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Legal Developments in the The Legal 500 United Kingdom 2011
Annual reports and annual general meetings
With the Summer annual general meeting (AGM) season now on the horizon, many company secretaries and general counsel will be considering the preparation for their AGMs and the publication of their annual reports.
In recent years there have been a great number of changes to the requirements for annual reports and those for AGMs, mostly brought in by the Companies Act 2006 (the 2006 Act), but also changes driven by the guidance from shareholder bodies such as the Association of British Insurers (ABI) and the National Association of Pension Funds (NAPF). European legislation has also been a factor, with the Shareholder’s Rights Directive coming into force in 2009, as well as the increased focus on corporate governance that has trickled down to all companies from the initial scrutiny of financial institutions after the recent global financial crisis.
After years of change, things are beginning to settle. However, this article sets out some new developments and important practice points to watch out for in 2011.
Changes to the Prospectus Directive
Following a lengthy review and consultation process by the European Commission, the Prospectus Directive (Directive 2003/71/EC) (PD) has been amended after Directive 2010/73/EU (the Directive) came into force on 31 December 2010.
Issuing a full prospectus under the PD is a long, complex and expensive process. The objectives of the Directive are to reduce some of the obligations under the PD that the Commission has identified as being excessively burdensome on companies, to introduce a new proportionate (ie reduced) disclosure regime, and to make it easier for smaller companies to raise equity finance.
This article aims to take stock of the current regime under the PD and to highlight the significant changes to be introduced by the Directive, which member states must implement by 1 July 2012.
Takeover Code consultation: response statement
On 21 October 2010, the Code Committee of the Takeover Panel issued the response statement to its Public Consultation Paper (PCP 2010/2), ‘Review of Certain Aspects of the Regulation of Takeover bids’, which was published on 1 June 2010. The consultation was the culmination of a process started by the Code Committee of the Takeover Panel at the beginning of 2010 in response to public and press comments on issues relating to the operation of the Takeover Code in the Kraft Foods Inc takeover bid for Cadbury plc. At the time, suggestions for changes to the Takeover Code were also made in speeches by the then Secretary of State for Business, Innovation and Skills, Lord Mandelson, on 1 March 2010, and by the then Financial Services Secretary, Lord Myners, on 8 March.
Issuer liability for inaccurate statements
The Financial Services and Markets Act 2000 (Liability of Issuers) Regulations 2010 (the 2010 Regulations) apply to information first published on or after 1 October 2010.
National storage mechanism
On 1 September 2010 the National Storage Mechanism (NSM) replaced the Financial Services Authority (FSA)’s Document Viewing Facility (DVF). The NSM, located at www.hemscott.com/nsm.do, is the official mechanism for the storage of regulated information in the UK. All information required to be disclosed under the Listing Rules, Disclosure and Transparency Rules, and the Prospectus Rules is included in the NSM.
The NSM does not replace the existing Regulatory Information Service (RIS) regime, but complements it by automatically storing announcements made through regulatory feeds, as well as information that was previously published on the DVF. It allows free online access and enables users to search, view and print the information. It is more accessible than the DVF, which required either attendance in person at the FSA’s offices or an online subscription service.
Update on the AIFMD Directive
The ALTERNATIVE INVESTMENT FUND Managers Directive (aifmd) continued its progress towards becoming law after separate versions were adopted by the European Parliament’s Committee on Economic and Monetary Affairs (ECON) on 17 May 2010, and by the Council of the EU’s Economic and Financial Affairs Council (ECOFIN) the following day.
The AIFMD increases the regulation of managers of alternative investment funds (AIF), the definition of which will include all non-Undertakings for Collective Investment in Transferable Securities funds, not just hedge funds and private equity funds.1 These proposals, once implemented, will affect AIF managers (AIFMs) and their service providers, and will include new conduct of business and disclosure requirements, as well as higher capital adequacy requirements, and will introduce formal remuneration policies.
Since the publication of the initial draft of the AIFMD by the European Commission on 29 April 2009, there have been several ‘compromise texts’ published by Sweden, Spain and Belgium as part of their respective Presidencies of the Council of the EU. The compromise text provides the basis for the ECOFIN position.
The European Parliament appointed rapporteur Jean-Paul Gauzès to prepare its own version of the AIFMD. Gauzès published his report in November 2009 and 1,669 amendments were tabled for consideration by ECON, which resulted in the draft adopted by ECON.
The ECON and ECOFIN drafts are now being discussed in ‘trialogues’, which are three-way discussions between the European Commission, ECOFIN and ECON, to agree a final text. A reconciled version of the AIFMD was expected to have been adopted by the European Parliament in July 2010, but, at the time of writing, was likely to be enacted in November.
Bribery Act 2010 and operational issues for businesses
The Bribery Act 2010 (the 2010 Act) is due to come into force in April 2011. The potential commercial impact of the 2010 Act is something that many organisations will have to face and businesses should start their preparations for putting in place appropriate compliance systems.
NYSE Euronext London: a new London market
On 13 July 2010, NYSE Euronext London opened for business as a new London listing venue for shares and depositary receipts, and is operated by LIFFE Administration and Management. NYSE Euronext announced that the new primary market is intended to attract international issuers looking to list shares or depositary receipts on the Official List of the UK Listing Authority (UKLA). It is designed to capture international business from the London Stock Exchange (LSE) (and AIM).
Out in the cold
The Takeover Panel has recently handed down only the second cold-shoulder sanction in its history to activist investor Brian Myerson and two associates.
Myerson and his associates were found to have breached the Takeover Code by acting in concert in acquiring shares in Principle Capital Investment Trust (PCIT), and then presenting ‘a false picture’ to the panel to conceal the breach. Additionally, Daniel Posen, one of the associates, was found guilty of attempting to conceal the source of his funds.
Standard listing: the jury’s still out?
While there has not been the rush that some commentators anticipated of UK companies to standard listings on the London Stock Exchange (LSE)’s main market (there has been barely a trickle), there continues to be interest and speculation about whether this market will take off. This article considers whether there is a role in UK equity capital markets for standard listings in the future.
New EU safe harbour rules on vertical agreements
On 23 April 2010 the EU Commission adopted a new block exemption regulation on the application of EU competition rules to vertical agreements (the Regulation).
In certain circumstances, the Regulation allows suppliers in distribution and other vertical agreements to impose exclusivity and non-competition obligations, and a ban on active selling, on their distributors or purchasers, which would normally be in breach of Article 101(1) of the Treaty on the Functioning of the EU. Agreements outside of the Regulation are not automatically void but must be assessed under the EU competition rules to determine whether they merit exemption.
UK bank faces £28m fine for breach of competition law
In a salutary warning to companies not to share pricing or other competitively sensitive information with competitors, the Office of Trading (OFT) recently imposed a fine of over £28m for breaching competition law on a leading UK bank.
Under Chapter 1 of the Competition Act 1998 (the 1998 Act), it is a serious offence for competitors to exchange information about their prices, discounts, terms of trade, or the rate and dates of any changes to them. Companies guilty of such conduct can be subject to substantial fines and may be sued for damages by third parties that have suffered loss as a result of their unlawful practices.
The Office of Fair Trading smokes out unlawful pricing
After a gruelling seven-year competition probe, the Office of Fair Trading (OFT) has finally imposed fines of £225m for the fixing of resale prices of tobacco products in the UK on several leading tobacco manufacturers and retailers.
Ofcom tackled over broadcasting rights
the British Sky Broadcasting Group (Sky) and the Football Association Premier League (the Premier League) look set to challenge an order by Ofcom, the UK communications regulator, for Sky to reduce the price at which it sells premium sports content to its broadcasting rivals. The dispute arises from Sky’s exclusive rights to certain sports broadcasts, which it purchased from organisations such as the Premier League. Ofcom brought the order under the Communications Act 2003 (the 2003 Act) to ensure fair competition in the provision of broadcasting content. The dispute provides guidance as to how competition regulators will use their powers under the Competition Act 1998 (the 1998 Act) to regulate margin squeeze situations.
CRC Energy Efficiency Scheme: issues for corporate lawyers
The Carbon reduction commitment Energy Efficiency Scheme (the CRC) became effective on 1 April 2010. A full review of this has already been included in IHL179. However, the CRC will have important consequences that need to be considered by corporate lawyers and, in particular, in relation to corporate transactions, such as M&A and private equity investments, as well as restructuring and group reorganisations. This article will provide a brief overview of the CRC, and consider some of the corporate issues and how these can be addressed in corporate transactions.
All change for the new financial year
With the AGM season in full swing, this article takes stock of rule changes that public companies have been dealing with when presenting their accounts and holding their AGMs. Before looking at the changes it is worth remembering that the legal and governance regimes do not apply in their entirety to all companies.
Cross-border mergers
The Companies (Cross-Border Mergers) Regulations 2007 (the Regulations) came into force in December 2007 and implements Directive 2005/56/EC of the European Parliament and Council on cross-border mergers of limited liability companies. The Regulations provide for the merging of any two public or private limited liability companies resident in the EU (providing such a merger is permitted under the relevant domestic law of a company) and introduce the concept of a ‘true merger’ to the English legal system. Whereas previously in the UK mergers could only be effected by transferring the individual assets and liabilities of the transferor under a traditional business sale and purchase agreement mechanism, the Regulations now allow for the automatic transfer of all assets and liabilities of a transferor by operation of law. Although this is a relatively new process, and to date only a handful of the mergers have been affected, there are signs that an increasing number of companies are now opting to carry out reorganisations of their groups using the new cross-border merger process.
Companies Act 2006: is your house in order?
As 2009 draws to a close, the dust is now settling on what has been a very busy few years for UK company law. The Companies Act 2006 (the 2006 Act) represented the biggest overhaul and update of UK company law for decades, since its predecessor, the 1985 Act, was really only a consolidation of the existing laws. The 2006 Act took over three years from royal assent to final implementation, with the final parts of the 2006 Act coming into force in October 2009, when most of the remaining provisions of the 1985 Act were repealed. Given that the 2006 Act was proposed by the Department of Trade & Industry, initially implemented by the Department of Business Enterprise and Regulatory Reform, and finally implemented by the Department of Business Innovation & Skills, it is not surprising that it has been amended already, particularly to take account of changes to EU law such as the Shareholder Rights Directive.
Emerging opportunities in emerging markets
The emerging markets of Russia and Ukraine (the region) have been caught by the economic malaise currently gripping the world. A consequence of this malaise is that interest in capital markets has stalled. That is not to say that there is a lack of interest in going to market; there is just no market to go to.
New restrictions for investment into Germany by non-EU and EFTA investors
Traditionally the German Foreign Trade and Payments Act (Aussenwirtschaftsgesetz (AWG)) only provided for restrictions on the import and export of weapons and related technologies. In the case of the acquisition by a foreign investor of a German company that produces these sensitive products, notification was required to the German Federal Ministry of Economics and Technology (Bundesministerium für Wirtschaft und Technologie (BMWi)).
Goodbye Table A: changes to UK company law
As the Companies Act 2006 (the Act) has significantly amended UK company law, the government has taken the opportunity to develop a new set of default articles to bring them into line with the provisions of the Act. The Companies (Model Articles) Regulations 2008 (SI 2008/3229) (the 2008 Regulations) contain new model articles that will apply by default to any new company incorporated on or after 1 October 2009, unless otherwise modified or excluded.
Re-emergence of debt-for-equity swaps
The recent spate of corporate restructurings and rescues is testament to the combination of difficult and inter-related conditions currently facing companies. This includes a lack of new bank finance, concern about debt-heavy balance sheets, exposure from insolvency of debtors and, perhaps most critically, lack of liquidity.
Debt listings come of age
Unsurprisingly, listing debt has become a favoured way of eliminating withholding tax (WHT) on the payment of interest. Besides the fact that this method brings a certain treatment, many boards of UK companies have discovered to their surprise that a stock exchange listing can be inexpensive, easy and kind on their time. This contrasts directly with their experience in obtaining clearance under double tax treaties, particularly with the HMRC crackdown on the use of ‘conduit arrangements’, which route debt through countries whose double tax treaties with the UK are favourable.
What keeps directors awake at night? Topical issues for in-house lawyers
There has been a recent surge in media coverage of incidents affecting corporate bodies and of calls for directors to be held personably responsible. Reports such as the theft of a laptop from an employee of the Nationwide Building Society and the highly publicised Madoff case have highlighted the need for directors to be very aware of the company procedures that they have in place. Directors are becoming increasingly concerned about their liability, both personally and to the company. As a consequence, in-house counsel may well be asked for legal advice not just from the company’s perspective, but from the directors’ personal viewpoints.
Financial assistance: whitewashed by the Companies Act 2006
Undoubtedly, the most eagerly awaited provision contained in the most recent Companies Act 2006 (the 2006 Act) implementation in October 2008 was that in relation to financial assistance. One of the overall aims of the 2006 Act was to significantly reduce the administrative burdens involved with running a company. To what extent have the changes to the financial assistance regime eased the regulatory burdens on directors and the workload of their lawyers?
Company accounts and liability: a true and fair view
With the phased implementation of the Companies Act (CA) 2006 almost complete, directors are now beginning to recognise the impact of the new legislation. One key area that CA 2006 seeks to modernise is in relation to company accounts and liability for reports.
Companies Act implementation update
October saw a number of steps along the path to full implementation of the Companies Act (CA) 2006. A number of outdated provisions have been repealed and a range of new legislation introduced.
The legal due diligence process on an initial public offering on AIM
When a company is proposing to apply for admission of its shares to AIM on an initial public offering (IPO), legal due diligence is an integral part of the process required to be carried out by the company. Legal due diligence is primarily designed to help minimise potential liability for the company and its board of directors, who have primary responsibility for the admission document. The nominated adviser to a company, however, is also responsible to the London Stock Exchange for assessing the appropriateness of the company for AIM, and legal due diligence plays a key role in this. Legal due diligence will highlight at an early stage of the process any issues that need to be dealt with to ensure that the company will be suitable for admission to AIM. Through this process, the company will also gather the information required to be included in the admission document.
Preparing prospectuses: key issues
The Prospectus Regulations 2005, which implemented the EU Prospectus Directive (2003/71/EC) in the UK, came into force on 1 July 2005. Unsurprisingly, since then, both the UK Listing Authority (UKLA) and regulators across the EU have been questioned by companies and their advisers on required prospectus content under the new rules.
Companies Act 2006: the way forward for public companies
The phased implementation of the Companies Act 2006 (the 2006 Act) means that, while some provisions came into force on 1 October 2007, additional provisions will be implemented on 6 April 2008 and 1 October 2008. This is in addition to the few provisions that came into effect on 1 January 2007 and 6 April 2007.
Structuring a joint venture: corporate or contract?
Primary considerations for a joint venture structure relate to tax, commercial practicalities and liability and will always depend on the particular circumstances.
Going public - the route to PLUS
Since the rebranding of Ofex as PLUS in October 2006, the alternative market offering to AIM is enjoying a comeback as an increasingly popular way for small, emerging companies to trade publicly. The renewed interest in PLUS has much to do with its cost-effectiveness and flexible regulation. Most companies want to pay lower professional fees while enjoying a trading facility, a valuation and market exposure, but without the burden of onerous regulatory requirements. This article sets out the ways companies can come to PLUS, the key documentation, the role of advisers and the benefits of trading on this market.
Directors' duties - has anything really changed?
The provisions of the Companies Act 2006 (the 2006 Act) relating to directors' duties will come into force on 1 October 2007, with the exception of those relating to conflicts of interest, which will come into force on 1 October 2008. The 2006 Act contains a statutory statement of duties, referred to as the ‘general duties', which are based on the existing common law rules with some alterations and additions. This briefing outlines the new duties, and the effects they have on the current position.
Outsourcing - think before you leap
Outsourcing may seem an ideal opportunity to cut costs, transfer responsibility (hopefully to an industry expert), improve the level of service and concentrate on core areas of a business, but along with these and other potential benefits it is important to consider possible risks before entering into an outsourcing arrangement. This briefing sets out some of the areas of risk to consider and ways to mitigate them.
AGMs: law and order
If a company has a 31 December financial year end, it will probably be holding its AGM in the next couple of months. This article provides guidance on how to handle certain issues relating to AGMs. It has been drafted on the basis of current law (the Companies Act 1985 (CA 1985)) and best practice. The Companies Act 2006 (CA 2006) will bring about certain changes, some of which are summarised below.
The FSA's new disclosure and transparency rules
The FSA has introduced new rules governing the release of financial information by listed companies and notifications that are required in respect of shareholdings in listed companies.
Electronic communications – the new provisions
New legislation came into force earlier this year facilitating the use of electronic communications (e-communications) for both private and public companies. This article provides an overview of the relevant provisions.
Acquisition: assets or shares?
If an entity wishes to expand or diversify through acquisition, it may do so by acquiring a business and its assets (asset purchase) or the shares of the company (target company) that owns the business and assets (share purchase).