Essential Corporate News: Week ending April 24, 2020

Companies House: Approach to striking off process and late filing penalties

On April 16, 2020, Companies House announced changes to help companies avoid being struck off the Companies House register as they deal with the impact of the coronavirus outbreak. It also announced that companies issued with a late filing penalty in relation to their annual accounts due to the coronavirus will have appeals treated sympathetically.

Companies House can strike a company off where accounts and a confirmation statement are not filed. However, for a temporary period, Companies House will:

• Ease strike off activity
• Treat late filing penalty appeals sympathetically – if the late delivery of accounts was caused by the coronavirus outbreak
• Provide a break for companies to pay late filing penalties
• Provide additional support with payment plans for late filing penalties

In addition, for companies who make an application for voluntary dissolution, the DS01 (striking off application by a company) will be registered at Companies House and a notice published in the Gazette. However, after this point, any further action to strike off the company will be suspended so as to protect creditors and other interested parties who may wish to object to the company being struck off. Any person with an interest in a business which is nearing strike off should register an objection to dissolution at Companies House. This also applies to those who may have already registered an objection, but where the time period for that objection is due to expire. These changes do not apply to businesses which are being dissolved as the result of an insolvency procedure such as administration or liquidation. Businesses in this position will continue to be dissolved by operation of the Insolvency Act.

Companies House has updated its guidance for customers, employees and suppliers accordingly, but highlights that these policy changes are temporary, and will be kept under review and amended as necessary in light of the COVID-19 outbreak.

(Companies House, Companies House support for businesses hit by COVID-19, 16.04.2020)

ESMA: Q&A – ESMA Guidelines on Alternative Performance Measures updated

On April 17, 2020, the European Securities and Markets Authority (ESMA) updated its Questions and Answers on the ESMA Guidelines on Alternative Performance Measures (APMs) to include a new Q&A on the application of the Guidelines in the context of COVID-19.

ESMA recommends that issuers use caution when making adjustments to APMs used and/or when including new APMs aimed solely at depicting the impact of COVID-19 on performance and cash flows. Issuers should assess whether the intended adjustments or new APMs would provide useful and transparent information to the market, improve comparability, reliability and/or comprehensibility of APMs and of the financial information disclosed to the market. ESMA is concerned that when the impacts of COVID-19 have a pervasive effect on the overall financial performance, position and/or cash flows of an issuer, new or adjusted APMs may not provide reliable and more useful information and may mislead users’ understanding of the true and fair view of the issuer’s assets, liabilities, financial position and profit or loss.

Rather than adjusting existing APMs or including new APMs, ESMA urges issuers to improve their disclosures and include narrative information in order to explain how COVID-19 is impacted and/or is expected to impact their operations and performance, the level of uncertainty and the measures adopted or expected to be adopted to address the COVID-19 outbreak.

(ESMA: Q&A – ESMA Guidelines on Alternative Performance Measures, 17.04.2020)

FRC: Modifications of independent auditor’s opinions and reports

On April 21, 2020, the Financial Reporting Council (FRC) published further guidance on modified auditors’ opinions and reports during the COVID-19 crisis. This follows guidance published on March 16, 2020 which deals with practical difficulties facing companies and auditors in preparing financial statements and carrying out audits.

The new guidance looks at when a modified opinion may be needed (possibly because certain audit procedures cannot be performed or because management’s key judgements in certain areas may be difficult to support or not agreed by the auditor) and it considers the ways audit opinions may be modified, namely through qualified opinions, adverse opinions and disclaimers of opinions.

Where the use of the going concern basis is not appropriate, the auditor gives an adverse opinion. Where there is insufficient disclosure about a material uncertainty, the auditor gives either a qualified or adverse opinion and where there is insufficient evidence to support management’s determination that the financial statements should be prepared on a going concern basis, the auditor disclaims their opinion. In this case, the auditor’s conclusions are set out in a separate dedicated part of their report.

(FRC, Modifications of independent auditor’s opinions and reports, 21.04.2020)

ShareAction: Letter to Chairs of FTSE 100 companies

On April 20, 2020, ShareAction published a letter dated April 17, 2020. that it had sent to the Chairs of FTSE 100 companies asking them to take steps to protect shareholder engagement during the 2020 AGM season. The letter notes that despite the constraints imposed as a result of COVID-19, there are still steps companies can take to preserve shareholder engagement and it is concerned about the holding of “closed door” AGMs which limit shareholder engagement.

The letter calls on companies to:

• Hold a virtual AGM in 2020
• Allow for real-time questioning, followed by voting, at the virtual AGM
• Continue to ensure all shareholders, including those holding shares through a nominee account, can access the meeting

The letter asks companies to return to physical meetings when they are safe and strongly encourages companies to move to hybrid AGMs in the long-term. Where companies cannot hold a virtual meeting in 2020, the letter urges them to hold an online event immediately prior to the AGM so that shareholders can engage with the board by, for example, hosting a real time question and answer session with the board.

(ShareAction, Letter to FTSE 100 Chairs, 17.04.2020)

ICGN: Governance priorities during the COVID-19 pandemic

On April 23, 2020, the International Corporate Governance Network (ICGN) published an open letter to companies, regulators and stakeholders setting out governance priorities during the COVID-19 pandemic and beyond. ICGN is seeking to advance an international dialogue among investors and companies around effective responses to the pandemic while looking to restore and rebuild a more sustainable global economy.

The letter sets out governance priorities for executive management, board directors and investors alike to safeguard company sustainability during the COVID-19 pandemic and clarifies the need to:

• Prioritize employee safety and welfare while meeting short-term liquidity requirements to preserve financial health and solvency.
• Pursue a long-term view on social responsibility, fairness and sustainable value creation and publicly define a social purpose as we all adjust to a new reality.
• Take a holistic and equitable approach to capital allocation decisions, considering the workforce, stakeholders and providers of capital.
• Communicate comprehensively with all stakeholders to instil confidence and trust in a company’s approach to build resilience into strategy and operations.

(ICGN, Governance priorities during the COVID-19 pandemic, 23.04.2020)