Essential Corporate News – Week ending April 20, 2018

Welcome to Essential Corporate News, our weekly news service covering the latest developments in the UK corporate world.

On April 19, 2018 the Financial Conduct Authority (FCA) published a “Dear CEO” letter concerning irredeemable preference shares and other similar capital instruments.

The FCA states in the letter that it wants to ensure investors have access to the information that they require in order to properly assess the risks and rewards attaching to such shares and it follows press reports and other discussions in the market which resulted from Aviva plc’s recent announcement of an ability to cancel certain irredeemable shares it had issued at or close to par value through a reduction of capital under the Companies Act 2006. The letter notes that this announcement affected the market for and price of those irredeemable shares and the market prices of a number of other similar shares issued by other listed companies fell at the same time.

The FCA states that listed companies need to consider whether any intention to cancel or otherwise retire a class of irredeemable shares, or similar shares, at a price based on factors other than the prevailing market price, or their company’s deliberation on any such intention, constitutes inside information under Article 7 of the Market Abuse Regulation (MAR). Under Article 17 of MAR, inside information must be announced as soon as possible unless there are grounds for delay and must not be disclosed selectively or privately to individual investors.

The letter suggests that listed companies should ensure that the certain information is readily accessible to all holders and potential holders, including the following:

• The terms and conditions of the instrument as included in the original prospectus or similar document issued at the time of the offer and or admission of the shares and details of any changes since;
• The company’s articles of association, especially those terms that are pertinent to the shares concerned; and
• A Q&A or similar publication which includes:

1. The extent to which the rights attaching to the shares can be changed by the company without specific resolution of the affected class of securities;
2. The existence of any ability to cancel the shares at a price that is less than the prevailing market price without the specific assent of the affected holders either individually or as a class; and
3. Whether the company has made a decision regarding its approach to the use of either of the above, in particular where it has the ability to cancel the shares at par or at a price less than the prevailing market price.

The FCA also urges listed companies to consider whether there is a risk that the prevailing market price of any of the company’s shares or other signals from investors suggest that there is a lack of understanding over the terms and conditions of those shares and/or the company’s intention regarding them. If a listed company has publicly stated or proposes to publicise the company’s intentions regarding such securities, the FCA urges the company to also set out the governance process and the approach to disseminating any future changes the company might make.

(FCA, Dear CEO letter, 19.04.18)

On April, 12, 2018 the European Commission published a draft implementing Regulation and Annex as part of its consultation on the minimum requirements with regard to shareholder identification, the transmission of information and the facilitation of the exercise of shareholders’ rights in relation to the Shareholder Rights Directive.

The draft Regulation and Annex specify minimum content requirements and standardised formats for a number of documents including:

• Requests to disclose information about a shareholder’s identity and responses to such a request;
• Notices of general meetings of shareholders;
• Confirmation of entitlement to exercise shareholders’ rights in a general meeting;
• Notice of participation by a shareholder in a general meeting;
• The format of the confirmation of the receipt and recording and counting of votes at a general meeting;
• The transmission of information specific to corporate events other than general meetings of shareholders.

The draft Regulation also sets out deadlines to be complied with by issuers and intermediaries in corporate events and in shareholder identification processes, as well as minimum security requirements.

(European Commission, Consultation homepage, 12.04.18)

On April 17, 2018 the Investment Association announced that it and the Hampton-Alexander Review have written to 35 FTSE 350 companies with low female representation at leadership level, calling for change.

Letters have been sent to 14 FTSE 100 companies with all-male executive committees or combined executive committees and direct reports with low proportions of women. These companies have been asked to explain their poor gender balance and what steps they are taking to move towards the target of a minimum of 33 per cent womens’ representation across their combined executive committee and direct reports to that committee by 2020, as recommended by the 2016 report of the Hampton-Alexander Review. Letters have also been sent to the 11 FTSE 250 companies with an all-male board and the 10 FTSE 250 companies that failed to report their gender diversity data to the Hampton-Alexander Review in 2017.

The announcement notes that a number of key investors have told the Investment Association that they will vote against AGM resolutions at 2018 AGMs on the grounds of gender representation so the Investment Association urges the companies it has written to, to take urgent steps to outline their plans to increase diversity.

(Investment Association, FTSE 350 companies fall short on gender diversity targets, 17.04.18)

On April 17, 2018 the Department for Business, Energy, and Industrial Strategy (BEIS) invited Sir John Kingman, supported by an advisory group, to carry out an independent review of the Financial Reporting Council (FRC). The review will assess the FRC’s governance, transparency and independence, and ensure it is fit for the future.

The terms of reference of the review include the following:

Governance

Given that the FRC is a public body, the review will consider whether current governance arrangements and their transparency are suitable. The review will also consider the increasing expectations on private companies, surrounding the anticipated changes to the Corporate Governance Code.

Independence

The review will consider whether the FRC is sufficiently independent from the Government and from those whom it regulates. The review will also investigate whether there are safeguards in place to ensure and assure that independence. Where independence is found to be insufficient, the review will propose how this might be addressed.

In addition to the question of independence, the review will examine the FRC’s ability to carry out its broad range of functions and responsibilities without conflicting, or being seen to conflict with other functions.

Power and impact

The review will assess whether the current legal bases for FRC activities are adequate and whether any extension of powers is necessary, advisable or recommended.

BEIS notes that it is vital that the FRC is seen to uphold high standards and deter inadequacy and wrong-doing, as well as incentivise compliance. The review will consider what changes would best enable the FRC to achieve these goals and ensure that the FRC can lead globally on issues of governance.

Next steps

The review will incorporate a public consultation. Once the final report has been published, the Government will consult on its response to the review’s recommendations. The review intends to submit its findings to BEIS and the FRC Board by the end of 2018.

(BEIS, Independent Review of the FRC, 17.04.18)