Listing regime – changes to process for notification of investor dealings

The Financial Conduct Authority (FCA) has confirmed that the way in which investors submit TR-1 notifications of major shareholdings will change from 22 March 2021.

The FCA announced that it would make changes to the submission process in November 2020 (see our corporate update 2020/22). From 22 March 2021, all TR-1 notifications in relation to shares in a UK issuer admitted to trading on a regulated market, should be submitted electronically to the FCA via the FCA’s Electronic Submission System (ESS). The FCA has published a registration guide to help investors prepare for the new system.

Under DTR5.1.2, certain shareholders and holders of financial instruments are required to notify an issuer of dealings in that issuer’s securities. Investors currently inform the issuer using Form TR-1. For issuers on the main market of the London Stock Exchange, the form must also be emailed to the FCA.

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Greg Mulley
Greg Mulley
+44 20 7466 2771

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

 

Annual general meetings – GC100 discussion paper

The GC100, the association of general counsel and company secretaries of FTSE 100 companies, has published a discussion paper on shareholder meetings, titled “Shareholder Meetings – Time for Change?”.

The paper reviews the current format of annual general meetings (AGMs). It notes the typically low attendance and participation rates at physical meetings and that very few shares are voted “in the room” at an AGM. It also notes that the temporary relaxations to the shareholder meetings requirements introduced by the Corporate Insolvency and Governance Act 2020 in light of the Covid-19 pandemic (see our earlier blog post) had a positive impact in increasing participation in meetings through the use of technology. In light of this, the paper asks whether a physical meeting is the best way to hold an AGM and considers different possible approaches to the AGM format, focusing in particular on the use of technology and enhancing shareholder and stakeholder engagement.

The paper concludes that companies should have flexibility to choose a form of shareholder meeting format that best serves their shareholder base. The GC100 encourages the government to amend the Companies Act 2006 to provide legal certainty on the validity of virtual-only shareholder meetings and says that it intends to work with other interested parties to develop a code of best practice for virtual meetings, covering issues such as access and the shareholder question and answer process. A draft of the code of best practice is appended to the paper.

The GC100 also discusses the value of further innovation in shareholder and stakeholder engagement, including the FRC encouraging companies to hold additional shareholder or stakeholder engagement sessions outside of the AGM (for example, an event held after the notice of meeting has been sent, but before the deadline for submission of proxy forms).

The paper also includes some pro forma explanatory wording that could accompany a resolution to amend articles of association to permit the company to hold virtual and/or hybrid shareholder meetings.

Ben Ward
Ben Ward
+44 20 7466 2093

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Listing Regime – changes to process for notification of investor dealings

The Financial Conduct Authority (FCA) will change the way in which investors submit the form for notification of major shareholdings from Q1 2021. Its updated webpage on submitting investor notifications sets out information on this.

Under DTR5.1.2, certain shareholders and holders of financial instruments are required to notify an issuer of dealings in that issuer’s securities. Investors currently inform the issuer using Form TR-1. For issuers on the main market of the London Stock Exchange, the form must also be emailed to the FCA.

The FCA is developing a new online portal for submission of these investor notifications. Once the new system is live, investors will have to complete an electronic TR-1 Form and submit it via the portal.

Investors will have to complete a 2-step registration process to use the portal. The FCA has published a registration guide to help investors prepare for the new system.

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Michael Jacobs
Michael Jacobs
+44 20 7466 2463

Alan Montgomery
Alan Montgomery
+44 20 7466 2618

Government response on corporate transparency and Companies House consultation

The Department for Business, Energy and Industrial Strategy (BEIS) has published its response following its consultation on options to increase corporate transparency and enhance the role of Companies House.

The key changes, which BEIS consulted on in 2019, are:

  • Knowing who is setting up, managing and controlling companies – The government will introduce compulsory digital identity verification checks for directors, people with significant control (PSCs) and people who present company information. Shareholders will not be subject to identity verification but companies will be required to provide full names for shareholders.
  • Improving the accuracy and usability of information on the register – Companies House will be given discretion to query and check information before it is placed on the register, and the process for amending or removing inaccurate information will be simplified.
  • Company accounts – The government will consult further on measures to introduce full electronic tagging for accounts submitted to Companies House (listed companies will be required to do this in any event from 1 January 2021 – see our earlier post on this issue) and reform of the rules on shortening accounting reference periods.
  • Company names –  Companies House will have the power to query proposed company names before they are registered and the role of the Company Names Adjudicator will be reviewed.

The government will develop the proposals, consult further where necessary and introduce the necessary legislation when parliamentary time (and the necessary funding) allows.

Julie Farley
Julie Farley
+44 20 7466 2109

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Ben Ward
Ben Ward
+44 20 7466 2093

Further implementation of Shareholder Rights Directive II

New regulations, the Companies (Shareholders’ Rights to Voting Confirmations) Regulations 2020, will introduce new provisions into the Companies Act 2006 in relation to shareholder voting at company meetings from 3 September 2020.

The changes are required to implement provisions in the EU directive amending the Shareholder Rights Directive (EU/2017/828) (SRD II). SRD II seeks to enhance transparency and encourage long-term shareholder engagement in companies whose shares are traded on an EU regulated market (which, in the UK, includes the Main Market of the London Stock Exchange, but not AIM). The majority of SRD II, including the introduction of a new related party transaction regime in DTR 7.3 and changes to the directors remuneration reporting regime, was implemented in the UK in June 2019 (see our corporate update 2019/12).

Under the new provisions introduced into the Companies Act by the regulations:

  • where a vote is cast on a poll by electronic means, a traded company must provide a confirmation of receipt of those votes as soon as reasonably practicable (new section 360AA of the Companies Act); and
  • if requested by a shareholder after a general meeting, a traded company must provide information to confirm that the shareholder’s votes have been validly recorded and counted by the company (new section 360BA).
Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

Ben Ward
Ben Ward
+44 20 7466 2093

PSC register – obligation to report discrepancies to Companies House

The EU Fifth Anti-Money Laundering Directive (5MLD) has come into force in the UK. It requires certain entities to report to Companies House any discrepancies between the information that they hold about a beneficial owner of a company or LLP and the information that is on the company’s or LLP’s register of people with significant control (PSC).

Since April 2016, all UK incorporated companies and LLPs have been required to keep a statutory register providing details of their PSCs. This information is required to be filed at Companies House and kept up-to-date on an ongoing basis. Our detailed briefing on the UK PSC regime, is available here.

The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 amend existing anti-money laundering (AML) regulations and the Companies Act 2006 in relation to, among other things, the customer due diligence that must be undertaken by organisations within the AML regulated sector (referred to as ‘obliged entities’), which includes financial institutions, law firms, auditors and company service providers.

Under the new rules:

  • before establishing a business relationship with a UK company or LLP, obliged entities will have to obtain the PSC register of that customer from the customer or Companies House;
  • if they identify a discrepancy between the customer’s PSC register and the information that they otherwise have about its beneficial ownership, they must notify Companies House as soon as reasonably possible using an online form;
  • Guidance from Companies House says that, in the UK, only material differences have to be reported, focusing on clear factual errors, not typing or spelling mistakes (obliged entities should instead encourage customers to correct typos directly with Companies House);
  • whilst the definition of a beneficial owner under existing money laundering regulations is not exactly the same as a PSC under the UK Companies Act, the requirement to report discrepancies in the UK is based on the Companies Act PSC register regime; and
  • Companies House will investigate the discrepancy and make enquiries of the relevant company or LLP, asking it to make sure its PSC register is up-to-date (but without telling it that a discrepancy report has been made).

Similar obligations have been or will be implemented in other EU Member States.

In practice, companies may find that this leads to an increase in queries from service provider firms and Companies House, directed at understanding the company’s ownership structure.

Filing a discrepancy report with Companies House does not relieve firms of other regulatory obligations, for example the duty to make suspicious activity reports to the National Crime Agency under the Proceeds of Crime Act 2002.

For further details of 5MLD and its implementation in the UK, see our corporate crime team’s blog here.

Mark Bardell
Mark Bardell
+44 20 7466 2575

Julie Farley
Julie Farley
+44 20 7466 2109

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Caroline Rae
Caroline Rae
+44 20 7466 2916

Stephen Wilkinson
Stephen Wilkinson
+44 20 7466 2038

Liability to shareholders in M&A – Lloyds/HBOS shareholder class action

Shareholder claims against Lloyds Bank and its directors in connection with its acquisition of HBOS were dismissed by the High Court in November 2019. The case (Sharp v Blank [2019] EWHC 3078 (Ch)) involved a number of legal issues for companies, in particular around directors’ recommendations to the shareholders and the standards of disclosure required in shareholder circulars.

The case arose from the Lloyds/HBOS merger, which was negotiated at the height of the financial crisis in 2008. It was primarily concerned with whether the recommendation by the Lloyds directors that shareholders vote in favour of the merger was negligent and whether the information in the circular was sufficient.

Key points of interest for boards are:

  • Recommendation– The court held that a reasonably competent chair or executive director of a large bank could reasonably have reached the view at that time that the acquisition was beneficial to Lloyds’ shareholders. In order to demonstrate negligence, claimants must show that no reasonably competent director could have made the recommendation.
  • Disclosure standards – Directors must provide shareholders with a fair, candid and reasonable account of the circumstances in a shareholder circular to enable shareholders to make an informed decision on how to vote. This will include both the positives and the negatives of the proposed transaction but need not necessarily emphasise the weaknesses. A process for considering whether something needs to be disclosed, including the receipt of advice, will be important in the assessment of whether any defect on such a circular was negligent.
  • Professional advice – If directors have received advice from professional and experienced advisers, this will be an indicator that the board has not behaved negligently. A board which did not seriously consider the advice of an investment banker on a significant takeover would almost certainly be negligent.
Mark Bardell
Mark Bardell
+44 20 7466 2575

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Robert Moore
Robert Moore
+44 20 7466 2918

Ben Ward
Ben Ward
+44 20 7466 2093

Stephen Wilkinson
Stephen Wilkinson
+44 20 7466 2038

Q&A on register of people with significant control

The Law Society and City of London Law Society published its joint Q&A document on PSC Registers in November 2019.

UK incorporated companies and LLPs are required to keep a register of “people with significant control” over them (PSCs). The PSC register provides transparency around beneficial ownership of a company.

The Q&A discusses areas of complexity within the regime that are not dealt with in legislation or Government guidance. The Government has not endorsed the Q&A, but has confirmed that it does not disagree with any of the statements in it.

Areas covered by the Q&A include:

  • Board appointment rights – One of the criteria for being registrable as a PSC is having the right to appoint or remove a majority of the board of directors of a company. The Q&A confirms that a holder of 50% of the voting rights in a company will automatically qualify as a registrable PSC (on the basis that they could pass an ordinary resolution to remove any director under section 168 Companies Act 2006), unless the company’s articles of association restrict that person from exercising their statutory rights.
  • Indirect interests – The Q&A discusses whether it is necessary to aggregate interests held by the same person at two different levels in a corporate structure.
  • Trusts and trustees – There are various Q&A on the application of the regime to trusts and trustees.
Julie Farley
Julie Farley
+44 20 7466 2109

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Robert Moore
Robert Moore
+44 20 7466 2918

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

Ben Ward
Ben Ward
+44 20 7466 2093

Stephen Wilkinson
Stephen Wilkinson
+44 20 7466 2038