As companies grapple with the challenges of maintaining day to day operations under the coronavirus restrictions, their directors continue to be subject to extensive legal requirements and reporting obligations. In response, UK regulators have introduced a series of new measures and advisory bodies have issued additional guidance to help directors navigate their way through the pandemic.
Audited financial statements
The FCA has confirmed that the current requirement for listed companies to publish their audited financial statements within four months of year end will be extended by an additional two months.
Ordinarily, where a company fails to meet the four month deadline it is expected to request a suspension of its shares or else may have those shares suspended by the FCA. However, the FCA has confirmed that provided a company meets the new six month deadline, it will not be expected to request such a suspension and will not face any enforcement action by the FCA.
The FCA notes that for many companies making use of this extra time will be a sensible decision in unprecedented times. It urges market participants not to draw any undue adverse inferences where a company takes advantage of this temporary relief.
However, the FCA has confirmed that these temporary measures do not currently extend to half-yearly financial reports which must still be published within three months of the half year end.
For companies on AIM, the requirement to publish annual accounts within six months of year end has been extended by an additional three months. An Inside AIM confirmed that companies with financial year ends between 30 September 2019 and 30 June 2020 will be able to apply for a three month extension to their accounts filing deadline. The application must be made to AIM Regulation by the company's nominated adviser and must be made before the expiry of the company's current reporting deadline.
Companies House has also confirmed that all companies (not just those that are listed or admitted to trading on AIM) will be able to apply for a three month extension for filing their accounts. The application, citing issues around Covid-19, can be made through a fast-tracked system and should only take 15 minutes to complete.
Managing the AGM
The accounts of a public company must be laid before the members at an annual general meeting but actually holding that AGM under social distancing restrictions will be challenging. We consider the practical hurdles, and the options for companies, here.
Guidance on corporate governance and reporting
The FRC has issued guidance to company boards highlighting key areas for them to focus on in circumstances where their usual management and governance processes may be challenged and disrupted.
In particular, the guidance recommends that boards should:
- develop and implement mitigating actions and processes to ensure they continue to operate an effective control environment, addressing key reporting and other controls on which they have placed reliance historically but which may not prove effective in the current circumstances;
- consider how they will secure reliable and relevant information, on a continuing basis, in order to manage the future operations, including the flow of financial information from significant subsidiary, joint venture and associate entities; and
- pay attention to capital maintenance, ensuring that sufficient reserves are available when the dividend is paid, not just proposed; and sufficient resources remain to continue to meet the company’s needs. Where the company is no longer able to pay a dividend, that dividend should be halted and this should be communicated to the market.
The FRC recognises that, in the current circumstances, many boards will be concerned about the viability statement required under the UK Corporate Governance Code – namely, that the board has a reasonable expectation that the company will be able to continue in operation and meet its liabilities as they fall due over a period of assessment. However, the FRC notes that boards are only required to have a "reasonable expectation" of the company's viability and, in the current circumstances, any reasonable level of expectation would naturally carry a much lower level of confidence.
Best practice for virtual board meetings
Finally, with many directors working remotely, an increasing number of board meetings are likely to take place virtually. The Chartered Governance Institute has issued guidance on best practice when conducting virtual board meetings to ensure that those meetings continue to be effective.
The guidance offers the following advice:
- pick the right communication channel – if the technology does not work well the meeting will be less effective;
- ensure that virtual meetings are well structured and avoid unnecessary complexity;
- preparation is key;
- the Chair will need additional techniques to run an orderly meeting;
- ground rules for participants should be circulated to all those joining the meeting;
- clear instructions on accessing the meeting system or app are essential; and
- good boardroom practices are even more necessary than for face-to-face meetings.