DBT: Non-financial reporting review – simpler corporate reporting consultation

On 16 May 2024, the Department for Business & Trade (DBT) published a consultation on two proposals aimed at reducing the burden of corporate reporting on medium-sized companies.  

This follows publication by DBT in March 2024 of a summary of the responses it had received to the Call for Evidence it launched in May 2023 as part of its review of the non-financial reporting requirements UK companies need to comply with to produce their annual report. At that time, it was announced that the Government intends to make legislative changes in summer 2024 that should directly benefit small and medium-sized companies. Among other things, it said that the Government intended to consult later in 2024 on amending the definition of a medium-sized company for company reporting purposes by raising the employee threshold and consulting on exempting medium-sized companies from having to produce a Strategic Report. 

Medium-sized company employee threshold

The Government intends to raise the medium-sized company employee threshold from the current 250 employee limit to up to 500 employees. This would align the Companies Act 2006 (CA 2006) threshold to the one established through the Better Regulation framework. Views are sought on this proposal.

Exempting medium-sized companies from producing Strategic Report

All medium-sized companies are currently required to provide some basic disclosures in a Strategic Report. These are:

• a fair review of the company’s business
• a balanced and comprehensive analysis of the company’s development, performance in the year, and its position at the end of the year

• a description of the principal risks and uncertainties facing the company.
• an analysis using financial key performance indicators.

Responses to the Call for Evidence suggested that there were too many disclosures and reporting requirements on medium-sized companies and that these were too burdensome. As a result, The Government proposes exempting medium-sized companies from having to prepare and publish a Strategic Report. However, it points out that there are existing ineligibility criteria in the CA 2006 which mean that in practice, this exemption would only apply to medium-sized private companies. Public companies and public interest entities would not be able to take advantage of such an exemption.

Companies that would be classed as medium-sized companies except for the fact that they are part of an ineligible group would be able to benefit from the exemption. Directors of the parent company of an ineligible group would be responsible for preparing a consolidated Strategic Report for the group.
The Government plans to consider the ineligibility criteria more widely, and whether they should be amended, in the future.

Summary of financial and corporate reporting requirements

The Annex to the Consultation sets out the expected base reporting requirements for medium-sized and large companies following the changes to be made to the company monetary size thresholds in legislation in Summer 2024, as set out in the Consultation. It is noted that the requirements listed as applicable to large companies are additional to those applicable to medium-sized companies.

It is pointed out that some companies may also have to comply with other reporting requirements where they meet separate thresholds dependent on their status as well as their size, such as requirements for quoted companies or requirements for public interest entities with more than 500 employees.

The Government is also not proposing to change the threshold for Streamlined Energy and Carbon reporting before it has undertaken a full analysis of how this would impact carbon budgets, so that threshold is listed separately.

Reporting requirements to be removed from Directors’ Report in due course

The Consultation notes that the following reporting requirements are expected to be removed from the Directors’ Report, for all companies, via legislation to be brought forward in Summer 2024:

• the use of financial instruments
• important events affecting the company since the end of the financial year
• likely future developments in the business of the company
• the research and development (R&D) activities of the company
• branches of the company outside the UK
• employment of disabled persons
• engagement with employees and engagement with suppliers and customers.

Responses to the Consultation are requested by 27 June 2024.

(DBT, Non-financial reporting review: simpler corporate reporting – Consultation, 16.05.2024)

Takeover Panel: Panel Bulletin 7 – Offeror Intention Statements

On 15 May 2024, the Takeover Panel (Panel) published Panel Bulletin 7: Offeror Intention Statements (PB7).

The Panel notes that disclosure of a bidder’s intentions allows target company shareholders to take that information into account when reaching a properly informed decision on the takeover and that it also assists the target board on giving its opinion on the offer and facilitates the giving of informed opinions by employee representatives and pension scheme trustees.

PB7 outlines arguments the Panel sometimes hears in relation to intention statements, including:

• Because a bidder is not certain about expected synergies (which may relate to employees and/or locations of business) this means it has not formulated any intentions.
• Whilst some headcount reduction is envisaged, the bidder does not need to disclose the detail of that intention (or, where it considers the reduction will not be material, it need not disclose any intention in relation to the continued employment of employees).
• The bidder’s only intention for the 12-month period is to conduct a strategic review and it will only formulate its intentions after that review has concluded.
• The bidder’s intention statements satisfy the requirements of the Takeover Code (Code) because they are in a “standard form” or are similar to statements made by another bidder on a different takeover.

The Panel does not consider any of these arguments to provide an acceptable basis for formulating statements of intention. It expects that a bidder will almost always have developed specific intentions in relation to the matters set out in the relevant Code rules and notes that any such intentions must be stated both in the firm offer announcement and in the offer document. If, exceptionally, a bidder has no intention to make any changes in relation to the relevant matters, a negative statement to that effect is required.

(Takeover Panel, Panel Bulletin 7 – Offeror intention statements, 15.05.2024)

DBT: Framework and Terms of Reference for the development of UK Sustainability Reporting Standards

On 16 May 2024, the Department for Business & Trade (DBT) published a policy paper concerning the framework that is to be established to assess and decide whether to endorse IFRS Sustainability Disclosure Standards for use within a UK context. 

The International Sustainability Standards Board (ISSB) issued its first standards on 26 June 2023: IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures. 

In Mobilising green investment: 2023 green finance strategy, the UK Government committed to establishing a framework to assess and decide whether to endorse IFRS Sustainability Disclosure Standards for use within a UK context. Among other things, this policy paper explains that endorsement process in more detail, and the associated roles and responsibilities of the UK Government, UK regulators, standard-setters and advisory committees. It also explains how the UK Government, the Financial Conduct Authority (FCA) and other parties will work together to co-ordinate future decisions to implement UK Sustainability Reporting Standards. 

Section A of the policy paper summarises the overall endorsement and implementation framework that is being established within the UK.  Section B sets out the Terms of Reference for the UK Sustainability Disclosure Technical Advisory Committee (TAC) that will be involved in this process. Section C sets out the Terms of Reference for the UK Sustainability Disclosure Policy and Implementation Committee that will be responsible for coordinating implementation decisions taken by DBT and the FCA.

(DBT, Framework and Terms of Reference for the development of UK Sustainability Reporting Standards – Policy paper, 16.05.2024)