Listed company update VII

This update summarises the major developments in UK corporate law and regulation for listed and quoted companies since our last update in November 2015.

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2015 Annual Reports and 2016 AGM season

Annual Reports

The Secretariats of listed companies with a December year end will currently be busy finalising their 2015 Annual Reports and 2016 AGM documents. The good news for this year is that this coming season looks to be more settled and most companies should therefore be able to focus on consolidating their approach and utilising the useful guidance available from various bodies.

The main reporting issue for companies to deal with this year is in relation to disclosures around the new longer-term Viability Statement. This requirement stems from UK Corporate Governance Code (Code) provision C.2.2, upon which we first reported in our November 2014 update. This means that Boards with September 2015 and subsequent year ends will need to provide two statements in their Annual Reports:

1) The traditional Going Concern Statement, whereby Directors should state whether they consider it appropriate to adopt the going concern basis of accounting in preparing the accounts and identify any material uncertainties as to the company's ability to continue to do so over a period of at least 12 months from the date of approval of the financial statements (provision C.1.3): and

2) The new Longer Term Viability Statement (provision C.2.2), where Directors should state whether, taking account of the company's current position and principal risks, they think they have a reasonable expectation that the company will be able to continue to operate and meet its liabilities over a chosen period, based on a robust assessment of the risks ahead. The FRC recommends that the statements are contained in the strategic report so that they are covered by the safe harbour provisions in section 463 of the Companies Act 2006 (liability for false or misleading statements in reports). FRC guidance states that the period covered by the Viability Statement should, except in rare circumstances, be significantly longer than 12 months from the approval of the financial statements. The Viability Statement responds to criticism that during the financial crisis there was little reported that indicated that there was trouble up ahead.

In agreeing the content of the Viability Statement, companies should have developed a robust process to identify responsibilities for conducing the necessary risk assessments and to ensure that the Audit Committee and the Board have sufficient space to consider the process, analyse the risks identified and to challenge and support the conclusions and length of period set out within the Statement.

Section C.2 of the Code has been broadened to require companies to confirm in their Annual Report that they have carried out a robust assessment of the principal risks facing the company, including those that would threaten its business model, future performance, solvency or liquidity. The Directors should also explain how they are being managed or mitigated. Companies should monitor their risk management and internal control systems and, at least annually, carry out a review of their effectiveness and report on that review in the Annual Report (provision C.2.3).

Other changes for 2015 Annual Reports include:

The Disclosure of related undertakings – as reported in our August 2015 update, up until 1 July 2015, companies were able to show a full list of subsidiaries in their accounts or take advantage of section 410 of the Companies Act 2006, which allowed them to show only the principal subsidiaries in their accounts and annex a full list of subsidiaries to their next annual return. However, section 410 exemption has been repealed, which in practical terms means that all related undertaking information must now be disclosed in the Annual Report and cannot be appended to annual returns. This applies to annual accounts approved on or after 1 July 2015. Companies should note that Companies House may reject accounts that do not include a full list of related undertakings after this date.

Revised Pre-emption Group Guidelines – we reported in our May 2015 update that the Pre-Emption Group had issued a revised version of its Statement of Principles, replacing the previous version issued in 2008. This provided guidance to companies and shareholders on the factors to take into account when dis-applying pre-emption rights. Companies were encouraged to use the revised Statement with immediate effect, but the Group recognised that this may not have been practical for many companies, given that they were in the final stages of their 2015 AGM preparations. The revised guidelines permit a 10% disapplication authority to be sought at the AGM if certain conditions are met. The 2015 Statement of Principles can be found here.

FTSE 350 companies are for the first year required to make statements under the Competition & Markets Authority (CMA) Order regarding tendering for external auditors and include within the Audit Committee section of the Annual Report a statement that the company has complied with the provisions of the Order. Audit Committees should also note that the Order requires specific functions to be carried out by the Audit Committee, which should not only be reflected in the Audit Committee section of the Annual Report, but also incorporated into the committee's terms of reference and rolling meeting agendas.

Large UK companies (listed and unlisted) in the extractive industries sector are required to prepare an annual report on payments to governments for financial years beginning on or after 1 January 2015. The report must be prepared and submitted within 11 months of the end of the financial year. Details were provided in our February 2015 update. Listed companies must, under the provisions of DTR 4.3A, prepare this report and make it public within six months of the financial year-end. Listed companies are not required to include the report in their Annual Report but the report will need to be published by means of an RIS. The report will also need to be filed with Companies House, along with a filing fee.

There is a wealth of useful guidance from the FRC and other organisations designed to assist listed companies in drafting their Annual Reports. These include:

  • FRC Report on Clear & Concise Developments in Narrative Reporting (December 2015) – See report
  • FRC Annual Corporate Reporting Review (October 2015) – as reported in our November 2015 update, the FRC has issued its annual report reviewing annual reports of public and large private companies – See report
  • FRC Developments in Corporate Governance and Stewardship – this provides the FRC's assessment of the quality of compliance with the UK Corporate Governance Code and the Stewardship Code and includes areas where the FRC would like to see improvements in the reporting of governance – Find out more.
  • FRC letter of advice to Audit Committee Chairs of larger listed companies, which sets out suggestions for improvements in corporate reporting in 2015 – Find out more
  • FFC letter of advice to smaller listed and AIM companies, following the FRC discussion paper on improving reporting by smaller listed and AIM companies. This letter details how to improve Annual Reports in areas which are of particular interest to investors – Find out more
  • ICSA good practice for Annual Reports – as reported in our May 2015 update, the ICSA has published useful guidance on best practice/contents of Annual Reports. The guidance sets out what the ICSA believes to be the features of the best annual reports and gives examples of companies that have demonstrated good corporate reporting. Both publications can be downloaded from the ICSA website: Good practice for annual reports 2015 | Contents list for the annual report of a uk company.
  • Updated ISS UK & Ireland Proxy Voting Guidelines, which introduce an ‘overboarding' policy, whereby ISS proposes limits to the number of directorships both Executive and Non-Executive Directors of listed companies can hold.  See guidelines
  • Updated Investment Association Principles of Remuneration, along with a letter to Remuneration Committee Chairmen. Find out more
  • Pensions and Lifetime Savings Association (PLSA) (formerly known as NAPF) updated Corporate Governance Policy and Voting Guidelines. See guidelines

Companies are also reminded that most will be reporting for the third year under the remuneration reporting regime and this year's implementation reports will be reporting against the remuneration policies approved in 2014. For many companies, 2016 is the last year before the remuneration policy must be put to a binding shareholder vote again in 2017. There is no need for companies to include their remuneration policy in full within their 2015 Annual Report if it was approved by shareholders in 2014, or to submit this to shareholders for approval again this year, unless the Directors wish to amend the policy. That said, even if a company is not amending its remuneration policy this year, various institutional shareholder bodies recommend that the headline policy table is disclosed in the directors' remuneration report, with a cross-reference to the company's website for the full policy.

AGM resolutions

The main change to the Notice of AGM this year relates to the revised 2015 Pre-Emption Statement of Principles referred to above. The thresholds for a general disapplication of pre-emption rights has not changed (up to 5% of issued share capital every year and 7.5% over a rolling three year period). However, the 2015 Statement allows companies to seek a disapplication of pre-emption rights in respect of a further 5% (so 10% in total) as long as the company confirms within the AGM Notice that it intends to use the additional 5% only in connection with an acquisition or capital investment.

As noted above, most companies should not need to obtain approval for the remuneration policy this year as long as their policy has not changed.

FTSE 350 companies are reminded that the resolution relating to the remuneration of the auditor should refer to remuneration being set by the Audit Committee, rather than the full Board.

Companies with controlling shareholders (controlling 30% or more of the voting rights of the company) need to comply with rules relating to the election and re-election of independent directors (see our February 2015 update for further information).

Where a significant proportion of votes (widely felt to be 20% or more, but this depends on an individual company's shareholder base) has been cast against a resolution at any general meeting, the company should explain, when announcing the results of voting, what actions it intends to take to understand the reasons behind the voting result.

There are also some minor changes that may also need to be reflected in the AGM resolutions, such as changing any references to the NAPF to PLSA.

As reported in our May 2015 update, the ICSA published guidance on the 2014 edition of the UK Corporate Governance Code (the ‘Code') to clarify provision E.2.4 in relation to notice of meetings. Provision E.2.4 states that companies should arrange for notices of the AGM to be sent to shareholders at least 20 working days before the meeting. The 2014 edition of the Code also includes a new requirement that "for other general meetings, this should be at least 14 working days in advance". The Companies Act 2006 (the ‘Act') states that an annual general meeting of a listed company should be held on not less than 21 clear days' notice and any other meeting on not less than 14 clear days' notice. To maintain flexibility, companies should continue to seek to pass the annual resolution required by the Act to call meetings on 14 clear days' notice so that they can decide on a case-by-case basis how much notice to give for a shareholder meeting.

Companies may also wish to review their articles to afford them flexibility to adopt alternative dividend payment methods, such as mobile phone payments, as and when they become available.

If you require any assistance in drafting your 2015 Annual Report disclosures or 2016 AGM documentation, please contact us via

On the horizon: other corporate reporting requirements

We provided details in our November 2015 update about the Modern Slavery Act 2015 (MSA). Section 54 of the MSA requires commercial organisations carrying on business in the UK (wherever incorporated, in any legal form and including listed and unlisted) with a total annual turnover of £36 million or more to prepare an annual slavery and human trafficking statement under the MSA for each financial year. The new reporting requirements will apply to companies with a year ending on or after 31 March 2016. There is no de minimus level of UK activity before the Act applies. The statement should include the steps the company has taken to ensure that slavery and human trafficking is not taking place in any of its supply chain, must be approved by the Board and signed by a director and published on a company's website, together with a link to it in a prominent place on the home page. Companies without a website must provide a copy of the statement within 30 days of receipt of a written request. It is important to note that the concept of "total turnover" includes an organisation's worldwide turnover, meaning that organisations even with limited operations in the UK are subject to the reporting requirement if they trade in the UK.

Companies should now be thinking about the detailed investigation requirements required to enable them to provide a meaningful and responsible statement and should be looking at their supply chains in preparation for the disclosure requirements. There is no prescribed time limit to make the statement, but the guidance suggests that the statement is published as soon as possible after the financial year end, to ensure it is relevant and current. This is broadly interpreted as meaning within 6 months of the year end.

Other disclosures on the horizon relate to:

Gender pay gap reporting – regulations are expected by the end of March 2016 detailing the requirement for companies to publish pay information to demonstrate whether there are differences between the pay of their male and female employees.

Annual tax strategy statement – the draft Finance Bill 2016 includes a new requirement on certain large organisations to publish an annual tax strategy statement, annual on their website.

Payment practices reporting – relevant organisations will be required to report on their payment practices on a six-monthly basis and policies from April 2016, submitted to a centrally hosted website.

Non-financial disclosures – listed companies will be required to disclose information in relation to diversity and corporate social responsibility as a result of amendments made to the EU Accounting Directive. The UK must implement these amendments into national law by December 2016.


Listed and unlisted companies are reminded that under section 838 of the Companies Act 2006, public companies must file interim accounts at Companies House before paying an interim dividend. Next plc recently convened an EGM to rectify a procedural oversight which resulted in a technical infringement of this requirement.

As regards dividend disclosures, the FRC's financial reporting lab has outlined ways in which companies can improve this. The report notes that investors would like to see disclosures on distributable profits, the rationale for a company's dividend policy (and how this relates to the company's business model and strategy), risks associated with the dividend policy, implementation of the policy and disclosure of circumstances where companies expect to pay special dividends or buy back shares. Investors would also like to see dividend disclosures grouped together in the Annual Report to promote coherence, rather than see them in various sections of the Annual Report. Read the FRC Lab report.

Revised rules for AIM companies

We reported in our November 2015 update that the London Stock Exchange was consulting on proposed changes to the AIM rules. In December 2015 the London Stock Exchange published AIM Notices 42 and 43 to confirm changes to the AIM rules, effective from 1 January 2016. Investing companies listing on AIM are now required to raise a minimum of £6m in cash via an equity fundraising on, or immediately before admission (the minimum amount was previously £3m). Whilst the amendments are designed to improve the quality of AIM companies by ensuring that they have sufficient cash to make meaningful investments and attract institutional investors, this could potentially result in fewer investing companies listing on AIM.

Delaying the disclosure of Inside Information

The FCA has been considering the circumstances in which listed companies can delay disclosing Inside Information in order to protect their legitimate interests. The consultation closes on 20 February 2016.

Transparency Directive – changes to the Disclosure and Transparency Rules (DTRs)

DTR 5 has been amended in order to implement the major shareholder disclosure requirements of the revised Transparency Directive. The changes include an extension to stock lending transactions, a new requirement to make disclosures in respect of financial instruments that have the same economic effect as holding shares, new sanctions for breaches of the disclosure rules and an extension of the investment manager exemption.

Transparency Directive – home member state notifications and availability of annual and half-yearly reports

As a result of the implementation of the Transparency Directive Amending Directive (TDAD) on 26 November 2015, listed companies need to notify the FCA of the identity of their home Member State, if they have not already done so. These rules are contained in DTR 6.4.2 – 6.4.4.

The TDAD also increases the period of time which annual and half-yearly reports must remain publicly available from 5 to 10 years (DTR 4.1.4 and DTR 4.2.2R).

Changes to the Companies Act – requirement to hold PSC registers from April 2016

As reported in our November 2015 update, the Small Business, Enterprise and Employment Act 2015 introduces a number of fundamental changes to UK company law. The changes go far wider than reducing administration and red tape for small businesses and listed and quoted companies should be alert to the implications, some of which have already come into force.

One area which has received its fair share of scrutiny and controversy is the establishment of register of People with Significant Control ("PSC register"). Main market listed and AIM quoted companies are exempt from the requirement to hold a PSC register, as they are already subject to equivalent requirements under DTR5. However, their UK subsidiaries are not exempt and each subsidiary must maintain a PSC register from 6 April 2016 and provide this information to Companies House from June 2016. It is also worth highlighting that AIM quoted companies (but not main market) will potentially be required to maintain a PSC register once the Fourth Anti Money Laundering Directive comes into force in June 2017.

A PSC is defined as an individual that holds, directly or indirectly, more than 25 per cent of the shares or voting rights of a company, an individual that holds the right, directly or indirectly, to appoint a majority of the Board of directors or has the right to exercise or actually exercises significant influence or control over a company. In January 2016 the Government published and laid before Parliament the draft Register of People with Significant Control Regulations 2016. Find out more.

Contact us please contact us via if you need any support with complying with the PSC regulations.

EU Market Abuse Regulation

We reported in our May 2015 update that the EU Market Abuse Regulation (MAR) is due to come into force in July 2016. This will supersede the existing Market Abuse regime and will apply to AIM companies as well as those on the main market. The key changes include a mandatory and more onerous Insider List template, changes in the timescales for notifying PDMR transactions, different ‘closed periods', changes to record-keeping and retention and amendments to the FCA Handbook including the removal of the Model Code and the Code of Market Conduct. The FCA has published a consultation paper on the amendments which need to be made to the Listing, Prospectus, Disclosure and Transparency Rules (LPDT rules) to reflect MAR.


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