Legal development

Ashurst and Practical Law Update Q1 2023

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    The articles below were written by Ashurst LLP and Practical Law Corporate in  Q1 2023 and first published in the company law section of PLC Magazine, the leading monthly magazine for business lawyers advising companies active in the UK.

    1. Share purchase agreement: validity of notice of warranty and indemnity claims

    The High Court has held that a buyer’s notice of claim for breach of warranty against the seller of a company was ineffective as it did not comply with the share purchase agreement (SPA) although the notice of claim in relation to an indemnity given by the seller was valid.

    Background. When a seller gives warranties to a buyer in connection with the sale of a company, it is common practice for the relevant SPA to include contractual limitations on the seller’s liability under those warranties. 

    This often includes a notice of claim clause requiring the buyer to specify a cut-off date by which it must notify the seller of a potential warranty claim and give reasonable details of the nature of the claim and the amount claimed. The key purpose of a notice of claim clause is to give the seller clarity on its liability under the SPA.

    The courts have adopted a strict approach to interpreting notice of claim clauses. Notices that have not complied with the SPA have often been deemed invalid, resulting in buyers being unable to bring claims for breach of warranty against sellers.

    Facts. D bought the shares of a company, C, from S. The share purchase was preceded by a pre-sale reorganisation, one aspect of which required the assignment by S to C of an important option agreement involving a significant real estate asset (the option agreement).

    The SPA included:

    • A warranty by S that the reorganisation had been carried out correctly and that all transfers and other actions in relation to it had taken place, including the valid assignment of the option agreement to C before completion of the share purchase.
    • An indemnity by S indemnifying D for any losses that it might incur as a result of the reorganisation not being carried out correctly.
    • A notice of claim clause requiring D to give written notice stating in reasonable detail the nature of the claim and the amount claimed, detailing D’s calculation of the alleged loss, before a specified date.

    Following completion, D discovered that the benefit of the option agreement had not been validly assigned to C, preventing it from exploiting the real estate asset. D brought claims against S for breach of warranty and for payment under the indemnity.

    D’s purported notice of claim comprised a nine-page letter from D’s solicitors which it claimed gave sufficient detail of the loss it was claiming (the notice). S denied liability, arguing that it was not properly notified of the details or amount being claimed in D’s notice, which did not comply with the notice of claim clause in the SPA and was consequently invalid.

    S applied for strike out of D’s warranty and indemnity claims under the SPA.

    Decision. The court struck out D’s warranty claim, but declined to dismiss the indemnity claim.

    The notice did not give sufficient detail in respect of the loss that it was claiming and did not comply with the requirements of the notice of claim clause in the SPA. In its amended particulars of claim, D had identified that its loss was the difference between the warranted value of the acquired shares, and their actual value. This is the basis that should have been specified in the notice and would have been consistent with the notice of claims clause in the SPA. However, the notice did not do this and although it detailed the loss suffered by C, it also oddly stated that D bore a liability for losses suffered by C. A reasonable recipient of the notice would not have been expected to assume that D’s claim was for the diminution in value of C’s shares, particularly given that the notice specifically set out a different basis of loss.

    However, in relation to the indemnity claim, the court noted that the SPA contained two independent requirements and that D did not have to identify an ascertained sum for the purposes of its indemnity claim within the time limits specified in the notice of claim clause.

    Comment. This decision reiterates that a notice served on a seller by a buyer claiming a breach of warranty, or other breach, must adhere strictly to the requirements of the notice of claim clause in the SPA and a failure to do so is likely to result in the court finding that the notice is invalid with the possible consequence of the buyer being unable to claim against the seller for its loss. It is important for the parties to an SPA to negotiate a notice of claim clause that is clear and comprehensive, and any party serving a notice must comply strictly with the specific requirements of that clause. The decision also demonstrates the importance of a buyer serving a notice of claim on the seller in a timely basis in compliance with the time limit specified in the SPA. Here, the invalid notice was sent on the last day permitted under the SPA, depriving D of the ability to claim against S by sending a subsequent valid notice within the specified timeframe.

    While the interpretation of every notice of claim clause turns on its own wording and depends on the specific circumstances of each case, a buyer’s notice of claim should be clear, informative and consistent with the SPA. It is good practice for the notice to specify the underlying facts, events and circumstances that constitute the factual basis on which the buyer is making the claim.

    Case: Drax Smart Generation Holdco Limited v Scottish Power Retail Holdings Limited [2023] EWHC 412 (Comm).

    2. Unfair prejudice: express contractual duty of good faith

    The Court of Appeal has held that the majority shareholders in a company had not breached an express contractual duty to act in good faith contained in a shareholders’ agreement.

    Background. A shareholder may petition the court for relief where the affairs of the company are being, or have been, conducted in a manner that is unfairly prejudicial to the interests of some or all of the shareholders including the petitioning shareholder (section 994, Companies Act 2006) (2006 Act) (section 994). A failure to abide by a company’s articles of association or shareholders’ agreement may, in certain circumstances, justify the bringing of an unfair prejudice petition.

    An express duty of good faith has been described as imposing the following minimum standards: to act honestly; to be faithful to the parties’ agreed common purpose as derived from the agreement; to not use powers for an ulterior purpose; to deal fairly and openly with the other party; and to consider and take into account their own interests while also having regard for the other party’s interests (Unwin v Bond [2020] EWHC 1768).

    A company may by ordinary resolution at a meeting remove a director before the expiration of their period of office (section 168, 2006 Act) (section 168).

    A director of a company must act in accordance with the company’s constitution and only exercise powers for the purposes for which they are conferred (section 171, 2006 Act).

    A director must act in the way that they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole (section 172, 2006 Act) (section 172). In so doing, the director must have regard, among other matters, to the need to act fairly as between members of the company (section 172(1)(f)).

    Facts. S and F were the directors and minority shareholders of a company, C. A shareholders’ agreement between C’s shareholders (the agreement) included a duty requiring each shareholder to at all times act in good faith in all dealings with each other and with C (the good faith duty). It also included a clause allocating responsibility for management to the board of directors free from shareholder interference and another clause requiring board resolutions to be passed by a majority of the directors including S and F. C’s articles of association (the articles) included a provision preventing the board from passing a resolution to remove F and S.

    S resigned as a director after the majority shareholders (the investors) refused to invest further in C while he remained as a director. The investors subsequently removed F as a director under their section 168 powers.

    S and F brought an unfair prejudice petition against the investors under section 994, arguing that their exclusion and removal from C’s board was unfairly prejudicial to them and other minority shareholders.

    The High Court granted the petition on the basis that the agreement and the articles comprised a constitutional settlement between the shareholders under which F and S were effectively entrenched as directors, and that the investors would be in breach of contract if they voted in favour of removing F and S from office or sought to obtain control of the board.

    The investors appealed, arguing that the High Court had interpreted the good faith clause in the agreement too widely.

    Decision. The court allowed the appeal.

    If the bargain between the parties was that F and S were to be entrenched in office, the agreement did not simply include an express provision obliging the investors not to vote at any general meeting of C in favour of a resolution to remove F and S as directors. The absence of such an express provision in the agreement, which was a comprehensive and professionally drafted document, was a striking omission. Where majority shareholders enter into an agreement with minority shareholders not to vote in favour of a section 168 resolution for a director’s removal, the minority could ordinarily expect to obtain an injunction to prevent the majority voting in favour of such a resolution.

    The articles permitted the board to manage C subject to any directions given by special resolution of the shareholders in general meeting. If the intention of the parties had really been to exclude the power of the shareholders to give such directions, it would have been expressly excluded, especially since the articles were professionally drafted and adopted at the same time as the agreement.

    The parties had not expressly agreed that the positions of F and S would be entrenched as directors of C. Nor had the investors expressly agreed to forgo any right to play a role in the management of C and give management control to F and S.

    The High Court had interpreted the good faith duty too broadly. Neither the agreement nor the articles expressly required the investors to deal fairly and openly with F or S, or to have regard to the interests of the minority shareholders when exercising their voting rights as shareholders. The High Court had interpreted the good faith duty using case law concerning the meaning of good faith in other contexts. In particular, simply importing the minimum standards from Unwin in determining the scope of the duty of good faith irrespective of the relevant factual background was of limited value.

    Context is critical. A limited company with shareholders provides an entirely different backdrop to that of an ordinary commercial contract and the elements of the duty of good faith will differ in each case. The broad interpretation of the good faith duty by the High Court was contrary to the rights and powers available to shareholders under the articles and the 2006 Act, and to remove this inherent flexibility would have required express wording to the contrary.

    The express duty of good faith in the agreement simply required the parties to act honestly towards each other and C. Apart from this core duty of honesty and, depending on the context, a duty not to engage in conduct that could be characterised as bad faith, any further requirements of an express duty of good faith had to be capable of being derived as a matter of interpretation or implication from the other terms of the contract in issue in the particular case.

    As the investors had acted rationally and genuinely believed that their actions were in the interests of C, their involvement in the forced resignation of S and the removal of F under section 168 did not constitute a breach of the duty of good faith in the agreement.

    Comment. This decision confirms that an express duty of good faith in a comprehensive, professionally drafted shareholders’ agreement is unlikely to impose any obligations other than a core duty to act honestly, although the decision leaves open the possibility that commercially unacceptable conduct may possibly breach the duty even if that conduct might not be dishonest. Parties proposing to include a duty of good faith in their contracts should consider setting out explicitly what they are expected or not expected to do beyond complying with a core duty of honesty. It might be appropriate to include the type of express duties as set out in Unwin.

    Case: Re Compound Photonics Group Ltd (also known as Re Compound Photonics UK Ltd and Faulkner v Vollin Holdings Ltd) [2022] EWCA Civ 1371.

    3. BVCA model investment documents: revised versions

    The British Private Equity and Venture Capital Association (BVCA) has issued revised versions of its model documents for early-stage venture capital investments (2023 model documents).

    Background. The purpose of the model documents is to promote standard legal documents in the UK private equity industry. They include standard form articles of association and a model subscription and shareholders’ agreement. In December 2017, the BVCA updated the model documents (2017 model documents).

    Facts. The 2023 model documents amend the 2017 model documents in the following ways:

    • Dividing the subscription and shareholders’ agreement into two separate agreements.
    • Amending the model subscription agreement to allow for:
      • initial and subsequent completions;
      • conversion of amounts owing under an equity securities agreement;
      • consequences if an investor fails to pay a subscription amount by the due date;
      • the company, rather than company and founders, to provide warranties; and
      • removal of the minimum thresholds for warranty claims.
    • Amending the articles of association to provide that:
      • the amount distributed to series A shareholders is the amount per series A share held equal to the greater of: the preference amount; and the amount that would be received if the series A shares were converted into ordinary shares immediately before the distribution;
      • a variation of class rights requires the consent of holders of a majority, rather than 75%, of issued shares of that class;
      • pre-emption rights are limited to investors, or major investors;
      • the definition of bad leaver will include someone who, after ceasing to be a service provider, commits a material breach of non-compete obligations owed to the company;
      • consideration on a dragged share sale will be subject to escrow;
      • founders may only appoint themselves, or be, directors for so long as they are service providers;
      • appendix B of the optional enterprise investment scheme or venture capital trust investor articles should include an alternative liquidation preference article, and a cap on corporate shareholders.

    Source: BVCA Model Articles of Association, 10 February 2023,

    4. Share capital: revised share capital management guidelines

    The Investment Association (IA) has published revised share capital management guidelines (the guidelines), which set out the expectations of IA members as institutional investors in respect of various aspects of share capital management.

    Background. The guidelines set out the expectations of IA members as institutional shareholders on various aspects of share capital management such as the power to allot shares and disapply pre-emption rights, own share purchases, scrip dividends, and shares issues by investment trusts.

    In July 2016, the IA published an updated version of the guidelines (2016 guidelines). 

    In July 2022, the Treasury published its UK secondary capital raising review (the review), which seeks to modernise and streamline the secondary fundraising process for listed companies in the UK through a package of reforms.

    The Institutional Voting Information Service (IVIS) is the IA’s corporate governance research service. It issues colour-coded reports when analysing listed companies for investors. An amber top raises awareness of particular areas and a red top indicates the strongest level of concern.

    Facts. The guidelines replace the 2016 guidelines and include amendments to:

    • Section 1 (introduction) to incorporate all fully pre-emptive offers, not just fully pre-emptive rights issues, as recommended in the review. IA members expect companies to explain why they have chosen their capital raising structure and why it is appropriate for the company and its shareholders.
    • Section 2 (directors’ power to allot shares) to align with the Pre-emption Group’s revised thresholds. IA members support the Pre-emption Group’s approach to capital-hungry companies. IVIS will issue an amber top report for pre-emption authorities in excess of 24% of issued share capital for companies that have disclosed in their initial public offering prospectus that they are a capital-hungry company. IA members have asked IVIS to issue a red top report for companies that either:
      • seek a routine disapplication of pre-emption rights in excess of 24% of the issued share capital allowed by the Pre-Emption Group’s statement of principles (the statement); or
      • seek a disapplication of pre-emption rights up to 24% that does not follow the Pre-Emption Group’s template resolutions, to confirm that it will follow the shareholder protections in Part 2B of the statement (Part 2B), and confirm that it will follow the expected features of a follow-on offer set out in paragraph 3 of Part 2B.
    • Section 3 (own share purchases) to state that institutional investors want companies to set out their proposed approach to returning capital to shareholders, including how this is aligned with the company’s long-term strategy and business model. This should be supplemented with details of any distributions made to shareholders during the year under review and any expectations for the current financial year.
    • Section 5 (issuance of shares by investment trusts) to add that IVIS will also issue a red top report for pre-emption authorities greater than 20% of the issued share capital, excluding shares held in treasury.

    Source: IA: Share Capital Management Guidelines, 21 February 2023,

    5. Investment Association: shareholder priorities for 2023

    The Investment Association (IA) has published its shareholder priorities for 2023 (the priorities).

    Background. In March 2022, the IA issued its 2022 shareholder priorities. The IA updates its shareholder priorities annually.

    The Institutional Voting Information Service (IVIS) is the IA’s corporate governance research service. It issues colour-coded reports when analysing listed companies for investors. An amber top raises awareness of particular areas and a red top indicates the strongest level of concern.

    In June 2017, the Task Force on Climate-related Financial Disclosures (TCFD) developed recommendations (TCFD recommendations) on climate-related disclosures relating to governance, strategy, risk management, metrics and targets.

    Facts. IVIS will monitor companies with financial years ending on or after 31 December 2022 against the approach set out in the priorities, including:

    • Issuing an amber top report for companies that do not make disclosures against all four pillars of the TCFD framework. IVIS will also monitor whether companies have disclosed the framework or methodologies used to set their targets, the periods over which the targets have been set, and whether narratives had been included in their achievements. This reiterates the emphasis on transparency and quality of disclosure in relation to top-ranking companies. In addition, IVIS will ask whether companies have disclosed how the results of their scenario analysis have affected their business model and strategy.
    • Monitoring whether companies have stated that directors have considered the relevance of climate and transition risks associated with the transition to net zero when preparing and approving companies’ annual accounts.
    • Allowing more targeted disclosures in relation on how audit committees assess the quality of audit, auditors demonstrate professional scepticism in their review of accounts, and auditors challenge management’s assumptions.
    • Increasing gender diversity targets by 2% in FTSE 350 companies where women represent 35% or less of the board or 30% or less of the executive committee and their direct reports. IVIS will continue with its previous commitments to improve gender diversity in red top FTSE small cap companies where women represent 25% or less of the executive committee. In addition, it will assess whether companies are meeting the new Listing Rules requirements to disclose on a comply-or-explain basis whether one or more of their most senior positions are filled by women.
    • Monitoring and highlighting areas of annual reports which reflect engagement with stakeholders on the cost-of-living crisis.
    • Encouraging companies to report in line with the TCFD recommendations.

    Source: IA: Investment Association shareholder priorities for 2023, 13 February 2023,

    6. ISS 2023: proxy voting guidelines

    Institutional Shareholder Services (ISS) has issued updates to its UK proxy voting guidelines for 2023 (the guidelines).

    Background. In November 2022, ISS consulted on its proposed amended voting policies for 2023, which included seeking views on the remuneration report for its UK and Ireland voting policies, and on climate accountability for its policies for all markets.

    Facts. The amendments in the guidelines relating to the remuneration report and to climate accountability are substantially similar to those consulted on. Additional changes in the guidelines relate to, among other matters:

    • New gender diversity guidelines for companies with financial years beginning on or after 1 April 2022. For standard and premium-listed companies, ISS may consider recommending against the chair of the nomination committee, or other directors on a case-by-case basis, if the board has not met the targets of at least 40% women on the board and at least one senior board position is a woman. For ISEQ 20 constituents and AIM-listed companies with market capitalisation over £500 million, ISS will generally recommend against the nomination committee chair, or other directors on a case-by-case basis, if there is not at least one woman on the board.
    • New ethnic diversity guidelines for companies with financial years beginning on or after 1 April 2022. For standard and premium-listed companies, ISS may consider recommending against the nomination committee chair, or other directors on a case-by-case basis, if there is not at least one member of the board from a minority ethnic background. Mitigating factors include compliance with the relevant board diversity standard at the preceding AGM and a firm commitment, publicly available, to comply within a year, and other factors as applicable. For ISEQ 20 constituents and AIM-listed companies with market capitalisation over £500 million, ISS will generally recommend against the nomination committee chair, or other directors on a case-by-case basis, if they have not appointed at least one board member from an ethnic minority background by 2024.
    • A new policy concerning audit committees, specifying that for FTSE 350 companies, ISS will note where four or fewer audit committee meetings have been held during the reporting period. For FTSE All-Share companies, excluding investment companies, ISS will note where three or fewer meetings have been held.
    • Authorising the issue of equity with and without pre-emptive rights. The policies have been updated to reflect changes to the Pre-Emption Group Principles.

    The updates will be effective for meetings held on or after 1 February 2023.

    Source: ISS: Proxy Voting Guidelines, Benchmark Policy Changes for 2023 for UK & Ireland, Continental Europe, Russia & Kazakhstan, Middle East and North Africa, Sub-Saharan Africa, and South Africa, 30 November 2022,

    7. Corporate reporting: good annual reports and accounts

    The Financial Reporting Council (FRC) has issued a report on what makes a good annual report and accounts (ARA) (the report).

    Background. The ARA is the cornerstone of corporate reporting. It should provide investors with clear and relevant information on the company’s performance and prospects to help them make informed investment decisions and promote effective stewardship. As an improvement regulator and as part of its ongoing supervision work, the FRC uses a principles-based framework that identifies good corporate reporting principles and effective communication characteristics.

    Facts. The report identifies the characteristics associated with a high-quality ARA, as well as providing examples and analysis of them. Noting that good ARAs take account of the corporate reporting principles and the principles of effective communication set out in the report, the FRC discusses these in detail along with materiality. In particular, the report considers that:

    • Evidence of qualitative factors, that is, factors other than size, being used to increase quantitative materiality for certain transactions, events or conditions is likely to prompt regulatory challenge.
    • Management should consider both the sufficiency and effectiveness of the controls over information that is prepared solely for the ARA, as perceived material errors may attract regulatory enquiry.
    • Companies should identify interdependencies between parts of the ARA at the planning stage. They should facilitate good communication between teams preparing connected parts of the ARA, and read the ARA as a single document before publication. Incomplete descriptions of events or poor explanation of the accounting applied could attract regulatory challenge.
    • In addition to complying with regulatory timing requirements, the ARA should not be biased. It may attract regulatory attention if its use as a marketing tool undermines the need for the ARA to be fair and balanced.
    • Regulators may raise questions if it is difficult to find information about a material transaction or other event, or raise enquiries where accounting policies lack clarity, are not specific, or are inconsistent with other information in the ARA.
    • Communication should be company-specific, clear, concise, understandable, clutter-free and comparable. Excessive and unnecessary duplication may attract regulatory comment. ARAs that fail to explain how alternative performance measures have been calculated or how they reconcile to generally accepted accounting principles are likely to prompt regulatory enquiry.

    The report includes a process map to assist with accounts preparation.

    Source: FRC: What Makes a Good Annual Report and Accounts, 13 December 2022,

    8. ESG reporting: updated FRC statement of intent

    The Financial Reporting Council (FRC) has issued an updated statement of intent on environmental, social and governance (ESG) challenges (the updated statement).

    Background. In July 2021, the FRC issued the first statement of intent on ESG challenges, identifying roadblocks to attaining a fully effective and efficient system of ESG reporting, and detailing various actions that it planned to undertake to support the market.

    Facts. The FRC has issued the updated statement, which summarises the initiatives that it has undertaken during the last 18 months to contribute to the evolution of the reporting, assurance and governance of ESG matters, and sets out its planned activities in this area.

    The updated statement reiterates that the FRC’s ESG strategy will continue to develop in response to the changing regulatory and reporting landscape. The FRC’s key areas of focus in 2023 will include:

    • Developing guidance and best practice on the distribution and consumption of ESG data, examining how ESG data is communicated to the market, and how investors, regulators and other stakeholders engage with and consume ESG data to meet their needs.
    • Examining how companies develop, assess and use materiality so that the FRC can consider how materiality processes could be enhanced to ensure that companies are able to report in a way that provides stakeholders with relevant and useful information.
    • Updating its guidance on climate-related risks for Financial Reporting Standard 102 preparers to assist them in meeting challenges associated with emerging reporting requirements.
    • Providing a further comprehensive update to its guidance on the strategic report to capture changes in requirements including new narrative reporting requirements, other changes to the existing non-financial reporting framework and, where necessary, any sustainability reporting arising from developments in the sustainability disclosure requirements.
    • Publishing a further thematic report focused on metrics and targets for four key industries, as part of its response to the work of the UK transition plan taskforce.
    • Introducing requirements for actuaries to take account of climate and other ESG-related risks in their work in the technical actuarial standards.
    • Continuing its review of corporate governance reporting, including revising the UK Corporate Governance Code in a way that recognises the growing importance of ESG reporting.
    • Continuing to assess how investors integrate material ESG issues into their investment management activities, as part of the annual assessment programme for signatories to the UK Stewardship Code.
    • Continuing to pay particular attention in its audit quality inspections to auditors’ work on climate-related risks.

    In addition, the Public Interest Entity Audit Registration team at the FRC is considering whether it will identify public interest entities with significant environmental risk and monitor whether the respective senior statutory auditor has completed appropriate training.

    Source: FRC: ESG Statement of Intent: What’s Next, 30 January 2023,

    9. Net-zero target: government report

    The Department for Business, Energy & Industrial Strategy (BEIS) has issued a report following an independent review of the government's approach to delivering its net-zero target (the report).

    Background. Under the Paris Agreement, the UK is required to set out its commitment to reduce carbon emissions and mitigate climate change through successive nationally determined contributions.

    In June 2017, the Task Force on Climate-related Financial Disclosures (TCFD) developed recommendations on climate-related disclosures (the TCFD recommendations) relating to governance, strategy, risk management, metrics and targets. 

    In October 2021, the government published its net-zero strategy, which sets out its strategy to keep the UK on track for its net-zero carbon emissions commitment by 2050.

    In light of the changed economic landscape in the UK since the publication of the net-zero strategy, in September 2022, the government commissioned a review to identify how the UK could meet its net-zero commitments through an approach that minimises the impact on businesses and consumers, and that maximises economic opportunities.

    Facts. Among the 129 recommendations and feedback in the report, the key points for companies relating to corporate reporting, corporate governance, and listing and prospectus reform include:

    • The government intends to implement the International Sustainability Standards Board (ISSB) as soon as possible. It is likely that 2024/25 will be the first sustainability reporting cycle for companies in scope, and companies are encouraged to apply the ISSB's standards voluntarily in 2023/24. This will build on the TCFD recommendations.
    • The UK Transition Plan Taskforce standards for net-zero transition plans for UK companies will, when further developed, be made mandatory for both listed and private companies to ensure comparable disclosure standards across the economy.
    • The UK Stewardship Code should be updated as part of its review at the end of 2023 to explicitly reflect the need to take sustainability and net-zero transition into account.
    • The government and the Financial Conduct Authority (FCA) should take the opportunity of the ongoing reform of the prospectus and listing regimes to review the rules to encourage integrity and growth in the market for green finance instruments, with the aim of supporting the net-zero transition. This should include working with issuers, their advisers and market participants such as exchanges and venues. The report also discusses standards for voluntary carbon markets.

    In addition, the report notes that the government is to consider a transition taxonomy, alongside the UK green taxonomy, as well as recommending that the FCA should build on the proposed sustainability disclosure requirement and investment labels to counter greenwashing.

    Source: BEIS: Independent report: Review of Net Zero, 13 January 2023,

    10. Women on boards: FTSE women leaders review report

    The FTSE Women Leaders Review has published a report on gender balance in FTSE leadership (the report).

    Background. In February 2021, the Hampton-Alexander review issued its fifth and final annual report on improving gender balance in FTSE leadership.

    In November 2021, the Department for Business, Energy & Industrial Strategy announced government support for a new five-year independent review, called the FTSE Women Leaders Review, to monitor the representation of women among leaders of FTSE 350 companies, focusing on both board membership and senior leadership roles.

    In February 2022, the FTSE Women Leaders Review issued its first report on gender balance in FTSE leadership.

    Facts. The report states that:

    • Women held 40.5% of FTSE 100 board positions, which is up from 39.1% in 2021, but seven FTSE 100 companies had not yet achieved the 33% target. 43 boards had not met the current 40% target.
    • Women held 40.1% of FTSE 250 board positions, which is up from 36.8%, but 24 FTSE 250 companies had not yet achieved the 33% target. Ten companies previously had 33% but had since fallen below that number. 113 companies had not met the current 40% target.
    • Across the FTSE 350, there were only 55 women chairs, 130 women senior independent directors (SIDs) and 21 women CEOs. There were 79 women executive directors, which is 13.8% of executive directors in the FTSE 350.
    • Across the FTSE 100, there were only 37 women chairs, nine women SIDs and 34 women executive directors.
    • The FTSE 350 had no all-male boards, and there was only one company with only one woman on the board.

    The review this year included 50 of the largest private companies in the UK, of which six did not submit data. The report states that:

    • The representation of women on those boards was on average 31.8%.
    • There were 19 boards that were either all-male or had only one woman. One-third had 40% or more, but just over half had well below 33%. 32% of executive directors were women.

    Of the eight LLPs in the list, average representation of women in equity partnerships stood at around 25%, with just 19% women in the highest earning 50 equity partners.

    Source: FTSE Women Leaders Review: Achieving Gender Balance: report, 28 February 2023,

    11. Reporting on payment practices and performance: BEIS consultation

    The Department for Business, Energy & Industrial Strategy (BEIS) is consulting on amending the Reporting on Payment Practices and Performance Regulations 2017 (SI 2017/395) and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017 (SI 2017/425) (together, the 2017 Regulations) (the consultation).

    Background. Subject to certain exceptions, the 2017 Regulations impose a duty on large companies and large limited liability partnerships (LLPs) to report on their payment practices and policies in relation to certain specified contracts, together with their performance by reference to such practices and policies.

    The 2017 Regulations came into force in April 2017 and have required in-scope companies and LLPs to report for financial years beginning on or after 6 April 2017 on a web-based service provided by the government.

    Facts. The consultation asks whether:

    • A reporting business should be required to include their payment practices and performance information in their directors’ report in order to provide greater transparency.
    • Where more than one business within a group is required to report its payment practices, these should all be included in the directors’ report. This seeks to address the risk that poor performing group companies could potentially be masked if only a group summary of payment reporting is included.
    • The report should be additionally validated by, for example, a business’s audit committee.
    • The 2017 Regulations should be extended beyond their current expiry in April 2024, provisionally for a further seven years, with a view to review again after five years.

    Source: BEIS: Payment and Cashflow Review: The Reporting on Payment Practices and Performance Regulations 2017 and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017: BEIS consultation, 31 January 2023, Comments are requested by 28 April 2023.

    12. Audit: FRC audit quality indicators

    The Financial Reporting Council (FRC) has issued new firm-level audit quality indicators (AQIs).

    Background. In June 2022, the FRC consulted on the public reporting of firm-level AQIs for the audit practices of the largest UK audit firms (the consultation). The responses showed clear support from users of audit services for greater insight into many of the indicators that drive audit quality.

    The FRC has now issued new firm level AQIs that are intended to provide users of audit services and other stakeholders with comparable indicators on audit quality.

    Facts. The FRC has decided that the AQI reporting requirements will apply to all firms that audit more than 20 public interest entities (PIEs) or at least one FTSE 350 company. Approximately ten audit firms are currently in scope.

    The AQIs should include all audit engagements, but only some must be presented separately for PIE and non-PIE audits; that is, those relating to quality monitoring, and the extent of involvement in audits by partners and certain responsible individuals.

    Firms may produce AQI data covering any 12-month period that they choose, but should provide the FRC with their data by mid-June each year, specifying the coverage period applicable to their AQIs.

    Firms may include narratives supporting the AQIs, with an indicative word count of 500 words in total, but not links to their own websites. The FRC plans to issue guidance on what should be included in the supporting narrative in its forthcoming definitions notes.

    The AQIs will be broadly as proposed in the consultation, however, the FRC will not proceed with the proposed AQI on the percentage of audits that meet key planning milestones by the target completion date. The FRC has also included one of the alternative AQIs with a slight modification, to measure the ratio of each firm’s audit staff to partners and responsible individuals, instead of only audit partners. Similarly, the AQI on partner involvement in audits has been expanded to include average hours spent on audits as a percentage of total audit hours by responsible individuals as well as partners. The FRC proposes to publish a definitions note to help ensure that AQIs are measured consistently.

    Implementation of the AQI reporting requirements will be phased. All firms in scope will participate in a pilot to collect AQI data for private reporting in summer 2024. The FRC will consider publishing some indicative overall ranges of AQI data from the pilot without firm-specific numbers. During the pilot stage, the FRC will also consider whether it will undertake some level of verification of the AQIs provided by firms.

    In summer 2025, firms will be asked to provide AQI data, segmented between all audits, PIE audits, and non-PIE audits where possible. The FRC will publish the data segmented between all and PIE audits. The previous year’s data should also be published for each AQI. A senior partner should attest to the accuracy of the information.

    Source: FRC press release, 6 December 2022,

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.

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