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Throughout June, the Firm’s Restructuring and Insolvency Team are reviewing the potential impact of the Corporate Insolvency and Governance Act. So far we have looked in detail at some of the new tools which are to be introduced to allow struggling businesses more breathing space to pursue a rescue plan. The Act also addresses other more practical issues which UK companies have faced throughout the COVID-19 pandemic by providing certain temporary relaxations to the legal requirements to hold meetings or file documents with Companies House on time.

Shareholder Meetings

Schedule 14 of the Act introduces provisions which apply to any shareholder meetings held during the period 26 March 2020 to 30 September 2020 (the Relevant Period). The Relevant Period can be amended by further regulations to shorten that period or more likely to extend it if required in order to keep up with the Government’s guidelines on social distancing. The Relevant Period can be extended for periods of up to 3 months until 5 April 2021 at the very latest. This is one of a few areas of the Act which is designed to apply retrospectively. Any UK company which may otherwise have found itself in breach of the Companies Act 2006 or its own Articles of Association governing the formality of conducting a shareholders meeting and which took place during the Relevant Period will effectively become validated in circumstances set out below since the Act received Royal assent and became law from 25 June 2020.

UK companies may be required by law or by their own constitutional documents to hold formal shareholder meetings, often on an annual basis with quite prescriptive rules about how and when that meeting should take place. One of the main purposes of this is to require the company to formally lay its annual accounts before its shareholders at a meeting with all shareholders entitled to be in personal attendance with the ability to ask questions and vote by a show of hands raised in the room. For many years now, the majority of private companies in the UK have not been required to follow this formal procedure.  Although this is largely relevant to PLCs, there are also many others such as charitable organisations and private companies with a large number of shareholders such as football clubs which have chosen to retained the requirement to hold AGMs. This has clearly been difficult in recent months when the same companies have conflicting duties to comply with lockdown and social distancing measures. The Act therefore provides the following useful temporary relaxations to the normal rules:-

  • any meetings held or to be held during the Relevant Period do not need to take place in any particular location so there would be no requirement to specify the location of the meeting in the notice and agenda sent to shareholders;
  • meetings can be held by electronic means so any possible concerns about the validity of a meeting held by Zoom, Skype, Teams or whatever virtual means is removed on a temporary basis;
  • provisions commonly incorporated into Articles of Association which require a quorum of participating shareholders to be personally present together in the same location would not apply;
  • shareholders can cast votes entirely by electronic or other means;
  • individual shareholders attending have no right to actually attend in person or to participate other than to exercise a vote – although this is intended to facilitate efficient and practical virtual shareholder meetings, companies would be well advised to nonetheless encourage shareholder engagement where possible including considering any practical ways in which questions might be submitted if the meetings are taking place by videoconference;
  • there is an automatic extension for the time limit by which a company has to hold its AGM so that any company which was required to hold an AGM during the Relevant Period can be held at any time before the end of the Relevant Period.

Each of the above applies notwithstanding any conflicting provision within the Companies Act or in a company’s Articles of Association. Such provisions are to be overridden by the above temporary relaxations throughout the Relevant Period.

It is difficult to argue that these aspects of the Act are anything other than necessary given the logistical and practical challenges UK companies have been faced with throughout these challenging times.  In particular, this is very helpful for charitable companies unsure whether to proceed with their AGM now or delay for a short time whilst lockdown restrictions continue to be lifted to the point a traditional meeting may soon be possible with appropriate social distancing. They will have far more flexibility in the manner in which they can meet with their members.

In reality, many other companies have already had to simply find appropriate workarounds while they wait for the Act to be finally enacted. The retrospective effect of these new provisions should at least give those companies some comfort that any shareholder meetings which have had to be held in the last few months not in strict compliance with the law or their articles should soon be ratified. These are, however, temporary measures and there may be companies looking at shareholder meetings due to take place beyond the end of September at a time when social distancing measures may still have an impact. They would be well advised to review their constitution and consider whether any longer term changes to the provisions governing shareholder meetings might be sensible.

Companies House Filing Requirements

The Act also provides additional time for UK public companies to file their annual accounts.  Any PLC which was due to file its accounts at any time after 25 March and before 30 September is to be granted an automatic extension to the earlier of 30 September and the 12 month anniversary of the relevant accounting year end to do so. In these circumstances, the normal requirement to file accounts within 6 months of the year end do not apply. 

Although this relaxation for filing accounts applies only to PLCs, the Act also enables the Secretary of State to make Regulations to give a number of other temporary extensions on filing dates for accounts, confirmation statements, the registration of charges, changes to a company’s PSC Register and officer appointments/resignations.  The maximum time limit for such extensions cannot be more than 42 days where the normal filing deadline was 21 days or 12 months where the normal default position would be 3-9 months.

Back in March, Companies House already introduced a new support mechanism for companies facing a delay in finalising their annual accounts whereby they can apply for a 3 month extension. This is not an automatic extension and does require an application to be made by the company but it should automatically be granted if delays specifically relating to COVID-19 are given.

For other event driven filings, Companies House has already adapted its policies to make allowances for the difficulties facing companies in complying with their legal filing requirements.  For the last few months, they have eased strike off activity, treated late filing penalty appeals with sympathy, and provided breaks for companies to pay late filing penalties.  Companies House does not typically tend to bring enforcement action against companies and their directors where, for example, a director appointment or share allotment notification is filed late. Most companies are also already fairly accustomed to electronic webfiling, however it is important that companies are aware of potential continuing delays with certain Companies House filing requirements.  Certain documents still require to be submitted in paper form which can lead to delays in the time it takes for those filings to be processed at a time when Companies House offices are not fully operational. 

Another example of this is that Companies House remains unable to process same day filings at this time. This can have an impact on the timetable for group restructuring exercises if certain steps in the process such as a share capital reduction or a company name swap are impacted by delays until Companies House service returns to full operation.  Under normal circumstances, including a share capital reduction exercise as part of the step plan in a corporate restructuring did not cause any particular timing issues for implementing the plan as scanned copy documents can be processed by Companies House on a same day basis.  The reduction of capital is only effective once actually registered at Companies House, so companies and their advisers contemplating a restructuring exercise at the moment should be aware that they could be faced with a delay of one week or more leading to uncertainties in the precise timing for implementing steps in the plan which have to take place after a share capital reduction.

As with the relaxation on the rules for holding shareholder meetings, the proposed extensions to be brought in under the Act together with the policy changes adopted by Companies House are to be welcomed as they allow companies more time to comply without the additional pressure of enforcement action.   Companies may, however, have to bear in mind that there are limits to the relaxations given by the Government and a bit more forward planning might be required than in normal times.

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