What to expect from the 2016 reporting season

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This article summarises the principal key changes affecting Officially Listed companies that we can expect to see in this year’s reporting season.

Disapplication of pre-emption rights

In March 2015, the Pre-Emption Group published a revised statement of principles for the disapplication or pre-emption rights, which allow a company to seek authority to issue up to 5 per cent of the issued ordinary share capital of the company in any one year in connection with an acquisition or a “specified capital investment” announced at the same time as the relevant share issue or which has taken place in the preceding six months and is disclosed in the announcement of the share issue. This is in addition to the general authority to disapply pre-emption rights up to 5 per cent. Companies seeking to take advantage of the additional five per cent disapplication authority will need to alter the figure in their disapplication authority resolution and add the confirmatory wording regarding the limited use of that authority.

Viability statement

In addition to the going concern statement, companies must make a statement in relation to the viability of the company. This is a requirement of Provision C.2.2. of the revised 2014 UK Code of Corporate Governance, and now also LR 9.8.6R(3) of the Listing Rules, introduced in October 2015. Companies must publish an explicit statement of the board’s broader assessment of the company’s ongoing viability, including providing details of the matters to be considered when making the assessment; the time horizon covered and the degree of certainty that can be attached to the statement. It is unclear how long the statement should look ahead, although the Pensions and Lifetimes Savings Association (PLSA) (formerly the National Association of Pension Funds) has said this should be considerably longer than 12 months.

Dissenting shareholders

This will be the first reporting season in which companies will need to explain, where a significant proportion of the votes have been cast against a resolution at any general meeting, what action it intends to take to understand the reasons behind the vote result. Code provision E.2.2, which was amended in October 2014, sates that: “When, in the opinion of the board, a significant proportion of votes had been cast against a resolution at any general meeting, the company should explain when announcing the results of voting what actions it intends to take to understand the reasons behind the vote”.

The Institutional Shareholder Services (ISS) guidelines states that the ISS may recommend a vote against the relevant resolution at a future meeting if the company has not explained its reaction to the dissent. The PLSA is also insisting that directors engage with shareholders in order to understand the reasons for dissent and to explain, in the following year’s annual report, the steps the company has taken to resolve the dissenters’ concerns. It is not clear what constitutes a sufficiently high threshold of dissent to prompt a response from the company.

Directors’ time commitment

The PLSA and the ISS have each published guidelines seeking to limit the number of directorships an individual may hold. The guidelines indicate that shareholders may wish to vote against directors whose number of directorships exceeds this threshold.

Market abuse and buybacks

The new Market Abuse Regulation will come into force in July repealing the EU Buyback and Stabilisation Regulation. The precise form of the new market abuse rules remains unclear but it is clear that the buyback resolution will need to be updated to reflect the new Regulation and the repeal of the existing Regulation.

Payment practices

The Government has announced that, from April 2016, large companies [1] must publish information twice a year about their payment practices and policies, such information to include, among other things, standard payment terms, the average time taken to pay invoices, details of any incentives required of suppliers and whether they are members of any industry codes of practice relating to payment.

However, that April 2016 deadline looks like slipping. We will keep you updated.

Modern slavery

For companies with a financial year ending on or after 31 March 2016, and with a turnover of at least £36 million, there is an obligation to publish a statement detailing the steps taken to ensure that their supply chains are free from slavery and human trafficking. We have written on this previously.

WM comment

The changes to the rules on the disapplication of pre-emption rights and on viability statements are the two key changes in this year’s reporting season, although boards with activist shareholders will also need to familiarise themselves with the requirements around negative voting.


[1] For these purposes, large companies are those that have at least two of the following: more than 250 employees, annual turnover of more than £36 million, and/or a total balance sheet of more than £18 million.