New Act updates Corporate Governance in Great Britain and Northern Ireland

Jul 03, 2020

The Corporate Insolvency and Governance Act 2020 (the ‘Act’) received Royal Assent on 25 June 2020. It makes some significant changes to UK insolvency legislation and provides for new measures for companies in financial difficulty due to the economic impact of COVID-19. The Act also makes temporary changes to law relating to the governance and regulation of companies and other entities. This article highlights some of the key changes affecting corporate governance of an entity.  A summary of the key corporate governance aspects of the Act is also available here.

The measures introduced in the Act were welcomed by Chartered Accountants Ireland who believe they will provide some confidence to struggling, but viable, businesses as they cope with the array of challenges presented by the Covid-19 pandemic crisis. Speed and impact were of the essence and the UK House of Commons, Department for Business, Energy and Industrial Strategy (BEIS) and the Insolvency Service must be commended on giving this emergency legislation priority.

Some of the key changes affecting corporate governance are highlighted as follows:

1. Filing deadlines
  1. Missing a deadline for filing prescribed documents with Companies House automatically results in financial penalties and, in some cases, can result in criminal sanctions for the directors or the company being struck off the register of companies. However, the Act officially legislates for temporary extensions of these deadlines and enables the Secretary of State to make further extensions if necessary.
  2. The extended period for filing prescribed documents, including updates to the People with Significant Control (PSC) register in relation to beneficial ownership, must not exceed:
    1. 42* days, in a case where the existing period is 21 days or fewer, and
    2. 12* months, in a case where the existing period is 3, 6 or 9 months.
  3. Companies House website states that eligible companies do not need to apply for an extension and that they will update their filing deadline automatically.

2. Annual General Meetings (AGMs):
  1. Where companies are required to hold general meetings between 26 March 2020 and 30 September 2020*, they will have greater flexibility in how they hold such meetings, irrespective of the provisions of their company’s constitution and the Companies Act 2006.
  2. Companies that were due to hold their AGM within this period can delay it until 30 September 2020, without being in breach of Companies Act 2006 or the company’s constitution.
  3. To afford companies greater flexibility in how they hold their AGMs, while also conscious of the varying information and communication technology (ICT) capabilities, the Act includes temporary measures that:
    1. Removes obligation for meeting to be held at any particular place.
    2. Removes obligation for a quorum of those participating in the meeting to be together at the same place.
    3. Removes the right of a member/shareholder to attend in person, participate other than by voting, or to vote by particular means.
    4. Enables the meeting to be held, and any votes to be cast, by electronic means or any other means.

3. Wrongful trading:
  1. The Act temporarily suspend parts of insolvency law to support directors to continue trading through to 30 September 2020* without the threat of personal liability for wrongful trading and to protect companies from creditor action. It requires the High Court to assume that a director, in making any contribution that it is proper for a person to make, is not responsible for any worsening of the financial position of the company, or its creditors, that occurs during the period from 1 March 2020 to 30 September 2020*.
  2. It should be noted that this measure does not in any way excuse a Director from the offence of fraudulent trading (S993, Companies Act 2006) nor any other wrongdoing.
  3. Directors, whether organisation is in distress or not, are expected to exercise appropriate risk management and required to make decisions that promote the success of the company. In doing so, S172, Companies Act 2006 requires Directors to have regard to a wide range of factors including:
    1. the long-term consequence of decisions as well as the interests of the employees;
    2. the relationships with suppliers and customers;
    3. the impact of the decision on community and environment; the desirability of maintaining a reputation for high standards of business conduct;
    4. the need to act fairly as between members of the company, as well as introducing wider corporate social responsibility into a director’s decision-making process.

Chartered Accountants Ireland jointly hosted a webinar on 30 June 2020 where we heard from key speakers Nick Bates (Head of corporate transparency, BEIS), Peter Swabey (Policy and Research Director, Chartered Governance Institute) and Mike Metcalf (Chair of ICAEW Company Law Panel and Partner, KPMG). The event can be viewed here.

Níall Fitzgerald FCA

Head of Ethics and Governance, Chartered Accountants Ireland

* The Corporate Insolvency and Governance Act 2020 enables further changes to duration of certain temporary provisions to be made either by regulation or the Secretary of State.