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Welcome to EQUITY ISSUES, a short note on a relevant issue in the private equity and venture capital industry.

If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers.


Claire Cummings

020 7585 1406


Corporate governance developments expected in 2018

The government has proposed a raft of corporate governance reforms which are due to be published or take effect in 2018 and beyond. These include the following:

  1. Corporate governance reforms across three specific aspects, namely executive pay, strengthening the employee, customer and supplier voice and corporate governance in large, privately-held businesses;

  2. Proposed revisions to the UK Corporate Governance Code;

  3. Amendments to the Financial Reporting Council (FRC) Guidance on its Strategic Report;

  4. New Prospectus Regulation;

  5. SME Growth Market application and changes to the AIM Rules; and

  6. Impact of the General Data Protection Regulation (GDPR).

Corporate governance reforms

The Business, Energy and Industrial Strategy (BEIS) launched an inquiry last year on corporate governance reforms, which set out a number of proposals in relation to executive pay, strengthening the employee, customer and supplier voice and corporate governance in large, privately-held businesses.

The key areas of reform within executive pay include: (a) expanding the remit of the remuneration committee to include responsibility for oversight of company remuneration and workforce policies and practices; (b) new rules requiring chairs of remuneration committees to have served for at least 12 months on a remuneration committee; and (c) extending the vesting and holding period for shares granted or other forms of long-term incentives from at least 3 years to 5 years. In addition to these, quoted companies are required to: (i) report annually the ratio of CEO pay to the average pay of their UK workforce; and (ii) provide a clearer explanation in remuneration policies of a range of potential outcomes from complex, share-based incentive schemes.

The key areas of reform relating to strengthening the employee, customer and supplier voice include requiring all companies of significant size to explain how their directors comply with their directors duties in s.172 CA 2006 to have regard to employee and other interests.

The key areas of reform regarding corporate governance in large, privately-held businesses include: (a) inviting the FRC to develop a voluntary set of corporate governance principles for large private companies; and (b) to require companies (and potentially LLPs) of a significant size to disclose, on a comply or explain basis, their corporate governance arrangements in their directors’ report and on their website, including whether they follow any formal code.

The government intends to bring the reforms into effect by June 2018 to apply to company reporting years commencing after that date.

Proposed revisions to the UK Corporate Governance Code

The FRC published a consultation paper on its proposed revisions to the Code, together with changes to its Guidance on Board Effectiveness, in December last year. The paper also includes an initial high-level consultation on the future direction of the UK Stewardship Code. The consultation paper includes the FRC’s work on corporate reform outlined in the BEIS inquiry (referred to above).

The FRC aims to publish the final version of the Code by summer 2018, to apply to accounting periods beginning on or after 1 January 2019, and to publish a detailed consultation on the specific changes to the UK Stewardship Code in mid-2018.

Amendments to the Financial Reporting Council (FRC) Guidance on its Strategic Report

The FRC published amendments to its Guidance on its Strategic Report in August last year. The amendments aim to update the Guidance to reflect legislative changes to the strategic report requirements, as well as to enhance the linkage between s.172 CA 2006 and the Strategic Report. The FRC will delay implementation of the amendments until after the government has published its proposed legislative changes in respect of reporting on s.172 which are expected in March this year.

New Prospectus Regulation

The new Prospectus Regulation came into force on 20 July 2017 and will repeal and replace the Prospectus Directive with effect from 21 July 2019. The main provisions of the new Prospectus Regulation have been outlined in previous Equity Issues.

SME Growth Market application and changes to the AIM Rules

With effect from 3 January 2018, an issuer whose financial instruments are admitted to trading on an SME Growth Market is exempt from the requirement to draw up an insider list pursuant to MAR. As AIM applied to be registered as an SME Growth Market in December last year, this means that with effect from AIM’s designation as an SME Growth Market, AIM companies that satisfy certain conditions may benefit from the exemption to draw an insider list.

Impact of the General Data Protection Regulation

The General Data Protection Regulation (EU) 2016/679 (GDPR) will be directly applicable in all Member States with effect from 25 May 2018. The GDPR will apply to all businesses controlling and/or processing the personal data of EU residents regardless of where such businesses are based. Data controllers are required to demonstrate how they comply with the GDPR on an ongoing basis and failure to comply could lead to a fine.

This document is for general guidance only. It does not contain definitive advice.


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Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327

Cummings Law
42 Brook Street
London Greater London W1K 5DB
United Kingdom

25 05 2019

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