In this week’s update: updated filing deadlines at Companies House, Takeover Code reforms for offer conditions and the offer timetable, any member of an LLP can be subject to a disqualification order, the Law Commission publishes its law reform programme for 2021, FCA Primary Markets Bulletin 33 is published, the FCA will be consulting on changes to the Listing Rules around SPACs, Covid-19 insolvency rule relaxations are extended and IOSCA publishes a statement on going concern assessments during Covid-19.
- Companies House publishes an update on filing documents during the Covid-19 pandemic
- The Takeover Panel publishes major reforms to the timetable for any conditions to contractual takeover offers
- The court holds that any member of an LLP (and not merely a managing member) can be subject to disqualification
- The Law Commission publishes its programme for legal reform for 2021
- The FCA publishes Primary Market Bulletin 33, covering DTR 5 notifications, mix-and-match facilities, payments to governments and inside information
- The FCA is to consult on strengthening investor protection around SPACs
- The Government extends its temporary relaxations of insolvency law to deal with Covid-19
- IOSCO publishes a statement on going concern assessments during the Covid-19 pandemic
Covid-19 is affecting the way people conduct their business, retain their staff, engage with clients, comply with regulations and the list goes on. Read our thoughts on these issues and many others on our dedicated Covid-19 page.
Companies House provides update on filings during Covid-19
Companies House has published an update on arrangements for filing documents during the ongoing Covid-19 pandemic. The key points arising out of the update are set out below.
The update reminds users that the temporary extension of filing deadlines for a range of documents (see our previous Corporate Law Update) comes to an end on 5 April 2021. Documents to be filed after that date will need to be filed within the regular deadlines under the relevant legislation. There will not be any further extensions.
However, companies may still apply for a three-month extension to file their annual accounts at Companies House. To do so, the company must cite issues around Covid-19 as the reason for the extension. However, companies that have already had their accounts deadline extended once may not be eligible, as it is not possible to extend the filing deadline beyond 12 months.
Takeover Panel pushes forward with reforms to offer conditions and timetable
The Takeover Panel will push forward with its proposed reforms to the Takeover Code in relation to conditions attaching to a public bid and the impact on the offer timetable.
The Panel first consulted on the proposed reforms in October 2020. The Panel has now published its response to the consultation, summarising feedback received and setting out changes to the Code which the Panel will be implementing. The consultation received ten responses. The Panel has published the eight responses from respondents who did not wish to remain anonymous.
In short, the Panel has decided to adopt the amendments proposed in its consultation, subject to some minor modifications. For ease, we have summarised at a high level below the key changes to the Code, which will be made by Instrument 2021/1. For more detail on the proposed changes and the background to them, see our previous Corporate Law Update.
The changes will take effect from 5 July 2021.
What are the changes?
- The current difference in treatment between different kinds of “regulatory condition”, including between clearance under the UK or EU merger control regime and clearance under other anti-trust regimes and regulatory regimes, will be abolished.
- All conditions to an offer will need to be satisfied or waived by Day 60, otherwise the offer will lapse on that date. This will remove the distinction between the last day for satisfying the “acceptance condition” (Day 60) and the last day for satisfying all other conditions.
- An offeror will be able to set an earlier “unconditional date” (with Panel consent) and, if it does so, to bring its unconditional date forward by making an “acceleration statement”. There must be a gap of at least 14 days between an acceleration statement and the new date. An offeror may not revise its offer less than 14 days before a new unconditional date.
- When making an acceleration statement, an offeror must waive all outstanding regulatory conditions. If an offeror subsequently sets its acceleration statement aside, this will not revoke that waiver or “revive” the conditions to the offer.
- An offeror will need to specify a long-stop date for satisfying all regulatory conditions. If an offer is not recommended, the offeror must provide the Panel with evidence from an external adviser that the long-stop date reflects the “slowest” timetable for satisfying the conditions. If the acceptance condition and at least one regulatory condition are not satisfied or waived by the long-stop date, the offer will lapse. If the acceptance condition is satisfied but any regulatory condition is not, the offeror will require Panel consent to lapse the offer. The Panel will give its consent only if the outstanding regulatory condition is “material”. A similar regime will apply to pre-conditions to an offer.
- If a regulatory condition is outstanding two days before Day 39, the Panel may suspend the offer timetable. It will do so if both offeror and target agree, or if one of them requests an extension and the condition involves a “material” authorisation or clearance. A suspension will end if both offeror and target agree, or if the condition is satisfied or waived. If there are competing offers, the timetable will be suspended for all offerors until it is resumed by the “last” offeror.
- The Code will not specify which authorisations or clearances amount to a “regulatory condition”. However, the Panel has said it will treat clearance or approval by the CMA, FCA or PRA, as well as clearance under the new national security regime, as regulatory conditions. It will not, however, treat clearance from The Pensions Regulator as a regulatory condition.
- To invoke its acceptance condition and lapse an offer before its unconditional date, an offeror will need to serve an “acceptance condition invocation notice”. This must specify a lapse date and the level of acceptances needed for the offer not to lapse. The offeror must disclose acceptance levels weekly (unless the offer timetable is suspended) and when revising its offer. If, on the lapse date, acceptances are below the level specified in the notice, the offer will lapse.
- Target shareholders will be able to withdraw their acceptance of a contractual offer at any time until the acceptance condition is satisfied or the offer lapses or is withdrawn (and not just after Day 42, as at present).
- An offeror will require Panel consent to invoke a condition or pre-condition. The Code will set out a list of conditions and pre-conditions that can be invoked without Panel Consent. These will include admission of any consideration securities to trading. (The Panel had proposed to remove restrictions on the target invoking a condition but has decided not to proceed with this.)
What does this mean for me?
As expected, the Panel has largely stuck with its proposals.
The new uniform approach to regulatory conditions, including the single deadline for satisfying all conditions, should bring simplicity and consistency. Often the key regulator on a deal is outside the UK and EU or is not a competition authority.
As we previously noted, the changes are unlikely to affect most takeovers, which are implemented by scheme of arrangement (with their own timetable). However, the changes could affect hostile and contested takeovers, where bidders may act strategically to shorten the offer timetable or minimise conditionality in order to maximise their chances of success.
Requiring Panel consent for all regulatory conditions should also put an end to the practice of evading the current “material significance” test by drafting a UK/EU merger control condition “on terms satisfactory to the bidder in its absolute discretion”.
We are keen to see whether the new ability to extend the offer timetable to deal with delays to regulatory clearances leads to fewer takeovers being implemented using a scheme of arrangement. Often a bidder is forced to pursue a scheme because the timetable for a contractual offer is inadequate for dealing with extended regulatory clearance timelines.
Any member of an LLP can be subject to a disqualification order
The High Court has held that any member of a limited liability partnership (LLP) can be subject to a disqualification order under the Company Directors Disqualification Act 1986 (the CDDA), and not just the “managing members”.
Secretary of State v Geoghegan  EWHC 672 (Ch) concerned the well-known PR agency, Bell Pottinger, whose business was run through an LLP. In connection with the collapse of the LLP, disqualification proceedings were brought against two members of the LLP under the CDDA.
The CDDA allows the court, in certain circumstances, to make an order disqualifying a person from serving as a director of a company. Those circumstances include where a company has become insolvent and the director’s conduct as a director of the company makes them unfit to be concerned in the management of a company.
The CDDA also applies to LLPs, but references in the CDDA to a “director of a company” are instead to a “member or an LLP”.
Unlike companies, where day-to-day decisions are taken by the directors but economic ownership rests with the shareholders, the members of an LLP are both the economic owners and the persons who take management decisions. However, it is common for an LLP, particularly one with numerous members, to be set up with a “board” or “executive committee” comprising some of the members, who take decisions on behalf of the others. These are often referred to as managing members.
In this case, the two defendant members argued that, where the CDDA uses the phrase “member of an LLP”, in reality it is referring to an LLP’s managing members, and not any member generally. This, they argued, was more akin to the way the CDDA applied to companies. They argued that Parliament had intended only for persons to take part in the management of an entity to be subject to disqualification, which, in the case of an LLP with this kind of structure, was its managing members.
What did the court say?
The court rejected this argument. The judge noted that there was no specific link in the CDDA between the disqualification of a director and their participation in management. It would be odd if a director who acted dishonestly could not be disqualified merely because they took minimal part in the central management of a company.
The court decided that Parliament had wanted the CDDA to have the widest possible reach so as to raise standards in business and protect the public. The judge had to read the legislation in that context. Parliament had seen fit not to limit the CDDA only to members at the “highest level” of an LLP.
He did note that, where a member was relatively “junior” and not involved in management, the Secretary of State may well not bring proceedings as it may not be “expedient in the public interest” to do so. Essentially, the courts will trust in the Secretary of State to act responsibly.
What does this mean for me?
This decision is relevant for anyone who is or is considering becoming a member of an LLP. Traditionally, this would encompass partners in a professional services business. However, LLPs are now being used increasingly for other purposes.
It is, of course, a general principle and good rule of thumb that members of an LLP should act properly, honestly, in good faith and with integrity and due care and attention. This applies whether or not the member takes part in the LLP’s management. Members should not assume that, by delegating responsibility for the LLP’s day-to-day affairs to a subset of the membership, they are somehow escaping liability – and, therefore, potential disqualification – for any improper conduct.
Law Commission publishes law reform programme for 2021
The Law Commission has published its programme of law reform for 2021. It is seeking views from stakeholders on suggested areas of focus. The consultation is open until 31 July 2021.
Legal themes which the Commission proposes to address include the following.
- Emerging technology, including automated vehicles, the digital economy, artificial intelligence (AI) and the use of algorithms in decision-making.
- Brexit, including areas in which the law needs to keep pace for the UK to maintain and strengthen its standing internationally, and areas of retained European law which need to be reformed, rather than simply being reabsorbed unchanged.
- The environment, including reforms to safeguard the environment and how this might affect existing legal structures.
- Legal resilience, including ensuring that the law is resilient enough to cater for exceptional circumstances, such as the Covid-19 pandemic.
- Simplification, including where simplification of the law might bring about real and lasting benefits to individuals or organisations.
The Commission has also published specific ideas for law reform. These include the themes set out above, as well as the following (among others).
- Conflict of laws and emerging technology. With intangible assets and smart contracts becoming increasingly common, creating difficulties in identifying where assets and persons are located. The Commission has suggested that it could clarify the legal position in the UK and identify situations that may require new rules.
- Deeds and variation of contracts. The Commission is seeking views on modernising the law of deeds for commercial parties whilst still protecting vulnerable individuals. It notes that current requirements for executing deeds may now be outdated and no longer fit for purpose. It proposes to assess current execution requirements (both electronic and on paper) and propose reforms. This would include examining the extent to which deeds are used to avoid a need for “consideration” in commercial contracts (especially when varying existing contracts).
- Product liability and emerging technology. The Commission asks whether the UK’s strict liability product regime should be extended to cover all software and other tech developments. It notes that the Consumer Protection Act 1987 protects consumers against harm caused by defective “products” but was not designed to accommodate software or technology such as 3D-printing or machine-learning.
FCA publishes Primary Market Bulletin 33
The Financial Conduct Authority (FCA) has published Primary Markets Bulletin 33. The Bulletin covers various items, including the following.
- Schemes of arrangement. The FCA is continuing to consider responses to its proposed technical note TN/606.1, which sets out when a prospectus is required where shares are offered on a takeover implemented by way of a scheme of arrangement under Part 26 of the Companies Act 2006. It notes that respondents felt that no prospectus is required even where a proposed scheme includes a “mix-and-match facility”.
- Major shareholding notifications review. The FCA reviewed major shareholding notifications by issuers under DTR 5 between January 2017 and July 2020. The review identified a few instances where issuers may not be providing clear monthly disclosures of total voting rights under DTR 5.6.1R or notifications of changes across notifiable thresholds under DTR 5.1.2R. The Bulletin contains recommendations and reminders to make proper filings and notifications.
- Payments to governments. The FCA also conducted a review of disclosures of payments to governments under DTR 4.3A by UK issuers operating in extractive industries. The review identified that nearly 20% of notifications were missing. The FCA has opened preliminary enquiries into several instances of non-compliance.
- Delayed disclosure of inside information. Finally, the FCA has provided feedback on its previous review of delayed disclosure of inside information under the Market Abuse Regulation. The Bulletin contains specific comments on periodic financial information, board changes and share price movements.
Also this week…
- FCA to consult on SPACs. The Financial Conduct Authority (FCA) has confirmed that it will be consulting shortly on amendments to the Listing Rules to strengthen protections for investors in special purpose acquisition companies (SPACs). The consultation will consider features required to provide appropriate investor protection, including a minimum market capitalisation and a redemption option for investors. The proposals will be designed to ensure that SPACs operate under high regulatory standards and oversight and to replace the existing suspension of listing for SPACs when the acquisition target is announced.
- Government extends Covid-19 insolvency relaxations. The Government has published new regulations extending relaxations under UK insolvency law to address the Covid-19 pandemic. Among other things, the relaxation of liability for wrongful trading and restrictions on presenting winding-up orders will now expire on 30 June 2021, rather than on 30 April 2021 and 31 March 2021 respectively.
- IOSCO publishes statement on going concern assessments during Covid-19. The International Organization of Securities Commissions (IOSCO) has published a statement designed to assist issuers with preparing going concern disclosures in their annual financial statements in the context of the ongoing Covid-19 pandemic.