Covid-19 – latest developments for corporate practitioners

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

Company meetings

  • Shareholder meetings – Relaxations to the company meeting requirements contained in the Companies Act 2006 (as well as the meeting requirements for certain other entities) came into force on 26 June 2020. Under the relaxations, which were made by the Corporate Insolvency and Governance Act 2020, shareholder meetings can 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 need not be in the same place and shareholders do not have a right to attend in person. The relaxations apply to company meetings held between 26 March and 30 September 2020. ICSA: The Chartered Governance Institute and the City of London Law Society have published guidance on holding meetings under the Act. The guidance is available to members on The Chartered Governance Institute’s website.

Company filings

  • Temporary extension to filing deadlines The Companies etc. (Filing Requirements) (Temporary Modifications) Regulations 2020, which were made under the Corporate Insolvency and Governance Act 2020, temporarily extend various filing deadlines under the Companies Act 2006 and other legislation for companies and other entities, including:
    • Accounts: extended by three months, to 12 months for a private company and nine months for a public company. The extension, which is automatic, applies to the original filing deadline. It will not be added to any filing extension already granted by Companies House;
    • Confirmation statement: extended from 14 days to 42 days;
    • Events-driven filings (such as changes in details of directors): extended from 14 days to 42 days; and
    • Charges: extended from 21 days to 31 days.

The longer filing periods apply to filing deadlines that fall between 27 June 2020 and 5 April 2021 (inclusive). Companies House Guidance notes that the revised filing dates can be checked via the Companies House Service.

  • Extension of Companies House upload service – Companies House has extended its temporary upload service (see our corporate update 2020/13) to enable companies to file articles of association and related forms and resolutions online, rather than in paper format. The list of documents and forms which can now be uploaded using this service is available here.

Insolvency regime and directors’ duties

As well as relaxing the requirements for company meetings and allowing extensions to the filing deadlines for certain documents, as discussed above, the Corporate Insolvency and Governance Act 2020 has also made changes to the insolvency regime in the UK. The changes include:

  • Suspension of wrongful trading – When determining what contribution, if any, a director should make to a company’s assets following a finding of wrongful trading, the court must assume that a director is not responsible for any worsening of a company’s financial position between 1 March 2020 and 30 September 2020.
  • Ipso facto (termination) clauses – Contractual clauses permitting a supplier of most goods or services to terminate supply as a result of the customer’s entry into an insolvency procedure will cease to have effect.
  • Winding up petitions – Winding up petitions cannot be presented if based on statutory demands dated 1 March 2020 to 30 September 2020. Creditors will also be prevented from winding up a company unless the creditor has reasonable grounds to believe that Covid-19 has not had a financial effect on the company.
  • New company moratorium – A new moratorium is available for companies, which will give a company up to 40 business days of protection from creditors, without court or creditor approval. The moratorium prevents legal processes against the company, including commencing insolvency proceedings and crystallising a floating charge.
  • Restructuring plan – This new form of restructuring, similar to a scheme of arrangement, allows the court to impose a compromise on a company’s creditors and shareholders, including a cross-class cram-down.

We have previously published briefings on the impact for supply chains, landlords, banks and pension scheme trustees.

Other relevant materials

  • ESG – Corporate purpose and environmental, social and governance (ESG) issues dominated headlines in the months leading up to the Covid-19 outbreak. The intense public scrutiny of corporate conduct, governance and investment behaviours during the pandemic has served to accelerate the conversation around ESG issues. To help make sense of this new paradigm, we have published a guide in which we set out some of the ways in which Covid-19 is impacting the key ESG considerations confronting businesses, asset managers, asset owners and lenders.
  • Investment and acquisition opportunities – We expect the crisis to operate as a catalyst for change. As we transition to a new normal, there will be opportunities for those with access to capital and a desire to invest or participate in industry consolidation. In our latest guide we look at possible options and issues for those looking to invest.
  • Land Registry and electronic signatures – The Land Registry has issued draft practice guidance setting out the basis on which it will accept electronic signatures. The consultation closes on 18 July 2020 and the final practice note will be issued in the “next few weeks”.
  • Service of proceedings – The High Court has set aside default judgment obtained against a defendant Council where the claim form and particulars were posted to its offices shortly after the start of the Covid-19 lockdown. For further information, see our Litigation Notes blog post.

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

Mark Bardell
Mark Bardell
+44 20 7466 2575

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Covid-19 – latest developments for corporate practitioners

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

Corporate reporting

  • FRC Lab reports – The Financial Reporting Council’s (FRC) Financial Reporting Lab has published two reports which seek to give companies practical guidance on corporate reporting, and investor expectations, in light of the Covid-19 pandemic.
    • Covid-19 – Resources, action, the future covers: resources, including the availability of cash; actions to manage short-term expenditure and ensure viability; and the future and how the decisions taken now ensure the sustainability of the company and impact customers, suppliers and employees. These three areas reflect the Five current questions investors seek information on, published by the FRC Lab in March 2020.
    • Covid-19 – Going concern, risk and viability notes that going concern is not binary, or a pass/fail concept. A company can be a going concern even when one or more material uncertainties exist. However, in those circumstances, those uncertainties should be disclosed, together with management’s consideration of them. In relation to risk reporting, the FRC Lab says investors want to understand how the risks have changed, the specific impact on the company and how management have responded.

Contract

  • Execution of documents – The Law Society has updated its guidance on virtual execution and the use of e-signatures to include tips on how to operate in practice.
  • Covid-19 contract disputes – The economic disruption caused by the Covid-19 pandemic inevitably exposes businesses to heightened legal risk. In particular, counterparties may seek to delay, or avoid, performance and/or terminate agreements. We have published a guide which provides a general overview of the common bases for avoiding contractual obligations in commercial contracts, including a comparison of the key rights and remedies.

Companies House

  • Filings at Companies House – Companies House has developed a temporary service to enable companies to file certain documents online that would usually have to be submitted in a paper format. A list of the documents that can be filed in this way, which is currently quite limited, is available here. Companies House is planning to expand this service before the end of July to enable the upload of resolutions and articles of association.

Other relevant materials

  • Company meetings and insolvency regime – The new Corporate Insolvency and Governance Act 2020, which will both reform the insolvency regime in the UK and introduce relaxations for companies holding meetings while Covid-19 restrictions remain in force, received Royal Asset last night. We will be publishing further commentary in due course. Further information on the then draft Bill and its impact on financial institutions, landlords and supply chains is available here.
  • Insurance – The Financial Conduct Authority (FCA) has published guidance on its expectations for insurers and insurance intermediaries when handling claims and complaints for business interruption policies during the test case brought by the FCA (see our corporate update 2020/10 for brief details on the case).
  • Repairing the balance sheet – As businesses emerge from the immediate shocks of the humanitarian and economic effects of Covid-19 and the public health responses to it, we have published a new guide in which we look at how businesses can begin to rebuild their balance sheets and adapt their funding in order to ensure their long-term ability to thrive.

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

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

Gavin Williams
Gavin Williams
+44 20 7466 2153

Covid-19 – latest developments for corporate practitioners

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

Company meetings

  • FRC and BEIS Q&A on company meetings – The Financial Reporting Council (FRC) and Department of Business, Energy and Industrial Strategy (BEIS) have published updated Q&A and best practice guidance on AGMs and other general meetings, pending the Corporate Governance and Insolvency Bill coming into force. The guidance says that, where it is not possible to hold an AGM as usual, companies should consider whether there is scope to convene a physical meeting with a representative cross-section of members. If such a meeting is possible, companies should ensure that shareholders can ask questions before any voting takes place. If a physical meeting is not possible, companies should explore how members might actively participate in a meeting by virtual means. It is currently expected that the Corporate Governance and Insolvency Bill, which will give companies additional flexibility in relation to shareholder meetings, will come into force by the end of the month.

Corporate reporting

  • AIM – The London Stock Exchange has announced, in the latest edition of Inside AIM, that AIM companies can have an additional month to finalise their half-yearly reports if needed (normally an AIM company must notify its half-yearly report within three months from the end of the period to which it relates). This extension is temporary while the UK faces the disruption resulting from the coronavirus pandemic.

Contract issues

  • Force majeure – As a result of the Covid-19 pandemic, many commercial parties have been reviewing their contractual arrangements to consider whether there are grounds for excusing non-performance or suspending or terminating their contracts. We have developed a new interactive tool which is designed to assist parties in evaluating the availability of force majeure relief under English law, either in respect of a party’s own contractual obligations or those of its counterparty. Click here to access the tool.

Other relevant materials

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

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Antonia Kirkby
Antonia Kirkby
+44 20 7466 2700

Roddy Martin
Roddy Martin
+44 20 7466 2255

Proposed insolvency reforms – impact on supply chains and their customers

As previously noted, the new Corporate Insolvency and Governance Bill, currently expected to be enacted in mid-June 2020, is likely significantly to impact many supplies of goods and services to companies that are or may be in financial distress. However, the effects are sufficiently far-reaching that they could impact the balance of rights in all supply chains and particularly the drafting of supply contracts, with an impact on both suppliers and their customers or clients.

Suppliers may seek to act now to mitigate or address the likely impact of the Bill and to maximise the prospects of obtaining full payment. Since each supplier is likely also to be another supplier’s customer or client, any impact on one supplier is likely to have a knock-on impact on its suppliers and so on throughout the supply chain.

Our Restructuring, Turnaround and Insolvency team has analysed the likely impact on supply chains in this note on our website. For an analysis of the effect on other key groups, see the team’s notes on the impact on secured and unsecured bank debt and on landlords’ recoveries in an insolvency process.

COVID-19: Our new quick reference tool to help assess the availability of force majeure relief under English Law

As a result of the COVID-19 pandemic, many commercial parties have been reviewing their contractual arrangements to consider whether there are grounds for excusing non-performance or suspending or terminating their contracts.

Against that background we have developed a new interactive tool which is designed to assist clients and contacts of the firm in evaluating the availability of force majeure relief under English law, either in respect of a party’s own contractual obligations or those of its counterparty, as a result of the COVID-19 pandemic or related circumstances.

Created using Neota Logic’s automation platform, the new tool takes the user through a series of questions relevant to their circumstances to help guide their assessment of whether force majeure relief may be available.

Please click here to access the tool: https://www.herbertsmithfreehills.com/forcemajeure.

Julie Farley
Julie Farley
+44 20 7466 2109

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Maura McIntosh
Maura McIntosh
+44 20 7466 2608

Robert Moore
Robert Moore
+44 20 7466 2918

Sarah Pollock
Sarah Pollock
+44 20 7466 2786

Emma Schaafsma
Emma Schaafsma
+44 20 7466 2597

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.

Caroline Rae
Caroline Rae
+44 20 7466 2916

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

Ben Ward
Ben Ward
+44 20 7466 2093

COVID-19 – Practical issues around signing and completion

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 deals. We have summarised some practical points to ensure compliance with the necessary legal formalities whilst these measures remain in place.

Briefing available here.

Continue reading

New COVID-19 podcast – Force majeure considerations in a potential second wave of COVID-19

In this latest episode of our Navigating COVID-19 podcast seriesSarah PollockEmma Schaafsma and Julie Farley consider the force majeure implications of a potential second wave of COVID-19 infections and the resulting re-imposition or tightening of lockdown measures.

Many contracting parties have already been affected by force majeure events arising out of the 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, and the podcast will share some practical tips of actions that can be taken.

Our podcast is available on iTunesSpotify and SoundCloud and can be accessed on all devices.

The relevant issues are also discussed in this recent blog post.