Corporate Update January 2013

Transcription

1 Jauary 2013 Corporate Update Jauary 2013 Happy ew year ad welcome to our latest editio of Corporate Update, our bi-aual ewsletter, i which we draw together for you all the developmets i compay law ad corporate fiace regulatio which have take place over the last six moths ad look ahead to forthcomig legislative ad regulatory chages. Whilst the year ahead for compaies i the fiacial services sector looks set to be domiated oce agai by the regulatory chage caledar, for most issuers a key focus this year is likely to o preparig for the upcomig chages i relatio to arrative reportig ad the disclosure of executive remueratio, may of which will ot become effective util ext year. We have highlighted some of these chages i this Update ad will shortly be issuig our aual AGM Update which addresses key issues for the forthcomig AGM seaso. The AGM Update will be available shortly to dowload at I 2012, Clifford Chace advised o 218 M&A deals globally, with a value of US$255,314 millio. We advised o three of the top te global deals. Clifford Chace s 41- parter [corporate] team has great depth of quality, esurig that matters move forward more quickly ad more surely uder their charge Legal 500 UK 2012 Cotets 1. Compay Law Update Case Law Update Regulatory Update Atitrust Update Cliets recommed this creative ad flexible full-service firm for its very precise ad cosistet advice. Chambers UK 2012

2 2 Corporate Update Compay Law Update Narrative reportig: Govermet publishes draft regulatios for commet I the July 2012 editio of Corporate Update we discussed the Govermet s proposals for chages to the arrative reportig regime alogside its proposed chages to the remueratio reportig regime. The proposals to the arrative reportig regime were set out i a cosultatio paper published by BIS i September I that cosultatio, the Govermet s stated itetio was to simplify the structure ad cotet of arrative reports by replacig the curret busiess review with a ew strategic report ad replacig the curret directors report with a ew aual directors statemet. I October 2012, BIS published a draft of The Compaies Act 2006 (Strategic Report ad Directors Report) Regulatios 2013 for cosultatio. As expected, the Regulatios will make amedmets to Part 15 (Accouts ad Reports) of the Compaies Act 2006 ad will require compaies to produce a strategic report which will replace the existig busiess review. The strategic report will be similar to the existig busiess review, but quoted compaies (those icorporated i the UK ad listed o certai UK, EU or US markets) will be required to iclude the followig additioal disclosures: iformatio o the compay s strategy ad busiess model; to the extet ecessary for a uderstadig of the busiess, iformatio o huma rights issues; ad details of the umber of me ad wome o the board, i seior maagemet roles ad i the busiess as a whole. I lie with the Govermet s itetio of streamliig arrative reportig ad removig uecessary regulatio, the Regulatios delete a umber of other reportig requiremets. Compaies will o loger be required to iclude iformatio about essetial cotractual arragemets (curretly a requiremet of the busiess review) or will they eed to iclude iformatio about either charitable doatios or the compay s policy ad practice regardig paymets to creditors i the directors report. I additio, the requiremet for private compaies to disclose iformatio about the acquisitio of their ow shares is to be removed. Iterestigly, the Govermet is o loger itedig to take forward its pla to create a template for a aual director s statemet ad the requiremet to prepare a directors report is uchaged, except that there will o loger be a requiremet to iclude a busiess review. Curretly, uder the Compaies Act, compaies ca choose to produce a summary fiacial statemet (SFS) which they ca sed istead of the whole aual report to those shareholders who have elected to receive it. Goig forward compaies will be able to sed oly the strategic report to those shareholders who agree to this. Existig shareholder electios will remai i place ad compaies will be able to sed just the strategic report to those shareholders who have previously elected to receive the SFS, subject to a right to request the full aual report. It is iteded that the Regulatios will come ito force o 1 October 2013 ad that they will apply to fiacial years edig o or after that date. This will coicide with the itroductio of chages to the remueratio reportig regime (discussed i more detail i our July 2012 editio of Corporate Update). Chages to that regime are set out i the draft Eterprise ad Regulatory Reform Bill which is curretly progressig through Parliamet. BIS is workig with the FRC to develop guidace to assist compaies preparig a first strategic review. This is expected to be published i Sprig Compaies with a caledar year ed will eed to report uder the regime for fiacial years edig 31 December 2013 ad should be cosiderig ow what chages they Clifford Chace, Jauary 2013

3 Corporate Update 3 will eed to make iterally to be ready for the ew arrative ad remueratio reportig regimes. May compaies will be lookig to egage with istitutioal shareholders over the disclosures to be made about remueratio policy ad the ABI has recetly published Revised Priciples which set out some details o what they hope to see reflected i the ew policy report (see ABI publishes updated priciples of remueratio below for more details). Editor Commet: It is to be hoped that the chages to the arrative reportig regime will ot prove uduly oerous for compaies. With regard to the iclusio of iformatio o strategy ad the busiess model, those compaies that comply with the Corporate Goverace Code will already iclude this iformatio i their busiess review ad there should t be a sigificat chage i the level of reportig required. I the last 18 moths there has bee a strog focus o geder diversity o compay boards ad it is ot uexpected therefore that there is a desire to have greater trasparecy about the geder split withi corporate orgaisatios. Tacklig corporate crime: Govermet to itroduce Deferred Prosecutio Agreemets I May 2012, the Govermet aouced details of its proposals to eable The objective is that the DPA will allow prosecutors to hold offedig orgaisatios to accout for their wrogdoig i a focused way without the ucertaity, expese, complexity or legth of a crimial trial. Rt Ho Damia Gree MP, Miister of State for Policig ad Justice compaies to avoid prosecutio i certai circumstaces. Deferred prosecutio agreemets (DPAs), whereby a compay agrees to pay pealties ad take remedial actio as a alterative to cotestig crimial proceedigs, are already used extesively i the Uited States to coclude fraud ad corruptio ivestigatios ad the Miistry of Justice is kee to see their itroductio i the UK. Although DPAs are proposed to be made available to a umber of agecies resposible for prosecutig serious ecoomic crime, they are expected to be used pricipally by the Serious Fraud Office (SFO), which i recet years has made clear its wish ot oly to tackle ad deter corruptio through puitive crimial prosecutios, but also to ecourage a climate of corporate egagemet by eterig ito egotiated settlemets with co-operatig defedats. The Govermet s proposals recogise the tesio which exists betwee the legitimate objectives of prosecutors wishig to tackle historic bribery ad corruptio pragmatically ad efficietly ad of the judiciary who are axious to esure that ivestigatios are cocluded i a way which serves the wider public iterest. As such, the proposals are iteded to give judges a active role i scrutiisig ad approvig the cotets of proposed DPAs much earlier ad much more meaigfully tha has bee the case uder arragemets etered ito to date. The Govermet s respose to its May cosultatio was published i October 2012 reportig that there was strog support for the proposals i the cosultatio, with 86% of respodets agreeig that DPAs have the potetial to improve the way that ecoomic crime committed by orgaisatios is dealt with. Accordigly, the Govermet is pressig ahead with the itroductio of DPAs. Draft legislatio, cotaied i the Crime ad Courts Bill, is curretly makig its way through Parliamet. Give the broad political support for the proposals, it is thought that the first DPAs uder the ew legislatio may be cocluded as early as late 2013/early Clifford Chace has prepared a more detailed briefig o the Govermet s plas to itroduce DPAs. A copy of this briefig ca be obtaied at views/publicatios/2012/05/uk_goverme t_uveilsplasfordeferre.html BIS cosultatio o implemetatio of Nuttall Review I October 2012, BIS published a cosultatio paper relatig to the implemetatio of the recommedatios of the Nuttall Review, a idepedet review of employee owership published i July 2012 ad which looked at the ecoomic ad social beefits achieved by Clifford Chace, Jauary 2013

4 4 Corporate Update employee owed compaies. BIS is seekig views o proposed deregulatory chages to the share buyback regime, which are aimed at removig barriers that disicetivise the uptake of direct employee owership. The cosultatio proposes a umber of amedmets to Part 18 (Acquisitio by Limited Compay of its ow Shares) of the Compaies Act, icludig the followig: allowig a cotract for a off-market buyback of shares by a private compay to be authorised by a ordiary resolutio (curretly a special resolutio is required); allowig compaies greater flexibility to fiace a buyback of shares, permittig the purchase price to be paid i istalmets; ad extedig the provisios for treasury shares to apply to private compaies. The proposals have, however, stopped short of removig the requiremet for specific approval of a proposed offmarket buyback. The cosultatio also seeks views o whether the curret compay law restrictios o the source of fuds for a buyback of shares are overly restrictive: at preset, i order to fud a purchase of its ow shares, a compay may use either distributable profits or the proceeds of a fresh issue of shares out of capital. Private compaies may also use share capital but are subject to a umber of restraits whe doig so to protect the iterests of shareholders ad creditors. The cosultatio has ow closed ad the results awaited. A copy of the cosultatio ca be foud at system/uploads/attachmet_data/file/327 16/ employee-owership-sharebuy-backs-cosultatio.pdf Clifford Chace, Jauary 2013

5 Corporate Update 5 Case Law Update Iterpretatio of cotracts terms caot be implied simply to make a cotract more reasoable I the recet case of Proctor & Gamble v Sveska Cellulosa Aktiebolaget SCA [2012] EWCA Civ 1413 the Court of Appeal agreed with the judge at first istace that a clause providig for a fixed exchage rate betwee the ad the Euro should ot be implied ito a cotract. This case reiforces the fact that the courts will ot re-write a cotract simply i order to produce what it cosiders to be a more reasoable meaig. The facts P&G sold two plats maufacturig paper tissue towels to Sveska i However, P&G was uwillig to sell certai elemets of its proprietary maufacturig techology kow as CPN belt techology ad so agreed to replace this with TAD equipmet. To help maage the trasitio the parties etered ito a Trasitioal Supply ad CPN Coversio Agreemet. It was ackowledged by both parties that, broadly speakig, their objective i eterig ito this agreemet was to eable Sveska to have the immediate beefit of the two plats otwithstadig the delay i physical hadover that would result from the eed to remove the CPN belts ad replace them with TAD equipmet. Accordigly, the prices that Sveska was to pay for the goods supplied from the two plats were iteded to represet o more tha the projected cost of productio. The agreemet ad the documets attached to it cotaied detailed provisios goverig the prices to be paid for the products to be supplied from the two plats, based o budgeted costs, with all prices beig expressed i Euros. At the foot of the schedule was a otatio settig the /Euro exchage rate at Whilst the prices were all expressed i Euros, the agreemet provided that paymet for products supplied from the UK would be i sterlig. The agreemet did ot iclude a provisio settig a fixed exchage rate. The exchage rate betwee the ad the Euro declied durig the term of the agreemet, so that settlemet of ivoices expressed i Euros required a greater amout of sterlig. Sveska cosidered that this was ot what the parties had iteded whe they etered ito the agreemet, ad treated the otatio i the schedule as fixig the exchage rate for the purposes of the agreemet, ad paid P&G o this basis. P&G disagreed ad proceedigs were commeced to recover the additioal sums it claimed were outstadig o the basis that the correct rate of exchage was that prevailig o the date of paymet. The judgmet The judge at first istace was uable to accept that the exchage rate otatio o the budget documet was capable of supportig a implied term providig for a fixed exchage rate ad agreed that the correct rate of exchage was therefore that prevailig o the date of paymet. The Court of Appeal upheld this decisio, otig that the obvious purpose of icludig the otatio was to explai the rate at which sterlig costs had bee coverted ito Euros for the purpose of the budget ad that it would have bee a simple matter to express the prices of goods supplied from the UK i sterlig, but the parties did ot do so. The Court also oted that the distictio betwee the moey of accout ad the moey of paymet is well uderstood ad the importace of choosig whether paymet was to be made i Euros or sterlig caot have bee lost o two commercial parties such as these. Whilst agreeig that the appeal should be dismissed, Rix LJ had some Clifford Chace, Jauary 2013

6 6 Corporate Update sympathy with the submissios of Sveska. He was prepared to accept that the parties did ot i fact ited the seredipity of exchage rate fluctuatios to be capable of upsettig the essetially cost based calculatio of the prices to be charged uder the agreemet. However, as the parties had failed to address this cotigecy i the cotract he thought that it was ultimately too difficult to say that the reasoable uderstadig of the cotract was that the Euro prices should be exchaged at a fixed rate which was oly referred to i the cotract for the differet purpose of calculatig a Euro price for the goods to be supplied. He also oted that cotract calculatios are frequetly capable of beig disappoited by uforesee exchage rate fluctuatios ad that it is always possible for the party who bears a risk of such fluctuatios to hedge the risk, ad that Sveska should have realised this. Derivative actios: Court refuses permissio to commece proceedigs where a alterative procedure is available I the case of Bamford v Harvey & Ors [2012] EWHC 2585 (Ch), the Court refused permissio to commece derivative proceedigs where a alterative procedure was available to a shareholder uder a shareholders agreemet. I doig so, the Court affirmed the priciple that a compay should ormally be the oly party etitled to eforce a cause of actio belogig to it ad that a shareholder should oly be able to maitai Editor Commet: Whilst the outcome of the P&G/Sveska case is perhaps ot surprisig, it serves as a remider that the courts will ot imply a term simply because it produces a more reasoable result. The judgmet of Lord Clarke i Raiy Sky v Kookmi Bak is ow the startig poit for ay case o cotractual iterpretatio. This emphasises that the exercise of costructio is a uitary exercise i which the court must cosider the laguage used ad ascertai what a reasoable perso, that is a perso who has all the backgroud kowledge which would reasoably have bee available to the parties i the situatio i which they were at the time of the cotract, would have uderstood the parties to have meat. If there are two possible costructios, the court is etitled to prefer the costructio which is more cosistet with busiess commo sese ad reject the other. However, where the parties have used uambiguous laguage, the court must apply it. This is true eve if to do so produces a commercially improbably result. Where the terms of a cotract are clear such as i the P&G/Sveska case, where the agreemet cotaied o provisio settig a fixed exchage rate the courts will ot itervee to imply a term to achieve a differet outcome. derivative proceedigs i exceptioal circumstaces. The facts B had applied for permissio to commece derivative proceedigs i the ame of compay C. B ad H were sole directors ad equal shareholders of C. B had persoally guarateed a series of paymets which C was cotractually obliged to make to a third party, E. I Jauary 2012, H claimed to be i fiacial difficulties ad requested ad was grated a loa of 3.5m from C. O discoverig H had misrepreseted certai facts i relatio to the grat of the loa to him, B requested repaymet of the loa to C. H s failure to repay the loa would reder C uable to meet a paymet due to E. O H refusig to repay the loa, B iformed H that he iteded brigig a derivative claim for repaymet of the loa. H argued that B should have commeced proceedigs uder the terms of a shareholder agreemet which would give B full authority o behalf of C to egotiate, litigate ad settle ay matter i relatio to a dispute betwee C ad H as shareholder ad, that i doig so, H would ot have bee able to prevet B from brigig ay such proceedigs. B argued that a derivative claim was appropriate as, without H s participatio i formig a effective quorum uder the shareholder agreemet, C could ot take steps to allow it to secure fudig for litigatio. The judgmet I refusig the applicatio, Mr Justice Roth stated that it was clear that uder the shareholder agreemet B was expressly give full authority o behalf Clifford Chace, Jauary 2013

7 Corporate Update 7 of C to litigate the claim agaist H. This beig the case, he had to decide whether permissio to commece a derivative actio ought to be grated where B could have arraged for C to commece proceedigs i its ow right agaist H. Whilst there was o rule that a derivative actio could oly be brought where the alleged wrogdoers remaied i cotrol, Roth was persuaded by the judgmet of the Court of Sessio i Wishart, Petitioer [2009] CSIH 65, 2010 S.C. 16 that the potetial for a compay itself to commece proceedigs is a relevat cosideratio i the exercise of a court s discretio. I this istace B had simply overlooked the mechaism of istitutig a claim agaist H uder the shareholder agreemet. The first guidig priciple that ormally a compay should be the oly party etitled to eforce a cause of actio belogig to it, ad that a member should oly be able to maitai proceedigs i relatio to alleged wrogs doe to the compay oly i exceptioal circumstaces, remais applicable. Editor Commet: This decisio is ot surprisig ad is cosistet with previous decisios take by the courts. The first guidig priciple referred to i the decisio origiates from a 1997 Law Commissio Report o Shareholder Remedies ad ideed, the derivative claims provisios i the Compaies Act 2006 have their geesis i that Report. A shareholder seekig to brig a derivative claim o behalf of a compay will eed to demostrate to the satisfactio of the court that there is o alterative meas of actio available to it before beig grated leave to cotiue with the derivative claim. Clifford Chace, Jauary 2013

8 8 Corporate Update Regulatory Update Fiacial Services Bill receives Royal Asset O 19 December 2012, the Fiacial Services Bill, which will deliver fudametal reform of fiacial regulatio i the UK, received Royal Asset. The Bill, which has ow become a Act of Parliamet, will be kow as the Fiacial Services Act 2012, ad will amed a umber of existig Acts of Parliamet, most otably The Fiacial Services ad Markets Act 2000, the Bak of Eglad Act 1998 ad the Bakig Act The Act is iteded to provide regulators with comprehesive powers to couter future risks to fiacial stability ad to esure that cosumers are treated fairly. It takes importat steps to focus the regulators o rebuildig competitio i a bakig sector that has become overly cocetrated. The Act will brig about the creatio of a ew regulatory system from 1 April Three ew bodies will take resposibility for the maagemet ad supervisio of the UK bakig ad fiacial services idustry. The Fiacial Policy Committee (FPC) will be a macro-prudetial authority with resposibility for protectig ad ehacig fiacial stability. The Prudetial Regulatio Authority (PRA) will be a ew micro-prudetial authority resposible for esurig effective prudetial regulatio of deposit takers, isurers ad a small umber of sigificat ivestmet firms. The FPC ad PRA will each be part of the Bak of Eglad, cocetratig resposibility for protectig ad ehacig fiacial stability, ad brigig together macro ad micro prudetial regulatio withi a sigle body. The Act will abolish the FSA ad establish a third body, the Fiacial Coduct Authority (FCA). The FCA s strategic objective is to esure that the markets are fuctioig well. It will regulate coduct i both retail ad wholesale markets, supervise the tradig The Fiacial Services Act replaces a regulatory structure which palpably failed whe tested by crisis. It sets out a comprehesive regulatory framework desiged to ehace fiacial stability i the future ad protect cosumers. It takes importat steps to focus the regulators o rebuildig competitio i a bakig sector that has become too cocetrated. Greg Clark, Fiacial Secretary to the Treasury ifrastructure that supports those markets ad prudetially regulate those firms ot regulated by the PRA. Ahead of the lauch of these three ew bodies the Govermet will brig forward secodary legislatio that will (amog other thigs) set out how regulated activities will be divided betwee the ew authorities, brig LIBOR withi the scope of regulatio (for further details, see Govermet cosults o itroductio of crimial sactios for LIBOR maipulatio below) ad establish the ew threshold coditios that a firm must satisfy to become ad remai authorised as a fiacial services firm. O 1 April 2013, the FSA Hadbook will be split betwee the FCA ad the PRA to form two ew hadbooks, oe for the PRA ad oe for the FCA. It is iteded that the two ew hadbooks will reflect the ew regulatory regime (for example, refereces to the FSA will be replaced with the appropriate regulator), ad i some areas, more substative chages will be made to reflect the existece of the two regulators, their roles ad powers. Related to this, the FSA has published Clifford Chace, Jauary 2013

9 Corporate Update 9 cosultatio paper CP 12/37 settig out proposed chages to the Listig Rules ad Disclosure ad Trasparecy Rules which are ecessary to implemet the Act ad create the ew rule books ad policies ecessary for the FCA. The amedmets proposed i the cosultatio paper iclude: chages to the Listig Rules arisig from the ew statutory powers to supervise ad disciplie sposors that the FCA will acquire uder the Act; chages to the Listig Rules relatig to the otificatio requiremets cocerig the suspesio or cacellatio of a issuer s securities at the request of a issuer, which arise from ew statutory powers grated to the FCA uder the Act; amedmets to the DTRs relatig to primary iformatio providers, their cotiuig obligatios ad supervisio; ad amedmets to the Decisio Procedure ad Pealties Maual. The proposed amedmets are iteded to take effect whe the FCA acquires its legal powers o 1 April ABI publishes updated priciples of remueratio Executive pay remais a hot topic ad legislative reform is expected i October 2013 (see our AGM Update 2013 for further details). Addig its voice to the debate, the Associatio of British Isurers (ABI) has issued a updated versio of its Priciples of Remueratio, which reflects curret ABI views o the remueratio structure of a listed compay. Although there is little i the AGM Update 2013 You will shortly be receivig a copy of our aual AGM Update for the forthcomig AGM seaso. I our AGM Update we look ahead to the reforms i the area of executive pay which, alog with the chages to arrative reportig regime which are discussed i more detail i our Compay Law Update above, are expected to apply to fiacial years edig o or after 1 October Early preparatio for this ew legislatio will be crucial ad may compaies will have already started plaig for these ew requiremets. Other items covered i our AGM Update iclude: votig treds which emerged from the 2012 AGM seaso; way of substative chages i the updated priciples (the ABI otes that excessive chage would be uhelpful i the curret atmosphere of regulatory ucertaity o executive pay), the ABI has outlied key themes that it iteds to focus o i It also idicates its expectatios for compaies that are cosiderig early adoptio of the ew executive remueratio reforms, ahead of their implemetatio i October Key chages The updated priciples idetify key themes that the ABI will focus o i 2013: simple remueratio structures are ecouraged (i.e. oe aual bous ad oe log term icetive); remueratio structure ad performace measures should be clearly liked to the delivery of the compay s strategy; the itroductio of a ew Corporate Goverace Code which applies to reportig periods startig o or after 1 October 2012; ew regulatios itroduced o 1 October 2012 which will be of particular relevace to group compaies ad which will exempt subsidiaries from the requiremet to udertake a audit where they have the beefit of a paret compay guaratee ; ad the updated corporate goverace ad votig guidace recetly issued by NAPF ad PIRC. Our AGM Update will be available shortly for dowloadig at: ws.html the remueratio committee should esure that the performace period for log term icetives is aliged with the timig of the implemetatio of the compay s log term strategy; the remueratio committee should cosider whether the legth of performace or holdig periods i respect of awards ad optios should be icreased; the remueratio committee should clearly demostrate the lik betwee pay ad performace, ad provide clear ad cocise disclosures which help shareholders make iformed votig decisios; shareholders should cotiue to be midful of employee costs geerally, ad executive pay specifically, i the cotext of the geeral fiaces of the compay, icludig its ivestmet ad capital eeds ad returs to shareholders; ad Clifford Chace, Jauary 2013

10 10 Corporate Update I a earlier cosultatio paper, CP12/2, published i Jauary 2012, the FSA asked for respodets views o the quality of the premium listig regime ad, i particular, the operatio of the free float requiremets, miority shareholder protectio (especially i circumstaces where there is a cotrollig shareholder) ad corporate goverace. the remueratio committee should be cogisat of the salary icreases for employees i the wider workforce whe cosiderig salary icreases for executive directors. I additio, although the Govermet has ot yet published its respose to cosultatio o executive pay, the ABI has outlied its expectatios o how compaies ca report i accordace with the ew regime that is expected to come ito force i October For example, the guidace outlies ABI expectatios as to the level of detail ad cotet of the policy table required to be icluded i the ew policy report. It also commets that, whilst there is o requiremet i the draft legislatio for a compariso of remueratio potetial agaist the compay s peers, compaies should report o this as ivestors fid it useful. The updated priciples were published o 26 November 2012 ad ca be foud at atio.aspx FSA proposes to reitroduce restraits o cotrollig shareholders I its cosultatio paper, CP12/25, published o 2 October 2012, the FSA set out its proposals for further amedmets to the Listig Rules ad, i particular, chages to the free float requiremets for admissio to listig ad ehaced corporate goverace requiremets for compaies with a cotrollig (30% or more) shareholder. The resposes to CP12/2 highlighted a umber of coflictig views regardig the operatio of the free float requiremets for premium listigs. These requiremets derive from EU directive requiremets ad are aimed at esurig there is sufficiet liquidity i a issuer s shares. However, a umber of high profile listigs i 2011 of iteratioal issuers with sigificat shareholders highlighted the eed to cosider the positio of miority shareholders who, i such situatios, are less able to exert ifluece o the issuer s goverace practices ad strategy. It is ackowledged that simply raisig the free float requiremets to reduce the ifluece of a cotrollig shareholder would be detrimetal to Lodo s ability to attract IPOs. I CP12/25, the FSA ackowledges that o oe sigle measure will suffice ad that it eeds to look at both the operatio of the free float requiremets ad miority protectios alogside oe aother. Accordigly, the FSA has made a umber of proposals which would apply to premium listed issuers ad applicats, icludig: clarifyig the operatio of the free float provisios, idicatig the limited circumstaces i which the FSA might cosider a lower free float threshold tha 25%; providig that shares subject to a lock up for more tha 30 days are excluded from the free float calculatio; Clifford Chace, Jauary 2013

11 Corporate Update 11 reistatig the cocept of a cotrollig shareholder, defied as ay perso holdig 30% or more of the shares, or cotrollig 30% or more of the votig power, i either the applicat or its paret (this 30% threshold is cosistet with the cotrol threshold uder the UK Takeover Code); requirig a majority of directors o the board to be idepedet of the cotrollig shareholder where a cotrollig shareholder is preset; a vote of the idepedet shareholders; ad ehacig aual report disclosures that are imposed by the Listig Rules, icludig requirig fuller disclosure of smaller related party trasactios ad a statemet regardig the operatio of the relatioship agreemet o a aual basis. The FSA is also cosultig o whether it should have the ability to modify the free float requiremet for issuers seekig admissio to the stadard segmet to eable it to base the free float requiremet etirely o liquidity. The cosultatio has ow closed. The FSA s is expected to publish its coclusios sometime i Sprig You ca obtai a copy of CP12/25 at pdf requirig a issuer that is ot i compliace with certai of its cotiuig obligatios (icludig the requiremet to put i place ad maitai a relatioship agreemet with its cotrollig shareholder) to otify the FSA; regulatig the relatioship betwee the issuer ad its cotrollig shareholder o a ogoig basis, icludig the itroductio of a ew dual votig requiremet for the electio of idepedet directors (effectively requirig the appoitmet to be approved by separate resolutios of shareholders geerally ad of the idepedet shareholders of the compay). If either of the resolutios is ot passed, the compay may ot propose a further resolutio to elect the director for 90 days, although this secod vote may be carried by a vote of all the shareholders votig as a sigle class; madatig the cotet of a relatioship agreemet to be etered ito betwee the compay ad the cotrollig shareholder to esure that the compay is maaged idepedetly from the cotrollig shareholder ad requirig that material chages to it be approved by Editor Commet: The cocept of a cotrollig shareholder was removed from the Listig Rules i However, the practice of puttig i place a relatioship agreemet with a cotrollig shareholder has geerally cotiued ad, as such, the requiremet to put i place a relatioship agreemet is ot of itself cotroversial ad should ot be a cocer for ew applicats. What is less clear is how the provisios will apply to existig issuers who either have a existig relatioship agreemet with a cotrollig shareholder which is ot fully compliat with the proposed ew rules or where o such relatioship agreemet curretly exists with a cotrollig shareholder. I circumstaces where the shareholder refuses to either amed the existig agreemet or eter ito a relatioship agreemet, the issuer would be left i a difficult positio uder the proposed ew rules it would be obliged to otify the UKLA of its o compliace, whereupo the cosequece uder the proposed chages to the Listig Rules is that the issuer should cosider seekig a cacellatio of listig or chage of listig category. However, this would result i a sigificat reductio i the protectio available to idepedet shareholders whom the rules are desiged to protect ad therefore does ot appear to be a appropriate sactio. This seems to highlight the difficulties that potetially arise from the absece of ay real sactios agaist a cotrollig shareholder who either is ot willig to eter ito a relatioship agreemet or does ot abide by the terms of the agreemet. Issuers may also be cocered about the itroductio of a dual votig system for the appoitmet of idepedet directors. This adds a additioal layer of admiistrative ad logistical burde but the risk of icreased costs, delay ad adverse publicity, i the evet that the director s appoitmet is ot approved at the first roud of votig, may provide a useful check ad balace to esure a robust approach is take to assessig the idepedece of ay director who is beig proposed by a cotrollig shareholder. The proposed Listig Rule chages would ot however restrict the ability of a cotrollig shareholder to remove a director pursuat to the procedures set out i the Compaies Act 2006 ad therefore this is also somethig which would eed to be addressed i ay relatioship agreemet. Clifford Chace, Jauary 2013

12 12 Corporate Update Remider: Listig Rule chages itroduced o 1 October 2012 ad 31 December 2012 We wrote to issuers i October to remid them about the broad ragig chages which took effect to the Listig Rules o 1 October 2012, alog with more limited chages to the Prospectus Rules ad the Disclosure ad Trasparecy Rules ad further chages which would impact the sposor regime which were to take effect o 31 December The chages to the sposor regime are ow i force. Editor commet: The chages to the sposor regime have direct implicatios for issuers, i particular, the eed to ivolve sposors i a greater rage of trasactios. By way of example, a sposor will ow eed to be egaged by the issuer i circumstaces where a fair ad reasoable opiio is required i coectio with a small related party trasactio beig udertake by the issuer. The Listig Rule chages have placed ew resposibilities o sposors. I particular, a sposor must (i) provide to the FSA ay explaatio or cofirmatio that the FSA requires for the purposes of esurig that a issuer is complyig with the Listig Rules ad (ii) take such reasoable steps to esure that ay commuicatio it provides to the FSA i coectio with a sposor service is, to the best of its kowledge ad belief, accurate ad complete i all material respects. There is also a ew obligatio o issuers to cooperate with sposors ad, i particular, to provide a sposor with all iformatio reasoably required by it for the purposes of carryig out a sposor service. We are already seeig sposors updatig both their terms of egagemet ad stadard issuer comfort letters i order to reflect these chages. You ca fid further iformatio about these chages i our briefig ote which is available at chagesimplemetedo1octobe.html Lauch of UKLA Kowledge Base O 7 December 2012, the UKLA aouced the lauch of its Kowledge Base, a olie repository for the UKLA s formal guidace otes which cotai guidace o the iterpretatio ad applicatio of the Prospectus Rules, Listig Rules ad Disclosure ad Trasparecy Rules. The Kowledge Base cotais 80 guidace otes which are divided ito two series: Procedural Notes ad Techical Notes. The Techical Notes are preseted thematically i 13 categories (e.g. eligibility for listig, goverace ad coduct, trasactios, workig capital etc) ad each ote has a uique referece umber. Readers will be relieved to kow that it is ot ecessary to get to grips with the cotet of 80 ew guidace otes: all but 9 are based o material previously published i List! ewsletters ad the techical ad procedural otes which were first published i 2010 (ad which largely cosolidated List!). Removal of existig guidace Back i July 2012, the UKLA cosulted o the iitial cotet of the UKLA Kowledge Base, which at that time comprised of 82 draft techical ad procedural otes. I a review of the proposed otes which was coducted by the City of Lodo Law Society ad i which Clifford Chace participated, a cocer was raised with the UKLA that ot all the previous guidace cotaied i the UKLA techical otes published i 2010 had bee carried over to the ew techical otes. Most sigificatly perhaps, guidace which was previously cotaied i the Disclosure ad Trasparecy Rules techical ote first published i 2010 ad which relates to a issuer s obligatios pursuat to DTR 2 (disclosure ad cotrol of iside iformatio) has bee removed ad o loger forms part of the UKLA s formal guidace to issuers. This icludes the FSA s views o good practice cocerig the way i which a issuer s relatioships with aalysts should be coducted (DTR ), breaches of cofidece (DTR 2.6.2) ad guidace relatig to how issuers should deal with press speculatio ad market rumours (DTR 2.7). Guidace ot beig itroduced at this time I the July 2012 cosultatio a procedural ote o block listigs ad a techical ote o prospectus disclosures o credit ratig agecies were proposed. Neither of these is beig itroduced at this stage. The UKLA is to Clifford Chace, Jauary 2013

13 Corporate Update 13 Editor Commet: O the face of it, the fact that some previous guidace has ot bee carried over ito the ew guidace raises cocers. However, the removal of such guidace does t ecessarily mea that issuers should approach issues differetly as much of the previous guidace may well remai very relevat i practice, but they may eed to exercise a degree of cautio. Where a issuer is relyig o guidace which existed uder the UKLA s 2010 techical otes, it should check whether the guidace has bee carried forward ito the ew otes. If ot, it will be ecessary to cosider whether such guidace has sice bee superseded by subsequet rule chages or whether the guidace is simply cotextual, without providig guidace o a particular rule. If ay doubt remais as to whether it is appropriate to cotiue to have regard to a particular piece of guidace, issuers should speak to their legal advisers or sposor. egage further with stakeholders o the issue of block listigs ad the credit ratig disclosures guidace will be delayed pedig ogoig discussios by ESMA o this issue. The UKLA s Kowledge Base ca be accessed at edge-base Govermet cosults o itroductio of crimial sactios for LIBOR maipulatio I October 2012, the Govermet published draft amedmets to the Fiacial Services Bill (which has sice received Royal Asset) which icludes proposals to repeal sectio 397 of the Fiacial Services ad Markets Act 2000 which provides for crimial offeces related to the makig of misleadig statemets ad practices ad the creatio of three ew crimial offeces i relatio to misleadig statemets ad impressios. The first two offeces largely replicate the existig sectio 397 offeces. The third, ew offece relates to the makig of false or misleadig statemets, or the creatio of a false or misleadig impressio, i relatio to a relevat bechmark. These proposals are a respose to the fidigs of the Wheatley Review, a review set up i July 2012 i light of the LIBOR maipulatio scadal ad which was coducted by Sir Marti Wheatley, the FSA s Maagig Director ad future Chief Executive of the Fiacial Coduct Authority. The aim of the review was to examie the structure ad goverace of the Lodo Iterbak Offered Rate (LIBOR) ad to cosider whether there are appropriate crimial sactios i place to deal with ay attempted maipulatio of LIBOR. The fial review, published i September 2012, set out 10 recommedatios for the reform of LIBOR, icludig a recommedatio that crimial sactios should be itroduced for ay attempted maipulatio of LIBOR. With regard to the ew proposed sectio 397 offece of maipulatio or attempted maipulatio of a relevat bechmark, further draft secodary legislatio, published for cosultatio i November 2012, specifies LIBOR as the oly relevat bechmark at this time. Wome o boards: alterative EU proposal I our July 2012 editio of Corporate Update we reported that a decisio was expected from the Europea Commissio o its proposals to address geder imbalace o boards. It was origially aticipated that the EU Commissioer for justice ad home affairs (Viviae Redig) would table a proposal to itroduce a madatory 40% female quota o corporate boards. Due to oppositio from a sigificat umber of EU Member States (icludig the UK), a watered dow proposal has ow bee put forward i the form of a draft Directive. Revised Commissio Proposals Uder the revised proposals, a miimum represetatio of 40% of wome amogst o-executive board-members of publicly listed compaies is proposed, with the exceptio of small ad medium eterprises. Member States will be exempt from the Directive s objectives i relatio to geder quotas if they put i place measures to improve female represetatio o compay boards before the Directive comes ito force. However, Member States will be required to demostrate that their methods have eabled at least 40% female o-executive director represetatio by 1 Jauary 2020 (or by 1 Jauary 2018 for listed compaies that are public udertakigs). Clifford Chace, Jauary 2013

14 14 Corporate Update The draft Directive requires Member States to esure, where members of the uder-represeted sex hold less tha 40% of the o-executive director positios o the board, the relevat listed compaies must make appoitmets o the basis of a comparative aalysis of cadidates qualificatios, applyig preestablished clear, eutrally formulated ad uambiguous criteria. Where cadidates are equally qualified, priority must be give to the uder-represeted sex. Member States will have to lay dow appropriate sactios for compaies i breach of the Directive. Parliametary debate I a Parliametary debate o 7 Jauary 2013, MPs rejected the Commissio s proposals o board quotas for wome. Busiess Miister Matthew Hacock said the Govermet backed a volutary approach ad dismissed the eed for the EU to set a target. Additioally, the Govermet believes that the proposed Directive does ot comply with the EU priciple of subsidiarity that decisios should be made at a atioal level if possible. The Commissio s proposal will ow pass to the Europea Parliamet ad Coucil of the Europea Uio (represetig Member States atioal govermets) for cosideratio at which stage the UK will have a further opportuity to put forward its objectios to the proposed Directive. Kay Review: key recommedatios ad Govermet respose I July 2012 Professor Joh Kay published his fial report o his idepedet review of ivestmet i UK equity markets ad its impact o compay performace ad goverace. The report cocluded that short-termism is a uderlyig problem i UK equity markets, pricipally caused by a misaligmet of icetives throughout the ivestmet chai ad the declie of trust relatioships by a culture based o trasactios ad tradig. Key fidigs ad recommedatios I his report, Professor Kay lays out a set of te priciples desiged to provide a foudatio for a log-term perspective i UK equity markets ad which describe the directios i which regulatory policy ad market practice should move. These high level statemets are supported by a series of specific recommedatios aimed at providig the first steps towards the establishmet of equity markets that support their core purpose of ehacig the performace of UK compaies, ad providig returs to savers. Professor Kay is clear that the priciples ad recommedatios are ot limited to steps which the Govermet ca take. Give the systemic ature of the problems idetified i his review, he believes that it is essetial that relevat regulatory bodies ad all the key participats i the ivestmet chai egage i the process. Professor Kay states o sigle reform will provide the solutio, but whe implemeted together, we believe our recommedatios will help to deliver the improvemets to equity markets ecessary to support sustaiable logterm value creatio by British compaies. The key recommedatios of the report look to: improve the quality of egagemet by those i the ivestmet chai, icludig the establishmet of a ivestors forum to foster more effective collective egagemet by ivestors with UK compaies; restore relatioships of trust ad cofidece i the ivestmet chai, icludig by applyig fiduciary stadards more widely withi the ivestmet chai; chage the culture of market participats, icludig by adoptio of good practice statemets by compay directors, asset maagers ad asset holders that promote a more expasive form of stewardship ad log-term decisio makig throughout the ivestmet chai; ad realig icetives by better relatig directors remueratio to log-term sustaiable busiess performace ad better aligig asset maagers remueratio to the iterests of their cliets. We must create cultures where busiess ad fiace ca work together to create high performig compaies ad ear returs for ivestors o a sustaiable basis. This meas movig away from a focus o short-term trasactios ad tradig to a eviromet based o log-term trust relatioships. We eed to broade the cocept of stewardship through more ad better cooperatio betwee ivestors ad compaies Professor Joh Kay Clifford Chace, Jauary 2013

15 Corporate Update 15 Govermet respose I November 2012, the Govermet published its respose to the Kay Review, settig out its support for Professor Kay s te priciples for equity markets. I particular, the Govermet has committed to explorig whether chages i law or regulatio are eeded to deliver Kay s priciples i practice. The respose sets out the work which is beig take forward by the Govermet to deliver Professor Kay s recommedatios, icludig: workig with EU couterparts to secure reforms to the EU Trasparecy Directive to ed madatory quarterly reportig ad to help reduce the excessive focus o short-term earigs; edorsig clear miimum stadards of behaviour for all ivestmet itermediaries to esure they act i the log-term best iterests of their cliets. The Law Commissio has bee asked to review the legal cocept of fiduciary duty as it applies to ivestmet as a result of cocers that itermediaries are iterpretig their duties to cliets too arrowly ad failig to take appropriate log-term factors ito accout. Cosideratio is also beig give to the possibility of icludig a appropriate madatory cotractual provisio i ivestmet agreemets. The FSA has also bee asked to esure that the regulatory framework promotes high stadards of behaviour throughout the ivestmet chai; ecouragig idustry to establish a ivestors forum to champio costructive egagemet with compaies; ad edorsig good practice statemets for compay directors, asset maagers ad asset holders which emphasize the eed for trust-based relatioships ad advocate more collective actio by istitutioal shareholders; better disclosure of costs i the ivestmet chai; icreased trasparecy ad fairess i stock ledig; ad better aligmet betwee directors pay ad log-term performace. The Govermet is challegig represetative bodies to review the good practice statemets which are set out i the Aexes to the respose ad to sigal to what extet they ca edorse them to their members ad to suggest how good practice stadards ca be further developed. A further Govermet paper will follow i Summer 2014 to report o what further progress has bee made by Govermet ad idustry towards meetig the aims of the Kay Report. I December 2012, the Busiess, Iovatio ad Skills Committee also aouced its itetio to iquire ito the Kay Review ad the Govermet s respose. I particular, the Committee has ivited submissios of evidece o the recommedatios set out i the Kay Review ad the Govermet s plas for implemetatio of its recommedatios. The closig date for submissios was 18 Jauary FSA secures further covictio for isider dealig O 13 December 2012, the FSA aouced that Thomas Amma, a ivestmet baker ad former FSA approved perso, has bee seteced to 2 years ad 8 moths imprisomet for two couts of isider dealig ad two couts of ecouragig isider dealig. I his former role as a ivestmet baker workig for Mizuho Iteratioal Plc, Mr Amma had access to iside iformatio relatig to a takeover. Rather tha dealig o his accout, Amma ecouraged two wome with whom he was i a relatioship to buy shares i the target compay prior to the acquisitio beig aouced. After the aoucemet of the acquisitio, the wome i questio sold the shares makig a profit which they shared with Amma. I November 2012, a jury foud both wome ot to be joitly ivolved with Amma ad his isider tradig. Amma made several hudred thousad pouds of profit as a result of his activities. A cofiscatio order is to be made at a later date. At the time of his arrest Amma was a FSA approved perso with privileged access to iside iformatio. He sought to exploit that positio to make easy moey. This sort of behaviour by city professioals ot oly brigs the idividual ito disrepute but also damages the reputatio ad stadig of the fiacial services idustry as a whole. We are determied to stamp this out. Tracey McDermott, director of eforcemet ad fiacial crime Clifford Chace, Jauary 2013

16 16 Corporate Update This is the FSA s 21 st covictio i relatio to isider dealig ad shows its cotiued determiatio to brig wrog doers to accout. Five further isider dealig prosecutios are curretly i progress. Clifford Chace isights ito the UK public M&A market oe year o from the Pael s reform of the UK Takeover Code I September 2012, a year after the overhaul of the UK takeover regime, Clifford Chace udertook a aalysis of UK public M&A activity to assess whether the Pael s objectives have bee met ad to see if the deal ladscape has altered sigificatly. I reformig the Code, the Pael s key objective was to reduce the tactical advatage obtaied by bidders ad redress the balace i favour of target compaies. There was also a desire to icrease cofidetiality surroudig bids ad thereby protect agaist protracted virtual bid periods. There were, however, sigificat cocers at the time the ew rules were itroduced that the ew requiremet to idetify potetial bidders early i the process, together with the ba o break fees, might adversely impact the attractiveess of the UK market, particularly for overseas bidders or private equity bidders. Advisers were also coscious that the fixed 28 day put up or shut up (PUSU) period might prove too short ad iflexible to eable complex bids, particularly hostile bids, to stad a chace of succeedig. From our market aalysis, it would appear that these cocers have ot materialised to ay great extet i practice although the cocers remai ad deal levels have bee somewhat depressed give the challegig geeral ecoomic coditios. The UK market does however remai attractive to overseas bidders i fact 73% of deals over 100m+ ivolved overseas bidders. I additio, PUSU extesios are fairly commoplace, ofte resultig i fairly legthy periods of public egagemet prior to a formal offer beig aouced. For more detailed isights ito how the Code reform has impacted UK public M&A activity, please see our briefig Impact of the UK Takeover Code Reform oe year o which is available at views/publicatios/2012/09/impact_of_u k_takeovercodereformoeyearo.html Our aalysis was followed by the publicatio i November 2012 by the Takeover Pael of Pael Statemet 2012/8, settig out the Code Committee s review of the September 2011 Code amedmets. Overall, the Code Committee is satisfied that the amedmets are achievig their aims of rebalacig the playig field i favour of target compaies by icreasig protectio agaist protracted virtual bids periods ad stregtheig the positio of target compaies by baig most deal protectio measures. The Code Committee does ot propose ay immediate chages to the Code, but has asked the Executive to moitor certai areas ad to keep a umber of Code provisios uder review. Clifford Chace, Jauary 2013

17 Corporate Update 17 Atitrust Update Merger cotrol update Geeral Court upholds 20 millio fie for failure to file The Geeral Court of the EU (GC) has upheld the decisio of the Europea Commissio to impose a 20 millio fie o Electrabel for failure to otify a acquisitio uder the EU Merger Regulatio. While Electrabel s acquisitio of 48% of the votig rights of Compagie Natioale du Rhoe (CNR) did ot make Electrabel the majority shareholder, it did make it highly likely i practice that Electrabel would have bee able to exercise a majority i shareholder meetigs give the levels of participatio i such meetigs ad thereby cotrol strategic commercial decisios of CNR, such as the appoitmet of seior maagemet ad the approval of the budget ad busiess pla. Accordigly, the GC upheld the Commissio s fidig that Electrabel had acquired decisive ifluece over CNR which should have bee otified ad cleared prior to its implemetatio (ad ot 3 ad a half years later, which is what actually happeed). Electrabel s protests that the fie was disproportioate were dismissed. I the GC s eyes, Electrabel is a large compay with substatial legal resources which should have bee able to idetify the eed to make a filig. Moreover, mitigatig factors had bee take ito accout by the Commissio, such as Electrabel s volutary disclosure of the facts relatig to the breach, ad the absece of ay harm to competitio. Without these factors the fie would have bee much higher. I the evet, the fie represeted oly 0.42% of the legal maximum ( 4.7 billio, i.e. 10% of GDF Suez s worldwide turover i 2007) ad while that was sigificatly more tha ay previous fies for failure to file, it was ope to the Commissio to adjust its fiig policy so as to esure its deterret effect. Editor Commet: Electrabel s fie still stads as the highest ever fie for gu jumpig aywhere i the world, although fies ruig ito multiple millios of Euros ad dollars have bee imposed i jurisdictios such as the US ad Germay. Worldwide, fiig treds are likely to ted towards higher pealties for breaches of this type. Whe take together with the ever-growig umber of jurisdictios that impose madatory filig ad stadstill obligatios ad the difficulties that ca arise i assessig whether these obligatios apply (see below) that creates icreased complexity for plaig cross-border trasactios ad associated filig strategies. Miority shareholdigs uder review The EU Competitio Commissioer Joaqui Almuia has idicated i a speech that he favours the itroductio of powers for the Europea Commissio to review acquisitios of o-cotrollig miority shareholdigs. At preset, the Commissio has o jurisdictio to review a miority iterest uless it cofers o the purchaser the ability, at miimum, to veto strategic commercial decisios of the target, such as the appoitmet of seior maagemet ad the approval of the budget ad busiess pla. This was cofirmed by the EU s Geeral Court after oe of Ryaair s abortive attempts to take over its rival Aer Ligus (prior to its latest attempt, which remais uder cosideratio by the Commissio). The GC held that while the Commissio could prohibit implemetatio of Ryaair s offer to acquire all the shares i Aer Ligus, it had o power to order Ryaair to reduce the 25.2% stake that it had built i Aer Ligus prior to the lauch of its takeover offer, as that stake did ot cofer decisive ifluece. Curiously, however, oce the Commissio does have jurisdictio to review a trasactio it ca, if it idetifies a competitio cocer, order the purchaser to sell dow its stake to a level well below decisive ifluece ad to keep it there. It ca also idetify competitio cocers o Clifford Chace, Jauary 2013

18 18 Corporate Update the basis of o-cotrollig iterests held by oe of the parties i a third party. Commissioer Almuia s cocer is that o-cotrollig stakes, such as that built up by Ryaair, may sometimes cause sigificat harm to competitio. That view is certaily shared by the UK competitio authorities, which are permitted to itervee i acquisitios of miority iterests coferrig a much lower degree of cotrol - material ifluece ad have doe so o several occasios, such as BSkyB s acquisitio of 17.9% of ITV, with o board seat. However, the cocept of material ifluece applied by the UK authorities is cosiderably more vague ad subjective tha the decisive ifluece test applied by the Commissio. I the cotext of the UK s merger cotrol regime, that is less of a cocer, as filig is volutary, ad parties are ot required to susped closig pedig the receipt of clearace. The EU regime, i cotrast, is oe of madatory filig ad stadstill obligatios. If a murky test for cotrol became the trigger for those obligatios, that would create legal ucertaity for stake-buildig exercises, ad greater risks of gu-jumpig fies, eve whe o substative competitio cocers arise. Oe possible solutio would be a hybrid regime, uder which the Commissio would have the power to review, ad impose remedies o, acquisitios of o-cotrollig miority iterests, but madatory filig ad suspesio requiremets would ot apply (i cotrast to acquisitios of cotrollig iterests which would cotiue to be subject to such obligatios). Commissioer Almuia has said that his prelimiary preferece is for this optio, although the Commissio will be lauchig a cosultatio i 2013 o whether reform i this area is desirable ad, if so, how it should be carried out. Ay such legislative reforms of the Merger Regulatio would require the approval of the govermets of EU coutries, actig i the Coucil of the EU. Editor Commet: Experiece of the UK s regime suggests that such a arragemet would ot pose difficulties i the vast majority of cases, as parties ad their advisers are usually capable of assessig the competitio risks, ad the resultig likelihood of a subsequet order to divest the stake, with a good degree of accuracy. However, substatial executio risks ca arise i borderlie cases. For example, BSkyB lost aroud 350 millio o the ITV stake that it was required to divest. Submittig a volutary filig i order to address these risks ad waitig to obtai clearace may ot be a feasible optio for some stake-buildig exercises. Almuia s statemets are also a timely remider of the difficulties that merger cotrol rules ca create for eve the smallest of acquisitios, where the target is active i multiple jurisdictios. While the decisive ifluece test applied i the EU is the most commo model, may coutries require filigs for much lower levels of shareholdigs, otwithstadig that these may cofer o meaigful ifluece over the target s commercial coduct (for details of some key jurisdictios, see the table below). Coutry Miimum threshold for cotrol Madatory filig ad stadstill obligatios? Australia Brazil Germay Idia No cotrol threshold ay trasactio ca be reviewed. 5% of shares or votig rights, if purchaser ad target are competitors or active o vertically related markets (e.g. supplier/customer). Otherwise, 20%. 25% shareholdig or competitively sigificat ifluece coferrig the ability to exercise rights comparable to a 25% shareholdig. 25% of shares or votig rights, or less if stake is ot held solely as a ivestmet, or i the ordiary course of busiess. No Yes Yes Yes Japa 20% of votig rights. Yes Russia UK US 25% holdig i a joit-stock compay, 33.3% of a Russia limited liability compay Material ifluece. For PLCs, the ability to veto special resolutios will usually suffice. Ca be as low as 15% shareholdig with o board seat or other goverace rights. No cotrol threshold uless a exemptio applies, acquisitios of $68.2 millio worth of the votig securities of aother compay must be filed, eve if this represets oly a isigificat shareholdig Yes No Yes Clifford Chace, Jauary 2013

19 Corporate Update 19 Update o UK Competitio Reforms I the July 2012 editio of the Corporate Update, we reported o various proposed reforms of the UK competitio regime. While the Govermet has ot yet aouced its plas for reform of private actios for competitio law ifrigemets, its reform of the eforcemet regime is curretly makig its way through Parliamet, i the Eterprise ad Regulatory Reform Bill (ERRB). I additio, the OFT has issued revised guidace o the procedures for eforcemet of the Competitio Act prohibitios that it will apply up util the time whe it is merged with the Competitio Commissio to form the Competitio ad Markets Authority (CMA) i April Eterprise ad Regulatory Reform Bill The reforms icluded i the ERRB are largely the same as those previously aouced by the Govermet, ad described i the July 2012 editio of Corporate Update, but with some importat differeces. I particular, followig the Govermet s earlier decisio to remove the requiremet for dishoesty from the defiitio of the crimial cartel offece, it has ow i respose to cocers raised by busiess ad practitioers itroduced i the draft legislatio three ew defeces. These will be available where the idividual i questio has egaged i the relevat cartel coduct (price fixig, bid riggig, market sharig or output restrictios), but ca show that he or she: did ot, at the time of the makig of the agreemet, ited the ature of the arragemets to be cocealed from customers; did ot, at the time of the makig of the agreemet, ited the ature of the arragemets to be cocealed from the UK competitio authorities; or took reasoable steps, before the agreemet was made, to esure that the ature of the arragemets would be disclosed to professioal legal advisers for the purposes of obtaiig advice about them before they were implemeted. These defeces are i additio to the carve out which provides that o offece is committed where the arragemets i issue have bee otified to the CMA ad/or customers, or suitably published. The ERRB is curretly uder scrutiy by the Grad Committee of the House of Lords ad is expected to receive Royal Asset i early Competitio Act procedures: OFT revised guidace The OFT has issued revised guidace o its procedures for eforcig the Competitio Act 1998 prohibitios o aticompetitive agreemets ad abuse of domiace. The mai procedural chages are as follows: Editor Commet: While these ew defec es represet a welcome attempt to reitroduce some requiremet for aticompetitive itet, they raise a umber of questios. For example, will the defece of disclosure to lawyers require that the resultig advice is disclosed to the prosecutio ad the court? If so, what will happe if the idividual s employer refuses to waive legal privilege over the advice? Will the defece be available if the advice was that the arragemets risked breachig the cartel offece, but the idividual or compay implemeted them ayway? If ot, how effective will the revised offece be as a deterret? These questios should be addressed by guidace that the CMA will be required to publish, settig out how it will determie whether to brig proceedigs i particular cases. Fial decisios o ifrigemet ad pealty are to be take by a three-perso case decisio group, who will have had o ivolvemet i the earlier decisio to issue a formal statemet of objectios agaist the udertakig(s) uder ivestigatio. This is desiged to protect agaist cofirmatio bias, i.e. the atural icliatio to see oe s iitial views subsequetly cofirmed. The seior officer resposible for leadig the ivestigatio will cotiue to take decisios relatig to the impositio of iterim measures, acceptace of commitmets, ad possible settlemet (cosultig with other seior officials as appropriate). The role of the procedural adjudicator who resolves disputes betwee parties ad OFT case teams i ivestigatios uder the 1998 Act has bee exteded util the CMA becomes operatioal i April Parties facig a fiacial pealty for their breaches will be able to make represetatios o key elemets of the OFT s proposed pealty calculatio ahead of the fial decisio. More iteractive oral hearigs ad additioal state of play meetigs have bee itroduced to provide greater opportuity for direct dialogue betwee the parties ad the decisio makers. Case opeig otices ad case-specific admiistrative timetables are to be published o the OFT s website to icrease the trasparecy of the ivestigatios. Editor Commet: The OFT has recetly faced criticism i relatio to its ivestigatio ad fiig procedures followig successful appeals agaist OFT decisios before the Competitio Appeal Tribual. The OFT believes the chages itroduced i the revised guidace will ehace the robustess ad efficiecy of its Competitio Act cases, as well as resultig i better iteractio with parties to ivestigatios ad improvig the trasparecy of its work. These revised procedures may well form the basis of the procedures that the CMA chooses to adopt whe it becomes operatioal. Clifford Chace, Jauary 2013

20 20 Corporate Update This Corporate Update has bee produced by the Lodo Corporate Practice ad edited by David Pudge. David specialises i corporate fiace, domestic ad cross-border M&A (icludig public takeovers), listed compay matters ad geeral corporate advisory work. Recet major trasactios iclude advisig Ma Group plc o the scheme of arragemet to iterpose a ew listed group holdig compay ad o its acquisitio of the FRM hedge fud busiess; RBS o the sale of RBS Aviatio Capital to a cosortium led by Sumitomo Mitsui Bakig Corporatio for $7.3b; Baco Satader o the sale of its shareholdig i Thames Water to Chia Ivestmet Corporatio; ad Iteratioal Power o the takeover offer from GDF SUEZ to acquire the shares i Iteratioal Power ot already owed by it. David is a member of the City of Lodo Law Society s Compay Law Committee ad a cotributig author to A Practitioer s Guide to the City Code o Takeovers ad Mergers. If you would like more iformatio about ay of the topics covered i this Corporate Update, please your usual Clifford Chace cotact (firstame.lastame@cliffordchace.com) or cotact David Pudge o +44 (0) or by at david.pudge@cliffordchace.com Our Isights ito M&A Treds Global Dyamics Report Jauary 2013 Clifford Chace s ew report, Our Isights ito M&A Treds Global Dyamics looks at the key treds curretly impactig global M&A activity ad cotais our isights ito the drivers ad challeges for M&A activity for the year ahead. The report shows that the global macroecoomic slowdow, cotiued turmoil i the Eurozoe ad the potetial for political chage i a umber of key markets, all cotributed to suppress the appetite for deal-doig i Despite may compaies ejoyig the beefit of a robust balace sheet, boardroom cofidece for strategic M&A remaied weak. Lookig forward for 2013, the picture remais ucertai - but there are grouds for cautious optimism. We are seeig growig cofidece amogst may US corporates, which may cotribute to a uptur i global M&A activity i I Europe, if we ca move to a period of cotiued stability, a modest icrease i Europea M&A activity is aticipated, particularly amogst iboud ivestors seekig attractive acquisitio opportuities whilst valuatios remai relatively depressed. I the short term we expect to see a umber of treds developig, otably: compaies i developed markets accessig the expadig cosumer base i emergig markets ad growth market buyers lookig to purchase leadig idustrial techologies ad luxury brads i developed markets. Fially, divestmets of o-core busiesses will cotiue throughout 2013, particularly i the fiacial istitutios sector, as the impact of the regulatory chage ad icreased capital requiremets drives further activity. Our full report is available, together with ew iteractive maps showig ivestmet flows ito ad out of each regio, o the Clifford Chace M&A Toolkit: Clifford Chace, Jauary 2013 Clifford Chace LLP is a limited liability partership registered i Eglad ad Wales uder umber OC Registered office: 10 Upper Bak Street, Lodo, E14 5JJ. We use the word parter to refer to a member of Clifford Chace LLP, or a employee or cosultat with equivalet stadig ad qualificatios. This publicatio does ot ecessarily deal with every importat topic or cover every aspect of the topics with which it deals. It is ot desiged to provide legal or other advice. If you do ot wish to receive further iformatio from Clifford Chace about evets or legal developmets which we believe may be of iterest to you, please either sed a to omorecotact@cliffordchace.com or cotact our database admiistrator by post at Clifford Chace LLP, 10 Upper Bak Street, Caary Wharf, Lodo E14 5JJ. Abu Dhabi Amsterdam Bagkok Barceloa Beijig Brussels Bucharest Casablaca Doha Dubai Düsseldorf Frakfurt Hog Kog Istabul Kyiv Lodo Luxembourg Madrid Mila Moscow Muich New York Paris Perth Prague Riyadh (co-operatio agreemet) Rome São Paulo Seoul Shaghai Sigapore Sydey Tokyo Warsaw Washigto, D.C. Clifford Chace has a co-operatio agreemet with Al-Jadaa & Parters Law Firm i Riyadh J