Market reCap June 2013 edition
- Code Committee implements changes regarding pension scheme trustee issues
- Launch of new high growth segment to the Main Market
- ESMA update: Q&A version 18, supplementary prospectuses, mineral company recommendations and third country prospectuses
- Show me the money - new European disclosure requirements announced for companies in extractive industries
- Directors' pay and financial reporting standards: shareholder voting guidelines get tough
- Directors' remuneration reports - the new regime
- Reform of the UK competition regime
- Recovering VAT costs on takeovers - BAA Limited has a hard landing in the Court of Appeal
As we indicated last year, the government is proposing to make changes to the directors' remuneration report requirements for quoted companies (which, for these purposes, excludes AIM companies and non-UK incorporated listed companies) from 1 October 2013.
The Enterprise and Regulatory Reform Act 2013 ("ERRA 2013") became law on 25 April 2013. It includes new rules relating to quoted companies' disclosure of directors' remuneration and shareholder approval of directors' remuneration reports.
The ERRA 2013 introduces:
- a requirement for the directors' remuneration report to include a separate forward-looking policy. ERRA 2013 provides that regulations will set out the content requirements of the forward-looking directors' remuneration policy (covering the company's policy on remuneration payments and payments for loss of office), which is to be set out in a separate part of the directors' remuneration report;
- a requirement for a binding shareholder approval by ordinary resolution of the directors' remuneration policy at least every three years. This includes the policy on termination payments and must be approved before the expiry of the three-year period if the company wishes to change the policy, or if shareholders did not approve the non-policy part of the directors' remuneration report at the company's previous AGM; and
- new sections to deal with restrictions on payments to directors and remuneration payments for loss of office. The company is prohibited from making a remuneration or loss of office payment to a current, former or future director, unless it is consistent with the most recently approved remuneration policy. Under new rules, any payment which is inconsistent with an approved policy will be held by the recipient in trust and can be recovered by way of a derivative action. Directors who approve payments outside the scope of the approved remuneration policy will be liable to jointly and severally indemnify the company against any loss resulting from the payment.
There is a provision allowing a court to grant relief from liability to a director who authorised a payment that is not consistent with the approved policy. Relief will be available if the director shows that he acted honestly and reasonably and the court considers that, in all the circumstances, relief ought to be granted. These restrictions in relation to payments for loss of office are not expected to come into force until the start of the second financial year to begin on or after 1 October 2013, although companies can introduce them earlier than that if they wish.
The non-policy part of the directors' remuneration report will continue to be subject to an annual advisory vote.
Although the new rules are not expected to come into effect until 1 October 2013 (and then only in respect of the first financial year following that date), companies registered in the UK with an equity listing on the Main Market of the London Stock Exchange (or certain other specified markets) should now consider what impact the new legislation will have on the contents of their new remuneration reports, mindful also of the restrictions that will come into force relating to payments to directors for loss of office.
The Department for Business, Innovation & Skills has published helpful FAQs in respect of the new legislation. These can be found here.
Mark Gearing is a Partner in the Tax Group of Field Fisher Waterhouse LLP in London.
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