Amid unprecedented turmoil, all of us, including our companies and boards, are rapidly adapting to a new reality. Business continuity plans have been dusted off. Working practices have changed, perhaps permanently. A lot is at stake beyond just the Boardroom. Against that background, pondering the effect of COVID-19 on Governance might seem a niche question. However, there are pertinent issues to think about.
What can Company Secretaries do?
1. Plan how to deal with forthcoming AGMs
Although gatherings of more than two people are now restricted and likely to remain so for some time, cancelling the AGM and writing off 2020 (no matter how tempting) isn't going to wash. Relief may be on the way in the form of primary legislation, which amongst other things should address some of the logistical issues companies are facing with forthcoming AGMs; however it is expected this won't be enacted until after parliament sits again. For companies with a December year-end which hold an AGM, the meeting must be held by the end of June. As it stands, there are several possible workarounds to the AGM conundrum, including:
- Delaying the meeting itself if the notice of the meeting has not yet been sent - although the requirement to hold it within six months of year-end remains;
- Postponing the meeting if your articles of association allow, but again the six-month caveat still applies;
- Adjourning the AGM - you can do it before convening the meeting if articles of association allow, otherwise might involve meeting outside the original venue to adjourn to another date and place;
- Moving away from holding a physical meeting towards a hybrid, if your articles of association allow.
Many companies have been plunged into financial distress and might have posted a notice of a meeting, which includes a final dividend resolution. Companies can 'pull' such a resolution if needed as it remains at the discretion of directors whether to recommend a final dividend. An announcement to shareholders of the intention to withdraw the resolution should accompany such action.
Many venues have closed their doors, and this also represents a key challenge. The only requirement for any replacement venue is that it should accommodate a minimum quorum (usually two members in person or by proxy; again, check your articles). Realistic alternative sites could be a company's offices or director's home if needed, with a director and company secretary who are both members forming the quorum necessary to consider the business of the meeting and pass resolutions. You must remind shareholders that they cannot attend in person and encourage them to lodge their proxy votes before the meeting. Companies may, therefore, need to announce altered arrangements and remind shareholders not to attend.
We anticipate that when legislation comes, it will allow more flexibility on how meetings are held – for instance, by telephone or online – but specific details are yet to be confirmed. In the meantime, the ICSA has produced a comprehensive briefing note in conjunction with GC100 and several leading city law firms, which is useful for anyone involved in planning an AGM during the pandemic.
Conclusions? There is no easy fix. The message is to check your articles and start planning now.
2. Be a facilitator; keep information flows going
Company secretaries have a crucial role to play amid a crisis, not least keeping the information flows going, helping boards navigate through the noise and focusing on what is essential. Some issues to think about:
- Timely papers distributed efficiently via board portal software together with accurate, high-quality minutes which document the cut and thrust of board discussion and decision making, are now more important than ever;
- Understand the quorums necessary to hold board meetings so that boards can convene and decisions can still be validly taken if one or more directors or committee members are self-isolating or unwell (and make sure your articles of association and committee terms of reference are close at hand);
- Understand and, if necessary, refresh your schedule of delegated authorities. Authority limits for senior management may need adjusting to reflect the absence of key board members, and powers of attorney may need putting in place quickly.
3. Be aware of disruption to Companies House services
On the more routine side, many will be aware Companies House has closed its offices in London, Edinburgh and Belfast. Some other important news to be aware of:
- Companies can, from 25th March, apply for a three-month extension on filing of annual accounts which Companies House guidance indicates will automatically and immediately be granted if COVID-19 is cited as the reason for requesting an extension. The application can be made online and takes around 15 minutes to complete.
- Paper documents can still be delivered to the Cardiff, Edinburgh and Belfast offices, but not London. It is also worth noting that same day services (such as incorporations and changes of name) have been temporarily suspended;
- Web filing and online services are unaffected at the time of writing. You can keep up to date with Companies House arrangements during COVID-19 here.
4. Familiarise yourself with alterations to listed company obligations
The FCA has announced relief for listed companies facing corporate reporting challenges during COVID-19:
- Under the Transparency Directive, listed companies would typically have four months from the end of their financial year to publish audited financial statements. The temporary relief announced by the FCA on 26th March will allow companies an additional two months to publish their results.
- With regards to dividends; the London Stock Exchange has published guidance which allows issuers to defer dividend payments for an additional 30 days (allowing a total of 60 days from the record date). Issuers must notify LSE of a deferral straight away, and once the deferral period expires, the dividend must be paid or cancelled;
- The Market Abuse Regime ('MAR') very much remains in force. Furnishing markets with inside information is paramount, particularly in times of market turbulence, unless a valid reason to delay disclosure applies.
- The FCA has recognised that the wide-ranging effects of the pandemic on business may impact on a company's assessment of what constitutes information that is material to business prospects. In that context, assessing what should be announced to markets may require even closer scrutiny than normal;
- Disclosure committees should, therefore, ensure they receive all relevant business-critical information and meet sufficiently regularly during the crisis to allow timely decisions to be made on what to announce, enabling price sensitive information to flow to markets efficiently.
A helpful resource for listed company secretariats is the Primary Market Bulletin ('PMB') published by the FCA. The latest edition focuses on Corona Virus impacts and examines a number of key matters of relevance to issuers.
5. Be mindful of the impact on financial reporting disclosures
Inevitably, some annual report disclosures will be affected by recent events. The impacts on annual reports which might warrant further thought include:
- Companies which need to prepare a strategic report (listed or unlisted) might consider COVID-19 related issues when drafting the principal risks and uncertainties affecting the company's business model. The Financial Reporting Council ('FRC') has recently re-emphasised this;
- Depending on when the year-end falls, directors may need to think about COVID-19 related post balance sheet events which might require disclosure;
- Directors' handling of the potential minefield of stakeholder impacts emanating from COVID-19 related actions; while not falling within the relevant reporting period to be caught by the new s172 statement which large companies (and certain others including members of an ineligible group*) must include in their strategic reports for the first time this year; will be of key importance in 2021 annual reporting cycles. As such, documenting key decisions affecting stakeholders is paramount.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.