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Print articleFCA Consultation on Changes to the Listing Rules
November, 2013 - Brigitta Naunton
The FCA has published a consultation paper CP 13/15. The paper sets out a series of amended Listing Rules in near-final form, along with some new and revised proposals based on feedback from a previous consultation (CP 12/25).
The paper contains a package of measures designed to strengthen minority shareholder rights where they are at risk of being abused. It is particularly intended to deal with cases when a controlling shareholder of a premium listed company does not maintain an appropriate and arm's length relationship with the listed company.
The main changes proposed by the consultation are as follows:
Independence / controlling shareholders
New guidance to assist determining whether a company is independent.
New definitions of "controlling shareholder" and "associate", and the interests of associates may be aggregated. This will assist determining whether a controlling shareholder exists.
A controlling shareholder is a person who alone, with any associates or with any person with whom they are acting in concert, exercises or controls 30% or more of the votes cast at a general meetings. The full definition is lengthy and sets out various voting rights that may be disregarded in certain circumstances.
All holders of shares except the controlling shareholder will be known as "independent shareholders".
Relationship agreement
If a premium listed company has a controlling shareholder there will need to be a written and binding "relationship" agreement between them to ensure that the controlling shareholder complies with various requirements aimed at ensuring the independence of the company. The agreement must contain various mandatory independence provisions as undertakings, relating to an arm's length business relationship between the parties and compliance with the Listing Rules.
The annual report must include various disclosures relating to the relationship agreement and compliance with the independence provisions within that agreement.
If there is any breach of the independence provisions, or no relationship agreement is put into place, enhanced oversight measures would be activated and give minority shareholders the right to vote on all transactions between a controlling shareholder and the company, and veto them if they wish.
Election of independent directors
Premium listed companies with a controlling shareholder will need to change their articles to provide for a dual voting structure for the election of independent directors. This structure requires that independent directors must be separately approved both by the shareholders as a whole and the independent shareholders as a separate class. If the company fails to achieve the necessary approvals, it must wait for at least another 90 days before approval could be obtained by a simple majority of all shareholders.
The shareholder circular relating to the election of an independent director will need to contain enhanced disclosures including details of any relationship between the independent director and the company, its directors and any controlling shareholder (or a negative statement), a description of why the company believes the proposed director will be effective and the steps it has taken to confirm his independence.
These proposals may be extended to all premium listed companies, regardless of whether they have a controlling shareholder.
Cancellation of listing
New additional voting powers for independent shareholders where a company with a controlling shareholder wishes to proceed with a cancellation.
Listing Principles
The Listing Principles will be renumbered and named and divided into Listing Principles (which are applicable to all listed companies and consisting of old LPs 2 and 6) and Premium Listing Principles (applicable to premium listed companies only).
The Listing Principles applicable to all listed companies relate to adequate procedures and systems and dealings with the FCA.
There are new Premium Listing Principles relating to equal numbers of votes and aggregate voting rights of shares in each class.
Other measures
Modification of the free float requirements.
Changes to the way disclosures required by the Listing Rules are presented in the annual report.
Immediate RIS announcement of smaller related party transactions (i.e. those that do not require specific shareholder approval) rather than waiting for the next annual report to disclose them.
Duty to notify the FCA of non-compliance with continuing obligations.
Next steps
The consultation closes on 5 February 2014 and the FCA intends to implement the final rules by the middle of 2014.
To view the consultation paper click here
The paper contains a package of measures designed to strengthen minority shareholder rights where they are at risk of being abused. It is particularly intended to deal with cases when a controlling shareholder of a premium listed company does not maintain an appropriate and arm's length relationship with the listed company.
The main changes proposed by the consultation are as follows:
Independence / controlling shareholders
New guidance to assist determining whether a company is independent.
New definitions of "controlling shareholder" and "associate", and the interests of associates may be aggregated. This will assist determining whether a controlling shareholder exists.
A controlling shareholder is a person who alone, with any associates or with any person with whom they are acting in concert, exercises or controls 30% or more of the votes cast at a general meetings. The full definition is lengthy and sets out various voting rights that may be disregarded in certain circumstances.
All holders of shares except the controlling shareholder will be known as "independent shareholders".
Relationship agreement
If a premium listed company has a controlling shareholder there will need to be a written and binding "relationship" agreement between them to ensure that the controlling shareholder complies with various requirements aimed at ensuring the independence of the company. The agreement must contain various mandatory independence provisions as undertakings, relating to an arm's length business relationship between the parties and compliance with the Listing Rules.
The annual report must include various disclosures relating to the relationship agreement and compliance with the independence provisions within that agreement.
If there is any breach of the independence provisions, or no relationship agreement is put into place, enhanced oversight measures would be activated and give minority shareholders the right to vote on all transactions between a controlling shareholder and the company, and veto them if they wish.
Election of independent directors
Premium listed companies with a controlling shareholder will need to change their articles to provide for a dual voting structure for the election of independent directors. This structure requires that independent directors must be separately approved both by the shareholders as a whole and the independent shareholders as a separate class. If the company fails to achieve the necessary approvals, it must wait for at least another 90 days before approval could be obtained by a simple majority of all shareholders.
The shareholder circular relating to the election of an independent director will need to contain enhanced disclosures including details of any relationship between the independent director and the company, its directors and any controlling shareholder (or a negative statement), a description of why the company believes the proposed director will be effective and the steps it has taken to confirm his independence.
These proposals may be extended to all premium listed companies, regardless of whether they have a controlling shareholder.
Cancellation of listing
New additional voting powers for independent shareholders where a company with a controlling shareholder wishes to proceed with a cancellation.
Listing Principles
The Listing Principles will be renumbered and named and divided into Listing Principles (which are applicable to all listed companies and consisting of old LPs 2 and 6) and Premium Listing Principles (applicable to premium listed companies only).
The Listing Principles applicable to all listed companies relate to adequate procedures and systems and dealings with the FCA.
There are new Premium Listing Principles relating to equal numbers of votes and aggregate voting rights of shares in each class.
Other measures
Modification of the free float requirements.
Changes to the way disclosures required by the Listing Rules are presented in the annual report.
Immediate RIS announcement of smaller related party transactions (i.e. those that do not require specific shareholder approval) rather than waiting for the next annual report to disclose them.
Duty to notify the FCA of non-compliance with continuing obligations.
Next steps
The consultation closes on 5 February 2014 and the FCA intends to implement the final rules by the middle of 2014.
To view the consultation paper click here
