GENERAL CORPORATE

Changes to UK corporate law – 6 April 2016

A number of changes to UK corporate law came into force this week. The Small Business, Enterprise and Employment Act 2015 (“SBEE”) has amended the Companies Act 2006 (“CA 2006”) as follows:

PSC register

UK companies and limited liability partnerships within scope of the PSC regime must keep a PSC register and make it available for inspection from 6 April 2016. Details of PSCs will also need to be included on the company/LLP’s annual confirmation statement submitted to Companies House on or after 30 June 2016. Confirmation statements will replace annual returns where the ‘return date’ would otherwise occur on or after 30 June 2016.

PSC details will also need to be provided on incorporation of  new companies/LLPs on or after 30 June 2016. Companies House has now published guidance on the protection regime for suppressing PSC information in exceptional circumstances.

Removal of directors

SBEE has already removed the requirement that a director or secretary provide a formal “consent to act” and replaced it with an obligation on the company to make a statement that the appointee has consented to act. Recent changes mean that any person appearing on the public register as a director will now be able to apply to have their name removed if they did not consent. Final form regulations were published last week (the Registrar of Companies and Applications for Striking Off (Amendment) Regulations 2016), amending the Registrar of Companies and Applications for Striking Off Regulations 2009 (SI 2009/1803), to introduce a new system for removing from the register material naming a person as a company director. New Companies House forms are now available.

Registered office disputes

SBEE enabled regulations to be made requiring the registrar, on application by any person, to change a company’s registered office if the registrar is satisfied that the company is not authorised to use the address. Final form regulations were published last week (the Companies (Address of Registered Office) Regulations 2016) providing for the initial application process and the procedure that must be followed, unless the registrar dismisses the application immediately because there is no reasonable prospect of success. Where the address of a registered office is changed by the registrar, certain specified duties (which relate to inspection of company records, or the disclosure or display of information) will be temporarily suspended. New Companies House forms are now available.

Breach of warranty claims – interpretation of notification of claim provisions

In Nobahar-Cookson & Ors v The Hut Group Ltd [2016]  EWCA Civ 128 the Court of Appeal considered the interpretation of notification of claim provisions in an acquisition agreement following the Commercial Court’s decision in the Hut Group Ltd v Nobahar-Cookson and another [2014] EWHC 3842 (summarised here).

By way of background, the court at first instance had considered claims by both the buyer and the sellers for breach of warranty  in a share sale and purchase agreement (“SPA”). The deal was structured so that the sellers received part cash consideration and part shares in the buyer so, in addition to the usual seller warranties, the SPA also contained warranties from the buyer as to the value of its shares. The buyer and the sellers brought warranty claims against each other, which culminated in a judgment in the sum of £4.3m in favour of the buyer on its claim and £10.8m in favour of the sellers on their counterclaim.

The sellers appealed on a point of construction relating to the contractual time limit for the making of a claim by the buyer which they contended had expired. In addition to the longstop date for claims (which the notice had been served within) the sellers were not liable unless a claim had been served “specifying in reasonable detail the nature of the Claim and… the amount… as soon as reasonably practical and within 20 Business Days after becoming aware of the matter”. The key question was the meaning of becoming “aware of the matter”.

The court at first instance found that it made commercial sense if “matter” was construed as referring back to “Claim” and therefore held that becoming aware of a fact, in this case in relation to the accounts, was not the same as becoming aware of a “Claim”. A “Claim” would only be apparent after the facts had been considered by the accountants. The Claim was not therefore out of time because it had been notified within 20 Business Days of the accountants’ view that the warranty had been breached.

The Court of Appeal was asked to consider which of three alternative constructions of the phrase “aware of the matter” was correct:

  • aware of the facts giving rise to the Claim (even if unaware that the facts gave rise to a claim);
  • aware that there might be a claim under the warranties; or
  • aware of the Claim, in the sense of an awareness that there was a proper basis for the Claim (reflecting the Commercial Court’s decision).

The Court of Appeal, looking at the matter linguistically and considering Arnold v Britton & Ors [2015] UKSC 36 and the requirement to treat the natural meaning of the language as the best guide to interpretation, concluded that there was no clear answer. Lord Justice Briggs, delivering the leading judgment noted that the “natural meaning of the language is by no means so clear as to preclude serious consideration of the commerciality or otherwise of rival interpretations or, for that matter, to preclude recourse to the principle that ambiguous exclusion clauses should be construed narrowly”.

The Court of Appeal upheld the Commercial Court’s decision. However Lord Justice Briggs thought that the undoubted ambiguities were properly to be resolved by having recourse to the narrower of the available interpretations whereas the judge at first instance had rejected any contra proferentem principle as being of assistance.

Impact – the decision highlights that the contra proferentem principle may still be pertinent, even when, as in this case, both parties benefit from similar ‘exclusion clauses’. Lord Justice Briggs could “see no reason to disapply the principle that resolves ambiguities in a particular exclusion clause by a narrow construction, merely because the same contract contains an exclusion clause limiting the extent of contractual warranties given by the other party”. He was clear that “there remains a principle that an ambiguity… may have to be resolved by a preference for the narrower construction, if linguistic, contextual and purposive analysis do not disclose an answer to the question with sufficient clarity”. Compliance with provisions setting out the procedure for notifying or issuing claims are not generally intended to operate as conditions precedent to bringing a claim and should therefore be carefully drafted to ensure they are not construed in this way.

PRiVATE EQUITY

Limited partnerships (“LPs”) – lessening of “legal complexity” and “administrative burdens”

The Government has confirmed that it intends to introduce changes to the regulation of LPs within the next 12 months. Its announcement follows a consultation last year. The consultation proposed that the changes should only apply to those LPs which were private fund vehicles (“PFLPs”) and that there should be a process for the designation of those LPs which are private fund vehicles at the point of registration. The Government has confirmed that the changes will only apply to private fund vehicles, despite concerns that some of the changes would be suitable for all LPs. LPs will, subject to fulfilling certain criteria, be able to apply for designation as a PFLP at any time (originally a one year transition period was proposed). A PFLP will not however be able to return to general LP status following registration as a PFLP.

The main amendments to the Limited Partnership Act 1907 (“LPA 1907”) will be:

enabling an existing LP to be designated as a PFLP;

  • simplifying registration requirements;
  • insertion into the LPA 1907 of a non-exhaustive list of permissible activities which limited partners in a PFLP may undertake without losing their limited liability status;
  • removal of the requirement for limited partners to contribute capital to a PFLP. The option for partners to make a capital contribution will remain. Capital which is contributed to a PFLP will be withdrawable and there will be no requirement to declare capital contributions to the registrar. However, if the PFLP was established (as a LP) prior to the new regime, capital contributions will be treated as they would be currently;
  • an ability for limited partners to appoint a third party to wind up a PFLP (rather than requiring a court order); and
  • the exemption from statutory duties under section 28 of the Partnership Act 1890 (duty of partners to render accounts, etc) and section 30 of that Act (duty of partner not to compete with firm).

Impact – the changes were generally supported by respondents to the consultation with the BVCA’s response noting its strong support. The Government intends that the changes will be fully operational within a year.

PUBLIC COMPANIES

Market abuse regulation – EU regulation including indicators of market manipulation and provisions relevant to persons discharging  managerial  responsibilities  (“PDMRs”)  –  3  July  2016

On 12 June 2014 the final form of a new regulation on insider dealing and market manipulation (known as MAR) and a directive on criminal sanctions for insider dealing and market manipulation were published, requiring implementation by member states by 3 July 2016. MAR updates and strengthens the EU’s current market abuse framework by extending its scope to new markets and trading strategies and by introducing new requirements. A delegated regulation, supplementing MAR, was adopted by the European Commission on 17 December 2015 and has now been published in the Official Journal dealing with, amongst other things:

  • practices specifying indicators of market manipulation (Annex II);
  • the restricted circumstances under which trading during a closed period may be permitted by an issuer; and
  • types of notifiable transactions by PDMRs, in addition to those set out in MAR.

Impact – the delegated regulation is particularly useful in describing specific behaviours which may constitute market manipulation e.g. “painting the tape”, “ping orders” or “phishing” and understanding how the new regime will apply to PDMRs. It will apply from 3 July 2016.

UKLA GUIDANCE NOTES - CHANGES TO TECHNICAL AND PROCEDURAL NOTES

The FCA has amended one procedural note and 13 technical notes in line with its proposal last autumn. Many of the amendments reflect changes to the Disclosure and Transparency Rules following implementation of the Transparency Directive Amending Directive (2013/50/EU) and relate to periodic financial information and disclosure of positions held by issuers, investors and management. Those amended include the:

  • scope and application of vote holder and issuer notification rules (UKLA/TN/541.2); and
  • voting rights that are disregarded for notification purposes (UKLA/TN/546.2).

The FCA is also considering further changes to additional notes along with the adoption of a number of new notes. This follows the adoption by the Commission of several Regulatory Technical Standards aimed at ensuring a consistent EU- wide implementation of the Prospectus Directive. Additional proposals, including for five new technical notes, cover a range of areas, and generally arise where the FCA considers that practitioners would benefit from additional insight into a process, rule or situation. For example one of the proposals relates to a new technical note entitled ‘Shareholder votes in relation to hypothetical transactions’ following ‘attempts by premium listed issuers to produce circulars that are required for voting purposes at a particularly early stage, when key terms of a transaction are outstanding’.

Impact - the technical and procedural notes published in the UKLA Knowledge Base constitute formal FCA guidance.

OTHER ITEMS

  • BIS has reportedly confirmed that regulations on the reporting of company’s payment practices will come into force later this year. Provisions had originally been expected to be implemented in April 2016. SBEE envisages that large companies (those that are not defined as ‘small’ or ‘medium’ under the CA 2006) may be required to publish details of their business to business payment practices. BIS confirmed (under the coalition government) that companies will be required to report twice yearly and publish the report on the company’s website (an indicative format of which has been published). Large companies are expected to be required to disclose a number of provisions including: payment terms; average time taken to pay; and the proportion of invoices paid beyond agreed terms.
  • The Government has published a consultation paper  on the introduction of secondary legislation under the Charities Act 2011 which will allow Community Interest Companies and charitable companies to convert to a charitable incorporated organisation (“CIO”) should they wish to do so. The CIO is a relatively new form of incorporated legal structure that is designed to meet the particular needs of charities.
  • ESMA has revised its Q&A on the common operation  of the current version of the market abuse directive adding a new question on ‘investment recommendation’ in connection with the definition of ‘recommendation’ in directive   2003/125/EC.
  • The FRC’s Conduct Committee has published revised operating procedures. The Conduct Committee’s role is ensuring that company accounts and other reports (e.g. directors’ reports) comply with the law and relevant reporting requirements.  Its last report on company reports, summarised here, was published in October 2015.
  • BIS has launched a new directorate to be known as ‘Regulatory Delivery’. It is intended to combine policy expertise and practical experience to ensure that regulation is effectively delivered in ways that reduce burdens on business and save public money.
  • The European Commission has confirmed that the European Union trade mark has entered into force as part of reforms to modernise the existing EU trade mark regime.
  • Permission to appeal has been granted in relation to the contractual interpretation of an indemnity in a share sale and purchase agreement following the Court of Appeal’s decision in Wood v Sureterm Direct Ltd & Capita Insurance Services Ltd [2015] EWCA Civ 839. The  Court of Appeal, when asked to consider two alternative interpretations of an indemnity provision in an SPA, preferred the seller’s interpretation, disagreeing with the High Court which had favoured the buyer’s interpretation.