|
|
|
|
|
NEWS |
|
New guidance on corporate governance for private companies See CLM ¶3199+ The Institute of Directors has published new voluntary guidance and principles of governance setting out best practice recommendations for private companies in the EU (“Corporate Governance Guidance and Principles for Unlisted Companies in Europe” First Edition: March 2010). It has been developed by the European Confederation of Directors’ Associations (ecoDa) as a practical and pragmatic tool to help private companies plan for their development and establish an appropriate corporate governance framework. EcoDa believes that improved corporate governance can facilitate economic growth and help to ensure the long-term sustainability of companies. It is hoped that this guidance will also be used by each member state to develop, or update, national corporate governance codes for unlisted companies. The guidance includes nine principles of good governance which apply to all unlisted companies: 1. Shareholders should establish an appropriate constitutional and governance framework for the company; 2. Every company should strive to establish an effective board, which is collectively responsible for the long-term success of the company, including defining the corporate strategy. An interim step towards an effective (and independent) board may be the creation of an advisory board; 3. The size and composition of the board should reflect the scale and complexity of the company’s activities; 4. The board should meet sufficiently regularly to discharge its duties, and be supplied in a timely manner with appropriate information; 5. Levels of remuneration should be sufficient to attract, retain and motivate directors of the quality required to run the company successfully. There should be a clear distinction between the remuneration of executive and non-executive directors; 6. The board is responsible for identifying the main risks facing the company and should maintain a sound system of internal control to safeguard shareholders’ investment and the company’s assets; 7. There should be a dialogue between the board and the shareholders based on a mutual understanding of objectives. The board as a whole has responsibility for ensuring that this takes place and should not forget that all shareholders should be treated equally; 8. All directors should receive induction on joining the board and should regularly update and refresh their skills and knowledge; and 9. Family-owned companies should establish a family constitution or protocol that promotes co-ordination and mutual understanding amongst family members, as well as organise the relationship between family governance and corporate governance. The guidance also sets out five further principles which are intended to apply only to larger or more complex companies: 1. There should be a clear division of responsibilities between the running of the board (by the chairman) and the running of the company’s business (by the CEO or managing director). No one person should exercise both of these roles, so as to have unfettered decision making powers; 2. Although board structures vary according to regulatory requirements and business norms, all boards should contain directors with a sufficient mix of competencies and experiences; 3. The board should establish appropriate board committees in order to allow a more effective discharge of its duties; 4. The board should undertake a periodic appraisal of its own performance and that of each director; and 5. The board should publish an annual report to present a balanced and understandable assessment of the company’s position and external prospects for external stakeholders, and establish a suitable programme of stakeholder engagement. The guidance is voluntary and in addition to the general mandatory principles of corporate governance which are applicable to all companies in the UK (for example, directors’ duties and liabilities). Further detail and copies of the guidance can be found on the Institute of Directors’ website at: http://www.iod.com/intershoproot/eCS/Store/en/pdfs/policy_article_corp_gov_unlisted_ companies_eu.pdf Comment: In the UK, best practice for the governance of listed companies is set out in the Combined Code appended to the Listing Rules of the Stock Exchange (see CLM ¶3199). New company name search See CLM ¶4091 Companies House has developed a new search which is freely available as part of its “WebCheck” service. The new “Company Name Availability Search” will reveal company names already registered at Companies House which are the ’same‘ as the proposed company name entered into the search engine. This should reduce the number of incorporation and change of name applications being rejected. Competition Commission and OFT review of merger assessment guidelines See CLM ¶5507+ On 14 April 2010 the Competition Commission (CC) and the OFT published a draft review of the Merger Assessment Guidelines as a result of work between the two authorities to combine and expand on guidance material contained in a number of prior publications (see CLM 2009 Newsletter Issue 1 and CLM 2008 Newsletter Issue 3). The draft is the result of a public consultation which took place between April and September 2009. Key developments include the definition of ’market’, which forms part of the test for substantial lessening of competition, part of the procedure used to assess mergers. a. The guidance includes: b. a study of the overarching questions the OFT and the CC are required to consider when conducting their merger reviews. Those questions are: - has a merger situation been created; and - will the situation lead to a substantial lessening of competition? c. The guidance explains how and why the criteria used in the preliminary review by the OFT when answering the overarching questions are necessarily less stringent than the criteria used by the CC; d. an explanation of what is meant by ‘relevant merger situation’ and the three criteria which must be met (see CLM ¶5508); e. an explanation into the OFT and CC’s approach to the concept of ‘substantial lessening of competition’. The test for whether a merger constitutes a substantial lessening of competition is described as having two distinct elements: the first being an identification of the relevant market or markets; and the second being an assessment of the competitive effects of the merger in that market or markets; and f. guidance on public interest and special public interest cases. Comments on this draft are requested by 31 May 2010. Further details of the draft guidelines can be found at: http://www.oft.gov.uk/shared_oft/mergers/Consultations/Merger_Assessment_Guidelines.pdf The Insolvency Service consults on how to improve the transparency of and confidence in pre-pack sales in administration See CLM ¶8901 The Insolvency Service has published a consultation paper seeking views on whether to amend the current regulatory regime for pre-pack sales in administrations. A pre-pack sale is a tool used in insolvency practice for the purposes of preserving economic value and saving jobs by negotiating the sale of a company’s business or assets prior to the appointment of an administrator, with the administrator then effecting the sale immediately on, or shortly after, his appointment. Since January 2009, insolvency practitioners are required to comply with Statement of Insolvency Practice (SIP16) when following the pre-pack procedure (see CLM 2009 Newsletter Issue 1). SIP16 was introduced as a result of a lack of confidence and transparency in the pre-pack process. However, compliance with SIP16 has been monitored during 2009 and it has been discovered that many SIP16 disclosure statements were not fully compliant (see CLM 2009 Newsletter Issue 4 and CLM 2010 Newsletter Issue 2). As a result, the Insolvency Service is investigating ways in which the regime can be strengthened, taking into account the changes to the Rules which came into effect on 6th April 2010. Five proposals have been identified for consideration: a. make no change. Provided the administrator obtains creditor approval, the Rules now allow insolvency practitioners to recover their pre-appointment costs from the administration estate. This may encourage insolvency practitioners to be more transparent in relation to their pre-appointment work; b. give statutory force to the disclosure requirements of SIP16. Incorporating the current requirements into legislation would allow for greater penalties for non-compliance and provide greater encouragement for insolvency practitioners to fully comply. But, this solution would not allow creditors any opportunity to challenge the sale before it takes place; c. restrict the exit from a pre-pack administration to compulsory liquidation thereby subjecting the pre-pack to automatic scrutiny by the official receiver. This option would improve transparency as the official receiver has a statutory duty to investigate the circumstances of the company’s failure, providing opportunity to scrutinise the pre-pack as an independent party (see CLM ¶8277+). One of the key downsides to this proposal is that there may be an increased cost to the administration as funds would need to be reserved by the company for the cost of putting the company into compulsory liquidation; d. require different insolvency practitioners for the pre- and post-administration work. A concern frequently raised by creditors and stakeholders is that there is a conflict of interest where an insolvency practitioner advises a company to use a pre-pack administration as they stand to benefit financially from the subsequent appointment as the administrator. As mentioned in (a) above, pre-appointment costs can now be recovered and, as a result, there is an argument that pre- and post-administration work should be carried out by different insolvency practitioners in order to remove the conflict. The downsides to this proposal may be the increased cost to the administration, the risk of duplication of work, as well as an increased possibility of delay; and e. require court or creditor approval of the pre-pack when the business or assets are being sold to a connected party. This would address the concern that sales to connected parties may be contrived at an undervalue. The requirement for approval would be enforced by amending the Rules to impose a personal liability on the purchasers of the company where the sales were executed without the requisite approval. However, one weakness to this proposal is that many of the creditors who are required to approve the pre-pack will not stand to gain anything financially from the sale as there is often a shortfall to secured creditors leaving unsecured creditors without a dividend. This results in parties with no financial interest in the outcome of the sale being able to influence the process of the sale. In addition, advance notice to creditors of the sale of a company may result in a diminution in value of that company. Comments on the consultation paper are requested by 24 June 2010. The consultation paper, including questions contained therein, can be downloaded from the Insolvency service website at: http://www.insolvency.gov.uk/insolvencyprofessionandlegislation/con_doc_register/Pre-pack%20consultation%2031march%2010.pdf Companies House Northern Ireland – change of address See CLM ¶9905 On 1 June 2010 Companies House Belfast are moving to: Companies House Second Floor The Linenhall 32-38 Linenhall Street Belfast, BT2 8BG DX 481 N.R Belfast 1 Further details can be found at: http://www.companieshouse.gov.uk/about/miscellaneous/belfastMove.shtml |
