UK Quoted Company Newsletter Q1 2020

On 17 March 2020, ICSA issued initial guidance on AGMs and the impact of COVID-19. It looks at how companies might adapt the basis on which they hold their AGMs given COVID-19.

This was followed on 27 March 2020 by supplemental guidance from ICSA which reflects the Government ban on public gatherings of more than two people that is in place at the date of this newsletter. Whilst the ban is in place, it is this supplemental guidance that should be followed. It has been endorsed by, amongst others, the Department for Business, Energy and Industrial Strategy (BEIS) and the Investment Association.

We have been advising clients on legal and practical issues they face as regards their AGMs including: holding meetings based on minimum quorum provisions; what additional information they should give in notices of meetings and RNSs; interim and final dividends; withdrawing resolutions; and postponing AGMs, to name but a few.

As of 28 March 2020, the government announced, amongst other things, that legislation will be introduced to ensure those companies required by law to hold AGMs will be able to do so safely, consistent with the restrictions on movement and gatherings that have been introduced. It is not known as yet when this legislation will be drafted or come into force, although Parliament is currently in recess until 21 April 2020.

Businesses may now apply for a three-month extension for filing their accounts. Those citing issues around COVID-19 will, generally, be automatically granted an extension. Applications, which should be made before the filing deadline, can be made through a fast-tracked online Companies House system.

A corresponding extension applies to AIM companies whose Nomads can apply to AIM Regulation for a three-month extension to the reporting deadline for the publication of their annual audited accounts pursuant to AIM Rule 19.

See the 25 March 2020 BEIS announcements here and here and the 26 March 2020 Inside AIM announcement here.

On 27 March 2020, ESMA issued guidance on financial reporting deadlines in light of COVID-19. See the ESMA announcement here. It recommends National Competent Authorities, such as the FCA, apply forbearance powers towards issuers who need to delay publication of financial reports beyond the statutory DTRs deadline, in particular for (i) annual financial reports for a year-end occurring on or after 31 December 2019 but before 1 April 2020, for a period of two months from the DTRs deadline; and (ii) half-yearly financial reports for a reporting period ending on or after 31 December 2019 but before 1 April 2020, for a period of one month from the DTRs deadline.

It, nonetheless, underlines that issuers should keep their investors informed of the expected publication delay and that requirements under the Market Abuse Regulation (MAR) still apply (see ECM section below for more on MAR).

On 26 March 2020, the FCA, FRC and PRA issued a joint statement listing a series of actions to ensure that information continues to flow to investors and supports the continued functioning of the UK’s capital markets.

Amongst other things noted in the statement, the FRC issued guidance for companies covering, for example, dividends and capital maintenance, strategic reports and viability statements and financial statements. The FRC also issued an infographic for companies on the five key current questions that investors are seeking information on.

The FRC also announced further measures to allow companies and auditors to focus on the delivery of necessary information to investors and the markets. These include encouraging companies to consider delaying planned audit tenders and applying to the FRC for an extension, even when mandatory rotation is due.

On 31 March 2020, the Prudential Regulation Authority (PRA) issued a press release stating that it welcomes the decision by the boards of the large UK banks to suspend dividends and buybacks in response to a request from it. At the same time, the PRA also issued a letter to UK insurers about distributions of profits, stressing, among other things, the need to pay close attention to protecting policy holders and maintaining safety and soundness.

On 1 April 2020, the Investment Association issued a press release commenting on dividend payments in the current climate. It stressed, among other things, the need for boards to consider what is best for their business over the long term and whether any dividend payment is sustainable in light of the current market conditions and business needs.

On 8 April 2020, the FCA published a Statement of Policy setting out a series of temporary measures, effective immediately, to help listed companies to raise new funding while retaining an appropriate degree of investor protection. The package includes a combination of temporary policy interventions and reminders of some existing options for companies and their current and prospective shareholders.

The measures relate to:

• smaller share issues (in particular noting the Pre-Emption Group (PEG) relaxation measures noted below);
• share issues with a prospectus (including shorter form prospectuses and a different approach to working capital statements); and
• the requirements for general meetings under the Listing Rules (for example, temporary modifications to the Listing Rules on a case-by-case basis with regards to class 1 and related party transactions which will allow companies, subject to conditions, to apply to the FCA for a dispensation from the requirement to hold a general meeting).

Two related technical supplements support the package of measures.

The FCA published a special edition on 17 March 2020, in which it provided key commentary for companies and market participants given the current exceptional situation. The Primary Market Bulletin, available here, was updated on 30 March 2020.

Items covered include ongoing disclosure under MAR, market volatility and suspension of trading, the importance of transaction notifications, delays in corporate reporting (see sections above on (i) FCA temporary extension for filing of annual financial statement under the Disclosure Guidance and Transparency Rules (DTRs) and (ii) FCA requests delay to publication of preliminary financial statements), shareholder meetings (see section above on AGMs / COVID-19) and corporate transactions and admissions.

Ongoing disclosure under MAR: whilst the FCA acknowledges that the current situation may create challenges for companies in terms of the convening and operation of disclosure committees, it has stressed that they must continue to comply with their MAR obligations and related FCA rules and should be mindful that their own responses to COVID-19 might in themselves trigger a disclosure obligation.

This approach follows the position adopted by ESMA in its recommendations to financial market participants for COVID-19 in which it stated that "issuers should disclose as soon as possible any relevant significant information concerning the impacts of COVID-19 on their fundamentals, prospects or financial situation in accordance with their transparency obligations under the Market Abuse Regulation."

Importance of transaction notifications: in a similar vein, the FCA expects PDMRs and persons closely associated to continue to comply with their notification requirements under MAR.

On 25 March 2020, the LSE published market notice N07/20 making temporary changes to the Dividend Procedure Timetable 2020.

With immediate effect and until further notice, the LSE will permit a deferral period of up to 30 business days for payment of a dividend, but no more than 60 business days after the record date. Any deferral of a dividend payment must be notified to the Stock Situations Team without delay.

On 20 March 2020, AIM Regulation published an Inside AIM newsletter setting out certain temporary measures to be implemented in light of COVID-19 which address temporary suspension of trading, suspended AIM companies and engagement responsibilities for Nomads.

Temporary suspension of trading: AIM Regulation stresses that timely disclosure is a key obligation under the AIM Rules and AIM companies should aim to meet their disclosure obligations without delay. It is important that Nomads have a sound understanding of how their AIM companies are planning and responding to events so that they are able to make disclosures in line with their obligations. However, companies may require more time to make a fully compliant notification in the current climate and, in such cases, the Nomad should approach AIM Regulation to discuss whether a temporary suspension is required.

Suspended AIM companies: AIM Rule 41 (Cancellation) provides that where an AIM company has been suspended for six months, its securities will be cancelled. However, as companies may require more time to address the reason for suspension, the period has been extended to 12 months for any AIM company suspended between 30 September 2019 and 1 July 2020.

Engagement responsibilities for Nomads: the requirement for a Nomad to undertake a physical site visit to a company's material place of operations as part of its due diligence when taking on a new client has been temporarily suspended, if travel restrictions and social distancing measures make this requirement difficult to satisfy, provided that alternative measures (such as virtual meetings) are used. In addition, for the purpose of directors' AIM Rules education, AIM Regulation recognises that virtual and/or telephone meetings will be taking place as opposed to physical meetings.

Appreciating that companies may need to raise equity capital in response to the current economic climate, on 1 April 2020, the PEG published a statement recommending investors support, on a case-by-case basis, non-pre-emptive issuances by companies of up to 20 per cent of their issued share capital. The current PEG Statement of Principles recommends limits of no more than five per cent (allotted on a non-pre-emptive basis for cash) for general corporate purposes with an additional five per cent for specified acquisitions or investments. This is a temporary relaxation which will be in place until 30 September 2020.

The statement includes the PEG's expectations in the event that listed companies seek to utilise this additional flexibility and they are as follows:

• the particular circumstances of the company should be fully explained, including how it is supporting its stakeholders; 
• proper consultation with a representative sample of the company's major shareholders should be undertaken;
• the issue should be made on a soft pre-emptive basis as far as possible; and
• management should be involved in the allocation process.

The PEG stress that existing share awards should not be normalised to negate the dilutive effect of the extended issuance and that directors of the company will be held accountable for their decisions at the AGM following its use.

On 25 March 2020, HMRC put in place temporary measures to help stop the spread of Coronavirus, meaning that a stock transfer form (STFs) must now be submitted in a soft copy format (e.g. a scanned PDF) by email to stampdutymailbox@hmrc.gov.uk. Each STF must be fully completed, signed and dated (using a power of attorney if necessary) and e-signatures can be used while the temporary measures are in place.

If you have already posted a STF in connection with a recent transaction, you should resubmit this electronically to the above email address and include the details of any payments made in respect of that notification. If you do not do this, the STF will not be assessed or returned until the temporary measures end.

Stamp Duty must now also be paid electronically using Faster Payment, Bacs or CHAPS before HMRC can process the stock transfer form. Any queries about paying Stamp Duty or submitting STFs should also be submitted to the email address noted above.

See HMRC guidance on submitting stock transfer forms and paying stamp duty electronically.

On 17 March 2020, the Takeover Panel decided, as a precautionary step, to implement a policy of working remotely for the immediate future.

Parties wishing to contact the Panel are requested, in addition to calling the usual numbers (+44 207 382 9026 (or +44 207 638 0129 for matters relating to market surveillance), to use email as well where possible, at supportgroup@thetakeoverpanel.org.uk.

See COVID-19 Takeover Panel Statement 2020/2 on working remotely

FCA consultation on climate-related disclosures and clarification of existing obligations

The deadline for responses is extended to 1 October 2020.

Issued in March 2020, FCA CP 20/3 proposes that premium listed, commercial companies follow comply or explain rules on climate-related disclosures which are aligned with the recommendations of the Taskforce for Climate-related Financial Disclosures. They would apply for accounting periods beginning on or after 1 January 2021, with the first reporting being required in 2022.

The CP has also published a draft Technical Note which looks at the existing Listing Rules, DTRs and Prospectus Rules and reminds issuers that these could require environmental, social or governance disclosures and accordingly require issuers to have, or put in place, systems and data sources that enable these disclosures to be made.

HM Treasury and Department for Digital, Culture, Media and Sport consultation on expanding the dormant assets scheme.

The deadline for responses is extended to 16 July 2020.

BEIS Committee launches follow-up inquiry – Delivering Audit Reform

Deadline for written submissions is 4 May 2020.

In February 2020, the Pensions and Lifetime Savings Association (PLSA) published its annual update of its guidelines for pensions and savings schemes investors, renamed as the PLSA Stewardship Guide and Voting Guidelines. The guidelines include a revised section on stewardship reflecting the Stewardship Code 2018. This includes three checklists which investors can use to develop an effective stewardship strategy, an effective engagement strategy which results in purposeful dialogue, and a best practice and a coherent approach to voting.

Additionally, a revised section on corporate governance policy lists five key aspects that indicate "good" corporate behaviour: adhering to the spirit of the 2018 Corporate Governance Code; taking a holistic view of risk oversight and governance; communicating promptly and effectively, ensuring relevant, accurate data and insight (not boilerplate) communications are provided; and understanding the importance of good engagement.

The updated voting guidelines follow the structure of the 2018 Code and include new sections on climate change and sustainability and on the individual accountability of directors with a summary sheet of all voting recommendations.

In March 2020, Pensions and Investments Research Consultants Ltd (PIRC) issued its annual update of its shareholder voting guidelines for 2020. The guidelines are available to purchase from PIRC.

Changes include: further updating for the 2018 UK Corporate Governance Code including, for example, noting that in relation to designated non-executive directors (pursuant to Provision 4), PIRC will review the appropriateness of the candidate; additional guidelines in relation to audit and auditors including, for example, that directors who were audit partners of the current auditor should serve at least a seven-year cooling-off period, regardless of whether the director was involved in the company’s account, before regaining independence; new guidelines noting that PIRC will look more closely at the alignment between the net assets of the holding company and those in the group accounts; and an increased relative weight for climate issues in its environmental, social and governance analysis for FTSE 350 companies excluding investment trusts.

On 3 March 2020, the Lord Chancellor and Secretary of State for Justice issued a response, by way of Ministerial written statement, to the Law Commission report on Electronic Execution of Deeds. We covered the Law Commission Report in the Q3 2019 edition of the newsletter.

The government supports the conclusions of the Law Commission, notably that formal primary legislation is not required to confirm that electronic signatures are legally valid since the existing framework makes clear that businesses and individuals can use e-signatures in commercial transactions. The statement also sets out that the government will convene an industry working group to consider issues about the security and technology supporting the use of electronic signatures including the question of video witnessing of electronic signatures. The government will also ask the Law Commission to conduct a wider review of the law of deeds (but no indication of the expected timing of the review has been given).