Legal development

Ashurst Governance & Compliance Update - Issue 45

Ashurst Governance & Compliance Update - Issue 45

    Narrative Reporting and AGMs in 2024

    1.  Narrative reporting and AGMs 2023: What's Market practice?

    Practical Law has published two reports which focus on the key trends relating to certain aspects of narrative reporting, resolutions proposed and voting trends of FTSE 350 companies and certain AIM companies from the 2023 reporting and AGM season. The analysis is based on a review of the notices of AGM and annual reports of 252 FTSE 350 premium listed commercial companies and 46 AIM companies.

    The reports cover, among other things, the format of AGMs over the past year, the board composition of FTSE 350 companies, climate and nature-related reporting, workforce engagement methods and the disapplication of pre-emption provisions. Voting results are also considered. 

    Key highlights include:

    • Just over 80 per cent of companies held 'physical' meetings in 2023, with only two companies conducting fully virtual AGMs.
    • As at 13 October 2023, 65 FTSE 100 companies had achieved 40 per cent or more female representation on their boards. 76 companies (40 FTSE 100 and 36 FTSE 250) have met the Listing Rule target of 40 per cent female representation on the board, at least one woman in a senior position and at least one director from an ethnically diverse background.
    • 49 per cent of FTSE 100 companies disclosed full compliance with the UK Corporate Governance Code in their annual report.
    • Nearly half of the companies reviewed sought the additional headroom afforded by the 2022 PEG Statement of Principles when seeking authority to disapply pre-emption provisions. For more detail on the additional headroom afforded by the revised Statement of Principles, see AGC Update, Issue 28.
    • Eight FTSE 350 companies tabled climate-related resolutions at their 2023 AGM, down from 17 in 2022.
    • The boards of the AIM UK 50 companies comprise 24 per cent women, up from 20 per cent in 2022.

    2.  ISS consults on voting policy changes for 2024

    ISS Governance, the proxy voting agency, has launched its annual consultation on changes to its voting policies ahead of the 2024 AGM season. It notes that there are fewer proposed changes than in previous years, with no material changes proposed to its voting policy for the UK and Ireland.

    ISS Governance expects to announce its final 2024 benchmark policy changes in December 2023.

    For ISS's UK and Ireland policy for 2023, click here and for our overview of the changes made to them this time last year, see AGC update, Issue 30.

    Market Abuse

    3.  FCA censures NMC Health plc (in administration) for market abuse 

    The Financial Conduct Authority has publicly censured NMC Health plc (in administration) – a former FTSE 100 company - for committing market abuse in breach of Article 15 of the EU Market Abuse Regulation (which applied at the relevant times). The FCA found that, between March 2019 and February 2020, NMC published a series of financial statements and several clarificatory announcements which contained materially inaccurate information about its debt position.


    In March 2019, NMC published its financial statement for the year ended 31 December 2018, which stated that the group's total debt was nearly USD 2 billion; the actual level of debt should have been stated as approximately USD 5.9 billion. 

    In May 2019, NMC published its 2018 Annual Report which affirmed its debt position as set out in the March statement.

    NMC's interim report published in August 2019 continued to under-report its debt position, stating that the group's total debt was USD 2.1 billion, when it should have been stated as approximately USD 6.2 billion. 

    In December 2019, NMC denied allegations which questioned the accuracy of NMC's financial reporting to the market. However, in March 2020, following a review of its debt facilities, NMC announced that it estimated its current debt position to be approximately USD 6.6 billion. In April 2020, NMC went into administration and the listing of its ordinary shares was cancelled. 

    FCA findings

    The FCA found that, between March 2019 and February 2020, NMC materially under-reported its levels of debt to the market – by as much as USD 4 billion. NMC had been operating with dual sets of partial accounting records throughout the relevant period and, both prior to and during the relevant period, NMC had been guaranteeing supply-chain credit to related parties that it was failing to disclose. 

    NMC was found to have committed market abuse by publishing false or misleading information about its debt position within its March 2019 and August 2019 financial statements and its 2018 Annual Report, and by failing to declare related party transactions therein, and by the false or misleading statements in its announcements to the market in December 2019, when it knew, or ought to have known, that the information was false or misleading. 

    Whilst the FCA did not specifically find that each and every member of NMC’s board knew, or ought to have known, that the disseminated information was false or misleading, the FCA is satisfied that there was knowledge within NMC at a sufficiently senior level that the information was false or misleading for that knowledge to constitute the knowledge of NMC, within the specific context of, and for the purposes of, market abuse.


    Although the FCA considers that NMC's conduct was serious and merits a substantial financial penalty, as NMC was placed into administration in April 2020, the FCA has imposed a censure rather than a financial penalty to avoid reducing the funds available to meet creditors' claims.

    Ashurst comment: "We are seeing a real focus from the FCA on the integrity of financial statements published by listed companies and the need to ensure that inside information is adequately protected and released to the market promptly. While this is an extreme case, the FCA is active in this area across a range of market participants who handle and manage inside information." Nathan Willmott, Partner, Regulatory Investigations.

    ESG - EU

    4.  The EU Deforestation Regulation 

    Under the EU Deforestation Regulation (EUDR) products and commodities will soon not be able to be placed or made available on the EU market or exported unless they are: 'deforestation-free'; have been produced in accordance with the legislation of the country of production; and are covered by a due diligence statement. 

    To be classified as deforestation-free, products must not contain, have been fed with, or have been made using, 'relevant commodities' that were produced on land which has been subject to deforestation since 31 December 2020 (and, for wood products, the wood must have been harvested without inducing forest degradation). 

    The list of relevant commodities subject to the EUDR has been expanded during negotiations and now includes cattle (including most leather), cocoa, palm oil, rubber, soya, wood (including charcoal, furniture and printed paper) and coffee.

    The EUDR entered into force on 29 June 2023 and the obligations on operators and traders within it will apply from 30 December 2024. Micro and small undertakings benefit from certain special provisions including a later application date of 30 June 2025. 

    To whom does the EUDR apply?

    The EUDR contains obligations on commercial operators who place products on the market or export them and commercial traders (being any person in the supply chain other than the operator who makes products available on the EU market). 

    While non-EU companies (and individuals) will not be directly affected by the EUDR, the first company or individual established in the EU who makes products available on the EU market will be subject to the operator obligations contained within the EUDR. 

    What are the implications?

    The main obligation in the EUDR requires operators and traders to undertake due diligence. The due diligence process must consist of:

    1. The collection, verification and analysis of information, data and documents.
    2. A risk assessment to establish that there is no or only a negligible risk that the product is non-compliant.
    3. Adopting risk mitigation procedures and measures to remove any risk or reduce it to a negligible risk.

    Countries (or parts thereof) from which relevant products or commodities are sourced will be classified as low-, standard- or high-risk within 18 months of the EUDR entering into force. Companies sourcing products and commodities from low-risk countries will be subject to a lighter due diligence procedure which does not include steps 2 or 3 above. 

    Other notable obligations on relevant entities producing in-scope products include:

    • Adequate and proportionate policies, controls and procedures must be in place to mitigate and effectively manage the risks of non-compliance.
    • A due diligence system must be established and maintained.
    • Informing the relevant competent authorities and traders of new information indicating that a product they have placed on the market is at risk of not complying with the EUDR.
    • Annual public reporting on the due diligence system, including on the steps taken to fulfil the due diligence obligations set out at 1 to 3 above.

    The EUDR makes it clear that operators and traders can fulfil their reporting obligations when reporting in accordance with other EU requirements. This acknowledges that the EUDR is one of a number of recent developments (including the CSD3, CSRD and the TNFD) requiring companies to consider their supply chain's environmental and social impact.

    Penalties for non-compliance

    The EUDR requires Member States to implement effective, proportionate and dissuasive penalties. This includes fines which should be proportionate to the environmental damage and value of the commodities / products concerned and should deprive the responsible person of the economic benefit arising from the non-compliance. 

    The EUDR requires that the maximum amount of any fine must be at least 4 per cent of the total annual turnover in the EU of the non-compliant operator or trader. Other penalties include confiscation of revenue or products, temporary exclusion from public procurement processes and access to public funding, and, in cases of serious or repeat infringement, prohibitions from placing or making available on the market relevant commodities or products or from using the simplified due diligence process. 

    Due diligence on forest risk commodities in the UK

    The UK has been developing its own anti-deforestation legislation aimed at clamping down on products dependent on illegal deforestation. This will include a requirement on 'larger businesses' (to be determined on the basis of an annual turnover threshold which is yet to be set) to undertake a due diligence exercise on their supply chains to assess and mitigate the risk of regulated 'forest risk commodities' (including those embedded within products) which are produced on land illegally owned and used, and to report on this exercise annually. The commodities covered by the regulations are expected to be similar to those covered by the EUDR. 

    Author: Joanna Fox, Senior Associate in our Environment & Safety team

    Payment practices

    5.  Government finalises amendments to Payment Practices Regulations

    The government has published its response to the BEIS January 2023 consultation (see AGC Update, Issue 32) on amendments to the Reporting on Payment Practices and Performance Regulations 2017 and the equivalent legislation for LLPs.

    By way of reminder, the Regulations require large companies and LLPs to report their payment practices, policies and performance on a half-yearly basis in order to enable public scrutiny of them. The guidance which accompanies the 2017 Regulations can be found here.

    The response outlines the actions the government intends to take as follows: 

    • The Regulations will be extended beyond their current expiry date of 6 April 2024 for up to seven years, with a review to take place after five years.
    • In-scope businesses will be required to report on the value of invoices that have not been paid within agreed terms, alongside existing requirements to report on the total volume of payments due.
    • The payment dates to be reported when supply chain finance is used will be made clearer.
    • A methodology for reporting the proportion of disputed invoices, while still including them as late payments in overall payment time data, will be included in revised regulations.
    • Where relevant, reporting will be required to include information on standard retention payment terms and retention payment performance statistics for qualifying construction contracts. The government will work with the industry to explore what form of statistical information on retention payments should be captured.

    The response does not provide a timetable of next steps; nor does it confirm whether payment practices information will need to be set out in a company's directors' report (although responses to the consultation on this proposal were broadly supportive).

    We will provide further updates as this issue progresses. 

    Equity Capital Markets

    6.  Reform of the public offers regime takes next step

    The draft Public Offers and Admissions to Trading Regulations 2023 (the POAT Regulations) have been published and laid before Parliament, together with a draft Explanatory Memorandum

    The POAT Regulations create a new regulatory framework for the offering of securities to the public and admission of securities to trading in the UK, replacing the EU-derived UK Prospectus Regulation. One of the key recommendations in Lord Hill's UK Listing Review was the fundamental overhaul of the UK prospectus regime with a view to establishing a simpler, more dynamic and less duplicative regime which is tailored to the UK markets (see Ashurst briefing). In establishing this new regulatory framework, the POAT Regulations deliver on these proposals. 

    The POAT Regulations broadly follow the near-final version of the Regulations which were published in July 2023 as part of the Mansion House Reforms (see Ashurst briefing), though some minor and clarificatory updates have been made, including in relation to the waiver or modification by the FCA of requirements imposed by designated activity rules and the procedure and right to refer a matter to the Upper Tribunal. 

    The POAT Regulations represent the first part of the reframing of the prospectus regime, to be followed by detailed FCA rules, which together will form the new regime for public offers and admissions to trading. The new regime will therefore not come into force until the FCA has consulted on and finalised changes to its rules. Following on from the series of FCA Engagement Papers which, amongst other things, outlined the FCA's initial thinking on the new framework (see AGC Update, Issue 37), the FCA is aiming to progress to a formal consultation in summer 2024, subject to feedback from its current engagement process. Retained EU law relating to prospectuses will also be revoked via a separate statutory instrument in due course.

    7. Removal of 1.5% stamp duty/SDRT charge on issues and transfers integral to capital raising confirmed

    The government recently confirmed the removal from UK legislation of the 1.5% stamp duty and stamp duty reserve tax charge on issues and transfers integral to capital raising. 

    In its 2023 Autumn Statement, the government confirmed it will introduce legislation in the Finance Bill 2024 to ensure that no 1.5% charge to stamp duty (SD) or stamp duty reserve tax (SDRT) arises in relation to the issue of securities or stock into depository receipt systems and clearance services, nor on transfers of securities into depository receipt systems and clearance services in the course of capital-raising arrangements, and also that no SD charge arises on the issue of bearer instruments.

    The legislation, which updates draft legislation published for technical consultation in September 2023 (see AGC Update, Issue 41) has effect, for SD, in relation to instruments executed on or after 1 January 2024, and for SDRT for transfers (and, in a change to the draft legislation, agreements to transfer) also made on or after 1 January 2024.

    Companies House

    8.  Paper filings must be posted from March 2024

    Companies House has announced that from 4 March 2024, companies wishing to file paper documents will need to post them to the Cardiff office: Companies House, Crown Way, Cardiff, CF14 3UZ. Instead, companies are encouraged to file documents online via Companies House' digital services platform

    Companies registered in Scotland have been posting their documents to the Cardiff office since September 2023.

    Documents filed by post will continue to be accepted by Companies House' Belfast office until 1 March 2024. Documents sent to Belfast after this date will be redirected to Cardiff and may take longer to be processed and filed.

    Corporate crime

    9. Criminal Justice Bill proposes further expansion of identification doctrine 

    The Criminal Justice Bill was introduced recently to Parliament. 

    A key reform to the criminal law proposed in the Bill is the expansion of the identification doctrine to allow criminal liability to be attributed to companies and partnerships whose senior managers commit a criminal offence while actually or apparently authorised to do so.

    In its current form, the new legislation would replace certain provisions in the Economic Crime and Corporate Transparency Act 2023 (ECCTA) which codifies in part the existing common law identification doctrine to allow for the attribution of criminal liability to companies where senior managers commit certain economic crime offences. ECCTA is due to come into force on 26 December 2023 (for more information on the corporate aspects of the ECCTA, click here).

    The Bill is currently with the Public Bill Committee which is due to report to the House by 30 January 2024.

    Further updates will be published as this issue progresses.


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