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 Equality and Human Rights Commission has announced that employers have an additional six months to report their gender pay gap information in light of the ongoing Covid-19 pandemic.
The deadline for employers to report on their gender pay gap in respect of the 2020/21 reporting year is now 5 October 2021, rather than 4 April 2021.
The Financial Conduct Authority (FCA) and Financial Reporting Council (FRC) have published a joint statement reminding issuers of the temporary relaxations to the usual timeframes for publication of the annual report and accounts in light of the ongoing Covid-19 pandemic.
Under the relaxations, issuers have an additional two months to finalise their annual report and accounts (so they must be published within six months of their year-end). In relation to half-yearly reports, the period for publication is effectively extended by one month, so the half-yearly report must be published within four months after the end of the half-year. The FCA has said that these temporary relaxations will, at a minimum, continue to be available to listed companies with financial periods ending before April 2021.
The statement also reiterates the importance of keeping the market up to date and that listed companies must continue to assess carefully what information constitutes inside information, recognising that the Covid-19 pandemic and policy responses to it may alter the nature of information that is material to a business’s prospects.
The London Stock Exchange has also published an edition of Inside Aim, confirming that temporary measures for reporting deadlines in relation to the publication of annual results and half-yearly reports for AIM companies also remain available.
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 Supreme Court has handed down judgment in the Covid-19 Business Interruption insurance test case of The Financial Conduct Authority v Arch and Others. It unanimously dismissed the appeals by the insurers and allowed all four of the appeals by the Financial Conduct Authority (FCA), in two cases on a qualified basis.
The proceedings were brought by the FCA, the regulator of the defendant insurers, to determine issues of principle on policy coverage and causation under sample insurance wordings in the context of the significant business interruption losses suffered by businesses as a result of the Covid-19 pandemic.
At first instance the FCA had been successful on many of the issues, and the Supreme Court has now substantially allowed the FCA’s appeal on the issues it chose to appeal. The practical effect is that all of the insuring clauses which were in issue on the appeal will provide cover for the business interruption caused by Covid-19.
Herbert Smith Freehills acted for the FCA who advanced the claim for policyholders.
For our full analysis of the case please see this post on our Insurance Blog.
The Financial Reporting Council (FRC) has published a consolidated and updated edition of its guidance for companies on corporate governance and reporting in light of Covid-19 and the Government has extended the temporary restrictions on winding up petitions.
The new FRC guidance note incorporates and supersedes the guidance published by the FRC in March (see our earlier blog post) and May 2020 (see our earlier blog post).
Additional commentary contained in the new guidance note includes:
- Timing of publication of annual reports and accounts – The FRC encourages companies to make use of the extensions to the deadlines for the publication of the annual report and accounts. It notes that the FCA recently confirmed that listed companies with a year end up to and including 31 April 2021 will still have six (rather than four) months to publish their annual report and accounts (see our earlier blog post).
- Strategic report – The FRC notes that stakeholders are interested in how business models and strategies have evolved in response to the pandemic and, in particular, how companies intend to navigate the short and medium-term uncertainty posed as a result of Covid-19.
- Risk management and internal controls – The guidance notes that the risk of fraud may be elevated, given the changes to systems and procedures in light of Covid-19, and that boards should be alert to this risk.
The FRC has also published a consolidated and updated edition of its guidance for auditors in light of Covid-19.
Extension of insolvency restrictions
The temporary restrictions on winding up petitions that were introduced by the Corporate Insolvency and Governance Act 2020 (CIGA) have been extended until 31 March 2021.
The CIGA introduced restrictions on winding up petitions being presented if they were based on statutory demands dated between 1 March 2020 to 30 September 2020 (see our corporate update 2020/14). The restrictions were extended to 31 December 2020 in October (see our earlier blog post), and the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No.2) Regulations 2020 have now extended the restrictions again until 31 March 2021.
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 Conduct Authority (FCA) has published Primary Market Bulletin 31 (PMB 31), and through it publicised two recent reviews it has undertaken into delayed disclosure of inside information and corporate governance disclosures by listed issuers.
Delayed disclosure of inside information
The FCA has reviewed the delayed disclosure of inside information notifications (DDIINs) it has received. Under Article 17(4) of Market Abuse Regulation (MAR), where a UK issuer delays disclosure of inside information, once it announces that information it must notify the FCA that it has been delaying its disclosure.
The FCA notes that only one quarter of issuers have submitted a DDIIN at all, leaving it concerned that issuers may not be aware of the requirement to submit them. It also identifies a number of areas where it will increase its oversight, including:
- Unscheduled financial information – The FCA was surprised that the delays associated with disclosing unscheduled financial information were longer than those relating to periodic financial information, as it is more challenging to establish circumstances in which it is legitimate to delay unscheduled financial information. It also notes that it has only received a low number of DDIINs in this area, when compared with the number of unscheduled trading statements issued.
- Director/board changes – The FCA was also surprised at the number of DDINs it received in relation to director/board changes, given that it is not specified in the (non-exhaustive) situations in the European Securities and Markets Authority (ESMA) guidelines on legitimate interests for delay where an issuer may have a legitimate interest in delaying disclosure.
Corporate governance disclosures
Following a review of a sample of annual reports from 2016-2018, the FCA makes a number of observations and suggestions in relation to compliance with the FCA rules relating to corporate governance, including:
- Compliance with the Principles of the Governance Code – The FCA encourages premium listed issuers to consider carefully, when stating how they have applied the Principles of the Governance Code as required under Listing Rule 9, whether they have done so in a way that enables shareholders to evaluate how the Principles have been applied (rather than merely stating they have been). To avoid boilerplate disclosures, more examples and cross-references to other parts of the annual report could be included.
- Board diversity reporting – Overall the FCA felt the quality of board diversity reporting could have been better, particularly in relation to Governance Code Provision 23 (work of the nomination committee), and Principles J (board appointment processes) and L (annual board evaluation).
- Standard listed companies – A number of standard listed companies provided little or no information on their internal control and risk management systems, and management bodies and committees (as required by DTRs 7.2.5 and 7.2.7). The FCA also noted that a number of standard listed issuers state that they have applied the Provisions of the Governance Code “as far as relevant” without providing any further detail (which does not meet the requirements of DTR 7.2.3).
Extension of relaxations to deadlines for financial reporting
In response to the difficulties being faced by listed companies as a result of the Covid-19 pandemic, earlier this year the FCA published statements which, in effect, give listed companies an additional two months to publish their annual report and accounts (to within six months of their year-end) and an additional one month to publish their half-yearly reports (to within four months after the end of the half-year). In PMB 31 the FCA confirms that this temporary relief will, at a minimum, continue to be available to listed companies with financial periods ending before April 2021.