Corporate Law Update: 21 – 27 October 2023

Economic Crime and Corporate Transparency Act 2023 receives Royal Assent

After a long wait, the Government’s second Economic Crime Bill has received Royal Assent to become the Economic Crime and Corporate Transparency Act 2023.

The Act will introduce significant reforms to company, limited partnership and limited liability partnership law, including mandatory identity verification for directors, persons with significant control (PSCs) and officers of general partners, and limiting the range of persons who can file documents at Companies House.

The Act will also make changes to the UK’s Register of Overseas Entities, including by increasing the amount of information to be provided to Companies House, and by expanding the register to encompass nominee arrangements over land itself.

These changes are designed to enhance transparency and the integrity of the UK’s public registers and give Companies House greater powers to query information provided to it.

The Act also introduces a new criminal offence of failure to prevent fraud, as well as reforming the so-called “identification doctrine” to make it easier to convict a corporate body of criminal offences committed by its senior managers.

As at the time of writing, the full text of the new Act has not been published. We will report again on the Act in due course once the full text is available.

In the meantime, the Government has published a series of factsheets containing details of the various changes brought about by the Act.

Read the Government’s factsheets on the Economic Crime and Corporate Transparency Act 2023

Limitation clause excluded party’s liability for loss of profit

In Pinewood Technologies Asia Pacific Ltd v Pinewood Technologies plc, the High Court held that an identical exclusion clause in two reseller agreements excluded one party’s liability for loss of profit.

In reaching its decision, the court analysed whether the contract had been made on that party’s written standard terms of business. If it had been, the Unfair Contract Terms Act 1977 would have applied and the exclusion would have been valid only if it had satisfied the statutory “reasonableness” test.

The court concluded that the reseller agreements were not made on standard terms because, although they had originated from a standard template, they had undergone several changes through negotiations which made them bespoke agreements.

The court also rejected an argument that the phrase “loss of profit” in the exclusion clause was limited to indirect losses because of the way it had been drafted. The exclusion clause had very clearly excluded liability for indirect loss and, quite separately and independently, loss of profit (whether direct or indirect).

The case makes no new law, but it is a useful summary of the principles the court will apply.

Read more about the decision on exclusion clauses in Pinewood Technologies in our separate in-depth piece.

Government seeks views on UK’s greenhouse gas reporting regime

The Government is seeking views on the UK’s existing streamlined energy and carbon reporting regime (SECR).

SECR applies to most publicly traded companies, as well as large non-traded companies and large limited liability partnerships (LLPs). It requires entities to disclose certain metrics relating to their greenhouse gas (GHG) emissions, energy usage and energy efficiency measures.

SECR currently requires entities to report only on scope 1 emissions (GHGs produced directly by the entity) and scope 2 emissions (GHGs produced indirectly by virtue of energy the entity purchases).

It does not require entities to report on scope 3 emissions (GHGs produced by other organisations up and down the supply chains). Scope 3 reporting is mainly voluntary, in part due to the increased difficulty in collecting data on and measuring scope 3 emissions.

The Government is asking for views on whether to bring scope 3 emissions within the ambit of SECR. It notes that scope 3 GHG emissions can account for between 80-95% of an entity’s GHG footprint. In particular, it is seeking feedback on the costs, benefits and practicalities of scope 3 reporting.

Feedback from the call for evidence will also assist the Government’s UK Technical Advisory Committee on whether to endorse the International Sustainability Standards Board (ISSB) IFRS S2, which requires reporting on scope 3 emissions. The Financial Conduct Authority (FCA) intends to introduce rules to require listed companies to report under the ISSB standards from 1 January 2025.

The call for evidence also seeks views on how SECR more generally can be streamlined, its impact on investment decisions and whether it currently targets the right populations. The Government intends to consider any feedback it receives alongside its recent call for evidence on the UK’s non-financial reporting framework, which also covers SECR.

The Government has asked for feedback by 14 December 2023.

On a related but separate note, the European Securities and Markets Authority (ESMA) has published a report on disclosures of climate-related matters in financial statements within the European Union. The report may be useful for UK businesses with a presence, or which are required to report on climate-related matters, in the European Union.

Read the Government’s announcement of its review of scope 3 greenhouse gas emissions reporting

Read the Government’s call for evidence on scope 3 emissions in the UK reporting landscape (opens PDF)

Access the Government’s recent call for evidence on the UK’s non-financial reporting framework

Access ESMA’s report on climate-related disclosures in EU company financial statements

EU seeks views on rationalising corporate reporting requirements

The European Commission is seeking views on rationalising corporate reporting requirements within the European Union.

The Commission’s call for evidence invites feedback on areas where reporting causes particular problems or represents a particular burden.

It also asks for comments on ways to rationalise, modernise and optimise the existing EU corporate reporting frameworks. This might include eliminating any redundant requirements, changing the frequency for reporting and applying the “once only” principle (i.e. eliminating the need to provide the same information under different reporting requirements).

The Commission has asked for comments by 28 November 2023.

The consultation does not directly affect UK companies. However, it may impact UK businesses with a presence within the EU.

The UK Government has recently carried out its own call for evidence on the UK’s non-financial reporting framework. We await the outcome of that call for evidence.

Access the European Commission’s call for evidence on rationalising EU corporate reporting

Access the Government’s recent call for evidence on the UK’s non-financial reporting framework