Small Business, Enterprise and Employment Act 2015 - now in final form

The Small Business, Enterprise and Employment Bill has completed its legislative process and received Royal Assent yesterday.

The most controversial change, a requirement that companies disclose details of those individuals with a significant beneficial interest in its shares, looks likely to take effect in January 2016.

Click here to view table.

Macfarlanes’ client note is available here.

Impact – enactment of the Bill has brought the UK one step closer to significant change to the transparency of UK company ownership and control. The UK is leading the way internationally although the EU’s 4th Money Laundering Directive will

also require companies to identify their beneficial owners. Commentators on the Bill have queried the efficiency in the UK legislating early in this area.

Modern Slavery Act 2015 (the Act) – October 2015

The Modern Slavery Bill also received Royal Assent yesterday. The Act introduces a transparency in supply chains provision that requires all businesses over a certain size to produce a “slavery and human trafficking statement” for each financial year. The statement must disclose steps businesses have taken to ensure their business and supply chains are slavery free, or a statement that no such steps have been taken.

The threshold, determining which businesses are within scope, is expected to be based on a minimum turnover of the commercial organisation i.e. group. The requirement will apply to commercial organisations over the threshold, which carry on a business, or part of a business, in the UK. The Home Office is consulting on what size of business this new requirement should apply to and on statutory guidance to accompany the provision.

Macfarlanes’ client note is available here.

Impact – if within scope, businesses will need to consider whether they have adequate procedures in place to ensure slavery and human trafficking is not taking place in any of their supply chains or in any part of their group’s business. It may be prudent for large businesses to consider their procedures now. The transparency in supply chains provision has a provisional implementation date of October 2015.

Background – the Act consolidates the current offences relating to trafficking and slavery. It creates two new civil orders to prevent modern slavery; establishes an Anti-Slavery Commissioner; and makes provision for the protection of modern slavery victims.

Overseas companies must execute documents in accordance with their constitution

The Court of Appeal recently held that an overseas company, executing an English law governed document, would not be bound by that document if it had not been executed in accordance with the law of the overseas company’s constitution. The decision clarifies that the governing law of a contract  (which in this case was English law) is not the applicable law when determining whether a document has been correctly executed by a foreign party.

In Integral Petroleum SA v Scu-Finanz AG (SCU) [2015] EWCA Civ 144 the Court of Appeal considered whether a document was binding on SCU, a Swiss company. SCU’s two officers were appointed joint “prokurists” on behalf of the company and both officers’ signatures were required to bind the company.  The document had only been signed by one of the officers.

The court’s reasoning was based on characterising the issue  to be whether a sole prokurist could bind SCU, not whether the document was “formally valid”. The court’s conclusion meant the matter fell outside the EU regulation on the law applicable to contractual obligations, known as Rome 1 (EU Regulation 593/2008). Rome 1 provides, amongst other things, that “A contract concluded between persons who, or whose agents, are in the same country at the time of its conclusion is formally valid if it satisfies the formal requirements of the law which governs it…or of the law of the country where it is concluded”.

It also drew support for its conclusion from Article 1(2) of Rome 1 which excludes from the regulation’s scope questions governed by company law, including legal capacity and whether an agent is able to bind a principal. The court was not prepared to consider the lack of the second signature to be a question of “formal validity”. Instead it felt that the question was properly characterised as whether the sole prokurist’s act could be attributed to the company. It concluded it could not be attributed and therefore the document was not binding on the company.

The court also considered (obiter) the relevance of the UK’s Overseas Companies (Execution of Documents and Registration of Charges) Regulations 2009 (the 2009 Regulations). The court supported the view that the 2009 Regulations only relate to English law formalities for execution not the capacity or authority of the signatory. In this case the sole signatory did not have authority to bind the company.

Impact – the Court of Appeal’s decision emphasises the importance of verifying not just whether a party to a contract  has the capacity to contract but also whether the signatory has the party’s actual authority to sign on its behalf. As previously, comfort on this point and whether there are any additional applicable formalities, may be gained by, amongst other things, obtaining a legal opinion or letter of advice from a law firm in the relevant jurisdiction.

Background - Under Swiss law representatives of Swiss companies, known as “prokurists” are broadly deemed to be able to bind the company as regards third parties acting in good faith. An exception to this principle is where the company has prescribed that joint signature is required. An entry in the Swiss Register of Commerce to that effect is considered to be express notice to third parties.

New reporting of company payment practices and policies - April 2016

The Government has published a written statement confirming its approach to implementation of the provision in the Small Business, Enterprise and Employment Act 2015 requiring large companies to publish their payment practices and policies. The statement appears to confirm that the obligation will apply to those companies and LLPs which meet the Companies Act 2006 threshold for “large”. The following narrative and metrics will be required to be covered in the report, to be published twice a year (an indicative format of which is also published):

  • standard payment terms, including any changes to these in
  • the last reporting period;
  • average time taken to pay;
  • proportion of invoices paid beyond agreed terms;
  • proportion of invoices paid in 30 days or less; paid between 31 to 60 days; and paid beyond 60 days;
  • amount of late payment interest owed and paid;
  • whether financial incentives were required to join or remain on supplier lists;
  • dispute resolution processes;
  • the availability of: e-invoicing; supply chain finance; preferred supplier lists; and
  • membership of a Payment Code.

The government intends to lay secondary regulations early in the next Parliament, with the requirement coming into force in April 2016.


Duty to publish inside information – no requirement for the direction of price movement to be anticipated

A recent European Court of Justice decision (Jean-Bernard Lafonta v Autorite des marches financiers [2015] EUECJ C-628/13) has confirmed that “inside information” can be “precise”, for the purposes of the market abuse directive, regardless of whether its potential effect on the price of the relevant security can be predicted.

The question for consideration by the court, centred around a decision by the French Financial Markets Authority to fine Mr Lafonta (the chairman of a company) for failing to make public, information relating to a financial operation which enabled the company to acquire a significant shareholding in a third party group. Mr Lafonta argued that the information was not “precise” because it was not possible to anticipate how the price of the underlying securities would change when the information was made public. The ECJ disagreed with that approach concluding that, “it need not be possible to infer from that information, with a sufficient degree of probability, that, once it is made public, its potential effect on the prices of the financial instruments concerned will be in a particular direction”.

Impact – the decision by the ECJ clarifies that information can be “inside information” if, amongst other things, it is precise and likely to have an effect on the price of securities, regardless of whether the direction of movement in the price is known.

Background – “Inside information” is defined under the market abuse directive as “information of a precise nature which has not been made public” which relates to one or more issuers of financial instruments or to one or more financial instruments and which “if it were made public, would be likely to have a significant effect on the prices of those financial instruments or on the price of related derivative financial instruments”.

FRS 104: interim financial reporting – 1 January 2015

The FRC has, this week, published a final form of FRS 104. FRS 104 is a new financial reporting standard promoting the publication of informative and understandable interim financial reports and is consistent with the annual reporting requirements in new UK GAAP (FRS 102). The Accounting Standard Board’s reporting statements “Half-yearly financial reports” and “Preliminary announcements” have been withdrawn. FRS 104 is effective for interim periods beginning on or after 1 January 2015.

Impact - the FRC notes in its impact assessment that the reporting requirements of FRS 104 complement and are consistent with the half yearly reporting requirements of the FCA’s Disclosure Rules and Transparency Rules (the DTRs) although in some aspects exceed those of the DTRs. The DTRs do not require entities that do not prepare consolidated financial statements to produce a statement of cash flows or a statement of changes in equity, whilst this is a requirement of FRS 104.

ISDX Growth Market new rules – 23 March 2015

Following ISDX’s announcement in September 2014 that it was reviewing the entry requirements and rulebook for the ISDX Growth Market, ISDX has now published final form revised rules. The new rules include simplified eligibility criteria for companies wishing to join the Growth Market. Revisions to the ISDX Corporate Adviser Handbook are also effective from 23 March.

Background - the ICAP Securities & Derivatives Exchange (ISDX) is a recognised investment exchange. The ISDX Main Board is  an EU regulated market for officially listed securities which are regulated by the UK Listing Authority or another EU Competent Authority and are subject to the ISDX Main Board Admission and Disclosure Standards (primary market). The ISDX Growth Market is a market for unlisted securities with a regulatory framework dedicated to the needs of smaller companies. Click here for a list of companies admitted to the market.


  • BIS has issued a whistleblowing guidance and code of practice to help employers: understand the law relating to whistleblowing; put in place a whistleblowing policy; and recognise the benefits whistleblowing can bring to an organisation. The code of practice gives examples of what a whistleblowing policy should commit to and how it should be managed.
  • Lord Davies’ fourth annual report on pay indicates that women are increasingly represented in the boardroom. Representation of women on FTSE 100 boards now stands at 23.5 per cent, close to the Government’s 25 per cent target for 2015.
  • The FCA and Treasury have published a joint consultation setting out proposed changes to the Financial Services and Markets Act 2000 and the DTRs to implement revisions to the EU’s transparency directive which must be completed by November 2015. Changes proposed include: the requirement to disclose voting rights arising from holdings of financial instruments that have a similar economic effect to holding shares; the extension of the deadline to publish half-yearly reports and the period of time for which financial reports are publicly available; changes to the rules on the home Member State; a new stabilisation exemption; and changes to the definition of an issuer.