QCA publishes updated governance code

The Quoted Companies Alliance (QCA) has published a new version of its corporate governance code (QCA Code), which was last updated in 2018.

The revised QCA Code follows the format of the 2018 Code and is mainly targeted at AIM companies and small and mid-sized quoted companies. The QCA Code sets out ten broad principles, to be applied on a “comply or explain” basis. Each principle is accompanied by guidance on the application of that principle and details of the explanations which should be included either in the annual report and accounts or on the company’s website.

The changes in the revised QCA Code include:

  • introducing a specific principle on remuneration, looking at how the company’s remuneration policy aligns with its purpose, strategy and culture;
  • expanding the disclosures to be made in the corporate governance statement prepared by the chair of the company, to cover matters such as how the company’s governance arrangements align with, and support, its business purpose; and
  • additional guidance to support companies in the application of the principles.

The QCA has included a series of FAQs on the revised QCA Code on its website, where copies of the QCA Code itself can also be purchased (available free to members of the QCA). The revised QCA Code should be applied by companies for accounting periods starting on or after 1 April 2024.

 

Heidi Gallagher
Heidi Gallagher
+44 20 7466 2367

Isobel Hoyle
Isobel Hoyle
+44 20 7466 2725

Michael Jacobs
Michael Jacobs
+44 20 7466 2463

Ending of Covid relaxation measures

The Financial Conduct Authority (FCA) has announced, in its Primary Market Bulletin No. 39, that it is ending the temporary relaxations it introduced for companies due to the Covid-19 pandemic.  The London Stock Exchange has also issued an Inside AIM removing its temporary relaxations for financial reporting deadlines implemented in light of Covid-19 from 28 June 2022.

In 2020, the FCA announced a series of measures to help companies in response to the pandemic. It says that, although the effects of Covid-19 are still being felt, it considers that issuers have adjusted so that they are now able to return to previous practices.

The relaxations being withdrawn by the FCA, and the timing of their withdrawal, are as follows:

  • Corporate reporting – Issuers were allowed an additional two months to publish their annual financial reports and an additional month to publish their half yearly financial reports. These reliefs will cease to be available for reporting periods ending on or after 28 June 2022.
  • Working capital statements – The FCA permitted issuers in certain circumstances to include in a prospectus or circular their key assumptions on business disruption during the pandemic, without having to include a qualified working capital statement. The FCA will no longer approve prospectuses or circulars that seek to use this approach after 28 June 2022.
  • General meetings – Issuers were able to seek a dispensation from the requirement to hold a general meeting to approve a class 1 or related party transaction if certain conditions were met, including obtaining voting undertakings from shareholders. The FCA will not grant such a dispensation from 28 June 2022.
Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Robert Moore
Robert Moore
+44 20 7466 2918

Half-yearly corporate update – our latest briefing

We have published our half-yearly update briefing which summarises the major developments in UK corporate law and regulation that have occurred over the last six months, that is from July to December 2021, and which are of relevance to UK listed companies.

The briefing is available here.

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Roddy Martin
Roddy Martin
+44 20 7466 2255

Ben Ward
Ben Ward
+44 20 7466 2093

Company censured and fined for breach of AIM rules

The London Stock Exchange has censured and fined Sensyne Health plc £580,000 (discounted to £406,000 for early settlement) for failing to maintain effective controls to enable compliance with the AIM Rules, and for failing to comply with AIM’s related party rules in respect of bonus payments made to its directors.

In November 2018, three months after its admission to AIM, the company resolved to award one-off cash awards, described as ‘post IPO bonuses’, of £850,000 and £200,000 to its CEO and CFO respectively. The bonuses were paid in December 2018.

The company failed to properly consult its nominated adviser (nomad) before paying the bonuses – it only gave the nomad limited information via text message and implied that the proposals were not yet finalised. The nomad nonetheless advised against paying the bonuses. In August 2019 the nomad became aware that the company still intended to pay the bonuses when it received the company’s draft remuneration report (and was unaware they had in fact already been paid). Believing it was still only a proposal, the nomad advised the company that the bonuses would likely be treated as related party transactions under AIM Rule 13 and would therefore require: (i) consultation with it in respect of the required fair and reasonable statement; and (ii) notification of the transactions without delay. The true status of bonuses only became clear to the nomad a month later. Details were then notified to the market in October 2019 but the nomad did not make a fair and reasonable statement in respect of them.

The London Stock Exchange concluded that:

  • the company’s conduct involved serious failures to properly understand its AIM Rule obligations, to properly engage with its nomad (and deal with it openly and transparently) and to ensure that it had in place sufficient procedures and controls to comply with the AIM Rules, in breach of AIM Rule 31; and
  • given that the value of the bonuses exceeded the related party class tests, the company failed to seek the advice of its nomad, to make a disclosure without delay and to satisfy the requirement for a fair and reasonable statement from the nomad, in breach of AIM Rule 13.
Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Roddy Martin
Roddy Martin
+44 20 7466 2255

Mike Flockhart
Mike Flockhart
+44 20 7466 2507

FCA and FRC statement on reporting deadlines

The Financial Conduct Authority (FCA) and Financial Reporting Council (FRC) have published a joint statement reminding issuers of the temporary relaxations to the usual timeframes for publication of the annual report and accounts in light of the ongoing Covid-19 pandemic.

Under the relaxations, issuers have an additional two months to finalise their annual report and accounts (so they must be published within six months of their year-end). In relation to half-yearly reports, the period for publication is effectively extended by one month, so the half-yearly report must be published within four months after the end of the half-year. The FCA has said that these temporary relaxations will, at a minimum, continue to be available to listed companies with financial periods ending before April 2021.

The statement also reiterates the importance of keeping the market up to date and that listed companies must continue to assess carefully what information constitutes inside information, recognising that the Covid-19 pandemic and policy responses to it may alter the nature of information that is material to a business’s prospects.

The London Stock Exchange has also published an edition of Inside Aim, confirming that temporary measures for reporting deadlines in relation to the publication of annual results and half-yearly reports for AIM companies also remain available.

Alex Kay
Alex Kay
+44 20 7466 2447

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Robert Moore
Robert Moore
+44 20 7466 2918

FCA enforcement action against CEO for disseminating misleading information

The FCA has publicly censured the former Chief Executive Officer of Worldspreads Group plc, a company which was traded on AIM, for market abuse.

Worldspreads, a financial spread betting company, was admitted to trading on AIM in August 2007. The FCA found that the admission documents contained misleading information in relation to Worldspreads’ financial position and omitted key information that investors needed to make an informed investment decision. The CEO was closely involved in the drafting and approval of the admission documents and was aware of the obligations to provide accurate information to the market.

In light of this, the FCA concluded that the CEO had engaged in market abuse contrary to section 118(7) of the Financial Services and Markets Act 2000 (FSMA) by disseminating information that gave a false and misleading impression, knowing that such information was false and misleading. (That offence is now contained in Articles 12 and 15 of the Market Abuse Regulation (MAR).)

The FCA also found that the CEO engaged in further abusive activity between January 2010 and March 2012 in relation to spread bets placed by him on Worldspreads shares. The FCA concluded that these transactions gave a false or misleading impression as to the demand for Worldspreads shares, contrary to section 118(5)(a) of FSMA, and employed manipulating devices in order to deceive the market, contrary to section 118(6) of FSMA (now Articles 12 and 15 of MAR).

The FCA would have fined the CEO £658,900 but agreed to a public censure in light of evidence that a fine would cause serious financial hardship.

Worldspreads’ former Chief Financial Officer has already been fined £11,900 for market abuse (again reduced for financial hardship) and the financial controller was fined £105,000. Worldspreads went into administration in March 2012.

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

Stephen Wilkinson
Stephen Wilkinson
+44 20 7466 2038

 

Company censured for breaches of the AIM Rules

The London Stock Exchange has censured and fined Yü Group plc £300,000 for failing to maintain effective controls to enable compliance with the AIM Rules and for announcing inaccurate information to the market.

During the course of the first half of its financial year to 31 December 2018, the company made a number of forecasts that its full year profits before tax would exceed market expectations. This was during a period of exponential business growth. However, during further internal assurance work undertaken by the company, it identified that there were material errors in its management information and the company in fact made a significant loss. The company’s review identified that the quality and accuracy of aspects of its financial and management information had not kept pace with the company’s growth.

The London Stock Exchange concluded that:

  • the company had failed to ensure that it had in place sufficient procedures, resources and controls to comply with the AIM Rules, in breach of AIM Rule 31; and
  • the lack of effective financial reporting systems and controls meant that the company’s disclosure was inaccurate, in breach of AIM Rule 10.

The fine has been waived in this instance, due to the uncertainties and potential financial challenges for the company arising from the Covid-19 pandemic.

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Roddy Martin
Roddy Martin
+44 20 7466 2255

Alan Montgomery
Alan Montgomery
+44 20 7466 2618

FCA enforcement action

The Financial Conduct Authority (FCA) has censured Redcentric PLC for market abuse. Redcentric has agreed to pay compensation to affected investors.

The FCA found that Redcentric, which is admitted to trading on AIM, issued unaudited interim results in November 2015 and audited final year results in June 2016 which materially misstated its net debt position and overstated its true asset position in circumstances where it knew, or ought to have known, that the information was false and misleading. Redcentric had therefore engaged in market abuse contrary to section 118(7) of the Financial Services and Markets Act 2000 (now Articles 12 and 15 of the Market Abuse Regulation (MAR)).

Redcentric has put in place a scheme to provide compensation to affected purchasers of Redcentric shares. It is estimated the value of the scheme to potential claimants is £11.4 million. The FCA says that this is the first time that an AIM company has offered to implement its own scheme to pay compensation to those affected by the harm it caused as a result of market abuse.

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

Stephen Wilkinson
Stephen Wilkinson
+44 20 7466 2038

Covid-19 – latest developments for corporate practitioners

Further additional guidance for companies has been published in light of the Covid-19 pandemic.

Company meetings

  • FRC and BEIS Q&A on company meetings – The Financial Reporting Council (FRC) and Department of Business, Energy and Industrial Strategy (BEIS) have published updated Q&A and best practice guidance on AGMs and other general meetings, pending the Corporate Governance and Insolvency Bill coming into force. The guidance says that, where it is not possible to hold an AGM as usual, companies should consider whether there is scope to convene a physical meeting with a representative cross-section of members. If such a meeting is possible, companies should ensure that shareholders can ask questions before any voting takes place. If a physical meeting is not possible, companies should explore how members might actively participate in a meeting by virtual means. It is currently expected that the Corporate Governance and Insolvency Bill, which will give companies additional flexibility in relation to shareholder meetings, will come into force by the end of the month.

Corporate reporting

  • AIM – The London Stock Exchange has announced, in the latest edition of Inside AIM, that AIM companies can have an additional month to finalise their half-yearly reports if needed (normally an AIM company must notify its half-yearly report within three months from the end of the period to which it relates). This extension is temporary while the UK faces the disruption resulting from the coronavirus pandemic.

Contract issues

  • Force majeure – As a result of the Covid-19 pandemic, many commercial parties have been reviewing their contractual arrangements to consider whether there are grounds for excusing non-performance or suspending or terminating their contracts. We have developed a new interactive tool which is designed to assist parties in evaluating the availability of force majeure relief under English law, either in respect of a party’s own contractual obligations or those of its counterparty. Click here to access the tool.

Other relevant materials

For further Covid-19 related publications, see our COVID-19 Hub.

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Roddy Martin
Roddy Martin
+44 20 7466 2255

ESMA consultation on the EU SME growth market regime

The European Securities and Markets Authority (ESMA) has published a press release and consultation on the Small and Medium-sized enterprises (SME) growth market regime in the EU. In the UK, AIM is designated as an SME growth market.

Possible amendments to the regime

SME growth markets were established under the Markets in Financial Instruments Directive II (MiFID II, Directive 2014/65/EU). The consultation suggests amendments to the current regime, including harmonisation of admission requirements and accounting standards for issuers on SME growth markets.

Insider lists

Under the EU Market Abuse Regulation (MAR), issuers on an SME growth market do not have to prepare insider lists as a matter of course but must be able to provide the competent authority (the Financial Conduct Authority in the UK) with a full insider list upon request. With effect from 1 January 2021, such issuers will no longer be exempted from the requirement to produce an insider list. They will instead have to prepare simplified lists that include “only those persons who, due to the nature of their function or position within the issuer, have regular access to inside information” (effectively a permanent insider list). MAR requires ESMA to develop draft regulatory technical standards to determine the format of these insider lists, and the consultation sets out these draft technical standards.

The consultation closes on 15 July 2020.

Mike Flockhart
Mike Flockhart
+44 20 7466 2507

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Alan Montgomery
Alan Montgomery
+44 20 7466 2618