Corporate Law and Governance

UK: The Supreme Court on the 'creditor duty' - its existence, content and engagement

noreply@blogger.com (Robert Goddard) — Thu, 06 Oct 2022 06:07:00 +0000

And so we have it - one of the most important company law judgments of recent years: BTI 2014 LLC v Sequana SA & Ors [2022] UKSC 25. The existence of the common law 'creditor duty' (also known as the 'rule in West Mercia' after the case West Mercia Safetywear v Dodd [1988] BCLC 250) has been confirmed and its content and application explained. A summary of the judgment is available here and here (pdf). A summary was also read out by Lord Briggs in the Supreme Court yesterday - see below (if the video does not appear below, it can also be found here):

Malta: MFSA publishes new corporate governance code

noreply@blogger.com (Robert Goddard) — Mon, 03 Oct 2022 16:19:00 +0000

Earlier this year - in March, to be precise - I noted that the Malta Financial Services Authority was consulting on a new corporate governance code that would cover all unlisted MFSA authorised entities. The consultation has since ended and the new code published: see here (pdf).

G20/OECD Principles of Corporate Governance - consultation on proposed revisions

noreply@blogger.com (Robert Goddard) — Mon, 03 Oct 2022 16:10:00 +0000

The OECD has published for consultation the revisions it proposes to make to the G20/OECD Principles of Corporate Governance: see here (pdf). The public consultation ends later this month on the 21st. Amongst the revisions is a proposed new chapter on sustainability and resilience.

UK: The directors' duty to consider the interests of creditors - Supreme Court judgment this week in BTI case

noreply@blogger.com (Robert Goddard) — Mon, 03 Oct 2022 16:03:00 +0000

After an unplanned break from blogging, I am happy to return with news that, on Wednesday this week (October 5), the UK Supreme Court will deliver its judgment in BTI 2014 LLC v Sequana SA [2022] UKSC 25. The court was required to consider, to quote directly from its summary, whether "the trigger for the directors' duty to consider creditors is merely a real risk of, as opposed to a probability of or close proximity to, insolvency".

UK: FRC publishes guidance on running effective AGMs and other general meetings

noreply@blogger.com (Robert Goddard) — Thu, 21 Jul 2022 16:06:00 +0000

The Financial Reporting Council has, for the first time, published specific guidance on the effective running of AGMs and other general meetings by listed companies: see here (pdf). The guidance contains, in total, seven principles that are organised within four time periods: before the meeting; during the meeting; after the meeting; and engagement throughout the year.

UK: The Financial Services and Markets Bill

noreply@blogger.com (Robert Goddard) — Thu, 21 Jul 2022 15:47:00 +0000

The Financial Services and Markets Bill was introduced in Parliament yesterday, receiving its First Reading in the House of Commons. A copy of the Bill, as introduced, is available here (pdf). Accompanying the Bill are various publications, including explanatory notes, a delegated powers memorandum and a human rights memorandum - these can all be found here. To paint with a very broad brush, the Bill will, amongst other things, revoke retained EU law relating to financial services in order that it can be replaced with UK specific legislation. The Bill will also make changes to the objectives of the UK's financial regulators and it will also bring stablecoins within the regulatory ambit when used as a form of payment.

UK: England and Wales: prejudicial, but not unfair

noreply@blogger.com (Robert Goddard) — Thu, 21 Jul 2022 13:43:00 +0000

A good illustration that, in order to succeed in bringing a claim for unfair prejudice, the claimant must establish both unfairness and prejudice, is provided by the recent High Court judgment Hussain v Hussain [2022] EWHC 1880 (Ch). Chief ICC Judge Briggs found that conduct agreed to be prejudicial (withdrawals in excess of declared salaries) was nevertheless not unfair because of, amongst other things, an understanding regarding the rights of the family members to draw on the profits generated by the businesses.

FSB progress report - Roadmap for addressing financial risks from climate change

noreply@blogger.com (Robert Goddard) — Wed, 20 Jul 2022 12:07:00 +0000

The Financial Stability Board has recently published a progress report for its Roadmap for Addressing Financial Risks from Climate Change: see here (pdf). The report notes "encouraging progress" in respect of all four blocks of the Roadmap (firm-level disclosures; data; vulnerabilities analysis; and regulatory and supervisory practices and tools).

With regard to firm-level disclosures, the report describes as a "milestone" the publication of two Exposure Drafts, by the International Sustainability Standards Board, on climate (ED IFRS S2) and general sustainability-related disclosure standards (ED IFRS S1). For an overview of these two Exposure Drafts, and a summary of feedback received as at 7 July 2022, see here (pdf).

UK: FRC publishes audit quality inspection and supervision results

noreply@blogger.com (Robert Goddard) — Wed, 20 Jul 2022 11:37:00 +0000

The Financial Reporting Council has today published its annual inspection and supervision results for the seven largest audit firms (BDO, Deloitte, EY, Grant Thornton, KPMG, Mazars and PwC): see here. Three quarters of audits have been rated good or requiring limited improvement; however, at two audit firms - Mazars and BDO - the results are described as unacceptable (half of the audits reviewed at Mazars, and five of the twelve reviewed at BDO, requiring more than limited improvement).

UK: Secondary Capital Raising Review - report published

noreply@blogger.com (Robert Goddard) — Tue, 19 Jul 2022 17:23:00 +0000

The UK Secondary Capital Raising Review, which launched last October, has today published its report and recommendations: see here (pdf). A summary is available here. The Financial Conduct Authority has welcomed the report: see here.

UK: England and Wales: a fiduciary relationship?

noreply@blogger.com (Robert Goddard) — Tue, 19 Jul 2022 17:08:00 +0000

Judgment was delivered today by Mrs Justice Cockerill in Kelly v Baker and Braid [2022] EWHC 1879 (Comm). The case is interesting because of the circumstances in which the trial judge was required to consider whether fiduciary duties were owed to a shareholder (Mr Kelly) by those who had led a management buy-out (Mr Baker and Mr Braid).

Mr Kelly argued that Mr Baker and Mr Braid (who had worked in, or for, various family companies over the years) had failed to inform him that the transaction - the sale of two family businesses for £100 million - was a management buy-out. Mr Kelly argued that he trusted Mr Baker and Mr Braid implicitly and that they were in a position of trust because of the nature of their relationship with the Kelly family. The trial judge found that no fiduciary relationship existed and observed (at para. [80]):

...there is no set of circumstances remotely akin to the quasi-familial closeness which in some of the cases has been found to exceptionally create a fiduciary relationship. Further I note that even if such a relationship of closeness had been made out that would not have created a fiduciary relationship as regards this particular transaction – here one must have in mind the dicta in such cases as Vald Nielsen (at [744]) as regards the scope of the duty."

OECD Corporate Governance Forum - July 14

noreply@blogger.com (Robert Goddard) — Fri, 15 Jul 2022 14:24:00 +0000

The OECD held a Corporate Governance Forum yesterday. The day provided an opportunity for many things including an update on the OECD's review of the G20/OECD Principles of Corporate Governance. The update was provided by the Chair of the OECD's Corporate Governance Committee, Mr. Masato Kanda. His contribution to the day begins, in the below recording, at the 1hr10 mark. The day's agenda and other materials can be found here.

Basel Committee: some recent publications - cryptoasset exposures; proportionality; managing and supervising climate-related financial risks

noreply@blogger.com (Robert Goddard) — Wed, 13 Jul 2022 12:13:00 +0000

Several recent publications from The Basel Committee on Banking Supervision to note: (a) a consultation paper on the prudential treatment of banks' cryptoasset exposures; (b) some high level considerations on proportionality; and (c) principles for the effective management and supervision of climate-related financial risks (including those relating to corporate governance, internal control and risk assessment).

Hong Kong: the recognition of foreign liquidations

noreply@blogger.com (Robert Goddard) — Wed, 13 Jul 2022 12:02:00 +0000

Judgment was given last month in Provisional Liquidator of Global Brands Grpup Holding Ltd v Computershare Hong Kong Trustees Ltd [2022] HKCFI 1789. I note the decision here because - to my mind - it is now one of the leading Hong Kong authorities on the recognition of foreign liquidations.

Singapore: the oppression remedy - buy out orders, valuation and the discount for lack of marketability

noreply@blogger.com (Robert Goddard) — Tue, 12 Jul 2022 16:15:00 +0000

Judgment was given earlier this month by the Court of Appeal in Kiri Industries Ltd v Senda International Capital Ltd and another and other appeals and other matters [2022] SGCA(I) 5. The decision is an important one because of the guidance it provides, when valuing shares that are the subject of a buy-out order under the oppression remedy (section 216 of Companies Act (Cap 50)), about the appropriateness of a discount to reflect the lack of control (DLOC) or the lack of marketability (DLOM). The court observed (para. [241], emphasis in the original):

The approach to the application of a DLOM in the making of a buyout order under s 216(2) of the Companies Act has not been authoritatively determined by the courts in Singapore. The variety of cases which were cited tended to turn on their own facts or were distinguishable in one way or another without enunciating any general principle. In the view of this court, it is appropriate that courts making buyout orders and referring the question of valuation to an independent expert or experts should first determine whether it is appropriate to order a DLOC and/or a DLOM. The answers to those questions respond to a broader principle than the quantification of the discounts, which is properly within the sphere of the experts. This accords with the approach taken by the House of Lords in O’Neill v Phillips [1999] 1 WLR 1092, dealing with the valuation of shares subject to a buyout order under provisions of the Companies Act 1985 (c 6) (UK) that are analogous to s 216(2) of the Companies Act".

UK: The Statutory Auditors and Third Country Auditors (Amendment) Regulations 2022

noreply@blogger.com (Robert Goddard) — Tue, 12 Jul 2022 15:46:00 +0000

The Statutory Auditors and Third Country Auditors (Amendment) Regulations 2022 was made earlier this month and come into force on July 27: see here or here (pdf). The accompanying explanatory memorandum is available here (pdf). The Regulations will, amongst other things, grant full adequacy - for an indefinite period - to the competent authorities of the United States (the PCAOB and SEC).

UK: FRC position paper - the transition to the new regulator and other reforms

noreply@blogger.com (Robert Goddard) — Tue, 12 Jul 2022 15:33:00 +0000

The Financial Reporting Council has today published a position paper in which it sets out the steps it will take, in support of the Government's recently announced proposals, to reform the UK's governance and audit framework, including its transition to the Audit, Reporting and Governance Authority: see here (pdf).

The paper proposes, amongst other things, revisions to the UK Corporate Governance Code and the guidance that supports it on (a) board effectiveness, (b) audit committees and (c) risk management, internal control and related financial and business reporting. No revisions to the UK Stewardship Code are proposed because, towards the end of 2023, a review of the regulatory framework for effective stewardship, including the Code, is planned. This review will be undertaken by the FRC, FCA, Department for Work and Pensions and the Pensions Regulator.

UK: FRC publishes research exploring impact of the revised Stewardship Code

noreply@blogger.com (Robert Goddard) — Tue, 05 Jul 2022 13:30:00 +0000

The Financial Reporting Council has today published commissioned research which set out to explore the impact of the revised UK Stewardship Code: see here (pdf). The research concludes that there has been a positive impact on the practice and reporting of asset managers and owners. For a short overview of the research findings, see here.

Mongolia: Revised Code published by the Financial Regulatory Commission

noreply@blogger.com (Robert Goddard) — Tue, 28 Jun 2022 15:10:00 +0000

A new edition of the Mongolian corporate governance code has recently been published by the Financial Regulatory Commission: see here.

Germany: New Code takes effect following Federal Gazette publication

noreply@blogger.com (Robert Goddard) — Tue, 28 Jun 2022 14:54:00 +0000

The new edition of the German Corporate Governance Code, released earlier this year by DCGK, has now come into force following its publication yesterday in the Federal Gazette. A copy of the Code, in English, is available here; a copy in German is available here.

UK: PACAC inquiry - the role of NEDs in Government departments

noreply@blogger.com (Robert Goddard) — Fri, 10 Jun 2022 10:07:00 +0000

The House of Commons Public Administration and Constitutional Affairs Committee has this week launched an inquiry to examine the role and regulation of non-executive directors in Government departments. As part of the inquiry, the Committee will consider NEDs' influence, responsibilities and background; how NEDs are appointed and held accountable will also be considered. For further information, see the inquiry website or the call for evidence.

UK: England and Wales: corporate criminal liability - options for reform published by Law Commission

noreply@blogger.com (Robert Goddard) — Fri, 10 Jun 2022 05:33:00 +0000

The Law Commission for England and Wales has today published a paper setting out options for reform in respect of the criminal liabliity of companies. The paper does not make recommendations but provides, instead, ten potential reforms. These reforms include (a) permitting conduct to be attributed to a company if a member of its senior management engaged in, consented to, or connived in the offence; (b) introducing an offence of failure to prevent fraud by an employee or agent; and (c) introducing a reporting requirement requiring large corporations to report on anti-fraud procedures. Some potential reforms have been ruled out, including adopting models of attribution based on corporate culture or the principle of respondeat superior.

For further information, see: press release | full options paper (pdf) | summary of options paper (pdf).

UK: HM Treasury policy statement - the finance sector and critical third parties

noreply@blogger.com (Robert Goddard) — Thu, 09 Jun 2022 07:42:00 +0000

HM Treasury has published a policy paper setting out, in general terms, its proposals to bring within the regulatory remit of the financial regulators certain third parties providing key functions and services to the finance sector (e.g., cloud-based computing services): see here. To quote directly from the policy paper (para. 1.6):

Under this proposal, HM Treasury will – in consultation with the financial regulators and other bodies – be able to designate certain third parties which provide services to firms as ‘critical’. The financial regulators will then be able to make rules, gather information, and take enforcement action, in respect of certain services that critical third parties provide to firms of particular relevance to the regulators’ objectives (which the regulators refer to as ‘material’ services)."

UK: England and Wales: common law derivative claims

noreply@blogger.com (Robert Goddard) — Thu, 09 Jun 2022 07:25:00 +0000

The ICLR has published a summary for the recently reported decision McGaughey v Universities Superannuation Scheme Ltd [2022] EWHC 1233 (Ch): see here. To quote directly from the summary:

"In order to establish that they had standing or a sufficient interest to continue a claim, it was essential for derivative claimants to demonstrate both that the subject company had suffered a loss and that that loss was reflective of their own loss. The availability of an alternative independent claim against the wrongdoer, for example a breach of trust claim, did not prevent the derivative claimant from having standing. A derivative claimant relying on the fraud on a minority exception to the general rule had to establish a prima facie case that the defendants had committed a deliberate or dishonest breach of duty or that they had improperly benefitted themselves at the company’s expense. It did not provide much assistance to adopt the analysis of a fraud on a power".

European Union: political agreement reached - gender balance on listed company boards

noreply@blogger.com (Robert Goddard) — Thu, 09 Jun 2022 07:21:00 +0000

The European Parliament and Council have reached agreement in respect of a Directive, proposed many years ago, the aim of which is to increase the gender balance on the boards of listed companies: see here. Member States will have two years to implement the Directive following its publication in the Official Journal.