Wednesday, 2 September 2015

Europe: freedom of establishment and the tax treatment of dividends

The opinion of the Court of Justice in Groupe Steria SCA v Ministère des Finances et des Comptes publics (Case C-386/14) was delivered today. The court held that a particular rule of French tax law - the effect of which was, in certain circumstances, to treat dividends received by a parent company differently depending on whether the subsidiary was resident in France or another Member State - was not compatible with Article 49 ("Right of establishment") of the Treaty on the Functioning of the European Union. A summary of the opinion is available here (pdf).

Tuesday, 1 September 2015

UK: Companies House - 2014/15 register activities

Companies House has published its annual statistical release for the year to 31 March 2015, with information concerning the companies (and other corporate bodies) on the register of companies: see here (pdf). According to the release, the average number of shareholders per company is two and the average age of companies on the register is 8.4 years. 96% of companies on the register are private limited companies.

Monday, 31 August 2015

Canada: OSFI draft guideline - operational risk management

The Office of the Superintendent of Financial Institutions has published for consultation a draft guideline on operational risk management: see here (pdf). The guideline contains four principles, the second of which states that operational risk management supports the overall corporate governance structure of FRFIs (federally regulated financial institutions). Further accompanying materials are available here.

Friday, 28 August 2015

UK: Scotland: joint ventures and pre-contractual disclosure

Earlier this month Lord Tyre delivered his opinion in The University Court of the University of St Andrews v Headon Holdings Ltd [2015] CSOH 113. The opinion contains some interesting discussion, with references to Scottish and English authorities, about the circumstances in which pre-contractual duties of disclosure arise. In the case before him, which concerned a joint venture and not (importantly) a partnership, Lord Tyre rejected the argument that a pre-contractual duty of disclosure arose, stating that it would be "...an innovation supported by neither principle nor precedent" (para. [18]).

Correction (2 September 2015): the word 'ventures' is now spelled correctly in the title. Apologies for the original misspelling.

Thursday, 27 August 2015

Japan: Council of Experts to review governance and stewardship codes

Earlier this month the Financial Services Agency announced that it had established a a council of experts to review the effect and implementation of the Stewardship Code and Corporate Governance Code: see here (English) or here (Japanese).

Wednesday, 26 August 2015

UK: audit and auditor regulation - update on the implementation of new EU statutory audit framework

The Department for Business, Innovation and Skills has today published an update in respect of the UK's implementation of new EU statutory audit framework: see here. The update states that BIS will publish a consultation in the next few weeks covering, amongst other things, the following matters: the definition of a public interest entity; Financial Reporting Council powers and Professional Bodies’ responsibilities; and mandatory re-tendering and rotation of public interest entity auditors.

The update also contains information regarding the implementation work being undertaken by the Financial Reporting Council, Financial Conduct Authority and Prudential Regulation Authority. The FRC will, the update states, be publishing a consultation paper next month containing proposed changes to the UK Corporate Governance Code and the FRC's audit committee guidance.

The European Commission has, today, published information on the national measures being adopted by Member States: see here.

Tuesday, 25 August 2015

Thailand: Principles of Good Corporate Governance for Listed Companies

The codes and principles directory maintained by the European Corporate Governance Institute was updated today to include a copy of the Principles of Good Corporate Governance for Listed Companies published by the Stock Exchange of Thailand: see here. The Exchange has published additional governance materials and these are available here.

Monday, 24 August 2015

Germany: Principles of Good Governance for Indirect or Direct Holdings of the Federation

The codes and principles directory maintained by the European Corporate Governance Institute was updated today to include a copy of the Principles of Good Corporate Governance for Indirect or Direct Holdings of the Federation: see here.

Norway: code review - no changes being made this year

The Norwegian Corporate Governance Board (NUES) has announced, following its annual review exercise, that it will not be amending the Norwegian Corporate Governance Code this year: see here.

Friday, 21 August 2015

Switzerland: the code of best practice for corporate governance

The codes and principles directory maintained by the European Corporate Governance Institute was updated several days ago to include the latest edition of the Swiss code of best practice for corporate governance published by economiesuisse (the Swiss business federation): see here.

Thursday, 20 August 2015

Yemen: the Central Bank's corporate governance code for the banking sector

The codes and principles directory maintained by the European Corporate Governance Institute was updated several days ago to include a copy of the corporate governance code for the banking sector published by the Central Bank of Yemen: see here.

Wednesday, 19 August 2015

UK: Small Business, Enterprise and Employment Act 2015 - overview of company law changes

Companies House has published a summary of the company law changes that have been made by the Small Business, Enterprise and Employment Act 2015 and which have come into force, or will come into force this year or next: see here. Amongst these changes are those concerning bearer shares, the new register of significant control and the prohibition (with some exceptions) on the appointment of corporate directors.

UK: High Pay Centre research - FTSE100 CEO pay

The High Pay Centre yesterday published research findings in respect of the pay of FTSE100 chief executives: see here (pdf). The headline finding - widely reported in the media (see, e.g., here and here) - concerned the ratio of FTSE100 CEO pay to the median level in the UK economy, reported as 148:1.

Tuesday, 18 August 2015

Ireland: court implies duty of good faith and fair dealing in shareholder agreement

Last Thursday judgment was given in Flynn v Breccia [2015] IEHC 547 by Mr Justice Haughton in the Irish High Court. In a case involving, amongst other things, a claim for breach of a shareholders' agreement, the trial judge held that it was appropriate to imply a duty of good faith and fair dealing in a shareholders' agreement. The decision is, however, relevant across a much wider range of contracts but much will depend on whether other judges follow the lead taken by Mr Justice Haughton.

In recognising the existence of such a duty, and as the following extract makes clear, Haughton J drew heavily (but not exclusively) upon the approach adopted by Mr Justice Leggatt in the English decision Yam Seng PTE Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB):
[159] The case for a wider implication of a term of good faith and fair dealing in ordinary commercial contracts based on the presumed intentions of the parties put forward by Leggatt J. in Yam Seng is persuasive, and on the level of principle there is much to recommend his approach. While it has certainly not received universal acceptance in the UK High Court, it has not been rejected by any clear cut authoritative decision of a higher court, and it appears to have some support from the Court of Appeal.

[160] In principle, but with certain caveats that Leggatt J. enunciates, I see no reason why this Court should not follow his lead in an appropriate case. Implying such a term is heavily dependent on context, and may only be appropriate in a “relational” type contract where there is a long term commitment. I also agree with Andrews J. in Greenclose where she said that such a term will be more readily implied in a situation where a contracting party is given a discretion such that 'the discretion should not be exercised in bad faith or in an arbitrary or capricious manner'."

UK: PRA update - senior managers regime - insurance and UK branches of non-EEA banks

The Prudential Regulation Authority has published further information about the way in which the Senior Managers Regime will operate in respect of insurers and UK branches of non-EEA banks: see here.

Monday, 17 August 2015

Ireland: Company Law Review Group to consider implications of Supreme Court decision regarding creditor priority in insolvency

Last month the Supreme Court gave judgment in In the matter of J.D. Brian Ltd (in Liquidation) t/a East Coast Print and Publicity [2015] IESC 62, an important decision on the operation of section 285 ("Preferential payments in a winding-up") of the Companies Act 1963 (now section 621 of the Companies Act 2014). The implications of the decision are to be considered by the Company Law Review Group and its 2014-16 work programme has been amended accordingly: see here or here (pdf).

South Africa: principles and policy proposals for the resolution of banks and other institutions

The South African National Treasury has published for consultation a position paper setting out principles and policy proposals for a strengthened framework for the resolution of banks and other financial institutions known as DRIs (designated resolution institutions): see here.

Friday, 14 August 2015

UK: England and Wales: "Complete inactivity as a director is by definition unreasonable"

Judgment was given yesterday by His Honour Judge Hodge QC (sitting as a judge of the High Court) in Finch (UK) Plc v Finch [2015] EWHC 2430 (Ch). The case concerned an application by a company's liquidators against its former directors and provides a warning to directors about their duties, the need to actively discharge those duties and to seek advice. In rejecting any opportunity for the directors to obtain relief from liability under section 1157 of the Companies Act 2006, Judge Hodge endorsed the position of Mr Justice Briggs in Lexi Holdings Plc v Luqman [2007] EWHC 2652 (Ch) at [224]: "Complete inactivity as a director is by definition unreasonable".

UK: England and Wales: listed company shareholder's application for permission to continue derivative claim declined

A copy of the extemporary judgment of His Honour Judge Hodge QC (sitting as a judge of the High Court) in Bridge v Daley [2015] EWHC 2121 (Ch), which was delivered in June this year, was added to the BAILII database this week. The case concerned an application for permission to continue a derivative claim under Part 11 of the Companies Act 2006. Permission to continue was refused and the shareholder was ordered to pay the costs of litigation. Unusually, the claim was brought by a shareholder in a publicly listed company (Elektron Technology plc, with a listing on AIM). This fact, and the potential for minority shareholders to act in ways detrimental to the other shareholders, was noted by the judge (para. [80]):
"An extraordinary feature of the case is ... that the company in question is a public limited company, rather than a private company; but shareholders have to be protected from a minor minority individual shareholder seeking to pursue a claim on behalf of the company of which they are shareholders when they do not wish the company's assets to be applied for that purpose. That is the whole purpose of the derivative claim procedure".

Extraordinary is, perhaps, too strong a word to use: this is not the first decision concerning a derivative claim and a listed public company under Part 11 (see Mission Capital Plc v Sinclair [2008] EWHC 1339 (Ch)). Note too that, according to a market announcement by Elektron, the unsuccessful shareholder - Mr Bridge - has indicated that he will be appealing the decision: see here.

Thursday, 13 August 2015

UK: England and Wales: the misuse of insolvency legislation and the winding-up of companies in the public interest

Mr Justice Norris gave judgment several days ago in Secretary of State for Business, Innovation and Skills v PAG Management Services Ltd [2015] EWHC 2404 (Ch). The Secretary of State presented a petition for the winding-up on pubic interest grounds, under section 124A of the Insolvency Act 1986, in respect of a company - PAG - that had been incorporated in 2011 to manage and coordinate a business rates mitigation scheme. Mr Justice Norris held that it was in the public interest for the company to be wound-up, not because the promotion of the mitigation schemes was inherently objectionable but because of the way in which the schemes operated (using, for example, artificial leases with no commercial reality and also operating in a way that was held to be a misuse of the insolvency legislation).

Wednesday, 12 August 2015

UK: Financial Policy Committee - remit and recommendations for the year ahead

Last month, the Chancellor set out, as required by the Bank of England Act 1998 (as amended by the Financial Services Act 2012), the remit and recommendations for the Financial Policy Committee for the year ahead: see here (pdf). The FPC published its response yesterday: see here (pdf). The FPC's response explained, amongst other things, the focus on potential risks from non-bank activities (noting that, by balance sheet size, nearly half of the UK financial system consists of non-bank financial institutions).

Tuesday, 11 August 2015

UK: Scotland: section 1157 of the Companies Act 2006

Section 1157 of the Companies Act 2006 provides the court with the power to grant a director relief where the director has breached a duty but it appears to the court that he has acted honestly and reasonably and that, having regard to all in the circumstances, he ought fairly to be excused. The application of section 1157 was considered in an opinion delivered earlier today in the Court of Session (Outer House) by Lord WoolmanMcGivney Construction Ltd v Kaminski [2015] CSOH 107. Referring to several Scottish and English authorities, including Towers v Premier Waste Management Ltd [2011] EWCA Civ 923, a director's claim for relief under section 1157 was refused because he had acted dishonestly.

Monday, 10 August 2015

Mauritius: corporate governance code review underway

The National Committee on Corporate Governance is currently undertaking a review of the Mauritius Corporate Governance Code: see here. A revised edition of the Code is expected soon, building on a consultation draft published towards the end of last year (here, pdf).

Friday, 7 August 2015

USA: SEC adopts pay ratio disclosure rule

The Securities and Exchange Commission has this week adopted a final rule that will require certain public companies to disclose the ratio of the compensation of their chief executive officer to the median compensation of their employees: see here (pdf). The SEC was required to adopt such a rule in order to implement section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

A short fact sheet explaining the new rule is available here. An update on the SEC's progress in implementing the mandatory rule making provisions of the Dodd-Frank Act can be found here.

Thursday, 6 August 2015

Australia: Treasury consultation - crowd sourced equity funding framework

The Australian Treasury has published a consultation paper titled Facilitating crowd-sourced equity funding and reducing compliance costs for small businesses: see here (pdf). The paper sets out the key elements of the proposed crowd sourced equity funding framework for public companies and seeks views on what changes should be made in respect of proprietary companies.

Wednesday, 5 August 2015

UK and Jersey: Judicial Committee considers 'backward tracing'

The Judicial Committee of the Privy Council gave its opinion earlier this week in The Federal Republic of Brazil v Durant International Corporation (Jersey) [2015] UKPC 35, an appeal from the Court of Appeal of Jersey ([2013] JCA071): see here or here (pdf). The hearing took place in May, and can be watched here (part 1) and here (part 2). The Board's opinion is an important one concerning the doctrine of tracing and, in particular, backward tracing. Lord Toulson, delivering the board's opinion, stated (para. [40]):
The Board ... rejects the argument that there can never be backward tracing, or that the court can never trace the value of an asset whose proceeds are paid into an overdrawn account. But the claimant has to establish a coordination between the depletion of the trust fund and the acquisition of the asset which is the subject of the tracing claim, looking at the whole transaction, such as to warrant the court attributing the value of the interest acquired to the misuse of the trust fund. This is likely to depend on inference from the proved facts, particularly since in many cases the testimony of the trustee, if available, will be of little value".
A summary of the Board's opinion is available here (provided by the ICLR).

Tuesday, 4 August 2015

UK: PRA updates its supervisory statement on internal governance

The Prudential Regulation Authority published several policy and supervisory statements yesterday: see here. Amongst them was a revised edition of Supervisory Statement 21/15, Internal Governance, which now includes sections for the chief risk officer and the risk committee: see here (pdf).

Monday, 3 August 2015

UK: Financial Advice Market Review - terms of reference published

The terms of reference for the recently launched Financial Advice Market Review were published today: see here. Further information about the Review, which is being jointly led by HM Treasury and the Financial Conduct Authority, is available here and here.

Friday, 31 July 2015

Oman: CMA publishes new edition of its corporate governance code for public companies

Following a consultation earlier this year, the Capital Markets Authority has published a new edition of its corporate governance code for public companies: see here. A copy of the code, in Arabic, is available here (pdf). A copy of the code in English will be published later this year.

Thursday, 30 July 2015

Europe: ECB publishes volume II in the series 'The Legal Framework for Banking Supervision'

The European Central Bank directly supervises over 100 of the largest banks in the Euro area, as part of the Single Supervisory Mechanism which came into operation last November. In December 2014, the Bank published the first volume in a publication series titled The Legal Framework for Banking Supervision: see here (pdf). Volume II in the series was published earlier this month and is available here (pdf).

UK: FRC publishes 2014/15 annual report and accounts

The Financial Reporting Council - the organisation responsible, amongst other things, for the UK Corporate Governance Code - has published its annual report and accounts for 2014/15: see here (pdf). The report sets out the FRC's strategy and identifies the principal risks that may impact on that strategy. It also provides an overview of the FRC's activities over the past year, together with a series of 'effectiveness indicators'. The priorities for the year ahead are also explained. A short video, below, explaining the work of the FRC has also been published.

Wednesday, 29 July 2015

New Zealand: Corporate Governance Forum created and Guidelines published

A corporate governance forum has been set up by several institutional investors in New Zealand: see here and here (pdf). The Forum has published a set of corporate governance guidelines, building on the Financial Market Authority's Corporate Governance Principles and Guidelines, and explaining what its members regard as best practice: see here (pdf).

UK: FCA thematic review results - financial benchmarks - oversight and controls

The Financial Conduct Authority has published the results of its thematic review of firms’ oversight and controls in relation to financial benchmarks: see here (pdf). The review found that all firms had made changes but all had further work to do. In the FCA's view, in many firms change had lacked urgency and progress in improving oversight and controls had been slow. A summary of the review's findings is available here.

UK: 'Who owns the company?' - a speech by Andy Haldane

Andy Haldane, the chief economist at the Bank of England, delivered a speech earlier this year titled Who owns the company? A copy of the speech was published on the Bank's website yesterday, a few days after Mr Haldane's television interview in which he reflected on governance and the role of shareholders: see here or here (pdf).

In his speech, Mr Haldane explored the origins of the public company, identified the potential incentive problems among stakeholders and considered how policy actions could mitigate those problems. He concluded:
Challenges to the shareholder-centric company model are rising, both from within and outside the corporate sector. These criticisms have deep micro-economic roots and thick macro-economic branches. Some incremental change is occurring to trim these branches. But it may be time for a more fundamental re-rooting of company law if we are to tackle these problems at source. The stakes - for companies, the economy and wider society - could scarcely be higher".

Whilst the ideas and criticisms that Mr Haldane identified are not new, it is noteworthy that he should choose to highlight them (making clear that he was not necessarily expressing the views of the Bank or the Monetary Policy Committee). One thing that is missing from his speech, in which he traced the rising dominance of shareholder primacy and briefly considered section 172 of the Companies Act 2006, is the influence of the City Code on Takeovers and Mergers in reinforcing the position of shareholders. 

Tuesday, 28 July 2015

FSB publishes second annual report

The Financial Stability Board has published its second annual report: see here (pdf). This provides an overview of the FSB's past activities as well as highlighting current and future work. According to the FSB, the scale of misconduct in some financial institutions has risen to a level that could create systemic risks. For this reason, the FSB is assessing the potential of various reforms to reduce the likelihood of misconduct, including in the areas of risk governance, compensation structures and benchmarks.

UK: Bank of England chief economist reflects on shareholders and corporate governance

Last Friday the Bank of England chief economist, Andy Haldane, was interviewed on the BBC Newsnight television programme. His comments on company law, corporate governance and the role of shareholders have been widely reported, not least because he questioned shareholder primacy: see, for example, here and here. The interview can be watched below (or here, opens in new window).

PS: The Bank of England has launched a blog, titled Bank Underground.

Monday, 27 July 2015

Kenya: a new company law framework - the Companies Bill 2015 introduced in the National Assembly

Last year a Bill containing a new company law framework - the Companies Bill 2014 - was introduced in the National Assembly: see here (pdf) . It was, however, withdrawn by its sponsor (Hon. Aden Duale MP) earlier this year in order that an amended version could be introduced: see here. This amended Bill - now known as the Companies Bill 2015 - received its first reading last month and, earlier this month, began the second reading stage. A copy of the Bill as introduced (and as published in the Kenya Gazette) is available here (pdf). The Bill's progress can be followed here.

Part IX of the Bill deals with company directors, including their duties. Clause 144 sets out the duty to promote the success of the company, a duty that is worded in almost identical terms to section 172 of the UK's Companies Act 2006. There are other similarities.

Friday, 24 July 2015

UK: Limited Partnerships Act 1907 - HMT consultation on proposed reforms for 'private fund limited partnerships'

HM Treasury have published a consultation paper setting out proposed changes to the Limited Partnerships Act 1907 in respect of what will be known as 'private fund limited partnerships': see here (pdf). The 1907 Act will be amended to provide, amongst other things, a non-exhausitve list of activities that a limited partner in a private fund limited partnership may undertake without being considered to be taking part in the management of the business (and, as such, retaining limited liability). A draft of the Legislative Reform (Limited Partnerships) Order 2015 accompanies the paper: see here (pdf).

UK: HMRC consultation - Improving Large Business Tax Compliance

Her Majesty's Revenue and Customs published a consultation paper earlier this week titled Improving Large Business Tax Compliance: see here (pdf). The paper sets out three main proposals: [1] a requirement, through law, for all large businesses to publish their tax strategy; [2] a voluntary code of practice on taxation for large businesses; and [3] a targeted 'special measures' regime, directed at those large businesses that do not engage with HMRC in an open and collaborative manner or persistently undertake 'aggressive tax planning'. What is meant by aggressive tax planning is explained in the paper: "Tax avoidance or aggressive tax planning involves bending the rules of the tax system to gain a tax advantage that Parliament never intended" (see annex c).

With respect to the first proposal, the intention is that there should be a named individual, at board level, responsible for the strategy and, in the words of the consultation paper, "owning and signing off" this strategy. Views are sought on what should be in the strategy and subject to disclosure. The paper suggests that the tax should strategy should cover a business’s attitude to tax risk, its appetite for tax planning, and its approach to its relationship with HMRC.

The factors influencing businesses' tax strategy have recently been explored in an HMRC research report titled Exploring Large Business Tax Strategy Behaviours: see here (pdf). Some of the research findings are referred to in the consultation paper.

Thursday, 23 July 2015

UK: Bank of England Bill - consultation paper published

HM Treasury yesterday published a consultation paper in respect of the new Bank of England Bill: see here (pdf). The paper seeks views on various proposals, the purpose of which, to quote from the paper, will be to "further strengthen the Bank’s governance, transparency and accountability, enhance the ability of the Bank to discharge its macroprudential, micro-prudential, and monetary policy responsibilities in a coordinated way, and ensure that the UK’s crisis management arrangements keep pace with developments in resolution policy" (para. 1.7).