[UPDATED] How companies should address their day-to-day corporate actions in light of the current issues surrounding COVID-19

Delays in reporting

On Friday 20 March the FCA announced that it was ‘strongly requesting’ that all listed companies (LSE Main Market, not AIM) observe a moratorium on the publication of preliminary financial statements for at least two weeks.

The practice of issuing preliminary financial statements is common among UK-listed companies but is not required by either the Listing Rules or the Transparency Directive. Whilst this guidance doesn’t apply to AIM companies, AIM has written to Nomads to confirm that companies that have decided to voluntarily follow this convention should have regard to the FCA Guidance.

Issuers must make public their annual financial reports at the latest 4 months after the end of each financial year. Half-yearly financial reports are required no later than 3 months after the end of the period.

The FCA has stated that it is conscious that coronavirus may create logistical issues when producing accounts for upcoming reporting periods.

At present, the FCA expects issuers to put in place contingency plans to minimise these impacts. Such planning could consider, for example, whether there are non-essential parts of their report and their reporting cycle they can give lower priority to.

If a company does not believe it is able to meet its continuing obligations it should contact us for advice and we can approach the FCA to discuss. Companies should engage with their auditors, who should contact the Financial Reporting Council (FRC), as appropriate.

Changes to reporting

The FRC has noted that audits should continue to comply fully with required standards. In current circumstances, additional time may be required to complete audits and it is important that this is taken, even at the risk of delaying company reporting.

The FRC has also suggested that auditors will need to consider the impact of coronavirus on, amongst other things, risk assessments, assessment of going concern and the adequacy of disclosure by management. More information can be found at:

https://www.frc.org.uk/news/march-2020-(1)/guidance-on-audit-issues-arising-from-the-covid-19

The FCA has stated that it is conscious that coronavirus may create logistical issues when producing accounts for upcoming reporting periods.   The FCA has also confirmed it is in talks with the FRC and the Prudential Regulation Authority about a package of measures aimed at ensuring companies take the necessary time in these uncertain times to prepare appropriate disclosures and address current practical challenges and the three bodies intend to announce details shortly

Disclosures under MAR and the AIM Rules

The FCA and AIM have stated that companies should continue to comply with their obligations under the Market Abuse Regulation (MAR) and relevant FCA and AIM rules.

AIM announced on Friday that where a company requires more time to make a fully compliant notification, than would be the case in ordinary circumstances, their Nomad should approach AIM Regulation to discuss whether a temporary suspension is required. Given the importance of disclosure, such a request will need to fully explain why the suspension is appropriate in the circumstances and any decision to suspend is at the discretion of AIM Regulation. If granted, such a temporary suspension will be for a limited period to enable the AIM company to make a fully compliant notification.

Companies should be aware that their own operational response to coronavirus may itself meet the requirements for disclosure under MAR.

Whilst the FCA is conscious that coronavirus may create challenges in the convening and operation of disclosure committees, it continues to expect listed companies to make every effort to meet their disclosure obligations in a timely fashion. For example there is no reason why committees cannot meet by teleconference.

At present the FCA has not provided commentary on other announcements or market disclosures (i.e. profit warnings).

The FCA expects persons discharging managerial responsibilities (PDMR), and ‘persons (who are) closely associated’, to continue to meet their notification requirements under MAR within the prescribed time frame.  Notifications should be submitted through the electronic submission portal and dedicated mailboxes PMU@fca.org.uk.

Shareholder Meetings

The requirement to have an Annual General Meeting, or General Meeting, where required, and procedures for these when held, are determined by the Companies Act 2006, companies’ own articles of association, and/or relevant home state legislation.

Given the current and (likely ongoing) difficulties in holding meetings, boards should give real consideration as to whether shareholders are able to properly express their view.  If meetings are to be held consideration should be given to longer notice periods and a greater emphasis on the use of proxies.

We have been asked by a number of companies how to handle shareholder meetings, for which notice has been given, and which may now no longer be possible. The below applies to companies governed by the Companies Act.

Is it possible to postpone or adjourn a shareholder meeting?

A company meeting cannot be postponed once notice of the meeting has been given – unless the company’s articles of association contain specific provision permitting this course of action.

If the directors are of the opinion that the general meeting should not be held as planned and the company’s articles do not contain appropriate provision, the meeting will need either to:

1. go ahead at the scheduled time and place specified and consent will need to be sought from those present to adjourn the meeting to an alternative date; or
2. if it is not possible to hold the meeting, it will not be quorate, and if there is no quorum, the individual company’s articles will generally provide for an adjournment in any event.

We recommend that prior announcement is made (where possible) to let shareholders know the proposed course of action.

A company’s articles do not generally impose any express limits on the power to seek an adjournment, but may require that the chairman obtains the consent of the meeting before doing so. Any adjournment must be a proper exercise of the chairman’s powers and they will need to be able to explain why an adjournment is being made or requested.

It should be noted that if the meeting is adjourned, it will be deemed to be a continuation of the originally scheduled meeting, which may be of benefit to those companies who are contemplating holding the AGM during the current period and have limited time to re-schedule.

Is it possible to hold the meeting with one person or even no-one physically in attendance?

This is slightly uncharted territory and reflects the unique circumstances of the current situation. In each case the articles of the company should be considered.

The FCA has stated that it supports the effective exercise of the rights of shareholders, while recognising that as a result of coronavirus this may need to involve the use of virtual methods. This is particularly relevant in the premium listing category, where various FCA rules require issuers to engage with shareholders on certain matters.

It is often the case that the quorum requirements permit a meeting to be held if two shareholders are present ‘in person or by proxy’. Again much will depend on individual articles, but assuming there is no specific requirement for a person to be there physically, and assuming sufficient proxies have been received, meetings can often take place regardless of the people that physically attend.

For meetings that are being held in locations that are accessible to the board, it should be possible to hold a quorate meeting that can either be conducted as usual or adjourned. Proxies can still be submitted electronically or as normal.

When the location is physically inaccessible a slightly different question is posed. Whilst the meeting may technically be quorate on the attendance by proxy, practically in order for a resolution to pass, it must be on a show a hands in the first instance, with proxies only counting if a poll is demanded.  As voting by a show of hands would not be possible with no one physically attending the meeting, practically the meeting must be adjourned.

Is it possible to hold the meeting electronically?

There is no provision under the Companies Act and this option will depend on individual company’s articles.