The COVID-19 (coronavirus) pandemic is having wide ranging and deep effects on the “business as usual” activities of all corporates. In this briefing, we focus on some examples of high-level legal considerations which the COVID-19 outbreak may drive.
Disclosure issues for publicly traded companies
Publicly traded companies must keep their ongoing disclosure obligations in mind – for example, has the outbreak given rise to any material change in trading position or prospects that requires disclosure to the market? Is there any other specific impact on the group that would be relevant to investors and which should be disclosed? In many cases, this assessment is likely to involve finely balanced judgements by the directors, in particular given the fast-moving nature of the situation and current uncertainty. Where a decision is taken that disclosure is not required, Boards should ensure appropriate monitoring arrangements are put in place and the situation kept under review. For further information on this topic, see our separate briefing, COVID-19: Disclosure issues for UK listed companies under MAR.
Companies should also consider their obligations in terms of financial and other reporting more generally, and keep abreast of regulatory and industry guidance issued in this context – for example, the recent FRC advice to companies and auditors on coronavirus risk disclosures and the ESMA statement setting out recommendations to financial market participants.
Upcoming shareholder meetings
Given the rapidly developing nature of the outbreak and restrictions being imposed on large gatherings, companies should consider the implications for any upcoming shareholder meetings. Depending on the circumstances, practical considerations could include encouraging shareholders to submit proxy voting instructions as early as possible in advance of the meeting, considering whether to postpone the meeting or imposing practical restrictions such as limiting its duration by giving shorter presentations and confining the business of the meeting to legal necessities and (where permissible under applicable corporate law) considering whether to hold the meeting by virtual means. Whatever approach is taken, clear and timely communications with shareholders will be key. For further information on this topic, see our separate briefing, COVID-19: What does this mean for AGMs?
Impact on current transactions and existing contractual arrangements
For those corporates in the midst of M&A or other corporate transactions, detailed consideration will need to be given to the effect on timetables, as well as the ability to pull out of deals ahead of closing should the picture deteriorate so significantly as to remove the deal rationale. Whether MAC conditions or termination rights in signed deals awaiting closing will be broad enough in scope to allow this possibility will be a key question, as such provisions are notoriously difficult to invoke and have typically been construed very narrowly by the courts and regulators.
In terms of the logistics of deal execution, whilst many signings and closings can be and are effected virtually and by electronic means, early consideration will need to be given to any special considerations, e.g. the need for “in person” formalities such as notarisation requirements and, at a basic level, the ability of boards of directors to convene virtual meetings and be available for signing documents remotely.
More generally, companies will also need to consider any impact on the group’s existing contractual arrangements, including commercial contracts and financing arrangements (see further below in relation to the latter), to identify whether any defaults are anticipated or termination rights may arise. In the context of contractual arrangements, there has been discussion in the legal community of whether parties could be released from performance as a result of “force majeure” – for further information on this topic see our separate briefing Force majeure/hardship clauses and frustration in English law contracts amid COVID-19.
Companies should be focused on the steps that they need to take in relation to their workforce. For example, in light of the obligation to provide a safe working environment, consideration should be given to the company’s policy on issues such as business travel, remote working, self-disclosure of symptoms, maintaining a clean working environment, etc. Companies will also need to consider compliance by employees with mandatory or recommended quarantine requirements – how will this be managed? Will such individuals be entitled to statutory or contractual sick pay? What approach will be taken for employees that are at higher risk (for example, because of specific health conditions)? How will any resulting staffing shortages be managed? What approach will be taken with other employees where an individual in a particular team or department is diagnosed with COVID-19?
For further information on employment considerations, see our Global Workplace Insider blog.
Directors should carefully consider the impact on current financing arrangements, including the potential for triggering events of default (including the scope of any material adverse effect-related provisions), inability to comply with financial covenants and possible cross-defaults. Companies must also be mindful of complying with their other obligations under their financing arrangements – for example, any obligations to provide information to their lenders in relation to breaches of material contracts. Where any areas of potential concern are identified, companies should engage with their legal counsel to discuss the potential implications and next steps.
For further information on this topic, see our separate briefing COVID-19 (coronavirus): Potential for default triggers in finance arrangements.
In responding to the unique challenges posed by COVID-19, there are a number of practical steps directors should be taking. These include appointing a board member to take charge of the steps to be taken to manage issues arising from the spread of the coronavirus and preparing and stress testing a scenario plan for the operation of the business. Directors also need to be aware that in the case of financial uncertainty and distress which could result in insolvency, the interests of a company’s creditors, as well as their shareholders, may need to be considered as part of the board’s decision-making process.
For further information on this topic, see our briefing COVID-19: Legal considerations for UK boards. For additional considerations relevant to UK boards of FCA regulated businesses, also see our separate briefing COVID-19: Regulatory aspects for UK boards to consider.
Filing obligations for corporates
Legislative requirements generally impose deadlines for the filing of documents, including company reports and accounts, with a central repository such as Companies House in the UK – and companies (and their directors in some cases) that miss a filing deadline may be subject to a fine or other penalty. Companies should keep abreast of any guidance, extensions or waivers issued in relation to filing requirements. For example, if it becomes apparent that a UK company will not be able to file its report and accounts on time as the company or its auditor has been affected by COVID-19, the company may be able to make an application to Companies House to extend the period permitted for filing, but this must be done prior to the filing deadline. It may be possible to make similar applications in other jurisdictions depending on the circumstances.