Corporate Update is our fortnightly bulletin highlighting the latest legal and regulatory developments which we consider to be of relevance to in-house corporate counsel. If you would like to subscribe to this bulletin as a regular email, please click here.
In this issue
News
UK Government announces overhaul of the UK’s corporate governance, reporting and audit regime
On 31 May 2022, the Government published its long-awaited response to the consultation on strengthening the corporate governance, corporate reporting and audit regime. In its response, the Government outlines the actions it intends to take, including the following:
- replace the Financial Reporting Council (FRC) with a new regulator, the Audit, Reporting and Governance Authority (ARGA) which will have a range of statutory responsibilities and powers that the FRC does not currently have, including powers to investigate and sanction directors for breaches of corporate reporting and audit-related duties;
- increase the number of companies subject to the new regime by broadening the definition of Public Interest Entities to include large private companies and companies traded on MTFs (such as AIM companies) with more than 750 employees and an annual turnover of over £750m;
- introduce a new statutory Resilience Statement and a new statutory Audit and Assurance Policy (although both proposals have been modified in light of feedback received during consultation);
- amend the UK Corporate Governance Code to provide for a directors’ statement about the effectiveness of the companies’ internal controls (instead of introducing an audited Sarbanes-Oxley style directors’ report on a company’s internal controls and fraud-prevention measures as initially proposed); and
- introduce a “managed shared audit” regime giving audit firms other than the Big Four the opportunity to complete a meaningful proportion of subsidiary audits for FTSE 350 companies.
At present, there is no specific timetable for these reforms to be implemented as the plans involve multiple strands of reform over a period of several years. A draft audit reform Bill to establish the new regulator was mentioned in the Queen’s Speech on 10 May, but has not been tabled yet.
FCA publishes a Discussion Paper on its proposals to reform the listing regime
On 26 May 2022, the Financial Conduct Authority (FCA) published a Discussion Paper (DP 22/2) on its proposals to reform the UK listing regime to boost growth and competitiveness following recommendations made in Lord Hill’s UK Listing Review. The FCA proposes to simplify the listing regime by having a single segment for equity shares of commercial companies, with rules based substantially on the current premium segment rules in place of the current standard and premium segments. This would feature a single set of eligibility criteria and two sets of continuing obligations – a mandatory minimum set and a supplementary set of additional obligations which issuers could opt into if they wish.
These proposals follow other recent reforms in light of Lord Hill’s review, including the introduction of dual-class share structures, lowering of free float levels and easing restrictions around special purpose acquisition companies.
The FCA is seeking feedback on its proposals by 28 July 2022.
Takeover Panel publishes consultation on presumptions to ‘acting in concert’ definition
On 26 May 2022, the Takeover Panel announced the publication of Public Consultation Paper 2022/2 (PCP 2022/2), which sets out a number of proposed amendments to the presumptions of the definition of 'acting in concert' in the Takeover Code.
The concept of 'acting in concert' is important to the operation of the Code because persons acting in concert are, in effect, treated under the Code as a single person. As such, dealing by any one of them in the shares of a company subject to the Code could potentially have significant consequences for that person and others acting in concert with that person. The consultation is open until 23 September 2022.
Government introduces levy on energy profits
The Chancellor has announced that the Government would introduce an Energy Profits Levy effective from 26 May 2022. Draft legislation has not yet been published, although the Government has published details in a policy paper and technical note.
The levy is an additional 25% tax on UK oil and gas profits on top of the 40% rate of tax already paid by the sector. An 80% “super-deduction” investment allowance on investment expenditure in the UK North Sea was also announced to incentivise investment. Currently, the levy will remain in place until 31 December 2025 but the Government has indicated that it will phase it out if oil and gas prices return to normal levels.
The 30% Club Investor Group publishes guidance for companies reporting on diversity
On 24 May 2022, the 30% Club UK Investor Group published a guidance paper for companies on diversity reporting. The 30% Club is a group of asset owners and managers representing £22.3 trillion of assets. The purpose of the report is to establish what is useful reporting on diversity and to help companies understand what investors’ value in diversity disclosure.
Publications
Taxing oil and gas: a new tax and an investment incentive
Slaughter and May has published a new blog post discussing the “Energy Profits Levy” (as referred to above). The article summarises the two elements of the announcement – the levy and the “super-deduction” allowance.
