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Essential Corporate News: Week ending April 3, 2020

Publication April 2020

ICSA: AGMs and impact of COVID-19 – Supplement

Available options for UK-listed companies to consider as part of their AGM contingency planning were first discussed in initial guidance published by the Institute of Chartered Administrators and Secretaries (ICSA) on March 17, 2020. In light of the compulsory Stay at Home measures now implemented in the UK, which include a ban on public gatherings of more than two persons, ICSA published supplementary guidance for UK-listed companies (Guidance) on March 27, 2020. This has been endorsed by bodies including the Financial Reporting Council, the Investment Association and the GC100 and has been reviewed by the Department for Business, Energy and Industrial Strategy.

The Guidance has been prepared on the basis that, for most companies, postponement of the AGM is unlikely to be an option given the need, for example, to renew share allotment and other authorities and ensure directors are re-elected. As a result, it answers a number of questions companies are likely to have as follows:

  • Subject to checking the company’s articles of association, most UK-listed companies should be able to hold a valid general meeting despite the Stay at Home measures.
  • Since shareholder attendance at a general meeting is not “essential for work purposes”, shareholders cannot attend general meetings while the Stay at Home measures are in force but should be encouraged to vote by proxy. Suggestions as to steps companies should take to communicate with shareholders about meeting arrangements in the current circumstances are included.
  • Companies can prevent shareholders and proxies from attending a general meeting on safety grounds (with the chair of the meeting having common law powers in this area, often backed by provisions in articles), so meetings can be held “behind closed doors” if quorum and other meeting requirements are observed.
  • A general meeting without shareholders will be quorate provided the minimum quorum (as determined by the articles of association but usually two persons present in person or by proxy) is satisfied, for example, by the attendance of two directors and/or employee shareholders.
  • If the quorum requirements exceed two, the chair of the meeting could be appointed as proxy for other members.
  • The articles of association will determine who can chair the meeting (often the board chair or another director, or even a member elected by resolution at the meeting). Proxy forms should appoint the chair of the meeting rather than the board chair or a third party so as to ensure the proxy can attend the meeting.
  • Not all directors need to attend the meeting as this is not a legal requirement, but they could be given the option to dial-in if considered appropriate.
  • If the planned meeting venue is unavailable or inaccessible, those companies with postponement powers in their articles of association should exercise the power to change the venue, for example, to the company’s registered office. If there is no postponement power in the company’s articles of association, the meeting will have to be opened at the planned venue by those forming the quorum and then adjourned to the selected alternative venue.

(ICSA, AGMs and impact of COVID-19: Supplement, 27.03.20)

ICSA: Good practice for virtual board and committee meetings

On March 30, 2020, the Chartered Governance Institute published guidance on the legal and practical issues for virtual board and committee meetings, as well as guidance on how virtual meetings can be made as effective as possible (Guidance).

The Guidance states that key points are as follows:

  • The choice of the right communication channel is vital – poor technology will result in a less effective meeting. Video conferences are more engaging than audio calls or telephone conferences but the latter are less risky.
  • Virtual meetings need to be well structured and avoid unnecessary complexity – virtual meetings need to be structured more simply than face–to-face meetings. The Guidance looks at other ways to make decisions (written resolutions, email “meetings”, delegation to a committee and subsequent ratification).
  • Preparation for the meeting is key – the Guidance sets out a number of practical matters to be dealt with prior to the meeting in relation to setting up the meeting/call and supporting the chair of the meeting.
  • The chair will need additional techniques to run an orderly meeting – Appendix 1 includes notes for chairs which should help ensure adequate debate and enable the chair to obtain the sense of the meeting.
  • “Ground rules” for participants in virtual meetings – the Guidance suggests these should be sent well in advance of the meeting and Appendix 4 suggests “ground rules”.
  • Clear instructions on accessing the meeting system/app – these are essential as not all participants will be familiar with the technology.
  • Good boardroom practices – the Guidance stresses that these are even more necessary for virtual than face to face meetings.

The Guidance covers initial considerations, issues to consider before, during and after the meeting, as well as technical issues. Appendices also include notes for the company secretary and presenters, and a comparison of virtual meeting providers.

(ICSA, Good practice for virtual board and committee meetings, 30.03.20)

BEIS: Regulations temporarily suspended to fast-track supplies of PPE to NHS staff and protect companies hit by COVID-19

In a press release published on March 28, 2020, the Business Secretary announced a number of measures, including amendments to insolvency law to provide companies with time to keep trading while they explore rescue option, and legislation in relation to Annual General Meetings (AGMs).


As far as AGMs are concerned, the Business Secretary announced that legislation is to be introduced to allow companies to hold their AGMs safely, consistent with current restrictions on movement and gatherings. Under this, companies will temporarily be extended greater flexibilities, including holding AGMs online or postponing AGMs.

Insolvency law amendments

As far as the changes to insolvency law are concerned, the aim is to enable companies to continue purchasing supplies while attempting a rescue. As a result, the wrongful trading provisions will be temporarily suspended, retrospectively from March 1, 2020, for three months for company directors so that they can continue to keep their businesses going without the threat of personal liability. However, existing legislation in relation to fraudulent trading and director disqualification will continue to operate as a deterrent to director misconduct.

In addition it is proposed that the UK’s Insolvency Framework will add new restructuring tools including:

  • A moratorium for companies giving them breathing space from creditors enforcing their debts for a period of time whilst they seek a rescue or restructure.
  • Protection of their supplies to enable them to continue trading during the moratorium.
  • A new restructuring plan, binding creditors to that plan.

The proposals will include key safeguards for creditors and suppliers to ensure they are paid while a solution is sought.

Legislation in relation to these changes is to be introduced to Parliament at the earliest opportunity and provisions will be included to enable the changes to be extended if necessary.

(BEIS, Regulations temporarily suspended to fast-track supplies of PPE to NHS staff and protect companies hit by COVID-19, 28.03.30)

Pre-Emption Group: Pre-Emption Group expectations for issuances in the current circumstances

On April 1, 2020 the Pre-Emption Group (PEG) issued a statement recommending that investors consider supporting share issuances of up to 20 per cent of issued share capital on a case-by-case basis. This recommendation to apply additional flexibility is to be in place on a temporary basis until September 30, 2020. The PEG will reconvene before then to assess how companies and investors have responded to the flexibility.

The PEG’s Statement of Principles on dis-applying pre-emption rights published in 2015 restricts non pre-emptive issues for general purposes to 5 per cent of issued ordinary share capital, with an additional 5 per cent for specified acquisitions or investments, although it does permit companies to request a specific disapplication of pre-emptive rights above this provided there is consultation with shareholders. Where the additional flexibility now being granted is sought, the PEG states that:

  • The company’s particular circumstances should be fully explained, including how they are supporting their stakeholders.
  • Proper consultation with a representative sample of the company’s major shareholders should be undertaken.
  • As far as possible, the issue should be made on a soft pre-emptive basis and management should be involved in the allocation process.

(Pre-Emption Group, Pre-Emption Group expectations for issuances in the current circumstances, 01.04.20)

FCA: Handbook Notice 75

On March 27, 2020, the Financial Conduct Authority (FCA) published Handbook Notice No. 75, together with various Instruments to implement changes to the Listing Rules following the FCA’s December 2019 consultation paper, CP19/33.

The Instruments makes the following amendments:

  • The Listing Rules (Contents of Circulars) (Amendment) Instrument 2020 rectify an unintended consequence that arose out of consequential amendments to the Listing Rules regarding documents to be made available in relation to Class 1 transactions. LR 13, Annex 1 will no longer require issuers to make a sale and purchase agreement (or equivalent document) available online. A hard copy should still be made available for inspection.
  • The Listing Rules (Disclosure of Rights of Securities) Instrument 2020 make changes to the FCA Handbook (through changes to the continuing obligations in Listing Rules 9.2, 14.3, 16.4, 17.3, 18.4, 19.4, 20.4 and 21.8) to ensure investors can readily access information that allows them to understand the rights attaching to their listed securities. Issuers must forward this information for publication via the NSM (to the extent this information has not previously been made available through such means). If the information changes issuers will be required to update this information, and should submit either a new document, or a document which outlines the changes that have occurred.

These Instruments will come into force on April 27, 2020.

(FCA: Handbook Notice No 75, 26.03.2020)

(FCA: Listing Rules (Contents of Circulars) (Amendment) Instrument 2020 (FCA 2020/13), 26.03.2020)

(FCA: Listing Rules (Disclosure of Rights of Securities) Instrument 2020 (FCA 2020/14), 26.03.2020)

ESMA: Transparency Directive – Financial reporting deadlines

On March 27, 2020, the European Securities and Markets Authority (ESMA) issued a public statement to provide clarity and promote coordinated action by National Competent Authorities (NCAs) regarding issuers’ obligations to publish periodic financial information in the context of COVID-19.

Currently, under the Transparency Directive, listed companies have four months from their financial year end in which to publish audited financial statements (see DTR 4.1.3R for UK-listed companies), and three months from the end of the period to which it relates to publish a half-yearly financial report (see DTR 4.2.2R for UK listed companies).

However, ESMA has recognised that COVID-19 and the related actions taken by Member States have impacted on the ability of issuers to meet financial reporting deadlines, and for auditors to complete timely audits. In light of the challenges, ESMA is encouraging NCAs to apply a ‘risk-based approach’ and not to prioritise supervisory actions again issuers, in respect of:

  • Annual financial statements (relating to a year-end occurring on or after December 31, 2019 but before April 1, 2020) for a period of two months following the deadline.
  • Half-yearly financial statements (relating to a reporting period ending on or after December 31, 2019 but before April 1,2020) for a period of one month following the deadline.

ESMA has advised issuers that in the event they are unable to meet financial reporting deadlines they are expected to inform their NCA and the market, with reasons for the delay and so far as possible indicate an expected publication date of the financial information. ESMA also reminds issuers of their disclosure obligations under the Market Abuse Regulation (MAR).

ESMA will continue to closely monitor the situation, and will amend the suggested forbearance periods that NCAs are expected to apply as necessary.

(ESMA: Actions to mitigate the impact of COVID-19 on the EU financial markets regarding publication deadlines under the Transparency Directive (27.03.20))

PIRC: Shareholder Voting Guidelines 2020

In March 2020, PIRC published its Shareholder Voting Guidelines 2020, setting out is views on what constitutes corporate governance best practice in relation to the board, the report and accounts and associated matters, shareholder rights and corporate actions, corporate structures and transactions, directors’ remuneration, investment companies and environmental, social and governance (ESG) matters.

Changes from PIRC’s 2019 Guidelines include the following:

  • In the board section there is reference to a “Designated non-executive director in UK-listed companies” which refers to an employee director or designated non-executive director for workforce engagement. When considering the appointment/reappointment of such person, PIRC will consider the appropriateness of the candidate who should ensure that the interests of the workforce are represented within the board.
  • Under “Succession planning” in the board section, PIRC states that executive directors should devote at least 20 working days per calendar month to their company and if they hold non-executive positions elsewhere, the amount of time the director is dedicating to the company should be disclosed.
  • In the report and accounts section, PIRC comments that directors who were audit partners of the company’s current auditor should serve at least a seven-year cooling off period, regardless of whether they were involved with the company’s account, before they can be considered independent. PIRC also continues to advocate five-yearly audit firm rotation, not just rotation of the audit partner every five years.
  • In relation to maintenance of capital, PIRC will look more closely at the alignment between net assets of the holding company and those in the group accounts to see whether losses in the group accounts have been reflected in the carrying value of the investment in the subsidiaries. This will impact PIRC’s recommendation on the annual report and accounts and the auditor’s appointment.
  • PIRC continues to believe that shareholders should approve a company’s dividend policy and considers that a decision not to pay a dividend should be voted on by shareholders. Where a company does not pay a dividend but its dividend policy has not been approved by shareholders, PIRC will review its voting recommendation on the report and accounts.
  • In relation to remuneration, PIRC urges companies to focus more on explaining the motivational value of their pay arrangements and the use of multiple remuneration consultants is strongly discouraged. PIRC will review the re-election of the chair of the remuneration committee if there are serious concerns over the remuneration report or policy and companies are encouraged to align the pension contributions for executives and employees as quickly as possible.
  • A number of changes have been made to the final ESG section of the PIRC Guidelines, with more focus on climate change issues and a new “Climate imperative” section.

The 2020 PIRC Guidelines can be purchased from PIRC.

(PIRC, Shareholder Voting Guidelines 2020,03.20)

European Commission: Guidance concerning foreign direct investment (and COVID-19)

On March 25, 2020 the European Commission published guidance to Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets ahead of the application of the new EU framework for screening foreign direct investments which will apply from October 11, 2020 (the FDI Screening Regulation).

The European Commission have called upon Member States, particularly those that do not have investment screening measures in place, to be vigilant of foreign investment to avoid the loss of critical assets and technology. They have urged Member States to review investments that fall within the scope of the FDI Screening Regulation, and expect Member States to take measures on grounds of security of public order. The European Commission have highlighted the importance of this Regulation in the context of the COVID-19 public health emergency to ensure that any foreign direct investment does not limit the EU’s capacity to meet the healthcare needs of citizens. They have warned of the increased risk of attempts to acquire healthcare capacities or related industries such as research establishment through foreign direct investment.

(European Commission: Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation) (25.03.2020))

FRC: Updated guidance for auditors

On March 27, 2020, the Financial Reporting Council (FRC) published the following updated bulletins to replace 2008 versions:

Overall, these updated bulletins have been prepared to bring the FRC guidance in line with the revised auditing standards published in December 2019.

(FRC, Auditor Reporting Bulletins, 30.03.20)

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