This week:
- A company's register of members was conclusive evidence of its membership, notwithstanding that there had been an unauthorised transfer of shares
- Companies House sets out its intended next steps on implementing corporate transparency reforms
- The FRC publishes its second report on the adoption of the Wates Principles by very large private companies
- The FRC publishes a discussion paper on opportunities for future UK digital reporting
- The European Commission publishes draft guidance on EU sustainability reporting rules
- The Financial Conduct Authority is consulting on changes to the National Storage Mechanism
Company's register of members was conclusive evidence notwithstanding unauthorised transfer of shares
The Court of Appeal has held that the sole member of a company was the person whose name was listed in its register of members, even though she had acquired 50% of the company's shares by executing an instrument of transfer without the transferor's authority.
Bland and Anor v Keegan [2024] EWCA Civ 934 concerned a private company limited by shares. The company was effectively controlled and managed by one individual, but the shares in the company were held as to 50% by his mother and 50% by his wife (i.e. the mother's daughter-in-law), both of whom were also directors.
In due course, the relationship between the mother (on the one hand) and the son and daughter-in-law (on the other hand) broke down.
Shortly afterwards, the daughter-in-law executed a stock transfer form purporting to transfer the mother's 50% shareholding to the daughter-in-law. Subsequently, filings were made at Companies House showing the transfer of the shares, as well as the termination of the mother's directorship.
Two years later, the daughter-in-law unilaterally passed a special resolution to wind the company up.
The mother subsequently challenged the resolution, claiming that the daughter-in-law had forged her signature. She argued that the effect of this was that the transfer was a "nullity", that the resolution was not validly passed (because the daughter-in-law held only 50% of the company's shares, rather than the 75% required) and that the joint liquidators had not been validly appointed.
The Court of Appeal held that the daughter-in-law was the sole member of the company and, therefore, the liquidators had been validly appointed.
The judges referred to the key case of Enviroco Ltd v Farstad Supply A/S [2011] UKSC 16, in which the Supreme Court laid out a "fundamental principle of United Kingdom company law" that "except where express provision is made to the contrary, the person on the register of the members is the member to the exclusion of any other person, unless and until the register is rectified".
The court said that this general principle should apply when deciding who a company's members are for the purposes of voting on a shareholder resolution, "even ... where a member's name has been wrongly removed from the register as a result of forgery". (Note that the court did not actually conclude that any forgery had taken place.)
On that basis, the only member of the company at the time of the special resolution to place it into liquidation (and, therefore, the only person entitled to vote on that resolution) was the daughter-in-law.
The case has potential ramifications where one person is executing transfer documentation on behalf of another, particularly on a forced transfer (such as on a drag-along or where an individual becomes a "leaver".)
Companies House sets out next steps on corporate transparency reform
Companies House has published its business plan for 2024/2025, in which it has set out (among other things) its plans to further implement reforms made by the Economic Crime and Corporate Transparency Act 2023 (the ECCTA 2023).
The business plan confirms the following.
- Authorised corporate service providers (ACSPs). Companies House intends to introduce a registration process for becoming an ACSP. This initial stage will allow organisations to register to transact with Companies House on behalf of companies in advance of being able to complete full identity verification checks later down the line. (Under changes made by the ECCTA 2023, any filings made on behalf of companies will need to be made via an ACSP or an ID-verified officer or employee.)
- Identity verification. Companies House aims to make changes to systems and service integrations so as to enable individual identity verification (IDV) by the end of March 2025. It intends to begin a transition process for a phased roll out from Spring 2025 and beyond.
- Corporate directors. Companies House also intends to begin developing process changes to impose limits on the use of corporate directors, subject to certain exemptions. The prohibition of corporate directors was in fact legislated for almost a decade ago under the Small Business Enterprise and Employment Act 2015 but has yet to be brought into effect.
- Suppression of information. Finally, Companies House is aiming to develop processes to suppress personal information from the register. This includes allowing people who are personally at risk, rather than at risk due to the activities of the company, to apply to protect their information.
Access Companies House's business plan for 2024/2025
FRC publishes second report on large company corporate governance reporting
The Financial Reporting Council (FRC) has published its second in-depth assessment by the Coalition Group on the quality of corporate governance reporting by very large private companies.
What are the Wates Principles?
For financial years beginning on or after 1 January 2019, very large private UK companies have been required to report on their corporate governance arrangements. (This includes very large subsidiaries of publicly traded companies.)
The requirement applies to a company that has either more than 2,000 employees (worldwide) or both worldwide turnover above £20m and a global balance sheet total above £2bn.
(Reporting technically extends to very large AIM companies, although AIM companies of all sizes are required separately by Rule 26 of the AIM Rules for Companies to report against a recognised corporate governance code.)
To assist private companies with complying with their reporting obligations, the Coalition Group (chaired by Sir James Wates, CBE) published a set of corporate governance principles for large private companies, known as the Wates Principles.
There are six separate Wates Principles covering purpose and leadership; board composition; director responsibilities; opportunity and risk; remuneration; and stakeholder relationships and engagement.
The Wates Principles are to be used on an "apply and explain" basis. Rather than merely stating that they have complied and explaining any areas of divergence, companies are encouraged to provide descriptive narrative as to how they integrate the Principles into their governance arrangements.
The FRC found slight improvements in most of the disclosure scores for each Wates Principle since its previous assessment.
In particular, it states that more companies reported on how their purpose aligned with their business practices and on the connection between their strategy and purpose/culture. There was also more information on the company's chair, how the board understands the company's business needs and stakeholder interests, and the rationale for the company's remuneration structure.
The other headline points from the report are as follows.
- Out of 1,815 companies reviewed, 1,250 (69%) disclosed information on their corporate governance arrangements. The Wates Principles were the most widely adopted corporate governance framework, chosen by 547 companies.
- 72 companies that adopted the Wates Principles in 2022 had since ceased to be required to report on their corporate governance arrangements. However, 41 of those companies continued to adopt the Wates Principles.
- Of the 276 companies that adopted the Wates Principles in 2022 and continued to be required to report on their corporate governance arrangements, 268 (97%) continued to adopt the Principles.
Read the FRC's second review of reporting against the Wates Principles (opens PDF)
FRC launches discussion on digital reporting
The Financial Reporting Council (FRC) has published a discussion paper seeking views on the future policy direction of the UK digital reporting framework. The paper notes that events of the last few years (in particular Brexit and the introduction of the ECCTA 2023) have fundamentally changed the policy landscape that affects digital reporting.
The FRC is seeking feedback on a range of topics including the scope and extent of digital reporting requirements, assurance of digital reports, developments in XBRL taxonomies and guidance needed by users. No specific decisions will be taken as a result of the discussion paper but the FRC says that responses will inform their thinking on the technical and practical implications of policy decisions.
The FRC requests responses by 1 November 2024.
Read the FRC's discussion paper on opportunities for future UK digital reporting (opens PDF)
EU publishes draft guidance on sustainability reporting rules
The European Commission has published a draft notice setting out proposed frequently asked questions (FAQs) on European Union sustainability reporting requirements.
The draft FAQs cover a range of EU legislation, covering issues such as the scope of the rules, application dates and exemptions and taking into account input received from companies.
Access the Commission's draft FAQs on EU sustainability reporting requirements (opens PDF)
Read the press release on the Commission's draft FAQs on EU sustainability reporting requirements
FCA consults on the National Storage Mechanism
The Financial Conduct Authority (FCA) is consulting on ways to improve the functionality of the UK's National Storage Mechanism (NSM).
The NSM is a free-of-charge, public online archive of company information. It enables users to access and download information about issuers of publicly traded securities.
The NSM plays a role in the UK's capital markets, with issuers being required to submit certain information to it under the FCA's UK Listing Rules, its Disclosure Guidance and Transparency Rules (DTR) and the UK Market Abuse Regulation.
The FCA is proposing to make changes to the NSM's "data requirements" for these kinds of information, as well as to the process for submitting information to the NSM.
The FCA has asked for comments by 27 September 2024.
Read FCA Consultation Paper CP24/17 on enhancing the National Storage Mechanism (opens PDF)
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