Essential Corporate News: Week ending July 10 2020

Corporate Insolvency and Governance Act 2020 - Briefings

The Corporate Insolvency and Governance Bill received Royal Assent on June 25, 2020 and the Corporate Insolvency and Governance Act 2020 (CIGA 2020) came into force (other than paragraph 51 Schedule 3) on June 26, 2020.

Here is a link to our briefing on CIGA 2020, The UK Corporate Insolvency and Governance Act 2020: A move to a more debtor-friendly restructuring regime?

In addition, here is a link to a briefing on the impact of CIGA 2020 on pension schemes from our pensions team, UK Pensions Briefing: Pension Schemes and the Corporate Insolvency and Governance Act 2020

ICSA: Shareholder meetings under the Corporate Insolvency and Governance Act 2020

On July 9, 2020, ICSA’s Chartered Governance Institute published a further update to its earlier guidance, published in March 2020, on shareholder meetings during the COVID-19 pandemic to reflect the temporary changes to shareholder rights in articles of association concerning shareholder meetings, as set out in the Corporate Insolvency and Governance Act 2020 (Act).

The guidance considers the following questions:

• How are companies able to hold shareholder meetings under the Act?
• Are companies able to limit attendance at shareholder meetings?
• What rights do members have?
• Can companies limit the manner in which members vote?
• Do members have the right to cast their vote directly at the meeting itself (e.g. online or through a voting app)?
• What if a company’s articles of association say something different to the Act?
• Can a company which has already issued its notice of meeting change the format of its meeting to one allowed under the Act?
• Companies have already been holding meetings on an adapted basis during the coronavirus lockdown. What difference does the Act make?
• Do companies that have already held their meetings on an adapted basis during the coronavirus lockdown need to do anything?
• Can companies hold a physical meeting to be attended by shareholders generally?
• Does the Act change a company’s AGM deadline?
• Do the meeting provisions of the Act apply to charities?

This guidance is available to ICSA members and to those registered as free subscribers with ICSA. Registration can be accessed here.

(ICSA, Shareholder meetings under the Corporate Insolvency and Governance Act 2020, 09.07.2020)

FCA: Decision Notice relating to former CEO of Worldspreads in relation to market abuse

On July 3, 2020, the Financial Conduct Authority (FCA) published a Decision Notice in respect of Conor Foley (CF), the former CEO of Worldspreads Group plc (WSG), an AIM company, fining him £658,900 for market abuse and banning him from performing any roles linked to regulated activity. CF has referred the Decision Notice to the Upper Tribunal so the proposed action outlined in it will have no effect pending determination of the case by the Upper Tribunal.

CF was involved in drafting admission documentation prior to the flotation of WSG on AIM in 2007. The FCA considers that the documentation contained misleading information and omitted key information (including that some WSG executives had made significant loans to the company and its subsidiaries and that there was an internal hedging strategy with company executives) that investors would have needed to make an informed decision about the company. 

The FCA also considers that between January 2010 and March 2012, large spread bets were placed on the shares of WSG on the trading accounts of Worldspreads Limited clients on terms which made statements in WSG’s annual accounts as to its credit policy false and misleading. In addition, large spread bets were carried out on two clients’ accounts by CF without the knowledge of the clients and this had the effect, in the view of the FCA, of giving the appearance of greater demand for WSG shares than in fact existed.

Accordingly, the FCA considers that the behaviour of CF constituted market abuse contrary to section 118(5), (6) and (7) Financial services and Markets Act 2000 (as was then in force).

(FCA publishes Decision Notice against former Worldspreads CEO for market misconduct, 03.07.2020)

(FCA, Decision Notice for Conor Foley, 14.01.2020)

FRC: Principles for operational separation of audit practices

On July 6, 2020, the Financial Reporting Council (FRC) announced its principles for operational separation of the audit practices of the Big Four audit firms, following extensive discussions with those audit firms. The objectives of operational separation are to ensure that audit practices are focused on delivery of high-quality audits in the public interest, and do not rely on persistent cross subsidy from the rest of the firm.

The FRC’s  desired outcomes include:

• Audit practice governance prioritises audit quality and protects auditors from influences from the rest of the firm that could divert their focus away from audit quality.
• The total amount of profits distributed to the partners in the audit practice does not persistently exceed the contribution to profits of the audit practice.
• The culture of the audit practice prioritises high-quality audit by encouraging ethical behaviour, openness, teamwork, challenge and professional scepticism/judgement.
• Auditors act in the public interest and work for the benefit of shareholders of audited entities and wider society.

The Big Four firms must now agree to operational separation of their audit practices on this basis and to provide a transition timetable to complete implementation by June 30, 2024 at the latest. 

An implementation plan should be submitted to FRC by October 23, 2020. The FRC will then agree a transition timetable with each firm. Thereafter the FRC will publish annually an assessment of whether firms are delivering the objectives and outcomes of operational separation. 

(FRC: Principles for operational separation of audit practices, 06.07.2020)