The COVID-19 pandemic has created unprecedented health, social and economic issues for the United Kingdom and the broader world. The immediate focus in the UK has been on protecting the health and wellbeing of the population, as well as providing support mechanisms to enable business to navigate its way through the crisis. There has been much coverage of the financial support packages launched by the UK and devolved Governments to help businesses across the UK. In this article we will cover some of the changes/relaxations made (or anticipated) to the rules on corporate administration and governance that companies can (or will in due course be able to) take advantage of.
Annual Accounts and Confirmation Statements
All companies (subject to certain limited exceptions) must file their annual accounts and reports and confirmation statements at Companies House within certain time limits. Failure to file a confirmation statement or (where required) accounts and reports is a criminal offence that can result in the directors being subject to a fine. The company may also be subject to a civil penalty for late filing.
Given the practical challenges that companies may face in making their filings on time in the current crisis, some companies may wish to apply for an extension to the deadline for filing their accounts and reports. On 25 March Companies House announced that companies could apply for a 3 month extension for filing their accounts and reports. The application for extension must be made online (see here) and before the original filing deadline. Companies citing COVID-19 as the reason for the need for the extension will automatically and immediately be granted the extension. Note, however, that companies who have already extended their filing deadline or shortened their accounting reference period may be ineligible for an extension. Companies House has also provided guidance that it will look on late filing penalty appeals sympathetically.
We believe that Companies House will accept annual accounts that have been signed by a director using an e-signature.
Both the London Stock Exchange (for AIM companies) and the FCA (for Main Market companies) have issued guidance confirming certain extensions of the time periods within which public companies must publish their annual audited accounts.
Other Companies House filings and strike-off process
Companies House offices in Edinburgh, London and Belfast are closed to the public although the Cardiff office remains open 24 hours for the receipt of documents. The offices in Edinburgh and Belfast have made arrangements for documents to be received at the office building, and are still accepting documents from Royal Mail. The London office has no letterbox and all mail and documents must be sent to the Cardiff office.
Companies House has suspended its same day service until further notice and the telephone contact centre is also closed. Companies House can be contacted by e-mail at firstname.lastname@example.org.
We believe that Companies House will accept forms signed using DocuSign (or similar e-signing platforms) and also forms where images of signatures have been pasted into them.
Companies House has also announced that it is temporarily pausing the strike-off process to prevent companies from being dissolved, to give directors time to update their records and to help them avoid their company being struck off the register; and to protect creditors and others who may wish to object to a company being struck off. This will not, however, apply to companies being dissolved under an insolvency process.
Board decisions will still need to be taken during the current crisis and directors will still need to communicate and make decisions together. Whilst Board meetings are the standard format for this, holding physical Board meetings will not be possible in most cases during the current crisis. However, there are alternatives. Companies should check their articles of association to determine whether there is any impediment to Board meetings being held remotely/via telephone or conference facilities; and also to check for other valid decision-making procedures available to the directors such as unanimous decisions or written resolutions.
Companies which do not have provisions in their articles of association allowing them to hold 'virtual' Board meetings should, ideally, amend their articles of association to include such provisions. If this is not feasible, then so long as there is no provision in the articles of association prohibiting virtual meetings then holding such meetings will likely be acceptable (although advice should be taken before acting).
Directors proposing to hold a virtual Board meeting should adopt certain practices to ensure that the meeting can take place effectively and to minimise the risk of challenge to the validity of the proceedings including:,
- follow the provisions of the articles of association governing holding Board meetings;
- ensure (if there are no express provisions in the articles of association) that all directors expressly consent to the method of holding the meeting;
- ensure a quorum is present throughout;
- choose an appropriate medium/platform so that all directors can contribute to the meeting, and hear what all other participants are saying;
- ensure it is clear how each director has voted;
- be clear as to who is controlling the meeting;
- send all documents in advance of the Board meeting;
- ensure the meeting is not regarded as being "held" in a jurisdiction that may cause tax residency issues for the company; and
- take accurate minutes and circulate them for comment prior to approval/signature.
The ICSA has produced a guidance note (see here) setting out some other practical considerations for companies proposing to hold virtual Board meetings.
Given the current "lockdown" many companies will be considering how they can hold shareholder meetings.
The issue is particularly pressing for public companies who are legally obliged to hold an AGM within a certain period each year and may need certain corporate authorities to be renewed.
Private companies do not need to hold AGMs unless their articles of association require them to and they can generally avoid the need to hold shareholder meetings by passing written resolutions instead.
On 17 April BEIS and the FRC published a Q&A document (see here) which aims to provide some guidance to companies in relation to AGMs and other general meetings pending the introduction of legislation dealing with those issues. The Q&A document notes the proposed legislation is likely to give companies the ability to hold "closed" meetings with a minimum number of participants by way of telephone and to override the terms of their articles of association for a short period. Although shareholders will have the ability to vote by proxy, it is suggested that companies may wish to hold "shareholder days" later in the year to allow direct engagement with the Board. The Board will be expected to engage with shareholders before, during and after meetings, and to answer questions submitted electronically. It is likely that companies will be allowed, temporarily, to dispense with the need to issue hard copy documents to shareholders. The option to delay holding the AGM will also likely be given to companies. Companies who have imminent AGMs are referred to the ICSA guidance (which can be found here and here). The required legislation is awaited.
Gender Pay Gap reporting-suspension for 1 year
Large employers (those employing over 250 people at the relevant date) are legally required to publish their gender pay gap data on their own website and on a Government website each year. The regulations apply to both public and private employers. However, on 24 March the Government Equalities Office and the Equality and Human Rights Commission suspended enforcement of the gender pay gap reporting deadlines for 2019/20. Accordingly, there will be no expectation on employers to report such data.
The risks of wrongful trading will be at the forefront of the minds of directors across the UK whose companies have suffered a severe downturn because of COVID-19 and the subsequent "lockdown". The UK Government issued a press release on 28 March committing to amending the UK's insolvency framework to introduce new restructuring tools to enable companies undergoing a rescue or restructuring to continue trading and to give them breathing space to avoid insolvency. This will allow companies to continue to buy supplies such as energy, materials and broadband access in order to continue trading. It will also include a temporary suspension of the wrongful trading rules for a 3 month period from 1 March to enable directors to continue to trade companies out of difficulty without the threat of personal liability.
Stamp Duty and stamping of documents
In the UK, stamp duty payable on the acquisition of shares must be paid to HMRC within 30 days of completion of a relevant transaction. Generally, this tax is paid by sending stock transfer forms to the Stamp Office along with a cheque or electronic payment of the duty payable. For the time being, stock transfer forms (and other documents requiring stamping) should not be posted to HMRC. They must be submitted electronically to HMRC at email@example.com. E-signatures on forms will be accepted in the current circumstances. HMRC will deal with the forms electronically, with all payments being made electronically. If, once the crisis has subsided, any person wishes to re-submit the documents for physical stamping then no late payment fine will be levied by HMRC.
If you have any particular issues concerning corporate governance, administration or reporting during the current COVID-19 crisis, please contact Gary MacDonald, Paul Pignatelli or your regular DWF contact. Our website also contains a repository of legal insights, blogs and guidance for companies and businesses across sectors and geographies trying to navigate through the current crisis. New materials are added regularly. This can be accessed here.
This article has been authored by Gary Macdonald and Graham Tait.