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NEWS ROUND-UP |
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Limited partnership law reform put on hold See CLM ¶17 BERR has taken its proposals to reform limited partnership law back to the drawing board for the time being. It consulted last year on proposals to repeal the Limited Partnerships Act 1907 and insert new provisions dealing with limited partnerships into the Partnership Act 1890 by Legislative Reform Order (see CLM 2008 Newsletter Issue 5 for an outline of the scope of the proposals). Although the consultees broadly supported the main proposals, BERR received numerous suggested improvements to the draft Order and strong opposition from Scottish landowning interests to some proposals. Therefore, the reform will not be proceeded with as proposed. Instead, BERR intends to investigate how reform in this area can be achieved most effectively. Consultation on Community Interest Company dividend and interest caps See CLM ¶65 Hot on the heels of BERR’s consultation on changes to the CIC regulations (see CLM 2009 Newsletter Issue 2), a consultation on whether to vary the dividend and performance-related interest caps has been published. These caps form part of the asset lock that is a special feature of CICs, designed to reserve a CIC’s profits and assets for the benefit of the community. However, an outright asset lock, preventing any form of return to investors, would restrict a CIC’s ability to raise finance to loans. The purpose of the caps is to strike a balance between encouraging and enabling investment and protecting the bulk of the CIC’s assets for the benefit of the community. The dividend cap on shares is currently set at 5% above the Bank of England’s Repo Rate at the time the share was issued. This can be carried back over 5 years (the current financial year plus the preceding 4), but dividends are subject to an overall cap of 35% of distributable profits in any financial year. The performance-related interest cap applies to loans which are subject to a rate of interest that is linked to the CIC’s performance (e.g. 10% of the company’s turnover each year). A cap applies to such quasi-equitable arrangements as well as dividends to prevent investors circumventing the dividend cap by loaning money to the company on terms that give it a return akin to that of the shareholders. The interest cap is set slightly lower than the dividend rate – at 4% – to encourage investors to take shares in CICs instead. The consultation raises various questions about the caps and their effect in practice: whether they limit investment, how effective they are in protecting CICs’ assets, and the principles on which they should be based. The consultation paper can be found on the CIC Regulator’s website (http://www.cicregulator.gov.uk/consultationintro.shtml). The consultation is open until 19 June. New personal obligation for tax reporting on senior accounting officers of large companies See CLM ¶605+ It was announced in this year’s Budget that the Finance Bill 2009 will require senior accounting officers of large companies to certify that their accounting systems are suitable to meet the company’s tax reporting needs. While companies are currently required to make accurate returns in relation to tax and other duties, they are not required to ensure that adequate systems exist to do so. It is currently intended that senior accounting officers will be required to: » take reasonable steps to establish and monitor accounting systems that are adequate for the purposes of tax reporting; and » certify annually that the systems are adequate or otherwise explain how those arrangements are not appropriate. The company will also be required to advise Revenue and Customs of the identity of its senior accounting officer. Penalties for failure to comply will not only be levied on the company but also on the officer concerned. These obligations will apply to returns due to be made for accounting periods beginning on or after the date the Bill receives Royal Assent. They are expected to only apply to large companies with a significant business relationship with Revenue and Customs, and a customer relationship manager. They will not apply to small and medium-sized companies. Naming and shaming of deliberate tax defaulters See CLM ¶605+, ¶2606 It was announced in this year’s budget that legislation will be introduced in the Finance Bill 2009 to enable Revenue and Customs to publish the names and details of both corporate and individual taxpayers who are penalised for deliberate defaults leading to a loss of tax of more than £25,000 arising from: » understating tax due, or overstating claims or losses; » failing to notify Revenue and Customs when required to do so; or » committing certain VAT and excise offences. The details will be published quarterly within 1 year of the penalty becoming final and will remain on Revenue and Customs’ website for 12 months. They will include the defaulter’s name and address, trade, profession or sector and the amount of tax, interest and penalties. Names and details will not be published of those who make a full unprompted disclosure or a full prompted disclosure within the time required by Revenue and Customs. These procedures will take effect from a date yet to be announced, but will not be retrospective. For a full report on the Budget, see the Tax Memo 2008-2009 and VAT Memo 2008-2009 Budget Newsletters. European statement and recommendations on directors’ remuneration See CLM ¶2701 The European Corporate Governance Forum (“the Forum”) has issued a public statement on the subject of the remuneration of directors of listed companies in response to the current financial crisis. Questions have arisen regarding ever increasing levels of remuneration which in some cases are not justified by performance, particularly in the financial services sector. The statement seeks to address these concerns by setting out best practices for listed companies for: » the disclosure of the remuneration policy of listed companies; » the process for setting executive directors’ remuneration; and » the way in which the substance of directors’ remuneration should be determined. It recognises that individual companies and shareholders should determine what pay structure and levels are appropriate in their own particular circumstances, but highlights the principles of best practice which should be observed. The Forum’s statement has been followed by two recommendations, which have been adopted by the European Commission. Member states are invited to adopt measures to apply them (although they are not obliged to do so) to promote greater convergence within the European Union towards best practices on directors’ pay. The first recommendation is applicable to listed companies complements the existing recommendations for remunerating directors of such companies. It sets out guidance on the structure and determination of directors’ pay, based on the best practices highlighted in the Forum’s statement, including: a. setting maximum limits on elements of variable pay, which typically encourages directors to focus on short term achievements. This should be linked to predetermined and measurable performance criteria that promote the long-term sustainability of the company and part of the variable pay should be deferred for a minimum period of time; b. to the extent possible under employment and companies’ legislation, contractual arrangements should permit the company to “clawback” performance-linked remuneration awarded on the basis of data that is later found to have been significantly misstated; c. severance pay should be limited to a maximum of 2 years’ annual remuneration, with no payment made if the termination is due to poor performance; d. shares, shares options and any other rights to acquire shares should not vest, or be exercisable, for at least 3 years after their award; e. a full explanation of the directors’ remuneration policy should be disclosed in a clear and easily understandable way; and f. shareholders should be encouraged to make considered use of their voting rights regarding directors’ remuneration. The second recommendation is applicable to all undertakings operating in the financial services sector. It sets out principles applicable to all categories of staff whose professional activities have a material impact on the risk profile of the financial institution, including: a. establishing, implementing and maintaining remuneration policies consistent with and which promote sound and effective risk management and which do not induce excessive risk-taking; b. where remuneration includes variable pay, for example a bonus, ensuring an appropriate balance between the fixed and variable elements and setting a maximum limit on the element of variable pay; c. the financial institution should be able to withhold bonuses when performance criteria are not met by the individual concerned, the business unit concerned or the undertaking as a whole; d. where a significant bonus is awarded a large part of it should be deferred for a minimum period of time; e. severance pay should be linked to performance achieved over time and should not reward failure; f. the remuneration policy should include measures to avoid conflicts of interest, be clear and documented and internally transparent; and f. the remuneration policy should also be disclosed in a clear and easily understandable way to relevant stakeholders. Member states are invited to take the necessary measures to promote the application of the recommendations by 31 December 2009. It is up to member states whether measures taken in relation to the first recommendation will apply only to listed companies or whether some or all of the provisions will be extended to other categories of non-listed companies too. The Commission will monitor the situation within the EU closely and evaluate the application of both recommendations in member states after a year. The full text of the statement and recommendations can be found at: http://ec.europa.eu/internal_market/company/news/index_en.htm. Execution of documents by a company - practical guidance for signature by absent parties See CLM ¶3488, ¶3490, ¶3493, ¶3494 In a recent case, the High Court has cast doubt on the use of pre-signed signature pages (taken from earlier drafts and inserted into the final version of the document) to create commercial contracts and deeds (R (on the application of Mercury Tax Group and another) v HMRC [2008] EWHC 2721 (Admin)). This has been a fairly common method of completing a document in practice to address logistical problems where some or all of the contracting parties cannot be physically present at the same meeting. The High Court held that the documents which had been created in this way had not been properly executed as deeds, and so were not valid, as the signatures and execution clauses had not formed part of the same physical document when the documents were actually signed. The court also commented that for all contracts (whether simple written contracts or deeds) the document to be signed must exist in its final form, either as a single document or a number of counterparts, at the moment of signing. In light of this decision, a joint working party of The Law Society Company Law Committee and The City of London Law Society Company Law and Financial Law Committees has produced guidance on the execution of documents governed by English law where some or all of the signatories will be physically absent from the completion meeting. The guidance includes three suggested appropriate procedures which can be followed in practice for particular types of documents and has been prepared to help those who wish to take a prudent approach. However, the working party confirms that the High Court’s decision should be viewed as limited to its own particular facts. The guidance is summarised in the table below.
Northern Irish companies registry integration See CLM ¶4042 On 1 October 2009 Companies Registry Northern Ireland (“CRNI”) will integrate fully with Companies House to create a UK-wide company register. As a consequence, from 1 October 2009: » the Northern Ireland contact centre telephone number and email address will no longer be available. Customers will need to use the general contact details of Companies house instead (see ¶9905); » the current CRNI website will close and its online services will no longer be available. All data will be merged with Companies House databases and will be available from the Companies House website; » the CRNI forms will no longer be available. New forms applying to all UK companies will need to be used instead (these have not yet been published); » Companies House fees will be adopted (which are likely to change on or before 1 October 2009); and » any payments by cheque made payable to “DETI” will be rejected. All cheques will need to be made payable to Companies House. Northern Irish companies will still be required to have a registered office in Northern Ireland, but if they want to open a branch or place of business in England, Wales or Scotland they will no longer have to register separately with Companies House as an overseas company. The office of Registrar for Northern Ireland will remain and registry business will still be carried on at the Belfast office. Revised guidance on an auditor’s report and new illustrative examples See CLM ¶4314 The Auditing Practices Board (APB) has recently published the final version of the revised International Standard on Auditing (ISA) in the UK and Ireland, which gives guidance on the preparation of an auditor’s report (see CLM 2008 Newsletter Issue 5) (APB Bulletin 2009/2). It applies to: » UK companies (except charities) for accounting periods commencing on or after 6 April 2008 and ending on or after 5 April 2009; and » all other UK entities for periods ending on or after 15 December 2010. It enables auditors to provide shorter reports by allowing them to: » cross-refer to a “Statement of the Scope of an Audit” published on the APB's website; » cross-refer to such a statement included elsewhere within the annual report; or » include a short description of the scope of an audit, as set out in the revised standard. The revised standard does not prevent auditors from including an opinion on other matters which are relevant to a proper understanding of their work. This should be included in a separate section of their report. The APB has also issued further updated examples of auditor reports to support the requirements of CA 2006 and ISA (UK and Ireland) 700 (Revised). These further illustrative reports apply for audits of financial statements for periods beginning on or after 6 April 2008 and ending on or after 5 April 2009. For longer accounting periods commenced prior to 6 April 2008 that will end on or after 5 April 2009, the example reports published in APB Bulletin 2006/6 continue to apply. These documents can be freely downloaded from the APB website: http://www.frc.org.uk/apb/. Revised EU proposal on mergers and divisions See CLM ¶5520+, ¶6536+ As reported in CLM 2008 Newsletter Issue 6, the European Commission put forward a proposed directive aimed at reducing the administrative burdens on public limited companies in relation to mergers and divisions. For example, the proposed directive allows companies to publish draft terms of mergers/divisions and related documents on their own website. The Commission has recently resolved to adopt a revised version of the directive, which is substantially the same as the previous draft, but also gives companies the option to publish these draft terms and documents on other websites designated by individual member states. These may include, for example, websites of business associations or chambers of commerce, as long as they are free of charge, and provide guarantees on site security and authenticity of documents. The Commission proposes to implement the directive on 30 June 2011, and review and report on its effectiveness 5 years after implementation. The Commission’s resolution, together with the revised directive, can be found at: http://register.consilium.europa.eu/pdf/en/09/st08/st08883.en09.pdf. Consultation on extending the disclosure regime in takeovers See CLM ¶6765+, ¶6860+ The Takeover Panel has issued a consultation paper on various proposed amendments to the Takeover Code. The purpose of these proposals is to increase transparency in takeover offers. The proposals include: » imposing a new opening position requirement, in addition to the current Code requirement to disclose interests and dealings in the relevant securities during the offer period. This means that persons with disclosure obligations under the Code will have to disclose their opening positions in the relevant securities: - shortly after the offer announcement (if it is a securities exchange offer); or - when the offer period commences (for all other offers); » extending the disclosure on a composite basis. This means that disclosure must be made not only in respect of the target’s securities as currently required, but also those of other parties to the offer, except a cash bidder; and » deleting the Code definition of “associate”, so that the current rules which refer to a party’s associates will be amended to refer instead to “persons acting in concert”. This is intended to avoid the overlap between the two concepts. The Panel has also considered requiring disclosures of securities borrowing and lending positions in the target, but decided not to introduce any proposals at this stage due to the costs involved. The Panel is inviting comments on the proposals by 17 July 2009. A copy of the consultation paper is available at: http://www.thetakeoverpanel.org.uk/wp-content/uploads/2008/11/pcp2009012.pdf. First company prosecution under new corporate manslaughter law See CLM ¶7179+ The Corporate Manslaughter and Corporate Homicide Act 2007 came into force on 6 April 2008, applying to offences committed on or after that date (see CLM 2008 Newsletter Issue 2). The new Act abolished the common law offence of gross negligence manslaughter, so far as it applied to companies and other organisations within the Act, and replaced it with a statutory offence of corporate manslaughter (corporate homicide in Scotland). The new offence was discussed in detail in CLM 2007 Newsletter Issue 6 and Issue 1. Cotswold Geotechnical Holdings Ltd has become the first company to be charged with the new offence in relation to the death of one of its employees in September 2008. The employee was a junior geologist who was killed when the sides of a pit in which he was working collapsed, crushing him. The pit was being excavated as part of a site survey. The company is also charged with a breach of health and safety law. If convicted the company is likely to face a significant fine (calculated in relation to a percentage of its annual turnover) and be ordered to publicise its conviction and punishment. A director of the company, Mr Eaton, has also been charged with the common law offence of gross negligence manslaughter and an offence under health and safety law. If convicted he could face the maximum penalty of life imprisonment. Mr Eaton will appear at Stroud Magistrates’ Court on 17 June to face the charges both as an individual and on behalf of the company. The case will be very interesting to follow, being the first of its kind. A successful prosecution could set an important precedent in relation to the level of fines likely to be imposed. Insolvency Service to consult on measures to encourage rescue procedures The 2009 Budget included an announcement that the Insolvency Service will consult on two improvements to corporate recovery procedures. These measures aim to encourage companies to use administration and CVA rather than liquidation, and to increase the chances of these procedures achieving their goal of corporate recovery. The consultation will put forward proposals to: » give absolute priority to loans to companies in CVA or administration, so that these debts would be repaid ahead of the others if the rescue procedure fails and the company has to be wound up. This would encourage lenders to deal with these companies and improve their chances of a successful rescue; and » make the pre-CVA moratorium available to medium-sized and large companies. At the moment, only small companies can benefit from the moratorium, which enables them to agree a CVA with their creditors without the threat of creditor action hanging over their heads. If a medium-sized or large company wants to put a moratorium in place, it has to enter into administration while the CVA is being agreed. The Budget also included an announcement that the Insolvency Service will report on its monitoring of pre-pack sales in administrations in the summer of 2009. Pre-pack sales have proved to be a contentious issue in recent months owing to the large number of high-profile administrations, as highlighted in CLM 2009 Newsletter Issue 1. To address these concerns, the Insolvency Service introduced new reporting requirements on administrators engaged in pre-pack sales to provide detailed information to creditors. This information is monitored by the Insolvency Service. The report due in the summer will look at the first 6 months of this new system and how well it protects creditors. For a full report on the Budget, see the Tax Memo 2008-2009 and VAT Memo 2008-2009 Budget Newsletters. Combating late payments in commercial transactions at EU level In commercial transactions, it is common practice for a purchaser of goods and services to make payments for them by an agreed date in the contract or invoice, rather than paying immediately upon delivery. However, if these payments are late, it can cause financial problems and uncertainty for suppliers. Under English law, a supplier can recover interest for late payments in accordance with express contractual provisions. However, these provisions must provide for a “substantial remedy”, i.e. they must be sufficient to compensate the supplier, otherwise they will be void, enabling the supplier to claim (reg 5A SI 2002/1674; reg 4 SI 2002/1675): » statutory interest (a penalty rate calculated as the Bank of England’s rate on the day that the payment falls due, plus 8%); and » debt recovery costs up to £100. The EU law from which the English legislation derives is under review (EC Directive 2000/35). Despite the existence of these rules, late payments are still a problem in the EU, and many businesses feel that more protection is required. In particular, many small and medium-sized enterprises consider that the administrative expenses associated with recovering payments outweigh their financial benefits. In response, the European Commission is proposing a new directive to amend the existing rules and introduce more stringent measures against late payments. These include: » allowing businesses to claim for their recovery costs as well as interest; » removing the minimum threshold (€5) for interest claims by suppliers; » deeming any contractual clauses which exclude interest for late payments to be grossly unfair; » requiring public authorities to pay invoices for goods and services within 30 days (an additional 5% will be payable to the supplier as compensation for any delays); and » requiring member states to ensure transparency about rights and obligations (for instance, by publishing the statutory interest rate). The proposed directive is likely to come into force sometime in 2010. |
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