Squire Patton Boggs
Hammond Suddards is one of the UK's leading commercial law firms with offices in Leeds, London, Manchester and Bradford, as well as a specialist EU practice in Brussels. With a total strength of over 1,150, Hammond Suddards offers a substantial resource with access to the experience and expertise of more than 500 lawyers.Our client base comprises listed companies, subsidiaries or divisions of UK and overseas multinationals, banks, building societies, insurance companies and other institutional clients.Our resources and expertise in corporate and commercial areas are considerable and the firm has developed a strong reputation in specialist areas such as EU law, corporate finance, tax, commercial contracts, intellectual property, information technology, employment, pensions, planning and commercial dispute resolution.
Corporate & Commercial
Many listed companies are now starting to prepare for the 2021 annual general meeting (AGM) season and plan their next annual report. This article summarises some of the key agenda items for 2021, including with regard to AGM arrangements, shareholder engagement, remuneration, climate, diversity and the COVID-19 pandemic.
The Coronavirus outbreak may result in an upsurge of force majeure-related claims under commercial contracts. A further risk now coming to light is customers seeking to enforce contractual fines, penalties, service credits or liquidated damages in connection with supplier failure or delays arising from coronavirus-related issues. As such, a reminder of the law in this area now also feels appropriate.
In 2018 the Court of Appeal rejected a stockbrocker's appeal against the High Court's decision that it owed a client a Quincecare duty. In a recent ruling, the Supreme Court upheld the Court of Appeal's decision. The client's Quincecare claim was held not to have been defeated by illegality as, in the circumstances, the fraud of a sole shareholder of a company should not be attributed to the company itself.
In November 2019, in the looming shadow of the collapse of Thomas Cook Group plc, the Business, Energy and Industrial Strategy (BEIS) Committee published a letter of recommendations to Secretary of State for the Department of BEIS Andrea Leadsom. The letter follows BEIS's inquiry into the collapse of Thomas Cook and the factors that led to the global travel group's downfall and covers a range of recommendations relating to corporate governance, audit reform and executive pay and bonuses.
A series of recent cases have examined the circumstances in which a dividend can be challenged on the basis that it has been unlawfully paid. In one such case, the High Court considered a number of key principles regarding dividend payments and the circumstances in which directors can be pursued for dividends paid prior to an insolvency. This judgment provides some comfort to directors who rely on professional advisers to determine whether to declare a dividend payment.
The draft Companies (Directors' Remuneration Policy and Directors' Remuneration Report) Regulations 2019 were recently published as part of the drive to encourage long-term shareholder engagement and to strengthen the governance and performance of traded companies. Most of the directors' remuneration reporting requirements inserted by the EU Shareholder Rights Directive II already apply under UK law and the draft regulations will implement most of the requirements that do not currently apply.
The Pensions and Lifetime Savings Association recently published guidance on market best practice to assist its members when exercising their vote at annual general meetings in 2019. The revised version of its Corporate Governance Policy and Voting Guidelines reflects the introduction of the 2018 UK Corporate Governance Code, which applies to financial years beginning on or after 1 January 2019.
Small businesses often structure payments to directors who are also shareholders using a combination of dividend payments and salaries. At a time when corporate governance and director and shareholder accountability are under review, a recent Court of Appeal decision gives more reason for directors to ensure that they understand not only their obligations and duties as directors under the Companies Act 2006, but also the implications of relying solely on advice without evaluating it first.
The Investment Association recently published its annual letter to remuneration committee chairs and updated its principles of remuneration for the next annual general meeting season. The key changes to the principles mostly reflect the new UK Corporate Governance Code and specifically address malus and clawback provisions, shareholding requirements and post-employment holding periods, pensions and restricted shares.
The Association of General Counsel and Company Secretaries working in UK FTSE 100 companies (GC100) has issued guidance on the practical interpretation of Section 172 of the Companies Act 2006. The GC100 guidance aims to provide directors with practical help in interpreting their Section 172 duties rather than offer legal advice, and sets out five specific things to help directors embed Section 172 into their decision making.
In 2014 the government recognised the benefit of outlawing prohibitions on the assignment of receivables and set about establishing the legal framework. The Asset Based Finance Association formulated the provisions for a new law to allow regulations to be made to invalidate certain restrictive terms of business contracts. These regulations have now been drafted in the form of the Business Contract (Assignment of Receivables) Regulations 2018, which await parliamentary approval.
The United Kingdom will be getting a revised Corporate Governance Code, most likely effective as of January 2019. The House of Commons Library recently published a briefing paper on corporate governance reform, which provides an overview of the corporate governance framework, including the history of the UK corporate governance code and its interaction with directors' duties under the Companies Act 2006.
The Court of Appeal has allowed an appeal of the judgment of a High Court case which concerned the question of whether a licence to use electronically supplied software amounts to the sale of goods under the Commercial Agents (Council Directive) Regulations 1993. This question is important, given the significant protections and post-termination payouts afforded to agents who qualify under the regulations.
At the request of the Department for Business, Energy and Industrial Strategy, the Investment Association has launched a public register of Financial Times Stock Exchange All-Share companies, showing occasions where these companies have experienced substantial shareholder dissent. The purpose of the register is to identify companies which receive a high vote against or withdraw a resolution and to understand the process used by those companies to identify and address their shareholders' concerns.
A press release by the Institute of Directors suggesting that in 2016 Carillion relaxed the clawback conditions that applied to bonuses has raised questions over remuneration governance. The change seems to have removed 'corporate failure' as a clawback or malus event, substituting conditions so that pay could be clawed back only in the event of a misstatement of financial results or gross misconduct of an individual.
A recent High Court decision has provided a useful reminder of the care that must be taken when administrators enter into pre-contract negotiations and the risk of inadvertently entering into a binding contract before terms are finalised. It also deals with the risks of disposing of assets, even those that are difficult to value, without due process.
While some economists have predicted a bleak outlook for the UK economy in 2018, with Brexit negotiations likely to affect the prospects of any improvement, others are less pessimistic and expect that the fall in the pound following the EU referendum will lead to stronger export growth. The government is advised to broker a deal with the European Union on key issues as soon as possible in order to minimise damage to the economy and avoid handing the advantage to overseas competitors.
The Financial Reporting Council (FRC) has more than tripled the size of its enforcement team over the past five years in response to public criticism over its failure to prosecute auditors for giving clean audits to financial institutions in the months before they were engulfed by the financial crisis. The increased headcount and specialist nature of the team now in place should enable the FRC to move more quickly in instigating and resolving investigations.
The Financial Reporting Council (FRC) has published for consultation its review of the Corporate Governance Code. This follows a fundamental review, with the proposed revised code being a slim shadow of its former self. The FRC has described the result as "shortened and sharpened", but the outcome is not radical. However, there are a number of interesting changes.
The Institutional Shareholder Services recently published its updated 2018 Proxy Voting Guidelines, effective for meetings on or after February 1 2018. As expected, the guidelines support hybrid shareholder meetings and reject virtual-only meetings. Other updates involve overboarding, audit and remuneration committee compositions, threshold vesting levels for long-term incentive plans and share issuances without pre-emption rights.
The Investment Association recently published its annual letter to remuneration committee chairs and updated its Principles of Remuneration. The association has encouraged voluntary disclosure of chief executive officer pay ratios in 2018 directors' remuneration reports, introduced a new requirement to defer bonuses in excess of 100% of salary and kept up the pressure on overall levels of pay. Many companies must take action before their 2018 annual general meeting.
Teething trouble – poor levels of compliance with reporting requirement under UK Modern Slavery Act need to be addressedUnited Kingdom | 02 October 2017
According to research published by the Chartered Institute of Procurement and Supply, more than one-third of organisations required to complete a statement in compliance with the UK Modern Slavery Act 2015 have failed to do so. One of the knock-on effects arising from the lack of engagement with the statement requirement has been that the majority of businesses surveyed have few or no policies in place to tackle modern slavery.
Everyone agrees that 'fat-cat pay' needs reining in, even Theresa May's new-look caring Conservatives. Therefore, the recent announcement of the government's latest corporate governance proposals does not come as much of a surprise. However, thus far, there appears to be little by way of evidence of real necessity for the measures proposed, and caution should be taken with regard to seemingly unsupported assertions of this sort as a basis for actual law making.
The Financial Reporting Council recently published a consultation paper setting out draft amendments to its Guidance on the Strategic Report. The consultation paper reflects the United Kingdom's recent implementation of the Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016. The amendments do not constitute a fundamental review of the guidance, but reflect recent legislative changes.
The Upper Tribunal recently upheld the Financial Conduct Authority's decision to fine and ban Charles Palmer, CEO and majority shareholder of Standard Financial Group Limited, for failing to ensure that appropriate controls and mitigating measures were in place to prevent material risks to underlying customers. The tribunal agreed that Palmer had breached Principle 6 of the Statement of Principles and Code of Practice for Approved Persons and held that his failings were sufficient to justify the financial penalty.
Recent guidance issued by the Department for Business, Energy and Industrial Strategy confirms that alternative investment market companies are now required to create and maintain a people with significant control (PSC) register and file PSC information with the central public register at Companies House. This is a result of the Information about PSC (Amendment) Regulations 2017.
No party really wants to subject itself to unknown liability. Contracts are intended to reflect appropriate risk allocation between the parties and to delineate potential liability clearly in the various scenarios that can arise. However, contracts often fail to do this adequately and the courts are full of cases dealing with situations that were either not envisaged or where the parties disagreed on the meaning of clauses which they have agreed.
The Fourth Money Laundering Directive requires, among other things, corporate and other legal entities to disclose their beneficial owners. In many respects, this is being done at present under the persons with significant control (PSC) regime. However, the directive goes further in two important regards and, as a consequence, changes will need to be made to the PSC regime.
The economic growth duty came into force recently under the Deregulation Act 2015. It requires many regulators in England and Wales to have regard to the "desirability of promoting economic growth", alongside the delivery of protections set out in relevant legislation. In particular, regulators should consider the importance of ensuring that any regulatory action that they take is necessary and proportionate.
The Business, Energy and Industrial Strategy Committee's recent report on its inquiry into corporate governance suggests significant changes may be ahead. The report makes a number of noteworthy recommendations, including introducing a rating system publicising examples of good and bad corporate governance practice by companies and simplifying the structure of executive pay.
Confirmation statements are normally due one year after a company files its last annual return and must be filed within 14 days of that date. Trustee companies with confirmation statement due dates between now and the end of June 2017 should act now to identify their persons with significant control and put plans in place to ensure that this filing requirement is complied with.
The government recently published the Reporting on Payment Practices and Performance Regulations 2017. The regulations require qualifying companies to report on relevant contracts – broadly, those that are for goods, services or intangible assets that are not a contract for financial services and that have a significant connection with the United Kingdom. Further, qualifying companies will need to report on their standard payment terms.
A recent case is a useful example of how directors' duties are looked at following a formal insolvency and ways in which an office holder can challenge transactions if there is evidence of wrongdoing or a concerted strategy to frustrate creditors' recourse to a company's asset base which would ordinarily be available to them in an insolvency. Interestingly, the court found that a director did not have to give priority to creditor interests under the general duties of a company director.
In 2017 most FTSE100 companies will be putting their new remuneration policies to a shareholders' binding vote, against an increasingly hostile background of criticism of the size and complexity of directors' pay packages. There seem to be a lot of potentially conflicting issues, suggesting that there might be another interesting annual general meeting season ahead.
The Pensions and Lifetime Savings Association recently published a revised version of its Corporate Governance Policy and Voting Guidelines. The main changes pertain to leadership, accountability and remuneration. The guidelines also contain new material regarding voting at annual general meetings, including in relation to annual reports and accounts, the approval of remuneration policies and reports and the re-election of directors.
Insolvency & Restructuring
The Corporate Insolvency and Governance Act 2020 introduced a number of temporary changes to UK insolvency laws. Those changes, together with other measures such as the moratorium on forfeiture proceedings, have recently been extended, presumably to avoid the perceived cliff edge of insolvencies that might follow if such measures are brought to an end abruptly. This article provides a summary of the position as it currently stands.
Following the government's extension of the restrictions on winding-up petitions until 30 June 2021, it is useful to note two recent cases that have considered the COVID-19 test that currently applies to winding-up petitions. In the first case, the judge took the view that the low threshold test for determining whether COVID-19 had had an impact on the financial position of the company was to be taken as settled law. In the second case, the judge offered some helpful insight into the meaning of 'financial effect'.
With fairly swift measure, the House of Commons approved the pre-pack regulations confirming that, with effect from 30 April 2021, before a pre-pack sale can complete, creditor approval or an independent written report from an evaluator will be required. However, who the evaluator will be remains one of the biggest unknowns.
At the start of 2020, no one could sensibly have predicted the significant and far-reaching impact of COVID-19. This article looks back at 2020 and looks forward to what the UK restructuring market can expect in 2021 considering the new insolvency laws, expected rule changes, pre-pack sales and practice and procedural points.
Increasing pressures placed on those operating in the retail and hospitality sectors as a result of COVID-19 means that there is likely to be an increasing use of company voluntary arrangements (CVAs) in these sectors. The intention would be to help support and restructure businesses in distress, but could retailers use a CVA as a mechanism to rewrite the terms of their leases?
A recent case is a cautionary reminder to qualifying floating chargeholders (and their advisers) to review the terms of all security documents before seeking to appoint an administrator. In this case, failure by junior chargeholders to obtain consent from senior chargeholders (as required under a deed of priority) prior to the appointment of administrators led to the court finding that the out-of-court appointment of administrators was invalid (as opposed to being a procedural irregularity that could be cured).
Quistclose trusts classically arise in situations where loans are made for a specific purpose. Disputes over Quistclose trusts often arise in insolvency situations. In a recent case, the High Court found that a Quistclose trust had arisen in a situation where solicitors were forwarded monies by a third party for a specific purpose.
In a recent case, Insolvency and Companies Court Judge Jones dealt another blow to qualified floating charge holders' (QFCH's) control by finding that failure to serve a notice of intention to appoint administrators by directors of a company on a QFCH does not automatically void an administration. This finding may come as a surprise given that the reason for giving notice is to enable a QFCH the opportunity to appoint its preferred choice of administrator.
The government recently published a report reviewing voluntary measures introduced in 2015 to improve the transparency of pre-pack sales in administration. The voluntary measures sought to improve creditor confidence, enabling connected person purchasers to voluntarily obtain an independent opinion from the Pre-Pack Pool that the proposed sale was the best option. The government's report notes that despite these measures, pre-packs are still a concern.
Numerous recent extensions and changes to temporary measures have been announced that affect insolvency practice and procedure. These concern the ipso facto regime for small suppliers, the Corporate Insolvency and Governance Act 2020, the temporary restrictions affecting winding-up petitions, the prohibition on forfeiture proceedings and the revised Temporary Insolvency Practice Direction.
The Finance Act 2020 recently received royal assent, confirming the anticipated but opposed intention to restore Her Majesty's Revenue and Customs (HMRC) as a secondary preferential creditor on insolvency. From 1 December 2020 HMRC's claim will sit ahead of floating charge holders and unsecured creditors, reducing the monies available for distribution to both when a corporate files for insolvency. But what does this mean for secured lenders and corporates?
The Corporate Insolvency and Governance Act 2020 recently came into force. Alongside this act, a new insolvency practice direction (IPD) came into force and provides additional information on winding-up petitions and the 'coronavirus test'. This article examines a few of the key changes contained in the IPD.