Europe: an unjustified restriction on the free movement of capital - golden shares in Portuguese Telecom

In January 2008, the European Commission referred Portugal to the European Court of Justice because it considered that the special rights conferred on the State by its golden shares in Portugal Telecom (PT) discouraged investment from other Member States in violation of the EC Treaty.

Today the European Court of Justice gave its opinion - Commission v Portugal (Case C-171/08) - and supported the Commission's position. The court observed (paras. [60] to [62]):

... the Portuguese State’s holding of those golden shares, in so far as it confers on that State an influence on the management of PT which is not justified by the size of its shareholding in that company, is liable to discourage operators from other Member States from making direct investments in PT since they could not be involved in the management and control of that company in proportion to the value of their shareholdings (see, inter alia, Case C‑112/05 Commission v Germany [2007] ECR I‑8995, paragraphs 50 to 52).

Similarly, the structuring of the special shares at issue may have a deterrent effect on portfolio investments in PT in so far as a possible refusal by the Portuguese State to approve an important decision, proposed by the organs of the company concerned as being in the company’s interests, is in fact capable of depressing the value of the shares of that company and thus reduces the attractiveness of an investment in such shares (see, to that effect, Commission v Netherlands [C-283/04, [2006] ECR I‑9141], paragraph 27).

In those circumstances, it must be found that the Portuguese State’s holding of the golden shares at issue constitutes a restriction on the free movement of capital for the purposes of Article 56(1) EC".

A summary of the decision is available here (pdf). Following Lisbon, Article 56 is now Article 63 in the Treaty on the Functioning of the European Union: see here (pdf).

UK: FSA quarterly consultation

The Financial Services Authority has published its quarterly consultation document: see here (pdf). This contains several governance related matters, including: an amendment to clarify the operation of DTR 7.2 (corporate governance statements) to overseas issuers; a proposal to change the status of LR 1.6.1G from guidance to a rule; and amendments concerning share capital reflecting the implementation of the Companies Act (2006).

Hong Kong: company law reform

The Standing Committee on Company Law Reform has published its 2008/09 annual report: see here (pdf). The report highlights those matters considered by the committee over the past year as part of the companies ordinance rewrite and the committee's recommendations in this regard. The committee has, for example, recommended that:

• the director's duty of skill, care and diligence should be codified
• all companies should have at least one natural person acting as a director
• reduction of capital should be permitted through a court-free procedure involving a solvency test
• the statutory derivative action should be extended to include multiple derivative actions, thereby bringing it in line with the shareholder's common law right to bring an action on behalf of the company following the decision of the Hong Kong Court of Final Appeal in Waddington Ltd v Chan Chun Hoo Thomas and others [2008] FACV 15/2007.
  

A draft Bill is expected next month. 

Ireland: Dáil Public Accounts Committee calls for company law changes

The Dáil Public Accounts Committee has published a report on the loss of fiduciary taxes arising from the abuse of limited liability: see here (pdf). The Committee has recommended that company law should require directors to have their own tax affairs in order when incorporating a new company or when being appointed to an existing company. It has also recommended that the Company Law Review Group should examine whether the current levels of capitalisation required when incorporating a limited liability company should be increased.

UK: reduction of share capital by a private company - solvency statement guidance

The Company Law Committee of the City of London Law Society has published a short memorandum concerning the reduction of share capital by private companies where the directors make a solvency statement. The memorandum - available here (Word) - records some consensus views of members of the Committee regarding the practical steps that directors can take before making a solvency statement in order to reduce the risk of committing an offence under Section 643(4) of the Companies Act (2006).

UK: the Companies Act (2006) final implementation

In March 1998 the Department for Trade and Industry published Modern Company Law for a Competitive Economy, the consultation paper which launched the reform of company law which culminated today in the final implementation of the Companies Act (2006). 

Whilst much of the 2006 Act has already been implemented, the provisions coming into force today include, inter alia, those concerning company formation, capacity and name; the company's constitution; company members and share capital; the annual return and company charges. For a general overview, see the implementation timetable published by the Department for Business, Innovation and Skills. Specific guidance has recently been published by DBIS concerning the changes to constitutional documents and the model articles. Further information is also available in the FAQ section of the DBIS website. 

Reflecting the final implementation of the 2006 Act, a revised edition of the Takeover Code code comes force today. Changes have also been made to the FSA Handbook. Certain provisions of earlier Acts - including the Companies Act (1985) and Companies Act (1989) - remain in force: see here for an overview.

UK: statements of capital under the Companies Act (2006)

ICSA has published a guidance note dealing with statements of capital under the Companies Act (2006). The note explains how companies can deal with the requirement to disclose the amount paid up and the amount unpaid (if any) on each share. The guidance note explains:

Companies with a simple share history are unlikely to experience any problem in completing the requirement for the amounts paid up on each share. Many older and/or larger companies will not have tracked share premium on a per share basis; in addition, where the share premium account has been used, e.g. on a reduction, there is no requirement to attribute this use to particular shares. For these reasons, it may therefore be difficult or impossible for some companies to provide a single amount per share as the amount paid up on all the shares in a particular class of shares.

The Department of Business, Innovation and Skills (BIS) will, in the longer term, review whether a change to Companies House forms or the Companies Act 2006 is necessary. In the meantime, as stated in its FAQ on this subject on the BIS website, BIS has confirmed that companies will have to do what they can to complete this element of the statement of capital. There is a recognition by BIS that companies will have to ‘provide numbers ... that provide a pragmatic allocation of their share premium reserve between shares or classes of shares'".

Note: the guidance note is available to view free of charge but some personal information must be provided in order to do so. 

New Zealand: final report published by Capital Market Development Taskforce

Last month the Capital Market Development Taskforce published its final report in which it made wide-ranging recommendations for the better functioning of New Zealand's financial system: see here (pdf). An executive summary is available here (pdf). Amongst the research papers prepared for the Taskforce was one on the structure and ownership of New Zealand companies - available here - which reports (to quote directly from its conclusion):

Relative to many other countries, even after adjusting for the relative size of our economy, New Zealand has few very large firms, and a considerable share of our largest firms are either government or co-operative owned, or controlled by offshore owners. In each of these cases, there is relatively limited participation in local capital markets".

UK: the Companies (Authorised Minimum) Regulations 2009

The Companies (Authorised Minimum) Regulations 2009 were laid before Parliament last week and come into force on 1 October. A copy of the Regulations is now available on OPSI: see here (html) and here (pdf). In the accompanying explanatory memorandum the purpose of the Regulations is explained as follows:

The Regulations provide a euro figure and rules necessary for certain provisions of the Companies Act 2006, which refer to the 'authorised minimum' share capital requirement for public companies. The euro figure replaces the one currently fixed in the Companies (Authorised Minimum) Regulations 2008 (SI 2008/729), and the rules correspond to those provided in those Regulations for provisions in the Companies Act 1985 and the Companies (Northern Ireland) Order 1986".