Your quoted company legal news update - December 2015
Published on 17th Dec 2015
Welcome to the latest edition of Osborne Clarke’s quoted company legal and regulatory news update.
We hope that you find it interesting. If you would like to discuss any of the content, or have a subject that you would like us to cover in next month’s edition, please let one of us know. Our contact details are set out below.
With best wishes for a Happy Christmas and a prosperous New Year,
Jon King, Mark Wesker, Tom Harvey and Nick Thody
Listed companies, section 793 notices and fending off corporate raiders: Supreme Court rules on directors’ duties
The UK Supreme Court has handed down its much-anticipated judgment in Eclairs Group Ltd v JKX Oil & Gas plc. The case now represents the leading English law judgment on the statutory duty on directors to exercise their powers only for the purposes for which they are conferred (the so-called “proper purpose” rule).
The background to the case was a so-called “corporate raid” on JKX Oil and Gas plc (JKX), a company listed on the London Stock Exchange. The Supreme Court described the situation as “an attempt to exploit a minority shareholding in [the] company to obtain effective management or voting control without paying what other shareholders would regard as a proper price“.
As the Supreme Court observed, “one of the tools available to a public company seeking to resist the covert acquisition of control by raiders” is that it can send a “section 793 notice” to any person whom it knows or has reasonable cause to believe is interested in the company’s shares, seeking information about that person’s interests.
The Companies Act 2006 allows the company to ask the court to impose restrictions on a person who fails to give the information required by the section 793 notice within a specified time period. Similarly, the articles of association of most publicly listed companies also set out restrictions that the company can itself impose on a person failing to give that information. Those restrictions will typically involve disenfranchising the relevant shares from being voted at general meetings of the company. It is the exercise of that power conferred by JKX’s articles which was at issue in the case, and which, ultimately, the Supreme Court found had been unlawfully exercised by the directors of JKX.
The Supreme Court’s judgment in JKX is of major significance to companies and their directors. We look at the implications of the decision (and the questions left deliberately unanswered by the Supreme Court for the time being) and, in particular, how the decision might play into the operation of the forthcoming mandatory “Persons with Significant Control” register.
European Commission proposes significant changes to the EU prospectus regime
The European Commission has announced proposals to make significant deregulatory reforms of the EU prospectus regime. Whilst the detailed proposals will take some time to finalise, the key aspects of the proposed reforms have been set out by Jonathan Hill, the Commissioner for Financial Stability, Financial Services and Capital Markets Union, alongside a draft regulation. He commented:
“We need a prospectus regime that gives investors the information they need, but that does not pile up unnecessary costs and put companies off raising money on the public markets. Today’s proposal strikes a better balance. It will make the system simpler, cheaper and quicker. It will safeguard investors, while making it easier for small and medium-sized enterprises and other businesses to raise money.”
The proposals form part of the European Commission’s broader Capital Markets Union initiative, which we discuss here.
The most eye-catching change is the ability for Member States to set an offer threshold of up to €10m before the requirement to issue a prospectus kicks in – this doubles the existing threshold in the UK. However, that threshold will apply only to domestic issues (i.e. those made in one Member State only). For cross border-issues, it is proposed that the mandatory prospectus requirement will be triggered by all offers over €500,000, which would represent a potentially retrograde step in facilitating access to overseas liquidity pools. Currently, the lowest domestic threshold (of up to €5m) of each of the relevant EU states in which an offer is made represents the functional limit on the size of a non-prospectus cross-border fundraising.
It is difficult to reconcile this potential ten-fold reduction with the aims of the Capital Markets Union initiative, as it will reduce the incentive to look internationally for new sources of finance. Accordingly, we expect that this element of the Commission’s proposals will be subject to a significant amount of push-back from stakeholders.
FCA consults on the implementation of the Market Abuse Regulation
Following on from our previous article on the key features of the new Market Abuse Regulation (MAR) which comes into force in July 2016, the Financial Conduct Authority has published its policy proposals and proposed Handbook changes relating to the implementation of MAR. The changes will come into effect from 3 July 2016, the date that MAR comes into force, and the existing regime will continue in force until that date.
As a European regulation, MAR is directly effective in the UK, and accordingly the UK is required to ensure that its domestic rulebooks do not conflict with MAR. These rulebooks include those parts of the Financial Services and Markets Act 2000 (FSMA) and the FCA Handbook (Handbook) which formed the mechanism by which the UK incorporated the Market Abuse Directive – the forerunner to MAR which will cease to have effect when MAR itself comes into force. The consultation focuses on changes to the Handbook.
We look at the FCA’s general approach to the Handbook changes necessitated by MAR, as well as specific proposals in relation to the Disclosure and Transparency Rules, Model Code and Code of Market Conduct.
Seen elsewhere
The Financial Reporting Council’s year-end advice letters to preparers of reports for larger listed and smaller listed companies.
With the holidays and hopefully some downtime ahead, here are the best reads of the year from The Atlantic, the New York Times and the Financial Times.
