CATALYST // GOVERNANCE:
Assuring and Sustaining
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Boards and directors currently face a number of governance challenges, not least how to adapt and respond to the unprecedented measures introduced by governments in connection with the Covid-19 pandemic and what their business model, strategy and industry may look like going forward. Ensuring a robust governance framework is in place within the organisation, engaging with investors and other stakeholders, and ensuring that responsible business practices are embedded throughout the organisation are all key issues for directors seeking to meet this governance challenge.
Business as usual decision making, disclosures and corporate reporting have all been disrupted in recent months, and are likely to continue to be an area of focus for boards, investors and stakeholders and directors going forward. Companies will need to ensure that robust and effective decision-making processes are in place to ensure that they are able to adapt to changing circumstances in the jurisdictions in which they operate as well as fulfilling their legal and regulatory obligations. Each of the issues outlined below can be explored in greater detail in these pages. In each area we suggest practical steps that companies should consider to ensure a robust governance response in the months ahead. The particular issues and challenges faced by companies will vary depending on their circumstances, including whether they have securities listed on a stock exchange or whether they are privately-held, and their board and management structures. In each case, directors must take particular care to discharge their legal duties to the company and its broader stakeholders.
Summary
We explore each of these means of managing liquidity in greater detail and suggest steps that companies should consider in the short term and in the months ahead. We would expect various combinations of these options to be adopted by companies facing a cash crunch. In every instance, directors must take particular care to discharge their legal duties to the company and its shareholders and creditors. Click a above box to read more.
POLLING DATA AREA
Board and governance response
Market disclosures
Corporate reporting
Dividends and distributions
Shareholder meetings and engagement
Directors face a number of challenges in responding to the Covid-19 pandemic - first and foremost a board must decide what is important now. Effective and timely communication from management to the board, and between board members, is crucial to allow them to respond effectively and ensure that critical decisions are made in a timely manner.
Listed companies will need to continually monitor their legal and regulatory obligations to update the stock market on the impact of Covid-19 on their business and their response. In many jurisdictions, there have been a large number of unscheduled stock market announcements in recent weeks in relation to Covid-19 issues and in particular its impact on financial performance. Companies are facing difficulties in providing investors with guidance on future performance and anticipated future impacts.
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Companies will need to consider the impact of Covid-19 whatever stage in the reporting cycle they are at. Companies yet to publish their annual reports will want to review their existing year-end reporting timetable and consider, in conjunction with their auditors, whether it is necessary or desirable to adapt them in light of the current circumstances. Disclosures in corporate reports, including impact and response, principal risks and uncertainties, forward looking statements and going concern statements, will require particularly careful consideration. In addition, climate change. workforce and other ESG related issues and disclosures remain key areas of focus for institutional investors and other stakeholders.
All companies should consider whether it is appropriate to proceed with any proposed dividend payment, even if they have sufficient cash flows to support it, and can comply with the applicable legal framework for making payments to shareholders. Financial services companies which are regulated should also be mindful of any applicable regulatory guidance or expectations regarding payment of dividends in the current environment. Where a dividend has already been announced or proposed, it may be possible to withdraw it.
In light of the restrictions on travel, movement and gatherings introduced in many countries, listed companies are having to consider the contingencies that need to be put in place in order to meet the challenges of calling and holding shareholder meetings. Privately-held companies will, in many cases, be able to take shareholder decisions in writing. Engagement with shareholders remains a key issue, with institutional investors and stakeholders focussed on issues including executive remuneration, climate-change, workforce and other ESG issues.
Executive remuneration and share plans
Many executive directors have already announced that they are voluntarily giving up a portion (or all) of their remuneration and more will likely follow suit. Companies are focussing on levels and components of executive pay and are also considering liquidity issues as well as spreading or deferring the cost of any executive and other bonuses and share awards.
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April 2020
Directors’ duties – Directors will need to be mindful of their duties to the company, to shareholders, to wider stakeholders and, where relevant, to creditors. Several jurisdictions have announced relaxations to the duties owed to creditors in the current disrupted climate. It is essential that the whole board is involved in discussions of matters concerning, or which could affect, the company’s future solvency. Executing documents – Where documentation has to be signed, there may be logistical issues, for example in getting a document witnessed or, in some jurisdictions, executing certain types of documents electronically. Access to notaries may also be restricted. Early planning will be key. Price sensitive information and market disclosure – Companies with publicly traded securities will be under obligations to disclose price-sensitive information. Whilst delaying disclosure may be permissible in certain situations, a company cannot delay disclosure of financial difficulties, even if it is in negotiations which may help remedy its position. Ongoing obligations – Companies should not forget their “business as usual” obligations, for example around notifying directors’ dealings, updating the company’s or its officers’ details with the appropriate regulators or registries, filing accounts and corporate reports and returns by the requisite deadline (or applying for an extension if necessary) and renewing insurance policies. Insolvency law – Companies and their directors must ensure that they do not fall foul of applicable insolvency laws, in particular when considering new or restructured arrangements which may put assets beyond the reach of creditors should the company become insolvent. State Aid - Companies operating in the EU must comply with EU rules on State aid when taking advantage of available government support (which still apply in the UK during the transitional period following the UK's exit from the EU). Whilst the European Commission has approved multiple support schemes submitted by Member States in light of the current situation, companies should be aware that they may be forced to pay back non-compliant State aid, with interest. For more information on the EU Commission’s Temporary State Aid Framework, click here and here.
Other issues to consider
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Executive remuneration & share plans
Second wave response planning
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Shareholder meetings and engagements
All companies should take stock of lessons learned to date and plan ahead for any potential second wave of COVID-19 cases. Much has been made of the possibility of a further spike of COVID-19 cases, with the potential for further lockdown restrictions being imposed. Although it is difficult predict the form such restrictions may take a second time around, with reports of restrictions being re-imposed in some areas of the world, companies should take the opportunity now to reflect on their response to the initial outbreak and take active steps to ensure measures are in place should a second wave materialise.
Directors face a number of challenges in responding to the Covid-19 pandemic - first and foremost a board must decide what is important now.
Immediate Steps
Looking further ahead
Review internal processes and procedures Review information flows – optimise reporting Identify authorised signatories and appoint additional representatives, proxies or alternates
Increased monitoring and analysis Reinforce resilience of decision making
First and foremost a board must decide what is important now. In most, if not all cases, this will be support for management and its workforce, together with liquidity, solvency and balance sheet considerations. Effective and timely communication from management to the board, and between board members, is crucial to allow them to respond effectively and ensure that critical decisions are made in a timely manner. The board of course needs to be continually informed but care should be taken not to deluge them with information that would ordinarily, and rightly, be filtered and distilled by management. There is a balance to be struck between executive and management authority, and board oversight and responsibility. Directors will need to be mindful of their duties to the company and to shareholders and creditors as applicable. Several jurisdictions have announced relaxations to the duties owed to creditors in the current disrupted climate. It is essential that the whole board is involved in discussions of matters concerning, or which could affect, the company’s future solvency. Boards also need to be mindful of the impact of decisions on wider stakeholders. Many businesses made public commitments to ESG principles and human rights standards before the Covid-19 outbreak. In some jurisdictions, these standards are enshrined in law. Given the increased visibility and importance of sustainable business practices, decisions made during the Covid-19 pandemic may be judged against these commitments and standards in due course. Where documentation has to be signed, there may be logistical issues, for example in getting a document witnessed or, in some jurisdictions, executing certain types of documents electronically. Some jurisdictions may have document execution requirements that are not compatible with social distancing or isolation. For example, there may still be regulatory requirements for wet ink execution of certain documents or notarisation. Companies will need to be conscious of such requirements and seek legal advice about ‘workarounds’. Helpfully, many regulators are taking a pragmatic approach in these uncertain times. Finally, companies should not forget their “business as usual” governance obligations, for example notifying directors’ securities dealings and updating the company’s or its officers’ details with the appropriate regulators or registries.
Discretionary spending
Cutting costs
Government support packages
Debt finance
CAPITAL CALLS
Insurance
ASSET DISPOSALS
Directors face a number of challenges in responding to the Covid-19 pandemic, not least the pace and volume of change in markets, cash flows, supply chains, and legal and regulatory developments.
Click through for more country-specific information and guidance. Further regional insights will be added soon.
Regional insights
Last updated 7 May 2020
Immediate steps
LOOKING FURTHER AHEAD
UK
Germany
Spain
Belgium
Netherlands
Russia
Asia
South Africa
US
Australia
France
China
UAE
Hong Kong
Italy
Listed companies will need to continually monitor their obligations to update the stock market on the impact of Covid-19 on their business and their response.
Consider if a market announcement is required in relation to business performance or response Consider whether previous forward looking statements are no longer correct and need to be corrected.
Continuously monitor developments in light of announcement obligations and corporate reporting requirements
The key themes and issues discussed in market disclosures include how the business is affected, including in the different jurisdictions in which the group operates, how liquidity is being managed (for example through costs and capital expenditure reductions, the availability of facilities and other cash resources), the health and welfare of workforce and customers (including whether employees are being furloughed), and supply chain challenges and opportunities. Providing guidance on future performance and outlook remains particularly challenging, with a number of listed companies having said explicitly that they are suspending all guidance for the time being.
Payroll and employment support
In many jurisdictions, there have been a large number of unscheduled stock market announcements by listed companies in recent weeks in relation to Covid-19 issues and in particular its impact on a company’s financial performance. This trend is likely to continue. Companies are facing difficulties in providing investors with guidance on future performance and anticipated future impacts.
Companies will need to consider the impact of Covid-19 whatever stage in the reporting cycle are at.
Consider impact on corporate reporting timetable – adjust and plan accordingly Early engagement with auditor, in particular around process, disclosures and going concern and viability issues
Review guidance on corporate reporting and guidance for auditors from regulators Consider how to articulate Covid-19 issues in corporate reports
In particular, given the restrictions on travel and movement in place in many jurisdictions, the approach to producing corporate reports may need to be adjusted. For example, the quality and timeliness of information flows from group business units or divisions to those producing and signing off on corporate reports may mean additional time is required to produce the corporate reports, and additional time may be required to complete the audit process. Disclosures in corporate reports, including impact and response, principal risks and uncertainties, forward looking statements and going concern statements, will require particularly careful consideration. In addition, climate change, workforce and other ESG related issues and disclosures remain key areas of focus for institutional investors and other stakeholders and should not be overlooked in the current circumstances.
Existing facilities
There are a number of issues to consider for companies whatever stage in the reporting cycle they are at. Companies due to publish their annual reports and accounts, half-yearly report or other corporate reports will want to review their existing reporting timetable and consider, in conjunction with their auditors where applicable, whether it is necessary or desirable to adapt that timetable in light of the current circumstances and whether to take advantage of any regulatory relaxations introduced to ease the burden on companies at this time.
of respondents have already made, or are thinking of making, changes to their corporate reporting timetables as a result of COVID-19
35%
All companies should consider whether it is appropriate to proceed with any proposed dividend payment or other distribution to shareholders.
Review any upcoming dividend payments and consider amending or pausing the payment Consider market announcement obligations – likely to require a market announcement Seek advice on mechanics of amending or withdrawing any previously announced proposed dividend
Continue to monitor appropriateness of paying a dividend in light of financial models and information available
Even if companies have sufficient present and anticipated cash flows to support a proposed dividend and can comply with the applicable legal framework for making payments to shareholders, consideration should be given as to whether the proposed distribution remains appropriate in the circumstances.
Public companies
Financial services companies which are regulated should also be mindful of any applicable regulatory guidance or expectations regarding payment of dividends in the current environment. For example, The European Central Bank has said that banks should not pay dividends until at least 1 October 2020. The impact on the company’s other stakeholders should also be considered, as well as the interaction with other governance issues, for example executive remuneration. A number of companies have paused or cancelled their upcoming dividends, ongoing share buyback programmes and other “one off” returns of value to shareholders in light of the need to manage liquidity in the current circumstances. Where a dividend has already been announced or proposed, it may be possible to withdraw it. For example, if the dividend was to be voted on by shareholders, the company may elect not to put the resolution forward, or withdraw it. However in certain jurisdictions, there is less flexibility to amend or withdraw a proposed dividend.
Companies must consider how to conduct shareholder meetings in the current climate, as well as their engagement activities with shareholders more generally.
1. ESG – going mainstream
2. P2P – returning to the market
3. Political intervention – the rise continues
4. Deal disruption – the new normal
5. A view from Europe
6. A view from the UK
7. A view from the Middle East
8. A view from Africa
9. A view from Asia
10. A view from China
11. A view from Australia
CONTENTS
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Consider contingency plans for holding any upcoming shareholder meeting – including venue and who will form quorum Consider alternative shareholder engagement mechanisms (if any) Review company constitution to ascertain for rules governing meetings, participation and adjournments
Refer to any further government/regulatory measures and changes in law in this area Monitor market practice and developments
What adjustments to the form and conduct of the shareholder meetings are necessary or desirable in light of Covid-19 will depend on a number of factors. Those companies with a large retail shareholder base and traditionally well attended meetings will approach this issue differently to those companies with lower physical attendance. Some governments and regulators have put in place, or are intending to put in place, measures to help facilitate shareholder meetings during the pandemic. A number of governments, regulators and institutional investors have emphasised the need to continue to engage with shareholders, notwithstanding the disruption to annual general meetings as they provide an important opportunity for shareholder engagement, and especially retail shareholder engagement. Shareholder and stakeholder engagement should remain a focus for corporates, with institutional investors and stakeholders alike focussed on issues including executive remuneration, climate-change, workforce and other ESG issues. In certain jurisdictions, privately-held companies will not, in many cases, be required to hold shareholder meetings and will be able to take shareholder decisions in writing. Privately-held companies should also be mindful of any provisions in investment or related documentation in relation to information rights of shareholders.
In light of the restrictions on travel, movement and gatherings introduced in many countries, listed companies are having to consider the contingencies that need to be put in place in order to meet the challenges of calling and holding shareholder meetings.
Many company directors have already voluntarily given up a portion (or all) of their remuneration and more will likely follow suit.
Liaise closely internally on pay and share plan issues Review share plan documentation and ascertain any flexibility or issues
Keep the position under review Consider any relevant institutional investor guidance
Companies are focussing on levels and components of executive pay and are also considering liquidity issues as well as spreading or deferring the cost of bonuses and share awards.
Price discovery
Companies are focussing on levels of executive pay in light of the significant impact of Covid-19 on the company’s workforce. Many companies have already announced that their directors are voluntarily giving up a portion (or all) of their remuneration and more will likely follow suit.
United Kingdom
Shareholder meetings – The Government has indicated that it will relax requirements for companies required to hold AGMs while there are restrictions on travel and gatherings in place. It is to be hoped that this will extend to all shareholder meetings, including those to approve a transaction. Pending that legislation being passed, we have seen companies holding meetings, with the minimum quorum, but advising shareholders not to attend and to instead vote by proxy. Stock transfer forms – HMRC has published guidance on how to get stock transfer forms stamped while the COVID-19 restrictions are in place. Companies House – Same day processing is not currently available at Companies House and this may impact the speed with which a restructuring or transaction can be executed. Merger control – The CMA has said it intends to continue progressing its cases, making decisions and meeting deadlines, despite the need for remote working, and that it will continue to monitor timetables including, as permitted, extending statutory timeframes where necessary. Intervention on national security grounds – Whilst the UK has not yet implemented its proposed new foreign direct investment regime, parties should not assume that it cannot or will not intervene – it issued four intervention notices on M&A transactions last year, compared with eight in the preceding 15 years.
Further information on the scheme is available here.
Covid Corporate Financing Facility (CCFF)
Premises: In the UK, there is no program for government relief for rent at the moment but a landlord's entitlement to repossess business (and residential) property is currently suspended. Landlords may benefit indirectly from the package of support available to help businesses through the COVID-19 pandemic, including the increases and expansions to the categories of business tenants able to claim Business Rates Retail Discount (“BRRD”), which may put tenants in a better financial position than otherwise. The BRRD, which was first announced in the 2018 Autumn Budget, provided for discounts on the level of business rates payable for the years 2019/2020 and 2020/2021. In the Spring 2020 Budget, this was increased to provide a 100% discount, and expanded to include the leisure and hospitality sectors. This has now been expanded further to provide a business rates holiday for all retail, leisure and hospitality businesses based in England. There is also a business rates holiday for providers of day nurseries on the OFSTED Early Years register whose premises are wholly or mainly used for the provision of the Early Years Foundation Stage. There is no rateable value limit on the relief, which will, at present, apply until 31 March 2021.
In Australia, which already has a foreign investment screening regime, the regulator has dropped monetary screening thresholds relating to the size of the target entity to zero and lengthened examination periods (to address concerns about opportunistic investment), while also signalling that urgent treatment will be available for proposals which are important to Australian businesses and jobs (and we have experienced exceptionally fast turnaround in such cases to date).
Title of content
Meetings: The French government has introduced emergency measures to temporarily relax the rules for holding meetings of boards of directors, executive boards and supervisory boards and general meetings, outside of the physical presence of their members. These measures have a broad spectrum in that they target not only listed and unlisted companies, but also entities with and without legal personality. For further information see our briefing here.
Premises: Landlords may not terminate commercial or residential leases solely on the grounds that a tenant failed to pay rent during the period from 1 April 2020 to 30 June 2020 (and that period may be extended to 30 September 2020), where such rent arrears arise as a result of COVID-19. A landlord will not be able to terminate a lease on these grounds until 30 June 2022. The rent remains due and payable and interest will accrue on the outstanding rent payments at a prescribed rate. It is not clear whether a landlord can call on any rent security provided by the tenant. The Government is also aiming to facilitate amicable agreements between landlord and tenant, for example regarding a moratorium of the obligation of the tenant to pay rent, by limiting the risk of the landlord being subject to claw back rights (Insolvenzanfechtungsrechte) by an insolvency administrator in the event of that the tenant becomes insolvent.
For further information, see our briefing here.
Shareholder Meetings: The COVID-19 Relief Act simplifies the legal framework for the annual shareholders' meetings, mainly in order to allow virtual annual shareholders’ meetings. German Transformation Act, Extension of Filing Deadlines up to Twelve Months: In case of a merger (Verschmelzung) the deadlines relating to the reference date (Stichtag) of the final financial statements (Schlussbilanz) of the transferring entity (übertragender Rechtsträger) have been extended. The reference date for the final financial statements may now lie up to twelve months before the filing of the merger with the competent commercial register. The extension of the deadlines relating to the reference date of the final financial statements also apply for all filings of split off measures (Spaltungen) in the course of 2020. The German Federal Ministry of Justice and Consumer Protection has been empowered to extend these measures through to 2021.
Meetings of the board and general shareholders meetings: Even if a company’s articles of association do not expressly allow for this, meetings of the board and other collegiate governing bodies (e.g. commissions and committees) can be held by videoconference, provided that it is possible to identify the attendees via image and audio in real time. Resolutions can also be passed by those bodies in writing, without a physical meeting, provided that this is requested by the chairperson or at least two members. Foreign direct investment: The Spanish Government has approved a set of provisions to tackle the crisis caused by the COVID-19 outbreak. Under these provisions. foreign direct investments in Spanish companies in certain sectors (including critical infrastructure, critical technology and suppliers of energy, raw materials and food security) by investors that are not resident in the EU or the European Free Trade Association will be subject to prior authorisation. For further information see our briefing here.
REGIONAL INSIGHTS
BOARD AND GOVERANCE RESPONSE: UK
At all times directors must discharge their duty to promote the success of the company for the benefit of its members. They will also of course be mindful of their responsibilities to other stakeholders including employees, customers, suppliers and creditors. The other key duties that directors should be mindful of are to exercise independent judgment and to exercise reasonable care, skill and diligence. Satisfying their duties in the context of such uncertainty, securing the future of the companies they steward, will be a difficult balancing act. The boards of regulated entities may have additional specific governance responsibilities to discharge. Directors should also be mindful that their duty to have regard to the interests of members is superseded by the duty to have regard to the interests of creditors when the directors know, or should know, that the company is or is likely to become insolvent, with “likely” in this context meaning “probable”. Further insights are available here. The UK Government has announced that it intends to introduce reforms to UK insolvency law in light of the COVID-19 pandemic, including to the wrongful trading regime which applies to a director where their company continues to trade even after the director knew or ought to have known that the company had no reasonable prospect of avoiding insolvent liquidation.
Director duties
In light of restrictions on movement and social distancing rules, board decisions will inevitably move to being solely made at virtual meetings and in writing. It will be important to plan the form and content of virtual board meetings carefully and ensure the necessary structures and disciplines are in place. Existing good boardroom practices will need to be adapted, and proper discussion and record keeping should continue to be facilitated. The timing and frequency of board meetings and other updates should be reviewed. Consideration should also be given to the location of board decision decisions in the context of virtual board meetings, and the possible impact, if any on tax planning and regulatory issues. Schemes of delegated authorities should also be reviewed, in particular to build in contingencies (for example, for the absence of key individuals). Existing frameworks and internal policies for signatory authorisation, powers of attorney and witnesses should also be updated.
Decision making process
Last updated 19 May 2020
BOARD AND GOVERANCE RESPONSE: AUSTRALIA
At all times, directors must discharge their duty to act in good faith in the best interests of the company and for a proper purpose. In determining whether a particular course of action is in the best interests of the corporation, directors can, and in some cases may be required to, have regard to broader stakeholder interests, extending beyond shareholders and including employees, customers and suppliers. Additionally, where a company is approaching insolvency, Australian case law reflects that directors must also consider creditor interests when determining what is in the best interests of the company. Other key duties that directors should be mindful of are the duty to act with reasonable care and diligence and the duty not to use a director’s position or information obtained as a director to gain an advantage or cause detriment to the company. Satisfying their duties in the context of such uncertainty and securing the future of the companies they steward will be a difficult balancing act for directors. The boards of regulated entities may also have additional specific governance responsibilities to discharge.
In light of restrictions on movement and social distancing rules, board decisions will inevitably move to being solely made at virtual board meetings and in writing. It will be important to plan the form and content of virtual board meetings carefully and ensure the necessary structures and disciplines are in place. Existing good boardroom practices will need to be adapted, and proper discussion and record keeping should continue to be facilitated. The timing and frequency of board meetings and other updates should be reviewed. Consideration should also be given to the location of board decisions in the context of virtual board meetings, and the possible impact, if any, on tax planning and regulatory issues. Schemes of delegated authorities should also be reviewed, in particular to build in contingencies (for example, for the absence of key individuals). Existing frameworks and internal policies for signatory authorisation, powers of attorney and witnesses should also be updated.
Some jurisdictions may still have document execution requirements that are not compatible with social distancing or isolation. For example, there may still be regulatory requirements for wet ink execution of certain documents or witnessing requirements. Companies will need to be conscious of such requirements and seek legal advice about ‘workarounds’. Helpfully, many regulators are taking a more pragmatic approach in these uncertain times.
Executing agreements and deeds remotely
BOARD AND GOVERANCE RESPONSE: FRANCE
The COVID-19 pandemic raises challenges not only for companies generally, but also for their directors and officers personally who must act at all time in the corporate interest of the company taking into account all relevant parties involved including shareholders, employees, customers, suppliers and creditors. Significant revenue declines and increased costs could place the company’s business under considerable pressure such that insolvency may be of particular concern for directors and officers. The directors and the legal representative (i.e. the Directeur Général or CEO) of a French company must ensure that the company is not in a state of suspension of payments, that is, the company is unable to meet its current liabilities with its available assets. In ordinary business circumstances, one duty of directors is to ensure that the legal representative will file for receivership or liquidation within 45 days from the date of the company's suspension of payments if the CEO has not, within that period, requested the initiation of conciliation proceedings. In light of the COVID-19 pandemic, the French Government has introduced several reforms to French insolvency law: in particular, pursuant to the ordinance n°2020-341 dated 27 March 2020, exceptionally until 25 August 2020 (such date will be extended to the date of 25 October 2020 in accordance with a new “state of emergency” law to be enacted mid-May 2020), the suspension of payments will be assessed taking into account the situation of the company as at the date of 12 March 2020 only. If the company has not suspended payments on 12 March 2020, its creditors may not request that it be placed in receivership or liquidation by court order until 25 August/October 2020 (however, directors remain allowed to file for receivership or liquidation on a voluntary basis if they consider it is in the interest of the company). As a result of this exceptional measure, the legal representatives and directors of companies in financial difficulty will no longer be sanctioned for failing to declare a suspension of payments within 45 days of its occurrence if this state occurred between 12 March and 25 August/October 2020. However, although the directors’ duty to file is suspended during the crisis period, it should be noted that this measure does not affect the court’s ability to postpone the date of the suspension of payments statement to a date prior to 12 March 2020, or in the event of fraud, to a later date. In such a case, directors’ personal liability could be exposed (not to mention potential issues relating to the validity of agreements concluded during the hardening period). Therefore, it is strongly advised that directors should exercise the utmost caution and continue their daily analysis of the economic, financial and social situation of the company during the health crisis.
The French government has introduced emergency measures (ordinance n°2020-321 of 25 March 2020) to temporarily relax the rules for holding meetings of boards of directors, both executive boards and supervisory boards, and general meetings, without the physical presence of their members. These measures apply to listed and unlisted companies, and also other types of entity with and without legal personality. Further insights are available here.
BOARD AND GOVERANCE RESPONSE: SPAIN
To help directors to perform their duties in the current climate, if before or during the state of emergency a company is in a position resulting in its mandatory winding-up, directors are released from their obligation to call a general shareholder meeting until the state of emergency has ended and they will not be liable for the company’s debts generated during the state of emergency.
For the duration of the state of emergency, and even when not including in a company’s articles of association, meetings of the board and other collegiate management bodies (e.g., committees) may be held by videoconference or conference call (provided that it is possible for the secretary to identify the attendees). Any meetings that were due to be held after the state of emergency was announced, but that were called beforehand, can be cancelled or rescheduled. Resolutions can also be passed by those bodies in writing, without a physical meeting, provided that this is requested by the chairperson or at least two members. In both cases, the meeting will be treated as being held in the company’s corporate domicile.
BOARD AND GOVERANCE RESPONSE: GERMANY
The German government has amended German insolvency law to suspend the obligation of managing directors to apply for insolvency proceedings when the company is unable to pays its debts as they fall due or its assets do not cover its liabilities. This suspension lasts until 30 September 2020. The new rules link the suspension to further measures which are designed to make it easier for managing directors to continue a company’s business and to eliminate the insolvency situation. Further insights can be found here.
The German government has implemented emergency measures to temporarily ease the rules for holding shareholders’ meetings without physical presence of its members. These rules address not only public companies but also meetings of the boards of associations and cooperative societies. These measures are also designed to help the management of companies to (swiftly) obtain approval of its shareholders for (material) management matters for which such approval is required.
BOARD AND GOVERANCE RESPONSE: RUSSIA
At all times directors must discharge their duty to promote the success of the company for the benefit of its members. They will also of course be mindful of their responsibilities to other stakeholders including employees, customers, suppliers and creditors. The other key duties that directors should be mindful of are to exercise independent judgment and to exercise reasonable care, skill and diligence. Satisfying their duties in the context of such uncertainty, securing the future of the companies they steward, will be a difficult balancing act. The boards of regulated entities may have additional specific governance responsibilities to discharge.
What information does the board require to discharge its responsibilities? They of course need to be continually informed but care should be taken not to deluge them with information that would ordinarily, rightly, be filtered and distilled by management. There is a balance to be struck between executive and management authority and board oversight and responsibility.
Information flows
In light of restrictions on movement and social distancing rules, board decisions will inevitably move to being solely made at virtual meetings and in writing. It will be important to plan the form and content of virtual board meetings carefully and ensure the necessary structures and disciplines are in place. Existing good boardroom practices will need to be adapted, and proper discussion and record keeping should continue to be facilitated. The timing and frequency of board meetings and other updates should be reconsidered. Consideration should also be given to the location of board decisions in the context of virtual board meetings, and the possible impact, if any, on tax planning and regulatory issues. Schemes of delegated authorities should also be reviewed, in particular to build in contingencies, for example, for the absence of key individuals. Existing frameworks and internal policies for signatory authorisation, powers of attorney and witnesses should also be updated.
BOARD AND GOVERANCE RESPONSE: US
Directors of foreign private issuers are subject to the duties that arise under the law of the home jurisdiction. At all times directors must discharge their duty to promote the success of the company for the benefit of its members. They will also of course be mindful of their responsibilities to other stakeholders including employees, customers, suppliers and creditors. They also need to exercise independent judgment and to exercise reasonable care, skill and diligence.
In light of restrictions on movement and social distancing rules, board decisions will increasing be made solely at virtual meetings and in writing. It will be important to plan the form and content of virtual board meetings carefully and ensure necessary structures and disciplines are in place. Existing good boardroom practices will need to be adapted, and proper discussion and recording keeping should continue to be facilitated. The timing and frequency of board meetings and other updates should be reviewed. Consideration should also be given to the location of board decision decisions in the context of virtual board meetings, and the possible impact, if any on tax planning and regulatory issues. Schemes of delegated authorities should also be reviewed, in particular to build in contingencies (e.g. for the absence of key individuals). Existing frameworks and internal policies for signatory authorisation, powers of attorney and witnesses should also be updated.
Please note that this guidance is aimed at foreign private issuers (“FPIs”) as defined in Rule 405 of Regulation C under the United States Securities Act of 1933 (the “Securities Act”) and Rule 3b-4 under the United States Exchange Act of 1934 (the “Exchange Act”), and in particular, FPIs with reporting obligations under the Exchange Act. The main sources of corporate governance rules for FPIs are: the Securities Act; the Exchange Act; regulation and guidance from the United States Securities and Exchange Commission (the “SEC”); listing standards of the securities exchange(s) on which the FPI is listed; home country requirements; and the FPI’s governing documents.
BOARD AND GOVERANCE RESPONSE: ITALY
The measures introduced by the government have suspended the duty of directors to file petitions for (i) bankruptcy, and (ii) insolvency of large companies, from 9 March 2020 to 30 June 2020. In addition, between 9 April 2020 and 31 December 2020, directors’ duties in connection with the equity recapitalisation and liquidation of a company, due to the reduction or the loss of share capital below the legal minimum, are suspended. Therefore, losses reducing the corporate capital as a result of the current COVID-19 pandemic will not force directors and shareholders to resolve to recapitalise or wind-up the company, and directors are not exposed to liability for negligent management of the company.
The government has implemented emergency measures to temporarily allow the participation in shareholders’ meetings by telecommunication means. Although these measures do not specifically apply to meetings of the board of directors, we consider that they also apply to such meetings.
BOARD AND GOVERANCE RESPONSE: SOUTH AFRICA
Directors of foreign private issuers are subject to the duties that arise under the law of the home jurisdiction. At all times directors must discharge their duty to promote the success of the company for the benefit of its members. They will also of course be mindful of their responsibilities to other stakeholders including employees, customers, suppliers and creditors. They also need to exercise independent judgment and to exercise reasonable care skill and diligence. Satisfying their duties in the context of such uncertainty, securing the future of the companies they steward, will be a difficult balancing act.
In the UK, a landlord's entitlement to repossess business (and residential) property is currently suspended. The Government has also announced it will temporarily ban landlords from issuing statutory demands and winding up orders where a commercial tenant cannot pay its bills due to COVID-19. The measures will be included in the Corporate Insolvency and Governance Bill. It has also introduced secondary legislation to provide tenants with more breathing space to pay rent by preventing landlords using Commercial Rent Arrears Recovery (CRAR) unless they are owed 90 days of unpaid rent. This secondary legislation, which took effect from 24 April, will be in force until 30 June, and can be extended.. The Government announcement does not appear to prevent Court debt actions for arrears although this will need to be checked when the draft legislation is available. Landlords may benefit indirectly from the package of support available to help businesses through the COVID-19 pandemic, including the increases and expansions to the categories of business tenants able to claim Business Rates Retail Discount (“BRRD”), which may put tenants in a better financial position than would otherwise be the case. The BRRD is discussed further in the Government support section
Premises
The UK Government has announced a “Coronavirus Job Retention Scheme” which will provide payroll support. Under the scheme, the Government cover up to 80% of the wages of “furloughed” employees. See the Government support section for further information.
Employees
Employers may want to take steps to defer or reduce their pension contributions. The Pensions Regulator has signalled that employers with defined benefit schemes can agree with their scheme's trustees to defer deficit recovery contributions, provided the scheme is treated fairly and appropriately safeguarded. Employers with defined contribution schemes might also want to reduce their regular pension contributions for employees who are put on furlough or more generally.
Pensions
Last updated 6 May 2020
In light of restrictions on movement and social distancing rules, board decisions will inevitably move to being solely made at virtual meetings and in writing. It will be important to plan the form and content of virtual board meetings carefully and ensure the necessary structures and disciplines are in place. Existing good boardroom practices will need to be adapted, and proper discussion and recording keeping should continue to be facilitated. The timing and frequency of board meetings and other updates should be reviewed. Consideration should also be given to the location of board decision decisions in the context of virtual board meetings, and the possible impact, if any on tax planning and regulatory issues. Schemes of delegated authorities should also be reviewed, in particular to build in contingencies for example, for the absence of key individuals. Existing frameworks and internal policies for signatory authorisation, powers of attorney and witnesses should also be updated.
BOARD AND GOVERANCE RESPONSE: UAE
Directors' duties in the UAE have not been alleviated nor modified in response to the Covid-19 pandemic. Directors will therefore need to remain alert to make sure that they are acting in the best interest of their companies and shareholders and to avoid potential civil liability for their company's debt should they be found responsible for the company's losses. This is especially true for the directors’ duties of minimising losses to creditors as a result of ongoing trading, not entering into high risk transactions and not declaring dividends except where attributable to realised profit.
In 2019, the UAE introduced the Economic Substance Regulations ("ESR") which requires all UAE companies to report on whether they undertake any geographically mobile activities, and in the case where they do, they will be required to comply with the ESR requirements. Under the ESR, any licensee performing an ESR related activity(ies) must ensure that its direction and management takes place in the UAE. This includes requirements such as holding quorate board meetings frequently in the UAE and keeping records of all board meetings in the UAE. The Covid-19 pandemic, along with the travel restrictions that it has resulted in, could make it difficult for companies with board members both abroad and in the UAE to comply with the requirement of having quorate board meeting in the UAE frequently. Although the UAE Ministry of Finance has not currently provided for easing of the ESR requirements, it is likely that they will take a pragmatic and understanding approach to compliance with such ESR requirements. Federal Law No. 2 of 2015 on Commercial Companies is silent on the passing of written resolutions. For unlisted Joint Stock Companies ("JSC"), unless written resolutions are expressly permitted in the articles, they are generally not permitted. For listed JSCs, written resolutions will be permitted as per the criteria set out in the SCA Ministerial Resolution No. 518 of 2009 (“Corporate Governance Resolution”).
Federal Law No. 1 of 2006 of the UAE (the “E-Commerce Law”) provides that e-signatures are generally a legitimate means of authenticating documents and can be used to execute documents in a commercial context. However, e-signatures cannot be used for:
Executing deeds and agreements remotely
documents related to matters of personal law (such as marriage, divorce and wills); transactions or deeds relating to immovable property; negotiable instruments (such as bonds and bills of exchange); and documents legally required to be attested before a Notary Public.
In response to the Covid-19 pandemic, the Dubai Notary Public launched an online notarisation process whereby documents such as memorandum of associations, powers of attorney, legal notices and local service agent agreements can be notarised online by sending the document to be notarised (along with any supporting documentation) to the Notary via email.
MARKET DISCLOSURES: UK
Market announcement obligations, in particular the requirement to disclose inside information under the EU Market Abuse Regulation remain fully in effect. Inside information is information of a precise nature that is not public and that, if made public, would be likely to have a significant effect of the price of listed financial instruments. The Financial Conduct Authority ("FCA") has emphasised in a number of its COVID-19-related statements the importance of continued compliance with the requirements. The FCA has acknowledged that convening board sub-committees, such as disclosure committees may be more challenging in the current circumstances. However it has made it clear that it expects listed companies to make every effort to meet their disclosure obligations in a timely fashion and it is actively engaging with issuers in relation to compliance. Companies should continue to consult with their corporate brokers and other advisers as necessary when assessing whether they are in possession of inside information.
Price sensitive information
Information and developments relating to business performance, supply chain issues and a company’s operational response may all meet the requirements for immediate disclosure. Inside information must be announced to the market as soon as possible and in these circumstances it is unlikely that a company will meet the criteria to be able to delay the disclosure of the information – that immediate release would prejudice the company’s legitimate interests, delay is not likely to mislead the public and confidentiality can be maintained. In particular in relation to when a company’s legitimate interests may be prejudiced, the FCA is clear in its guidance that a company should not delay public disclosure of the fact that it is in financial difficulty or of its worsening financial condition.
Ability to delay disclosure
MARKET DISCLOSURES: AUSTRALIA
The test under the Australian Securities Exchange’s (ASX) Listing Rule 3.1 is whether the listed company is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the company’s securities. If it does, the information must be immediately disclosed on the ASX. Listing Rule 3.1A is the exception to this rule, and provides that information need not be disclosed while all three of the following requirements are satisfied:
the information remains confidential; the information concerns an incomplete proposal or negotiation or comprises matters of supposition or is insufficiently definite to warrant disclosure; and a reasonable person would not expect the information to be disclosed.
Other exceptions may also apply, but in the COVID-19 context, incomplete proposals and insufficiently definite information are most relevant. Companies will need to consider whether they currently have enough certainty to be confident that the impact of COVID-19 is (or is reasonably likely to be) material for them. On 31 March 2020, the ASX released guidance on companies’ continuous disclosure obligations, which can be accessed here. Importantly, the ASX has stated that it does not expect companies to predict the unpredictable and companies should not make forward looking statements unless they have a reasonable basis for doing so. Companies should also be aware that they have a positive obligation to continue to test whether statements previously made about their business continue to be accurate and, if not, to correct those statements. To this end, the ASX has acknowledged that it is acceptable for companies to withdraw their earnings guidance. Further guidance can be found here.
MARKET DISCLOSURES: FRANCE
Market announcement obligations, in particular the requirement to disclose inside information under the EU Market Abuse Regulation remain fully in effect. Inside information is information of a precise nature that is not public and that, if made public, would be likely to have a significant effect of the price of listed financial instruments. In particular, this means that any knowledge of a significant impact due to the pandemic on the company’s business, performance or prospects should be promptly disclosed if it qualifies as inside information. The French Market Authority ("AMF") has stated that issuers should regularly reassess the need to communicate to the market the known and/or anticipated impact of the COVID-19 pandemic on their activities, their financial situation and their prospects.
If an issuer considers that it will no longer be able to reach the forecasts or objectives previously announced for the current year, it will be obliged to inform the market as soon as possible (and will not be able to delay disclosure, as the AMF considers this situation as likely to mislead the public). As such, careful consideration should be given to the obligation for French listed companies to communicate on the known and/or anticipated impact of the COVID-19 crisis on their activities, their financial situation and their prospects. The AMF emphasised its expectations on disclosures issues on 28 February 2020 and 23 March 2020. Further insights can be found here and here.
MARKET DISCLOSURES: SPAIN
Market announcement obligations, in particular the requirement to disclose inside information under the EU Market Abuse Regulation remain fully in effect. Inside information is information of a precise nature that is not public and that, if made public, would be likely to have a significant effect of the price of listed financial instruments. In particular, this means that any knowledge of a significant impact due to the pandemic on the company’s business, performance or prospects should be promptly disclosed if it qualifies as inside information.
If an issuer considers that it will no longer be able to reach the forecasts or objectives previously announced for the current year, it has an obligation to inform the market as soon as possible. Although the Spanish regulator (“CNMV”) has not issued any guidance on the matter, the European Securities and Markets Authority (“ESMA”) considers that a delay in disclosure may mislead the public if the information withheld is materially different from the information announced previously by the issuer or if it refers to the lack of fulfilment of any previously announced financial target – as a result, issuers would not be able to delay disclosure of that information.
MARKET DISCLOSURES: GERMANY
Market announcement obligations, in particular the requirement to disclose inside information under the EU Market Abuse Regulation remain fully in effect. Inside information is information of a precise nature that is not public and that, if made public, would be likely to have a significant effect of the price of listed financial instruments. In particular, this means that any knowledge of a significant impact of the pandemic on the company’s business, performance or prospects should be promptly disclosed if it qualifies as inside information. The German Financial Supervisory Authority (Bundesanstalt für Dienstleistungsaufsicht – BaFin) has published answers to the most frequently asked questions about Ad-hoc notification requirements that relate to the COVID-19 pandemic. BaFin's FAQs includes the following guidance:
BaFin determines market expectations based on the mean value (arithmetical mean) of current analyst estimates (“consensus estimates”) at the time the inside information arises. As a rule, adjustments for any outliers are not permissible. However, given the current impact of the COVID-19 pandemic, it may be permissible to adjust an existing consensus estimate, e.g. on the basis of current press reports. An issuer may choose to do so if the existing consensus estimate refers to estimates that are clearly no longer up-to-date and that do not take into account the current situation.
Consensus information
If a shareholder resolutions on the distribution of dividends is postponed due to the postponement of an annual shareholders' meeting, this does not generally trigger an Ad-hoc notification. However, if the amount of dividend that is planned to be distributed is reduced compared to what an issuer has previously announced, this may be regarded inside information. If an annual shareholders' meeting is postponed and this impacts time-critical shareholders' resolutions – e.g. a resolution on an urgently needed capital measure – and if the delay is such that it has a severe impact on an issuer's assets, liabilities, financial position or performance, the issuer may be required to publish an Ad-hoc notification. In relation to changes of forecasts due to effects of the COVID-19 pandemic the general rules remain valid. Forecast changes generally need to be published as inside information without undue delay if the issuer assumes, with a sufficient degree of probability, that the actual results will significantly fall short of the existing forecasts (and not at the moment the exact impact of the COVID-19 pandemic on the financial position and financial performance can be determined in full). This applies irrespective of whether the issuer can provide the market with a new detailed forecast. When determining whether financial information (in particular, information which differs from publicly available information) is information that has the potential to have a significant effect on share price, BaFin takes the view that stricter criteria need to be applied in light of the current sharp price fluctuations on stock exchanges due to the COVID-19 pandemic.
MARKET DISCLOSURES: RUSSIA
Market announcement obligations, in particular the requirement to disclose inside information under the Federal Law on Counteracting the Illegal Use of Inside Information and Market Manipulation, remain fully in effect. Inside information is information of a precise and concrete nature that is not public and that, if made public, would be likely to have a significant effect on the price of listed financial instruments. Current legislation does not contain an exhaustive list of facts or circumstances that constitute the inside information. Issuers must use their judgement to assess whether the impact of COVID-19 may be their inside information in which case the relevant facts shall be disclosed publicly in a timely manner.
Information and developments relating to business performance, supply chain issues and a company’s operational response may all be subject to the Central Bank's rules on prompt disclosure of inside information. In addition to disclosing information designated as inside information by the Central Bank, issuers may adopt a list of entity-specific inside information. Disclosure of such information may be made on a more relaxed disclosure schedule. Therefore issuers should consider including COVID-19-related facts and circumstances on their entity-specific lists of inside information, as that may allow for delayed disclosure of that information.
MARKET DISCLOSURES: US
Although FPIs are not subject to Regulation FD “fair disclosure” requirements, they are required to make timely disclosures of market information and their disclosure practices remain subject to liability under the antifraud provisions of the US federal securities laws. Material non-public information is information not generally disseminated to the public that a reasonable investor would likely consider important in making an investment decision. In the SEC’s Division of Corporation Finance 25 March 2020 CF Disclosure Guidance: Topic No. 9 (the “COVID-19 Disclosure Guidance”), the SEC states that, where COVID-19 has affected a company in a way that would be material to investors or where a company has become aware of a risk related to COVID-19 that would be material to investors, the company, its directors and officers, and other corporate insiders should refrain from trading in the company’s securities until such information is disclosed to the public. The SEC has also reminded companies disclosing material information relating to the impact of COVID-19 to take necessary steps to avoid selective disclosures by disseminating such information broadly to the public. Depending on a company’s particular circumstances, it should consider whether it may need to revisit, refresh, or update previous disclosure to the extent that the information becomes materially inaccurate.
Material non-public information
FPIs should be prepared to provide disclosure of the impact of COVID-19 in their next periodic financial report filed with the SEC. This is likely to be their annual report on Form 20-F, which, for issuers with a December 31 year end, is due to be filed by April 30, although there may be circumstances in which the filing of the Form 20-F can be delayed (for further insights, see the “Corporate Reporting” section). FPIs with only a US listing should, to the extent consistent with home country reporting requirements, look to the “triggering events” under the SEC’s Form 8-K as a proxy for determining whether a Form 6-K filing is needed regarding a particular COVID-19 related event. FPIs with home country reporting obligations may need to address the market earlier.
MARKET DISCLOSURES: ITALY
Market announcement obligations, in particular the requirement to disclose inside information under the EU Market Abuse Regulation (“MAR”) remain fully in effect. Therefore, entities which must comply with MAR disclosure obligations must assess whether (i) Covid-19 outbreak has an impact on their activity; and (ii) if information at their disposal are inside information.
In its warning issued on 9 April 2020, CONSOB noted the European Securities and Markets Authority (“ESMA”) recommendation of 11 March 2020, which stated that issuers should: (i) disclose as soon as possible any significant information concerning the impacts of Covid-19 on their fundamentals, prospects, or financial situation in accordance with their transparency obligations under the MAR; and (ii) provide transparency on the actual and potential impacts of Covid-19, to the extent possible, based on both a qualitative and quantitative assessment of their business activities, financial situation, and economic performance in their 2019 year-end financial report, or (if these have not yet been finalised) in their interim financial reporting disclosures. CONSOB also recommended listed companies consider providing additional information or updates on the impact of Covid-19 during shareholders’ meetings called to approve 2019 financial statements as well as Management Report (Relazione sulla Gestione) attached to the financial statements.
MARKET DISCLOSURES: SOUTH AFRICA
Although foreign private issuers (“FPIs”) are not subject to Regulation FD “fair disclosure” requirements, they are required to make timely disclosures of market information and their disclosure practices remain subject to liability under the antifraud provisions of the US federal securities laws. Material non-public is information not generally disseminated to the public that a reasonable investor would likely consider important in making an investment decision. In the SEC’s Division of Corporation Finance 25 March 2020 CF Disclosure Guidance: Topic No. 9 (the “COVID-19 Disclosure Guidance”), the SEC states that, where COVID-19 has affected a company in a way that would be material to investors or where a company has become aware of a risk related to COVID-19 that would be material to investors, the company, its directors and officers, and other corporate insiders should refrain from trading in the company’s securities until such information is disclosed to the public. The SEC has also reminded companies disclosing material information relating to the impact of COVID-19 to take necessary steps to avoid selective disclosures by disseminating such information broadly to the public. Depending on a company’s particular circumstances, it should consider whether it may need to revisit, refresh, or update previous disclosure to the extent that the information becomes materially inaccurate.
FPIs should be prepared to provide disclosure of the impact of COVID-19 in their next periodic financial report filed with the SEC. This is likely to be their annual report on Form 20-F, which, for issuers with a December 31 year end, is due to be filed by April 30, although there may be circumstances in which the filing of the Form 20-F can be delayed (for further insights, see the “Corporate Reporting” [tab][page]). FPIs with only a US listing should, to the extent consistent with the home country reporting requirements, look to the “triggering events” under the SEC’s Form 8-K as a proxy for determining whether a Form 6-K filing is needed regarding a particular COVID-19 related event. FPIs with home country reporting obligations may need to address the market earlier.
For further discussion of equity fund raisings in the UK in the current climate, see the ebulletin published by our London ECM team.
MARKET DISCLOSURES: UAE
No specific legislation enacted.
The UAE Securities and Commodities Authority ("SCA") has issued a circular on 4 April 2020 in which it has extended the current statutory deadlines for listed public joint stock companies ("PJSCs") to file their financial statements. The PJSCs are now required to file their financial statements no later than 14 May 2020 for the financial year 2019 and 30 June 2020 for the first quarter of 2021.
CORPORATE REPORTING: UK
Companies and – importantly – their auditors are facing practical difficulties in gathering financial data, preparing accounts and carrying out audits. Usual flows of information up from business units and subsidiaries may be interrupted or delayed given the current restrictions of movement imposed by government. Reviewing and verifying that data may also take longer in the current unprecedented circumstances. Companies need to continue to be mindful of any ongoing market announcement obligations and that information received in the context of preparing the annual report and accounts could require an immediate announcement.
Data gathering
The Companies etc. (Filing Requirements) (Temporary Modifications) Regulations 2020, which were made under the Corporate Insolvency and Governance Act 2020, temporarily extend various filing deadlines under the Companies Act 2006 and other legislation for companies and other entities, including in relation to annual report and accounts. Pursuant to those regulations, the period for the filing of annual report and accounts has been extended by three months, to 12 months for a private company and nine months for a public company. The extension, which is automatic, applies to the original filing deadline. It will not be added to any filing extension already granted by UK Registrar of Companies, Companies House.
Deadlines: all companies
Last updated 30 July 2020
The Financial Conduct Authority (“FCA”) published a statement in March 2020 which, in effect, gives listed companies an additional two months to finalise their annual report and accounts. Under UK implementation of the EU Transparency Directive companies have four months from their financial year end in which to publish audited financial statements, but the FCA says that it will not suspend the listing of companies if they publish financial statements within six months of their year-end. However, listed companies will need to be mindful of the interaction between the publication of their accounts and their annual shareholder meeting (where those accounts are usually laid). In May 2020, the FCA announced similar measures for listed companies in relation to their half-yearly reports. The deadline for filing the half-year report is effectively extended by one month such that it must be published within four months after the end of the half-year end. The FCA has not indicated how long these relaxations will remain in place. For AIM companies, the London Stock Exchange (“LSE”) has announced that they can temporarily have an additional month to finalise their half yearly reports, if needed. The LSE has also said that AIM companies can apply for a three-month extension to the deadline for publication of their annual accounts.
Deadlines: listed companies
Directors will need to be especially mindful of key content requirements required in annual reports and accounts, which may take longer to prepare and sign off on as a result of Covid-19. Disclosures relating to the following areas should be considered carefully: principal risks and uncertainties; significant post balance date matters; forward looking statements; going concern/viability statements; asset valuations; and audit opinions. The Financial Reporting Council (“FRC”) has published guidance for companies preparing their corporate reports. It highlights some key areas for boards in maintaining strong corporate governance as well as providing high-level guidance on preparation of annual reports and other corporate reporting matters. The FRC also published advice to companies and auditors on the disclosure of risks and other reporting consequences arising from Covid-19. The FRC’s Financial Reporting Lab published two reports which seek to give companies practical guidance on corporate reporting, and investor expectations, in light of the Covid-19 pandemic: Covid-19 – Resources, action, the future and Covid-19 – Going concern, risk and viability.
Content issues
The Government announced in March that it had suspended enforcement of the gender pay gap deadlines for this reporting year (2019/20) and there will be no expectation on employers to report their data. It has also said that businesses which need to delay the publication of their modern slavery statement by up to six months due to COVID-19-related pressures will not be penalised.
Other corporate reports
CORPORATE REPORTING: AUSTRALIA
In Australia, the Australian Securities and Investments Commission (ASIC) has extended the timeline for unlisted public companies with balance dates between 31 December 2019 and 31 March 2020 to lodge their financial reports by one month.
Deadlines: unlisted companies
For Australian listed companies, ASIC has announced that there will be no blanket extension of reporting deadlines for companies with a 31 December or a 31 March year-end. However, for 31 March year-end companies, ASIC will consider individual applications for an extension provided these are received at least 14 days prior to the reporting deadline. ASIC will continue to monitor whether Covid-19 will affect the financial reporting obligations of companies with a 30 June year-end. In the interim, 30 June year-end companies should carefully monitor the effect of Covid-19 on their business and factor this into their internal reporting timeframes to ensure they can meet all reporting deadlines.
Directors will need to be especially mindful of key content requirements required in annual reports and accounts, which may take longer to prepare and sign off on as a result of Covid-19. Disclosures relating to the following areas should be considered carefully: principal risks and uncertainties; significant post balance date matters; forward looking statements; going concern/viability statements; asset valuations; and audit opinions.
The Australian Border Force ("ABF") has released important guidance on Covid-19 and modern slavery risks, which will be relevant as companies prepare to draft and publish their inaugural modern slavery statement under the Modern Slavery Act 2018 (Cth) ("MSA"). It is clear that supply chain interruptions, and the pandemic more generally, are exposing some workers to modern slavery risk in Australia and globally. Contributing factors include workers’ loss of income (or the fear of loss of income), low awareness of workplace rights, requirements to work excessive overtime to cover capacity gaps, and increased demand due to supply chain shortages. New supply relationships (e.g. moving to alternative suppliers) and limitations on companies’ ability to perform their usual diligence on suppliers (or operate supplier audit programs) can also increase the risk of modern slavery risks in companies’ supply chains. To the extent companies are required to report under the MSA, careful thought will need to be given to whether Covid-19 has created additional risks of modern slavery in their operations or supply chain and, if it has, disclosure of those risks will be mandatorily required in the company’s modern slavery statement. ABF has also subsequently provided reporting relief to companies with 31 March and 30 June year-ends, by allowing them an additional 3 months to report (with their modern slavery statements due by 31 December 2020 and 31 March 2021, respectively). Further insights be found here and here.
CORPORATE REPORTING: FRANCE
The French Government released a specific ordinance n°2020-318 on 25 March 2020 to lengthen the time limits for the preparation and publication of annual accounts. This ordinance provides in particular for:
Although the French Government has lengthened the time limits for preparing annual reports and accounts (see above), the ordinance does not provide for the postponement of the period for publication of the annual financial report for listed companies (which must be published within four months of the end of the financial year) because this period comes from French implementation of the EU Transparency Directive and may not be legally derogated from under French law. However, the European Securities and Markets Authority ("ESMA") has stated that it expects national regulatory authorities (including the French Market Authority - AMF) not to prioritise supervisory actions against issuers if they publish their annual report and accounts within two months of the original deadline or, in the case of half-year reports, within one month of the original three month deadline. AMF confirmed this approach in a communication dated 31 March 2020. Further insights can be found here.
a two-month postponement of the obligation to draw up forecast management documents (therefore to no later than the end of June for companies with a 31 December year-end); a three-month postponement of the obligation of the management board (directoire) to present to the supervisory board (conseil de surveillance) the annual accounts, the consolidated accounts, the management report and the report on corporate governance (therefore to no later than the end of June for companies with a 31 December year-end). This extension does not apply to companies for which the auditor issued its report on the accounts before 12 March 2020; and a three-month postponement (therefore no later than the end of September for companies with a 31 December year-end) for the approval of the annual accounts. This extension does not apply to companies for which the auditor issued its report on the accounts before 12 March 2020.
CORPORATE REPORTING: SPAIN
The deadline for companies to draft their annual accounts (three months from financial year close) has been extended to three months beyond the end of the state of emergency. The deadline for auditing those companies that have already drafted their annual accounts is also pushed back to two months after the end of the state of emergency. The deadline for approval of the annual accounts will be three months from the date on which they are ultimately drafted.
Deadlines: private companies
Annual financial reports and audit reports can be published up to six months after financial year close. That term is extended by four months to publish interim management statements and the half-year financial report.
CORPORATE REPORTING: GERMANY
The German Federal Office of Justice announced that companies which received an order to publish their 2018 annual accounts between 6 February 2020 and 20 March 2020 without further delay are allowed to postpone publication until 12 June 2020 at the latest. If the publication is made by 12 June 2020 any fines threatened by the order will not be imposed. This measure also applies to orders for the publication of annual accounts of prior business years if they were received between 6 February 2020 and 20 March 2020.
Deadlines
Generally, listed companies are obliged to publish their annual reports and accounts by 30 April. However, the Federal Office of Justice declared on 8 April 2020 that they will not initiate any administrative fine proceedings before 1 July 2020 against listed companies if they are not able to publish the annual reports and accounts by 30 April. In practice, this means a two month extension to the period for the publication of public company’s annual reports and accounts.
CORPORATE REPORTING: RUSSIA
Companies and – importantly – their auditors facing practical difficulties in gathering financial data, preparing accounts and carrying out audits. Usual flows of information up from business units and subsidiaries may be interrupted or delayed given the current restrictions of movement imposed by government. Reviewing and verifying that data may also take longer in the current unprecedented circumstances. Companies need to continue to be mindful of any ongoing market announcement obligations and that information received in the context of preparing the annual report and accounts could require a prompt announcement.
Subject to limited exceptions, Russian stand-alone financial statements for 2019 shall be provided to the tax authorities not later than 6 May 2020. General shareholders' meetings must approve annual accounts for 2019 no later than 30 September 2020.
Publicly reporting companies need to disclose their annual stand-alone or (if required) consolidated financial statements within three days from issuance of the audit report but not later than 28 July 2020; semi-annual reports shall be disclosed within three days from issuance of the audit report but not later than 28 December 2020.
Deadlines: publicly-reporting companies
Directors will need to be especially mindful of key content requirements required in annual report and accounts around principal risks and uncertainties, and forward looking statements. The impacts of COVID-19 remain difficult to gauge in many sectors.
The deadlines for making consolidated financial statements available to shareholders and the Central Bank of Russia (for entities required to prepare such statements) are postponed as follows: (1) annual consolidated financial statements shall be made available within 180 days from the end of the relevant reporting period; and (2) interim consolidated financial statements shall be made available within 150 days from the end of the relevant reporting period.
Deadlines: companies required to prepare consolidated financial statements
CORPORATE REPORTING: US
Companies and – importantly – their auditors face practical difficulties in gathering financial data, preparing accounts and carrying out audits. Usual flows of information from business units and subsidiaries may be interrupted or delayed given the current restrictions of movement imposed by government. Reviewing and verifying that data may also take longer the in the current unprecedented circumstances. Issuers that have been impacted by COVID-19 are encouraged to contact the SEC to seek guidance and potential relief from certain requirements if needed. In addition, the SEC has flagged the need to consider the applicability of ASC 855 (Subsequent Events). Issuers finalizing their financial disclosure should consider, in light of ASC 855, whether disclosure of any impact of COVID-19 is warranted in the notes to the financial statements.
The SEC has issued conditional relief to FPIs as well as US domestic issuers from deadlines to file certain reports. The relief comprises an extension of 45 days to file Form 10-K, Form 10-Q, Form 20-F, proxy statements and, in some cases, beneficial ownership reports, provided:
Assessing the evolving effects of COVID-19 and related risks will require a facts and circumstances analysis. Disclosure about these risks and effects, including how the company and management are responding to them, should be specific to a company’s situation. The COVID-19 Disclosure Guidance provides a series of non-exhaustive questions for companies to consider with respect to their present and future operations. On 8 April 2020, the SEC Chairman and Division of Corporation Finance Director issued a joint statement providing further guidance on disclosure, primarily in the context of earnings releases. They stated that public company disclosure should address: (1) where the company stands today, operationally and financially, (2) how the company’s COVID-19 response, including its efforts to protect the health and well-being of its workforce and its customers, is progressing, and (3) how its operations and financial condition may change as efforts to fight COVID-19 progress. The SEC statement acknowledged the challenges in producing forward-looking disclosure and indicated that the SEC would not expect to second guess good faith attempts to provide investors and other market participants appropriately framed forward-looking information.
the filing was originally due to be made between 1 March 2020 and 1 July 2020; the reporting company is unable to meet the original deadline as a result of the COVID-19 pandemic; by the original deadline to make its filing, the company instead furnishes a Form 8-K or Form 6-K stating that it is relying on the relief and the reasons for doing so, and the expected date of making the filing. Companies are encouraged to consider whether including risk factor disclosure on COVID-19 would be appropriate; the company makes its original filing within 45 days of its original deadline, noting that it relied on the relief and why; and at the time of any Form 8-K or Form 6-K announcing reliance on such relief, there will be pressure on companies to explain, with some detail, the impact that COVID-19 is having on their business at that time. Companies may not be ready to make such disclosures as they assess the impact of COVID-19 in an incredibly dynamic environment.
In the COVID-19 Disclosure Guidance, the Division of Corporation Finance highlighted that, to the extent a company presents a non-GAAP financial measure or performance metric to adjust for or explain the impact of COVID-19, it would be appropriate to highlight why management finds the measure or metric useful and how it helps investors assess the impact of COVID-19 on the company’s financial position and results of operations. Furthermore, there may be instances where a GAAP financial measure is not available at the time of the earnings release because the measure may be impacted by COVID-19-related adjustments that may require additional information and analysis to complete. In these situations, a non-GAAP financial measure may need to be reconciled to preliminary GAAP results that either include provisional amount(s) based on a reasonable estimate, or a range of reasonably estimable GAAP results. However, the Division of Corporation Finance has stated that, if a company presents non-GAAP financial measures that are reconciled to provisional amount(s) or an estimated range of GAAP financial measures in reliance on the above position, it should limit the measures in its presentation to those non-GAAP financial measures it is using to report financial results to the Board of Directors. The Division reminded companies that it is not appropriate for a company to present non-GAAP financial measures or metrics for the sole purpose of presenting a more favourable view of the company. Rather, companies should use non-GAAP financial measures and performance metrics for the purpose of sharing with investors how management and the Board are analysing the current and potential impact of COVID-19 on the company’s financial condition and operating results. Also, if a company presents non-GAAP financial measures reconciled to provisional amount(s) or an estimated range of GAAP financial measures, it should explain, to the extent practicable, why the line item(s) or accounting is incomplete, and what additional information or analysis may be needed to complete the accounting.
Non-GAAP financial measures
CORPORATE REPORTING: ITALY
According to the warning issued by CONSOB on 9 April 2020, issuers do not need to adjust their financial statements as of 31 December 2019 to reflect the effects of COVID-19, since the pandemic is to be considered as an event arising after the closing date of the financial year (according to the international accounting principles). However, issuers should carefully evaluate whether the impact of the COVID-19 pandemic represents an event that, despite its occurrence after the end of the reporting period, should be properly reported due to its material impact on the estimates of future forecasts, including those regarding business continuity. In addition, CONSOB invited listed issuers to assess if any disclosure related to the impact of the COVID-19 pandemic on the company’s business should be provided in the Management Report (Relazione sulla Gestione) attached to the financial statements. For examples, issuers may disclose information on: (i) the effect of the COVID-19 outbreak on the company’s financial position; (ii) measures adopted or planned to mitigate the pandemic outbreak; and (iii) qualitative and/or quantitative potential impacts that have been taken into account in assessing the company’s future performance.
Content issues: listed companies
In drafting their 2019 financial statements, companies can assume business continuity (as per Article 2423, paragraph 1, no. 1 of the Italian Civil Code), if such continuity occurred in the last financial statement closed before 23 February 2020.
Content issues: all companies
Until 31 July 2020 (and, in any case, until the end of the COVID-19 pandemic) Italian companies (including listed companies) are allowed to convene the annual general shareholders’ meeting to approve the financial statements within 180 days after the end of their financial year. Therefore, the ordinary term of 120 days provided for by the Italian Civil Code is extended, regardless of the existence of any provisions of the by-laws or a resolution of the shareholders’ meeting providing for this extension upon the occurrence of specific needs relating to the structure or business of the company.
CORPORATE REPORTING: SOUTH AFRICA
Companies and – importantly – their auditors face practical difficulties in gathering financial data, preparing accounts and carrying out audits. Usual flows of information up from business units and subsidiaries may be interrupted or delayed given the current restrictions of movement imposed by government. Reviewing and verifying that data may also take longer the in the current unprecedented circumstances. Issuers that have been impacted by COVID-19 are encouraged to contact the SEC to seek guidance and potential relief from certain requirements if needed. In addition, the SEC has flagged the need to consider the applicability of ASC 855 (Subsequent Events). Issuers finalizing their financial disclosure should consider, in light of ASC 855, whether disclosure of any impact of COVID-19 is warranted in the notes to the financial statements.
The filing was originally due to be made between 1 March 2020 and 1 July 2020; The reporting company is unable to meet the original deadline as a result of the COVID-19 pandemic; By the original deadline to make its filing, the company instead furnishes a Form 8-K or Form 6-K stating that it is relying on the relief and the reasons for doing so, and the expected date of making the filing. Companies are encouraged to consider whether including risk factor disclosure on COVID-19 would be appropriate; and The company makes its original filing within 45 days of its original deadline, noting that it relied on the relief and why. At the time of any Form 8-K or Form 6-K announcing reliance on such relief, there will be pressure on companies to explain, with some detail, the impact that COVID-19 is having on their business at that time, and companies may not be ready to make such disclosures as they assess impact in an incredibly dynamic environment.
CORPORATE REPORTING: UAE
UAE Securities and Commodities Authority ("SCA") has issued a circular on 4 April 2020 in which it has extended the current statutory deadlines for listed Public Joint Stock Companies ("PJSCs") to file their financial statements. The listed PJSCs are now required to file their financial statements no later than 14 May 2020 for the financial year 2019 and 30 June 2020 for the first quarter of 2021. In February 2020, the SCA issued Resolution No.(03/RM) of 2020 which adopts the new Corporate Governance Guide for PJSCs in the UAE. The resolution introduces changes such as the requirement to appoint a secretary on the board of directors, bringing more clarity to risk management procedures, the requirement to have corporate social responsibility policies and programs, etc. Breaches of the resolution can to lead to penalties such as warnings, fines or possible referral to the public prosecutor. As a result of this resolution, listed companies will need to review and amend their articles of association and internal policies and procedures to ensure they are in line with the resolution. The SCA has stated that companies will be given a grace period until the end of 2020 to implement the amended rules.
Dividends and distributions: UK
Companies should consider whether it is appropriate to proceed with any proposed dividend payments, even if they have sufficient distributable profits, having considered their directors’ duties and the cash flow needs of their business. They should also ensure that they have sufficient distributable reserves at the time the dividend is paid. In the private company context, although there may be contractual provisions in relation to dividends, and a dividend policy, in investment or joint venture agreements, such provisions typically contain a “fiduciary out” such that if the directors consider the payment of a dividend not to be in the best interests of the company, they do not have to pay a dividend in accordance with those provisions. For companies which have utilised UK Government business financing support schemes, the terms of those schemes may limit or preclude companies from paying dividends or make other distributions to shareholders, such as share buybacks, over specified periods.
Key considerations for any dividend payment
Final dividends become a debt payable to shareholders only once they have been approved by the shareholders, whereas interim dividends are typically decided upon by the board and become a debt payable to shareholders only when paid. If continuing with a proposed dividend, companies proceeding with an interim dividend (rather than proposing a final dividend) provides more flexibility to amend if circumstances change.
Final and interim dividends
Many listed companies announced a proposed final dividend earlier this year and would typically seek shareholder approval for its payment at their annual general meeting ("AGM"). If a company has announced a proposed final dividend but has not yet published its Notice of AGM it may wish to consider whether it wants to omit the resolution approving the dividend from the Notice of AGM. Where a dividend has already been announced or proposed (but not approved by shareholders), it may be possible to withdraw it by not putting forward any resolution required to approve the dividend. Once a dividend has been approved by shareholders at an AGM, a company is unlikely to be able to amend or withdraw that payment. The London Stock Exchange (“LSE”) has announced that it will permit the deferral of dividend payments for a period of up to 30 business days, but to no more than 60 business days after the record date. An issuer must notify the LSE of any deferral of a dividend payment without delay. After the deferral period has expired, the dividend must either be paid or cancelled.
Previously announced dividends
Dividends and distributions: AUSTRALIA
Companies should consider whether it is appropriate to proceed with any proposed dividend payments, even if they have sufficient distributable profits, having regard to their directors’ duties and the cash flow needs of their business. They should also ensure that they have sufficient distributable reserves at the time the dividend is paid. Under Australian Corporations Law, directors can be deemed to have breached the insolvent trading provisions where the payment of a dividend causes the company to become insolvent. In the private company context, although there may be contractual provisions and/or binding policies in relation to dividends, and a dividend policy, in investment or joint venture agreements, such provisions typically contain a “fiduciary out” such that, if the directors consider the payment of a dividend not to be in the best interests of the company, they do not have to pay a dividend in accordance with those provisions.
Both final and interim dividends will become a debt payable to shareholders when the date for payment arrives, if the Board has ‘resolved to pay’ the dividend. Boards may defer or cancel dividends at any point prior to this date, although for listed companies, careful analysis needs to be undertaken if the cancellation or deferment occurs after the ex-date (recognising that shares will have likely been trading at prices which reflect an expectation the dividend will be paid). If, on the other hand, the Board has ‘declared’ the dividend, the debt is payable and cannot be cancelled.
Australian companies that have ‘resolved to pay’ a dividend, and publicly announced that fact to the market, they may opt to defer or cancel the dividend provided they do so prior to the date for payment, and provided the Board has had regard to their directors’ duties prior to making the decision. While this may permit companies to defer or cancel dividends after the ex-date for that dividend, ASX is also not generally supportive of the practice given that the relevant shares will likely have been trading at prices reflecting an expectation the dividend will be paid. Any decision to defer or cancel a dividend must be notified to the ASX immediately and without delay as it would be deemed materially price sensitive information.
Dividends and distributions: FRANCE
Although no specific regulation has been made in relation to dividends, the French government has recently urged large companies (listed or non-listed) requesting a deferral of tax and social security payments or a state-guaranteed loan to undertake not to pay dividends to their shareholders and not to buy back shares in 2020. In addition, a professional organization representing 113 of the largest private corporations operating in France ("AFEP") invites issuers which have shortened the working hours of their employees as a result of the pandemic to propose "at their next general meeting a new resolution to reduce the dividends to be paid in 2020 by 20% compared to last year".
Dividends
Dividends and distributions: SPAIN
For any entities that had already drawn up their annual accounts before the state of emergency was announced, the management body can amend its proposed allocation of the year’s profits made in the annual report, including if this proposal contemplates dividend distributions. To do so, the management body must justify the change to its proposal on grounds of the situation caused by the COVID-19 health crisis, and the auditor must issue a document in which it states that it would not have changed the contents of its report had it known of the amended proposal before signing it. If an annual general meeting had already been called to approve the annual accounts before the state of emergency was announced, the management body may withdraw the item related to the proposed allocation of the year’s profits from the agenda; if so, it must submit a new proposal in due course.
Dividends and distributions: GERMANY
Companies should consider whether it is appropriate to proceed with any proposed dividend payments, even if they have sufficient distributable profits, having considered their directors’ duties and the cash flow needs of their business. They should also ensure that they have sufficient distributable reserves at time the dividend the is paid. With regard to regulated companies the German Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) has reiterated its expectation that German banks do not distribute dividends until October 2020.
For any entities that have already drawn up their annual accounts, the management board can, with the consent of the supervisory board, generally amend its proposal for the use of balance sheet profits. If an annual general meeting has already been called to approve the company’s proposal for the use of the balance sheet profits to pay a dividend, the management may, with the consent of the supervisory board, amend its proposal according to the prevailing view.
The German government has implemented temporary changes to the German Stock Corporation Act allowing the management to pay out to the shareholders an advance on the (anticipated) balance sheet profit without being authorized to do so by the company’s articles of association if certain conditions are met. This change, among other things, aims at making distributions more flexible under the current circumstances and, at the same time, ensuring that stocks stay attractive compared to other types of investment.
Advance payments on dividends
Dividends and distributions: RUSSIA
As a general rule, the public companies and non-public joint-stock companies which have a board of directors may only announce and distribute dividends upon the recommendation of the board of directors, therefore:
In the private company context, there may be contractual provisions in relation to dividends in shareholders agreements (or other documents) saying that the shareholders are obliged to ensure that the dividends are announced and distributed in accordance with a specified formula/proportion. If the Shareholders Agreement or other document regulating distribution of dividends does not contain a “fiduciary out” provisions (provisions allowing directors to disregard the contractual obligation if a director acting in the best interest of a company considers that compliance with such contraction obligation is inconsistent with its fiduciary duties to the company and its shareholders), legal advice should be sought as it is questionable whether default “fiduciary out” provisions provided by Russian law are effective to avoid liability (in form of compensation of damages) for the non-compliance with the contractual provisions.
Contractual obligation to distribute dividends
On 3 April, the Russian Government issued a decree which imposed a six-month moratorium on initiation of bankruptcy proceedings by creditors against certain groups of protected companies which are affected by COVID-19 or are strategically important for the national economy (set out here). During the moratorium, certain restrictions are imposed on the activities of protected companies themselves (including payment of dividends or distribution of profit). Protected companies are free to renounce the protection granted to them, in which case the restrictions on distribution of dividends will not apply. If the Government decides to extend the duration of the moratorium, it will apply automatically to all protected companies from the date of extension and, where a protected company is willing to renounce the protection granted to it (and the restrictions that come with it) it will need to make a new declaration to that effect after the extension date.
Restrictions on dividend payments
The considerations above equally apply to non-public companies which do not have a board of directors - except that their shareholders are free to distribute profits without recommendation of the board, but should carefully consider whether it would be prudent or appropriate to do so under the circumstances.
Financial services companies which are regulated by the state should also be mindful of any applicable regulatory guidance or expectations regarding payment of dividends in the current environment. The Central Bank of the Russian Federation has issued recommendations to Russian financial institutions to postpone any announcement of dividends by GSM until August or September 2020 and to announce and distribute dividends only if their capital is sufficient for the medium term.
Recommendations for financial institutions
if dividends have been recommended by the Board of Directors, but not approved by the General Shareholder Meeting (GSM): the deadlines for holding of the GSM of Russian JSCs and LLCs in 2020 have been extended until 30 September 2020. As noted below, it is difficult to cancel the GSM resolution on distribution of profits once it has been passed. As such, if the Board of Directors has already issued its recommendations to distribute profits for the 2019 financial year, it would be prudent to postpone the GSM until 30 September and decide whether or not the company can afford to distribute profit at a later stage once the situation is clear; and if dividends are recommended by the Board of Directors and have already been approved by the GSM: it is questionable whether the GSM resolution on distribution of dividends can be cancelled and, if so, what quorum is required for such cancellation (the law is silent on this point and we have seen court decisions requiring all shareholders in the company to agree to such cancellation).
Dividends and distributions: US
Companies should consider whether it is appropriate to proceed with any proposed dividend payments, even if they have sufficient distributable profits, having considered their directors’ duties and the cash flow needs of their business. They should also ensure that they have sufficient distributable reserves at time dividend is paid. Foreign private issuers should look to their governing documents and home country requirements when assessing their ability to pay dividends. In particular, companies receiving government financial assistance under COVID-19 related programs should assess whether such programs restrict recipients’ ability to pay dividends.
Dividends and distributions: ITALY
Last updated 5 June 2020
Under Italian law, the distribution of dividends must be approved by shareholders at a shareholder meeting. Until such resolution is approved, shareholders do not have a right to dividends. If a company has already resolved the distribution of dividends, the distribution may be revoked only with a new shareholders resolutions approved by all shareholders. Following the European Central Bank’s recommendation, on 27 March 2020 Bank of Italy recommended to all banks that until 1 October 2020 they should (i) not pay dividends; and (ii) refrain from carrying out share buy-backs aimed at remunerating shareholders. Bank of Italy extended the European Central Bank’s recommendation for significant institutions (i.e. bank fulfilling at least one of the significance criteria under the Single Supervisory Mechanism, supervised by the European Central Bank) to less significant institutions (i.e. banks that do not fulfil any of the significance criteria specified in the SSM Mechanism, supervised by their national supervisors) as well. In addition, Law Decree no. 23 of 8 April 2020 provides that large businesses and SMEs incorporated in Italy in order to benefit from the guarantee issued by SACE S.p.A. (the Italian export credit agency controlled by the Ministry of Economy and Finance) in connection with new financial indebtedness shall not distribute dividends or approve share buybacks in 2020.
Key consideration for any dividend payment
Under Decree no 34 of 19 May 2020, Italian joint-stock companies (società per azioni) and limited liability companies (società a responsabilità limitata) can benefit from a tax credit (credito di imposta) in respect of capital increases paid in cash. However any distribution of reserves occurred before 31 December 2023 by a company that has benefitted from any such tax credit entails the forfeiture of the benefit and the taxpayer’s obligation to repay the amount deducted plus interests accrued.
Tax considerations
Dividends and distributions: SOUTH AFRICA
Dividends and distributions: UAE
There are no specific restrictions or relaxations for the moment. It remains part of the directors’ duties to ensure that dividends are not declared other than where attributable to realised profit.
Shareholder meetings and engagement: UK
Convening and holding Annual General Meeting (“AGM”) and other shareholder meetings continues to present a challenge for UK listed and public companies. To assist companies and other entities required to hold meetings, the Corporate Insolvency and Governance Act 2020, which came into force on 26 June 2020, introduced a number of temporary relaxations to the company meeting requirements contained in the Companies Act 2006 (as well as the meeting requirements for certain other entities). The Act allows shareholder meetings to take place by electronic or any other means notwithstanding the provisions contained in the Companies Act 2006 and the company’s articles of association. The meeting participants need not be in the same place and shareholders do not have a right to attend in person. The relaxations now apply to company meetings held on or before 30 December 2020 (the relaxations were originally due to expire on 30 September 2020). In light of this, AGMs are likely to continue to be an abridged affair focussing on the legal and regulatory necessities with voting on a poll to take account of all shareholder proxy votes. Prior to the introduction of the Act, many companies held their meeting by forming the minimum quorum necessary through physical attendance (typically directors or employees who are shareholders or appointed as proxies) to consider and dispatch necessary business, with attendance by shareholders strongly discouraging on the basis it was contrary to the then government measures. Some companies have the ability to hold a “hybrid” meeting under their articles of association, allowing full shareholder electronic participation in addition to the minimum physical quorum. However, any company considering this route will need to work through the practicalities and technological solutions internally and with their registrar. Companies should consider different forms of shareholder engagement in addition to the formal, legal meeting – one-way audio or visual links to the formal meeting, Q&A with directors after the formal meeting, shareholders submitting Q&A in advance of the formal meeting, or future engagement events for retail shareholders. Whatever the engagement channel, investors are likely to continue their focus on key topics such as executive pay and ESG issues.
Public companies: AGMs
Private companies are able to make shareholder decisions in writing (which will usually include by email). That said, proper discussion and recording keeping should continue to be facilitated as necessary, including full compliance with the statutory formalities under the Companies Act 2006. Ensure the possible impact of the location of the decision making may have on the tax or regulatory position in factored into planning. Build in contingencies, in particular for the absence of any major shareholder, for example put in place or update existing policies for signatory authorisation, powers of attorney and proxies.
Written shareholder decision making
Similar practical and shareholder engagement considerations will apply in respect of any other shareholder meeting that companies convene in the coming months. Listed companies are generally required to hold meetings for shareholders to approve large and related party transactions under the FCA’s Listing Rules. In light of the Covid-19 pandemic and associated government restrictions, the Financial Conduct Authority ("FCA") has temporarily modified this requirement. It has stated that companies will be able to request a dispensation from the requirement to hold a general meeting to approve transactions, as long as they have obtained written undertakings from shareholders eligible to vote on the transaction that they approve it and would vote in favour of a resolution to approve the transaction if a general meeting were held. This dispensation does not exempt companies from the requirement to issue a circular to shareholders about the transaction. The provisions in the Corporate Insolvency and Governance Bill outlined above would also apply to such shareholder meetings. Companies may also rely on the relaxations contained in the Corporate Insolvency and Governance Act 2020 (discussed above) when convening and holding such shareholder meetings.
Public companies: other shareholders meetings
Shareholder meetings and engagement: AUSTRALIA
The day after the Determination was released, ASIC released further guidance on AGMs held during the Covid-19 pandemic. While restrictions on movement and large gatherings remain in place, ASIC now strongly encourages companies and responsible entities to hold either virtual or hybrid meetings.
ASIC Guidance
Last updated 22 May 2020
On Tuesday 5 May 2020 the Treasurer announced temporary amendments to the Corporations Act 2001 (Cth). The Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (the Determination) will allow companies to hold AGMs and other meetings entirely online. The changes will be in effect for 6 months until 6 November 2020. Under the Determination, company boards will be able to:
provide notice of annual general meetings to shareholders using email (but only for those shareholders who have provided an email address – the balance will still need to get a letter or postcard by mail telling them how to find the notice online); and/or hold hybrid or virtual annual general meetings using one or more technologies without attendees being physically present.
Amendments to the Corporations Act
While the risk of technology failure and meeting invalidity is not addressed, the temporary provisions make the process to adjourn or postpone relatively inexpensive because everything can be done electronically (including distributing the notice of meeting), provided it is done while the temporary amendments remain in force.
For companies with upcoming AGMs, some things to start thinking about are:
whether to move to a hybrid or virtual meeting, and the practicalities and ramifications of doing so. Certainly, proceeding with a hybrid or virtual meeting this year under the temporary legislation should not compel companies to continue with that approach going forward and to assume the unnecessary risks of doing so; whether to send electronic copies of the notice of meeting in line with the Determination (for those shareholders that have provided an email address); and whether to bring the date of your AGM forward in order to be able to rely on the Determination (for example, companies planning to hold their AGM at the end of November may wish to consider bringing it forward).
What this means for your upcoming AGM
Please contact a member of the Head Office Advisory Team if you would like to discuss the steps for implementing a hybrid or virtual meeting, including consideration of your constitution.
Shareholder meetings and engagement: FRANCE
The French government has introduced emergency measures (ordinance n°2020-321 of 25 March 2020) to temporarily relax the rules for holding meetings of boards of directors, both executive boards and supervisory boards, and general meetings, without the physical presence of their members. The measures in relation to shareholder meetings have broad application in that they apply to listed and unlisted companies and other types of entity with and without legal personality. These measures apply for meetings held before 31 July 2020, but may be extended in due course.
Shareholder meetings
Listed companies (i.e. whose shares or securities are listed on a regulated market) as well as private companies may hold their annual shareholder meetings behind closed doors, that is without the physical presence of their members or by means of a telephone or audio-visual conference call enabling them to be identified (though for companies with a large number of shareholders, the use of a conference call or videoconference may be difficult to implement in practice). These procedures apply to any general meeting (ordinary, extraordinary or mixed) and are possible for all decisions falling within the competence of general meetings. Shareholders and other persons entitled to attend must be informed of the changes related to the holding of the meeting, of the date and time of the meeting and how they may exercise all of their rights. Further insights can found here.
Organisation of company meetings
Shareholder meetings and engagement: SPAIN
For the duration of the state of emergency, and even when not included in a company’s articles of association, the general shareholder meeting ("GSM") may be held by videoconference or conference call (provided that it is possible for the secretary to identify the attendees).
Private companies
The GSM approving the annual accounts can be held within the first 10 months of the financial year. The board may call the GSM to be held electronically and a remote voting system may be used. A GSM may be held anywhere in Spain. If the measures imposed by the public authorities make it impossible to hold the GSM in the location established in the notice and it cannot be held electronically or using remote voting:
Public listed companies
if the GSM would have been held validly at that location, a decision can be made to go ahead with the meeting on that same date but at a new location within the same province, setting a reasonable timeframe for attendees to travel there; and if the GSM could not be held, a notice can be sent changing the date of the GSM at least five days before the date initially set for the meeting. That notice of meeting may establish that the GSM will be held electronically provided that the attendees are offered the possibility of: (i) attending electronically; (ii) being represented by the chairperson of the general meeting via remote communication; and (iii) voting in advance via remote communication. In these cases, the GSM will be treated as being at the corporate domicile, irrespective of where the chairperson is located.
Shareholder meetings and engagement: GERMANY
The German government has implemented emergency measure to temporarily ease the rules for, among other things, holding shareholders’ meetings without the physical presence of members. These rules apply to public companies and also meetings of the boards of associations and cooperative societies. These rules apply for meetings held until the end of 2020.
The new rules simplifying the existing legal framework to convene and hold an annual shareholders' meetings of public companies. The changes include:
Public company meetings
management boards may opt to hold shareholders' meetings as (purely) virtual meetings if certain technical requirements are met that are designed to safeguard shareholders' voting and information rights. to hold a virtual meeting management boards may opt to use certain means of electronic communication even if the articles of association do not provide a management board with the authority to do so. For example, a management board may require the company's supervisory board to attend the virtual meeting through audio and video transmission. the minimum period to convene shareholders' meetings is shortened from 36 days to 21 days. Accordingly, the record date and the timing for shareholders to exercise certain rights (e.g. request for the extension of the agenda) have been changed. annual shareholders' meeting may be held throughout 2020 (and not necessarily within the first eight months of 2020). shareholders will not be able to contest shareholders' resolutions because a company has (allegedly) not complied with requirements for the usage of electronic communication, unless a company has wilfully violated applicable rules.
For any of the above measures management boards need the approval by the respective supervisory board.
Shareholder meetings and engagement: RUSSIA
Any other (except for annual shareholders meeting) general shareholders’ meeting of LLCs and JSCs can be conducted in the form of absentee voting. In light of development of IT technologies the companies could consider different forms of shareholder engagement in addition to the formal absentee voting – one-way audio, skype conferences, Q&A sessions during the meeting, shareholders submitting Q&A in advance of the formal meeting, etc.
Other shareholder meetings
In light of restrictions on movement and social distancing rules, annual shareholders meetings are likely to be an abridged affair this year focussing on the legal and regulatory necessities. A number of measures have been put in place to facilitate the holding of shareholder meetings.
absentee voting: As a general rule, the annual general shareholders’ meeting can be held as a physical meeting only. According to Federal Law No. 50-FZ dated 18 March 2020 Russian joint stock companies ("JSC") can, based on the decision of the Board of Directors (or, if there is no Board of Directors, based on the resolution of the shareholders adopted via absentee voting), conduct annual shareholders’ meetings in 2020 via absentee voting. So far the law does not provide exceptions for holding of the annual shareholders’ meeting of limited liability companies ("LLC"). As such, an LLC’s shareholders’ meeting in 2020 shall be conducted by means of a collective presence of shareholders. extended deadlines for AGMs: As a general rule, the deadline for holding of the annual general shareholders’ meeting of JSCs expires on 30 June and for LLCs on 30 April of a respective calendar year. Following Federal Law No. 115-FZ dated 7 April 2020 the deadlines for holding of the annual general shareholders’ meeting of Russian JSCs and LLCs in 2020 have been extended to 30 September 2020. We are aware that a number of Russian companies (including public companies) postponed their AGMs until later August and September 2020.
Shareholder meetings and engagement: US
As FPIs are not subject to the proxy rules applicable to US domestic public companies, AGM considerations are driven primarily by the company’s governing documents, home country requirements, and listing requirements of the exchange(s) on which the FPI’s securities are listed.
Foreign Private Issuers
On 13 March and 7 April 2020, the SEC provided guidance for US domestic public companies regarding their obligations under the US federal proxy rules. The SEC has provided specific guidance in respect of four key aspects of shareholder meetings:
US public companies
changes in the date, time, or location of shareholder meetings (including special meetings): An issuer that has already mailed and filed its definitive proxy materials can notify shareholders of a change in the date, time, or location of the meeting without mailing additional soliciting materials or amending its proxy materials if it (1) issues a press release announcing such change; (2) files the announcement as definitive additional soliciting material on the Electronic Data Gathering, Analysis, and Retrieval system of the SEC ("EDGAR"); and (3) takes all reasonable steps necessary to inform relevant market participants of such change. virtual and hybrid shareholder meetings: The ability to conduct a virtual shareholder meeting is governed by state law and by the issuer’s corporate governing documents. If an issuer plans to conduct a virtual or hybrid meeting, the SEC expects the issuer to notify market participants in a timely manner and clearly disclose meeting details. presentation of shareholder proposals: The Exchange Act requires shareholder proponents to be able to appear and present their proposals at the annual meeting. The SEC encourages issuers to provide shareholder proponents the possibility to present their proposals through alternative means (e.g., by telephone), during the 2020 proxy season, to the extent this is feasible under state law. delays in printing and mailing of full set of proxy materials: Issuers affected by printing and mailing delays caused by COVID-19 are encouraged to use all reasonable efforts to allow shareholders to receive material information about the matters to be presented at the shareholder meeting in a timely manner so they can make informed voting decisions, but without putting the health or safety of anyone involved at risk. The SEC would not object to an issuer using the “notice-only” delivery option in a manner that provides shareholders with proxy materials sufficiently in advance of the meeting to review these materials and exercise their voting rights under state law in an informed manner, despite of not meeting all aspects of the notice and timing requirements of the rules of the Exchange Act.
Shareholder meetings and engagement: ITALY
Under Law Decree of 17 March 2020, Italian joint stock companies (società per azioni), limited liability companies (società a responsabilità limitata), cooperatives (società cooperative) and limited joint-stock partnerships (società in accomandita per azioni), are entitled to (i) hold shareholders meeting via audio/video conference; and (ii) request shareholders to cast their vote electronically, or by correspondence (or in writing, in limited liability companies (società a responsabilità limitata)). These measures apply regardless of a specific provisions in the company’s by-laws. The chairman and the secretary of the meeting (or the public notary, in the circumstances where the minutes have to be drafted by the notary) are not required to attend the meeting in the same place. Minutes of the shareholders’ meeting that have to be drafted by a public notary (e.g. meetings resolving upon the company’s capital increase or changes to the by-laws) can be drafted and signed by the public notary only. These rules shall apply for the meetings convened within 31 July 2020 or until the end of the pandemic emergency.
Shareholder Meetings
Shareholder meetings and engagement: SOUTH AFRICA
As foreign private issuers (“FPIs”) are not subject to the proxy rules applicable to US domestic public companies, AGM considerations are driven primarily by the company’s governing documents, home country requirements, and listing requirements of the exchange(s) on which the FPI’s securities are listed.
On 13 March and 7 April 2020, the Securities and Exchange Commission (“SEC”) provided guidance for US domestic public companies regarding their obligations under the US federal proxy rules. The SEC has provided specific guidance in respect of four key aspects of shareholder meetings:
Changes in the date, time, or location of shareholder meetings (including special meetings): An issuer that has already mailed and filed its definitive proxy materials can notify shareholders of a change in the date, time, or location of the meeting without mailing additional soliciting materials or amending its proxy materials if it (i) issues a press release announcing such change; (ii) files the announcement as definitive additional soliciting material on the Electronic Data Gathering, Analysis, and Retrieval system of the SEC (EDGAR); and (iii) takes all reasonable steps necessary to inform relevant market participants of such change. Virtual and hybrid shareholder meetings: The ability to conduct a virtual shareholder meeting is governed by state law and by the issuer’s corporate governing documents. If an issuer plans to conduct a virtual or hybrid meeting, the SEC expects the issuer to notify market participants in a timely manner and clearly disclose meeting details. Presentation of shareholder proposals: The Exchange Act of 1934 requires shareholder proponents to be able to appear and present their proposals at the annual meeting. The SEC encourages issuers to provide shareholder proponents the possibility to present their proposals through alternative means (e.g., by telephone), during the 2020 proxy season, to the extent this is feasible under state law. Delays in printing and mailing of full set of proxy materials: Issuers affected by printing and mailing delays caused by COVID-19 are encouraged to use all reasonable efforts to allow shareholders to receive material information about the matters to be presented at the shareholder meeting in a timely manner so they can make informed voting decisions, but without putting the health or safety of anyone involved at risk. The SEC would not object to an issuer using the “notice-only” delivery option in a manner that provides shareholders with proxy materials sufficiently in advance of the meeting to review these materials and exercise their voting rights under state law in an informed manner, despite of not meeting all aspects of the notice and timing requirements of the rules of the Exchange Act of 1934.
Shareholder meetings and engagement: UAE
Companies in the UAE would usually need to rely on their constitutional documents to hold hybrid annual general meetings whereby shareholders can attend the annual general meeting both electronically and physically.
As a result of the Covid-19 pandemic, UAE Securities and Commodities Authority ("SCA") has issued a circular to listed Public Joint Stock Companies (“PJSCs”) requiring them to allow their shareholders to attend and vote at upcoming general assembly meetings electronically without the requirement to amend the company's constitutional documents. The SCA has even supported the launch of a smart portal application which acts as a gateway to registration sites for meetings. This service has already been successfully used by a number of companies to hold virtual AGMs.
Listed companies
EXECUTIVE REMUNERATION AND SHARE PLANS: UK
UK listed companies must propose, and get shareholder approval, for their directors’ remuneration policy every three years. Some companies will be at the point in the cycle where they are therefore proposing a new directors’ remuneration policy at the forthcoming annual shareholder meeting. A lot may have changed since the proposed policy was drawn up and sent to shareholders given the impact COVID-19 is having on all businesses. Companies will need to carefully consider the practicalities involved when proposing a new policy, including how to engage with institutional investors and proxy advisors in the current circumstances (noting that such investors and advisors may be under-resourced at present) and whether any further explanation or clarification if needed, particularly around the possible future exercise of discretions, given current trading and circumstances.
Directors’ remuneration policy
For companies which have utilised UK Government business financing support schemes, the terms of those schemes may impact executive pay, limiting a company's ability to pay cash bonuses, or award any pay rises to the board or senior management.
Government business financing support schemes
Companies will be considering very carefully whether it is appropriate to grant any discretionary share awards at this turbulent time, mindful of both investor and market perception. Where awards are to be granted, companies will need to consider how to price awards, and whether to reduce the grant level to reflect any significant drop in share price. Alternatively, where such adjustments are not made, companies will need to explain to shareholders how discretions in the share plans are intended to operate to ensure that executives do not make 'windfall' gains which do not reflect underlying performance should the share price rebound. For in-flight awards, companies may also be considering whether performance conditions should be adjusted in the circumstances, in order for awards to retain their incentive effect over the remainder of the performance period. There may be practical challenges around awards that are due to vest, for example in relation to the practice of allowing directors to immediately sell enough shares to cover their tax liability on receipt of the award. Companies will need to consider the particular rules of their share plans and plan ahead in relation to logistics around share plan awards and vestings.
Long term incentive share awards
Companies will need to decide whether or not to put on hold any annual all-employee share plan offers until there is more stability in the market as any launch in the current circumstances is likely to see reduced take-up rates, despite current share prices being low. For employees currently participating in such arrangements, companies are likely to see an increase in cancellations, contribution holidays (under Sharesave), or contribution variations (under SIPs), which will increase the administrative burden for companies and their administrators. There are also financial issues to consider, particularly for Sharesave schemes, if a normal annual launch is proposed: given the current low share price of many companies, there would likely be a significant increase in cancellations of previous options in order to take advantage of participating in a new offer with a lower exercise price. Cancelling a Sharesave will accelerate accounting charges which, when coupled with the accounting charge for the new option, will hit P&L in a year where P&L might otherwise not be strong. Any increase in the number of shares needed may also put a strain on dilution limits.
Broad-based share plans
EXECUTIVE REMUNERATION AND SHARE PLANS: AUSTralia
Australian listed companies that vary the remuneration entitlements of their CEO or directors are required to immediately disclose such variations under ASX Listing Rule 3.16.4. If companies are proposing to vary the terms of their CEO’s incentive rights or options they may require shareholder approval under Listing Rule 6.23 and should consider this requirement when preparing their notices of annual general meeting.
CEO and director remuneration
Companies will need to decide whether or not to put on hold any annual all-employee share plan offers until there is more stability in the market as any launched in the current circumstances are likely to see reduced take-up rates, despite current share prices being low. For employees currently participating in such arrangements, companies are likely to see an increase in cancellations or contribution variations, which will increase the administrative burden for companies and their administrators.
Companies will be considering very carefully whether it is appropriate to grant any discretionary share awards at this turbulent time, mindful of both investor and market perception. Where awards are to be granted, companies will need to consider how to price awards, and whether to reduce the grant level to reflect any significant drop in share price. Alternatively, where such adjustments are not made, companies will need to explain to shareholders how discretions in the plans are intended to operate to ensure that executives do not make 'windfall' gains which do not reflect underlying performance should the share price rebound. For awards that are already on foot, companies may also be considering whether performance conditions should be adjusted in the circumstances, in order for awards to retain their incentive effect over the remainder of the performance period. There may be practical challenges around awards that are due to vest, for example in relation to the practice of allowing directors to immediately sell enough shares to cover their tax liability on receipt of the award. Companies will need to consider the particular rules of their share plans and plan ahead in relation to logistics around share plan awards and vestings.
EXECUTIVE REMUNERATION AND SHARE PLANS: FRANCE
The significant impact of COVID-19 on the economy, although virtually impossible to anticipate, must necessarily be taken into account by boards of directors and specialised committees, including with regard to executive remuneration at listed companies. No specific regulation has been released on this subject but recently, a professional organization representing 113 of the largest private corporations operating in France (AFEP) has requested that "executive directors who have remained in their positions or who are working remotely to reduce by 25% the total compensation to be paid to them in 2020 for the period during which employees of their company are on furlough". In addition, the French Government has also requested that companies benefiting from the State relief package reduce executive remuneration by 25%, and a number of large French companies have announced such measures. Further insights are available here.
Directors’ remuneration
EXECUTIVE REMUNERATION AND SHARE PLANS: SPAIN
No specific provisions have been released. Some companies have announced that their directors are voluntarily foregoing a portion (or all) of their remuneration.
EXECUTIVE REMUNERATION AND SHARE PLANS: GERMANY
The supervisory board of German listed companies must propose, and generally get shareholder approval, for the remuneration of their management board members at least every four years, or in the case of a material change to the remuneration system. Some companies will propose a new management board members’ remuneration system at the forthcoming annual shareholder meeting. Given the impact COVID-19 is having on all businesses companies will need to carefully consider the practicalities involved when proposing a new policy, including how to engage with institutional investors and proxy advisors in the circumstances and whether any further explanation or clarification, particularly around the possible future exercise of discretions, given current trading and circumstances.
EXECUTIVE REMUNERATION AND SHARE PLANS: RUSSIA
Companies will be considering very carefully whether it is appropriate to grant any share awards at this turbulent time, mindful of both investor and market perception. They may also be considering whether performance conditions be adjusted in the circumstances. There may also be practical challenges around any awards that do vest, for example in relation to the practice of allowing directors to immediately sell enough shares to cover their tax liability on receipt of the award. Companies will need to consider the particular rules of their share plans and plan ahead in relation to logistics around share plan awards and vestings.
Share plans and awards
If the term of service by the chief executive officers or members of the board of directors is expiring during the COVID-19 crisis, relevant companies shall reconsider the remuneration policy at the forthcoming annual shareholder meeting. A lot may have changed since that policy was drawn up and sent to shareholders given the impact COVID-19 is having on all businesses. Companies will need to carefully consider the practicalities of proposing a new policy at this time, including how to engage with institutional investors in the circumstances and whether any further explanation or clarification, particularly around possible future exercise of discretion, where the board have discretion on any elements, given current trading and circumstances.
EXECUTIVE REMUNERATION AND SHARE PLANS: US
Companies will be considering very carefully whether it is appropriate to grant any share awards at this turbulent time, mindful of both investor and market perception. They may also be considering whether performance conditions should be adjusted given the circumstances. Companies will need to consider the particular rules of their share plans and plan ahead in relation to logistics around share plan awards, vestings and necessary approvals.
Companies considering implementing changes for high-level executives and management employees should review any contractual restrictions on such changes, and ensure that all necessary approvals for the changes are obtained. Changes to executive remuneration may require disclosure on a Form 6-K, and in certain circumstances, amended or new contracts reflecting the changes may need to be filed with the company’s next quarterly or annual report. Instead of reducing or eliminating salary or bonus payments, some companies have implemented salary deferral for a certain number of months. Companies considering this approach – or any approach that would defer payments of any kind – should consult with a tax specialist.
Executive remuneration
EXECUTIVE REMUNERATION AND SHARE PLANS: ITALY
EXECUTIVE REMUNERATION AND SHARE PLANS: SOUTH AFRiCA
Last updated 5 May 2020
EXECUTIVE REMUNERATION AND SHARE PLANS: UAE
Senior management of UAE Public Joint Stock Companies ("PJSCs") are often remunerated in part by share buy-backs. The UAE Securities and Commodities Authority ("SCA") issued a circular to PJSCs on 24 March 2020 pursuant to which it relaxed certain statutory requirements in order to ease the implementation of share buybacks by PJSCs and allows PJSCs with available cash on hand to carry out a buyback relatively quickly.
Share buybacks
Although there are currently no requirements to reduce executive salaries in the UAE, pay cuts and bonus reductions (including executive pay cuts) seem to be becoming standard practice as companies brace themselves for the long term effects of Covid-19 on the economy.
Second Wave Response Planning
All companies should take stock of lessons learned to date and plan ahead for any potential second wave of Covid-19 cases.
Reflect upon lessons learned to date Introduce / update a second wave response plan
Identify operational vulnerabilities and assess where to shore-up versus where energy and resource may be better directed Identify and collate key documents where relevant rights and obligations sit (e.g. supply contracts and insurance policies) Plan internal and external communications
As many businesses have seen already, the speed and quality of delivery of any crisis response correlates directly to the thought and time invested in planning and preparing for events. Companies that are prepared and can respond confidently are able to:
Much has been made of the possibility of a further spike of Covid-19 cases, with the potential for further lockdown restrictions being imposed. Although it is difficult predict the form such restrictions may take a second time around, with reports of restrictions being re-imposed in some areas of the world, companies should take the opportunity now to reflect on their response to the initial outbreak and take active steps to ensure measures are in place should a second wave materialise.
Last updated 1 July 2020
Safeguard business operations and the wellbeing of staff and customers Maintain financial resilience and retain investor confidence Minimise damage to reputation and legal liabilities Avoid the need for stakeholder intervention Retain or enhance goodwill and strengthen and appropriately showcase brand and values Minimize effects of negative media coverage
Accordingly, boards should be actively encouraging management to undertake this exercise now and ensure they remain informed throughout.
Companies should revisit their response procedures to the initial outbreak and consider any lessons learned. In particular, did the company have a written response plan in place to deal with the issues Covid-19 has given rise to? Was it fit for purpose and where could it be improved or adapted should a second wave, and re-instatement of restrictions, bring about further disruption? Broadly, any plan should contemplate two essential elements:
Response plan
Operational: i.e. what do we do? when is it done? who does it? Communications: i.e. what do we say? who says it? how and where do we say it?
1. 2.
The operational issues that should be covered in the response plan will vary from company to company and much of this will be informed by how they have been impacted to date by Covid-19. Companies will need to give careful thought to the nature of their operations and how they may be affected by any second wave. For example, with health and safety of staff and customers a primary concern for nearly all businesses, early and thorough assessments of whether premises can remain open (now and/or in the event of further restrictions) are likely to be a key priority. Businesses may also need to identify swiftly which of their activities can continue remotely and ensure the IT infrastructure necessary to support that remains fit for purpose and that virtual networks remain adequately secured. Likewise, close oversight of supply chain vulnerabilities and management of key contracts (including insurance policies), will enable companies to anticipate and respond promptly to potential operational exposures and mitigate potential litigation risks. If they haven’t already ,businesses should take the opportunity now to identify and collate relevant documents in which their legal rights and obligations sit – where later required, technological solutions can help to triage this data and allow the business to focus on the key areas of key contracts and determine the extent of such rights and obligations. Ongoing liquidity management and oversight of the company’s financial position will inevitably also be critical in ensuring it is able to remain resilient and weather the impact of any second wave. No doubt this is already happening in most companies but it is worth reflecting on whether internal and external reporting remains fit for purpose and that consideration is given to realistic lead times for securing and arranging any necessary re-financing or additional liquidity lines.
Operational issues: what do we do and when?
Any response plan should outline the team who will be responsible for handling any second wave consequences and implementing the plan. Key decision-makers with appropriate authority will need to be identified and thought should be given as to whether and how to involve representatives from different parts of the business that may be affected, as well as any relevant organisational heads (e.g. HR, IT, Legal etc.) and any external parties it may be appropriate to engage (e.g. PR or law firms and other third party consultants). It is important the team is not so big as to become unwieldy or inhibit effective decision-making and consideration should be given as to how best to address this. Board members (if not otherwise included) should ensure reporting lines are in place to enable ongoing visibility and oversight of the response team’s strategy and progress.
Operational issues: response team
Many companies will have dedicated significant resource already to addressing the communications aspect of their Covid-19 response. Constant monitoring of communications strategy will be required to ensure that it continues to be appropriate in the dynamic environment and in keeping with prevailing sentiment. It will need to ensure that accurate updates are provided to key stakeholders to limit rumours, misinformation and speculation. Credibility will be key and ensuring the right messages are delivered at the right time by the right people may be crucial in riding out any second wave. Companies will need to work closely with their Communications team and PR advisors to determine or adapt internal and external messaging - some of which work can be done now (for example, preparing or updating pre-approved holding statements). There should be a clear view as to the severity of any second wave impact on the company. This may change over time, but be aware for example of immediately labelling the advent of a second wave as a “crisis” given the serious connotations this term carries - some companies may find a different characterisation more appropriate. Key stakeholders (including the company’s board, for example) should be identified and controlled lines of communication with those stakeholders established. In particular, it will be critical to ensure the PR strategy is appropriately aligned with any regulatory or contractual reporting obligations – getting this wrong can expose the company to litigation risk as well as long term damage in terms of market confidence.
Communications strategy
