Maintaining good corporate governance during COVID-19
30 March 2020
The outbreak of the Coronavirus (COVID-19) has been declared a public health emergency of international concern by the World Health Organisation, which is causing a significant impact to people’s lives, businesses and the wider economy.
A significant effort is being made globally to contain the virus, however, crises such as these can unfold unpredictably. As the situation develops, firms across all sectors are having to work rapidly to ensure that their business services can continue to operate, their staff (and places of work) remain safe and their customers remain properly and appropriately served.
Whilst the primary focus of any business will be on ensuring the health and well-being of staff, businesses are facing an increasing number of challenges that need to be addressed and mitigated. The legal implications are wide-ranging and complex.
In this article, we have identified some of the key risks and the practical considerations for companies and businesses during this time.
Board meetings & Decision making
The frequency of board meetings will depend on the nature of a company’s business. For good corporate governance, it is recommended that directors meet at least once every quarter to discuss the business of the company and to ensure they are effectively discharging their statutory duties as directors (defined in s172 of the Companies Act 2006 (the “Act”). Whilst it is inevitable that most businesses will face disruption in some form due to the global precautions being put in place to address the spread of COVID-19, companies can continue to manage their businesses by making valid and effective decisions remotely.
Meetings can be held via video, telephone, or other electronic means. If a meeting is held by telephone or other electronic communication, it is recommended that:
- All directors entitled to receive notice give their express consent to the meeting being held by such means;
- The arrangements are such that everyone can hear everyone else; and
- Minutes of any such meeting are circulated to each director for approval to ensure they are a correct record of the business transacted.
It is important to check the articles of association of the company to ensure that virtual meetings are permitted and if not, that the articles of association be amended to cover electronic meetings and to deal with issues such as quorum requirements and the conduct of voting.
For further information on directors’ statutory duties set out in the Act, you can read our dedicated article on ‘Directors’ duties and managing your business during the COVID-19 outbreak’ here.
Execution of Documents
During periods of social-distancing and self-isolation, many have raised the question of whether it is possible to legally execute documents by electronic signature. The answer is, it depends. Relevant factors include the governing law of the document, the type of document that is to be signed, the form of electronic signature used and whether there are cross-border implications to be considered. Electronic signature will be an effective and efficient way to get documents signed.
There are different forms of electronic signature, the most common form of electronic signatures we have seen in the past being a scanned electronic representation of a handwritten signature. However, there are many electronic signature platforms (such as DocuSign and Adobe Sign) and formats whereby you include a signature created by cryptographic means.
Irrespective of the use of electronic signatures or wet-ink signatures, the enforceability of the contract depends on the wider considerations: (a) whether the signatory has the authority to sign; (b) whether the parties signed documents in identical terms; and (c) whether the document could not be altered after the signatures.
It is also important to note that although an electronic signature is capable in law of being used to execute a document (including a deed), a person acting as a witness and attesting the execution of the document must be physically present. It is not possible under NI law (yet) for deeds to be witnessed via video link.
Financial reporting – risks
Companies should monitor the current and potential effects that the COVID-19 outbreak may have on their financial statements and financial reporting obligations. The Act requires that all companies must send their accounts, director’s reports and confirmation statements to Companies House every year. The directors’ report to be annexed to a company’s financial statements contain, among other things, particulars of important events affecting the company which have occurred in the financial year and a description of the principal risks and uncertainties facing the company.
Directors may wish to consider whether COVID-19 will have an impact on the performance of their company’s business to the extent that a disclosure is necessary in their director’s report.
Companies should also be aware that from 25 March 2020 businesses will receive a 3-month extension period to file their statutory accounts during COVID-19. This joint initiative between the Government and Companies House will mean businesses can prioritise managing the impact of Coronavirus and avoid any penalties if they fall foul of their filing date. Companies will still have to apply for the 3-month extension to be granted, however, those citing issues around COVID-19 will be automatically and immediately granted an extension. Applications can be made through a fast-tracked online system on the Companies House website.
The directors of a company should have regard to the health and safety of its employees. Given the global efforts to contain the spread of COVID-19, directors should consider whether employees need to travel, if they can safely and efficiently work from home, whether temporary lay-offs or redundancies are required for the benefit of the business. For further information on employee related matters, you can listen to our dedicated flash briefing on COVID-19 and employment law here.
As COVID-19 continues to spread and guidance continues to change daily, it is advisable for directors of companies to implement policies and procedures to manage business risks effectively. Depending on the type and severity of the risks presented by COVID-19, directors may consider a policy dedicated to dealing with those risks. Any policy that the board proposes to adopt should be formally considered and adopted by the board by resolution. Once approved, the policy should be circulated to all members of staff to whom it relates and adequate training provided, where necessary.
Directors of NI and English companies should, as part of their fiduciary obligations, take steps to consider, anticipate and deal with the new risks presented by the COVID-19 pandemic.
If you require any assistance or advice in managing the risks associated with COVID-19, including any of the matters raised in this article, please contact a member of our Corporate team.
*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your particular circumstances