Articles in this Edition cover:
- COVID-19 Pandemic - Relaxation of Regulations and Guidance to assist Companies
- The Corporate Insolvency and Governance Act and AGMs
- FCA and LSE allow Companies to delay Half-Year Reports
- FCA focuses on handling Inside Information during the Crisis
- Companies House amends Strike-Off Position
- Financial Reporting Lab provides Guidance on Disclosures and Going Concern
- HMRC Guidance on Employee Share Plans
- BEIS’s Statement on Signing Off Accounts and Electronic Tagging
- CGI publishes Guidance on Terms of Reference for Risk Committees
News from across EQ:
- Equiniti becomes EQ
- Trends in Shareholder Analysis Webinar
- EQ and Deloitte explore Employee Motivation and Cash Retention with LSE
The much anticipated Corporate Insolvency and Governance Act (the Act) has now received Royal Assent and will provide greater flexibility for companies when planning and holding their AGMs. The key provisions of the Act include:
- Companies who are legally obliged to hold an AGM between 26 March and 30 September 2020 may postpone the meeting up to 30 September 2020. In addition they may hold the meeting by means other than in person, such as electronically, even if their Articles would not normally allow it.
- The meeting need not be held at any particular place and therefore a location does not need to be stated in the Notice of Meeting.
- The meeting may be held without any number of those participating in the meeting being together at the same place.
- A shareholder will not have the right to attend the meeting in person, to participate in the meeting other than by voting or to vote by any particular means.
- The measures apply retrospectively from 26 March so that a company that has had to hold an AGM in accordance with social distancing measures, but did not meet the obligations under their Articles, will have done so legally.
The Act also allows companies to apply for a moratorium to give companies a breathing space from creditors while they seek a rescue solution, temporarily removes the threat of personal liability for directors for wrongful trading if they are keeping their company afloat during the coronavirus emergency and gives the Secretary of State powers to extend filing deadlines for accounts, confirmation statements and other events.
A copy of the Act is available from: www.legislation.gov.uk
As a result of the proposed changes in the Act, the Financial Reporting Council (FRC) has updated its Q&As on best practice measures for holding AGMs during the COVID-19 pandemic which are included in Annex A to the Q&As. These include recommendations such as for companies to consider holding a physical meeting with a representative cross-section of shareholders where a company decides it cannot hold a full ‘business as usual’ AGM. Also, companies should ensure that, where a physical meeting is not possible, shareholders have every opportunity to participate in the meeting by virtual means such as live streaming and ensuring there is a platform for asking questions. The importance of good communication with shareholders is highlighted to ensure investors are informed about proxy voting, how the meeting will be held and how they can participate.
The Financial Conduct Authority (FCA) has published Primary Market Bulletin No. 28, which focuses on COVID-19 reliefs and other impacts on companies. Key items are:
- Listed companies will have an additional month in which to complete their half-yearly financial reports meaning that they will need to publish their reports no later than four months after the half year-end date. A set of Q&As in relation to the delay of annual and half-year reports is available.
- Going Concern assessments
The delay to the publication of annual and half-year reports will give companies more time to make going concern assessments. It is likely that auditors may need to make remarks in their opinion on going concern and the FCA recognise the concern of companies that these will be viewed unduly negatively by investors. However, the FCA state that companies and auditors must continue to be clear and transparent about the impact of COVID-19 on their financial position. The FCA also urges market participants not to draw unduly adverse inferences from these disclosures or the fact that companies may delay publishing their financial reports.
- Conflicts of interest and shareholder engagement
The FCA urge companies to continue to engage with investors through formal disclosures but also to consider if there are other ways to engage with shareholders, particularly when it is not possible to hold a physical AGM. The FCA continues to support companies who use virtual meetings at this time.
The London Stock Exchange (LSE) has issued ‘Inside AIM’ which sets out temporary relief provisions for publishing half-year reports during the COVID-19 pandemic for AIM companies. From 9 June 2020, AIM companies will have an additional month in which to report their half-year results meaning that they will have four months from the half-year end in which to publish. AIM companies that wish to take advantage of the time extension must notify the market via an RIS prior to the deadline and, in addition, the nominated adviser must separately notify AIM Regulation. The LSE will keep these measures under review.
The Financial Conduct Authority (FCA) has issued Market Watch No. 63 for May 2020. This edition focuses on market conduct during the COVID-19 crisis. Key messages for companies include:
- Companies should continue to comply with all relevant regulation, including under the Market Abuse Regulation (MAR).
- Inside information should be appropriately identified and handled, and consideration given to how working from home may affect information security.
- Inside information should continue to be disclosed by companies as soon as possible.
- Companies need to judge what information a reasonable investor would now be likely to use as part of the investment decisions in the context of COVID-19.
- Due to the risks that arise from working from home, companies may want to re-affirm that persons on insider lists continue to be aware of their legal and regulatory duties in relation to inside information.
- Any decision to delay the release of inside information should only be made if all the conditions under MAR are met.
The FCA state that they will continue to use their range of powers of monitor, investigate and if necessary, take enforcement action to protect the integrity and functioning of the market.
Companies House has made an amendment to its suspension of strike-off activity which was announced in April to assist struggling companies during the pandemic. Where it is clear after investigation that the company put forward for strike-off is no longer in operation, the registrar will continue with the strike-off action.
The Financial Reporting Lab (Lab) has issued two reports to provide practical guidance on areas of concern that investors have raised during the COVID-19 pandemic. These are the need for transparent, timely communication and going concern disclosures.
The first report follows on from the Lab’s infographic on cash resources and company actions published in March. It provides examples of disclosures made by companies on cash resources, the impact on dividends, supply chains, cost reduction and information provided on returning to more normal operations.
The second report considers the areas of going concern, risk reporting and the viability statement. The report gives best practice examples on going concern reporting, including the factors taken into account, how COVID-19 has fed into calculations and mitigating actions. Information on risk focuses on the need to separate short and longer-term risks not just associated with COVID-19 but also Brexit. In terms of the viability statement, investors welcome company-specific detail on prospects, viability, actions taken and realistic scenarios that have been considered with disclosure of the key assumptions used.
HMRC published their latest ERS Bulletin on 8 June 2020, providing information on issues raised concerning COVID-19.
Amongst other things, they have confirmed that payments of the COVID-19 Job Retention Scheme to employees furloughed during the pandemic can constitute a salary, allowing SAYE and SIP contributions to continue to be deducted from these payments.
Other updates include:
- Deadline of registrations for new schemes and filing of ERS annual tax returns
- SAYE – Savings Prospectus change impacting payment holiday terms
- SAYE – Payments by other methods
- Company Share Options Plans and furloughed employees and full-time directors
- EMI valuations
The Department for Business, Enterprise and Industrial Strategy (BEIS) has issued a position statement on the effect of the European Single Electronic Format Regulation (the ESEF Regulation) on the directors’ sign off of annual accounts.
The ESEF Regulation applies only to consolidated annual accounts prepared in accordance with International Financial Reporting Standards by companies with securities admitted to trading on a regulated market. These accounts must be prepared in electronic format (XHTML format with iXBRL tagging) and applies to financial years beginning on or after 1 January 2020. The ESEF Regulation was introduced to enable sections of the annual accounts to be machine-readable, which is achieved by ‘tagging’ certain disclosures in the accounts.
The position statement clarifies that when the directors approve the annual accounts as having been prepared in accordance with the Companies Act, there is no requirement for them to consider the tagging of the accounts or whether this is part of the ‘true and fair’ assessment. The tagging can be applied to the accounts at a later stage.
The Corporate Governance Institute (CGI) has published new guidance on the terms of reference for risk committees. The CGI stress that this is a guide that companies should use to adapt to their particular circumstances.
News from across EQ
Last month, Equiniti rebranded to EQ, which will align our Group brand more closely with our core business divisions. Our legal name won’t change, but what will is our intent to become a more purposeful organisation.
Our aim is to make our services accessible for everyone, delivered sustainably with less of an impact on the environment. Initiatives already underway include the launch of a far-reaching vulnerable customer programme and a supplier code of conduct to drive sustainability through our supply chain.
Understanding your investors has become increasingly complex over recent years. What or who appears on your share register may not be the real owner of your company's shares. Hedge funds and activists may hide behind several different shareholding structures, and even traditional investors may not necessarily hold all their positions in long equity.
To help companies navigate their share register in order to advise their boards on who is buying and selling their shares, we recently held briefing sessions with Richard Davies and his expert team, covering these topics:
- Current Challenges
- Analysis Trends
- Nominee Structures
- Detecting Early Warning Signs
- Stocklending and Shorting
- Using s793 Proactively
If you missed one of these, you can catch up by listening to our On-Demand Webinar
In last month’s bulletin, we published our article on how companies can strike the right balance between employee motivation and cash retention.
Following on from this, the London Stock Exchange recently hosted an interview with EQ’s Ian Cox, Managing Director, Head of Share Plan Services, and Liz Pierson, Partner at Deloitte, where they explored this in more detail, sharing their thoughts and experiences of what they are seeing.
During this session, Ian and Liz looked at:
- how share plans fit into current employee reward strategies;
- what the impact is on pay and bonuses, where many companies are looking to retain cash; and
- are there new ways you could use share plans to help with engaging and motivating employees, and as a cost-saving measure?
Watch the full interview