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Listed company update VIII
This update summarises the major developments in UK corporate law and regulation for listed and quoted companies since our last update in February 2016.
EU Market Abuse Regulation (MAR)
As reported in our July 2015 and February 2016 updates, MAR is due to come into force in July 2016. Key changes affecting listed companies include the expansion of the scope of MAR to cover a wider range of instruments traded on a wider range of exchanges (including AIM – see below), more detailed requirements and procedures regarding the control of inside information, delaying disclosure, insider lists, share dealing restrictions, notification requirements for directors and senior managers (replacing the Model Code) and market soundings.
As regards the format for insider lists, companies will be required by MAR to compile and maintain insider lists. The "Insider List Implementing Regulation" specifies the content and format of insider lists and will replace the current requirements. The mandatory template for the insider list is very specific and must be kept updated. The Insider List Implementing Regulation is available here and the template for the insider list can be found in the annex to this Regulation.
As regards the application of MAR to AIM companies, AIM is currently a prescribed market for the purposes of the market abuse regime. Whilst this means that behaviour in relation to AIM securities can constitute market abuse, other rules which currently apply to main market companies do not currently apply to AIM such as the obligation to keep insider lists, the rules on disclosure of inside information and the rules on dealings by persons discharging managerial responsibility (PDMRs). However MAR will regulate these matters for main market and AIM companies alike. AIM has announced it intends to retain its rule 11 on disclosure of price sensitive information alongside the MAR requirements, thereby making AIM companies subject to both AIM regulation and the FCA in this area. In April 2016, the London Stock Exchange issued a consultation notice on proposed changes to the AIM rules in anticipation of MAR. Some of the AIM rules are proposed to be deleted on the basis that they will be superseded by MAR, such as AIM rule 17 (obligation for a company to notify information relating to directors dealings). It is also proposed that a new AIM rule 21 is introduced requiring AIM companies to put in place a share dealing policy.
The London Stock Exchange has published an edition of Inside AIM focused on MAR compliance.
We provided a comprehensive summary of items listed companies should consider in drafting their 2015 Annual Report and 2016 AGM resolutions in our February 2016 update and the 2016 AGM season is now well underway for companies with a December year end. We bring to your attention here a number of recent developments.
We reported in our February 2016 issue that the Pre-Emption Group had issued a revised version of its Statement of Principles. In May this year the Pre-Emption Group published a report on the implementation of its 2015 Statement of Principles for disapplying pre-emption rights and has provided a template resolution for disapplying pre-emption rights to assist companies. The template recommends that companies propose two separate resolutions, the first to seek a 5% disapplication to be used on an unrestricted basis and the second resolution to be put forward only when appropriate in relation to an acquisition or specified capital investment.
The FRC has written a letter to investors encouraging them to engage with companies.
An Investment Association Working Group has issued an interim report on simplifying long-term incentive pay in listed companies. The working group argues that the current approach to executive pay in UK listed companies is not fit for purpose and has resulted in a poor alignment of interest between executives, shareholders and the company. Key areas where the working group believe that changes can be made include transparency, engagement, accountability and flexibility.
In April, PIRC updated its UK shareholding voting guidelines, replacing the revision published in April 2015. PIRC confirms that it will not support authorities for the disapplication of pre-emption rights up to an amount equal to 10% of the company's issued ordinary share capital unless the board has made a clear and compelling case as to why the 10% level is appropriate for the company. PIRC also recommends voting against future share buy-back authorities and recommends abstaining where non-audit fees are between 25% and 50% of audit fees. As regards diversity, PIRC expects companies to report on targets and to address gender inequality if PIRC considers there to be gender disparity in the workforce. As regards directors' remuneration, PIRC continues to oppose excessive remuneration and their guidelines are now more prescriptive about members of the Remuneration Committee.
Updated UK Corporate Governance Code and Guidance on Audit Committees
The Financial Reporting Council (FRC) has issued a final draft update to the UK Corporate Governance Code and the associated Guidance on Audit Committees. It is intended that the revised Code and Guidance are effective for periods beginning on or after 17 June 2016. The FRC has published the final drafts early to enable companies and their auditors to familiarise themselves with the new requirements.
The FRC has made only minimal changes to the Code where required to implement the EU Audit Regulation and Directive (ARD) and some of the outstanding recommendations of the Competitions and Markets Authority around the provision of audit services to FTSE 350 companies.
The proposed revisions to the Audit Committee Guidance include ARD amendments and also updated best practice.
Modern Slavery Act 2015
We provided details in our November 2015 and February 2016 updates about the Modern Slavery Act 2015 (MSA). The new reporting requirements apply to companies with a year ended on or after 31 March 2016 and whilst there is no prescribed time limit to make the statement, guidance suggests that the statement is published as soon as possible after the financial year end to ensure it is relevant and current. This broadly interpreted as meaning within six months of the year end.
The Nomination Committee
Earlier this month, the ICSA: The Governance Institute published a report, undertaken in partnership with EY, on the role of the Nomination Committee. The report revealed that many companies are looking to improve the way that their Nomination Committees operate in several areas.
Changes to the Companies Act under the Small Business Enterprise and Employment Act 2015
As reported in our February 2016 update, listed companies are reminded that the Small Business Enterprise and Employment Act 2015 ("SBEEA") brings a number of fundamental changes to UK company law and all UK companies should be alert to the implications.
With effect from the 6 April 2016, SBEEA requires companies to keep a register of people who have significant control over the company (PSC Register). This provision is now in place and whilst main market listed and AIM quoted companies are exempt from the requirement to hold a PSC Register, their UK subsidiaries are not exempt and each subsidiary has been required to maintain a PSC register since 6 April 2016 and provide this information to Companies House within Annual Returns (to be replaced with Annual Confirmation Statements) with effect from made-up dates on or after 30 June 2016 (see further below).
Other provisions of SBEEA include the prohibition of corporate directors, although this remains subject to further regulation as this provision is still being considered by BIS. The implementation date for this provision is currently scheduled for October 2016.
As referred to above, with effect from 30 June 2016, companies will no longer be required to submit an Annual Return to Companies House and will instead submit an Annual Confirmation Statement. Companies must file one Statement in each twelve month period but need not wait until the due date to file their next Statement. The Statement is similar to the Annual Return in that it requires companies to confirm that the company has delivered all of the information that it is required to deliver to Companies House. In practice there will be little difference for most companies as they will still be required to confirm pre-populated information on an annual basis. An important point for listed companies is that companies will no longer be required to include the amount paid and unpaid on each share in the statement of capital - only the aggregate amount unpaid on the total number of shares in issue.
Companies will also have the option to maintain information from their statutory registers on the public record at Companies House, thereby removing the need to keep a separate set of statutory registers. We are awaiting further guidance on the practicalities of this option.
As regards to the PSC Register, BIS has published the final statutory guidance on the meaning of significant influence or control in the context of companies' PSC Registers and it has updated its draft statutory guidance on the meaning of that phrase in the context of LLPs PSC Registers. Copies of all guidance can be found on the BIS website.