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
FCA launches consultation on simplifying listing rules in the UK
Following recommendations made in Lord Hill’s Listing Review and in response to feedback from market participants, the Financial Conduct Authority (FCA) has announced the publication of a consultation (CP23/10) on proposals to reform the listing segments and streamline the eligibility criteria and continuing obligations that apply to commercial companies with listed equity shares. The aim of the proposals is to increase the accessibility of the UK listing regime for companies in order to encourage more listings and boost growth and competitiveness in the UK. The proposals include:
- replacing the current standard and premium listing share categories with a single listing category for equity shares in commercial companies (ESCC). The FCA has dropped its previous proposal of making all companies listed on the single segment subject to a set of “mandatory” continuing obligations (based on current premium listing continuing obligations) but allowing companies to opt in to further “supplementary” obligations. The sponsor regime will be maintained but with modifications;
- no longer requiring a new applicant for listing to demonstrate a three-year revenue-earning track record or to ensure its historical financial information covers at least 75% of its business;
- no longer requiring shareholder approval for major and related party transactions although the requirement for a fair and reasonable opinion for a larger related party transaction will be retained; and
- a more permissive approach to dual class share structures (DCSS), allowing enhanced voting rights in respect of any resolution except in relation to the approval of discounted share offers. Shares with enhanced voting rights can only be held by a director and such DCSS arrangements should cease after 10 years.
Companies on the new ESCC category will likely have to make all the annual report-related disclosures currently required of premium segment companies. The impact on existing premium-listed issuers will be more limited but they will need to modify their systems and controls to reflect changes to the rules. Existing standard-listed issuers that are commercial companies will need to decide whether to transfer to the ESCC category or to other categories.
The consultation period closes on 28 June 2023. Draft handbook rules and more details of consequential and transitional issues will be included in a further consultation paper to be published in the autumn.
ICGN publishes Statement on Post COVID AGM Practices and Shareholder Rights
The International Corporate Governance Network (ICGN) has published its Statement on post COVID AGM practices and shareholder rights. It concludes that virtual-only AGMs are no longer necessary and calls on regulators to discourage their use. The Statement makes the following key recommendations:
- companies should provide for hybrid AGMs which are seen as the optimal AGM format allowing for the in-person presence of shareholders as well as accommodating for other access requirements;
- companies should coordinate with each other so that AGM dates are more widely dispersed throughout the year;
- AGM materials should be published at least one month ahead of the meeting, shareholder questions and proposals should be permitted in advance, and voting results and meeting minutes should be recorded and published promptly on the website; and
- reliable technology and procedures should be used for the verification of shareholder identity, efficient and secure vote execution, and for the general running of the meeting.
FRC publishes the Pre-Emption Group Terms of Reference
The Financial Reporting Council (FRC) has published a Terms of Reference on behalf of the Pre-Emption Group (PEG), an industry group that represents listed companies, investors, intermediaries and other stakeholders in the equity capital markets, to formalise and bring greater visibility to its role. The Group regularly monitors industry practice in relation to the disapplication of pre-emption rights, reviews the Statement of Principles on pre-emption rights and makes recommendations to the appropriate authorities. It will not, however, express views on individual cases. The Terms also describe PEG’s membership and governance structure, its nominations procedure, the purpose and organisation of its meetings, and the role of its secretariat.
Government publishes updated market guidance on the NSIA 2021
The government has published its second Market Guidance April 2023 on the National Security and Investment Act 2021, updating the government’s original guidance dated July 2022 on its powers under the Act to monitor and intervene in investments which may give rise to national security risks.
Among other things, the guidance includes new or amended advice on what evidence parties should provide to government if they are facing some form of material financial distress and advice on the appropriate time in the lifecycle of a deal to notify a qualifying acquisition. Additional guidance is also being provided on how to engage with the government if there is significant uncertainty about whether an acquisition is notifiable.
LEGISLATION
Digital Markets, Competition and Consumers Bill introduced to Parliament
On 25 April 2023, the government announced the publication of the Digital Markets, Competition and Consumers Bill, which provides for the regulation of competition in digital markets, together with Explanatory Notes. The Bill is currently undergoing its second reading in the House of Commons. The Bill provides for a new digital markets regime regulated by the Competition and Markets Authority (CMA) and proposes a range of reforms to UK competition and consumer law.
The Bill will confer new powers and duties on the CMA to regulate undertakings that exert significant control over digital markets through their designation as having “special market status” in respect of certain digital activities. Certain merger control jurisdictional thresholds in the Enterprise Act 2002 are also being amended. In the consumer sphere, the Bill seeks to strengthen CMA's powers to investigate and enforce consumer protection law and resolve consumer disputes, as well as addresses unfair commercial practices such as fake reviews and subscription traps.
Draft Register of Overseas Entities (Penalties and Northern Ireland Dispositions) Regulations 2023 published
On 27 April 2023, the Government published the draft Register of Overseas Entities (Penalties and Northern Ireland Dispositions) Regulations 2023 along with a draft Explanatory Memorandum. The Regulations implement aspects of the Register of Overseas Entities regime introduced by the Economic Crime (Transparency and Enforcement) Act 2022. In particular, the Regulations will confer a power on the Registrar to impose a financial penalty on a person if satisfied, beyond reasonable doubt, that the person has engaged in conduct amounting to an offence under Part 1 of the Act and provide a mechanism to allow the Secretary of State to consent to the registration of a land transaction that would otherwise be prohibited.
CASE LAW
High Court considers whether company must consent to a Part 26A restructuring plan
This case involved the first restructuring plan under Part 26A Companies Act 2006 to be proposed by a party other than the company (The Good Box Co Labs). The company had been placed into administration on the application of NGI Systems & Solutions Ltd (NGI), a shareholder and creditor of the company, and Mr Frost and Mr Wadsted (the Administrators) were appointed as administrators. While rescue options were explored, the situation of the company deteriorated further, and it became clear that any realisations from a sale in administration will be insufficient to meet the secured administration claim of NGI and no other person will receive any return.
NGI considered that a restructuring plan between the Company, its members and creditors would facilitate the rescue of the Company as a going concern and applied to the court under Part 26A. The Administrators did not consent to its entry into the plan although neither did they actively opposed it. The Court determined that, in the same way as for a Part 26 scheme of arrangement, company consent was a jurisdictional requirement of a Part 26A plan, and that it had jurisdiction to direct the Administrators to consent to the plan.
PUBLICATIONS
The BVCA's new standard form model documents: 10 key takeaways for growth companies and investors
Slaughter and May has published a briefing exploring key takeaways from the recently revised and relaunched British Private Equity and Venture Capital Association (BVCA) model documents for early-stage investments. Although specifically designed for Series A financings, the model documents are widely used throughout the growth company ecosystem in the UK (and further afield).
