Governance: what happens if we are in lockdown with key decision makers in different places?
Most modern constitutions will allow Board and Committee meetings to be held electronically, and provide for written resolutions of both Board and shareholders.
However, some older documents will not have such a provision and Articles of Association should be checked carefully to ensure this can be done.
Quorum provisions (the minimum number of participants required for a valid meeting) should be reviewed to ensure that valid decisions can be taken by the available number and, if not, amended as quickly as possible. Remember alternates can usually be appointed as necessary.
Joint ventures with specific governance rules need careful working through, and it is always worth considering a specific disaster recovery plan for what happens if one of the key parties becomes unavailable.
Filing documents: what happens if I can’t meet deadlines for filing documents?
As of March 25, the UK Government announced a three-month extension to the deadline for filing of accounts with Companies House. An online application for extension is required – and must be applied for before the standard period for filing expires, but is likely to be automatic if companies cite COVID-19 issues as the reason.
Listed companies have separate regulatory obligations in relation to the publication of accounts, and the Financial Conduct Authority (FCA) has confirmed they will now have an extra two months – so six months in total – in which to file accounts, given the current situation. Some flexibility has also been introduced around audit tenders and audit partner rotation, and guidance issued to companies and auditors in relation to dealing with the uncertainties caused by the pandemic in relation to accounts.
This is clearly helpful, but may have to be reviewed further depending on the length of the COVID-19 crisis period.
Other deadlines remain in force for the moment – many of them capable of being met given electronic filing, if your organisation is signed up for that (and if you are not then please consider doing so directly through the Companies House website).
Some deadlines require principal documents to be filed with wet ink signatures, such as stock transfer forms with HMRC for stamp duty, on which see more below.
Signing documents: how do I sign contracts if I can’t meet in person?
Counterpart signatures are, of course, one answer and very much the norm in most deals, allowing parties to sign without meeting in person.
Witnessing can still be an issue, though, and where that is required, you will need to find someone who can physically watch you sign, or at least hear you tell them in person that it is your signature. Electronic signing is an increasingly popular route.
DocuSign, which is the system Shepherd and Wedderburn employs, is easy to use and allows most documents (except those that require an extra layer of authentication, like those transferring real estate) to be signed on screen.
However, if a document signing needs to be witnessed then the witness must again be physically with you when you sign.
We will issue more guidance on that separately, and on future developments around the more restricted areas, where we are actively involved in policy-making.
AGMs: I have already scheduled an AGM. What should I do?
Listed companies, many of which have 31 December financial year-ends and are required by law to hold AGMs within six months of that date, have been considering their options given the social restrictions imposed because of COVID-19.
Companies about to post their reports and accounts will normally include notice of the AGM in those documents.
With the new restrictions on gatherings of more than two people, holding an AGM within the lockdown period is clearly not feasible, and it is not currently possible to predict how long the lockdown will last.
A joint guidance note has been issued by The Chartered Governance Institute (ICSA) and four leading City of London law firms, supported by the Financial Reporting Council (FRC), the GC100 (the voice of general counsel and company secretaries working in FTSE 100 companies) and the City of London Law Society Company Law Committee. This provides welcome guidance to listed companies in the absence of legislative changes. This does not override a company’s individual articles of association or individual circumstances, but will be extremely helpful in setting a reasonable standard for companies to attain during the COVID-19 lock down period.
The note recognises that many companies will want to proceed to hold AGMs and not postpone, given the potential issues around not renewing annual authorities and the potential need to raise capital during the period covered by the UK Government’s compulsory measures forbidding, amongst other things, gatherings of more than two people (the stay-at-home measures).
Effectively, the note confirms that:
- general meetings can and should be held while the government’s stay-at-home measures are in force;
- general meetings cannot be held in person – the fact that shareholders should vote by proxy, and how they can ask questions and remain engaged through voting, should be made very clear;
- the Chair of the meeting already has the power, at common law and usually in the articles, to exclude attendees;
- the quorum for the meeting is generally set out in the articles and is usually two shareholders present in person or by proxy. The note considers that this means that two directors or a director and the secretary – each holding shares – are ‘essential workers’ and can be present at the meeting, with appropriate social distancing. If the articles require a larger quorum then the same considerations apply;
- proxy forms, not the company, should appoint the Chair of the meeting to allow for someone else to chair the meeting (in accordance, of course, with the articles). Shareholders should be encouraged to appoint that person, given that any other proxy may not be permitted to attend the meeting; and
- generally, articles will allow the venue for a general meeting to be changed and, where possible, a small venue should be considered, such as the company’s head office. If the articles do not provide for this, then the meeting can be convened and adjourned to a more suitable place.
We can be certain that there will be further updates and potentially more legislation in this area and we will, of course, update this note as soon as that occurs.