GENERAL CORPORATE

Scheme of arrangement - what is an “arrangement”?

In the matter of JEFL Group Plc, Re [2015] EWHC 3857 (Ch) the Companies Court, in the context of being asked to sanction a transfer scheme of arrangement considered whether the scheme fell within the meaning of “arrangement” in section 895 of the Companies Act 2006. In summary, the judge “struggled to find what it was that made this scheme an arrangement between the company and its members”. The judge concluded, relying on previous authority, that the requirement for the company to amend the register of members to deal with the transfer of certificated shares was sufficient. He considered that it would “not be right after all this time to undermine the clear understanding on which these transactions have taken place probably for decades” but noted that if he were considering the court’s jurisdiction entirely afresh he might well have reached a different conclusion.

Impact – whilst this decision is unlikely to affect the practice of using schemes of arrangement in certain situations to transfer shares, it highlights that companies need to demonstrate how the transaction fits within the meaning of “arrangement”, or “compromise” under section 895.

Background – section 895(1) states that it applies “where a compromise or arrangement is proposed between a company and (a) its creditors, or any class of them, or (b) its members, or any class of them”. Section 895(2) goes on to state that “arrangement” includes “a reorganisation of the company’s share capital by the consolidation of shares of different classes or by the division of shares into shares of different classes, or by both of those methods”.

PUBLIC COMPANIES

Draft guidelines on  market soundings  and the  legitimate interests of issuers to delay publication of inside information ESMA has published draft guidelines on market soundings and the ability of issuers to delay publication of inside information. The guidelines are required to be published pursuant to the EU market abuse regulation (“MAR”) which will apply from 3 July 2016. Under the EU’s legislative procedure MAR, as a regulation, will be directly effective i.e. the UK will not need to implement legislation to adopt MAR in order for it to be applicable. The UK does however have to review existing legislation and regulation to ensure that it is not contrary to MAR.

The proposed guidelines:

  • are addressed to those receiving market soundings (for more detail on which click here); and
  • relate to the ability of an issuer to delay disclosure of inside information where it might prejudice its legitimate interests. The ability of an issuer to delay disclosure in MAR is similar to the current regime (detailed in DTR 2.5 of the FCA’s Disclosure and Transparency Rules). The draft guidelines include a non-exhaustive indicative list of legitimate interests of an issuer that are likely to be prejudiced by immediate disclosure of inside information and situations  in which delay of disclosure is likely to mislead the public. The proposed list broadly reflects the current position (detailed in the DTRs and in CESR guidance) with additional guidance detailing when delay of disclosure is likely to mislead the public.

Impact – implementation of MAR will significantly change the regulation of market abuse in the UK (and EU) and require increased safeguarding measures to be employed by both individuals and corporates to avoid falling foul of the provisions. ESMA is expected to finalise the guidelines by early Q3 2016.

Minor changes to the Listing Rules (“LR”) and Disclosure and Transparency Rules (“DTRs”)

On 28 January the FCA published revisions to the LR and DTRs to take effect the following day (29 January 2016). As well as various clarificatory and minor changes such as amending references to updated EU directives and accounting standards, LR 5.2.11DR has been deleted. The deletion of LR 5.2.11DR follows the FCA’s consultation last autumn (CP15/28) in which it proposed the deletion of the rule to resolve an anomaly in the situation where controlling shareholders wishing to buy out the minority can, in certain circumstances, procure a delisting without independent shareholder approval.

OTHER ITEMS

  • The US and the European Commission have reached political agreement on data-sharing following The European Court of Justice confirmation last autumn (Maximillian Schrems v Data Protection Commissioner, Case C-362/14) that the Safe Harbour Framework under which personal data had been transferred from the EU to the US was invalid.
  • The Land Registry Practice Guide 8 (Execution of Deeds) has been updated to reflect the Land Registry’s new requirements regarding execution of deeds by non-UK corporations. The Land Registry requires evidence of the relevant entity’s corporate status, in the form of a certified copy of the corporation’s constitution, or a certificate in prescribed form from a qualified lawyer practising in the relevant jurisdiction.
  • The Financial Reporting Council has published its second report considering the way auditors have responded to changes to auditing standards, introduced in 2012, which set three high level requirements for the auditor’s report. Key findings include that whilst investors have welcomed the extended auditor reporting regime they feel that more could still be done to enhance auditor’s reports, including the auditor’s assessment of the quality of an entity’s internal controls informing their significant risk assessment.
  • The Climate Disclosure Standards Board has published a review into FTSE 350 companies’ compliance with environmental reporting requirements in their annual reports since the introduction of strategic reports in 2013. Amongst other things the review makes observations about best practice in environmental reporting.