1.1 Supreme Court of India delivers landmark arbitration decision in Bharat Aluminium, overruling Bhatia International
The controversial decision of the Indian Supreme Court in Bhatia International v Bulk Trading SA has been overruled by the Indian Supreme Court. In Bhatia International, the court interpreted Section 2 of the Indian Arbitration and Conciliation Act 1996 (the Act) to allow Part I of the Act (providing for remedies such as awarding interim relief in support of arbitration and but also allowing Indian courts to set aside arbitral awards) to be applied to arbitrations seated outside India. The decision provoked concern in the international business and arbitration community by expanding the scope for judicial intervention and leaving foreign awards open to challenge in India.
The decision in Bhatia International was referred to the Indian Supreme Court for reconsideration in the case of Bharat Aluminium v Kaiser Aluminium. The judgment was delivered on 6 September 2012 and held:
- Bhatia International has been overruled;
- Part I of the Act only applies to arbitrations seated within India; and
- Awards rendered in foreign seated arbitrations are only subject to the jurisdiction of Indian courts when they are sought to be enforced in India under Part II of the Act.
This is a significant decision and should go some way to alleviate concerns about Indian court intervention in foreignseated arbitrations. Those entering into arbitration clauses in their India-related contracts after 6 September 2012 should no longer need to expressly exclude Part I of the Act. However, one of the consequences of the decision is that the Indian Courts will not have jurisdiction to order interim measures in support of offshore arbitration. This is a problem which can now only be resolved by new Indian legislation. For those with existing arbitration clauses in India-related contracts, it is worth noting that the decision is restricted to arbitration agreements entered into after 6 September 2012 and the Bhatia International analysis will continue to be applied to contracts entered into before that date.
1.2 Two recent important court decisions clarify scope of State immunity in relation to enforcing against State assets and should be noted by entities contracting with State parties
In July, in FG Hemisphere v La Générale des Carrières et des Mines  UKPC 27 (Gécamines), the Privy Council issued an authoritative view, which will be decisive in many jurisdictions, on matters to be taken into account when considering whether a State-owned entity (SOE) may be equated with a State for enforcement purposes. Gécamines was considered distinct from the State (the Democratic Republic of Congo); therefore FG Hemisphere could not enforce DRC debts against its assets.
This decision makes it more difficult for creditors of States to enforce against assets of SOEs. Only in “quite extreme circumstances” will an SOE be regarded as equivalent to the State itself. When contracting with States, parties should bear in mind that the assets of such companies are likely to be inaccessible and should seek to include SOEs holding assets as additional parties to the contract.
In August, the UK Supreme Court (in SerVaas Incorporated v Rafidain Bank and others  UKSC 40) clarified the scope of the “commercial purposes” exception to immunity from execution in England, pursuant to the State Immunity Act 1978. When enforcing against property, only its current and intended use is relevant, not its origin. When contracting with a State party, it is important to expressly waive immunity from execution in any dispute resolution clause, rather than relying on the exception.
2.1 LPDT Rules: changes to the UKLA Helpdesk
The FSA has published the third edition of its Primary Market Bulletin, which covers the practical impact of changes to the UKLA Helpdesk. The Helpdesk service is to be reduced with effect from 1 October 2012. From that date, requests for guidance from the UKLA:
- may no longer be made on a no-names basis; and
- must generally be made in writing except:
- in cases of exceptional urgency, when the new Emergency Helpline can be used, or
- when a sponsor requires guidance on a technical issue relating to the provision of a sponsor service, in which case the sponsor can use the new Sponsor Service Enquiry line.
From Monday 1 October the Helpdesk will have three telephone lines:
- line 1 will be for general administrative queries (such as where to obtain copies of rulebooks and forms);
- line 2 will be for listing applications; and
- line 3 will be the emergency line.
There will also be a separate Sponsor Service Enquiry line for sponsors.
Written queries should be made via fax and there will be a central fax number that written queries can be sent to. The phone numbers for the three new lines will be available from the UKLA website.
Primary Market Bulletin Issue No.3 is available on the FSA website.
2.2 Corporate reporting and audit - BIS announces deregulatory changes in relation to accounts and audit
The Department for Business, Innovation and Skills (BIS) has published the final changes on various aspects of the accounting and auditing requirements in the Companies Act 2006. The changes follow the consultation launched in October 2011 on audit exemptions and change of accounting framework. The changes are contained in the Companies and Limited Liability Partnerships (Accounts and Audit Exemptions and Change of Accounting Framework) Regulations 2012 (SI 2012/2301), which come into force on 1 October 2012. The changes will apply to accounting periods ending on or after that date, which means that in principle companies and LLPs with 31 December year-ends could take advantage of the changes for their 2012 accounts.
The main changes are summarised below.
Subsidiary company exemption from audit
Subsidiary companies will be exempt from the mandatory audit requirements of the Companies Act 2006 provided that certain conditions are met. These conditions include:
- The subsidiary’s parent must be established under the law of an EEA state.
- The parent must give a “statutory guarantee” of all the outstanding liabilities to which the subsidiary is subject at the end of the financial year.
- The subsidiary’s shareholders must unanimously agree to dispense with an audit for any financial year.
- The subsidiary must be included in the parent’s consolidated accounts.
- The use of the exemption must be disclosed in the parent’s consolidated accounts.
- Supporting documents must be filed at Companies House.
- The subsidiary must not be a quoted company nor fall within various financial service categories.
The “statutory guarantee” will be a statement made by the parent (in the documents filed at Companies House) guaranteeing the subsidiary’s liabilities at the end of the relevant financial year. It will be enforceable against the parent by any person to whom the subsidiary is liable. The Government says it has moved to make the guarantee required a statutory one in response to concerns expressed by respondents to the earlier consultation that there would be significant uncertainty as to what form a guarantee should take.
Dormant subsidiary companies
Any dormant subsidiary companies that meet the above criteria will also be exempt from preparing and filing accounts. These exemptions for subsidiaries will also apply to LLPs and unregistered companies.
Small company audit exemption limits
The mandatory audit thresholds for small companies have been aligned with the accounting thresholds for small companies, which will allow more small companies to take advantage of the audit exemption if they wish to do so.
Change of accounting framework
The Financial Reporting Council is proposing to introduce a new UK accounting standards regime. This will, amongst other things, allow companies within a group that is using IFRS in its group accounts to use a reduced disclosure framework, based on IFRS, in their individual accounts. Because this is not a full IFRS regime, those following it will be classified as following UK standards. The Government has therefore relaxed the rules in section 395 of the Companies Act 2006 which limit the circumstances in which companies can move between IFRS and UK standards. A company will be allowed to move over to the new reduced disclosure regime as long as they have not moved to UK standards within the last five years. This will allow the majority of companies which have moved to IFRS to move to the new UK standards regime when it comes into force, probably in 2015.
2.3 Corporate governance – Kay Review Final Report published
In June 2011, the Government commissioned Professor John Kay to carry out an independent review into investment in UK equity markets and its impact on the long-term performance and corporate governance of UK quoted companies.
The Final Report by the Kay Review into UK equity markets and long-term decision making was published in July 2012. The Final Report concluded that short termism is a problem in the UK equity markets and that the principal causes of the problem are a decline of trust and the misalignment of incentives at the various stages of the equity investment chain. The Report also sets out a series of principles and recommendations that are designed to provide a foundation for the long-term perspective.
The Final Report explores the main problems in the equity markets (such as short-term decision making and an increase in intermediation in equity investment). It then sets out the reforms which the Kay Review believes are necessary to ensure that the equity markets support long-term corporate performance. Specific recommendations include:
- Stewardship Code – The Stewardship Code should include a more expansive form of stewardship, which focuses on strategic, as well as corporate governance, issues. The Report states that stewardship should be key to the equity investment chain.
- Good Practice Statements – Directors, asset managers and asset holders should adopt the Good Practice Statements set out in the Final Report, which promote stewardship and long-term decision making. The Report encourages regulators and industry groups to align existing standards, guidance and codes with the Good Practice Statements.
- Investors’ forum – An investors’ forum should be established to help facilitate collective engagement by investors in UK companies.
- Monitoring merger activity – The Government and companies should keep under review the scale and effectiveness of merger activity carried out by, and in relation to, UK companies.
- Board appointments – Companies should consult their major long-term investors over major board appointments.
- Interim management statements – The requirement to produce interim management statements should be abolished.
- Directors’ and asset managers’ remuneration – Remuneration should be aligned with long-term performance. In particular, the Report recommends that long-term performance incentives for executive directors should be paid only in the form of shares which should be held at least until after the executive has retired from the business.
- Concept of fiduciary duty – The Law Commission should review the legal concept of fiduciary duty as it applies to investment, as there is currently uncertainty and misunderstanding on the part of trustees and their advisers.
BIS is considering the recommendations in the Final Report in depth and will respond later in the year.
3.1 Fees for employment tribunal claims to be introduced in summer 2013
The government has confirmed that from summer 2013 claimants will have to pay an “issue” fee when they submit their claim or appeal followed by a “hearing fee” prior to a hearing.
The fee for more straightforward “Level 1” claims (including claims for breach of contract, unauthorised deductions from wages, holiday pay, various statutory time off rights, and failure to pay a protective award or redundancy payment) will be £160 for issue, £230 for the hearing. All other claims will be “Level 2” (covering unfair dismissal, discrimination, whistleblowing claims) and subject to an issue fee of £250 and a hearing fee of £950. The fee is multiplied by up to 6 where multiple claimants are bringing a claim.
There will also be fees for making an application to set aside a default judgment or dismiss a claim, to bring a breach of contract counter-claim, for judicial mediation, and for a review of a tribunal’s decision. In the Employment Appeal Tribunal there will be a fee of £400 to issue an appeal and £1,200 to proceed to a full hearing.
The civil courts fee remission scheme will be extended to the employment tribunals for claimants who cannot afford the fees. A full public consultation on remissions will be published in the autumn of 2012. Tribunal judges will also have a discretion to order the unsuccessful party to reimburse the fees paid by the successful party.
The jury is out as to whether claimants will be deterred from making justified claims by the fees proposed and how much revenue will actually be generated given the administrative cost. What is certain is that the significant hearing fee is likely to impact on timing and tactics for settlement negotiations.
3.2 Female representation on corporate boards
Europe’s listed companies could be forced to ensure that at least 40% of non-executive board positions are held by women by 2020 or face fines or other sanctions under a legislative proposal being drafted by the European Commission, according to recent press reports. The press speculate that companies larger than 250 employees or with more than €50m in revenues would be required to report annually on the gender make-up of their boards. Those that miss the mandatory quota would be subject to administrative fines or be barred from state aid and contracts. The European Commission legislative proposal is expected to be introduced formally by Viviane Reding, Vice-President of the European Commission, this October or November. It will then be put to an EU vote. We shall produce a further briefing summarising the legislative proposal in detail and its potential impact on clients in due course.
Listed companies should consider their gender diversity policy now and take steps to improve female representation at board level.
For more details see our e-bulletin dated 6 September 2012 available on our website.
4.1 Working party recommends no cap on contingency fees for commercial cases
One of Lord Justice Jackson’s key recommendations, which is due to come into effect next April, is to remove the restrictions on contingency fees or “damagesbased agreements” (DBAs) for civil litigation. DBAs will allow lawyers to conduct a case in return for a share of any damages.
A working party was established by the Civil Justice Council in April to consider the practical and policy issues which arise. On Friday 3 August the group published its report and recommendations, which will be used by the Ministry of Justice in drawing up regulations and determining the detail for the implementation of DBAs. The key recommendations affecting commercial clients are:
- There should not be a cap on the level of contingency fee that can be charged in commercial cases. Opinion was split as to whether there should be a cap for consumer / small business claims – if there is to be such a cap, it was agreed that the cap should be 50%.
- Lawyers should not be liable for adverse costs where they act under a DBA, unless they agree to indemnify the client for adverse costs liability. This is consistent with the position where lawyers act under a conditional fee agreement (CFA).
- Partial DBAs should be permitted, where the lawyer receives for example a reduced hourly rate as the case proceeds plus a contingency fee in the event of success.
- There should be no obligation to notify opposing parties where a lawyer acts under a DBA. The working group envisages that the current notification requirements for CFAs and after-the-event (ATE) insurance will be removed once the additional costs for such arrangements are no longer recoverable from an opponent (another change being introduced to implement the Jackson reforms).
5. Competition, regulation and trade
5.1 OFT issues new guidance on setting fines for competition law infringements
The OFT has published revised guidance on the calculation of fines for UK competition law infringements, which came into force on 10 September 2012. The key changes are:
- The starting point for calculating the fine has increased from 10% to 30% of the company’s relevant turnover, bringing the OFT’s guidance in line with that of the EU Commission.
- A new aggravating factor of “persistent and unreasonable behaviour that delays the OFT’s enforcement action” has been added, allowing the OFT to increase fines where companies repeatedly disrespect deadlines.
- Greater detail has been included on when competition law compliance measures will qualify as a mitigating factor to reduce the fine. Simply having a compliance programme in place is not sufficient, but where appropriate steps have been taken this may result in a reduction of up to 10%.
- An extra step has been added to the calculation process to ensure that the fine is proportionate in the round.
The revised guidance provides greater clarity and transparency in the process of setting fines, but the calculation of fines will remain an imprecise exercise – the guidance is not intended to enable companies to weigh up the possible benefits of an infringement against the likely level of fines.
The new 30% starting point is likely to result in higher fines overall, as occurred when the EU Commission made similar changes. However, this does not affect the statutory maximum level of fines the OFT can impose, which is 10% of worldwide group turnover.
The new guidance underlines the importance for companies of having a proper competition law compliance programme in place.
Our competition, regulation and trade team has published an e-bulletin dated 12 September 2012, available on our website, setting out the key changes and the process which the OFT will undertake when setting fines.
5.2 Rise in UK merger control fees
As part of the on-going reform of the UK competition regime, the merger control fees payable to the OFT are being significantly increased, in order to improve cost recovery. The new fees are significantly higher than those in many other jurisdictions.
Subject to exemptions for certain small and medium sized enterprises, merger control fees are payable in respect of any transaction investigated by the OFT and found to constitute a merger under the UK rules, whether the transaction was voluntarily notified by the parties to the OFT or investigated by the OFT on its own initiative.
From 1 October 2012 the fees will increase as follows:
Click here to view table.
For more details see our e-bulletin dated 6 September 2012, available on our website, on the background to the increase.
6.1 Concurrent delays: A significant decision for English law construction contracts
In Walter Lilly v Mackay  EWHC 1773 (TCC), the Technology and Construction Court rejected the approach taken in the Scottish case of City Inn on concurrent delays, stating that it is inapplicable in English law.
In City Inn v Shepherd Construction Ltd  ScotCS CSOH 190, the Scottish court adopted an apportionment approach enabling it to split liability between the employer and the contractor where delays have been caused by both parties, regardless of whether the events occurred sequentially or truly concurrently. This Scottish decision was criticised in 2011 in two English cases but they were about shipping and IT contracts.
Walter Lilly, however, is directly applicable to the construction sector and relates to a JCT contract. While the result will depend upon the relevant contractual terms, the Court rejected the apportionment approach stating that “[it] is inapplicable within this jurisdiction”.
In summary, the court decided that where there are two or more effective causes, one of which entitles the contractor to an extension of time as being an employer-risk event (frequently, an act of prevention), the contractor is entitled to an extension of time for the whole period of delay caused by that event, even if the contractor is partly culpable for the delay. The case confirms the position in English law that where there is a delay caused by the employer and a delay caused by the contractor, the courts will look at which of the parties caused the delay as a matter of fact and the impact on the critical path. Where the delay events of the parties occur sequentially, each party takes responsibility for its own delays. Where the delays are truly concurrent, however, the contractor is entitled to a full extension of time for the delays caused by the employer.
7. Financial services regulation
The global financial crisis has sparked a major programme of regulatory reform globally, with national authorities and international bodies working to strengthen the global banking system, enhance resolution tools and crisis management strategies at international, European and domestic levels, and to strengthen regulatory structures, enhance supervision, and address potential risks in the unregulated “shadow banking” sector. Implementation of the very significant Basel III reforms strengthening international capital and liquidity standards will begin in January 2013. In Europe, CRD IV, which implements Basel III reforms, is in the process of being agreed in the European Parliament and European Council. The Dodd Frank proposals in the US are matched by an extensive legislative programme in the European Union. In this publication, we focus on the Short Selling and CDS Regulations which will apply from 1 November 2012. We also consider the FSA and ESMA consultations on guidelines in relation to financial incentive schemes.
7.1 Short Selling and CDS Regulation to apply from 1 November 2012
The Regulation of the European Parliament and of the Council on Short Selling and Certain Aspects of Credit Default Swaps will apply from 1 November 2012 in all Member States. In the upcoming months clients will need to focus on technical implementation and compliance.
The Regulation’s key reforms are:
- requirement to privately disclose short positions to the relevant regulator if they equal or exceed 0.2% of share capital, and every 0.1% thereafter up until 0.5%;
- requirement to publicly disclose short positions that equal or exceed 0.5% of share capital, and every 0.1% thereafter;
- requirement to privately disclose significant net short positions in sovereign debt and CDS related to sovereign debt to the relevant regulator;
- ban on short sales in equity and sovereign debt unless the short seller has borrowed or entered into an agreement to borrow the security, or a third party has confirmed that the security has or reasonably can be located;
- Ban on naked sovereign CDS positions where the CDS is being used to speculate;
- exemptions for market makers and primary dealers;
- fines for late settlement;
- circuit breakers; and
- a five year record-keeping requirement.
ESMA published a consultation paper on the market maker and primary dealer exemptions in mid-September, responses to which are due on 1 October. The FSA has also published Guidelines for notification to the FSA of intent to rely on the market maker and primary dealer exemptions.
Our briefing dated 21 February 2012 is available on our website.
7.2 Financial incentives of sales staff – key driver of mis-selling
Both the FSA and the European Securities and Markets Authority (ESMA) have recently launched consultations on guidance relating to firms’ financial incentive schemes. The publication of the draft guidelines follow on from a review of remuneration practices in Europe by ESMA as well as a review of firms’ financial incentive schemes by the FSA.
FSA: The FSA’s financial incentives review marks the start of a programme which will be taken forward by the Financial Conduct Authority (FCA) next year. The FSA’s review of financial incentives found that many firms do not adequately manage the risk of mis-selling of financial products which arise from these schemes. Many of the schemes reviewed were poorly managed, complex and benefit sales staff rather than customers. Guidance consultation (GC 12/11) sets out the review’s key findings, examples of unsuitable incentive structures, as well as guidance on some of the ways in which firms can comply with FSA requirements. The consultation closes on 31 October 2012. GC 12/11 will impact on all FSA authorised firms in retail financial services with staff who are part of an incentive scheme and who deal directly with retail customer transactions. Firms which are further up the supply chain (including wholesale firms) may also be affected if sales staff incentives are linked to sales volumes.
ESMA: The ESMA consultation on remuneration policies and practices contains draft guidelines which will need to be applied by MiFID firms and national regulators when it is finalised (expected to be in Q2 2013). The key objective of the draft guidelines is to improve the implementation of the existing MiFID conflicts of interest and conduct of business requirements in remuneration practices across the EEA. The FSA’s draft guidance set out in GC 12/11 is based on ESMA’s draft guidelines. The ESMA guidelines will affect MiFID firms such as investment firms, credit institutions and, to the extent they carry out MiFID investment services, UCITS management companies and external alternative investment fund managers.
For more details see our e-bulletin dated 24 September 2012 available on our website.
8.1 Information Commissioner sets another cookie deadline
The Information Commissioner’s Office has reportedly set a number of website operators a new deadline to comply with the cookie laws that came into force in May 2011 in the UK.
A blog on the ICO’s website has confirmed that some sites have failed to engage with the ICO at all, and they are now being set a deadline to take steps towards compliance, with formal enforcement action likely if they fail to meet this deadline. Failure to act on an enforcement notice is a criminal offence.
Dave Evans from the ICO wrote that the cookie rules might be a law that companies wish did not exist, but it is here to stay. According to the blog, “the EU passed the legislation, the Department for Culture, Media and Sport implemented it, and it’s now the ICO’s job to regulate the organisations that have to comply with the law”.
The ICO has had more than 380 responses so far to its online cookie concern reporting tool, and it has been working to respond to those concerns, with a progress update due to be published on the ICO’s website in November..
9.1 New Bank Indonesia rules on bank ownership limits
The long anticipated new rules on limits to bank ownership in Indonesia have recently been published by the Indonesian central bank, Bank Indonesia (the New BI Rules) and took effect on 13 July 2012.
The nature of, and the relationship among, the relevant shareholder(s) will determine the level of permissible single party ownership in Indonesian banks, ie:
- A non-bank financial institution and (subject to the paragraph below) a bank, may own up to 40% of the shares in a bank;
- A non-financial institution legal entity may own up to 30% of the shares in a bank; and
- Individuals may own up to 20% of the shares in a bank (save in relation to a Syariah bank, where the limit is 25%) (the 40-30-20 Rule).
Despite the 40-30-20 Rule, a shareholder which is a bank may own more than 40% of a bank provided that Bank Indonesia’s consent is obtained and certain criteria are satisfied, including, among other things, that the acquiror bank has a Bank Health Rating (Tingkat Kesehatan Bank) of 1 or 2, or (in the case of foreign banks) such equivalent rating in its country of origin; is listed; and satisfies the relevant Capital Adequacy Requirement consistent with its risk profile.
Shareholders who currently own shares in an Indonesian bank in excess of the 40-30-20 Rule are not indefinitely grandfathered but must take steps to meet the new Bank Health Rating requirements.
9.2 Introduction of implementing regulation for Compulsory Land Acquisition Law
The Presidential Regulation 71/2012 (the Implementing Regulation) implementing the compulsory Land Acquisition Law introduced in late 2011 (see our e-bulletin of 22 December 2011) came into effect on 7 August 2012. It is hoped that this long-awaited regulation will speed up infrastructure projects in Indonesia.
The Implementing Regulation adheres to the basic architecture for compulsory land acquisition in Indonesia, as set out in the Land Acquisition Law, and provides more procedural details on the implementation process. In particular, it provides a legally prescribed time frame for each stage of the land acquisition process to achieve the desired legal certainty, while embedding within that framework, mechanisms to safeguard both procedural and substantive fairness for affected parties.
Under the Implementing Regulation, the maximum time period for the land acquisition process is in theory 583 working days from the date the Governor (of the relevant Region) receives the land acquisition plan document from the government agency which requires the land for public purposes, up to the date of the land registration or certification process.
The Implementing Regulation will, however, not be applicable to the compulsory land acquisition process for existing projects which commenced prior to 7 August 2012 (for which the old land acquisition regime will continue to apply), save that if there remains land which has not been acquired by 31 December 2014 for such projects, the Implementing Regulation will apply to the compulsory acquisition of such remaining land.
10.1 Myanmar to delay enactment of foreign investment law
As at 25 September 2012
Amidst speculation, the President of the Union of Myanmar has decided to return the much anticipated law on foreign investment (the Foreign Investment Law), passed by the country’s Union Parliament on 7 September 2012, back to parliament for its further amendment.
Since the middle of 2010 and particularly following Mr. Thein Sein’s accession to the Presidency, signs of change have become frequent in Myanmar. With the suspension of certain US, EU and other sanctions earlier this year, a spotlight has focused on Myanmar and the passing of a new law on foreign investment to replace existing legislation (in particular, the Myanmar Foreign Investment Law of 1998 and the Procedural Regulation for Foreign Investment Law of 1988) has been regarded by many commentators as another step towards the opening up to foreign investment of this once isolated ASEAN country.
The Foreign Investment Law took many months to be drafted and approved, with numerous versions being circulated between the upper and lower houses and nearly 100 amendments being made before the announcement on 7 September 2012 from Naypyitaw, the administrative capital of Myanmar.
There has been limited public dissemination of the final version of the Foreign Investment Law. It is understood however that a number of measures introduced by the lower house, including a requirement for a US$5 million minimum investment, were dropped. It is also understood that the previously suggested 49% cap on foreign investment in certain “restricted sectors” was increased to 50% in a last-minute parliamentary effort to allay concerns that the well documented incentives promulgated by the Foreign Investment Law, including amongst other things:
- a five-year tax exemption for foreign companies;
- government guarantees against nationalisation; and
- the easing of restrictions on private land use and repatriation of profits,
were being cut across by over-riding parliamentary protectionism.
The Union Parliament does not reconvene until late October 2012. For now, it is back to the drawing board for the draftsmen of the Foreign Investment Law and it is a “wait-and-see” for foreign investors as to whether, when passed and enacted, the Foreign Investment Law will provide a significant change to existing foreign investment requirements and prohibitions in Myanmar.
11.1 New legal framework governing the restructuring and resolution of financial institutions
In the context of its measures to restructure the Spanish financial sector, on 31 August the Spanish government enacted Royal Decree Law 24/2012, on the restructuring and resolution of financial institutions, which contains a comprehensive legal framework on how to deal with entities facing financial distress.
The new Royal Decree Law implements a large number of the recommendations made in the Proposal of Directive of the European Commission, which establishes a framework to rescue or wind up financial institutions and investment firms. It also includes some of the commitments agreed by the Eurogroup last July in its Memorandum of Understanding.
The new regulation establishes three kinds of measures – early intervention, restructuring and resolution (a new term coined by the Proposal of Directive which refers to a special process for the orderly winding up of financial institutions) – to deal with entities that are facing financial distress, depending on each entity’s solvency and viability. It also offers the possibility of creating an Asset Management Company (subject to subsequent regulation) to manage problematic assets generated by bank restructuring processes; this will make it easier to manage those assets and to enable corporate reorganisation and viability.
The new Royal Decree Law also modifies the definition of core capital and the core capital requirements that entities and consolidated groups must meet: from 1 January 2013 onwards all entities will need to meet the single core capital requirement of 9%.
Minor investors also receive additional protection and new limits are imposed on the remuneration that executives are entitled to receive in entities that enjoy subsidies.