Corporate governance obligations are changing as the current COVID-19 pandemic develops. Liz Haberfield, Associate Director at lawfirm Greenaway Scott, provides an update on the new guidance.
This article will outline the new guidance that has been published by the Financial Conduct Authority (FCA), Financial Reporting Council (FRC) and Prudential Regulation Authority (PRA) with regard to your corporate reporting and publications. The joint proposal made by the FCA, FRC and PRA encourages businesses to delay their reporting in an effort to support the UK's capital markets and to provide investors with a more accurate picture.
The FCA have implemented a temporary policy whereby listed companies have two months flexibility to publish their annual financial reports. Companies therefore have six months from the end of the financial year to make their financial publications. It is worth noting that this is simply a statement that the FCA have made, to advise that they will not take action should the reports be published within six months of the financial year-end. It is not a legislative change.
Listed companies may still wish to publish their financial reports within the usual four month time period. However, it is strongly recommended to carefully consider each element of your timelines in order that you do not draw undue adverse inferences, when there is additional time to analyse and prepare accurate information.
This policy will not apply to any other disclosure obligations. Companies should still have particular regard to their disclosures relating to the impact of the global pandemic and the business' prospects. Please see our previous article for further information on COVID-19 disclosures.
Investors and lenders have also been encouraged to take stock of the current global climate when considering any uncertainty that arises with regard to the reports.
Corporate Governance Guidance and Recommendations
You are not alone if you are dealing with immense uncertainty and governance disruption within your business. The FRC has identified that Boards should consider the following in order to preserve effective corporate governance:
- Identify areas of operation and control which may no longer be effective due to the effects of COVID-19, such as the lack of accessibility to certain business locations. Once identified, implement mitigating actions to ensure that the company can continue to operate efficiently;
- Consider how you will obtain reliable and relevant information to manage your future operations, suppliers and workforce;
- Maintain sufficient capital and resources so that reserves are not only available when dividends are proposed, but also when they are paid. Should the company become unable to pay a dividend, directors should halt the payment and communicate this to the market. Directors should be wary of their legal duties under statute and common law with regard to this;
- Consider how you will maintain and/or supplement your management information through the current climate to the eventual revival of business as usual;
- Consider your access to government support measures;
- Consider your current situation and ensure that your Strategic Report is as forward looking as possible. The FRC acknowledges that in the current climate this is difficult, but has published guidance to assist with this and emphasises that boards must have a "reasonable expectation" of the company's viability"; and
- Consider your disclosures with regard to IAS1 and IAS10.
The FRC acknowledges that boards cannot predict what the exact effects the pandemic will have on their company, however they have advised that it is reasonable for potential investors to expect a company to communicate the potential risks and the consequential impact on the business in different scenarios.
The FRC pursued feedback from investors and subsequently identified that the following disclosures are sought after and thus are worth providing clarity on:
- Details of the financial resources that are available to the company; and
- Forward looking information that evidences the resilience of the company in the current climate. They state that "[i]nformation about such stress testing and reverse stress testing is particularly valuable in the current environment, and will help support both the going concern assessment of the company and its viability statement."
In order to allow companies to focus on the provision of the above information, there have been further measures implemented. For example, on 25 March 2020, Companies House issued guidance to allow for a delay on submitting accounts at Companies House by companies. Companies will still be required to apply for the three month extension, however this will automatically be granted for COVID-19 reasons. This highlights the importance of companies carefully considering the disclosures and information they provide, and the level of detail and thought that should go into them.
The advice and guidance provided is subject to constant change as the global situation develops and it is vital that companies stay up to date with any alterations. The FRC has advised that "[i]n these difficult times, the need for clear leadership, strong governance and effective decision making based on reliable information is stronger than ever" and that "the need for fuller disclosure is paramount." Therefore, should you require any advice or assistance, please do not hesitate to contact our Corporate Governance team at Greenaway Scott.
The information contained in this article is for information purposes only and is not intended to constitute legal advice. If you require further information, our corporate team would be more than happy to assist you. Please contact us at email@example.com or call us on 029 2009 5500 to speak to one of our team.