2020 will long be remembered for many different reasons. And whilst changes to business law will be well down the list, it isn't an exaggeration to say that the legal landscape shifted in an unprecedented way. Not necessarily in terms of major substantive and permanent amendment, but in terms of the frequent fluctuation and the way in which the pandemic forced changes across so many different sectors.
This article pauses to take a breath and provides an overview of some of the key changes to corporate and commercial law last year arising as a result of COVID-19 which are applicable to all businesses. For further or more specific insights, particularly in the real estate sector, please visit our Covid-19 hub.
The Government announced new legislation in March 2020 enabling companies to hold any general meetings (including AGMs) remotely or to postpone general meetings (including AGMs) in a manner which is consistent with the restrictions on movement and gatherings in the advent of COVID-19 (paragraph 3, Schedule 14, Corporate Insolvency and Governance Act 2020 c.12 ('CIGA')). In terms of holding general meetings, the result of these regulations is that general meetings (including AGMs):
- Don't need to be held at any particular place (such as the company's registered office).
- May be held and votes cast via electronic or any other means (i.e.: by telephone, over Zoom / Skype / Teams).
- May be held without the participants being in the same place (meaning that people do not need to convene in one location).
The effect of CIGA is that companies now have the ability to hold virtual or hybrid-virtual general meetings until the "Relevant Period" set out in the regulations expires (please see below).
Crucially, these changes override anything to the contrary in a company's articles of association or the Companies Act 2006. However, other provisions contained in a company's articles which do not contradict with the regulations (for instance, regarding quorum) will continue to have effect.
Under the original regulations, the "Relevant Period" pursuant to which these measures were to expire under CIGA was on 30 September 2020. As time has moved on the period was extended to 30 December 2020, and has been again so that at the time of writing the new measures will apply until 30 March 2021.
Private companies holding general meetings will therefore not need to worry about needing to convene in person until at least 30 March 2021 and should keep an eye out for any further extensions to that deadline.
CIGA also provided temporary extensions for the deadline pursuant to which companies must hold AGMs. This deadline expired on 30 September 2020 and was not extended by subsequent amendments to CIGA. Companies are therefore no longer able to delay AGMs under CIGA.
CIGA also introduced temporary changes to the law regarding wrongful trading during the period 1 March 2020 to 30 September 2020. The suspension of liability for wrongful trading has been extended to cover the period from 26 November 2020 to 30 April 2021 under the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations 2020.
The effect of these regulations is that directors will not be held responsible for worsening a company's financial position (or that of its creditors) during the periods 1 March 2020 to 30 September 2020 and 26 November 2020 to 30 April 2021 simply because they have kept a company trading past the point of no return.
However, directors cannot act with impunity. The threat of misfeasance and fraudulent trading claims will still be relevant to a director acting during the period covered by these temporary changes.
Furthermore, company directors can still be disqualified under the directors' disqualification regime on the basis of acts or omissions during the periods set out above if their conduct is considered unfit (including if the director was responsible for the company's insolvency).
Finally, there is a gap in the coverage of the suspension periods, such that there is currently no suspension of the wrongful trading rules in respect of the period between 30 September 2020 and 26 November 2020. It is unclear how this will be resolved or play out in practice.
CIGA also introduced measures preventing creditors from threatening to wind-up a company as a method of debt collection. By introducing this measure the Government hoped to avoid mass insolvencies as a result of creditors threatening to wind up companies.
This measure applies until 31 March 2021 (unless extended). For further insolvency law updates, such as the new moratorium process, please visit this useful recap.
Restrictions on terminating contracts for goods and services
The vast majority of changes introduced during the pandemic, including those summarised above, have been temporary measures designed to mitigate the effects of the pandemic on the economy and the administration of businesses.
However, one of the permanent changes introduced by CIGA, and perhaps one of the most fundamental changes last year, was the introduction of a restriction on suppliers of goods or services from terminating a contract or doing any other thing (such as changing payment terms) by reason of the customer entering into a relevant restructuring or insolvency process, save for where certain limited exceptions apply.
This includes preventing the supplier from making it a condition to providing any services/goods going forwards that the customer repay any outstanding sums owed. This provision doesn’t apply to loans, and so lenders will still be able to terminate where the borrower becomes insolvent.
Companies House filings
Pursuant to the powers conferred upon the Secretary of State under section 39 CIGA, the Companies etc. (Filing Requirements) (Temporary Modifications) Regulations 2020 was passed and came into force on 27 June 2020. Section 11 of these regulations provides that, for accounts and reports filing deadlines falling between 27 June 2020 and 5 April 2021, the period for filing accounts at Companies House will be extended by three months.
Companies House have confirmed that they will update companies' filing deadlines automatically, therefore avoiding the need for companies to apply for an extension. However, note that this extension will not apply where companies have already extended their filing deadline.
Although this should not be seen as an incentive not to follow the relevant extended deadlines, Companies House has confirmed that it will treat penalties for any late filings sympathetically where that late filing results from the COVID-19 pandemic and is offering additional support and payment plans for such penalties.
Companies House has also introduced measures to encourage companies to file forms electronically. The majority of filings at Companies House can already be made via their web-filing service. For filings which cannot be made via their web-filing service, Companies House has also introduced a new service for uploading documents which would usually be filed in paper form (i.e. via post).
HMRC – stamping stock transfer forms
HMRC has also introduced new measures preventing stock transfer forms being submitted physically for payment of stamp duty and to enable this to occur online. In particular, forms are no longer being physically stamped, and HMRC is issuing confirmation letters as evidence of payment of stamp duty.
HMRC has further confirmed that it will accept e-signatures while COVID-19 measures are in place. For further information on how to submit stock transfer forms for stamping, please see the Government’s dedicated guidance page.
As the pandemic continues to evolve over the coming year, it is important to stay up to date with the latest changes to regulations and legislation so that your business can continue to operate smoothly. If you are unsure of your position or what actions you need to take, please get in touch with our dedicated team so that they may help you navigate the obstacles.