Corporate Governance, Reporting and Audit

The BVCA engages on corporate governance and reporting developments that impact PE/VC-backed portfolio companies.

We monitor standards related to listed companies as these will be considered by the Private Equity Reporting Group when reviewing the Walker Guidelines on Transparency & Disclosure in Private Equity. The BVCA also reviews the impact of changes to the regulation of auditors and restrictions on non-audit services to ensure they do not adversely impact choice and competition for portfolio companies in PE/VC fund structures. Reporting on sustainability matters (TCFD, SDR) is covered in the sustainability regulation page (including the impact on portfolio companies).

2023 regulations and proposals

In March 2023, the Government shared with us proposals for new reporting regulations and its proposals for extending the definition for a Public Interest Entity (“PIE”). The new reporting regulations will require directors of large private companies (750 employees and an annual turnover greater than £750m) to prepare a Resilience Statement, Audit and Assurance Policy and include additional reporting on material fraud and distributable profits. We highlighted in our response the need to recognise the specific differences and circumstances of a private equity structure. In particular, that separate portfolio companies are not considered part of the same corporate group merely by virtue of belonging to the same PE/VC fund’s portfolio or different fund portfolios managed by the same manager.

In our commentary on the PIE proposals, we questioned the need to expand the definition given other relatively new and overlapping reporting requirements, including the Wates Principles, and on the importance of recognising the specific differences and circumstances of a typical private equity structure. In other areas, the BVCA requested further clarity and thanked the Government for making changes that had been asked for in the BVCA’s 2021 response The Government says it will present legislation when parliamentary time allows.

2021 proposals

In March 2021 the Government published its long-anticipated consultation titled ‘Restoring trust in audit and corporate governance’ which set out proposals to implement recommendations from the Kingman, Brydon and CMA reports into the audit profession, the role of the regulator, corporate reporting and audits, including expanding the definition of a ‘public interest entity’ to cover large private companies. The reforms aim to create new powers to hold directors of large companies to account and establish a new audit regulator backed by legislation that has much stronger powers to enforce standards. The key aspects of the consultation that will impact the private equity and venture capital industry are summarised in the May 2021 Technical Bulletin below.

The BVCA will continue to engage with government and the FRC on the proposals set out in the consultation that are relevant to PE/VC fund managers and large private companies. Further details are expected in early 2022.

FRC Ethical Standard, 2019-2020

The BVCA engaged with the FRC on its revised Ethical Standard in 2019 which limits the provision of non-audit services by audit firms to their audit clients that are classified as Public Interest Entities (“PIEs”) or Other Entities of Public Interest (“OEPIs”). The standard became effective for PIEs for accounting periods commencing on or after 15 March 2020, and for OEPIs for periods commencing on or after 15 December 2020. The BVCA was able to secure an adaptation to the rules to accommodate PE/VC fund structures and we have advocated for this to be carried into the 2021/2022 reforms too.

FRC and FCA stewardship consultations, 2019

In 2019, we responded to consultations published by the FRC and FCA on stewardship, the Stewardship Code and the second EU shareholder rights directive. We summarised the good stewardship and governance practices in place and publications developed by the industry on professional standards and responsible investment. Considering the stewardship practices already in place within our industry, we believe the Stewardship Code is less applicable for PE/VC firms as adopting it will result in duplicative reporting requirements, albeit in a different form, with limited benefit.

Corporate governance and other narrative reporting by large private companies, 2018

In November 2016, the UK government published a green paper on corporate governance reform focussing on the varied stakeholder voices and corporate governance in large privately-held businesses. The green paper recognised the BVCA’s efforts in improving transparency within the industry through the Walker Guidelines.

In response to the consultation, in June 2018 the government introduced secondary legislation requiring large private companies to report on how their directors comply with section 172 (Companies Act 2006) duties to have due regard to certain matters, including employees, suppliers and customers, as well as reporting on their corporate governance arrangements.

To assist in reporting on corporate governance, the BVCA joined a coalition in 2018 to develop a new set of corporate governance principles for large private companies. The Wates principles (named after the chair of the coalition, James Wates CBE) were published in December 2018. We remain supportive of the Wates Principles and our work with the coalition on monitoring their implementation continues.

BVCA published a technical briefing that summarises narrative reporting requirements for large portfolio companies, including reporting on how directors’ have complied with their section 172 duties and reporting on corporate governance arrangements. This can be found here.

Insolvency and corporate governance, 2018-2020

The government proposed measures in 2018 to improve corporate governance in firms that are in or approaching insolvency. The BVCA’s response explained why existing law in relation to the limited liability of companies and the duties of a director of an insolvent, or near-insolvent company, is fit for purpose and should not be changed. In response to the consultation the Government stated that they will legislate to ensure greater accountability of holding company directors when selling subsidiaries. However, they have taken into account some of the concerns raised and will limit the new measures. The Government acknowledges that new measures should not disincentive rescues or unnecessarily hold directors liable for the conduct of others over which they have no control.

The Corporate Insolvency and Governance Act 2020 put in place a series of urgent measures to amend insolvency and company law to support business during the Covid-19 crisis. The BVCA had advocated for the need for some of these measures through our engagement with BEIS and the Insolvency Service. Alongside other measures, the Act included: a new moratorium to give companies breathing space from their creditors whilst they seek a rescue; a temporary removal of the threat of personal liability for wrongful trading from directors who try to keep their companies afloat through the emergency; and a temporary prohibition on creditors from filing statutory demands and winding-up petitions for COVID-19 related debt. BEIS has also published factsheets covering the details of the Bill.