- ICSA, the corporate governance institute, defines corporate governance as ‘the system of rules, practices and processes by which a company is directed and controlled’
- The COVID-19 crisis presents health, wellbeing and financial issues to both people and business, as well as severe disruption of operations across functions
- The UK government and regulatory bodies have taken several steps to help businesses sustain corporate governance through the crisis
- Read this factsheet to:
- Understand which areas of corporate governance have been affected by the crisis
- Learn the areas of corporate governance reporting being relaxed in the UK
- See links to relevant and trusted resources to help you plan.
Principles for good corporate governance during crises
Considerations for businesses include:
- Keep the Board engaged and informed with virtual board meetings wherever possible
- Keep critical functions going wherever possible
- Manage working capital:
- Liquidity and working capital requirements may naturally come under strain
- Assess short-term requirements of cash and sources available, such as lines of credit, accounts receivable financing, customer advances, etc
- Understand the company’s short-term liquidity needs and work with management to secure liquidity requirements
- Continue to meet statutory obligations:
- Stay abreast of relaxations provided by government and monitor the financial close reporting that will most likely happen remotely
- Ensure complete integrity and transparency in managing external reporting
- Sustain continued performance of internal controls and ensure data security
- Work with accountants and auditors where appropriate with regards to auditing processes and requirements to ensure completion of accounts
- Ensure disclosure by communicating with regulators and provide public disclosure where it is needed or warranted as new information emerges
- Recalibrate risk assessments: identify risks that may have been previously considered managed but are now potentially high-risk
- Review cyber risks in the short and medium term
- Manage shifts in supply chain where possible
- Communicate with internal and external stakeholders as regularly as possible.
Changes to UK corporate governance and reporting you should be aware of
Financial Reporting Council
The Financial Reporting Council (FRC) has been active in updating guidance and easing reporting requirements. They published specific guidance on Corporate Governance and Reporting in March 2020 noting you should:
- Ensure that you continue to operate an effective control environment
- Develop and implement mitigating actions and processes
- Recognise that key reporting controls on which you have placed reliance historically may not prove effective in the current circumstances – and address
- Consider how you will secure reliable and relevant information, on a continuing basis, in order to manage the future operations, including the flow of financial information from significant subsidiary, joint venture and associate entities
- Pay attention to capital maintenance, ensuring that sufficient reserves are available when the dividend is paid, not just proposed; and sufficient resources remain to continue to meet the company’s needs
- Focus on areas of reporting of most interest to investors; and provide clarity on the use of key forward-looking judgements.
Furthermore, the FRC has clarified that:
- The accounting and auditing standards on going concern have not changed, nor has the FRC increased pressure on auditors to be tough
- Companies traded on AIM (London Stock Exchange), have been granted an extra three months by which to publish their annual financial report.
Access the COVID-19 FRC guidance papers
- The FRC is continually issuing, reprising and updating guidance papers for companies and auditors. These can all be found on its Covid 19 page.
Financial Conduct Authority
- The Financial Conduct Authority (FCA) has allowed listed companies an extra two months to publish their audited annual financial reports (I.e. from four to six months), and has asked investors not to draw any conclusions if a company chooses to take advantage of this
- Companies are encouraged to defer any tenders for new auditors, even if they are due to change their auditor this year
- There is a dedicated FCA Covid response hub where you can access the latest news, updates and information for firms.
- Firms can apply for a three month extension period to file accounts
- There has been a temporary pause in the UK’s corporate strike-off process and announcement of ‘sympathetic’ reviews of those receiving late filing penalties.
Department for Business, Energy and Industrial Strategy and Insolvency Service
Annual General Meetings (AGMs)
In partnership with the FRC, the Department for Business, Energy and Industrial Strategy (BEIS) announced that it will bring forward legislation to provide flexibility in allowing firms to meet statutory obligations and necessary meetings to file. This allows AGMs to:
- Be postponed beyond the current six-month deadline for public companies
- Give companies the flexibility to restrict the communication of notices and other meeting documentation to emails, websites and other electronic media
- Be held in ‘closed meeting’ format i.e. by telephone (overriding articles of association for short periods will be permitted) with quorum also permitted by the telephone.
Supported by the FRC and BEIS, ICSA also published Guidance on AGMs and impact of COVID-19.
Changes are proposed with respect to wrongful trading
There is a temporary suspension of wrongful trading provisions for company directors:
- Under s.214 of the Insolvency Act 1986, the court may declare a company director personally liable to pay compensation if the company has gone into insolvent liquidation and, at some time before that, the director knew or ought to have known that there was no reasonable prospect of the company avoiding insolvent liquidation and did not take every step to minimise the potential losses to the company’s creditors
- The suspension will be retrospective from 1 March 2020 and last for three months
- The government has said that the implementing legislation will include provisions to extend the change if necessary.
Interim moratorium and restructuring
- Following the government’s 2018 consultation on the UK insolvency regime and restructuring tools, they will legislate for:
- A moratorium of up to 90 days in duration that will grant companies facing COVID-19-related liquidity issues the time and “breathing space” to seek a rescue or to restructure and prevent creditors from enforcing debts during that period
- Protection of companies’ access to supplies and the ability to accept new borrowings during the moratorium to facilitate continued trading
- Further, the government will look to create a flexible “new restructuring plan” - providing a rescue vehicle including the ability to bind classes of creditors who vote against it (also known as cross-class cram down).
Government Equalities Office (GEO) and the Equality and Human Rights Commission (EHRC)
- There is a suspension of enforcement for gender pay gap reporting within the 2019/20 financial year.
- Off-payroll working rules reforms (IR35) have been postponed to 6 April, 2021 from 2020.
Further reading and resources
- Financial Reporting Council (FRC)
- All updates issued by FRC with respect to the COVID-19 response
- Resources for stakeholders on COVID-19
- Financial Conduct Authority (FCA)
- Covid response hub page
- Companies House
- Coronavirus guidance for Companies House, customers employees and suppliers
- Department for Business, Energy & Industrial Strategy (BEIS) – Corporate Insolvency Framework Consultation 2018