Corporate governance scandals at companies such as Eurasian Natural Resources Corporation and Bumi, where minority investors saw the value of their shares plummet partly as a result of transactions entered into with controlling shareholders and their associates, have prompted the FCA to tighten up the eligibility criteria and continuing obligations that apply to premium segment companies in order to protect investors from abuse at the hands of a controlling shareholder.

Following changes to the Listing Rules on 16 May 2014, premium listed companies with a “controlling shareholder” must ensure that all future transactions and arrangements between the company or any member of its group and the controlling shareholder or any its associates are conducted at arm’s length and on normal commercial terms. Controlling shareholders will be less able to force through appointments to the board of “compliant” directors because the (re-)election of every director who is unconnected to a controlling shareholder will be subject to a vote by independent shareholders, as well as by a majority of shareholders overall.

At the time of IPO, and on an ongoing basis, the FCA will seek greater assurance that the company is able to operate its business independently from the controlling shareholder: admission to, or continuation on, the premium segment may not be permitted where, for example, the company is dependent on the controlling shareholder for financing, or the controlling shareholder or any of its associates “appears to be able to influence the operations of the [company] outside its normal governance structures or via material shareholdings in one or more significant subsidiary undertakings”. And de-listing a premium segment company altogether, or transferring it down to the standard segment, will normally similarly require approval by a majority of independent shareholders, as well as by 75% of shareholders overall.

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