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Listed company update VI
This update summarises the major developments in UK corporate law and regulation for listed and quoted companies since our last update in August 2015.
Modern Slavery Act
As reported in earlier updates, section 54 of the Modern Slavery Act 2015 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 Modern Slavery Act 2015 for each financial year. There is no de minimum 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.
Section 54 came into force on 29 October 2015 and guidance recently published by the Home Office includes advice on what can be included in the statement and useful case studies.
If an organisation fails to comply with section 54, or reports that it has taken no steps to ensure that its business and supply chains are free of modern slavery, it would not only risk adverse stakeholder and media feedback and damage to the organisation's reputation, but the Secretary of State may seek an injunction requiring the organisation to comply. Boards should therefore be thinking about the detailed investigation requirements required to enable them to provide a meaningful and responsible statement. Companies should be looking at their supply chains now in preparation for the disclosure requirements next year. Companies are reminded that they need to consider suppliers throughout their supply chain, not just their immediate suppliers, and ensure that policies, procedures, training and the management of supplier contracts are reviewed now in preparation for the statement.
The new requirements will apply to companies with a year ending on or after 31 March 2016. 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.
Contact us if you would like assistance in preparing for this new disclosure regime and advice on the content of the statement.
Changes to the Companies Act
The Small Business, Enterprise and Employment Act 2015 received Royal Assent in March 2015 and 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.
A number of provisions took effect from 10 October 2015 in relation to the procedures around the appointment of directors and company secretaries, the suppression of directors' dates of birth from the public register and company strike off procedures.
One area which has received its fair share of scrutiny and controversy is the establishment of register of Persons with Significant Control ("PSC register"). Main market listed and AIM quoted companies are except 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 April 2016 and provide this information to Companies House from June 2016. 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. Regulations on the detailed aspects of the PSC register and on the proposed protection regime, which would enable PSCs who are at risk of violence to have their information hidden from public disclosure, are eagerly awaited. Jordans will be writing to all of its clients individually regarding the information to be held on their PSC register.
Contact us if you need any advice in complying with the new provisions.
Women on Boards – final report
Lord Davies has published his final report on gender diversity in the boardroom. The report shows that there are no longer any male-only boards in the FTSE 100 and that women hold over 26% of board positions in those companies, compared to 12.5% in February 2011, exceeding the target of 25% in less than five years. The report makes five recommendations to maintain and encourage momentum going forward, including setting a target for female board representation in the FTSE 350 of 33% within five years, and increasing the progression of women to the roles of chair, senior independent director and executive director. Click for a copy of the final report.
Minor changes to the LPDT rules
The Listing Rules and the Disclosure and Transparency Rules have been amended with effect from 23 October 2015 to reflect the updated UK Corporate Governance Code introduced in September 2014. The changes reflect the fact that under the 2014 Code, companies now need to make both a going concern statement as to the appropriateness of adopting the going concern basis of accounting, as well as a viability statement around the longer-term viability of the company. Other changes relate to the provision that securities of a premium listed company must be capable of electronic settlement (which has been superseded by the EU Central Securities Depositaries Regulations).
Financial Reporting Council (FRC) – Discussion paper on board succession planning
The FRC has published a discussion paper seeking views on board succession at both an executive and non-executive level, noting that the quality of succession planning is one of the most frequent issues highlighted as a result of board evaluation exercises. Comments on the discussion paper are invited by 29 January 2016. See a copy of the paper.
FRC – Corporate Reporting Review
The FRC has issued its annual report reviewing annual reports of public and large private companies. The report notes that the overall quality of corporate reporting remains good, but the FRC has some concerns around how some boards assess materiality, and some smaller companies fail to explain their story and comply fully with the relevant standards.
FRC – Project of corporate culture
The FRC has announced the launch of an initiative to gather practical insight into corporate culture and the role of boards, following which the FRC will publish a report of its observations and best practice, using the results of this exercise to replace its current guidance on Board Effectiveness. Jordans will be contributing to this initiative.
FRC – changes to the UK Corporate Governance Code and Guidance for Audit Committees
The FRC is currently consulting over further minor amendments to the UK Corporate Governance Code (the Code) and its Guidance for Audit Committees. The consultation proposes minor changes to the provisions of the Code around audit committees and auditors, specifically that an audit committee must as a whole have competence relevant to the sector in which the company operates. The consultation also proposes replacing the requirement that at least one audit committee member should have relevant financial experience with a requirement for competence in accounting or auditing, or both. Details can be found on the FRC website.
Consultation on changes to AIM rules
The London Stock Exchange has published a consultation on proposed changes to the AIM rules applicable to investing companies and to AIM companies that undertake a fundamental change of business. The LSE has also published an article on how disclosure obligations under the EU Market Abuse Regulation will sit alongside disclosure obligations in AIM Rule 11 (relating to general disclosure of price sensitive information).
National Association of Pension Funds (NAPF) – now Pensions and Lifetime Savings Association
The institutional shareholder body the NAPF has been renamed the Pensions and Lifetime Savings Association, reflecting the fact that the lines are becoming increasingly blurred between pensions and other lifetime savings products. Its new website address is www.plsa.co.uk.
To find out more about how we can help, contact Jayne Meacham on 0117 918 1383 or email JMeacham@jordanscorporatelaw.com or take a look at our brochure.
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