PLC QTRLY - Q3 2024

This is our regular quarterly update to help our listed company clients and other market participants keep up to date with key developments relevant to issuers on the Main Market and AIM market of the London Stock Exchange.

RPC represents Pyrrho in landmark Takeover Panel case involving MWB Group

RPC advised Pyrrho Investments Limited (Pyrrho) in a landmark case handled by the UK's Takeover Panel.

On 30 July 2024, the Takeover Panel Hearing Committee issued a Panel Statement publishing its rulings that former members of the senior management team at MWB Group Holdings plc (MWB) had carried out a series of sham transactions to mislead shareholders, other board members, the Takeover Panel and the market generally as to the true ownership of shares in MWB. This enabled an undisclosed concert party to avoid their obligations under the Takeover Code to make a mandatory takeover offer to all the shareholders of MWB. The Takeover Panel ordered three individuals to pay the MWB shareholders approximately £33 million in compensation and has made 'cold shoulder' orders against ten individuals.

The investigation into breaches of the Takeover Code spanned over a decade following a complaint by Pyrrho to the Takeover Panel in December 2011. Pyrrho was at the time the largest single shareholder in MWB. The investigation culminated in late 2023 with an extensive hearing process. The main hearing, held over 15 days in November 2023, and a subsequent hearing on sanctions and compensation held at the end of January 2024, underscored the complexity and magnitude of the case.

Updates following introduction of new UK Listing Rules

There have been a number of updates to documents, rules and guidance to reflect the FCA's introduction of the new UK Listing Rules on 29 July 2024 (as reported in PLC QTRLY Q2 2024).

These include:

• The FCA has updated its forms and checklists to include references to the new UK Listing Rules.
• In Primary Market Bulletin 51, the FCA confirmed that it has made various changes to its Knowledge Base guidance (following its consultation in Primary Market Bulletin, as reported in PLC QTRLY Q2 2024) to reflect the new UK Listing Rules. These include the addition of one new technical note (sponsor's confirmation in relation to modified transfer of listing category); the amendment of 12 technical notes relating to the sponsor regime; the amendment of 9 technical notes on non-sponsor related topics; and the deletion of 9 technical notes to reflect requirements not carried over into the new UK Listing Rules (including the financial information and track record eligibility requirements; the independent business and control of the business eligibility requirements, except where there is a controlling shareholder; the profits test for classification of transactions; shareholder votes for related party transactions; and requirements for circulars to include working capital statements, profit forecasts and estimates and pro forma financial information complying with the Prospectus Regulation).
• The London Stock Exchange has published Market Notice N06/24, together with an amended version of the Admission and Disclosure Standards, to reflect the new UK Listing Rules and the closure of the High Growth Segment.

FTSE Russell has published an article explaining the implications of the changes to the UK listing regime for the FTSE UK Index Series and has confirmed that the Equity Shares (Commercial Companies) and the Closed Ended Investment Funds categories are now the eligible categories for inclusion in the FTSE UK Index Series, replacing the Premium Segment.

FCA's proposed new Prospectus Rules

On 26 July 2024, the FCA issued a consultation paper setting out its proposed new rules for companies seeking to admit securities to a regulated market, such as the Main Market of the London Stock Exchange, or to a primary multilateral trading facility, such as AIM or the AQSE Growth Market.

Details of the key changes which will be made if the existing Prospectus Regulation Rules are replaced by the FCA's proposed new rulebook, Prospectus Rules: Admission to Trading on a Regulated Market, in its current form can be found here.

The consultation remains open until 18 October 2024.

FCA consults on new public offer platform regime

On 26 July 2024, the FCA issued a consultation paper setting out its proposed rules for the new public offer platform regime, which will allow firms to facilitate companies making public offers of securities to investors outside public markets when raising more than £5m.

The Public Offers and Admission to Trading Regulations 2024 (POATRs), which will replace the current UK Prospectus Regulation, create a new regulated activity of operating an electronic system for public offers of relevant securities (a public offer platform or POP). Companies seeking to make public offers of securities outside a public market to a broad investor base, where the value of the offer is more than £5m, will need to do so via a POP.

The consultation remains open until 18 October 2024 and the FCA aims to finalise its rules applying to firms operating a POP by the end of H1 2025.

FRC publishes Annual Review of Corporate Reporting 2023/24

On 24 September 2024, the FRC published its Annual Review of Corporate Reporting 2023/24, setting out its findings from its monitoring of UK companies' annual reports alongside its expectations for the upcoming reporting season.

Key findings included:

• The quality of corporate reporting by FTSE 350 companies was maintained during the year, although there was some evidence of a widening gap in reporting quality between companies within the FTSE 350 and other companies.
• Improvements were seen in several reporting areas, with provisions and contingencies falling out of the FRC's "top ten" issues for the first time in over five years and significantly fewer companies questioned in relation to their disclosure of judgements and estimates, another area that has featured in the FRC's "top ten" for many years.
• Queries in relation to impairment of assets and cash flow statements each arose in over 10% of cases opened during the year, accompanied by an increased number of restatements in these areas, predominantly outside the FTSE 350. These will remain areas of close focus for the FRC.
• The FRC found comparatively few compliance issues in premium listed companies' reporting against the Taskforce for Climate-related Financial Disclosures (TCFD) framework but noted that some companies continue to find this challenging; that climate-related reporting has moved into the FRC's "top ten" issues this year; that requirements for climate-related reporting have now been extended to a wider population of companies; and that UK companies with a material EU presence will also need to consider the requirements of the Corporate Sustainability Reporting Directive.

The FRC will continue to take a proportionate and targeted approach to its monitoring and does not expect companies to provide information in their annual reports and accounts that is not material or relevant to users.

To address the concerns highlighted in this year's annual review, the FRC recommends that companies:

• Clearly familiarise themselves with the FRC's top ten reporting issues (see below list).
• Focus on providing material disclosures that are clear, concise and company specific.
• Note that good quality reporting does not necessarily require a greater volume of disclosure.

Take a step back and consider whether the annual report and accounts, taken as a whole, tells a consistent and coherent story.

FRC's top ten issues raised with companies in 2023/24

1. Impairment of assets
2. Cash flow statements
3. Financial instruments
4. Revenue
5. Presentation of financial statements
6. Strategic report and Companies Act 2006
7. Judgements and estimates
8. Income taxes
9. Fair value measurement
10. TCFD and climate-related narrative reporting

Dormant assets scheme: dealing with "dormant" shareholders

HM Treasury has published a dormant assets scheme participant pack to help public companies to put in place a process for dealing with "dormant" members, for example where a company loses contact with a shareholder due to failure to provide a change of address.

The pack contains:

• Draft explanatory notes for inclusion in a circular to shareholders proposing possible changes to the company's articles of association to facilitate participation in a dormant assets scheme.
• Draft supplementary articles of association, providing a possible template for prospective participants to adapt and adopt to facilitate their participation in a dormant assets scheme.

Under the draft supplementary articles of association, a company would be permitted to sell shares which fall within the definition of "dormant shares" (as determined over a 12-year period) while retaining liability to account for sale proceeds. Where permitted, the company would be able to transfer the proceeds to an authorised reclaim fund, which would discharge the company's liability. Where transfer to a reclaim fund is determined to be unlawful, the sale proceeds could be forfeited to the company without continuing liability on the company and the company would be able to use the proceeds as the directors determine. The draft articles also contain similar arrangements for dormant share proceeds such as unclaimed dividends.

Investment research: FCA policy statement on payment optionality

On 26 July 2024, the FCA published a policy statement summarising the feedback received to its April 2024 consultation on paying for investment research.

Given the demand indicated by those responding to the consultation, the FCA will proceed with introducing an option to facilitate joint payments for third-party research and execution services, provided that a firm meets certain requirements in relation to its operation. This new option moves away from the MiFID II requirement to "unbundle" charges for execution from those for research.

The new option will exist alongside those already available, such as payments for research from an asset manager's own resources and payments for research from a dedicated research payment account for specific clients, thereby allowing firms additional flexibility.

UK Stewardship Code: interim changes to reporting requirements

The FRC has introduced several interim changes to reporting requirements for existing signatories to the UK Stewardship Code. The changes, which are designed to reduce reporting burdens and drive better stewardship outcomes, will be effective for the next application deadline of 31 October 2024.

The changes include:

• No longer requiring existing signatories to update disclosures against "Context" reporting expectations, except where there are material changes to previous disclosures.
• No longer requiring existing Asset Owner and Asset Manager signatories to disclose against "Activity" and "Outcome" reporting expectations for Principles 1, 2, 5 and 6, except where there are material updates.
• Allowing existing signatories to cross-reference to specific disclosures made in their most recent Stewardship Report where there have been no material changes.