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Coronavirus - Preparing for the 2021 AGM and reporting season – new guidance issued (UK)

  • United Kingdom
  • Coronavirus
  • Corporate

26-02-2021

The Covid-19 pandemic necessitated most UK traded companies putting in place special arrangements for holding their AGMs during 2020. This looks set to continue in 2021 as the UK government plans to reduce the current restrictions gradually in the coming months. With this in mind, ICSA, the Chartered Governance Institute, has, together with others, published new joint guidance on holding AGMs in 2021 to take account of the continuing impact of Covid-19 (“ICSA Joint Guidance”). We consider this guidance below.

In addition, the Covid-19 pandemic has seen a raft of guidance published by the Financial Reporting Council (“FRC”), Financial Conduct Authority (“FCA”) and others over the last year or so, which is likely to be relevant to companies as they prepare their 2020-21 annual reports.   

As companies with a 31 December year end will be thinking about their arrangements for 2021, this update provides a reminder of some of the key measures and guidance that are currently in place.

AGMs

  • Temporary relaxation of measures to come to an end

The Corporate Insolvency and Governance Act 2020 (“CIGA”) introduced a temporary relaxation of certain requirements in relation to company general meetings, including:

  • company meetings can be held, and votes cast, electronically with no need for the meeting to be held in a particular place;
  • companies are able to hold closed meetings; and
  • companies can decide how shareholders are able to vote, whether electronically, by a show of hands or by proxy.

These measures are due to come to an end on 30 March 2021, and it appears from the ICSA Joint Guidance that the opportunity to either extend these measures or provide a more long term legislative solution is “limited” in the short term. Any extension of the measures beyond 5 April 2021 would require primary legislation.  As there is currently no statutory extension in place for the timing for holding an AGM, public companies must hold their AGM within six months of their financial year end (Section 336(1), Companies Act 2006). The Joint ICSA Guidance has therefore been produced to address some of the uncertainty for companies planning to hold their AGMs after the end of March 2021.

  • What did companies do in 2020?

For their 2020 AGMs, many companies did not follow the flexibilities introduced by the CIGA to the full extent, and many had already sent out their AGM notices, or even held their AGM, by the time the CIGA received Royal Assent in late June 2020. Companies instead opted to hold a closed physical meeting with the minimum number of attendees necessary to form a quorum, following guidance issued by the FRC and ICSA and others to hold a legally valid meeting.

  • New ICSA Joint Guidance for 2021

The ICSA Joint Guidance has been produced by ICSA, the Chartered Governance Institute, with a working group from the City of London Law Society Company Law Committee and Martin Moore QC. The guidance is supported by the Department for Business, Energy and Industrial Strategy and the FRC. As was the case in 2020, the guidance is likely to be followed in practice.  Some of the key points,  include the following.

  • Once the CIGA relaxations come to an end, ‘closed’ meetings will only be possible whilst UK government legislation and guidelines regarding Covid-19 preclude gatherings of more than a very limited number. It appears likely based on the current government ‘roadmap’ that general meetings will have to be held on a ‘closed’ basis until at least 17 May 2021 and possibly 21 June 2021. During this time, attendance can be restricted to a small number of attendees necessary to form a quorum, and anyone else who is necessary to hold the meeting.
  • Flexibility is key, and companies should reflect the position at the time of sending out the AGM notice, but be prepared to react to changing government health and safety measures. This may include changing to a larger venue if restrictions are relaxed before the meeting.
  • In the absence of specific legislation such as national lockdown restrictions, companies are not able to restrict shareholder attendance. However, companies can strongly recommend that shareholders do not attend due to the unpredictable circumstances.
  • A number of companies may already have updated their Articles of Association to allow hybrid meetings. It may be possible to hold hybrid meetings even if the Articles of Association do not expressly enable this. However, the Articles would have to be reviewed for any provisions which may indirectly prevent hybrid meetings from being held, and it is always preferable to introduce tailored provisions. The guidance does acknowledge that the costs of holding a hybrid meeting may not be merited in all circumstances.

The guidance includes a number of recommendations for good practice, noting that a closed meeting with no opportunity for virtual shareholder engagement is unlikely to be acceptable to key shareholders in 2021. Whilst a hybrid meeting will not be necessary or indeed possible for all companies, companies will need to decide how they can achieve shareholder engagement, which should be as effective as it can be given the circumstances. The guidance refers to the FRC publication AGMs: an Opportunity for Change published in October 2020, which includes best practice guidance taken from learnings from the 2020 AGM season that the FRC believes companies should consider when planning their AGMs, however these are held, and which has a focus on shareholder engagement.
The guidance note also includes some sample wording for the notice of meeting to cover scenarios for a ‘closed’ physical meeting, a hybrid meeting and circumstances where shareholders are able to attend, but a contingency plan may need to be put in place.

  • Amendments to Articles: hybrid and virtual general meetings

Companies that have not already done so and are looking to preserve flexibility in future years may be considering amending their Articles at their next AGM to adopt provisions to allow hybrid meetings to be held.
Legal doubts about the validity of wholly virtual meetings, concerns of investor bodies (such as the Investment Association) and the experience of the very limited number of listed companies that proposed amendments to their Articles to permit virtual meetings during the 2020 AGM season are likely to mean that companies will not seek to provide for or hold wholly virtual meetings.

Any companies that are considering amendments to their Articles to allow wholly virtual meetings should consult their major shareholders in advance in the light of institutional investor views. We would also expect companies to make it clear that such changes are simply future proofing measures, with a clear commitment from companies that virtual meetings will only be used when physical meetings are impossible, due to exceptional circumstances, government regulations or guidance

Reporting and corporate governance

We have also set out below a quick round up of some of the key matters for companies to be aware of for their 2020/21 annual reports.

  • Extension of deadlines

The FCA and FRC issued a joint statement on 27 January 2021 reminding listed companies that, amongst other things, they have an additional period of two months to publish their annual financial reports, ie six months rather than four months from their financial year end.

London Stock Exchange has also announced that the temporary measures previously announced for AIM companies remain in place. This includes the ability to make an application to AIM Regulation for a three month extension to the reporting deadline for the publication of their annual audited accounts.

Companies will be mindful of the fact that challenges remain to reporting high quality financial information to investors and the market. The FRC and the FCA recognise the difficulties that companies face, and encourage them to make use of the temporary measures with regard to reporting deadlines and other matters that are currently in place to make sure that the quality of reporting is not compromised.

  • Impact of Covid-19: FRC guidance

The FRC has issued a series of guidance to support reporting and disclosure as a result of the Covid-19 pandemic. The FRC consolidated this guidance in December 2020 and added links to other reports and sources of information that companies may find useful when preparing their annual reports.

The FRC’s year end letter to CEOs, CFOs and Audit Committee Chairs sets out the FRC’s perspective on key matters that are relevant to the 2020/21 financial reporting season. As well as highlighting the challenges of the 2020 year end reporting environment and the impact of Covid-19 on corporate reporting, the FRC also strongly encourages companies to explain the company specific risks and uncertainties arising from the end of the Brexit transition period.

  • Executive pay

Executive pay has also been an area of interest in the light of the Covid-19 pandemic. Guidance first published by the Investment Association (IA) in April 2020 and re-issued in November 2020 sets out the expectations of IA members on how Remuneration Committees should be reflecting the impact of Covid-19 on executive pay.

This includes matters such as the impact on executive pay of taking direct and indirect government support, the cancellation or suspension of dividends, performance conditions for annual bonuses or long term incentive awards, and issues to consider in relation to salaries and bonuses.

How Eversheds Sutherland can help

As Covid-19 looks likely to have an impact on the 2021 reporting and AGM season, it is important that companies have regard to the lessons learned and best practice from 2020. As regards AGMs, shareholder engagement will be key notwithstanding the continuing disruption to AGM arrangements, and key shareholders will expect this to be at a greater level than it was in 2020. There is no ‘one size fits all’ solution. We can help guide you through the options of how to hold your AGM this year in a way that is proportionate and will meet shareholder expectations.

In the longer term, changes to AGMs to facilitate the greater use of technology to promote shareholder engagement look likely to be on the horizon, with bodies such as the FRC and the GC100 (representing the general counsel and company secretaries of the FTSE 100) calling for this. As this would require changes to companies legislation, which may take some time to implement, companies should consider amending their Articles if they have not done so already to provide certainty that hybrid meetings can be held in future years.

Useful links

ICSA press release: New guidance about company AGMs and the impact of Covid-19 issued for 2021

Download 2021 general meetings and the impact of COVID-19  - Guidance Note here (you will have to log in as an ICSA member or register as a free subscriber)