Section 243(4) of the Act states that "The manager and the trustee must be persons who are independent of each other." As managers and trustees may have or develop corporate links, the FSA has given its view of the criteria against which independence, in the sense of this section of the Act, should be tested.
Influence by directors: independence would be lost if either company can control the action of the other by means of executive power. Accordingly, there should not be a majority of directors on the board of the trustee who simultaneously hold directorships on the board of the manager, or vice versa.
Nor should there be any means by which one board could obtain effective, as opposed to legal, control of the other. So, for example, the FSA would not approve any arrangement, whether by means of quorum or of reservation of decision-making capacity to certain directors which could result (even in exceptional circumstances) in loss of effective independence of one company's board of the other.
In determining whether common directorships were curtailing independence, the FSA would interpret the concept of "common director" to include any directors of associates of the trustee who are simultaneously directors of the manager, and any directors of associates of the manager who are simultaneously directors of the trustee.
Influence by shareholding: independence would be lost if either company can control the actions of the other by means of shareholders' votes. Accordingly, there should not be any shareholding in the trustee by the manager (or vice versa) which exceeds 15% of the other's share capital carrying voting rights - whether or not that share capital comprises a single or several classes of shares, however described. The FSA would be willing, however, to look at cases where cross-shareholding exceeds 15% on a case by case basis to see whether there were exceptional grounds for concluding that independence is nevertheless safeguarded by other means.
In determining whether the 15% test was met, any shareholding held by an associate of the manager in the trustee, or by an associate of the trustee in the manager, would in each case be aggregated with shareholdings held directly by the manager or the trustee in the other.
Independence: The FSA considers that independence will need to be specifically appraised in the event of a proposal by the trustee or manager (or any of either's associates) to enter into any arrangement with the other by which either party might agree to act on an exclusive (or near exclusive) basis in relation to the marketing of packaged products.1
If such a relationship should be contemplated, then arrangements may need to be put into place to satisfy the FSA that the necessary independence is preserved. The FSA would therefore expect to be consulted in advance about any such proposal.1
Other commitments: the FSA also expects to be consulted in advance about its view on the consequences for independence of any other intended commitment or relationship which could affect independence, whether directly or indirectly.