Quoted Company Legal Update | June 2018

Written on 28 Jun 2018

Welcome to the latest edition of Osborne Clarke’s quoted company legal and regulatory news update.

We hope that you find it interesting. If you would like to discuss any of the content, or have a subject that you would like us to cover in next edition, please let one of us know. Our contact details are set out below.

FCA Handbook | New rules on the availability of information in the UK IPO process in force from 1 July 2018

The FCA’s new rules on the availability of information during the UK IPO process come into force on 1 July 2018. The changes take the form of amendments to the Conduct of Business Sourcebook to “improve the range, quality and timeliness of information that is made available… during the UK IPO process.” With the coming into force of the new rules, the FCA is addressing two key issues: the late publication of the prospectus in the current timetable and the perceived problems with potential investors being fed a pre-IPO information diet consisting largely of connected research. Directly applicable to Main Market IPOs, the FCA is also encouraging larger AIM IPOs to adopt the new framework.

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Issuer obligations | FCA consults on new guidance on inside information disclosure obligations in the context of preparing periodic financial information

The Financial Conduct Authority has issued draft technical guidance for issuers and their advisers on the need “to assess on an ongoing and case by case basis whether the information they hold fulfils the criteria defining inside information” in the context of the production of periodic financial information. A decision to delay disclosure of price sensitive information relating to financial results until the scheduled results announcement will, in many cases, breach the Market Abuse Regulation regime.

In one sense, there is nothing particularly surprising or new in the FCA’s draft technical guidance. But for issuers navigating the complexities of MAR, it serves as a useful reminder of the key principles underlying the inside information disclosure regime in the context of the preparation of periodic financial information.

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Corporate governance | Government publishes draft legislation proposing new disclosure obligations affecting listed companies and their subsidiaries

2019 will see significant changes for listed company governance. In addition to the introduction of a revised UK Corporate Governance Code (due to be published next month), the UK government’s corporate governance agenda has taken a significant step forward this month with the publication of draft legislation setting out new disclosure obligations for larger UK companies. Subject to Parliamentary approval, it is anticipated that the new requirements will apply to financial years commencing on or after 1 January 2019, meaning companies will start to report under the new regime from Q1 2020. Whilst that may seem a long time away, organisations will need to understand the scope of the new disclosure obligations and, potentially, consider what operational changes to introduce during 2019 as a result.

Reforms include new spotlight policies on stakeholder engagement and section 172 compliance, together with new CEO pay ratio disclosure for Main Market companies. The new disclosure obligations will require each individual company within a group which meets the relevant criteria to make appropriate disclosures in its annual accounts.

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Corporate governance | The direction of travel for AIM companies

From 28 September 2018, every AIM company will be required, as part of its Rule 26 disclosures, to state on its website which recognised corporate governance code the board of directors has decided to apply and to explain how the AIM company complies with that code. Together with the new disclosure obligations highlighted above, this means that all AIM companies will need to review their corporate governance this summer. We give our perspective on how AIM companies are addressing these changes.

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Treasury | New guidance from Law Society considers legality of common intra-group financing transactions

In guidance issued in 2017, the Institute of Chartered Accountants in England and Wales suggested, for the first time, that:

  • an upstream or cross-stream guarantee would be a distribution where no market fee is paid to the surety for the grant of that guarantee;
  • the grant of an interest-free on-demand loan by a subsidiary to a parent or other sister company could constitute a distribution, because of the interest foregone on the loan by the subsidiary.

Neither statement was consistent with prevailing market views. If they were correct, transactions previously considered lawful would potentially be off limits to companies without distributable profits, and directors and lenders alike could be affected by the potential invalidity of existing arrangements.

Because of the uncertainty introduced by the 2017 Guidance, the Law Society has produced two new notes addressing the issues raised. The Law Society notes, broadly speaking, return us to the pre-2017 status quo. We look at the implications of the guidance, including some best practice tips for documenting intra-group loans and guarantees.

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Contract law | “No oral modification” clauses upheld by the Supreme Court

In a landmark decision, the UK’s highest court has held that a contractual term prescribing that an agreement may not be amended unless the modification was in writing (a “no oral modification” or “NOM” clause) is legally effective. Whilst a common feature of commercial contract “boilerplate” for many years, it had been thought that NOM clauses were vulnerable due to the fact that English law recognises the validity of oral contracts, which could supersede and effectively negate the terms of a prior contract between the parties requiring writing.

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