The government and the Financial Reporting Council, the body responsible for the oversight of financial reporting in the UK, have issued a Q&A document giving more details on proposed changes to UK company law to ease problems experienced by companies in convening general meetings during the coronavirus outbreak, which we discuss here. Whilst a number of legally effective workarounds have been developed over the past few weeks, the government has signalled its intention to “alleviate stress and undue burden on management” for companies seeking to operate within existing constraints.
The Q&A also addresses other administrative problems facing companies during the current lockdown.
The timeline for implementation of the legal changes outlined in the Q&A is not yet clear – the stated purpose of the release is to “provide companies with additional information upon which to plan activities over the coming months”. For many companies with December year ends, we expect the changes will likely come too late to be of any benefit, and so existing workarounds will have a continued role to play.
Statutory override to restrictions on remote meetings
The Q&A envisages a statutory override to existing provisions in company articles which may restrict the ability of companies to hold meetings without specifying a physical location. The new provisions will enable a small number of people participating remotely to validly hold a company meeting. As most company articles only require between two and five members to be present for a meeting to be quorate, the government (rightly) believes that holding a quorate meeting in this way should not be problematic in practice. The Q&A refers to these meetings as “closed” meetings.
The guidance emphasises that shareholders are still able to have their voice heard through lodging proxy votes in advance of any closed meeting, but also sets an expectation that companies will use other means of engagement with stakeholders outside the AGM forum, including:
- creating channels for shareholders to ask questions prior to, during and after meetings
- holding “shareholder days” later in the year when restrictions are eased to give shareholders access to the board
- keeping shareholders informed on “issues currently facing the company as they would normally do” – for listed companies this may include relevant trading updates.
Restrictions on right to request hard copies
Shareholders have the right to request hard copies of company reports and notices. This has created a number of logistical challenges in preparing hard copy reports and accounts, which we have seen first-hand in practice. The government therefore intends temporarily to give companies the flexibility to restrict the communication of notices and other meeting documentation to emails, websites and other electronic media.
Extending accounting reference dates
The guidance discusses the possibility of extending accounting reference dates to push out reporting and meeting periods – there are no plans to generally extend the current 6-month post-year end limit on public companies holding their AGM. Whilst changing year ends may fix the problem for some companies, we expect many listed companies will be reticent to extend existing financial years given the challenges this will pose in terms of internal and external audit and review.
Further relaxations on company filings under review
The government is currently monitoring compliance with other filing deadlines at Companies House and confirms it is willing to give companies additional “breathing space” if necessary through further timing relaxations.