Companies struggling to cope with the impact of Covid-19 can expect some welcome breathing space thanks to new legislation which has received Royal Assent after being fast-tracked through Parliament.
The Corporate Governance and Insolvency Act will protect responsible businesses from being caught out by the insolvency system – thanks to the easing of red tape around governance and regulation, some of it temporary and some more permanent.
It provides much-needed respite and flexibility for company directors who are desperate to sustain their businesses and protect their workforce at this exceptionally tricky time.
Here’s a summary of the Act’s key features:
These measures are designed to ensure that directors of a company impacted by the Covid-19 pandemic are free to make decisions about the company’s future without the threat of personal liability if the company later enters administration or liquidation.
The Act will temporarily suspend directors’ liability under the wrongful trading provisions in the Insolvency Act 1986 for the period 1 March 2020 and 30 June 2020 – or one month after the provision comes into force, whichever is later (the Relevant Period).
The Act provides that in determining for the purposes of insolvency legislation, the contribution (if any) to a company’s assets that it is proper for a person to make, the court is to assume that the person is not responsible for any worsening of the financial position of the company or its creditors occurring during the Relevant Period.
It is very important to note however that the temporary suspension only applies to the wrongful trading offence and directors still owe various statutory duties to the company which must be complied with. However, Directors shouldn’t see it as an excuse to become relaxed about such duties.
These provisions do not apply to all companies and some companies (including certain financial companies) are excluded from relying on the suspension.
Statutory demands and winding-up petitions
The threat of statutory demands and winding-up proceedings where unpaid debt is due to Covid-19 is removed under the Act. Statutory demands issued during the Relevant Period will be void. Winding-up petitions presented during the Relevant Period which claim that a company is unable to pay its debts will be reviewed by the court and, if this is due to Covid-19, no winding-up order will be made.
Companies House filings
Missing a Companies House filing deadline can result in penalties. These temporary extensions are very welcome and will reduce pressure on companies allowing them to focus attention and resources on keeping their businesses going whilst ensuring data is still filed within a reasonable timescale.
The Act temporarily extends deadlines for filing public company accounts. It also introduces temporary extensions to the filing of private company accounts, confirmation statements, registering charges and certain event-driven filings such as updating a company’s Persons with Significant Control register. Where the existing filing period is 21 days or fewer, the extended period for filing must not exceed 42 days. Where the existing filing period is between three and nine months, the extended filing period must not exceed 12 months.
Holding of AGMs
The Act temporarily allows companies to hold a meeting on a “closed basis” to prevent the spread of Covid-19. Such meetings, and voting, can be done virtually and without participants being together at the same place.
Members will not have the right to attend the meeting in person, participate other than by voting or to vote by a particular means. These flexibilities apply irrespective of provisions to the contrary contained within a company’s constitution.
These measures are intended to be retrospective and would be applicable from 26 March to cover any company meetings which have taken place by electronic or other means since this date in compliance with social distancing measures. The measures are to remain in place until 30 September 2020 (although the period may be shortened or extended by regulations). The Act also permits companies (or other qualifying bodies) to extend the period within which they must hold an AGM due to be held between 26 March and 30 September 2020. Companies (or other qualifying bodies) will be given until 30 September 2020 to hold such meetings.
These changes are helpful for companies due to hold their AGMs in the coming months. Companies not due to hold their AGMs within the above period may consider amending their constitutions to enable more flexibility with regard to future AGMs.
Amid concerns that alternative methods of holding AGMs may reduce investor engagement, the Government intends to publish further guidance on how to ensure investors remain engaged.