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 in the last year to help businesses sustain corporate governance through the crisis.
Read this factsheet to:
- Understand which areas of corporate governance have or continue to be affected by the crisis.
- See links to relevant and trusted resources to help you plan.
Principles for good corporate governance during crises
Considerations for businesses could include:
- Keep the Board engaged and informed with virtual board meetings 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.
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 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 chains where 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 consolidated guidance on Corporate Governance and Reporting in December 2020 noting you should:
- Develop and implement mitigating actions and processes to ensure that you continue to operate an effective control environment, addressing key reporting and other controls on which you have placed reliance historically but which may not prove effective in the current circumstances;
- 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; and
- Pay attention to capital maintenance, ensuring that sufficient reserves are available when the dividend is made, not just proposed; and sufficient resources remain to continue to meet the company’s needs.
Financial Conduct Authority
- There is a dedicated FCA COVID-19 response hub where you can access the latest news, updates and information for firms.
- Some firms can apply for a three month extension period to file accounts
- There was a temporary pause in the UK’s corporate strike-off process and announcement of ‘sympathetic’ reviews of those receiving late filing penalties.
- The latest information on the impact of coronavirus on Companies House processes can be found on the gov.uk website here.
Department for Business, Energy and Industrial Strategy and Insolvency Service
Annual General Meetings (AGMs)
Following changes to the manner in which firms could hold AGMs in 2020 as a result of the pandemic, it’s very likely that the 2021 AGM season will also require a real mix of formats for shareholder meetings.
ICSA recently outlined what this means in terms of legal challenges, showing good practice and reflecting the expectations of BEIS, the FRC and investor groups.
You can find the updated ICSA guidance here.
The Corporate Insolvency & Governance Act 2020 (CIGA)
Previous provisions within CIGA have already begun to tail off, specifically with regard to filing extensions.
However in light of the government’s roadmap, some provisions have been extended until the end of June 2021:
- The current temporary restrictions on the service of statutory demands and winding-up petitions on distressed companies by creditors. Statutory demands and winding-up petitions by creditors of companies affected by COVID-19 will continue to be restricted until 30 June 2021.
- The prohibition on termination clauses, stopping suppliers from ceasing their supply or asking for additional payments while a company is going through a rescue process.
- The temporary suspension of directors’ liability for wrongful trading for directors who can demonstrate that their company’s trading has been negatively affected by the pandemic.
- The current restriction on commercial landlords’ right of reentry or forfeiture for nonpayment of rent. The UK government’s current position is to support commercial landlords and tenants to agree on their own arrangements for paying or writing off rent debts.
- The restriction on the use of the Commercial Rent Arrears Recovery (CRAR) process by landlords. The new extension also increases the total number of days of outstanding rent required for CRAR to be used to 457 days between 25 March and 23 June 2021, and 554 days between 24 June and 30 June 2021.
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)
- Coronavirus 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
- Department for Business, Energy & Industrial Strategy (BEIS) – Restoring Trust in Audit and Corporate Governance Consultation (March 2021)