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On 20 March 2020, the UK Government published its Corporate Insolvency and Governance Bill (the "Bill") which amends certain aspects of current insolvency and governance legislation to provide businesses with the flexibility and time they need to continue trading during the COVID-19 pandemic.
This Client Alert provides: (i) an update on how FTSE 350 companies have reacted to the COVID-19 restrictions in place to date; and (ii) a summary of the measures proposed in the Bill to provide companies with temporary easements on the holding of meetings, including annual general meetings ("AGMs") and corporate filing requirements.
Snapshot of current trends
Further to our last Client Alert on 16 April 2020 outlining how FTSE 350 companies were reacting to the COVID-19 restrictions put in place, we have continued to review the AGM notices issued by FTSE 350 companies since the commencement of the "Stay at Home Measures" on 23 March 2020.
Since the implementation of such measures, around 145 companies have published their AGM notices. The majority of companies have held, or are planning to hold, their AGMs behind closed doors at their head office, with a small, but not insignificant number of companies holding their AGMs at residential addresses (see Fig 1). A small number are also holding their meetings in open public spaces (e.g. at service stations or on parkland).
Whilst companies are holding their meetings behind closed doors, in line with the Guidance issued by ICSA on 27 March 2020, many are putting in place procedures to maintain engagement with their shareholders (see Fig 2).
Although shareholders are not participating at AGMs from a legal perspective, companies are ensuring that their shareholders remain involved in the AGM process through a variety of means. The preferred methods are either the provision of webcast facilities or a one way phone line. In each case this allows shareholders to follow the proceedings of the meeting which helps ensure transparency and maintain trust that the meetings are being conducted in accordance with due process.
New legislation published on general meetings
A number of changes are proposed in the Bill in relation to the holding of meetings of companies, charitable incorporated organisations, registered co-operative societies, building societies and friendly societies (a "qualifying body"). The legislation in relation to meetings is temporary and retrospective and will apply to meetings which are to be held between 26 March 2020 and 30 September 2020. The key changes and what they mean in practice are summarised below:
The meeting need not be held at any particular place.
2. Virtual meeting
The meeting may be held, and any votes may be permitted to be cast, by electronic means or any other means.
The meeting may be held without any number of those participating in the meeting being together at the same place.
A member of the qualifying body does not have a right:
(a) to attend the meeting in person;
(b) to participate in the meeting other than by voting; or
(c) to vote by particular means.
The provisions of any previous enactment relating to meetings and the provisions of the constitution or rules of the qualifying bodyare subject to the rules of the Bill.
In addition to the proposed changes in relation to the arrangements for the holding of meetings, the Bill proposes a number of additional changes to provide extended timelines for certain corporate actions:
- Extension of the time period to hold AGMs: In relation to AGMs due to be held before 30 September 2020, companies will have until 30 September 2020 to hold their AGM and can take advantage of the more flexible arrangements for holding the AGM provided for in the Bill.
- For most public companies, the corporate authorities granted at their AGMs expire at the earlier of: (i) the next AGM, or (ii) a longstop date of 15 months after the relevant resolution is passed at the last AGM. It is therefore unlikely that the ability to delay AGMs will be of much benefit to public companies where any authorities are due to expire (e.g. authority to allot shares, or disapplication of pre-emption rights) or any directors need to be re-elected annually as required by the UK Corporate Governance Code. Where the extension has been taken advantage of, companies will need to remember to disclose any non-compliance with the UK Corporate Governance Code in their next annual report.
- Extension of time period to file annual accounts and reports: Under the Bill, public companies will have until the earlier of 30 September 2020, or the last day of the 12 month period immediately following the end their accounting reference period to file their annual accounts and reports with Companies House.
- It is questionable how much utility this will be for public companies as they already have to publish their annual financial reports within 6 months from the end of their financial year (temporarily extended from 4 months by the FCA on 26 March 2020 through an agreement by the FCA to relax their enforcement policy regarding DTR 4.1.3R).
- Other Companies House filings: It is proposed that the Secretary of State is granted the power to extend the deadline for certain common Companies House filing requirements, including the filing of confirmation statements, charges, accounts, and event-driven filings, such as changes in directors or persons with significant control. This power to extend is to last until 5 April 2021. The new deadlines must not exceed:
- 42 days, for existing deadlines of 21 days or fewer; and
- 12 months, for existing deadlines of 3, 6 or 9 months.
- Retrospective Effect: The above measures are intended to be retrospective from 26 March 2020, with the effect that where a company has already held its AGM in a way that adheres to social distancing measures but not in accordance with its constitutional documents, it will be deemed to have been held in accordance with the law. The Bill proposes that the period ending on 30 September 2020, during which these changes would apply, could be extended by up to three months at a time, but could not be extended beyond the end of the current financial year.
Impact of the legislation on public companies
The UK Government has been promising legislation in relation to the conduct of meetings in the COVID-19 environment for a while, noting in Q&A issued on 17 April 2020 that measures were being developed urgently to provide flexibility for the conduct of meetings. The UK Government provided additional high level detail on 14 May 2020 and what is proposed largely reflects the guidance provided. However, in the meantime a significant number of listed public companies have taken great care to hold their AGMs in accordance with the current legislation and the provisions of their articles without the need to relay on legislative changes.
Will companies take advantage of the increased flexibility?
It is unclear the extent to which companies will take advantage of the legislative changes. There are a significant number of companies who already have the ability in their articles to hold their AGMs either in hybrid form or virtually, but have not taken advantage of this flexibility.
As of writing, there have only been 6 FTSE 350 companies who this year have held or indicated that they are holding a hybrid AGM; only 3 have held or are intending to hold a fully virtual AGM (see Fig 3). These figures are notwithstanding the fact that since the implementation in 2009 of the Shareholders' Rights Regulations (which made the necessary changes to the Companies Act 2006 to implement the provisions of the Shareholders' Rights Directive to allow for meetings to be held by electronic means), at least 112 FTSE 350 companies have amended their articles to allow for electronic meetings.
Apart from uncertainty around validity of virtual meetings, the reluctance of companies to hold at least hybrid meetings may be due to a variety of reasons:
- the increased cost and administration of setting up an electronic platform which ensures shareholders can vote and legally participate in the meeting (i.e. hear and be heard); and
- the lack of familiarity with the technology and the potential for things to go wrong publically.
The flexibility provided for by the proposed legislation means it will be difficult to hold an "invalid" meeting. This may be an opportunity for companies to become more familiar with the technology and the holding of electronic meetings. We anticipate that electronic meetings will become more mainstream, especially for companies with a small shareholder base towards the lower end of the FTSE 350.
The need to future-proof
We do not know what the future landscape will look like in terms of freedom to travel and attend public gatherings. There may be "localized lockdowns" with some companies in some geographical regions being able to hold open door meetings, with others having to hold them behind closed doors. We recommend that companies continue to future-proof their articles to ensure that they have more flexibility in the way in which they hold AGMs going forward, even if the intention is to continue to hold physical meetings in the future.
This year, we have already seen the largest number of companies amend their articles to allow for hybrid and virtual meetings since the legislation came into force in 2009 (see Fig 4).
The impact of proxy advisors
In the event that companies decide to amend their articles to allow for electronic meetings, companies should consider how to present any amendments. In the case of Standard Life Aberdeen plc, a resolution was proposed to adopt new articles of association which included the introduction of the option for electronic shareholder meetings to be held. The notice noted that the company did not intend to hold electronic shareholder meetings but wanted "to be prepared for the future". Proxy adviser ISS initially provided guidance that shareholders vote against the resolution on the basis that the company had not provided a commitment to revert back to holding physical/hybrid meetings when it was able to do so. Although ISS subsequently revised its guidance and supported the resolution, it was too late and 37% of shareholders voted against the resolution.
Proxy advisors seem to be comfortable with permitting changes to articles to allow for electronic meetings, but expect companies to make it clear that such changes are just future proofing measures and expect to see a clear commitment from companies that they will revert back to physical meetings after the COVID-19 pandemic.
It is also worth noting that the proposed legislation does not touch on any governance matters in relation to the conduct of meetings. The FRC Q&A issued on 14 May 2020, makes it clear that the FRC expects companies to make reasonable efforts to provide shareholders with the opportunity to engage with, and challenge, the board in advance of the AGM. The statistics at Fig 5 indicate that this is an area where companies could make further progress.
Expectations once the "Stay at Home Measures" are relaxed?
An increasing number of clients are asking us whether they need to revert to "business as usual" as the "Stay at Home Measures" are eased, and therefore plan for meetings where all shareholders will be welcome to attend. Even in the absence of the new legislation, we suspect that most companies will reach the conclusion that this is not yet an appropriate step.
It remains the responsibility of the company/meeting chair to ensure a safe and orderly meeting and to protect the health and safety of shareholders and attendees. On this basis we anticipate that even with further relaxation of the "Stay at Home Measures" companies will continue to hold their 2020 AGMs behind closed doors.
The proposed legislation further supports companies who take this approach and should help to clear up any uncertainty as to whether companies can continue to legally restrict shareholders from attending meetings as the "Stay at Home Measures" are relaxed. Communication remains key during these times, so we recommend that whatever action is chosen by companies, they communicate it clearly to their shareholders.
As well as the provisions which relate to meetings and filing requirements, the Bill proposes a number of permanent and temporary reforms to the UK's corporate insolvency laws. If you would like to discuss any of the insolvency aspects of the Bill, please speak to a member of your White & Case team or the White & Case Financial Restructuring and Insolvency team.
If you would like to discuss any of the above, please speak to a member of your White & Case team or the White & Case UK Public Company Advisory team ("PCA"). The PCA team advises UK public companies on their day-to-day legal affairs. In particular, the team engages with listed companies outside of their transaction cycle and provides advice across a range of matters, with particular expertise in corporate governance and corporate advisory. The team is experienced in company secretarial matters and regularly provides support to non-legal functions (as well as legal and company secretarial teams) within PLCs. Our clients range in size and maturity from newly listed companies to mature companies and from small cap companies to global FTSE 350 companies.
The PCA team is part of the network of White & Case offices offering public company advisory services, with specialist practice teams in the US, Germany, Italy and France.
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