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EQ Bulletin - May 2022

Thursday, 5 May 2022

Keeping you up-to-date with industry changes and updates impacting the world of share registration and employee share plans.

Paul Matthews Circle Paul Matthews CEO - EQ Boardroom

Welcome to our May edition of the EQ Bulletin.

This month, we report on the Financial Conduct Authority's Primary Market Bulletin 39, which announces the removal of temporary financial reporting extensions introduced due to the COVID-19 pandemic.

Elsewhere, diversity on boards and executive committees are also at the forefront, with the FCA making changes to the Listing Rules and Disclosure Guidance and Transparency Regulations.

Climate reporting also features as Deloitte has published a new report that shares observations from the first wave of TCFD disclosures in company accounts, and The International Sustainability Standards Board published its first two exposure drafts of sustainability standards.

Finally, the Financial Reporting Council has issued a report that analyses Modern Slavery Reporting in a sample of 100 companies. The report makes interesting reading for those companies preparing this report for this year.

As always, if you have any questions on the content of this month's Bulletin, please get in touch with your Client Relationship Lead.

Primary Market Bulletin 39

The Financial Conduct Authority (FCA) has published the Primary Market Bulletin 39.

The Bulletin deals with removing temporary measures introduced as a result of the COVID-19 pandemic in 2020. The FCA considers that even though the effects of the pandemic are still being felt, practice has evolved so that (i) issuers and their advisors are now able to return to previous practices and methods of publishing appropriate financial information to support investor decision-making and (ii) the FCA can rescind the temporary measures regarding working capital statements and general meetings that were put in place to assist companies raising new share capital.

As a result, the following will apply:

  • The temporary reliefs allowing issuers an additional two months to publish their annual financial reports and an additional one month to publish their half-yearly financial reports will no longer be available for reporting periods ending on or after 28 June 2022.
  • Issuers subject to DTR 4 are required to publish their annual financial reports within four months of their financial year-end (DTR 4.1.3R) and their half-yearly financial reports within three months of the end of the relevant reporting period (DTR 4.2.2R). If they do not meet these deadlines, the FCA expects issuers to request a suspension of their listed securities.
  • After 28 June 2022, the FCA will no longer approve prospectuses or circulars that use the temporarily revised approach to working capital statements, whereby issuers can, under certain circumstances, disclose their key assumptions on business disruption without requiring the inclusion of a qualified working capital statement, and Technical Supplement: working capital statements in prospectuses and circulars during the coronavirus epidemic will no longer apply.
  • From 28 June 2022, the FCA will no longer grant dispensations from the requirement to hold general meetings in respect of class 1 transactions and related party transactions and Technical Supplement: modification of general meeting requirements under the Listing Rules will no longer apply.

Read More: Primary Market Bulletin 39

Inside AIM

The London Stock Exchange has published an Inside AIM notice. The temporary measures introduced as a result of the COVID-19 pandemic in place for both half-yearly reports (pursuant to AIM Rule 18) and annual audited accounts (pursuant to AIM Rule 19) will no longer be available for any annual financial periods and any half-year financial periods ending after 28 June 2022.

Read More: Inside AIM notice

Board and Executive Committee Diversity: Policy Statement And New Instrument

The Financial Conduct Authority (FCA) has published a policy statement on its proposals to amend the Listing Rules (LR) and Disclosure Guidance and Transparency Regulations (DTR) relating to diversity on boards and executive committees.

The final version of the instrument provides amongst other things:

  • That, for the numerical disclosures, companies may report either on the basis of sex or gender identity.
  • That where issuers who have members of their board or executive management situated overseas, and local law prevents the collection or publication of relevant data, a company may instead explain the extent to which it is unable to make the numerical disclosures and complete the tables.
  • Amend the language used for the targets in relation to ethnic minority background and provide that "Other ethnic group" includes Arab.
  • That companies must also include an explanation of their approach to collecting the data. Guidance has also been inserted to provide that the FCA expects a listed company's approach to data collection to be consistent, and that the explanation include the method of collection or source of the data and, where data collection is done on the basis of self-reporting by the individuals concerned, a description of the questions asked.
  • Change the commencement date to financial years starting on or after 1 April 2022 (rather than 1 January 2022), although companies whose financial years began before then (from 1 January 2022) are encouraged to consider reporting on a voluntary basis.

The FCA decided not to extend LR reporting to representation on sexual orientation or other categories, such as lower socio-economic background, or to set requirements for the level below executive management, although it encourages issuers to report on wider aspects of diversity through its changes to the corporate governance rules in DTR 7.

The FCA will review the rules in 3 years’ time to make sure they are working and to check if the diversity targets are still appropriate. 

Read More: Policy Statement PS22/3

Listing Rules and Disclosure Guidance and Transparency Rules (Diversity and Inclusion) Instrument 2022 (FCA 2022/6)

Takeover Code - Notes To Advisors

The Takeover Panel Executive has published new notes to advisors relating to the following:

The disclosure of information on Rule 9 of the Takeover Code. To assist advisers, the Executive has prepared pro forma drafting that may be used when shareholders or potential investors are given certain information in relation to Rule 9 which can be amended according to circumstances.

Read More: Rule 9 of the Takeover Code

Rule 2.8 statements where the Executive has prepared two examples of Rule 2.8 statements in relation to situations where, at the time that the Rule 2.8 statement is made (i) no third party has announced a firm intention to make an offer; and (ii) a third party has announced a firm intention to make an offer. There is a reminder that any person considering making a Rule 2.8 statement should consult the Takeover Panel Executive in advance. There is also a reminder that any Rule 2.8 statement must be published via a Regulatory Information Service in accordance with Rule 30.1 and should be linked to the Code company to which the Rule 2.8 statement relates.

Read More: Rule 2.8 Statement

The existing note to advisers in relation to re-registering a public company as a private company has been amended, including amendments to the suggested drafting to be included in the circular or explanatory memorandum to be sent to shareholders before a public company is re-registered as a private company.

Read More: Note to Advisers – re-registering

Consultation Paper 25 - UK Transparency Directive European Single Electronic Format Regulation

The Financial Conduct Authority (FCA) has issued a consultation paper CP25/5 on proposed changes to UK Transparency Directive European Single Electronic Format (TD ESEF) Regulation to allow companies to use a more up-to-date electronic format for their annual financial report. The consultation closed on 8 April 2022. The proposed changes to the UK TD ESEF Regulation would take from 3 May 2022 and would mean that DTR 4.1 issuers would use more recent versions of ESEF taxonomies to meet their obligations to tag their annual financial statements under DTR 4.1.14R and Article 4 of the UK TD ESEF Regulation. In particular, the proposed changes to UK TD ESEF Regulation would mean annual financial reports filed with the FCA's National Storage Mechanism using, as the permitted taxonomy, the UKSEF 2022 taxonomy:

  • On and after 3 May 2022 would use the UKSEF 2022 taxonomy v.2.0.0.

    This change is to be effected via the definition of UKSEF 2022 taxonomy in Article 2(4B) of the UK TD ESEF Regulation. The FCA cannot accept both versions into the NSM at the same time, so the last business day it would accept filings using the UKSEF 2022 taxonomy v1.0.0 would be 29 April 2022. Both taxonomies are issued by the Financial Reporting Council. The UKSEF 2022 taxonomy is a permitted taxonomy for financial years beginning on or after 1 January 2021 but before 1 January 2022, as well as financial years beginning on or after 1 January 2022.

Read More: Consultation Paper 25

Court Case – Quorum Requirement

The case of Re Fore Fitness Investments Holdings Ltd, Hashmi v Lorimer-Wing found that, where a company's articles of association required two directors for a Board meeting to be quorate, a sole director will not have the power to direct the company's actions. The company had Articles which contained a mixture of model Articles and bespoke Articles. Article 7(2) of the Model Articles: allows for a sole director to manage a company, but only in circumstances where no provision of the articles requires the company to have more than one director and Article 11(2) of the Model Articles: which states that the quorum for directors' meetings may be fixed from time to time by a decision of the directors, but must never be less than two, and unless otherwise fixed is two were included in the Articles of the company. Additionally, bespoke Article 16 provided that the quorum of Board meetings shall be two directors.

The company, which at the time only had one director, had filed a counterclaim against an unfair prejudice petition. A shareholder who brought the claim sought the company's counterclaim to be struck out. It argued that, pursuant to bespoke Article 16, the company was required to have two directors, and this requirement thereby disapplied Model Article 7(2). As the company only had a sole director, the sole director had no power, and the counterclaim was, therefore, ultra vires. The company submitted that Model Article 7(2) disapplied any provision of the articles relating to directors' decision making, such that it prevailed over Model Article 11(2) and Bespoke Article 16. They argued that when the company only had one director left on its Board, the relevant position was not the one under Bespoke Article 16. However, instead, the company had moved to the position allowed by Model Article 7(2) and the sole director, therefore, had sufficient authority to enable the company to commence the counterclaim. It also submitted that section154 of the Companies Act 2006 (CA2006) permits companies to have a single director, and the Model Articles (contained in a statutory instrument) could not abrogate a provision of an Act.

The Court found that the sole director did not have the power to direct the company to file the counterclaim. Model Article 7(2) allows a sole director to manage the company but only in circumstances where no other provision of the articles requires the company to have more than one director. Bespoke Article 16 required the company to have at least two directors for Board meetings to be quorate, and this was deemed to be a requirement that the company must have two directors to manage its affairs. The existence of Bespoke Article 16 disapplied Model Article 7(2). The Court also rejected the argument that reading Model Article 11(2) requiring a company to have two directors creates a clash between section154 CA 2006 and the Model Articles. Although section 20 CA 2006 provides that Model Articles are to apply if no other articles are registered, nothing in the section requires a company to adopt them, whether in whole or in part. If a company is to be a single director company, section 154 can be relied on, and section 20 permits the Model Articles to be amended to achieve that end. In such a situation, the Court explained that the company should amend the Model Articles by deleting or amending Model Article 11(2). On the contrary, on the facts of this case, the company had not deleted Article 11(2) and the requirement for a quorum of two directors and instead they had reinforced the provision by adding in Bespoke Article 16.

Read More: Fore Fitness Investments Holdings Ltd, Re [2022] EWHC 191 (Ch) (02 February 2022) ( .

International Sustainability Standards Board - Exposure Drafts Of IFRS Sustainability Disclosure Standards

The International Sustainability Standards Board (ISSB) - established at COP26 in Glasgow in 2021 to lead in the development of new baseline global standards about sustainability disclosure - has published exposure drafts of two IFRS Sustainability Disclosure Standards: IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures. These are expected to be the first in a suite of new standards the ISSB will be consulting on. The consultation closes on 29 July 2022, with the latest standards due to be issued by the end of 2022.

The draft standard would require a company to disclose material information about all significant sustainability-related risks and opportunities to which it is exposed. The disclosure would be part of the company's general-purpose financial reporting, with the sustainability-related financial disclosures being published simultaneously as the company's financial statements.

IFRSS2 requires a company to provide material information about its significant climate-related risks and opportunities. The draft incorporates and adds to the recommendations of the Task Force on Climate-related Financial Disclosures.

According to the ISSB, the proposed new standards aim to provide "more consistent, complete, comparable and verifiable information" within companies' financial reporting on climate and sustainability issues. It will be a decision of individual jurisdictions whether companies will be required to comply with the final standards.

Read More: IFRS S1


Deloitte Report - FCA Compliance Statement Of TCFD Disclosures

Deloitte has recently published a report detailing the results of their survey into how the first wave of December 2021 year-end reporting companies have approached the new Task Force on Climate-Related Financial Disclosure (TCFD) requirements.

Based on the first 30 annual reports published by UK premium-listed companies with December 2021 year-ends, the report indicates how companies adhere to the TCFD’s recommendations & eleven recommended disclosures. The main findings of the report are:

  • 90% of companies disclosed a clearly identified compliance statement in their annual report.
  • All companies indicated consistency with TCFD with respect to their Governance and Risk Management disclosures, in line with the FCA’s expectations in Listing Rule 9.8.6E.

Of the 21 companies presenting their TCFD disclosures wholly in the annual report:

  • 62% of companies stated that they have performed quantitative scenario analysis.
  • 13 companies stated that they had obtained independent external assurance over some or all metrics disclosed; all these companies gained assurance over at least Scope 1 and 2 emissions, with 11 also having obtained assurance over Scope 3 emissions.
  • All but one company disclosed a carbon reduction target, with the majority of these companies describing their target as ‘net zero’ or ‘carbon neutral’.

Read More: FCA Compliance statement on TCFD Disclosures | Deloitte UK

Corporate Re-domiciliation

Following a consultation which was opened on 27 October 2021 and closed on 7 January 2022, the UK Government intends to introduce such a regime, making it possible for companies to move their domicile to and relocate to the UK by enabling the re-domiciliation of companies. This could modernise the UK’s legal framework and bring the UK in line with other countries such as Canada, Singapore and New Zealand. Re-domiciliation would enable a foreign-incorporated company to change its place of incorporation whilst maintaining its legal identity as a corporate body. The Government explains that this will give companies maximum continuity over business operations when redomiciling and substantially reduces administrative complexity compared to other routes of relocating and incorporating in the UK.

New legislation will need to be enacted to provide for re-domiciliation; however more detailed analysis and engagement and, if required, further consultation is required first.

Read More: Corporate Re-domiciliation Consultation: summary of responses (

Modern Slavery Reporting Practices In The UK 2022

The Financial Reporting Council (FRC), in conjunction with the UK Anti-Slavery Commissioner and Lancaster University, has published a research report which has found there are significant shortcomings in the quality of companies’ modern slavery reporting. The research was based on a sample of 100 major companies’ modern slavery statements and their strategic and governance reports. Ten percent of companies do not provide a modern slavery statement despite it being a legal requirement. Of those companies which did comply, only one-third of these statements were considered clear and easy to read. The research found that most modern slavery statements reviewed were fragmented, lacked a clear focus and narrative, and often contained boilerplate language. Disclosures about key performance indicators (KPIs), which measure the effectiveness of steps to minimise modern slavery risks, were particularly poor. Only a quarter of companies disclosed KPI results, and just 12% confirmed they had made informed decisions based on those KPIs.

Read More: Modern Slavery Reporting Practices

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