Guides & Advice
Update: Coronavirus – Temporary Relief for publicly traded companies
Update: Coronavirus – Temporary Relief for publicly traded companies
UPDATE – 25 September 2020: The government has given businesses some additional much-needed breathing space by extending measures from the Corporate Insolvency and Governance Act, including the deadline for holding AGMs.
The obligation for companies and other qualifying bodies to hold their AGMs virtually has further been extended from 30 September 2020 to 30 December 2020 (if they haven’t held them held it already), allowing shareholders to continue to examine company papers and vote on important issues remotely.
Updated: June 26 2020, the legislation goes live and becomes law.
Key measures are:
- The Act is now in force and a company has until 30 September 2020 to hold its AGM (if it hasn’t already held it).
- The Government may extend the date if there are further lockdowns.
- Any general meeting (whether and AGM or otherwise) may be held virtually regardless of articles to the contrary in a company’s constitution.
Previous update 8 June 2020: Following the announcement in March 2020 that the government would introduce new legislation to assist companies struggling to hold effective AGMs as a result of the pandemic, the Financial Reporting Council (FRC) as of 8 June 2020, has issued additional guidance on best practices for AGMs updating the earlier Q&As it had agreed with the Department for Business, Energy & Strategy (BEIS) and answered questions about how companies should carry out business at such time until the Corporate Insolvency and Governance Bill (Bill) is approved by Parliament.
What are the proposed measures introduced by the Bill?
The purpose of the Bill is to provide temporary measures that aim to relax the company filing obligations and requirements from companies to hold AGMs and other meetings. The Bill provides workarounds to enable companies to hold AGMs safely and more flexibly in order to remain compliant with the restrictions imposed by the government during the pandemic.
The Bill will allow companies to determine:
- who is permitted to attend a meeting in person;
- that a quorate meeting can be formed by members situated in different locations; and
- that a quorate meeting can be formed by members communicating by electronic media.
The relevant changes relating to AGMs are found in Sections 36, 37, 38 and Schedule 14 of the Bill.
What are the key points to have come out of the FRC’s latest update?
- New measures introduced by the Bill relating to AGMs and General Meetings (GMs) and other meetings will apply retrospectively from 26 March 2020 and will apply until 30 September 2020 (or until such later date as decided by Parliament).
- Companies that are required to hold an AGM (whether by legislation or constitutional rules) will be permitted to postpone an AGM and will have until 30 September 2020 to hold it.
- Companies are encouraged to keep members adequately informed of their plans to hold or delay AGMs even if they plan to use the measures provided for in the Bill (e.g. extension of period to hold an AGM) once it has been approved.
- The FRC has warned that companies that wish to hold an AGM in accordance with the Bill (e.g. virtually), and are concerned whether the votes taken at the meeting will be valid, prior to its approval will need to take their own view on how to proceed with their advisers. Approval of the Bill is not guaranteed and companies must proceed on their own judgment to ensure that the business of the meeting is valid.
- The Bill will enable companies to hold meetings electronically even where a company’s Articles of Association (AoA) require a physical AGM.
- The FRC advises that companies and directors should provide members with the opportunity to engage and challenge the board in advance of an AGM. Companies are also encouraged to make use of electronic communication facilities in order to communicate with its members and should endeavour to hold a meeting once the social distancing measures have been lifted.
- Members retain their right to vote, but are advised that they may have to exercise those voting rights in ways other than by voting in person. The BEIS has stated that the measures proposed in the Bill are to protect the safety of the company, its employees and its members.
- In determining whether authorisations obtained at the previous year’s AGM are still valid, Companies are advised to consider the requirements in their AoA or constitutional rules and the resolutions passed at their previous AGMs.
Best practice advice on holding an effective AGM
- Ensure that your members have a clear understanding of how they can participate and vote at an AGM if your company chooses to make use of the measures provided for in the Bill.
- If you do choose to hold a wholly virtual AGM, be sure to host an additional meeting or event to enable members to express concerns or raise questions about the company’s activities.
- Keep your members regularly informed about how your company plans to hold its AGM especially if the format will be different to previous AGMs.
- Consider updating your company’s Articles of Association to provide for the ability to postpone an AGM and hold virtual meetings to future proof the company against similar issues that have arisen as a result of the COVID-19 pandemic.
AIM update on temporary measures:
Following the temporary measures announced by AIM in March 2020 to support AIM companies and nominated advisers in relation to the COVID-19 pandemic, AIM announced further temporary measures concerning the publication of annual audited accounts for AIM listed companies.
In light of the uncertainty and disruption cause by the COVID-19 pandemic, London Stock Exchange plc (LSE) has recognised that there may be circumstances where an AIM company is unable to publish its annual audited accounts under the normal legal and regulatory reporting deadlines.
Currently, under the AIM Rules for Companies (AIM Rules), an AIM company has six months after the end of its financial year to publish its annual audited accounts. In March a joint initiative of the Department of Business, Energy & Industrial Strategy and Companies House was announced, allowing UK companies to apply to Companies House for a three-month extension of the legal filing deadline for accounts.
In line with this announcement, LSE also confirmed that from 26 March 2020, an AIM company could also be able to apply to AIM Regulation for a three-month extension to the reporting deadline for the publication of its annual audited accounts, pursuant to AIM Rule 19. The extension will be available to AIM companies with a financial year ending between 30 September 2019 and 30 June 2020. An AIM company wishing to utilise this extension must make a request to the AIM Regulation via the nominated advisor, prior to the AIM Rules reporting deadline.
From 9 June 2020, AIM Regulation has confirmed that AIM companies will be given an additional month by which to prepare their half-yearly reports under AIM Rule 18. AIM companies wishing to take advantage of this temporary measure must notify via an RIS prior to the AIM company’s reporting deadline and the company’s nominated adviser must separately inform AIM Regulation.
LSE has confirmed that the operation of the AIM Rules will be kept under review.
FCA, FRC and PRA co-ordinated response:
In response to COVID-19, the FCA, FRC and PRA have joined forces to announce a series of temporary actions to ensure that information continues to flow to investors and to ensure that this supports the continued functioning of the UK’s capital markets.
1. The FCA has allowed listed companies an extra two months to publish their audited financial reports, reminder not to draw adverse inferences by reporting delays and the temporary halt to the publication of prelims removed
Currently, under the Transparency Directive, companies have four months from their financial year-end in which to publish audited financial statements. This two month relief will mean that listed companies will not face suspension if they publish their financial statements within six months of their year-end.
The FCA was clear in its update that the Market Abuse Regulation remains in force and that companies are still required to fulfil their obligations in relation to inside information. The FCA also implored market participants not to draw undue adverse inferences if companies choose to make use of the additional two months. The FCA also strongly encouraged listed companies to reconsider their financial timelines in order to ensure that disclosures are prepared accurately and carefully, and from the perspective that “the global pandemic and policy responses to it may alter the nature of information that is material to a businesses’ prospects”.
The FCA reminded companies that as companies of all types significantly adjust their business and operations to respond to the challenges and disruption caused by Covid-19, they take advantage of the regulatory deadlines, and their temporary extensions, rather than rushing to publish preliminary statements. The market as a whole was reminded that it should not draw adverse inferences as a result of the changing timetable for announcements.
The temporary moratorium on publication of preliminary announcements announced on 21 March 2020 by the FCA will end on 5 April 2020 and the FCA noted that it believed “that pressure can abate as companies react to the need to rethink and re-plan financial calendars in light of the coronavirus pandemic and the package of measures the three regulators announced recently.”
The FRC highlighted key areas of focus for boards in maintaining strong corporate governance and provided high-level guidance on some of the most pervasive issues when preparing their annual report and other corporate reporting issues.
In relation to corporate governance, the key messages were:
- implement mitigating actions and processes to ensure you can continue to operate an effective control environment;
- consider how to secure reliable and relevant information to manage future operations; and
- pay due attention to capital maintenance, ensuring that sufficient reserves are available when the dividend is paid, not just proposed; and sufficient resources remain, after payment of any dividends, to continue to meet the company’s needs.
In relation to corporate reporting, the guidance covers:
- the need for narrative reporting to provide forward-looking information that is specific, and that provides an insight into the consideration process of the board;
- going concern and any associated material uncertainties, the basis of any significant judgements and the matters to consider when confirming the preparation of the financial statements on a going concern basis;
- the increased importance of providing information on significant judgements applied in the preparation of the financial statements; and
- the judgement required in determining the appropriate reporting response to events after the reporting date and the extent to which disclosures may be appropriate.
The FRC guidance highlighted the importance of keeping investors’ understanding of the issues faced by companies currently through effective disclosure, and ensuring that they have the key information in order to be able to assess the liquidity, viability and solvency of companies. The FRC noted that it is reasonable for investors to expect companies to be capable of articulating how they anticipate the specific business will be affected in different scenarios.
The FRC guidance was also complemented by PRA guidance, regarding the approach that should be taken by banks, building societies and PRA-designated investment firms. The guidance focused on:
- consistent and robust IFRS 9 accounting and the regulatory definition of default;
- the treatment of borrowers who breach covenants because of COVID-19; and
- the regulatory capital treatment of IFRS 9.
The guidance provided a non-exhaustive list of factors auditors should consider when carrying out audit engagements in the current circumstances. The aim of the guidance is to temporarily help auditors deal with the emerging situation and seek to overcome the challenges in obtaining audit evidence.
The joint statement details further measures which will allow for companies and auditors to focus on the delivery of information to investors and the capital markets:
- Postponement of audit tenders
Companies are encouraged to consider delaying planned tenders for new auditors, even when mandatory rotation is due. The statement refers to the power of the FRC to extend certain mandates by up to two years in exceptional circumstances.
- Postponement of audit partner rotation
Key audit partners are required to rotate every five years. The FRC intimates that this could be extended to no more than seven years if a good reason is cited. It is suggested that the need to maintain audit quality, particularly in the current climate, could be considered a good reason for these purposes. This would need to be agreed with the audit committee of the affected entity, but does not need to be approved by the FRC.
- Reduction of FRC demands on companies and audit firms
The statement refers to several ways in which the FRC is attempting to reduce its demands on companies and audit firms. For example, the FRC has paused for at least one month writing new letters to companies following its review of their annual reports and accounts.
In summary, the temporary, yet comprehensive, measures and guidance provided jointly by AIM, the FCA, FRA and PRA recently will come as a welcome relief to companies in the current period of global uncertainty and will hopefully go some way to providing the flexibility needed to navigate the unprecedented waters of the COVID-19 pandemic. It is a complex and fluid situation for many companies and if you would like to chat through any concerns or questions you have in relation to the information here or any other issues affecting your business please do contact Catherine Moss, Ben Harber, Hannah Maxwell or another member of our corporate finance and company secretarial teams.
We have launched our guide to recovery and resilience, helping to support businesses and individuals unlock their potential, navigate their way out of lockdown and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.
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