The Consultation Paper; ‘CP13/15: Feedback on CP12/25 – Enhancing the effectiveness of the Listing Regime and further consultation' provides feedback on an earlier consultation in 2012 (CP12/25) on enhancing the effectiveness of the Listing Regime and “includes a set of near-final rules” based upon the original proposals and feedback received.  CP 13/15 also acts as a consultation paper on some revised proposals from CP12/25 such as an amended definition of a “controlling shareholder” an “associate” and an “independent shareholder”.  Comments are requested by 5 February 2014 on the revised proposals. 

The FCA measures enhance minority shareholder protection in three areas:

• The proposed measures “recognise the importance of ensuring that the voice of the minority shareholders is heard when the behaviour of a controlling shareholder is not appropriate”.
• Additional voting power is provided to independent shareholders when electing independent directors “recognising the critical role independent directors play in promoting effective governance”.
• Minority shareholder protection has been strengthened “where a premium listed company with a controlling shareholder wishes to cancel its premium listing, and so remove the shareholder protection offered by the Premium Listing Regime”. 

There are a number of changes and proposals affecting premium listed companies with a controlling shareholder: 

Relationship between a premium listed company and a controlling shareholder:

• Where a company premium listed company has a controlling shareholder, there must be a documented ‘agreement’ between the company and the controlling shareholder, to ensure that the company can operate independently of that shareholder. The independent directors will be required to comment on the appropriateness of the agreement. The FCA is consulting as to whether existing premium listed companies with a controlling shareholder (or those without which acquire such a shareholder post listing) should be given a six month period to come to such an agreement to allow premium listed companies time to bring themselves into compliance. 

Independent directors:

• Where a premium listed company has a controlling shareholder, there will need to be a dual voting structure so that independent directors must be approved both by the shareholders as a whole and by the minority shareholders as a separate class.  The FCA is also proposing enhanced disclosures to be made when independent directors are nominated “so that shareholders can be fully informed in making their voting decisions” including disclosure of the nature of any relationship those directors may have had with a controlling shareholder. 

Cancellation:

• If a controlling shareholder seeks to cancel a premium listing, the FCA is proposing that minority shareholders will get additional voting power – preventing the controlling shareholder from circumventing the other protections by stepping down to a standard listing. 

Shares in public hands “free float”:

• The FCA is not increasing the current requirement for 25% of shares to be distributed to the public.  However the FCA is providing additional guidance on the circumstances in which a ‘free float’ of less than 25% will be allowed. 

Structural requirements to prevent avoidance:

• Votes on matters required by the Listing Rules can only be voted on by holders of premium listed shares. This is to avoid a company structuring different classes of shares to get around the above protections. The FCA is consulting on a two year implementation period.  In addition, premium listed shares must all have equal voting rights. 

Enhanced transparency to support shareholder engagement

• The FCA is proposing that the current regime for small related party transactions (those which do not require pre-approval) should be changed so that the market must be informed as soon as possible, rather than including this within the next annual report. 

There are also a handful of changes that will affect all premium listed companies, whether or not they have a controlling shareholder:

• All disclosures required by the Listing Rules will either need to be presented in one section of the annual report, or else an index to where those disclosures are must be presented.
• Guidance is being provided to clarify whether or not a business is “independent”; supporting the requirement that a premium listed company must control an independent business.
• Premium listed companies must notify the FCA as soon as is practicable of any breach of the eligibility requirements for a premium listing. 

Additionally, one change affects standard listed companies, who must now have appropriate systems and controls and deal with the FCA in an open and co-operative fashion. These requirements previously only applied to premium listed companies. 

Click for (all links to FCA website):

• Press release
• CP13/15: Feedback on CP12/25 – Enhancing the effectiveness of the Listing Regime and further consultation