Welcome to our snapshot of key changes and current affairs for Company Secretaries working in social housing.
Changing your Code of Governance – ongoing disclosure obligations for bonds
Companies wanting a listing in the UK (whether for shares or bonds) have to apply to the Financial Conduct Authority (FCA) to join the official list.
One of the components of the listing regime is the Listing Rules which set eligibility requirements for a company to be granted admission to the Official List. Once admitted to the Official List there are continuing disclosure obligations on those companies, set out in the Listing Rules, Disclosure and Transparency Rules (DTR) and the UK Market Abuse Regulation (UK MAR).
Registered providers with a public bond will no doubt be familiar with these disclosure requirements, and although there are not specific requirements to notify investors if you are looking to adopt the 2020 NHF Code there are some requirements Company Secretaries should keep in mind:
- Corporate governance statement - a company’s director report must include a corporate governance statement and this statement must include a description of internal control and risk management systems in relation to financial reporting and any additional information set out in the DTR.
- Is this inside information under the UK MAR? You are required to include details of which Code you have adopted, alongside details of compliance with that Code, in your annual report. You should consider whether a change from one Code to another would be considered inside information which requires disclosure, and you should document that decision as part of your general approach to inside information.
Inside information is defined in Article 7(1) of MAR as information which is all of the following:
- Of a precise nature
- Has not been made public
- Relates, directly or indirectly, to one or more issuers of financial instruments or to one or more financial instruments
- If it were made public, would be likely to have a significant effect on the prices of those financial instruments or on the price of related derivative financial instruments.
GC100: discussion paper: shareholder meetings – a time for change?
The GC100 has published a discussion paper on the difficulties and limitations placed on companies during the pandemic and how the lessons learned during this time provide an opportunity to think creatively about the purpose and format of AGMs. It has also developed a draft Code of Best Practice on the conduct of virtual meetings.
The key aims of the discussion paper are to:
- Encourage the government to provide statutory legal certainty to companies wanting to permit hybrid and virtual meetings in their articles of association by amending the Companies Act 2006.
- Working together with the Financial Reporting Council, the government and investor bodies on a code of best practice for virtual shareholder meetings that addresses different aspects of shareholder concerns including engagement.
- Secure support from the various bodies so that companies have the flexibility in how they hold their AGMs, whether it be with a physical, hybrid or virtual AGM, taking into account the best interest of their shareholders.
- In regards to shareholder and stakeholder engagement to open up a discussion on the value of further innovation in this area.
Although the paper is specifically aimed at listed companies and many RPs have closed shareholding, the paper and Code of Best Practice provide some helpful tips around the conduct of meetings and engagement with stakeholders in a virtual world.
ICSA final report on board reviews
Following a request from BEIS, ICSA published a report on the 20 January 2021 regarding the effectiveness of independent board evaluation in the UK listed sector.
ICSA considers that there is scope for a border adoption of good practice and greater transparency by companies and board reviewers. The report sets out different recommendations and proposed measures for transparency. Some of the proposed measures are:
- A voluntary code of practice for providers of external board performance reviews to FTSE 350 companies
- Voluntary good practice principles for listed companies, and
- Guidance for listed companies when reporting on their annual board performance review.
It is arguable that the housing sector is actually already ahead of listed companies in this respect, but the recommendations may provide an early indication of future changes in best practice that Company Secretaries should monitor.
Case update: Kids Company and charity trustee duties
Re Keeping Kids Company (Official Receiver v Sunetra Atkinson & others)  EWHC 175 (Ch)
In August 2015, Kids Company entered into insolvent liquidation and before the two year time limit expired the official receiver sought disqualification orders under section 6 of the Company Directors Disqualification Act 1986 (CDDA 1986) against the seven trustees of Kids Company and its CEO.
On the 12 February 2021, following a 10 week trial, Justice Falk found that the single allegation of ‘unfitness’ had not been made against the trustees and, therefore, no disqualification orders were made.
Although the case considered charitable companies, it can be read across to apply equally to charitable community benefit societies and makes some important statements in relation to the way in which trustee duties should be interpreted. It is particularly pertinent in the current economic climate where RPs may have companies or charities within their group that are struggling financially.
- Although the case did not address if the trustees had fulfilled their duties as both a charity trustee and a company director, Justice Folk commended the trustees, stating: “Most charities would, I would think, be delighted to have available to them individuals with the abilities and experience that the Trustees in this case possess.” Throughout the judgment there were a list of practical examples of how the trustees managed risks and wanted the best outcome for the Kids Company. The examples in the judgment show that if a charity has to close, it does not mean the trustees have failed their duties.
- This case raised questions about whether the trustees did ‘too little to late’ in managing the financial stability of the Kids Company. Justice Falk highlighted the importance of the Kids Company being a charity and although there were very little financial reserves at the time of liquidation that does not mean that the business model was ‘unsuitable’ given its nature and the fact it had operated successfully for 17 years previous.
- This case also questioned whether the CEO had control of the charity and was a de facto director. Justice Falk dismissed these claims and said although the CEO had a central role in developing strategy, she was still subject to the trustees control and supervision and this supervision was ‘clearly recognised.’ For those associations who do not have executive board members, the judgment sets out some important points that would be considered in any assessment as to whether they have become a ‘de facto’ director.
- In order for a charity to succeed, Justice Falk stated “it is vital that the actions of public bodies do not have the effect of dissuading able and experienced individuals from becoming or remaining charity trustees.” It was recognised that the trustees were all volunteers dedicating 1-2 days a week to the charity.
- Although the day to day management was given to the CEO and her team, the board held overall responsibility.
COVID-19: Glass Lewis approach to executive compensation
Glass Lewis has recently published its approach to executive pay in the US during the pandemic. The policy sets out thoughts around determining what good performance looks like in the current environment, providing helpful insight for boards. It includes consideration of how well employee relations have been managed as well as stakeholder interests.
We are exploring the new NHF Code requirement to have policies setting out the role of executive board members and key risk areas for conflict. Watch out for further insight next month. Any thoughts from our readers are very welcome.
Catch up with our On Demand webinars
Our webinar with DTP, ‘A Practical Guide to ESG’ was broadcast live on 24 February with insights by sector experts into what practical steps organisations should be taking to the ESG agenda. It includes thoughts for Co Secs to consider.
Our Essential Housing Update was also broadcast on 8 February which summarised some important financial and regulatory changes including: NHF Code of Governance 2020, LIBOR and Consumer Credit activities.
Finally, your colleagues may be interested to watch our “A landscape of change: the future of the built environment” webinar on Tuesday 23 March 2021 from 10.00 - 11.00am. In this webinar we will look at the future of the built environment in the UK, focusing on airspace, modern methods of construction, retrofitting and sustainability. Registration for this event is now live.