founder shareholders then brought a petition to wind up the company.
It is noted that section 122(1)(g) is an exceptional remedy of last resort and, under section 125(2) of the Insolvency Act, the Court should decline to make a winding up order where an alternative remedy (such as an unfair prejudice petition or an offer to buy the petitioner’s shares) is available and the petitioner acts unreasonably in not seeking the alternative. Having considered the company’s main or paramount object, the judge concluded that the loss of substratum ground for seeking to wind up the company had been made out. The Court considered that the petitioner had not unreasonably failed to pursue the only alternative remedy (an offer to buy the petitioner’s shares), and dismissed other discretionary matters that arose.
