FRC: Guidance on the Strategic Report
On June 16, 2022 the Financial Reporting Council published an updated version of its Guidance on the Strategic Report (Guidance), last published in July 2018. The Guidance has been amended to incorporate the new climate-related financial disclosures set out in section 414CB(A1) Companies Act 2006 (CA 2006), following changes in legislation made earlier in 2022, and a number of other amendments to maintain alignment with legislation.
In particular, this edition of the Guidance updates the 2018 edition for the following:
- the changes introduced by The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 (SI 2022/31) and The Limited Liability Partnerships (Climate-related Financial Disclosure) Regulations 2022 (SI 2022/46) which require certain entities to make climate-related financial disclosures;
- amendments to The Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 (SI 2008/1911) introduced by The Statutory Auditors Regulations 2017 (SI 2017/1164), which require a traded LLP or banking LLP to prepare a strategic report;
- amendments to The Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/410) and The Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 (SI 2008/1911), which implement the Government’s policy on Streamlined Energy and Carbon Reporting (SECR). The SECR amendments have been made to the Appendices that relate to the directors’ report disclosure requirements;
- amendments to the definition of a public interest entity (PIE) to align it with the existing legislation; and
- some minor typographical or presentational corrections.
In light of this, updated Section 7A of the Guidance sets out the legal requirements in section 414C CA 2006 for entities that are not PIEs and for PIEs with fewer than 500 employees. Certain entities that are not PIEs are also required to make the climate-related financial disclosures set out in new Section 7C. Sections 7B (updated) and 7C (new) of the Guidance contain the legal requirements for entities that are PIEs with more than 500 employees and are therefore within the scope of section 414CB CA 2006. These entities are also required to comply with the disclosures in Section 7C of the Guidance and some of the disclosure requirements in section 414C CA 2006.
New Section 7C sets out the climate-related financial disclosures in the non-financial and sustainability information statement that must be disclosed by: (a) PIEs with more than 500 employees; (b) UK registered companies with securities admitted to AIM with more than 500 employees; (c) UK registered companies which are not included in the categories above, which have more than 500 employees and a turnover of more than £500 million; and (d) Limited liability partnerships (LLPs) which have more than 500 employees and a turnover of more than £500 million.
Appendices II and III, which set out the CA 2006 strategic report and directors’ report disclosure requirements respectively, have been updated accordingly. In addition, new Appendices IV(a) (covering the CA 2006 strategic report disclosure requirements as they apply to LLPs) and IV(b) (covering the CA 2006 energy and carbon report disclosure requirements for large LLPs) have been added.
(FRC, Guidance on the Strategic Report, 16.06.2022)
BEIS: National Security and Investment Act 2021 - Annual Report 2022 (4 January 2022-31 March 2022)
On June 16, 2022 the Department for Business, Energy and Industrial Strategy (BEIS) published the first report on the UK’s new national security and investment system which came into effect with the implementation of the National Security and Investment Act 2021 (NSI Act). It covers the period from January 4, 2022, when the system came into place, to March 31, 2022. Publication of the report is a statutory requirement under the NSI Act and future annual reports will cover years from April 1 to March 31.
Key findings of the report include the following:
- The average time to inform parties that a notification has been accepted as complete is three working days.
- Where the Government has called-in a deal, on average this has been decided in 24 working days. The shortest time the Government took was 11 working days and all have been decided within the NSI Act deadline of 30 days.
- The Government has received 222 deal notifications in the three-month period.
- Of these deals, 17 were called-in by the Government for further assessment.
- Of the 17 called-in, three were cleared with the other 14 cases still being assessed at the end of the reporting period, within the timelines set out in the NSI Act.
- A total of 209 notifications were accepted or rejected in the reporting period, of the total 222 notifications received in the same period. The difference is because 13 notifications were still being evaluated at the end of the reporting period. Several mandatory notifications were rejected because they should have been voluntary notifications. One mandatory notification was rejected because the acquisition had already been completed and should have been submitted as a retrospective validation application. Other notifications were rejected because they did not include enough information about the acquisition or parties to it, or the notification covered multiple qualifying acquisitions that should instead have been submitted as two notifications.
- Acquisitions called-in for further assessment included businesses from different areas of the economy, with the greatest number of mandatory call-ins coming from military and dual use, defence, critical suppliers to Government and data infrastructure. However there were also call-ins in areas such as artificial intelligence, advanced materials, and satellite and space technologies.
- Three final notifications have been given but no final orders have been made.
BEIS notes in the report that long-term trends cannot be drawn just from these months’ data, and they expect that more detail and analysis will be available in future annual reports.
The report refers to existing guidance that provides further details on the operation of the NSI Act, including on the process for submitting notifications and states that the Government has also committed to publish market guidance notes, which will be published in due course.
(BEIS: National Security and Investment Act 2021 - Annual Report 2022 (4 January 2022-31 March 2022), 16.06.2022)
(BEIS, National Security and Investment report shows new system is working, 16.06.2022)
Law Commission: Corporate Criminal Liability - an options paper
On June 10, 2022 the Law Commission published an options paper on improvements to the law on corporate criminal liability to ensure that corporations are effectively held to account for committing serious crimes.
The Law Commission was asked by the Government in November 2020 to review the law on corporate criminal liability and to explore options for reform that would avoid “disproportionate burdens upon business.” The remit included consideration of the suitability of the identification doctrine, the relationship between criminal and civil corporate liability, and other ways the criminal law can be used in relation to corporations.
The Law Commission published a discussion paper considering the present law in these areas and possible approaches to reform in May 2021 and, following consultation, has now published an options paper which does not make recommendations, but details options for reform, ruling some out, and sets out certain principles that the Law Commission thinks the law ought to reflect. With the full options paper is a summary paper.
Principles
These include the following:
- There is a need for one or more general rules of attribution to cover offences generally.
- For offences of negligence, it should be possible to convict a corporation on the basis of collective negligence even if it is not possible to identify a natural person who was individually negligent.
- Various principles for “failure to prevent” offences are set out, including a requirement that the conduct should be intended to benefit the corporation or a client, and that the corporation should have a defence if it had reasonable prevention procedures in place, or it was reasonable not to have any. The Government should also be required to publish guidance (possibly sector-specific guidance) on what prevention procedures an organisation might put in place to prevent the offence.
- Where an offence requires proof of intention, knowledge or dishonesty, directors’ personal liability for commission of the offence by the corporation should require proof that the director consented to or connived in the offence. Neglect as a basis of directors’ liability should be limited to offences of strict liability or negligence.
Options for reform
A number of options are set out:
- Option 1 - Retention of the identification doctrine as at present.
- Option 2A - Allowing conduct to be attributed to a corporation if a member of its senior management engaged in, consented to, or connived in the offence. A member of senior management would be any person who plays a significant role in the making of decisions about how the whole or a substantial part of the organisation’s activities are to be managed or organised, or the actual managing or organising of the whole or a substantial part of those activities
- Option 2B - As Option 2A, with the addition that the organisation’s chief executive officer and chief financial officer would always be considered to be members of its senior management.
- Option 3 - An offence of failure to prevent fraud by an associated person (who might be an employee or agent). The offence would cover a number of fraud offences, but would not extend to conspiracies or attempts. There would be a defence where the organisation could prove that it had in place such prevention procedures as was reasonable in the circumstances, or that it was reasonable not to have any such procedures in place.
- Option 4 - An offence of failure to prevent human rights abuses.
- Option 5 - An offence of failure to prevent ill treatment or neglect. In an exception to the general principle, there would not be a requirement to demonstrate that the conduct was intended to benefit (directly or indirectly) the corporate body.
- Option 6 - An offence of failure to prevent computer misuse.
- Option 7 - Making publicity orders available in all cases where a non-natural person is convicted of an offence.
- Option 8 - A regime of administratively imposed monetary penalties.
- Option 9 - Civil actions in the High Court, based on Serious Crime Prevention Orders, with a power to impose monetary penalties.
- Option 10A - A reporting requirement based on section 414CB Companies Act 2006, requiring public interest entities to report on anti-fraud procedures.
- Option 10B - A reporting requirement based on section 54 Modern Slavery Act 2015, requiring large corporations to report on their anti-fraud procedures.
Next steps
It is now for the Government to review and consider the options paper.
(Law Commission, Corporate Criminal Liability - an options paper, 10.06.2022)
Takeover Panel: Panel Statement 2022/12
On June 13, 2022 the Takeover Panel (Panel) published Panel Statement 2022/12 noting a number of developments, including a revised Takeover Code, consequential amendments to certain Practice Statements, a new Practice Statement and a new Panel Bulletin.
The following should be noted:
- a revised version of the UK Takeover Code (Code) had been published reflecting, among other things, amendments to reflect the changes set out in Response Statement 2021/1 (Miscellaneous Code amendments) and Response Statement 2022/1 (Removal of restriction on anonymous order book dealings);
- consequential amendments have been made to Practice Statements 19 (Rule 19.3 – Unacceptable statements), 20 (Rule 2 – Secrecy, possible offer announcements and pre-announcement responsibilities), 24 (Appropriate offers under Rule 15), 28 (Rules 2.8 and 35.1 – Entering into talks during a restricted period) and 29 (Rule 21.2 – Offer-related arrangements);
- a new Practice Statement has been published (Practice Statement 33) in relation to purchases of shares and other relevant securities of a target company by a bidder during an offer period – the new Practice Statement describes the way in which the Panel interprets and applies certain Code provisions to such purchases and explains certain practical steps that should be taken to comply with those provisions; and
- a new Panel Bulletin (Panel Bulletin 4) has been published relating to calculation of the value of an offer in the context of document changes under the Code.
Panel Statement 2022/12: Revised Takeover Code, Practice Statement No 33 and Panel Bulletin 4 (13.06.2022)
Practice Statement 33: Purchases of shares in the offeree company by an offeror during an offer period (13.06.2022)
Panel Bulletin 4: Calculation of the value of an offer (13.06.2022)
