SFO brings charges against Barclays
The Serious Fraud Office ("SFO") has announced that it has brought charges against Barclays plc and four individuals under the Fraud Act 2006 and the Companies Act 1985.
The charges relate to capital raising arrangements put in place by Barclays with Qatar Holding LLC and Challenger Universal Ltd in June and October 2008, during the global financial crisis. The SFO has charged Barclays and all four individuals with committing fraud by false representation in relation to arrangements made in June 2008. It has charged Barclays and two of the individuals with the same offence in relation to the October 2008 arrangements.
The SFO has also charged Barclays and two of the individuals with providing unlawful financial assistance, contrary to section 151 of the Companies Act 1985. Section 151 prohibited a company or any of its subsidiaries from giving financial assistance directly or indirectly for the purpose of acquiring shares in the company.
Section 151 was replaced by section 678 of the Companies Act 2006 from 1 October 2009 (although it now applies only to public limited companies and their subsidiaries). However, as the arrangements in question took place before that date, the SFO has brought the charge under the old legislation.
The financial assistance charge appears to relate to a US $3bn loan facility made available to the State of Qatar (acting through the Ministry of Economy and Finance) in November 2008. The implication is that Barclays made this facility available for the purpose of acquiring its own shares.
The defendants will appear before Westminster Magistrates' Court at 2pm on 3 July 2017.
Competition and Markets Authority raises merger investigation thresholds
Following its consultation in January, the Competition and Markets Authority ("CMA") has announced that it is raising the turnover thresholds in its guidance on markets of "insufficient importance" ("de minimis"). This guidance provides an exception to the CMA's duty to refer a merger for an in-depth "phase 2" investigation, where it determines that the merger could lead to a substantial lessening of competition, following the completion of a "phase 1" investigation.
The thresholds set by the CMA provide a presumption of when the CMA will generally consider a market to either be of "sufficient importance" or "insufficient importance" to justify a referral for an in-depth review. In other words, are the costs involved with conducting a phase 2 investigation disproportionate to the size of the market in which the substantial lessening of competition has been identified?
The CMA has confirmed that it will generally consider a market to be:
- of "sufficient importance" if its size is 15m or more (up from 10m); and
- of "insufficient importance" if its size is 5m or less (up from 3m).
For mergers in markets falling between the thresholds, the CMA will continue to assess on a case-by-case basis whether the expected harm caused by the merger would be materially greater than the cost of an investigation.
If a market is above the threshold of sufficient importance, the CMA will refer a merger to the phase 2 investigation. If it is below the threshold of insufficient importance, the merger will generally be cleared. However, irrespective of the size of the market, if the CMA believes on a phase 1 review that the merging parties could in principle offer a viable remedy to address the CMA's concerns (by way of undertakings in lieu of a reference), the exception will not be available and the merger will be referred.
FRC highlights matters arising from its latest audit quality review
The Financial Reporting Council ("FRC") has issued a press release summarising the findings of its review of audits carried out during 2016 and 2017. According to the release, audit quality for FTSE 350 companies is improving, with 81% of audits requiring only "limited improvements" (up from 77% in 2015/2016 and 70% in 2014/2015). The FRC is targeting a figure of 90% for 2018/2019. Audit quality outside the FTSE 350, however, remains capable of improvement.
The FRC has identified the following areas as requiring further improvement:
- challenging management in key areas involving judgment, such as impairment reviews, asset valuations and provisions;
- designing and executing audit procedures relating to revenue recognition; and
- systems and arrangements for ensuring compliance with ethical and independence requirements.
Takeover Panel confirms shareholders were not seeking "board control"
The Takeover Panel Executive has decided that three shareholders of Petropavlovsk plc were not seeking to table a "board control-seeking proposal" under Note 2 to Rule 9.1 of the Takeover Code (the "Code") when they submitted resolutions to appoint four new directors to Petropavlovsk's board.
Under Note 2, if shareholders engage in collective action to requisition the consideration of a board control-seeking proposal, the Panel will normally regard them as "acting in concert" with each other and with each of the directors they propose to appoint under the proposal. This can in turn lead to the shareholders being required to make a mandatory offer for the entire company under Rule 9 of the Code. Note 2 sets out various factors that the Panel will consider when making its assessment.
In this case, the Executive agreed that three out of the four proposed new directors were independent of the three shareholders. (The fourth director was not independent, as he was employed by one of the shareholders). The Executive therefore decided that the shareholders were not acting in concert and has not required a Rule 9 offer to be made.
FCA charges two individuals with insider dealing
The FCA has begun criminal proceedings against two individuals, one of whom was a compliance officer employed by a large investment bank, charging each individual with five counts of insider dealing under the Criminal Justice Act 1993. The alleged insider dealing took place between 3 June 2013 and 19 June 2014. The two individuals are due to appear at Southwark Crown Court in July for a Plea and Trial Preparation Hearing. Insider dealing is a criminal offence punishable, on conviction, by a fine and/or up to 7 years' imprisonment.