Coronavirus - Corporate Insolvency and Governance Bill - UK

• United Kingdom

• Coronavirus - Regulatory issues
• Corporate

22-05-2020

Corporate Insolvency and Governance Bill 2019

The Corporate Insolvency and Governance Bill 2019-21 (the Bill) was published and had its first reading in Parliament on 20 May 2020. Much of the content of the Bill is to enact all the amendments to insolvency law that have been announced by the UK Government since the onset of the COVID-19 pandemic, including the temporary suspension of the liability for wrongful trading. It also introduces certain new restructuring tools proposed by the Government in 2018.

The Bill also contains the measures originally announced by the Government in late March 2020 to assist companies and other bodies with holding their AGMs and other meetings during the COVID-19 pandemic, as well as temporary relaxations on certain company filing requirements.

Assuming that the Bill is passed in the way that the Government intends, the key points for companies to be aware of as regards general meetings are:

• where companies are required to hold general meetings between 26 March 2020 and 30 September 2020 (or such later date, if the provisions are extended), they will have greater flexibility in how they hold such meetings, irrespective of the provisions of their articles of association (Articles) and the Companies Act 2006 (CA 2006); and
• for AGMs that otherwise due to be held between 26 March 2020 and 30 September 2020, such meetings can be delayed until 30 September 2020, again overriding the provisions of the CA 2006 and the company’s Articles. There is power for this period to be extended further if necessary.

AGMs and other meetings

The Bill (schedule 14) deals with the holding of general meetings and certain other meetings of companies and other bodies during the period from 26 March 2020 to 30 September 2020 (referred to as the Relevant Period). The provisions apply to a wide range of “qualifying bodies”, which includes companies for the purposes of the CA 2006, as well as other organisations such as charitable incorporated organisations and registered societies.

Method of holding meetings

The Bill provides (paragraph 3, Schedule 14) that meetings held during the Relevant Period:

• Need not be held at any particular place. This would appear to remove the need for a physical venue to be stated in the notice of meeting and would also seem to address legal questions over the validity of wholly virtual meetings (see further under ‘What does this mean for companies?’ below).
• May be held, and any votes may be permitted to be cast, by electronic means or by any other means. This gives greater flexibility for the manner of holding of meetings, for example hybrid or entirely virtual meetings.
• May be held without a quorum of participating members being together at the same place.

Further, for the duration of the Relevant Period, the Bill removes members’ rights to attend meetings in person, to participate in the meeting other than by voting and to vote by a particular means. This confirms that meetings can be held electronically and also effectively behind closed doors. The guidance which accompanies the Bill clarifies that members will continue to have a right to vote by some means.

These provisions effectively override the requirements of a company’s Articles (or the relevant constitutional documents of another qualifying body) as to the method of holding meetings during the Relevant Period.

The Bill also contains power for the Secretary of State for Business, Energy and Industrial Strategy to make regulations dealing with the means by which, the form in which, and the period within which, notices or other documents relating to a relevant meeting may be given or made available. These powers could be used, for example, to facilitate the giving of notice electronically. At present, the general position under both the CA 2006 and the Disclosure Guidance and Transparency Rules for listed companies is that, broadly, shareholders must have consented to receive documents electronically. It remains to be seen what regulations may be made pursuant to this provision.

Extension of the period to hold AGMs

The Bill permits a company (or other qualifying body) to extend the period within which it must hold an AGM that would otherwise fall due to be held between 26 March and 30 September 2020, with the effect that they will be have until 30 September 2020 to hold any such meeting. This applies equally to statutory requirements (such as section 336(1) CA 2006, in the case of UK public companies) or provisions of their Articles or other constitutional documents.

For public companies, references to the requirement to hold an AGM are to be read as including a reference to the requirement to hold a general meeting at which the annual report and accounts are laid before the members.

The Bill does contain powers for regulations to be made to further extend the period for holding an AGM beyond 30 September 2020.

Extension of filing deadlines

The Bill also contains a temporary extension of the period in which public companies must file their report and accounts with Companies House where these are due to be filed between 25 March 2020 and 30 September 2020. Such period will be extended to the earlier of 30 September 2020 and the period of 12 months immediately following the end of the relevant accounting reference period.

On an administrative level, the Bill also gives the Secretary of State the temporary power to make regulations to extend other periods for filing certain information with Companies House. The relevant filing deadlines which may be extended are those set out in section 38 of the Bill and include the period for filing accounts; notice of change of directors, registered office or a change to the company’s PSC register; confirmation statements and the period for registering charges.

The latter provisions are enabling only – ie the Secretary of State will have to make regulations to implement any changes to the current filing deadlines.

Timing

The Government intends to ask Parliament to expediate the parliamentary progress of the Bill. MPs will consider all stages of the Bill on 3 June 2020. Assuming the passage of the Bill proceeds as the Government intends, we can therefore expect these provisions to be enacted in fairly short order. However, until the Bill completes its parliamentary passage, the content of the final legislation cannot be guaranteed.

What does this mean for companies?

Assuming the Bill is passed in its current form, the provisions as to the holding of meetings will allow companies that wish to postpone their AGMs (where they were due to be held after 26 March 2020) a period of time after the Bill is passed to hold their AGM prior to 30 September 2020 (unless that date is subsequently further extended). They will also be able to take advantage of the greater flexibilities in the manner of holding meetings that the Bill provides.

However, given the timing for introducing this legislation, many traded companies, in particular those with a 31 December year end, will have proceeded to issue their AGM notices, which in many cases will provide for a physical AGM to be held, effectively behind closed doors, in line with the Supplemental Guidance issued jointly by ICSA, the Chartered Governance Institute and others. Such companies may have benefitted from the additional flexibility that these measures will provide for greater shareholder engagement in the current climate had they been introduced earlier.

It has typically not been possible for UK public companies to hold hybrid or virtual AGMs where they had not previously amended their Articles to make provision for meetings to be held in this way. In addition, there have been doubts legally as to whether an entirely virtual AGM (ie a meeting with no physical presence) could constitute a valid meeting at law in the UK in accordance with the CA 2006 requirements. This is due to concerns as to whether the ‘place’ of the meeting for the purposes of the notice (section 311(1)) is satisfied by a virtual-only meeting. The provisions of paragraph 3(3) of schedule 14 of the Bill address this point whilst these temporary measures are in place, removing legal obstacles to virtual meetings being held.

The other obstacle to holding wholly virtual AGMs in the UK has traditionally been negative sentiment from investor bodies. For example, both Institutional Shareholder Services (one of the leading proxy advisers) and the Investment Association have expressed their dissent against companies that propose to amend their Articles to permit virtual-only AGMs. To date, we have not seen a formal shift in position from investor bodies in the UK in the light of the COVID-19 pandemic, but given the current exceptional circumstances, directors could make it clear that a virtual only meeting is an exception to the company’s usual practice.

However, companies, in conjunction with their Registrars, will have to address the logistics of holding a virtual meeting and providing electronic participation and voting.

If companies are looking at taking advantage of the flexibility on timing, they would have to bear in mind that the legislation does not, as currently drafted, deal with any renewal or extension of authorities taken at their 2019 AGM.

Useful links

Corporate Insolvency and Governance Bill

Explanatory Notes to the Bill

Bill webpage – track progress of the Bill