Developments of General interest
proposed amendments to the UK Listing rules
The FCA has published its feedback on its consultation paper
CP12/25 on the effectiveness of the listing regime. Whilst the focus of
the paper, CP13/15, is on premium listed companies with a controlling
shareholder (that is a shareholder, or a group acting in concert, with
30% or more of the voting rights), it also contains some changes that
will apply to all listed companies. CP 13/15 contains both near final
rules in relation to the matters on which the FCA has reached a final
decision and new proposals in some areas which the FCA is consulting
on. The key changes include:
Relationship agreement – a requirement that premium listed
companies which have a controlling shareholder have a relationship
agreement in place which includes certain independence provisions.
Independent directors – where a listed company has a controlling
shareholder, the election or re-election of any independent director
must be approved by a resolution of the shareholders of the listed
company as a whole and by a separate resolution of the
independent shareholders of the listed company.
Listing Principles – certain Listing Principles will apply to
standard listed companies and there will be two new Premium
The main proposals on which the FCA is now consulting are:
Definition of controlling shareholder – a new definition of
controlling shareholder, in particular to align it with the definition of
substantial shareholder in LR 11.
Cancellation of listing – whether a separate resolution by minority
shareholders should be required where a company with a controlling
shareholder wishes to cancel its premium listing.
Enhanced oversight measures for minority shareholders – whether
minority shareholders should be given enhanced oversight where the
rules on controlling shareholders are not complied with: in the event of
non-compliance, the FCA is proposing that minority shareholders be
given the right to vote on all related party transactions between a
controlling shareholder and the company and veto them if they wish.
Information to be provided to shareholders when electing
independent directors – whether a premium listed company with a
controlling shareholder should include additional information in a
circular relating to the election of an independent director.
The consultation closes on 5 February 2014 and the FCA says its
intention is to have the full suite of final rules in place by mid-2014. It is
consulting on the transitional provisions for existing companies.
For further information please contact Chris Haynes at
email@example.com, Charles Howarth at firstname.lastname@example.org
or Carol Shutkever at email@example.com.
Competition Commission issues final report on the
statutory audit market (UK)
In October, the Competition Commission published its final report on
competition in the statutory audit market for large companies in the
UK (that is, FTSE 350 companies). The report confirmed the
Competition Commission’s provisional finding that competition is
restricted in the audit market. The remedies that the Competition
Commission has decided to impose to address this are:
Obligation to tender every ten years – FTSE 350 companies will
have to put their audit engagement out to tender at least every
10 years. This is a strict deadline unlike the FRC’s ”comply or
Audit committee report to be put to a vote – For FTSE 350
companies, the audit committee report should be put to an advisory
shareholder vote at each AGM.
Strengthening accountability of external auditor to audit
committee – Measures should be introduced for FTSE 350
companies to strengthen the accountability of the external auditor
to the audit committee, including a stipulation that only the audit
committee is permitted to agree audit fees and the scope of audit
work, initiate tender processes, make recommendations for the
appointment of auditors and authorise the external audit firm to
carry out non-audit services.
Review of audit engagements by FRC – The FRC’s Audit Quality
Review (AQR) team should review every audit engagement in the
FTSE 350 on average every five years, but with discretion to review
low risk audits less frequently. Audit committees should report to
shareholders on the findings of any AQR team report.
Prohibition of “Big 4” terms in loan agreements – Provisions in
loan agreements which restrict a company’s choice of auditor to
particular lists or categories should be prohibited.
The Competition Commission will draw up an Order to implement
some of the measures, including the mandatory audit retendering. It
expects the measures to come into force by October 2014. The FRC is
being asked to amend the Governance Code to take some of the other
For further information please contact Carol Shutkever at carol.
firstname.lastname@example.org or Kathryn Cearns at email@example.com.
tUpE reform: draft regulations published (UK)
On 31 October the Government published draft regulations to
amend TUPE. The Government intends to lay the regulations
before Parliament in December 2013 and bring them into force in
January 2014. The draft regulations make amendments to TUPE and
the collective redundancy rules to implement the proposed changes
set out in the BIS response to consultation (covered in General
Counsel Update 35).03 General Counsel update - issue 36 HerBert smitH freeHills
Perhaps of most interest is the drafting permitting transferees to start
collective redundancy consultation pre-transfer. The draft regulations
provide that a transferee can elect to consult (or start consulting with)
representatives of transferring employees pre-transfer in relation to
proposed redundancies, provided that it notifies the transferor in
writing and the transferor agrees. The transferor can provide
information or other assistance to the transferee to help the transferee
meet its consultation obligations.
The transferee can change its mind – an election to consult pre-transfer
can be cancelled by written notice to the transferor, in which case any
consultation carried out is nullified and the employee representatives and
Secretary of State must also be notified of the cancellation. A fresh
election to consult can be made (and cancelled) subsequently.
The transferor’s co-operation will be critical, as its failure to provide
information or assistance will not amount to a special circumstances
defence to failure to consult properly.
The draft regulations envisage the reforms being implemented from
the (as yet unspecified) commencement date, save in two cases:
1. the amendment requiring employee liability information to be
provided by the transferor to the transferee 28 days, rather than
14 days, before the transfer is to come into force three months after
the commencement date; and
2. the permission for micro employers to consult with individual
employees rather than electing representatives is to come into
force six months after the commencement date.
It is also worth noting that redundancies due to a change of workplace
location on the transfer, while no longer to be automatically unfair, will
still be at risk of an ordinary unfair dismissal claim if the process adopted
is unfair (and employees have the qualifying service). Although
collective redundancy consultation can be completed pre-transfer, there
is nothing in the draft regulations validating an individual consultation
process pre-transfer for the purposes of an unfair dismissal claim.
For further information please contact Andrew Taggart at
firstname.lastname@example.org or Tim Leaver at email@example.com.
Zero hours contracts: under review (UK)
The Business Secretary, Vince Cable, has announced his decision to
launch a consultation on zero hours contracts later this year, to
“explore how to tackle any abuses, particularly around exclusivity”.
This follows increased media interest in the use of such contracts. An
employment tribunal claim has been brought against Sports Direct by
an individual on a zero hours contract denied paid annual leave, sick
pay and bonuses. She is reported to be claiming indirect sex
discrimination, less favourable treatment due to part-time status, and
breach of working time rules.
Our article considering the issues surrounding zero hours contracts is
available on our blog at http://hsf-employmentnotes.com.
For further information please contact Peter Frost at
firstname.lastname@example.org or Andrew Taggart at email@example.com.
reasonable adjustments for disability: funding for
private counselling (UK)
Employers may need to consider paying for an employee with
work-related stress and depression to have private psychiatric
counselling and cognitive behavioural therapy recommended by a
The Employment Appeal Tribunal in Croft Vets Ltd v Butcher
UKEAT/0430/12 considered that it was a reasonable adjustment to
pay for such a specific form of support in the workplace to help the
employee return to work and cope with her work-related difficulties, in
a situation where the condition was largely caused by work. There was
no evidence that the treatment would have been available on the NHS
in the appropriate timescale.
The Employment Appeal Tribunal made clear that this was not
imposing an obligation on employers to pay for medical treatment to
improve a disabled employee’s health generally. There will only be an
obligation if recommended therapy is work-related and aimed at
assisting an employee with stress/depression to cope at work.
Presumably the issue of whether the condition was caused by work
may influence both: (i) the type of treatment recommended and
whether this is sufficiently work-related; and (ii) whether it is
reasonable for the employer to pick up the tab. The availability of free
treatment ought also to be relevant.
For further information please contact Peter Frost at
firstname.lastname@example.org or Tim Leaver at email@example.com.
Court of Appeal sends clear message on need for strict
compliance in Mitchell decision (UK)
In the most eagerly awaited decision since the Jackson reforms, in the
Mitchell "plebgate" case, the Court of Appeal has dismissed an appeal
against tough sanctions imposed for a failure to file a costs budget in
time: Andrew Mitchell MP v News Group Newspapers Limited 
EWCA Civ 1537.
In doing so, the Court of Appeal has confirmed that the Jackson
reforms mean a real change to the court’s approach toward
compliance with rules and court orders, not only in relation to the
costs budgeting regime but in the conduct of litigation more generally,
and has given guidance on how the new approach should be applied.
A number of first instance decisions since the reforms were
implemented on 1 April had highlighted a tension between the
increased focus on compliance and the desire to do justice in the
individual case. The Court of Appeal’s decision comes down firmly on
the side of compliance.
The upshot is that courts are likely to take a firm line on those who
breach rules or court orders, unless the breach is “trivial” and an
application for relief from sanctions is made promptly. Otherwise, the
defaulting party must persuade the court that there was good reason
for the default. As the decision makes clear, merely overlooking a
deadline is unlikely to be a good reason.
For further information please see our blog post on the decision here
or contact Anna Pertoldi at firstname.lastname@example.org or Maura
McIntosh at email@example.com.
HsF Document retention International review –
second edition published (Cross-border)
On 5 November 2013, Herbert Smith Freehills launched the second
edition of its popular guide “Document Retention: An International
Review”, at a global webinar attended by 179 clients from a range of
industries and sectors.
Chaired by James Farrell (disputes partner, London), the webinar
discussion panel included Joseph Falcone (disputes partner,
New York) and Edward Du Boulay (TMT associate, London).04 General Counsel update - issue 36 HerBert smitH freeHills
The first edition of our guide was published in January 2011, providing
guidance on key document retention obligations and data
management issues in 22 jurisdictions worldwide. The second edition
of the guide has expanded to include 28 jurisdictions: Australia,
Belgium, Brazil, China, Colombia, Egypt, England & Wales, France,
Germany, Guinea, Hong Kong, India, Indonesia, Italy, Japan, Kenya,
Netherlands, Qatar, Republic of Korea, Russia, Saudi Arabia,
Singapore, South Africa, Spain, Switzerland, Thailand, UAE and USA.
To access a recording of the webinar, please contact Jane Webber at
firstname.lastname@example.org. For further information on the guide, please
email email@example.com or contact James Farrell at
LIBor private claims – test cases to proceed (UK)
Following on the from the recent regulatory action against a number
of banks in respect of manipulation of the LIBOR benchmark, there
has been much speculation about the potential for claimants to bring
private law actions against the LIBOR panel banks based on the
regulatory findings. There are currently two cases pending in the High
Court which are being treated as test cases in this regard. Both are
claims alleging mis-selling of interest rate hedging products, where
the product (and the related loan) were referenced to LIBOR and the
claimants have sought to expand their case to include claims based on
alleged LIBOR manipulation.
A recent Court of Appeal judgment has now allowed the claimants in
both cases to amend their pleadings to include such claims, including
allegations that the banks made implied representations regarding the
accuracy of LIBOR.
It is important to note that the court at this stage was considering only
the preliminary question of whether the claims were sufficiently
arguable to be allowed to proceed to trial (a relatively low threshold).
Further, it was primarily concerned only with the issue of whether the
alleged representations could arguably be implied from the
circumstances. As discussed in our earlier briefing analysing the
potential for such claims, private claimants are likely to face significant
further obstacles in making out claims for substantial damages
against LIBOR panel banks.
Subject to any appeal of the Court of Appeal ruling to the
Supreme Court, the two test cases will now proceed to be heard by
the High Court, with the first case (Graiseley v Barclays) listed for
hearing in April.
For further information please see our briefing on the Court of Appeal
decision here or contact Simon Clarke at firstname.lastname@example.org.
Failure to engage with ADr proposals – Court of Appeal
extends the Halsey principles (UK)
The Court of Appeal has delivered a judgment strongly reiterating its
support for the role of ADR in civil litigation and extending the existing
principles governing the question of when a litigant’s failure to engage
in ADR will justify a court imposing costs sanctions upon it (as
established in Halsey v Milton Keynes General NHS Trust  1 WLR
3002) (PGF II SA v OMFS Company Ltd  EWCA Civ 1288).
Specifically, the court confirmed that where a litigant has failed even to
respond to a proposal to mediate (as distinct from expressly declining a
proposal with reasons), the silence will generally be regarded as being in
itself unreasonable and warrant a costs sanction – regardless of
whether there may have been reasonable grounds that would have
justified the party expressly refusing the proposal.
In doing so, the court has sent a clear message that it expects parties
not only to participate in mediation where it is appropriate but also to
engage constructively in discussion as to whether and when it will be
appropriate in any particular case.
All parties involved in civil litigation therefore need to be aware that if
they have good reasons for declining an invitation to mediate, they
should set them out fully at the time the proposal is raised. It will not
be sufficient simply to ignore the proposal on the basis that they will
be able to justify their decision later when the court comes to
For further information please see our briefing here or contact
Alexander Oddy at email@example.com.
tax developments (UK and cross-border)
What follows is an overview of the recent but commercially important
tax developments and a look forward to upcoming developments that
will be of interest to in house legal teams:
The OECD, EU and G8 campaign to introduce country by country
reporting has continued. Recently, the OECD published a
memorandum setting out the type of information that may be
sought as part of the process. One suggestion is to ask multinational
corporations to disclose to the tax authorities in each jurisdiction in
which that group operates, a comparison between net income
before tax and taxes paid in that jurisdiction. Many of the
suggestions put forward by the OECD are problematic for a number
of reasons including the concern that tax authorities may
misinterpret the information given to them.
The Government has shut down (with broad effect from 25 October
2013) what it considers to be exploitative arrangements which take
advantage of the UK transfer pricing rules (the rules which broadly
impose arm’s length pricing for tax purposes). These arrangements
will prevent individuals from claiming tax relief on loans to
connected companies where the company is either highly leveraged
or where interest is charged in excess of market rates, and
partnerships from claiming relief for payments not actually made.
The employee shareholder legislation has come into force (with
effect from 1 September 2013). Under this new regime and broadly
speaking, employees can receive shares in their employing company
or parent worth at least £2,000 in return for giving up certain
employment rights, such as unfair dismissal protection. The upside
for such employees is certain tax benefits. The intention behind the
new regime is to encourage employees to invest in their employers
in order to drive growth, whilst at the same time giving employers
more flexibility in managing their workforce. This regime may be
particularly interesting to private equity and similar funds. Further
information can be found in our briefing.
The Chancellor of the Exchequer will hand down the Autumn
Statement on 5 December 2013. We are expecting an
announcement on energy taxes – rumours of a cut in energy taxes to
assist in reducing the cost of buying energy abound. There may also
be changes to the tax system to ensure that non-residents bear a
‘fair share’ of the tax burden for their UK activities. Those banks that
have signed up to the Code of Conduct on the Taxation of Banks (the
Code) will be named. From the Autumn Statement 2015, those
banks that have not signed up or have signed up and have not
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The Finance Bill 2014 (the Bill) will be published in draft form on
10 December 2013 and will remain open for consultation until
February 2014. The Bill will contain some important measures
including the first tranche of changes to the new corporate debt
taxation regime, a reduction in the main rate of corporation tax in
the UK to 21% and the repeal of stamp duty/stamp duty reserve tax
on the transfer of shares listed on AIM and similar growth markets.
The Bill will also contain the legislation that may result in certain
members of an LLP (i.e. so called “salaried partners”) being deemed
to be employees for tax purposes.