Welcome to the latest edition of Corporate Update, our fortnightly bulletin offering a two-minute read of the latest developments which we consider relevant to corporate counsel. Please get in touch with your usual contact if you want to explore any of the topics covered in more detail. If you would like to subscribe to this bulletin as a regular email, please click here.
In this issue
News
BEIS publishes independent review of net-zero targets
On 13 January 2023, the Department of Business, Energy and Industrial Strategy (BEIS) published Mission Zero, an independent review of the UK government’s approach to delivering net-zero targets. The report sets out a large number of recommendations, including some of relevance to UK companies, relating to areas such as corporate reporting, corporate governance, and listing and prospectus reforms. Key recommendations in these areas include recommendations for:
- the government to endorse and implement the International Sustainability Standards Board (ISSB) standards as soon as possible, and aim for 2024/25 as the first sustainability reporting cycle for in-scope companies. Companies should be encouraged to apply the ISSB’s standards voluntarily in 2023/24. Once more developed, and in line with previous government commitments, UK Transition Plan Taskforce (TPT) standards for net zero transition plans should be made mandatory for both listed and private companies.
- the FRC to update the UK Stewardship Code as part of its review at the end of 2023 to reflect sustainability goals and the net-zero transition.
- the government and the FCA to review the prospectus and listing regimes to encourage integrity and growth in the market for green finance instruments, to support the transition to net zero.
- the FCA to build on its proposed Sustainability Disclosure Requirement and investment labels to combat greenwashing.
FCA consults on digital reporting of annual financial statements
On 12 January 2023, the Financial Conduct Authority (FCA) published consultation paper (CP23/2), proposing changes to its existing rules on structured digital reporting of annual financial statements (ESEF reporting). These rules generally require issuers required to comply with DTR 4.1 to prepare, publish and file their annual financial report with the FCA in an electronic format, with the financial statement within it to be in a structured digital format. The proposals are aimed at simplifying the existing structure of the current rules. As part of the proposals, the FCA is proposing to issue new guidance in a Technical Note, indicating what it considers to be “generally accepted taxonomies” and updating the list of taxonomies to reflect new taxonomy updates published during 2022.
The consultation will close on 24 February 2023, with changes expected to be made as soon as practicable in Spring 2023.
BEIS publishes updated guidance on registration of overseas entities
On 12 January 2023, BEIS published updated guidance on the registration of overseas entities on the UK Register of Overseas Entities. Overseas entities which own or wish to acquire UK property must register with Companies House and provide information on their beneficial owners pursuant to the Economic Crime (Transparency and Enforcement) Act 2022.
The updated guidance follows the coming into force of, and reflects changes made by, the Register of Overseas Entities (Verification and Provision of Information) (Amendment) Regulations 2022, which amend the verification regime for information provided in relation to the registration process, including (amongst other things) an amendment to allow certain information relating to beneficial ownership to be verified on the basis of documents or information from a non-independent source.
The deadline for registration of overseas entities and their beneficial owners is 31 January 2023.
Legislation
Finance Act 2023 comes into force
On 10 January 2023, the Finance Bill 2022-23 received Royal Assent, thereby becoming the Finance Act 2023. The Act puts on statutory footing some of the fiscal measures announced by the Chancellor in his Autumn Statement, including the increase in the Energy Profits Levy by 10 percentage points to 35% for accounting periods on or after 1 January 2023 and increased tax reliefs in certain areas, such as research & development.
Market Insights
Practical Law publishes report on public M&A trends in 2022
Practical Law has published its annual report on trends, highlights and developments in UK public M&A activity over the past year. The report focuses on companies traded on the Main Market or on AIM which are subject to the Takeover Code. Key findings include:
- 46 firm offers were announced for Main Market or AIM Companies that were subject to the Takeover Code, down from 55 in 2021. Only 13 of these had a value over £1 billion, down from 21 in 2021.
- Shareholder activism levels have continued to increase, carrying on a trend which has been emerging over recent years.
- 80% of firm offers were recommended by the target board.
- Private equity backed firm offers made up 35% of the total amount, down almost half from 60% in 2021.
Case Law
High Court considers scope of application of section 190 Companies Act 2006 relating to substantial property transactions with directors
In this application for summary judgement by the claimant, the High Court was asked to consider whether certain agreements between the parties constituted a substantial property transaction for the purposes of section 190 of the Companies Act 2006. This section requires shareholders to approve any transaction with a director or connected person where that transaction relates to the acquisition or disposal of a ‘substantial non-cash asset’ (having a value of more than £100,000 or 10% of the company’s asset value, whichever is lower).
The parties had entered into a joint venture, but the claimant defaulted on its obligation to fund the joint venture company. To allow the claimant a chance to rectify the position, the parties entered into several agreements, including a share purchase agreement and an option agreement, through which the claimant was to acquire shares in the joint venture company. The claimant later sought to rescind the agreements on the basis that they should have been, but were not, approved by a shareholder resolution pursuant to section 190. The High Court found in favour of the claimant, holding that the value of non-cash assets under the arrangement exceeded £100,000 and that shareholder approval was therefore required. Some points from the judgement are of particular interest:
- It was held that section 190 applies equally to a conditional contract, holding that the phrase ‘is to acquire’ includes contracts which are conditional upon fulfilment of a future event.
- The Court held that the option agreement created a right over the option shares, and that this right amounted to a non-cash asset.
- The Court also held that the multiple agreements entered into by the parties amounted to one composite ‘arrangement’ under section 190, on the basis that (among other things) the transactions were entered into in contemplation of one event, i.e. the claimant’s default, and inter-dependent on one another.
Publications
Listed Companies: What to Expect in 2023 – Part 2
Slaughter and May has published Part 2 of the ‘Listed Companies: What to Expect in 2023’ series, aimed at outlining key areas of focus for listed companies going into 2023. With Part 1 having focused on equity capital markets, Part 2 looks at areas the FCA is expected to focus on in 2023 and the upcoming changes to audit and corporate reporting.
Insurance Outlook 2023
Slaughter and May has published Insurance Outlook 2023. The publication sets out key expectations for the insurance sector in 2023, with a particular focus on legal and regulatory developments.
