While all companies are doing their best to continue ‘business as usual’ it’s anything but. COVID-19 is an upheaval of a magnitude that we’ve just never seen before and it will have unprecedented impacts, upending business as we know it.
We are fortunate that the institutions that govern and support the UK public and financial markets — such as the Monetary Policy Committee, Financial Conduct Authority (FCA), Financial Reporting Council (FRC), Chartered Governance Institute (ICSA) and Companies House (among others) — have all stepped up to the plate quickly and have given corporates the necessary flexibility they need to focus on business continuity, which includes (but is not limited to) serving their clients and delivering value to their shareholders and stakeholders.
Please note, seeing as the situation is fluid, the guidelines you read here today may no longer be relevant tomorrow so you must speak to your advisors before making any decisions regarding disclosure.
Financial Conduct Authority
The FCA has requested fully listed companies (e.g. not on the AIM) to delay publication of their preliminary financial statements in advance of the full audited financial statements to reduce the pressure companies and the audit profession are dealing with. Moreover, the moratorium means companies can give due consideration to recent events. Instead, the FCA is requesting “ that companies publish full audited financial statements within four months of the financial year end.”
Most recently, the FCA announced a series of measures aimed at assisting companies raise new share capital in response to the coronavirus crisis while retaining an appropriate degree of investor protection. This includes a different approach to working capital statements and modification of general meeting requirements. You can read about the measures here.
Financial Reporting Council
The FRC has created a webpage dedicated to COVID-19 information with a focus on how to maintain and communicate strong corporate governance at this time. It also highlights investors’ key concerns, such as liquidity, resilience; cash reserve and risks.
There is also a non-financial consideration the FRC mentions – something which brings to light the fact that ESG (environmental, social & governance) criteria are becoming mainstream and recognised as an indicator of a company’s value and risk profile. In the Strategic Report section, the FRC states, “All stakeholders, including investors, are concerned about companies’ workforces and seek an understanding of how they are being retained and supported.” Indeed, staff cannot be found on a company’s balance sheet but it is a company’s greatest asset.
The FRC also shares that the Pre-Emption Group has issued a statement recommending that investors, on a case-by-case basis, consider supporting issuances by companies of up to 20% of their issued share capital on a temporary basis, rather than the 5% for general corporate purposes with an additional 5% for specified acquisitions or investments. This move was welcomed by the Association of Financial Markets of Europe (AFME) and the FCA has also said this flexibility “could prove invaluable for companies seeking to repair balance sheets damaged by coronavirus-based disruption.”
Chartered Governance Institute
The ICSA has offered several options to ensure a company’s Annual General Meeting (AGM) is quorate while also following the UK Government’s “stay at home” measures. They include adapting the basis on which the AGM is being held; delaying convening the AGM, if notice has not yet been issued; postponing the AGM, if permitted under the articles of association (Articles); adjourning the AGM; or conducting a hybrid AGM, if permitted under the Articles. Shareholders should be encouraged to vote by proxy.
The ICSA has also offered advice on holding Board and committee meetings, which for all intents and purposes will have to be virtual for the foreseeable future. While this is, for the most part, self-explanatory, Buchanan would be remiss in not highlighting the fact that there have been security issues with some high-profile online meeting software. Therefore, it is important to ensure you are using a safe platform that cannot be high-jacked or infiltrated. The full guidance note from ICSA can be downloaded from its website.
The Department for Business, Energy & Industrial Strategy and Companies House have announced businesses will be able to apply for a three-month extension for filing their accounts so they can prioritise managing the impact of coronavirus.
It is heartening to see that our governing bodies are cognisant of the extraordinary situation the UK markets and businesses are contending with.