Glass Lewis has published a paper setting out its views on Say on Climate votes.
The paper notes that “Say On Climate” votes, where listed company shareholders are given the opportunity to vote on climate-related proposals, are becoming an increasingly important part of the 2021 annual general meeting season. Both boards and shareholders are putting forward proposals for votes on climate-related matters.
Glass Lewis acknowledges that there are many positive aspects to Say On Climate resolutions but that they also present a number of challenges for investors and companies, particularly if the resolution relates to a company’s strategy or plans. It notes that, whilst many investors are supportive of such resolutions, views in the investor community are mixed.
Glass Lewis distinguishes between proposals that involve additional disclosure by companies, which it strongly supports, and those that offer a shareholder vote on a climate plan or strategy. It says it will generally recommend against management and shareholder proposals requesting that companies adopt a policy that provides shareholders with an annual vote on a climate-related plan or strategy.
On other proposals, Glass Lewis states that given their broad variety, and the lack of standardisation on how shareholders should evaluate these resolutions before voting, it will review each resolution on a case-by-case basis. The paper gives examples of various climate-related resolutions proposed to date and also provides examples of best practice disclosures in support of such resolutions.
Glass Lewis intends to codify its approach in advance of the 2022 AGM season, following investor, corporate and stakeholder engagement.
Some of the relaxations afforded to companies to help them with administrative issues during the pandemic are no longer, or will shortly cease to be, available.
The Corporate Insolvency and Governance Act 2020 (CIGA) contains provisions that temporarily relaxed the company meeting requirements in the Companies Act 2006 and allowed shareholder meetings to take place by electronic or any other means. These relaxations ceased to be available for meetings after 30 March 2021.
Companies House filing deadlines
CIGA also granted automatic extensions for various filing deadlines under the Companies Act, including for filing accounts. These relaxations end for filing deadlines that fall after 5 April 2021. Companies House has confirmed that, whilst there is no longer an automatic extension, companies can still apply for a 3-month extension.
FCA extensions for financial reports
The FCA guidance which gives listed companies an additional two months to finalise their annual report, and an additional month to publish their half-yearly financial reports, remains in place.
The Pensions and Lifetime Savings Association (PLSA) has issued its Stewardship Guide and Voting Guidelines for 2021. The document sets out the PLSA’s views on current market best practice and its voting recommendations for AGMs in 2021.
The key changes contained in the 2021 Guidelines are:
- Virtual shareholder meetings – The Guidelines state that, in light of concerns that virtual shareholder meetings may reduce investor engagement, the PLSA would recommend voting against a proposal to allow virtual shareholder meetings, unless the proposal is time limited.
- Executive remuneration – The Guidelines state that maximum pay-outs to executives must remain in line with the expectations of shareholders and other stakeholders and should take into account the impact of Covid-19, any taxpayer-funded support that the company has received from government and the treatment of the wider workforce.
- Climate-related reporting – As the largest pension schemes will likely be required to report in line with the recommendations of the Taskforce for Climate Related Financial Disclosures (TCFD) from October 2021, there is increasing focus on listed company disclosures in relation to climate change and TCFD-aligned reporting.
The Guidance also incorporates the PLSA’s voting recommendations summary chart, which sets out its voting recommendations on certain issues including executive remuneration, audit, company leadership and dividends.
ICSA: The Chartered Governance Institute (ICSA) has published guidance for companies in connection with the 2021 AGM season.
The guidance discusses a number of legal and practical issues in relation to holding AGMs in 2021, including:
- Planning a meeting – The guidance states that companies should plan to hold shareholder meetings based on the restrictions on gatherings in place at the time the notice is published, but that they should also consider contingency plans as the situation may change ahead of the meeting. The legal and practical issues arising if the arrangements for the meeting need to change following publication of the notice of meeting are also considered.
- Ability to hold a closed meeting – It notes that the relaxations to shareholder meeting requirements introduced by the Corporate Insolvency and Governance Act 2020 are due to expire on 30 March 2021, and so “closed meetings” (that is, meetings where only the necessary quorum is present, and no other shareholders) will only be permissible for as long as Covid-19 regulations and guidance preclude indoor gatherings and travel. It also notes that, once the relaxations under the Act have expired, there is uncertainty as to whether a wholly virtual meeting constitutes a legally valid meeting.
- Hybrid meetings – The guidance discusses the circumstances in which a hybrid shareholder meeting (that is a physical meeting with electronic participation) could be held, and some of the practical issues that should be considered in connection with such a meeting. The issues discussed include how questions and answers should be conducted and the facilities that should be in place so as to enable shareholders to participate and be “present” at a hybrid meeting if attending electronically.
- Shareholder engagement – It emphasises the importance of shareholder engagement but notes that what is appropriate in terms of engagement will depend on a company’s particular circumstances. Various options for shareholder engagement are discussed.
The guidance also contains relevant sample wording for notices of meeting.
The GC100, the association of general counsel and company secretaries of FTSE 100 companies, has published a discussion paper on shareholder meetings, titled “Shareholder Meetings – Time for Change?”.
The paper reviews the current format of annual general meetings (AGMs). It notes the typically low attendance and participation rates at physical meetings and that very few shares are voted “in the room” at an AGM. It also notes that the temporary relaxations to the shareholder meetings requirements introduced by the Corporate Insolvency and Governance Act 2020 in light of the Covid-19 pandemic (see our earlier blog post) had a positive impact in increasing participation in meetings through the use of technology. In light of this, the paper asks whether a physical meeting is the best way to hold an AGM and considers different possible approaches to the AGM format, focusing in particular on the use of technology and enhancing shareholder and stakeholder engagement.
The paper concludes that companies should have flexibility to choose a form of shareholder meeting format that best serves their shareholder base. The GC100 encourages the government to amend the Companies Act 2006 to provide legal certainty on the validity of virtual-only shareholder meetings and says that it intends to work with other interested parties to develop a code of best practice for virtual meetings, covering issues such as access and the shareholder question and answer process. A draft of the code of best practice is appended to the paper.
The GC100 also discusses the value of further innovation in shareholder and stakeholder engagement, including the FRC encouraging companies to hold additional shareholder or stakeholder engagement sessions outside of the AGM (for example, an event held after the notice of meeting has been sent, but before the deadline for submission of proxy forms).
The paper also includes some pro forma explanatory wording that could accompany a resolution to amend articles of association to permit the company to hold virtual and/or hybrid shareholder meetings.
The government has made regulations that extend the relaxations to the company meeting requirements in the Companies Act 2006, which were introduced as a result of the Covid-19 pandemic, to 30 March 2021.
Under the relaxations, which are set out in the Corporate Insolvency and Governance Act 2020 (see our corporate update 2020/14), shareholder meetings can take place by electronic or any other means, notwithstanding the provisions contained in the Companies Act or a 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 regulations (the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations 2020) also suspend the wrongful trading provisions in the Insolvency Act 1986 so that, 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 26 November 2020 and 30 April 2021. A similar suspension was in place between 1 March 2020 and 30 September 2020 but had expired.
The Financial Reporting Council (FRC) has published a report, AGMs: An Opportunity for Change, which reviews how listed companies conducted their AGMs this year against the backdrop of the Covid-19 pandemic. The report also sets out best practice guidance as to how listed companies could conduct their AGMs in 2021.
The FRC reviewed AGMs held between March and August 2020 and described the approaches adopted by companies by reference to three broad categories:
- “Closed” meetings with a quorum in attendance – All shareholders were requested to vote in advance of the AGM by proxy. There was either no opportunity for shareholders to ask questions before or during the meeting, or if shareholders were invited to ask questions, responses were posted on the company’s website following the AGM.
- Meetings with some shareholder engagement – All shareholders were requested to vote in advance of the AGM by proxy. Board members gave presentations on the day of the AGM, typically by webcast, and responded to a selection of questions submitted prior to the date of the AGM. Responses to other questions were posted on the company’s website.
- Meetings with more shareholder engagement – Shareholders could vote and ask questions at the AGM through an online platform and were also able to engage virtually with the board on the day of the AGM.
The FRC encourages companies to move away from the traditional form of AGM and to conduct AGMs in a way that enables the maximum number of shareholders to engage if they choose to do so. It recognises, however, that companies’ approaches will differ according to their size and shareholder base.
The report sets out a number of best practice recommendations as to how to conduct future AGMs including:
- Preparation – If a company is looking to use technology to facilitate engagement, consider what the articles of association permit, or whether they should be amended to permit alternative meeting arrangements such as hybrid meetings (that is, a meeting held at a physical place with the option for shareholders to participate online).
- Engagement – All shareholders should have the ability to hear from the board before voting on resolutions. Therefore it is best practice for companies to make every effort to ensure that shareholders can vote following presentations from the board.
- Questions – These should be facilitated in real-time at the meeting and there should be enough time for shareholders to submit questions ahead of the AGM. Transcripts of the Q&A should be uploaded to the company’s website following the AGM.
The FRC says that it intends to work with the government to consider what measures may be needed to ensure that AGMs in 2021 can take place either as a virtual meeting (that is, a meeting held exclusively online) or as a hybrid meeting. It also proposes to establish a stakeholder group comprising government, companies and investors to consider recommendations for legislative change in relation to AGMs.
The FRC’s Financial Reporting Lab has published a report on Video in corporate reporting, which looks at how companies currently use video in corporate reporting and shareholding meetings.
The government has made regulations that extend the relaxations to the company meeting requirements in the Companies Act, which were introduced as a result of the Covid-19 pandemic, to 30 December 2020.
Under the relaxations, which are set out in the Corporate Insolvency and Governance Act 2020 (see our earlier post on this issue), shareholder meetings can take place by electronic or any other means, notwithstanding the provisions contained in the Companies Act 2006 or a 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 regulations also extend certain other temporary measures under the Corporate Insolvency and Governance Act, including the restrictions on issuing statutory demands and winding up petitions, which have been extended to 31 December 2020.
Further guidance for companies has been published in light of the Covid-19 pandemic.
- 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.
- 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.
Further additional guidance for companies has been published in light of the Covid-19 pandemic.
- 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.
- 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.
- 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.