COVID-19 - latest developments for corporate practitioners

Further guidance for companies has been published in light of the COVID-19 pandemic.

Company meetings and other corporate actions

• Shareholder meetings – The Government has published the Corporate Insolvency and Governance Bill (together with Explanatory Notes) which contains relaxations to the company meeting requirements contained in the Companies Act 2006 (as well as the meeting requirements for certain other entities).

The Bill would allow shareholder meetings to take place by electronic or any other means notwithstanding the provisions contained in the Companies Act 2006 and the company’s articles of association. The participants would not need to be in the same place and shareholders would not have a right to attend in person. The Bill would apply to company meetings held between 26 March and 30 September 2020 and if the deadline for a company to hold a shareholder meeting falls within this period, that deadline is extended to 30 September 2020. The Bill would also give the Secretary of State power to make secondary legislation in relation to notices and other documents relating to shareholder meetings. The second reading of the Bill is scheduled for 3 June 2020.

The provisions in the Bill largely reflect the guidance published by ICSA: The Chartered Governance Institute pursuant to which companies have been holding meetings with only the quorum physically present and other shareholders unable to attend. The main impact of the Bill would be to allow the quorum to meet virtually (for example, by a telephone call) rather than physically at a prescribed venue.

The Bill also contains major reforms to UK insolvency law (see below) and would give the Secretary of State the power to extend the periods for filing certain documents at Companies House.

Separately, the Financial Conduct Authority (FCA) has published a Primary Market Bulletin (PMB No. 28). The focus of PMB No. 28 is half-yearly financial reports (see below) but it also contains commentary on shareholder engagement and company meetings. The FCA encourages issuers to look at ways to allow shareholders to ask questions of management and exercise their voting rights effectively when making alternative arrangements to physical general meetings. The FCA also says that it is supportive of virtual general meetings.

• Government support – The Government has announced that companies accessing the Bank of England’s Coronavirus Corporate Financing Fund (CCFF) and companies borrowing more than £50 million through the Coronavirus Large Business Interruption Loan Scheme (CLBILS) will be subject to restrictions on distributions to shareholders and executive pay. In relation to distributions, companies will be unable to make dividend payments or undertake share buybacks. In relation to executive pay, companies will be unable to pay any cash bonuses, or award any pay rises to senior management. For companies accessing the CCFF, these restrictions will apply to participants that wish to borrow beyond 19 May 2021 and for companies borrowing under the CLBILS, they apply until the facility has been repaid in full.

Corporate reporting and company announcements

• FCA statement on half-yearly financial reports – The FCA has published a Primary Market Bulletin (PMB No. 28) pursuant to which the period for listed companies to publish their half-yearly reports is effectively extended by one month such that the half-yearly report must be published within four months after the end of the half-year. The FCA also discusses going concern statements. It acknowledges the difficulties that companies may face in relation to the going concern assessment in light of the current circumstances and notes that auditors may need to include remarks in their audit opinion in relation to the going concern assessment. The FCA says that it is vital that investors are properly informed of the impact of COVID-19 and encourages users of financial statements to take into account the current circumstances when assessing their response to going concern disclosures. There is also discussion of shareholder engagement by listed companies (see above) and a statement that issuers could consider participation by smaller shareholders in capital raisings.
• ESMA statement on half-yearly financial reports – The European Securities and Markets Authority (ESMA) has issued a public statement on the implications of COVID-19 on half-yearly financial reports. The statement discusses issues including the contents of the interim management report, risks and uncertainties linked to COVID-19 and impairment of non-financial assets.
• Inside information – The FCA has published Market Watch No. 63 which focuses on inside information issues in light of COVID-19, particularly in the context of capital raisings. The FCA reminds issuers that they should continue to assess carefully what information constitutes inside information as COVID-19 and public policy responses to it may alter the nature of information that is material to a business’s prospects. Issuers should carefully monitor whether any new information is materially different from previous forecasts, guidance, or signals which they have announced publicly and which would now be likely to be misleading to investors. The FCA also reminds issuers that delaying the disclosure of inside information is only permissible when all three of the conditions to delay set out in Article 17(4) of the Market Abuse Regulation are met. Those conditions are that immediate disclosure is likely to prejudice the legitimate interests of the issuer; delay of disclosure is not likely to mislead the public; and the confidentiality of that information can be maintained.
• Updated FRC guidance – The Financial Reporting Council (FRC) has updated its guidance for companies on corporate reporting during the COVID-19 pandemic by adding new sections on the reporting of exceptional items and alternative performance measures (APMs).

Contract issues

• Force majeure – Many contracting parties have already been affected by force majeure events arising out of the COVID-19 pandemic and the associated restrictions. As the focus starts to shift toward the gradual easing of lockdown measures, those parties who have claimed force majeure relief will be preparing to resume performance as soon as the impact of the force majeure event comes to an end. However, it is also important for contracting parties to prepare for any second wave force majeure situation.

The force majeure implications of a potential second wave of COVID-19 infections and the resulting re-imposition or tightening of lockdown measures are discussed in a recent blog post and in a new episode of our Navigating COVID-19 podcast series. Our podcasts are available on iTunes, Spotify and SoundCloud and can be accessed on all devices.

• Practical issues around signing and completion of contracts – Given the current restrictions on interaction which have been imposed by the UK Government and with a large number of people working from home, it is not always possible to adopt the usual methods for signing and completing transactions. In this briefing we summarise some practical points to ensure compliance with the necessary legal formalities whilst these measures remain in place.

Insolvency law

• Major reforms to insolvency law – The Government has published the Corporate Insolvency and Governance Bill which contains the most far-reaching reforms to UK insolvency law in over 30 years. The Bill has been introduced on an emergency basis in an attempt to ensure that otherwise financially viable companies survive during a period of unprecedented interruption and turmoil. The Bill would introduce new company moratoriums and restructuring plans and would amend the current winding up and wrongful trading regimes. Our Restructuring, Turnaround and Insolvency team has published a briefing on the Bill which is available here.

Other relevant materials

For further COVID-19 related publications, see our COVID-19 Hub.