United Kingdom | Publication | August 2020
On August 19, 2020, the Financial Conduct Authority (FCA) published its latest Primary Market Bulletin (PMB).
The PMB covers the following:
On August 18, 2020, the Financial Conduct Authority announced temporary relief for issuers who choose to use the amended IFRS 16 during the COVID-19 pandemic and its aftermath.
In May 2020, following an accelerated due process, the International Accounting Standards Board (IASB) published an amendment to International Financial Reporting Standard (IFRS) 16 (COVID-19-related rent concessions – Amendment to IFRS 16) which provides practical relief to lessees in accounting for rent concessions granted due to COVID-19. This amendment is effective for reporting periods beginning on or after June 1, 2020 in relation to COVID-19-related rent concessions that reduce lease payments due on or before June 30, 2021.
For the time being, the FCA will permit issuers subject to the FCA’s rules to use the modified IFRS 16 rather than the IFRS 16 as currently adopted by the EU. However, this temporary relief is subject to two conditions:
The FCA states that this policy is intended to be temporary while the UK faces the disruption of the coronavirus pandemic and its aftermath. The FCA will keep its application under review. However, the FCA intends it to be in place until the amendment to the standard is formally adopted. Should the European Parliament or the European Council object to the adoption of the IFRS 16 amendment before the end of the Transition Period, the FCA will end this temporary relief.
(FCA: Statement on accounting for lease modifications (amendment to IFRS 16), 18.08.2020)
On August 18, 2020, the Financial Reporting Council (FRC) announced that it will not pursue regulatory action where issuers take advantage of the provisions contained in the Accounting for Lease Modifications (Amendment to IFRS 16 – COVID-19-Related Rent Concessions) before adoption by the EU.
The FRC announcement refers to the statement by the Financial Conduct Authority on this matter published on the same date and it notes that the FRC is taking this stance in respect of both annual and interim accounts. Should endorsement of the amendment not proceed as expected this position will be reviewed.
Where companies use the reliefs permitted by the IFRS 16 amendment, the FRC reminds companies that they are expected to disclose this in the notes to their financial statements. The FRC also reminds directors of the need to ensure the impact of applying this amendment, prior to EU adoption, on the lawfulness of any distributions is carefully considered. The FRC also expects auditors to comply with all of their obligations, for example, any requirement to report under Section 837 Companies Act 2006.
On August 19, 2020, the London Stock Exchange (LSE) published an Inside AIM setting out temporary relief for AIM companies who choose to use the Accounting for Lease Modifications (Amendment to IFRS 16 – Covid-19-Related Rent Concessions) before adoption by the EU (“IFRS 16 Amendment”).
The LSE refers AIM companies and nominated advisers to the FRC statement providing background as to the reasons for the IFRS 16 Amendment and notes the FRC’s confirmation that it will not pursue regulatory action where issuers take advantage of the IFRS 16 Amendment, prior to it being adopted by the EU.
The LSE states that it welcomes the FRC’s statement and appreciates the practical difficulties AIM companies may face in applying the existing IFRS 16 lease modifications requirements to Covid-19-related rent concessions. For the purpose of the financial reporting requirements under the AIM Rules for Companies (AIM Rules 18 and 19), the LSE will deem compliance with the AIM Rules should an AIM company, that prepares their accounts in accordance with EU adopted IFRS, take advantage of the IFRS 16 Amendment as set out in the FRC Statement.
(LSE, Inside AIM, Coronavirus: IFRS 16 Amendment, 19.08.2020)
On August 10, 2020, Companies House announced the end of its temporary suspension of compulsory strike off action which was introduced in April 2020 in light of COVID-19.
From October 10, 2020, Companies House will resume the process to remove a company from the register if there is reasonable cause to believe it is no longer carrying on business or in operation, for example, as company documents are outstanding and Companies House have had no response to their letters, letters sent by Companies House are returned undelivered or the company has no directors.
Where a company does not file its annual accounts or confirmation statement, it will normally receive two letters from Companies House. A notice is then published in the Gazette to tell the public that the registrar intends to strike off the company. When compulsory strike off action resumes from October 10, 2020, if there are no objections to dissolution and a two-month period from the publication of the Gazette notice has expired, the company will be struck off shortly afterwards.
If the company is in default, for it to remain on the register, all outstanding documents must be filed or Companies House must be contacted urgently. Otherwise, Companies House will resume the process to compulsorily remove the company from the register on October 10, 2020.
As announced in July 2020, the voluntary strike off process will restart from September 10, 2020.
(Companies House, Companies House to resume the compulsory strike off process, 10.08.2020)
On August 10, 2020, the London Stock Exchange (LSE) published AIM Disciplinary Notice 23 (Disciplinary Notice) in which it announced that it had agreed settlement terms with Yü Group plc (Company) for a public censure and fine of £300,000 for breaches of AIM Rules 10 and 31. However, the LSE has waived the fine in this instance, having regard to the uncertainties and potential financial challenges for the Company arising from the unprecedented conditions of the COVID-19 pandemic.
During the course of the first half of its financial year to December 31, 2018, the Company made a number of forecasts in its notifications that its full year profits before tax would exceed market expectations, which were based on its internally generated management information. However, the Company identified that there were errors in its previous management information concerning recognised accrued income, receivables and potential recoveries, which in turn impacted on the Company’s profitability.
On October 24, 2018, the Company released a trading statement confirming the position and outlined the underlying causes of the adjustment. Following this statement, there was a significant decrease in the price of the Company’s AIM securities. The Company’s internal review and a commissioned accounting review identified that there were a number of weaknesses in the Company’s financial control environment. In response to these events, the Company immediately implemented a remediation programme to enhance its procedures, systems and controls.
The Disciplinary Notice identifies the following breaches of the AIM Rules:
The Disciplinary Notice highlights the importance of AIM companies maintaining effective controls to enable compliance with the AIM Rules on a continuous basis. It states that companies should ensure that these are appropriately reviewed and developed so that they are effective in practice and are adapted to adequately address changes to the business, planned growth or other operational needs. Boards should also be appropriately engaged in evaluating the effectiveness of a company’s financial control environment and the framework for assuring the integrity of internal management information. Failure to maintain appropriate governance over the operational effectiveness of procedures and controls creates an unacceptable risk to an AIM company’s ability to monitor changes to expected financial performance and meet any consequential AIM Rules disclosure obligations.
(LSE: AIM Disciplinary Notice: Public Censure & Fine, Yü Group plc, 10.08.2020)
On August 10, 2020, the Financial Conduct Authority (FCA) sent a letter to senior partners and directors of audit firms reminding them to be mindful of their regulatory reporting obligations. The FCA states that the information audit firms give through both public and private assurance reports and disclosures remains vitally important for regulators such as the FCA, particularly during the COVID-19 pandemic. It also stresses that communicating this information in a timely manner is something that it expects.
The FCA points out that, in the current financial climate, it is important that auditors are mindful of their reporting duties in relation to significant matters arising, for instance under SUP3 of the FCA Handbook, Sections 342(5) and 343(5) of the Financial Services and Markets Act 2000 and UK auditing standards. It also reminds auditors that their duty to inform becomes binding as soon as uncertainties arise and, for the avoidance of doubt, auditors are expected to raise issues with the FCA proactively and without delay.
Publication
As previously observed, conflicts occasionally arise between mortgagees and charterers where a mortgagee wishes to take prompt action to enforce its rights, but the charterer wishes such enforcement action to be deferred until the end of the charter.
Publication
For some time now, the European Commission (EC) and national competition authorities (NCAs) have been striving to catch so-called “killer acquisitions” under their merger control rules to thereby close a perceived enforcement gap.
Subscribe and stay up to date with the latest legal news, information and events . . .
© Norton Rose Fulbright LLP 2023
