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Market reCap May 2014 edition
- Taxman stops stamping on growth shares
- Amendments to the Listing Rules take effect this month
- New disclosure regulations for extractive companies
- Consultation on the UK Corporate Governance Code
The Financial Conduct Authority (FCA) has confirmed that amendments to the Listing Rules will come into force on 16 May 2014. The changes relate to: the obligations of premium listed companies with a controlling shareholder; the free float requirement; measures to prevent use of corporate structures to evade the Listing Rules; enhanced transparency around smaller related party transactions and in the annual report; guidance on the requirement for premium listed companies to carry on an independent business; extension of the obligation to notify the FCA of breaches; and the extension of two listing principles to standard listed companies.
Controlling shareholders
We commented in an earlier edition of Market reCap on proposals affecting premium listed companies which have a controlling shareholder, requiring them to enter into a relationship agreement and to put in place a dual voting procedure for the election of independent directors.
Following consultation, these proposals have been adopted with some minor amendment. In particular, a "controlling shareholder" will be any person who, either individually or with persons with whom they are acting in concert, controls 30% or more of the votes of the company, but the interests of associates will not need to be aggregated for this purpose. Associates will however not be treated as independent shareholders for the purposes of the new dual voting structure for the election of independent directors. The FCA also consulted on a new requirement for such companies to gain approval from the majority of independent shareholders before seeking to delist. These proposals are being taken forward, so that the company would have to obtain a majority of at least 75% of the votes attaching to the shares of those voting on the resolution and also gain approval by a majority of the votes attaching to the shares of independent shareholders.
In takeover offer situations, an equivalent requirement based on acceptances will apply, except that when a bidder has acquired more than 80% of voting rights no further approval or acceptances by independent shareholders would be required to cancel the premium listing.
Free float
The FCA decided against increasing the requirement for 25% of a listed company's shares to be in public hands. However, it has introduced guidance about the circumstances in which it would use its power to modify the requirement and clarifying how the holdings of fund managers should be dealt with in the free float calculation.
The new rules also specify that, in calculating the free float, shares subject to a lock-up period of 180 days or more should be excluded.
Corporate structures
Two anti-avoidance measures are being introduced for premium listed companies. Firstly, where the Listing Rules require a shareholder vote on any matter, the vote must be decided by a resolution of the holders of the shares admitted to premium listing. An existing premium listed company with a structure that is inconsistent with this will have two years to change its structure or leave the premium listing segment.
There are also two new Listing Principles, one requiring that each share within a premium listed class should have equal voting power and the other to ensure that, where an issuer has multiple lines of premium listed shares, the voting rights of each class are broadly proportionate to the relative interests of those classes in the equity of the company. These aim to prevent super-voting shares and the creation of artificial structures designed to allow control to rest with a small group of shareholders.
Enhanced transparency
Premium listed companies are now required to announce smaller related party transactions (which do not require shareholder approval) as soon as possible, rather than waiting for the next annual report to disclose them. The requirement to inform the FCA in advance of such transactions has been removed.
In relation to annual reports, a new requirement has been introduced that disclosures required by the Listing Rules should either be in a single identifiable section in the annual report or that a cross-reference list to where the disclosures may be found is included where appropriate.
Independent business
The requirement for a premium listed company to show that it controls the majority of its assets has been removed and there is new guidance on the requirement that the company carries on an independent business as its main activity. The independence requirements are being extended to mineral and scientific research based companies, with some exemptions.
Notification of breaches
The obligation to notify the FCA if the company ceases to meet the free float requirement has been extended to cover all of the key eligibility requirements for premium listing.
Listing principles
Two of the listing principles now apply to companies in the standard listing segment. These require companies to maintain appropriate systems and controls and also to deal with the FCA in an open and co-operative manner.
Danielle Harris is a Senior Associate and Professional Support Lawyer in the Corporate Group of Field Fisher Waterhouse LLP in London.