United Kingdom | Publication | May 2022
On April 29, 2022 the FRC’s Financial Reporting Lab (FRC Lab) published an insight document which sets out some questions and resources that may be useful for companies to consider in preparing their reporting on their supply chains. The FRC Lab notes that in light of the recent pandemic and other geopolitical and macroeconomic events, as well as the growing demand and regulation for sustainability reporting and its focus on enterprise value, investors consider that understanding the impact of supply chains is now more important than ever.
The FRC Lab states that given their role in creating long-term value for businesses, clear and concise disclosures on supply chains are key for investors and investors are likely to look for information that helps them understand:
The insight document sets out questions covering the following areas for companies to consider in relation to their supply chains:
The FRC Lab also points out that providing a connected and clear story, which provides information on governance and processes, the nature and approach, as well as any relevant scenarios planning information will help investors in understanding the impact of a company’s supply chains on its creation of long-term value and associated risks and opportunities.
(FRC, FRC Lab, Supply chain disclosure – Lab Insight, 29.04.2022)
The Financial Conduct Authority (FCA) published Handbook Notice No. 98 on April 29, 2022 summarising recent changes to the FCA Handbook. These include a change to the version of the UKSEF 2022 taxonomy permitted for the tagging of annual financial reports under DTR 4.1.
Under DTR 4.1, from January 1, 2022 certain companies on UK regulated markets must report their end of year annual financial statements in a machine-readable and ‘tagged’ electronic format. This requirement began for financial years starting on or after January 1, 2021. The specific format and ‘taxonomy’ that companies must use to meet the FCA’s rules is set out in a supporting technical standard, which is derived from onshored EU legislation and is referred to in DTR 4.1.14R as the ‘TD ESEF Regulation’.
Following earlier rule changes in December 2021, companies can use, among other permitted taxonomies, the UKSEF 2022 taxonomy issued by the Financial Reporting Council (FRC) in October 2021 (v1.0.0) to mark up their annual financial statements. However, in February 2022, the FRC issued a replacement version of the taxonomy in its 2022 taxonomy suite (v.2.0.0). This new version is not permitted under the FCA’s existing rules.
The FCA updated its website on February 24, 2022 to inform issuers and software vendors that this new version had been published and indicated its intention to switch its National Storage Mechanism (NSM) over to accepting filings in UKSEF 2022 v2.0.0 in place of UKSEF 2022 v1.0.0 at the end of April 2022.
In CP22/5, the FCA proposed changing the definition of UKSEF 2022 in the range of permitted taxonomies in Article 2(4B) of the TD ESEF Regulation so that it refers to UKSEF 2022 v2.0.0 for reports filed on or after May 3, 2022 instead of v1.0.0. The FCA states that the update to UKSEF 2022 v2.0.0 will support issuers in reporting their financial statements with electronic tags based on an up-to-date taxonomy and will support users of the data. The later version reflects changes in International Financial Reporting Standards (IFRS) for tagging the notes to the financial statements (which issuers can choose to apply before they become mandatory in 2023) and some general taxonomy improvements such as clearer labels and new common practice tags.
That change has now been made with effect from May 3, 2022 and so reports filed with the NSM going forward should use UKSEF 2022 v2.0.0 where applicable.
On May 5, 2022 the Takeover Panel (Panel) published Response Statement 2021/1 (RS 2021/1) setting out amendments to the Takeover Code (Code) in a number of different areas. RS 2021/1 follows a consultation on the amendments set out in PCP 2021/1 published in December 2021. Having considered the responses to PCP 2021/1, the amendments proposed in that PCP have been adopted, subject to certain modifications.
The key areas covered by the Code changes are summarised briefly below. The amendments to the Code set out in RS 2021/1 will take effect on June 13, 2022 (implementation date). The Code, as amended, will be applied from the implementation date to all companies and transactions to which it relates, including those on-going transactions which straddle that date, except where to do so would give the amendments retroactive effect.
Disclosure of pricing/consideration obligations under Rules 6 or 11
PCP 2021/1 proposed that: (a) at the time it is publicly identified, a potential bidder should be required to disclose any obligation it has under Rule 6 or Rule 11 to offer a particular level or type of consideration (Rules 6 and 11 impose such pricing/consideration requirements in certain circumstances as a result of acquisitions of interests in target company shares made by the bidder or its concert parties); and (b) where acquisitions are made following the commencement of the offer period which would give rise to an obligation for any potential bidder under Rule 6 or Rule 11, this should be announced immediately.
These changes have been adopted, subject to certain modifications including (among others) those summarised below.
Disclosure when a potential bidder is publicly identified
In the light of comments received, certain modifications have been made to the proposals in PCP 2021/1 in relation to persons acting in concert with a potential bidder. If a potential bidder has an obligation to offer a minimum level, or particular form, of consideration as a result of the acquisition of an interest in shares in the target company by a person acting in concert with it (but the bidder was not aware of that acquisition at the time that it was publicly identified), the bidder must disclose that information as soon as practicable (and in any event by no later than the deadline for its opening position disclosure (OPD)). However, the primary requirement will be to disclose the relevant information as soon as practicable and a bidder should not wait until the OPD deadline to disclose information if it is available before then.
The Panel has confirmed that the disclosure requirement will only apply to a potential bidder named on the Disclosure Table published on the Panel’s website, and is not intended to apply to, for example, a potential bidder that is participating in a formal sale process and which, in accordance with Note 2 on Rule 2.6, has not been required to be publicly identified - amendments have been made to clarify this. The Panel also notes that this in contrast to the obligation under new Rule 7.1(a) (see below) which applies to any potential bidder whose existence has been referred to (whether publicly identified or not).
It has been made clear that if an announcement by the target company which commences an offer period, or which first identifies a potential bidder, is made without the potential bidder’s agreement or approval, the announcement would not be required to include the relevant disclosures.
The Panel has also confirmed that a negative statement will not need to be made if a potential bidder does not have any obligation to offer a minimum level, or particular form, of consideration.
Disclosure during the offer period
The Panel has confirmed that the new Rule 7.1(a) (which requires immediate announcement if, during an offer period, a potential bidder or any person acting in concert with it acquires an interest in target shares which would trigger an obligation under Rule 6 or Rule 11) applies to the potential bidders referred to in the amended Note on Rule 7.1 - i.e. any potential bidder whose existence has been referred to in any announcement (whether publicly identified or not) or which is a participant in a formal sale process (regardless of whether it was a participant at the time at which the formal sale process was announced).
Mandatory offers – restrictions on acquisitions
PCP 2021/1 proposed that a bidder making a mandatory bid under Rule 9 of the Code (and any persons acting in concert with it) should be restricted from acquiring interests in target shares during the 14 days up to and including the unconditional date of the offer. This is intended to ensure that, when making their acceptance decision during this period, target shareholders know the maximum percentage of target shares the bidder and its concert parties would be interested in if the offer lapsed. The same restriction was also proposed to apply in the 14 days prior to the expiry of an acceptance condition invocation notice published by a bidder in connection with a mandatory bid.
These changes are being implemented as proposed subject to minor modifications made for consistency purposes.
Pricing of mandatory offers
PCP 2021/1 proposed a new note on Rule 9.5 to clarify the application of the “look-back period” for determining the minimum price of a mandatory offer. Essentially, that if an offer is not announced immediately on triggering an obligation under Rule 9, the look-back period should be calculated by reference to that date on which the offer ought to have been announced. This change is being implemented as proposed.
Chain principle
The chain principle applies (in summary) where a person, or group of persons acting in concert, acquire over 50% of the voting rights of a company (the first company) and will thereby acquire or consolidate control of a second company.
Note 8 on Rule 9.1 currently provides that a chain principle offer will not normally be required unless either:
(a) the “material significance” test is met (i.e. the interest in shares which the first company has in the second company is significant in relation to the first company – relative values of 50 per cent or more will normally be regarded as significant); or
(b) securing control of the second company might reasonably be considered to be a significant purpose of acquiring control of the first company.
PCP 2021/1 proposed the deletion of limb (b) of this test, thereby making the more objective limb (a) the sole test other than in exceptional circumstances. It also proposed amending the limb (a) test to refer to relative values of 30 per cent (rather than the current 50 per cent).
These changes are being implemented as proposed.
Restrictions following an offer lapsing or a no bid statement
PCP 2021/1 proposed certain clarificatory and other amendments in relation to: the ability of a lapsed bidder that has made a “no increase” or acceleration statement to make a new offer where it did not reserve the right to set that statement aside with the agreement of the target company board; the period of time for which a potential bidder should be bound by a statement as to the terms on which a possible offer might be made; and the circumstances in which a lapsed bidder can proceed to make a new bid following a third party firm offer announcement. These amendments being made as proposed subject to minor modifications.
(Takeover Panel: RS 2021/1: Miscellaneous Code amendments, 05.05.2022)
On May 5, 2022 the Takeover Panel published Response Statement 2022/1 (RS 2022/1) setting out amendments to the Takeover Code (Code) to remove the restriction on an offeror purchasing shares in the offeree company through an anonymous order book, as set out in Rule 4.2(b) (Restriction on dealings by the offeror and concert parties) of the Code. The Takeover Panel consulted on the proposed amendments in PCP 2022/1, published in February 2022.
PCP 2022/1 proposed that Rule 4.2(b) should be deleted on the basis that it is no longer proportionate for the Code to restrict purchases of offeree company shares by an offeror on an anonymous order book. In addition, it proposed consequential amendments to Rule 38.2 (Dealings between offerors and connected exempt principal traders) and minor and clarificatory amendments to Rule 4.2(a).
Having considered the responses to the consultation, the amendments proposed in PCP 2022/1 have been adopted and will take effect on June 13, 2022 (implementation date). The Code, as amended, will be applied from the implementation date to all companies and transactions to which it relates, including those on-going transactions which straddle that date, except where to do so would give the amendments retroactive effect.
It is noted that, when the amendments to the Code set out in RS 2022/1 come into effect, the Panel Executive intends to publish a Practice Statement in relation to purchases of shares in the offeree company by an offeror during an offer period.
(Takeover Panel: Removal of restriction on anonymous order book dealings – RS 2022/1, 05.05.2022)
Publication
On 10 December 2024, the Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 were laid before Parliament, together with an Explanatory Memorandum.
Publication
On 28 November 2024, the Financial Conduct Authority (FCA) published CP24/2, Part 2 in relation to its controversial ‘name and shame’ proposals, having trailed this in oral evidence before the House of Lords Financial Services Regulation Committee earlier in November.
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.
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