Legal development

Ashurst Governance and Compliance Update - Issue 23

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    Shareholder Meetings

    1.  FRC publishes Good Practice Guidance for Company Meetings

    Capital raisings by existing listed issuers

    2.  HM Treasury publishes UK Secondary Capital Raising Review

    Corporate Crime

    3.  Register of Overseas Entities comes into effect next week

    4.  Ransomware: ICO and NCSC clarify position on payment of ransoms


    5.  Chapter Zero updates its Climate-Focused Board Toolkit

    Shareholder Meetings

    1. FRC publishes Good Practice Guidance for Company Meetings

    The Financial Reporting Council has published guidance on 'Good Practice' for shareholder meetings. This is aimed at listed companies with a view to enhancing effective shareholder participation when planning and conducting AGMs and other general meetings. The guidance was prepared with assistance from the AGM Stakeholder Group, whose members include the GC100, ShareAction, the Chartered Governance Institute and the City of London Law Society Company Law Committee as well as the Department of Business, Energy and Industrial Strategy.

    The guidance states that companies should seek to maximise the participation and engagement of all types of shareholders on the register and, where appropriate, take advantage of the use of technology to do so.

    Engagement with shareholders should not just be an annual event. The FRC expects companies to view AGMs as key events within both an annual and longer term process of engagement. On the flip side, the FRC also emphasises the importance of shareholders and proxy advisors engaging with companies throughout the year, not only at the AGM or in the lead-up to it. It believes that such engagement is essential for effective stewardship.

    The guidance sets out seven principles under four broad headings: before the meeting; during the meeting; after the meeting; and dealing with engagement throughout the year. Each principle is accompanied by suggested actions and advice. The principles are (with selected guidance/advice):

    1. Before the meeting: Information disseminated prior to the general meeting must offer clear instructions on how to attend the meeting and participate, in order to enable effective shareholder engagement. It should clarify the form and scope of any electronic meeting facilities. Notices should make clear that unacceptable behaviour will not be tolerated. The choice of meeting format should be explained.
    2. Before the meeting: Whether meetings are physical, hybrid or virtual (if possible), shareholders should, as far as practicable, be able to engage in the business of the meeting. Details and a clear timeframe for submitting questions and how they will be answered should be given well in advance. Companies should consider reminding shareholders who have opted for e-comms of their ability to vote one or two days prior to the proxy deadline.
    3. During the meeting: The board should provide an update on matters raised by stakeholder groups that are considered by the board to materially affect the company’s strategy, performance and culture. This could be covered by as a separate agenda point at the AGM or included in the opening statements made by the chair or CEO.
    4. During the meeting: Companies should seek the broadest access to and participation in meetings by a diverse range of shareholders. Whether attending virtually or in person, shareholders should have the opportunity to raise questions pertinent to the meeting agenda. Companies should consider opening the Q&A function for written/electronic questions from the start of the meeting.
    5. During the meeting: Shareholders should be able to cast their votes in real-time, or submit a voting instruction in advance via the appointment of a proxy, depending on the format of the meeting. Appropriate technology should be used by companies to ensure that shareholders have the ability to appoint proxies prior to the meeting. The need to download specific software to participate should be avoided.
    6. After the meeting: Companies should be as transparent as possible with shareholders in relation to matters discussed and raised by shareholders at the meeting. Shareholders should be able to follow up on any answer to a question asked at the meeting via a specific email address. Consideration should be given to making recordings of hybrid (or virtual) meetings available to shareholders for a period after meetings.
    7. Engagement throughout the year: Effective and transparent engagement should not be limited to an annual event. Opportunities to update shareholders on company matters should be offered throughout the year, with an emphasis on ensuring all shareholders have access to similar information. Summaries of previous shareholder events could be made available prior to meetings on company websites. Consideration should be given to inviting shareholders to observe non-confidential meetings with wider stakeholders.
    Capital raisings by existing listed issuers

    2. HM Treasury publishes UK Secondary Capital Raising Review

    The report of the UK Secondary Capital Raising Review has been published by HM Treasury. The Review was constituted as a consequence of Lord Hill's UK Listing Review (Ashurst's UK Listings Review Report: One Year On can be found here) and focused on how the regime for secondary capital raisings might be improved.

    The Review makes 21 recommendations, setting out a timeframe for implementation and ascribing responsibility for doing so in each case. Headline recommendations are to:

    • Increase the ability for companies to raise smaller amounts of funds quickly and cheaply by making permanent the temporary measures introduced during Covid-19. This would require the restatement of the Pre-Emption Group Statement of Principles to allow companies to issue up to 20 per cent of their issued share capital (on a 10 per cent plus 10 per cent basis) in non pre-emptive placings - rather than the current maximum of 10 per cent (on a 5 per cent plus 5 per cent basis). The Review recommends that transitional measures be put in place by PEG to allow immediate use of this reformed regime ahead of the 2023 AGM season. Issuers utilising any such disapplication should be required to disclose details about the placing to the market.
    • Amend the PEG Statement of Principles to:
      • reflect that, in connection with undocumented placings, cash box structures should only be used for an amount up to the level of the pre-emption disapplication authority granted by shareholders at a company’s most recent AGM; and
      • support case-by-case consideration of higher disapplication authorities – i.e. of more than 20 per cent - for 'capital hungry companies'.
    • Encourage retail investor involvement in all capital raisings, including using market-driven technology providers to do so or including a follow-on offer that takes place after the institutional offer closes.
    • Reduce regulatory involvement in fundraisings including by:
      • increasing the threshold at which a prospectus should be required for an admission of securities to trading (to 75 per cent of issued share capital from the current 20 per cent);
      • removing the requirement for a sponsor to be appointed on a secondary fundraising, except in certain circumstances such as where the offer was linked to a material acquisition; and
      • reconsidering the Financial Conduct Authority’s approach to working capital statements to allow for clean working capital statements to be supported by assumptions.
    • Extend the scope of the two-thirds authority to allot securities to all forms of fully pre-emptive offer.
    • Make existing fundraising structures quicker and cheaper by:
      • shortening the offer period for rights issues and open offers from 10 to seven business days; and
      • providing the government with the flexibility to reduce the notice period for shareholder meetings (other than AGMs) from 14 to seven clear days.
    • Allow companies to opt-in to an enhanced continuous disclosure regime, including by way of more detailed disclosure in their annual report, as well as potentially through ongoing periodic updates and website disclosure, that could be relied on in a fundraising in the following year.
    • Increase the range of choice of fundraising structures for companies, including by adopting features of models used in other jurisdictions – for example that in Australia where a secondary issue involving a public offer does not require a prospectus.
    • Establish a Digitisation Task Force to consider digitising and reforming the UK shareholding ownership framework so as to eradicate the holding of share certificates whilst preserving the right to vote, receive information and participate in corporate actions. Indeed, the government has already responded to this recommendation by publishing terms of reference for such a Task Force which will be led by Sir Douglas Flint.

    Both the FCA and Quoted Companies Alliance, among others, have welcomed the Review. In light of it, the London Stock Exchange has launched a UK Capital Markets Industry Task Force seeking to maximise the impact of the current programme of regulatory reforms.

    Corporate Crime

    3. Register of Overseas Entities comes into effect next week

    We reported in AGC Update, Issue 15 that the Economic Crime (Transparency and Enforcement) Act 2022 had been fast-tracked through Parliament in part as a response to the invasion of Ukraine. The Act will require entities incorporated overseas and which hold certain types of real estate in the UK to register with Companies House, providing details of beneficial owners with significant influence or control and of certain managing officers and trusts. Information supplied by a relevant entity will need to be verified and updated annually. It will be a criminal offence for a relevant entity not to register. In AGC Update, Issue 21, we reported that draft regulations implementing aspects of the new register of overseas entities had been issued. For further detail, see our Real Estate Update 28/3/22.

    Companies House has now confirmed that the Register of Overseas Entities regime will come into effect from the beginning of next week when the Economic Crime (Transparency and Enforcement) Act 2022 and associated secondary legislation* comes into force. This means that, from 1 August 2022, an overseas entity owning land in England & Wales will need to apply to be registered if it holds a qualifying estate in land acquired on or after 1 January 1999; a qualifying estate being a freehold or lease granted for more than 7 years.

    In doing so, an overseas entity will need to provide details about its beneficial owners, including those that hold more than 25 per cent of the shares or voting rights in the overseas entity or who exercise significant influence or control over the entity. In certain instances, the overseas entity might need to disclose details of its managing officers. An overseas entity holding real estate on behalf of a trust will also need to register and, while the trust will not need to register on the Register of Overseas Entities, it might be required to register with the Trust Registration Service.

    As we reported in AGC Update 22, the information provided by an overseas entity must be verified by a 'relevant person' in accordance with the Act before Companies House can issue a registration number to the overseas entity. A relevant person includes an independent legal adviser, external accountant, tax adviser or estate agent (see AGC Update 22 for a full list of potential verifiers of information). Once the overseas entity's information has been verified and confirmed, Companies House will issue a registration number to the overseas entity. The overseas entity will then be able to provide the registration number to HM Land Registry so that it can register title to the real estate. A relevant person must also be registered with Companies House before it can verify an overseas entity's information.

    Unless an overseas entity registers and obtains a registration number by 1 February 2023, it will commit a criminal offence and will be unable to either register title to its real estate at HM Land Registry or transfer or charge the real estate. The Register itself will be open to public inspection and overseas entities will also be required to update the information on it annually.

    This week, Companies House has issued guidance on:

    • Registering an overseas entity and its beneficial owners – click here. This explains what overseas entities, beneficial owners and the Register of Overseas Entities are; the information which needs to be submitted to the Register about each entity, its owners and managing officers and the agent which verified the information; and how to apply to register an entity and its owners; and
    • The process to be followed before a 'relevant person' is able to verify beneficial owners and managing officers of overseas entities – click here. This explains how a relevant person proposing to undertake verification checks can obtain an 'agent assurance code' in order to be able to do so. The system is now open for applications.

    An overseas entity that owns UK real estate or is in the process of acquiring it should be preparing information about its beneficial owners and lining up an agent for verification purposes. An overseas entity currently involved in acquiring UK real estate should also discuss with its advisers whether it will be necessary to modify the transaction timetable given the imminent advent of the new regime.

    We will publish a further updates in due course.

    * The Register of Overseas Entities (Verification and Provision of Information) Regulations 2022; The Land Registration (Amendment) Rules 2022; and The draft Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations 2022.

    4. Ransomware: ICO and NCSC clarify position on payment of ransoms

    The Information Commissioner's Office and National Cyber Security Centre have issued a joint letter to the legal profession clarifying their position in relation to payment of ransoms to release locked data. The letter seeks to dispel any perceived belief that payment of a ransom may protect the stolen data and/or result in a lower penalty being levied by the ICO. It confirms that UK Law Enforcement Agencies do not encourage, endorse or condone the payment of ransoms, and emphasises that payment of ransoms incentivises further harmful behaviour by malicious actors. It also makes the point that payment of a ransom neither guarantees decryption of networks nor the return of stolen data. The letter also provides helpful guidance on actions an organisation can take to mitigate risk which will be taken into account by the ICO.

    Ashurst's Head of Data Privacy, Rhiannon Webster together with members of our Global Governance and Risk Advisory teams have recently published an article dealing with the legal and practical implications of a ransomware attack and the steps all companies should take to ensure they can respond to such an incident.


    5. Chapter Zero updates its Climate-Focused Board Toolkit

    Chapter Zero has published an updated version of its 'Chapter Zero Board Toolkit', designed to help businesses address climate change as a strategic business issue and encourage companies to take timely, positive and decisive action to drive the transition.

    The Toolkit contains questions for non-executive directors to consider and pose to their boards, five clear steps to follow, checklists for NEDs, tools and guides, and options for further reading.

    The core of the Toolkit is based around five steps that boards can take to ensure their businesses have a 'holistic, robust and deliverable' plan for reducing their emissions, responding to the opportunities of the net zero transition, and the need for adaptation.

    If you would like to receive future updates on Ashursts Governance and Compliance please contact our Data Compliance Team on


    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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