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 FRC’s Financial Reporting Lab has published two reports on corporate reporting issues in light of the ongoing Covid-19 pandemic. One covers Resources, action, the future and the other Going concern, risk, and viability.
Both reports summarise the key messages from the FRC Lab’s previous reports discussing these issues which were published in June 2020 (see our blog post at the time). They provide an update on recent developments in these areas, provide practical examples of reporting since June 2020 and provide guidance on what disclosures may look like going forward.
In relation to going concern, risk and viability, the key issues in that report include:
- Going concern and viability – Companies are generally providing more information in the annual report to support the going concern assessment. Looking ahead, the report says that discussion of the process used in relation to scenario planning and mitigations would be helpful.
- Risk reporting – ‘Covid-19’ or ‘pandemic’ has been included by almost all companies as a new primary or emerging risk. Going forward, the FRC Lab says that disclosing the effects of Covid-19 on other risks, rather than including the pandemic as a standalone risk, may provide more useful information to investors.
In relation to resources, action and the future, the key issues in that report include:
- Resources – Companies continue to provide information about their cash balances and liquidity. The FRC Lab says that cash may once again become an issue for companies and so providing detail of the evolving cash position is increasingly important.
- Actions – Companies continue to disclose the actions that they are taking in response to the pandemic. Going forward, describing the actions taken by management at different stages in the recovery process is very useful.
- The future – The higher level of uncertainty resulting from the pandemic continues to be discussed by companies. Looking forward, further information on future prospects, opportunities and more granular information by geographical location would be helpful for investors.
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.
The High Court has handed down judgment in the Covid-19 business interruption insurance test case (The Financial Conduct Authority v Arch and Others). The Financial Conduct Authority (FCA) advanced the claim for policyholders in the case, which considered 21 sample wordings from eight insurers.
Whilst different conclusions were reached in respect of each sample wording, the court found in favour of the FCA (and so policyholders) on the majority of the key issues, in particular in respect of coverage triggers under most disease and ‘hybrid’ clauses, certain denial of access/public authority clauses, as well as causation and ‘trends’ clauses.
For further discussion of the decision, see this post on our insurance notes blog.
We have published out latest M&A update briefing in which we look at the latest developments and trends, including:
- current M&A activity levels;
- what has changed on M&A transactions because of the Covid-19 pandemic;
- what we are seeing on public M&A transactions;
- some of the particular features of a distressed M&A transaction; and
- the potential impact of foreign direct investment controls and merger control on transactions.
The briefing is available here.
We also discussed these themes in our recent webinar, which you can access here. An audio recording of the webinar (and the other webinars in our Catalyst series) is available here.
The Pre-Emption Group (PEG) has announced that it is extending the temporary additional flexibility under the pre-emption guidelines in light of Covid-19.
In April 2020, it announced that it was recommending that investors, on a case-by-case basis, consider supporting placings by companies of up to 20% of their issued share capital over a 12-month period (rather than 5%, or 10% for a specified acquisition or investment). This temporary relaxation was due to end on 30 September 2020 but has now been extended by a further 2 months to 30 November 2020 in light of the continued uncertainty.
The PEG has reiterated certain issues that a company looking to use the additional flexibility should bear in mind, including that:
- it should only do so if it is experiencing extreme circumstances, and issuance is required to fund an immediate concern;
- the particular circumstances of the company should be fully explained, including how the company is supporting its stakeholders;
- effective consultation with a representative sample of the company’s major shareholders should be undertaken; and
- consideration should be given to the effect of the issuance on retail shareholders, and how they may be able to take part in some aspect of the issuance.
For further information on the PEG recommendation, see the briefing published by our ECM team in April.
The EU Commission has announced some proposed temporary changes to the Prospectus Regulation in light of the Covid-19 pandemic.
Changes that would be introduced by the draft regulation include:
- the creation of an EU Recovery Prospectus, which is a short-form prospectus that can be used for secondary offerings by issuers who have been admitted to trading for 18 months; and
- amendments to clarify who financial intermediaries need to contact when a supplementary prospectus is published.
The regulation will come into force on the 20th day following its publication in the Official Journal (the timing of this is not yet clear, as the draft regulation still needs to go through EU legislative procedures), and will expire after 18 months.
The following guidance and materials may be of interest to companies in light of the Covid-19 pandemic.
- FRC thematic review – The Financial Reporting Council (FRC) has published a thematic review on the financial reporting effects of Covid-19. The report seeks to provide guidance for companies when preparing their annual and interim financial reports by identifying areas where disclosures affected by Covid-19 can be improved, as well as providing examples to show the level of detail in some of the better disclosures. Areas discussed in the report include going concern and viability; cash, liquidity and covenant compliance; dividends and capital management; the strategic report; alternative performance measures; significant judgements and estimates; and impairment issues.
- Recapitalisation of UK companies– The CityUK Recapitalisation Group (RCG) has published a report Supporting economic recovery: recapitalising businesses post Covid-19. The report, to which we contributed, sets out a series of options for converting, restructuring and repaying the projected £35 billion in unsustainable debt that could result from Covid-19 loans.
- Consolidated Covid-19 corporate update – We have published a consolidated Covid-19 update briefing which summarises the major pieces of legislation and guidance that have been published in relation to UK corporate law over the last few months in light of the pandemic.
- Disputes risks – The pandemic has led to unprecedented disruption to economic activity on a global scale. Inevitably, this will lead to disputes. We have published a new Disputes Risk guide which looks at a number of areas in which we anticipate that disputes may arise as a result of the pandemic or associated disruption. These include contractual disputes; class actions, such as shareholder, employee, competition or data breach claims; insolvency litigation, including claims brought by creditors and officeholders; and judicial review of governmental decisions or actions.
For further Covid-19 related publications, see our COVID-19 Hub.
Parties to commercial contracts commonly seek to set some parameters around what will happen in the event of a breach. They may for example agree a fixed sum that is payable on breach, or set a maximum sum for any damages, or exclude liability (or particular categories of liability) altogether.
Such clauses may not always have the effect the parties expect, either because of how they are interpreted by the courts or because they are held to be unenforceable as a result of statute or common law principles.
Our latest contract disputes practical guide considers the main types of clause that may be used and the extent to which they will (or will not) be effective, and provide some practical tips for commercial parties.
To download the PDF guide and access our webinar exploring these issues, click here.
All the guides and webinars in our contract disputes series are available here on our Litigation Notes blog.
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.