1. Transparency Directive - extractive companies to report on payments to governments
In 2013 the EU adopted measures to require companies operating in extractive industries to disclose payments made to governments. The aim of the measures is to aid accountability and governance in resource-rich countries.
The requirements are set out in two Directives:
Directive 2013/34/EU (the “EU Accounting Directive”) which applies to EU incorporated large companies and "public-interest entities"; and
Directive 2013/50 (the “Transparency Directive Amendment”) which extends the requirements of the EU Accounting Directive to all companies with securities admitted to trading on an EU regulated market, regardless of their country of incorporation.
These companies will be required to publish an annual report on payments made to governments if they are:
undertakings active in the extractive industry (e.g., involved in the exploration, discovery, development and extraction of minerals, oils, natural gas); or
undertakings active in the logging of primary forests.
As the changes are set out in EU Directives, Member States are required to adopt measures to implement the changes. For the EU Accounting Directive, the implementation deadline is 20 July 2015 and for the Transparency Directive Amendment it is 27 November 2015.
The UK has however committed itself to early implementation and the UK Government has published a consultation paper on the UK implementation. The consultation primarily focuses on the implementation of the EU Accounting Directive and therefore on UK incorporated companies. However the approach taken is likely to be important for entities, wherever incorporated, whose securities are admitted to trading on an EU regulated market and which are therefore subject to the Transparency Directive Amendment.
The key points to note for non-EU incorporated issuers are summarised below.
Non-EU companies with securities (shares, debt, GDRs) listed in the UK will only be caught by the UK implementation of the Transparency Directive Amendment and will not be subject to the UK implementation of the EU Accounting Directive. That said, any differences between the two regimes will lie not in what information is disclosed but in how and when the information is disclosed and the liability regime attaching to such information.
The UK implementation date for the Transparency Directive Amendment is not yet clear but it will potentially be later than that for the EU Accounting Directive (currently proposed to be financial years beginning on or after 1 January 2015).
The report will need to set out payments made to governments (whether at a national, regional or local level) in money or in kind, where made as a single payment, or a series of related payments, of at least EUR 100,000 within a financial year.
The report will need to break down the payments:
into types of payment in line with the categories set out in the EU Accounting Directive (for example taxation, royalties, signature and discovery bonuses); and
on a country-by-country and project-by-project basis.
The report will need to be provided at “consolidated level”. It remains to be seen how the UK will implement this requirement of the Transparency Directive Amendment.
The report, which will be separate from the annual report and accounts, will need to be “made public” within 6 months of the end of the financial year to which it relates and will need to remain public for at least 10 years. It is yet to be seen how the report will need to be “made public”. One option would be that the report would be made public via the normal regulatory announcement procedures which apply to regulated information. An alternative would be that the report would need to be placed on the company’s website.
The report will not need to be audited. The penalty regime which will attach to it will be clarified in the UK implementation of the Transparency Directive Amendment. If the report is made public via the usual regulatory announcement procedures, it is expected that the usual liability regime for regulated information would apply (which is different to the liability regime proposed in the UK implementation of the EU Accounting Directive).
Non-EU issuers will be required to comply with the requirements of the Transparency Directive Amendment, even if their home jurisdiction requires similar disclosures. It is possible that in due course certain non-EU disclosure regimes will be designated as equivalent but currently there are no regimes even being assessed by the EU for equivalence.
It is expected that the UK will publish a separate consultation on the implementation of the Transparency Directive Amendment in due course. Although it is not yet clear therefore when non-EU companies with securities listed in the UK will need to start publishing these reports, there is no question that they will be required to do so in the near future. Affected companies may wish to start thinking therefore about the systems and procedures that they will need to have in place to gather, and report on, the information required.
The UK consultation on the implementation of the requirements in the EU Accounting Directive is available from the BIS website.
We have produced a more detailed briefing on the two Directives and the proposed UK implementation proposals, which is available here.
2. UK Listing Rules - enhancing the effectiveness of the UK listing regime: key changes
Changes to the UK Listing Rules came into effect on 16 May, following the FCA’s consultation on the effectiveness of the UK listing regime. These changes impact on companies with securities listed on both the premium and standard segment of the UK Official List (or which are seeking to have securities so listed).
The focus of the changes is on premium listed companies with controlling shareholders. The FCA is keen to strengthen minority shareholder rights and to enhance the governance of such companies. Premium listed companies with significant shareholders will need to consider if these shareholders amount to “controlling shareholders” as defined in the amended Listing Rules and if they do, these issuers will need to take steps to comply with the new requirements.
Some of the changes will impact on all listed companies, including GDR issuers, and so the new rules, and the FCA's feedback on the new rules, will be of interest to all listed companies and potential applicants for listing in London.
The key changes are:
- Relationship agreements - Premium listed companies, and applicants for a premium listing, with a controlling shareholder need to put in place a relationship agreement with the controlling shareholder, which will need to contain certain prescribed “independence provisions”.
- Independent directors - On the proposed election or re-election of an independent director, premium listed companies with a controlling shareholder will need to obtain the approval of the majority of the shareholders as a whole and also of the independent shareholders of the company. The Listing Rules set out certain information which needs to be given to shareholders when the election or re-election of an independent director is being considered and also address the situation where both of these approvals are not obtained.
- Enhanced oversight measures for independent shareholders If a premium listed company with a controlling shareholder is not complying with the new rules on controlling shareholders (for example where the controlling shareholder refuses to enter into the required relationship agreement) the independent shareholders will be given the right to vote on any related party transactions between the controlling shareholder and the company, regardless of the size of the transaction or the availability of any other exemptions under Listing Rule 11.
- Cancellation of listing - A premium listed company with a controlling shareholder will be required to obtain the approval of the majority of its independent shareholders, as well as the approval of 75% of the shareholders as a whole, before it can cancel its listing or transfer to the standard segment of the Official List. The Listing Rules address how the new rules on cancellation of listing apply in the context of a takeover offer by the controlling shareholder.
- Free float - There have been no changes to the free float level required for premium or standard listed companies. The Listing Rules however now clarify when securities will not be viewed as being held in public hands and how the free float provisions, and the FCA's power to modify the required levels, operate for premium and standard listed issuers (including GDR issuers).
- Extension of Listing Principles to standard listed companies -Two of the Listing Principles have been extended to apply to standard listed companies (including GDR issuers). These are the requirements to establish and maintain adequate procedures, systems and controls to enable compliance with obligations and to deal with the FCA in an open and co-operative manner. There are also two new Listing Principles for premium listed issuers.
There are transitional provisions in relation to some of the changes which apply to existing premium listed issuers. For example existing premium listed companies with a controlling shareholder have until 16 November 2014 to put the necessary relationship agreement in place.
We have produced a detailed briefing on the new rules, which is available here.
3. Russian takeover regulation - new rules proposed
New rules have been proposed by the Russian Finance Ministry on the regulation of takeovers of public companies in Russia. If adopted, these new rules could impact on holders of GDRs listed on the Official List where the GDRs represent shares in Russian public companies, as well as holders of shares in those companies.
Currently a holder of more than 30% of the voting shares in a Russian public company (either a listed or unlisted open joint stock company) is required to offer to buy-out the remaining shareholders (a “mandatory offer”). There are detailed rules on the requirements and procedures for such mandatory offers. The changes address how these requirements and procedures operate in a number of different situations.
Under the changes proposed, an investor would be required to go through the mandatory offer process if it acquires shares in a Russian public company target indirectly, as well as directly. For an investor in GDRs in a Russian public company, where the GDRs give their holders the right to vote or direct votes attaching to the underlying shares, the acquisition of GDRs by the investor in excess of the statutory threshold is likely to be deemed to be the acquisition of indirect control. As such, the investor would then be required to go through the mandatory offer process.
If the changes are adopted, holders of GDRs representing shares in Russian public companies will need to be careful not to trigger inadvertently the requirement to make a mandatory offer.
We have produced an e-bulletin summarising the key changes proposed, which is available here.