Your quoted company legal news update - October 2015
Published on 22nd Oct 2015
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 the next edition, please let one of us know. Our contact details are set out below.
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Jon King, Mark Wesker, Tom Harvey and Nick Thody
MAD II and the Market Abuse Regulation: what you need to know about the upcoming changes to the UK’s market abuse regime
The UK’s market abuse framework is changing through the coming into force of the Market Abuse Regulation (MAR) in July 2016. The purpose of MAR is to establish a common regulatory framework across the EU to confront market abuse. In the words of the introduction to MAR:
“the [2003 Market Abuse Directive] completed and updated the Union’s legal framework to protect market integrity. However, given the legislative, market and technological developments since the entry into force of that Directive, which have resulted in considerable changes to the financial landscape, that Directive should now be replaced. A new legislative instrument is also needed to ensure that there are uniform rules and clarity of key concepts and a single rule book…“
The UK will probably experience less change through the implementation of MAR – given the super-equivalent approach it adopted to the implementation of the 2003 Market Abuse Directive – than some other EU jurisdictions, where securities regulation is perhaps currently less well developed. However, there are significant changes coming down the track and the regulatory environment will, in a number of respects, be further tightened.
Alongside new rules on retrospective notification to the FCA of decisions by issuers to delay disclosure of inside information and detailed rules on market soundings, one of the most significant changes will be that, for the first time, the control and disclosure of inside information, production of insider lists and PDMR dealing notification in respect of AIM companies will be governed by MAR and enforced by the FCA.
EU cross-border mergers: a potentially useful tool for group restructurings
We are often asked by our international clients about the possibility of rationalising group structures through the merger of existing subsidiaries. Generally speaking, English law does not recognise the concept of a “statutory” merger. These are common in other jurisdictions, notably the US, where one or more merging companies cease to have corporate existence as a result of the merger and there is an automatic assumption of assets and liabilities by the surviving company. However, this general position is subject to an important exception introduced by EU law, which is being used more and more in practice by groups looking to restructure their European operations.
AIM Regulation consults on rule changes for investment companies and fundamental changes in business
AIM Regulation has published AIM Notice 42, which proposes changes to the AIM Rules for Companies to:
- increase the minimum equity fundraising requirements for investment companies seeking admission (set out in AIM Rule 8) to £6m (from £3m). The fundraising requirement was first introduced in 2005 and was set at such a level to “necessitate external, often institutional participation, ensuring an extra level of scrutiny over the investment policy, the experience of the applicant’s directors and the company’s valuation on admission“. The change is to reset the level to an appropriate threshold given the passage of time; and
- amend the rules governing fundamental changes in business (AIM Rule 15) to require that, where a company becomes a cash shell following a fundamental change in business, it will be treated as an “AIM Rule 15 cash shell”, a new designation.
Within six months of becoming an AIM Rule 15 cash shell, the AIM company must make an acquisition or acquisitions which constitute a reverse takeover under AIM Rule 14. For the purposes of this rule only, becoming an investing company pursuant to AIM Rule 8 (including the associated raising of £6m in new funds as specified in the proposed revisions to AIM Rule 8) will be treated as a reverse takeover and the provisions of AIM Rule 14 will apply, including the requirement to publish an admission document.
Where, within six months, an AIM Rule 15 cash shell has not completed a reverse takeover as required, the Exchange will suspend trading in the AIM securities. The rule change is being proposed as, in the view of AIM Regulation “currently, following such a disposal some companies remain on market with limited cash balances which may not be sufficient to enable meaningful investment(s) or facilitate the functioning of a fair and orderly market in the company’s securities“.
The consultation closes for comment on 12 November 2015.
New guidance from AIM on equity financing product disclosure
AIM Regulation has published an Inside AIM update in light of recent corrections it has required AIM companies to make in relation to the disclosure of equity financing products, including:
- equity financing facilities, which provide AIM companies with a line of funding in return for equity;
- equity swap facilities; and
- crowd funding type products targeted at non-institutional investors.
These products are often complex instruments and pose particular challenges for companies in ensuring they are properly understood by the market.
The Pre-emption Group’s Statement of Principles and the additional 5%: Glencore under fire for non pre-emptive placing
Glencore, the FTSE100 company, has provoked the ire of institutional investor bodies by undertaking a non pre-emptive placing using increased shareholder authorities obtained under revised guidelines published by the Pre-emption Group earlier this year. We take a look at some of the legal and governance issues involved.
The long road: European Commission launches Action Plan for the Capital Markets Union
On 30 September 2015 the European Commission published its Action Plan on Building a Capital Markets Union. The aim of the Capital Markets Union initiative is to create a true single market for capital in the EU. The Action Plan follows a series of consultations launched by the Commission earlier this year into CMU, reform of the Prospectus Directive, and securitisation.
In the Commission’s words, the Action Plan “sets out the building blocks for putting a well-functioning and integrated Capital Markets Union, encompassing all Member States, into place by 2019“. Its overall goal for CMU is “to create opportunities for investors, connect finance to the wider economy, and foster a more resilient financial system, with deeper integration and more competition“.
FRC publishes consultation paper on changes to the UK Corporate Governance Code and guidance for audit committees
The Financial Reporting Council, the body responsible for setting UK accounting and auditing standards, as well as drafting the UK Corporate Governance Code (Code), has published a consultation paper setting out proposed amendments to the Code and its Guidance on Audit Committees. The FRC is also consulting on proposed technical amendments to auditing and ethical standards.
Seen elsewhere
Invitation to participate in FRC’s Culture Project to “gather practical insight into corporate culture and the role of the board” closes on 30 October 2015 (Financial Reporting Council)
FTSE 100 improves executive pay practices in light of remuneration policy approval regime, now in its second year (Financial Times)
The LIBOR scandal – Bloomberg’s long read on Tom Hayes (Bloomberg)
TheCityUK on how the financial services industry supports jobs and growth across the EU (TheCityUK)
