Since the publication of the new UK Listing Rules on 11 July (see UK Listing Regime: new UKLR published: key points for premium listed companies) we have continued to look at how the changes impact existing companies with a premium listing. This update considers relationship agreements or controlling shareholder agreements to use the term which appeared in the various consultations published by the FCA.
No mandatory relationship agreements
In a change from the position set out in CP23/31: Primary Markets Effectiveness Review: Feedback to CP23/10 and detailed proposals for listing rules reforms, the FCA has decided against imposing any requirement for a controlling shareholder agreement to be entered into between commercial companies and their controlling shareholders.
It will be interesting to see how this relaxation works in practice. Issuers with existing relationship agreements can expect this topic to feature in discussions with institutional investors who will be seeking comfort that those agreements will remain in place. Controlling shareholders may be exerting pressure in the other direction given the greater flexibility introduced by the UKLR.
Equally no prohibition on relationship agreements
An issuer with a controlling shareholder can:
- retain an existing relationship agreement / CSA; or
- choose to put a relationship agreement / CSA in place if it considers that would be a useful part of its overall corporate governance framework.
The FCA has provided this helpful commentary on the point: “While we will not require such agreements, many issuers will have such agreements already in place or choose to put them in place because they consider them useful corporate governance tools. We continue to support this and consider that they have a role to play as an expression of the freedom of contract between parties.”
New director statement if controlling shareholder proposes resolution circumventing proper application of the UKLR
In another change from the position set out in CP23/31, the new listing rules provide a mechanism for a corporate governance red flag to be raised where there are concerns around proper application of the new UKLR.
UKLR 6.2.10R states that where:
(1) a listed company has a controlling shareholder; and
(2) the controlling shareholder or any of its associates proposes or procures the proposal of a shareholder resolution which a director considers is intended or appears to be intended to circumvent the proper application of the listing rules,
the circular accompanying the notice of meeting which contains the relevant shareholder resolution must set out a statement by the board of the director’s opinion in respect of the resolution.
This additional disclosure based requirement will not impact the validity of any such resolution or prevent the controlling shareholder tabling it in the first place. We will have to see how this works out in practice and whether it acts as an effective brake on any particularly challenging resolutions which would otherwise have been tabled by a controlling shareholder.
No change to definition of controlling shareholder
The FCA has not changed this definition which continues to apply to any person who exercises or controls (whether alone or in concert) 30% or more of the votes able to be cast on all or substantially all matters at general meetings of the company.
There is no substantive change to the requirement that a listed company with a controlling shareholder must be able to carry on the business it carries on as its main activity independently from such controlling shareholder at all times.
Further information
If you would like to discuss an existing relationship agreement or the changes to the UK Listing Regime more generally, please speak to your usual contact at Burges Salmon or Nick Graves, head of the firm's Corporate Department.
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