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.
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.