In spring/summer 2020, a number of provisions came into force to enable companies and their directors to run their businesses in lockdown. Now, with the country once again under lockdown and no sign of this being lifted until March 2021 at the earliest, we have taken a further look at some of the measures which are currently in force and ways of using technology to assist.
Can we hold a board meeting when face to face meetings are not possible?
If your company has adopted Companies Act 2006 (CA 2006) Model Articles (private and public), it is clear that directors can attend meetings by telephone or video-link without all needing to be in the same physical location.
If your company does not have Model Articles and its articles do not expressly permit directors to attend meetings remotely, there is some doubt as to whether attendance at a physical directors' meeting is required. If the articles clearly require attendance at a physical board meeting, then this will need to be complied with. If the articles are silent, the directors and their advisers will need to take a view, and this will depend on a number of factors including whether the business of the meeting is likely to be contentious, whether all of the directors can participate on a conference call, and whether the decisions could be easily be ratified at a later, physical board meeting.
What other points relating to board meetings do we need to consider?
There are a number of points:
- The Model Articles are subject to the company's own articles, so you must check your company's constitution carefully. Bear in mind that any shareholders' agreement may also contain provisions on directors' meetings.
- Check who may call a directors' meeting – this will be set out in the articles. The CA 2006 Model Articles for private companies provide that any director may call a directors' meeting, by giving notice in accordance with the articles, or authorising the company secretary (if there is one) to give the notice. There are similar provisions in the Model Articles for public companies, although a public company will have a company secretary who must call a directors' meeting if a director so requests. So if the director who would normally give notice or ask the company secretary to give it is ill or otherwise unable to do so, another director may call the meeting. However, a member of the company who is not also a director has no power under the Model Articles to call a directors' meeting.
- Check whether notice must be given to all directors – again, this will be set out in the articles. The Model Articles for both private and public companies state that notice must be given to each director. There is no exception for directors who are not in the UK and so, unless there are very specific circumstances set out in the articles, companies should give notice to all directors even if overseas. This may be relevant where, for example, a director has been prevented from returning to the UK due to travel restrictions or lockdowns imposed because of the coronavirus.
- Check what period of notice is required - CA 2006 does not require a particular period of notice for directors' meetings and no particular period is specified in the Model Articles (or in the predecessor Table A). The basic rule is that the notice given needs to be reasonable in the context, taking into account the company, the business to be transacted, and the directors who are receiving the notice. In an emergency, a very short notice period might be considered reasonable even if not all the directors can attend. This will be highly relevant in the context of the coronavirus and its consequences – falling or zero demand, supply chain issues, cash flow difficulties, employee issues, international travel or trade suspensions. All or any of these could necessitate urgent action by companies which will need to be approved at board level without delay.
Has any guidance on board meetings been published?
Yes. ICSA, the Chartered Governance Institute has published guidance on virtual board and committee meetings, which aims to help companies struggling with the impact of Covid-19.
Does my company need to hold a shareholder meeting?
CA 2006 provides for private companies to be able to take decisions at shareholder level by way of statutory written resolution, so unless the articles require a shareholder meeting to be held (and see below on AGMs), there will not usually be any requirement for a private company to hold a shareholder meeting.
For public companies, even if not listed or on AIM, the position is different and they can only pass a resolution of the members at a meeting.
Can one shareholder constitute a 'meeting'?
In most cases, no – a meeting will generally require the attendance of more than one person. The quorum requirement in the articles should always be checked – for most UK companies it is relatively low. In some circumstances, CA 2006 expressly allows one person to constitute a meeting – for example, a single member company can have a quorum of one.
We are required to hold an Annual General Meeting (AGM). How can we do this in lockdown?
All public companies are required to hold AGMs. If a private company's articles stipulate that it should hold AGMs, then it must do so. Such a requirement is fairly unusual, but more likely to be found in the articles of an older (i.e. pre-CA 2006) company.
It is unlikely that your company can currently hold a physical general meeting. The government's Stay at home guidance advises individuals not to leave their home except where necessary. The relevant regulations (referred to as the All Tier Regulations) state that certain gatherings are permitted, including those which are "reasonably necessary for work purposes or for the provision of voluntary or charitable services". However, it is unlikely that a company shareholder meeting would constitute "work" and therefore it would appear that this exception could not be relied on for the purpose of holding or attending physical general meetings.
The Corporate Insolvency and Governance Act 2020 (CIGA) contains provisions about the conduct of company general meetings (including AGMs), intended to ensure that meetings can be held in a way which is consistent with the need to prevent the spread of COVID-19. Other regulations have also been passed which have extended the period during which the provisions on conduct of company meetings apply, to 30 March 2021.
The relevant provisions of CIGA mean that any general meeting, including an AGM, held during the period ending 30 March 2021:
- Need not be held at any particular place.
- May be held, and any votes may be permitted to be cast, by electronic means or any other means.
- May be held without any number of those participating in the meeting being together at the same place.
This means that even if your company's articles of association do not provide for meetings to be held electronically, or expressly permit a combination of part physical meeting and part electronic meeting (referred to as a hybrid meeting) you can nonetheless convene and hold the AGM electronically, and members may vote electronically.
What about the quorum requirements for our AGM?
CIGA allows companies to fulfil the quorum requirements by electronic means, without even a minimum number of members being present in the same location. However, the company may choose instead to hold a hybrid meeting, in which case it convenes a physical meeting with a minimum number of people in the same physical location, and allows other shareholders to participate in the meeting by electronic means, such as an online platform.
Do we have a longer period than usual in which to hold the AGM?
CA 2006 requires public companies to hold an AGM within six months of the end of their last accounting period. Private traded companies must do so within nine months of the end of their last accounting period. Prior to 30 September 2020, CIGA provided for certain temporary changes allowing companies to postpone the AGM for a limited period of time. However, that extended period has now expired. So companies are no longer permitted to delay their AGM.
Is there any guidance on holding shareholder meetings under lockdown?
Yes, a great deal of useful guidance has been published. Some examples are listed below.
Can we use electronic signatures to sign documents?
In many cases it will be possible under English law to validly sign documents via electronic signature. However, it cannot be taken for granted that electronic signatures will be valid in another jurisdiction, so on any cross-border matter, local legal advice will be needed. And, even in the English law context, there are some documents and circumstances for which electronic signature will not or may not be suitable.
Question: what is the English law position on electronic signatures?
Answer: The English law position is that electronic signatures are valid. This was confirmed by the Law Commission in its report, Electronic execution of documents (published in 2019) and endorsed in a UK Government Ministerial Statement on 3 March 2020.
The Law Commission confirmed that an electronic signature is capable of being used to execute a document, including a deed, provided there is an intention to authenticate and any execution formalities are satisfied. There is no prescribed form under common law: for example, a name typed at the bottom of a document, and clicking the "I accept" box on a website, have both been recognised as valid signatures.
However, the Law Commission's view is that where there is a requirement for a deed to be signed "in the presence of a witness", the witness must be physically present.
On 18 June 2020, the Law Society published an updated statement on the use of virtual execution and electronic signatures. This confirms that the law relating to electronic execution has not changed since the outbreak of the COVID-19 pandemic, and also provides some practical tips.
Are e-signing platforms of any assistance?
Many companies are adopting this technology for use in-house and also wanting to use it on larger transactions with multiple parties. There are a number of issues to think about, not least ascertaining that the e-signing platform is secure. This is something that the organisation's IT department will need to assess carefully.
Some e-signing platforms offer functionality for witnessing of documents which require it. However, it is important to bear in mind that the person who is witnessing the execution of the document must actually see the signatory sign it and be physically present.
When will an electronic signature not be appropriate?
It is impossible to provide a complete list, but here are some examples:
- where a wet ink signature is required for filing purposes;
- if the corporate seal is being used to execute the document;
- If there is a restriction on the use of electronic signatures in the constitutional documents of the executing company/other entity;
- If there are cross-border issues.
For documents which are not routine or run-of-the-mill, the director(s) should check the position with the company's legal advisers before using electronic signatures. For example, there is a separate regime for executing documents for registration at HM Land Registry.
Is there any leeway for late filing of company accounts?
Yes. The current position is set out in regulations published in June 2020. These can be read here. In essence, companies can get an extension to accounts filing deadlines falling between 27 June 2020 to 5 April 2021. This relaxation cannot be extended beyond 5 April 2021 without further regulations, as the Secretary of State's powers to extend expire on that date.
On 27 January 2021, the FCA and FRC published a joint statement reminding listed companies of the continuation of temporary reliefs for companies reporting financial information. These include an additional two months for publish annual financial reports, and an additional month to publish half yearly financial reports. For more details, see the joint statement https://www.fca.org.uk/news/statements/fca-and-frc-joint-statement-reminding-companies-extended-financial-information-timelines-continue.
For AIM companies, on 27 January 2021 the London Stock Exchange confirmed that its temporary measures for financial reporting deadlines in relation to the publication of annual audited accounts and half-yearly reports remain available to AIM companies until further notice. For full details, see Inside AIM.
WHAT IF WE ARE LATE WITH MAKING FILINGS AT COMPANIES HOUSE DUE TO THE CORONAVIRUS CRISIS?
Answer: On 4 June 2020, Companies House updated the temporary changes to its approach to late filing penalties. Companies House said that for a temporary period it would:
- ease compulsory strike off activity
- treat late filing penalty appeals sympathetically - if the late delivery of accounts was caused by the coronavirus outbreak
- provide a break for companies to pay late filing penalties
- provide additional support with payment plans for late filing penalties.
Although Companies House in fact resumed its compulsory as well as voluntary strike-off processes during autumn 2020, it announced on 27 January 2021 that it has again paused these processes for the period from 21 January 2021 to 21 February 2021.
Should we consider delaying or cancelling dividend payments?
Yes, this may well be appropriate, depending on circumstances. Any dividend payment by a company to its shareholders must meet various requirements set out in legislation and in the company's articles of association. The key requirement is that, in order for a company to be able to lawfully pay a dividend, it must have sufficient distributable profits that are justified by reference to relevant accounts.
However, it is vital for directors to be aware that having relevant accounts which show adequate distributable profits is not the end of the story. The directors must also carefully consider their statutory and common law duties.
The directors are subject to a range of statutory duties under the Companies Act 2006, in particular sections 171 (Duty to act within powers), 172 (Duty to promote the success of the company) and 174 (Duty to exercise reasonable care, skill and diligence). Company directors are also under a common law duty to safeguard the company's assets and must also consider the company's future financial requirements before making a distribution.
This means that the directors must take all relevant circumstances since into account, including any darkening of the economic picture since the date of the relevant accounts which could indicate that the company's cash flow position could deteriorate. The potential for this has been illustrated by recent events, with new variant COVID-19 pushing up the infection rates, resulting in a third lockdown. If the directors come to the view that the company's interests are best served by retaining distributable profits, then they must consider cancelling or at least deferring the dividend payments. This applies equally to private companies as to big household names. Importantly, directors of a group company need to bear in mind that they owe their duties as directors to that company, not to the group as a whole or to the holding company. Therefore they must not approve the payment of dividends up to the holding company if that might or could negatively impact the company of which they are directors.
How can an interim or final dividend be cancelled after it has been declared but before it has been paid?
An interim dividend is defined in case law as a dividend paid in respect of part of an accounting period, at a date between general meetings of the company at which a final dividend is declared, and in anticipation of profits to be made for the entire accounting period. Most standard form articles of association will give the directors authority to pay interim dividends.
A final dividend is a dividend that is declared in respect of a specific accounting period of a company. Most standard forms of articles will provide that a final dividend is declared by the members resolving, by ordinary resolution, to approve a dividend of a particular amount. Articles will also almost always state that the amount of any dividend approved by the members shall not exceed the amount recommended by the directors.
As noted above, an interim dividend does not become enforceable as a debt prior to actual payment. This means it can be cancelled by the directors at any time before it is paid.
The position with a final dividend is that if the directors consider that, for whatever reason, the distribution cannot lawfully be made, it should not be made. The directors can achieve this by withdrawing their recommendation, because, as noted above, articles will almost invariably state that the amount of any dividend is dependent on the directors' recommendation.
On 29 April 2020, ICSA, the Chartered Governance Institute published a guidance note on the issues surrounding the decision to withdraw or amend dividend resolutions at AGMs. The guidance contains general advice on what companies should do if they are considering withdrawing or amending dividend resolutions and in particular notes that:
- where a resolution is amended to reduce the dividend after proxy votes have been submitted, the proxy should aim to give effect to what the person appointing them would have wanted;
- RIS announcements in these circumstances are likely to constitute inside information;
- while there is no legal requirement to include a trading update at the same time as the RIS announcement, many companies are providing a general update as background to the board's decision to withdraw or reduce the dividend.
This is a general summary of the position. For tailored advice on your company's situation please email Gillian White or email Vernon Dennis or your usual Howard Kennedy LLP contact.