1. law, govt and politics

5 March 2015
UK Corporate Update.
Market Abuse Regulation: will you be ready?
We have prepared a factsheet for UK listed companies to help them start
planning ahead for the new EU Market Abuse Regulation, which will take
effect in July 2016.
MAR will introduce a new regime for market abuse (market manipulation and
insider dealing) alongside new rules on disclosure of inside information,
insider lists and restrictions on dealings by persons discharging managerial
responsibilities and their associated persons. The new rules will apply to
listed companies (including those listed on AIM).
The new regime is broadly comparable to the existing one in the UK, but
there are a number of differences which will affect listed company
procedures, systems and controls. The new rules will be more significant for
AIM-listed companies, who do not currently have to comply with the same
standards as main market companies on PDMR dealings, disclosure of inside
information and insider lists.
The factsheet is available on the Linklaters Knowledge Portal, a one stop
shop for value-added know-how reserved for our clients, here.
Does a company have to comply with a request from a nonmember to inspect its registers?
The High Court has found that a request for inspection of a company’s
register of members was invalid as it did not contain all of the information
required by the Companies Act 2006. The Court also considered how it would
approach the question of whether a non-member had a proper purpose in
requesting access to a company’s registers. This case illustrates when it is
appropriate for a company to resist a request for inspection of its register.
Facts
> Richard Fox-Davies requested a copy of the register of members of
Burberry Group plc in accordance with section 116(3) of the Act. Burberry
made a court application, as required under the Act if a company does not
wish to comply with such a request.
> Mr Fox-Davies was not a member of the Company. His stated purpose for
the request was to assist members of the Company who may otherwise be
unaware of their entitlements to reassert ownership or recover the benefit
of their property.
> It was Mr Fox-Davies’s business practice to hire “specialist researchers”
with whom he would share the lost members’ names and last known
address, as ascertained from the company register, in order to trace the
members.
1
In this issue
Market Abuse Regulation:
will you be ready? ............. 1
Does a company have to
comply with a request from
a non-member to inspect its
registers? .......................... 1
Takeover Panel issues
public censure for failure to
make a mandatory cash
offer................................... 2
FRC consultation on
implementing the
Accounting Directive ......... 3
Decision
> The Court held that a company did not have to comply with a request for
inspection or a copy of the register unless it contained all the information
required by section 116(4) of the Act. This request did not contain all the
necessary information as it did not correctly identify the names and
addresses of the “specialist researchers” to whom the information would
be disclosed. It was therefore an invalid request.
> The Court also held the request was not for a “proper purpose” but rather
for Mr Fox-Davies’s own commercial self-interest, and therefore pursuant
to section 117(3) of the Act directed the Company not to comply with it.
> The Act does not define “proper purpose”. In Burry & Knight Ltd, Re [2014]
EWCA Civ 604 the court held that the phrase was to be given its ordinary
meaning. It also held that regard could be had to the non-binding and nonexhaustive guidance issued by the Institute of Chartered Secretaries and
Administrators. The ICSA guidance considers that a request is improper
when it is made by an agency specialising in identifying and recovering
unclaimed assets for their own commercial gain in order to contact and
extract commission or fees from the beneficiaries.
> A non-member may have a proper purpose for seeking access to the
register. However, the considerations to take into account in determining
whether such a request is proper, are different to those that arise on an
application from a member to inspect the register.
> As a result of the ‘strong presumption’ in favour of shareholder democracy,
a policy of corporate transparency and the promotion of good corporate
governance, the approach of the courts to a request from a member will
be to grant access where the purpose relates to his or her rights.
However, the company may satisfy the court on the balance of
probabilities that the request is improper.
> The ‘strong presumption’ regarding shareholder democracy does not apply
to a non-member. The emphasis switches to the protection of
shareholders. In this case the company already engaged a tracing agent.
Comment
It is clear that a company will only be required to provide a copy of its register
of members where the application satisfies all the requirements of the Act.
This case demonstrates that the courts’ analysis of whether the applicant has
a “proper purpose” will distinguish between purposes related to the exercise
of a shareholder’s rights, shareholder protection and commercial exploitation.
See Burberry Group PLC v Richard Charles Fox-Davies [2015] EWHC 222
(Ch).
Company law reminder
Section 116 of the Act provides that any person may request to inspect or be
given a copy of a company’s register of members. Within five days of
receiving a valid request, the company must either comply with the request or
apply to the court. Pursuant to section 117(3) of the Act, if the court is
satisfied that the inspection is not sought for a proper purpose the company
will be directed not to comply with the request.
Takeover Panel issues public censure for failure to make a
mandatory cash offer
The Takeover Panel has published a rare public statement of censure for a
failure to make a mandatory cash offer under Rule 9 of the Takeover Code
and associated breaches of Rule 5 and Rule 2.
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UK Corporate Update
In February 2011 Mr Bob Morton and persons acting in concert with him
acquired interests in shares carrying approximately 39.1 per cent. of the
voting rights in Armour Group plc, an AIM-listed company. Following an
independent shareholder vote in favour of the issue of shares to Mr Morton,
the Takeover Panel had granted a waiver of the obligation to make a
mandatory cash offer for the remaining equity share capital of Armour.
Later in 2011, Mr Morton declined an offer to purchase further shares in the
company, due to his awareness that this would trigger a further obligation to
make a mandatory cash offer. Instead, he arranged for his sons to purchase
those shares, believing them to be independent from him (despite gifting his
sons the money required to pay the purchase price). The Takeover Panel,
reflecting its long-established practice in treating close relatives as concert
parties, ruled that the sons were acting in concert with Mr Morton and, as no
exemption applied, those purchases were made in breach of Rule 5.1, which
prohibits a person that holds (together with persons acting in concert with
him) between 30 per cent. and 50 per cent. of the voting equity share capital
from acquiring further voting shares. The share purchases had also triggered
the requirement to make a mandatory cash offer in 2011 which was not
made.
On discovery of the purchase of shares in 2011 by the concert parties, the
Takeover Panel required Mr Morton, as a principal member of the concert
party, to make a mandatory cash offer for the remainder of the shares. The
mandatory offer was made.
Comment
Advisers and companies subject to the Takeover Code should note that they
must consult the Takeover Panel when they are in any doubt as to the
operation of the Takeover Code in relation to any transactions.
The Takeover Panel’s most draconian power is to “cold-shoulder” individuals
for serious breaches of the Takeover Code which essentially bars them from
the City and prohibits institutions from advising them on transactions for a
fixed period.
Although, Mr Morton was not “cold shouldered” and had co-operated fully with
the Takeover Panel in its investigations, the Takeover Panel nonetheless
found these breaches of the Takeover Code particularly egregious in the
context of earlier private censures of Mr Morton for Takeover Code breaches,
as well as his experience as an investor and significant experience with
Code-governed transactions. The Takeover Panel also noted that Mr Morton
had the opportunity to consult the Takeover Panel and/or his own advisers,
but had failed to do so.
The Takeover Panel Statement is available here.
FRC consultation on implementing the Accounting Directive
The Financial Reporting Council is proposing changes to its accounting
standards, and one new accounting standard, as part of its implementation of
the Accounting Directive. Its proposals are set out in three financial reporting
exposure drafts:
> FRED 58 sets out a new standard for very small companies, known as
"micro-entities"
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UK Corporate Update
> FRED 59 sets out amendments to FRS 102, the financial reporting standard
applicable in the UK and Republic of Ireland. These include a new section
1A on small entities. Small entities will apply the presentation and
measurement requirements of FRS 102 but can apply different presentation
and disclosure requirements
Contacts
> FRED 60 sets out minor consequential amendments to FRS 100
Application of Financial Reporting Requirements and FRS 101 Reduced
Disclosure Framework.
Lucy Fergusson
Partner
Once these proposals are adopted, the Financial Reporting Standard for
Smaller Entities or "FRSSE" will be withdrawn.
For further information
please contact:
(+44) 20 7456 3386
[email protected]
The deadline for comments is 30 April 2015. Final standards are expected to
be issued in July 2015 and will apply for accounting periods beginning on or
after 1 January 2016.
Lucy Reeve
Senior Associate
FREDs 58, 59 and 60 and an overview of the FRC's proposals can be found
here.
(+44) 20 7456 3459
[email protected]
Author: Lucy Reeve
This publication is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Should
you have any questions on issues reported here or on other areas of law, please contact one of your regular contacts, or
contact the editors.
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UK Corporate Update
A list of Linklaters LLP members together with a list of those non-members who are designated as partners and their
professional qualifications, may be inspected at our registered office, One Silk Street, London EC2Y 8HQ and such
persons are either solicitors, registered foreign lawyers or European lawyers.
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