30 November 2011
Five years of administration and liquidation see professional advisers receive £8.2 million
Farepak, the operator of a Christmas savings club for low-income customers, went into administration in October 2006, more than five years ago. This week it is widely reported (see, for example, in this Daily Telegraph article) that the professional advisers running the administration and subsequent liquidation have so far run up fees of £8.2 million. The administrators and liquidators are BDO, who are reported to have earned fees of £3.8 million; other advisers include law firms, insurers and (that quintessential mark of an advisory bean-feast) PR specialists.
Meanwhile, the former customers of Farepak will receive an estimated 15p for each £1 that they had saved into Farepak – meaning that the customers will receive an aggregate payment of £5.5 million, some 33% less than will be paid to the advisers.
And the Financial Times reports that the BDO is still not ready to pay the dividend to former customers “as it is pursuing other sources of funding that could bolster the pay-out”. The Daily Telegraph reports a BDO spokesman as follows:
“The administration and liquidation of Farepak is complex and has involved an exceptionally large number of creditors, the identities of which were unknown at the outset of the administration.”
We reported in February 2011 on the application by the Insolvency Service for disqualification orders against nine individuals in relation to their conduct as Farepak directors. That application is continuing.
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29 November 2011
SEIS will give tax relief of 50% for angel investors in start-up companies
The Chancellor today announced in the Autumn Statement that a new scheme to encourage investment in start-up companies will be introduced. The “Seed Enterprise Investment Scheme”(SEIS) will provide tax relief of 50% for individuals who invest in shares in qualifying companies, with an annual investment limit for individuals of £100,000 and a cumulative investment limit for companies of £150,000.
There will also be a capital gains tax holiday for investments made into the new scheme. This will provide a capital gains tax exemption on gains realised on disposal of an asset in 2012-13 and invested through the SEIS in the same year.
What type of company will be a “qualifying company”? There is no further information in the Autumn Statement, but there are – perhaps – some clues in the consultation paper that the Treasury published on 6 July 2011 on the proposed introduction of the SEIS. That consultation paper suggested that the proposed scheme (then called “BASIS”) would apply to pre-trading companies, attempted to define a “business angel”, and also suggested that any investment would have to be principally in the form of equity or quasi-equity. See our post of 6 July 2011 for more details.
This Financial Times article has accountants Blick Rothenburg describing the level of the SEIS tax relief as “astonishing”.
UPDATE 6 December 2011: The draft Finance Bill 2012 has now been published by HM Treasury, setting out the details of the SEIS and how it will operate – see this post.
The Enterprise Investment Scheme and Venture Capital Trusts
The Autumn Statement also confirmed that:
“The Government will also simplify the EIS by relaxing the connected person rules and the definition of shares that qualify for relief. The Government will tighten the focus of the schemes by introducing a new test to exclude companies set up for the purpose of accessing relief, exclude acquisition of shares in another company and exclude investment in Feed-in-Tariffs businesses. In addition to these changes that were consulted on, the Government will remove the £1 million investment limit per company for VCTs to reduce the administrative burdens of the scheme.”
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29 November 2011
Auditors to be investigated following AIM-listed company’s internal review of accounting irregularities
In September 2011 we reported on the “serious accounting irregularities” that led to Healthcare Locums plc’s shares being suspended from AIM for eight months. Yesterday the Accountancy and Actuarial Discipline Board (AADB) launched an investigation into BDO’s role in the:
“• preparation, approval and audit of the financial statements of Healthcare Locums plc and its subsidiaries for the years ended 31st December 2008 and 2009;
• preparation and approval of the interim financial statements of Healthcare Locums plc and subsidiaries for the six months ended 30th June 2010;
• operation by Healthcare Locums plc and its subsidiaries of the discounting facility with Barclays Bank plc during 2010; and
• compliance by Healthcare Locums plc and subsidiaries with the National Health Service terms and conditions as set out in the Framework Agreements since 1 January 2008.”
The AADB is the investigative and disciplinary body for accountants and actuaries in the UK and it focuses on cases which raise important issues affecting the public interest.
See also: BDO becomes the first sponsor to be publicly censured by the Financial Services Authority.
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28 November 2011
In a presentation at The Lawyer’s Funds Summit on 25 November 2011, the Chief Executive of the Investment Management Association, Richard Saunders, highlighted the number of regulatory initiatives in the financial services arena coming out of the EU. Mr Saunders’ conclusion was that:
“Much of what is now on the table would be damaging to the EU economy as a whole. It would impact the UK particularly hard, but I for one do not buy the theory that it is a concerted plan to undermine London as a financial centre. Rather I believe that the problems arise from too much haste and insufficient consultation. The need for reform should not be ignored. But it should be appropriate and proportionate. Education of and engagement with policy-makers therefore remains critical.”
Mr Saunders’ presentation, which discusses just some of these EU measures, is linked in this IMA press release.
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26 November 2011
Consensus that AIM should introduce a free float requirement
PwC have produced a report (“Thriving on AIM”) giving a snapshot of current sentiment on the AIM market. Perhaps the five most interesting findings of the PwC report, which surveyed 96 AIM companies, are:
1. That 70% describe achieving “aggressive growth” as their main corporate priority over the next 12 months, with only 10% citing cost control.
2. That AIM companies’ focus for growth remains on the U.S. and Europe, despite the economic problems in those areas.
3. The top five challenges identified by AIM companies, which are:
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25 November 2011
A story typical of the frustrations of small business owners when dealing with uncommercial lawyers
The Daily Telegraph reports on the tortuous negotiations involved in documentating a £3.75 million loan:
“City Cruises, which has an £11m annual turnover and runs 15 boats on the Thames, wanted to order London’s first 600-seat vessel ahead of the Olympics. Mrs Beckwith told an audience at a British Bankers’ Association “Better Business Finance” roadshow that, while her existing funders, Lombard, came up with the best rate for the boat’s £3.75m price-tag, the overall cost of the deal was high and the contract negotiations tortuous.
“Both the upfront and lifetime costs are much higher,” said Mrs Beckwith. “And the loan agreement has been incredibly complex, more suitable to a supertanker than a passenger ship on the Thames. Negotiations took months, conducted through lawyers by email and telephone.
“The commercial, practical realities were impossible to agree and the lawyers’ fees enormous. We finally signed the loan agreement last month – halfway through the building programme, which started six months before.”
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23 November 2011
Seven major institutional investors to push for more women on FTSE boards
The 30% Club – which pursues the goal of 30% female representation on UK boards by 2015 – last week launched its “Investor group”, comprising representatives from seven major institutional investors including Aviva Investors, The Co-operative Asset Management, F&C Investments, Jupiter Asset Management, Legal & General Investment Management, Newton Investment Management and Railpen. The purpose of the group is to:
“…work towards broadcasting the investment case for more diverse boards, encouraging all investment firms to engage on the issue of board diversity with Chairmen and management teams and to consider the issue when voting on the appointment and re-election of board members.”
The Davies Review of “Women on boards” was published in February 2011 (see this post) and is the centrepiece of initiatives – of which the 30% Club is one – to increase the number of women on listed company boards. In October 2011 the Financial Reporting Council, following recommendations in the Davies Review, announced changes to the UK Corporate Governance Code to strengthen the principle of boardroom diversity, as we reported in this post.
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22 November 2011
“Only one successful FTSE 100 chief executive officer [was] poached in five years – and even this person was poached by a British company”
The High Pay Commission (HPC) has today published its final report, “Cheques With Balances: why tackling high pay is in the national interest” (the Report). The HPC was established by the pressure group Compass (“Direction for the Democratic Left”) with the support of the Joseph Rowntree Charitable Trust. The HPC describes itself as “an independent inquiry into high pay and boardroom pay across the public and private sectors in the UK”. The background of the HPC Commissioners can be seen here and the HPC “Expert Panel” is here.
Perhaps the most eye-catching of the HPC recommendations is its call for “all companies to publish an anonymised list of their top ten highest paid employees outside the boardroom”. In the Report, this recommendation is restricted to companies that “comply or explain” with the UK Corporate Governance Code (the Code) – that is, to companies with a Premium Listing within the UKLA Listing Regime.
One little-reported finding of the HPC is that there appears to be little statistical evidence to support the argument that top executive pay must be escalate to stop talent from being poached:
“Our own evidence shows that global mobility is limited, with only one successful FTSE 100 chief executive officer poached in five years – and even this person was poached by a British company.”
An ambiguity throughout the Report is the extent to which the recommendations apply to AIM companies. Several recommendations are predicated on compliance with the Code, which is not an AIM requirement (most AIM companies tending instead to follow the Quoted Companies Alliance Corporate Governance Guidelines for Smaller Companies). It is fair to say that the Report has been written principally with FTSE 100 companies, or the FTSE 350 universe, in mind – AIM companies do not appear to have been on the HPC’s radar.
The HPC Recommendations
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21 November 2011
See also: A Eurozone exit: Legal implications for companies and businesses - Collection of notes on the legal impact of a country leaving the Eurozone
The EU treaties and individual contracts contain no provisions for a country to exit the Euro, so the implications for private contracts are likely to be determined by a mixture of fundamental legal principles and commercial realities
As the possibility of a country leaving the Euro increases, more attention is being paid to the consequences of, and questions posed by, a Eurozone country withdrawal. Beside the macro-economic consequences of withdrawal and the logistical and psychological challenges of creating a new currency, what would be the effect on private contracts denominated in Euros (or another currency, such as the dollar) that have been entered into by one counterparty in the withdrawing country and a counterparty outside that country?
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21 November 2011
“The fundamental issue is that law schools are producing people who are not capable of being counselors”
A reflective article from yesterday’s New York Times on the debate in the United States about what law schools (by which the NYT means full undergraduate degree courses, rather than conversion courses on the College of Law model) are for.
In essence: Are law schools for producing academic lawyers, or should they focus on developing their students’ ability to advise clients and close transactions? And that debate is placed in the context of what clients are demanding and their new-found reluctance to pay for the training of junior lawyers:
“What they [law students] did not get, for all that time and money, was much practical training. Law schools have long emphasized the theoretical over the useful, with classes that are often overstuffed with antiquated distinctions, like the variety of property law in post-feudal England. Professors are rewarded for chin-stroking scholarship, like law review articles with titles like “A Future Foretold: Neo-Aristotelian Praise of Postmodern Legal Theory.”
So, for decades, clients have essentially underwritten the training of new lawyers,
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20 November 2011
European Securities and Markets Authority set outs detailed rules for the implementation of the AIFMD
On 16 November 2011 the European Securities and Markets Authority (ESMA) published its final advice on the detailed rules that will underlie the Alternative Investment Fund Managers Directive (AIFMD). ESMA’s final advice (500 pages) and the accompanying press release can be accessed here.
The AIFMD has to be implemented into the national law of the EU member states by 22 July 2013. The AIFMD’s objective is to create a comprehensive regulatory and supervisory framework for alternative investment managers - private equity firms, hedge funds, real estate funds, commodity funds and all other funds that are not covered by the UCITS Directive – at European level. ESMA has drawn up its detailed technical advice at the request of European Commission. For more on the AIFMD generally, see our “Private equity” category and particularly this post.
ESMA’s advice covers four main areas, as summarised in its press release:
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19 November 2011
Simplified system for registering a new company at Companies House and with HMRC
As part of the Government’s “business growth package” launched on 10 November 2011, it was announced that “from April 1st ‘one-click registration’ will go live, so that businesses can get online, register their business at Companies House, sign up for PAYE registration, Corporation Tax and Self Assessment all in one place. The ability to register for VAT will be added shortly after”.
At the moment, after a company is registered at Companies House, HMRC is then informed by Companies House and sends the company an introductory pack which prompts the company either to provide various company and trading details to HMRC or to state that it is dormant company. So providing a “one-click” system by which a company can provide all this information and register for PAYE (and ultimately VAT) at the same time makes sense and slightly eases the hassle of starting a new company.
Companies House already offers a basic facility by which a private company limited by shares, with model articles of association, can be incorporated online. The proposed “one-click registration” may well build on that facility.
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17 November 2011
Nothing like a bit of personal abuse to get a Frenchman onside
Lord Myners was City Minister in the last Labour government. Michel Barnier is the European Commissioner for the Internal Market and Services and a former French foreign minister, and is the man responsible for the deluge of proposed regulation raining down on the City (click on our Europe category for details).
Yesterday in a debate in the House of Lords, Lord Myners had this advice regarding M. Barnier:
“I worry very much about Mr Barnier. I met Mr Barnier when he was a Minister. He came to see us at the Treasury. He came down the corridor and I was watching him. I am a great fan of art and I was rather impressed that he stopped to look at every painting. I thought this is a man with whom I share a common interest-until I realised he was actually looking at his reflection in the glass on every painting, and adjusting his hair or his toupee. This to me is a man whom we should treat with a very long spoon.”
More of Lord Myners’ tips on handing powerful Eurocrats at Hansard, 15 Nov 2011 : Column 664.
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16 November 2011
A secondary market for investing in European private companies
In the past couple of years secondary markets for private company shares have garnered a deal of attention in the United States, not least for the regulatory challenges they both pose and have to overcome, with companies such as SecondMarket and Sharespost facilitating a market in the (still private) shares of fast-growth companies such as Facebook and Twitter.
Now this phenomenon of organised secondary markets for shares in private companies appears to be coming to Europe, with the launch in Switzerland of FirstPEX, which describes itself as “Europe’s first…secondary market where Business Owners, Brokers, Financial Advisors and Investors can connect and negotiate the terms of an investment. FirstPEX allows sellers of equity to interact with qualified Investors”.
FirstPEX operates as a form of eBay for private company shares:
“FirstPEX is a membership-based platform. Business information listed on the site is only accessible by registered members. Members can only become active on the site once they are approved by our team of moderators. As a Business Owner you can list your equity for sale to the highest bidder and as an Investor you can filter investments according to your requirements, access all vital information and engage in live chats with Business Owners.”
FirstPEX’s website adds that “we are currently working on launching FirstPEX in the UK, Germany, France and Italy”.
See also: SecondMarket Brags About 2011 Results, But What Happens After Facebook Goes Public? – Wall Street Journal
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15 November 2011
Concerns over the declining numbers of IPOs in the United States are shared in the UK
Recently there has been much comment about the declining numbers of initial public offerings in the United Kingdom and the United States. That concern is exemplified by this article in the Financial Times of 13 November 2011 (“A market less efficient: Drop in listings fuels concerns that exchanges ceasing to channel capital”) and is also seen in a recent report for the City of London Corporation which we discussed in this post.
Responding to this concern, in March 2011 the US Treasury Department convened the “Access to Capital Conference” on how to promote access to public capital though the IPO market. Out of that conference a group of professionals describing itself as “representing the entire ecosystem of emerging growth companies – venture capitalists, experienced CEOs, public investors, securities lawyers, academicians and investment bankers” formed an “IPO Taskforce” to:
“examine the conditions leading to the IPO crisis and to provide recommendations for restoring effective access to the public markets for emerging, high-growth companies”.
The Taskforce presented its report to the US Treasury on 20 October 2011. The report can be read here.
Causes of the decline of the IPO market
In analysing the reasons for the drop in the numbers of IPOs in the US, the Taskforce:
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14 November 2011
“If a clause is capable of two meanings…it is much more appropriate to adopt the more, rather than the less, commercial construction”
In Rainy Sky S.A. and others v Kookmin Bank the Supreme Court considered the correct approach to the construction of contractual wording that was capable of two meanings, both of which meanings were possible and arguable.
The point at issue was the interpretation of a clause contained in a bond (a “refund guarantee bond”) given by a bank to a purchaser, by instalments, of a ship. The bond would pay out on the occurrence of certain events. If the bank’s argument was successful, the bond would not refund instalments paid by the purchaser of the ship in the event of the insolvency of the shipbuilder. If the purchaser’s argument was successful, the wording of the bond meant that the bank would have to pay out if the shipbuilder entered insolvency. The shipbuilder became insolvent.
At first instance, the court found for the purchaser but this was overturned by a 2-1 verdict in the Court of Appeal. The purchaser appealed to the Supreme Court.
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13 November 2011
New MiFID Directive and Regulation “to make financial markets more efficient, resilient and transparent”
On 20 October 2011 the European Commission published a draft Directive and draft Regulation (the Proposals) that, if adopted, will revise and replace the existing Markets in Financial Instruments Directive (MiFID). The MiFID revision page of the Commission’s website is here (and contains the draft text of the Proposals); the press release on the Proposals is here and the Commission’s useful and full FAQs on the Proposals are here.
MiFID has been in force since 1 November 2007. The Commission argues that since then:
“…financial markets have changed enormously. New trading venues and products have come onto the scene and technological developments such as high frequency trading have altered the landscape…In response to this, the European Commission has today tabled [the Proposals which] aim to make financial markets more efficient, resilient and transparent, and to strengthen the protection of investors. The new framework will also increase the supervisory powers of regulators and provide clear operating rules for all trading activities.”
The Proposals are part of a reform package put forward by the Commission to ”guarantee the competitiveness, efficiency and integrity of EU financial markets”. The Commission’s recent publication of a draft Regulation and Directive on Market Abuse and Insider Trading – which we discussed in this post – are part of that package.
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10 November 2011
FSA smashes its own record by fining Dubai-based investor US$9.6 million for market abuse
The Financial Services Authority announced today that it has fined a Mr Rameshkumar Goenka of Dubai US$6,517,600 (approximately £4 million) plus a restitution element of US$3,103,640 (approximately £2 million) for manipulating the closing price of Reliance Industries securities on the London Stock Exchange. This is the largest fine that the FSA has ever imposed on an individual – the previous record was £2.8 million. The FSA press release is here and the Final Notice is here.
Still, US$9.6 million isn’t quite the US$92.8 million penalty imposed by a US federal judge on US insider trader Raj Rajaratnam this week. (We covered Mr Rajaratnam’s activities in this post.)
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9 November 2011
The UK regulator’s perspective on the regulatory change being driven by the AIFMD and MiFID II
The Financial Services Authority’s Director of Conduct Policy, Sheila Nicoll, gave a useful overview of the current state of play on:
- the Alternative Investment Fund Managers Directive (AIFMD); and
- the draft Markets in Financial Instruments Directive II (MiFID)
in a speech on 1 November 2011. Observing that she “cannot promise any great respite” from regulatory change and conceding that the alternative fund management industry is feeling “a lot of regulatory interference”, Ms. Nicoll’s speech covered:
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8 November 2011
FSA fines bank £6.3 million for “serious failings” in sale of AIG Premier Access Bond
The Financial Services Authority has today fined Coutts, the private banking arm of part-nationalised RBS, for mis-selling an AIG bond to a large number of wealthy private clients. These clients suffered a loss in their investment as a result of the collapse of AIG in 2008. The FSA held that Coutts breached Principle 9 of the FSA Handbook, which requires that a “firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely up on its judgement”. The FSA final notice is here and its press release is here.
The FSA’s decision to fine Coutts will focus more attention on the recent and very bank-friendly High Court judgment in Rubenstein v HSBC, which we discussed in detail in this post.
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7 November 2011
Aims to reduce the administrative burden on smaller companies and increase the clarity and comparability of all financial statements
The European Commission published on 25 October 2011 the draft text of a proposed directive (the Proposed Directive) to:
- Introduce a specific regime for small companies that will “considerably reduce” work that needs to be done by small companies when they prepare their accounts; and
- Improve the comparability and clarity of financial statements prepared by medium-sized and large companies.
The Proposed Directive would also repeal and replace the Fourth and Seventh Company Law Directives of 1978 and 1983 respectively, usually referred to as the “Accounting Directives”.
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3 November 2011
Sharman Inquiry preliminary report sets out a classic description of the relationship between a limited liability company, its shareholders and its creditors
The Sharman Inquiry on “Going concern and liquidity risk” published its preliminary report today, as we discuss in this post. Contained in the report is this summary of the birth, life and death of a limited liability company:
“A limited liability company starts life with assets contributed by its shareholders. They represent its capital. The shareholders do not have an absolute right to claim back these assets except if the Courts agree (usually on liquidation of the company). This is a key term of the contract that the company of shareholders enters into in exchange for its limited liability status.
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3 November 2011
Key lessons for directors and auditors on reporting short term liquidity risks and longer term solvency risks
The Sharman Panel of Inquiry on “Going Concern and Liquidity Risk: Lessons for companies and auditors” today issued its preliminary report and recommendations. As we reported in this post of March 2011 and this post of May 2011, the Inquiry was set up by the Financial Reporting Council (the FRC) to consider:
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2 November 2011
UPDATE 14 December 2011: FTSE has now announced the results of this consultation, as we discuss in this post.
Move follows investor concern that index-tracking funds are having to invest in companies with poor corporate governance standards
The FTSE Group (FTSE) yesterday announced that it is consulting on changing the requirements for UK-incorporated companies to be included in the FTSE UK Index Series (which includes the FTSE 100 and FTSE All-Share Index). At present, a UK-incorporated company is eligible for inclusion in these indices if it has a free float of at least 15% of its listed securities, or 5% in the case of companies with a full market capitalisation of $5 billion. (Non-UK companies need a free float of 50%.)
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Five years of administration and liquidation see professional advisers receive £8.2 million
