Corporate Law Update
This week, in coronavirus-related news
- ICSA publishes guidance on holding virtual board and committee meetings
- The Government is to ease restrictions on AGMs and to suspend wrongful trading laws
- ICSA publishes further guidance on calling AGMs during the coronavirus outbreak
- The GC100 publishes a poll on disruption to AGMs during the outbreak
- The Pre-emption Group relaxes its principles during the coronavirus outbreak
- The European Commission urges Member States to screen foreign direct investment in Europe’s healthcare infrastructure
- Aquis Stock Exchange extends the accounts deadline for AQSE Growth companies
Covid-19 is affecting the way people conduct their business, retain their staff, engage with clients, comply with regulations and the list goes on. Read our thoughts on these issues and many others on our dedicated Covid-19 page.
In other news
- The FRC issues new guidance to auditors on reporting on company accounts
- The FCA announces a launch date for the new National Storage Mechanism portal
- The FCA publishes changes to the Listing Rules on class 1 transactions and share rights
- The Government postpones the deadline for its dormant assets consultation
The Chartered Governance Institute (an organ of ICSA) has published new guidance on holding board and committee meetings by virtual means. The guidance is designed to assist companies struggling with the impact of the on-going coronavirus outbreak. (The note does not cover virtual shareholder meetings.)
The key points from the guidance are as follows:
- The choice of technology is key. An audio conference may be more reliable (particularly for larger meetings), but video conferencing may be more engaging. Video may be impractical if participants might need two screens (one to view the meeting and one to view the board papers).
- Virtual meetings should be well structured to be effective. They will require greater preparation, and the chair may need to use additional techniques to run an orderly meeting. Meetings may need to be shorter and include breaks to avoid attention drift.
- All meeting participants should be given clear instructions on how to access the meeting and “ground rules” for the meeting in advance. Board papers should be password-protected and either emailed to a work address (not a home address) or made available through a secure portal.
- Where a director cannot attended, apologies for absence should be recorded at the meeting and the chair should speak to them beforehand to get their views.
- If virtual meetings are not practical, boards can consider passing written resolutions or (though not ideal) agreeing to decisions by email. Alternatively, the directors may consider creating committees of the board to deal with certain matters.
The UK Government has announced new measures designed to protect companies hit by the on-going coronavirus / Covid-19 outbreak.
The new measures include the following:
- The Government will suspend the wrongful trading provisions in the Insolvency Act 1986 for three months from 1 March 2020. These provisions impose personal liabilities on directors for causing a company to continue to trade when there is no reasonable prospect of avoiding an insolvent liquidation or administration. Existing laws against fraudulent trading will continue.
- It will also introduce legislation to allow companies to hold their annual general meeting (AGM) safely and in compliance with restrictions on movement and gatherings that have been introduced to address the spread of coronavirus. This will include enabling companies to hold their AGMs online or to postpone their meeting.
- Finally, the Government has announced that it will introduce legislation to implement new insolvency restructuring procedures which it first proposed in a consultation in March 2018. These include a moratorium while companies seek restructuring solutions, protection of supplies to enable companies to continue trading, and a new type of restructuring plan.
The Government has not yet introduced legislation to implement these changes, so companies should not rely on this announcement. We will continue to watch and report on these developments.
Last week, the Chartered Governance Institute also published guidance on measures publicly traded companies might take to assist with holding their annual general meeting (AGM) in the light of the on-going coronavirus outbreak. However, the guidance will be equally applicable to non-traded companies that convene an AGM.
ICSA has now published supplementary guidance with suggestions for contingency planning in light of the UK Government’s current requirement for individuals to stay at home.
The supplementary guidance (which was prepared by various law firms and industry bodies and has been reviewed by the Government) makes the following key points:
- Many companies will want to postpone their AGM, but some may need to hold an urgent general meeting to renew their AGM authorities or approve a capital raise or urgent transaction.
- Current “stay at home” measures prohibit public gatherings of more than two people, meaning shareholders will not be able to travel to physical AGMs.
- Companies should make it clear in their meeting notice or by RIS announcement that attendance in person will not be allowed and anyone who attempts to do so will be refused entry.
- Shareholders should be encouraged to vote by proxy and submit questions to the board.
- Some companies may need to deploy additional personnel (such as technicians or security staff) at the AGM location. Personnel should be deployed only where essential for work purposes.
- With many venues closed, it may be necessary to hold the meeting somewhere else under the company’s control. In extreme situations, it may be possible to do this at a director’s home, with a fellow householder appointed as a proxy.
- If a company has convened its meeting but the venue has become unavailable, it should (if its articles allow it to) postpone the meeting or move it to an alternative venue, or (if they do not) open the meeting, then immediately adjourn it to an alternative venue.
The GC100 has published a poll of its members on steps they are taking to address potential disruptions to their annual general meetings (AGMs) arising from the on-going coronavirus outbreak.
41 companies responded to the poll. The key findings are as follows:
- Companies will generally be encouraging shareholders to vote by proxy.
- Although 53% of companies have articles that allow hybrid general meetings, only 2 companies have decided to convene a hybrid AGM. 10 companies are considering a hybrid meeting. Key concerns include technological failure and lack of time to implement the required arrangements.
- 29% of companies are considering postponing or adjourning their AGM, but respondents noted that this will not necessarily provide a solution to the problem.
- Only 11% of companies are planning to organise a shareholder engagement session.
- 27% of companies are proposing to pay an interim dividend this year, rather than a final dividend. We would note that, as a general rule, investor associations warn against interim dividends, and it will be interesting to see whether they relax this approach during the outbreak.
In addition, 36 companies said their share capital authorities (such as to allot shares, issue shares on a non-pre-emptive basis or buy shares back) will expire on a specific date or on the earlier of the AGM or six months from financial year-end. The poll does not say how issuers intend to deal with this.
We have produced a blog on potential key issues companies may face when convening their AGM and possible solutions.
The Pre-emption Group has announced a temporary relaxation of its guidance to assist issuers during the on-going coronavirus outbreak.
Under the Group’s Statement of Principles, issuers are encouraged to limit non-pre-emptive issues of shares to 5% of their share capital for general corporate purposes, and an additional 5% in connection with an acquisition of a specified capital investment.
During the outbreak, the Group is recommending that investors consider (on a case-by-case basis) supporting issuances of up to 20% of a company’s share capital on a non-pre-emptive basis. Specific, one-off disapplications remain unaffected.
Companies that take advantage of the restriction will be expected to take certain steps and satisfy certain conditions set out in the announcement.
The Group has made it clear that the relaxation is strictly temporary (ending on 30 September 2020) and its purpose is to ensure companies have access to the capital needed to maintain their solvency.
Also this week…
- EU guidance on foreign investment in health infrastructure. The European Commission has announced new guidelines to ensure a strong EU-wide approach to foreign direct investment (FDI) during the on-going coronavirus/covid-19 outbreak. The guidance reminds Member States (and the UK) that they can screen FDI from non-EU countries on grounds of security or public order, including to protect public health. It has urged Member States with screening mechanisms in place to use those tools to prevent capital flows from non-EU countries that could undermine Europe's security or public order.
- AQSE extends accounts deadline. Following announcements by the Financial Conduct Authority (FCA) and AIM Regulation, Aquis Stock Exchange (formerly NEX Exchange) has announced that companies on the AQSE Growth Market will now have seven months to publish their audited annual accounts, rather than six.
- FCA announces date for new NSM portal. The Financial Conduct Authority (FCA) has announced that it expects to launch the new portal for the National Storage Mechanism (NSM) on 6 April. Issuers should continue to file regulated information through Morningstar until then.
- FRC publishes updated guidance for auditors. The Financial Reporting Council (FRC) has published three new bulletins as guidance to auditors when reporting on company accounts. The three bulletins (which replace previous bulletins on their subject matter) cover illustrative reports on company accounts, preparing reports on revised accounts and reports, and preparing Companies Act reports that need to be completed by a registered auditor.
- FCA publishes changes to Listing Rules. The Financial Conduct Authority (FCA) has published Handbook Notice 75, in which it has confirmed that it has made changes to its Listing Rules proposed in December last year relating to making class 1 transaction documents and details of rights attaching to shares available to the public. For more details on those changes, see our previous Corporate Law Update.
- Government postpones deadline for dormant assets consultation. We mentioned in February that the Government was consulting on expanding the existing dormant assets scheme to cover other kinds of dormant asset, including shares in public companies and dividends. In light of the on-going coronavirus/covid-19 outbreak, he deadline for that consultation has been extended to 16 July 2020.