Following the outbreak of Coronavirus, there are a number of regular day-to-day administrative business activities which will be impacted.
Below are just some of the matters which business owners will need to consider.
Companies House filings and registration of charges
From 25 March 2020, Companies House has given companies the opportunity to apply for a three month extension to file their annual accounts. Applications can be submitted online (before a company’s filing deadline) by completing a form and citing the Coronavirus as the reason for the application. If an application is not made and the annual accounts are filed late, an automatic penalty will be issued.
However, companies who have recently shortened or extended their accounting reference period may not be eligible for the extension.
Meeting of directors and shareholders
It is generally accepted that a board meeting of directors or a general meeting of shareholders can be held electronically, either by telephone or other conferencing facility, although there may not be any reference as such contained within a company’s articles of association (particularly older companies). Articles of association of companies should be checked to ensure that electronic meetings are not prohibited.
Where a board meeting is to be held electronically, it should be recorded: that the directors have been notified and consented accordingly, that the means of holding the meeting (whether by telephone or otherwise) ensured that all parties are aware of the contributions made by each other, and the minutes circulated for approval note the means by which the meeting was held.
The same can apply to convening a general meeting of shareholders, although the more shareholders there are, the more difficult this may be to achieve particularly when it comes to the small number of companies who are required to hold Annual General Meetings by law.
In light of the Government’s “social distancing” policy, rather than convening a general meeting of shareholders or dealing with the logistics of holding a general meeting through virtual means, it may be more appropriate to use the written resolution procedure where the matters to be approved by the shareholders require are merely routine.
When signing a document (whether by wet-ink or electronically), your signature may need to be witnessed by a person who is physically present (currently, a signature cannot be witnessed by video). Although there is no legal requirement that a witness to your signature should be independent and unrelated to you, it is considered best practice for that witness to be as such. This has created difficulties in the current “social distancing” environment.
You should ask your solicitor for guidance regarding witnesses before signing documents.
Stamp duty applications and statutory books
Stamp duty is a tax payable by a buyer of shares in a company. In order for the buyer of shares to be registered as a shareholder of a company (and have all the rights of a shareholder such as the right to receive dividends), the stock transfer form (the document used to transfer shares) must be sent to the Stamp Office for “stamping”. The Stamp Office will only accept the original wet-ink version of the stock transfer form.
Due to the current circumstances, HMRC has issued a guidance note on 25 March 2020 stating that all application for stamping will now only be accepted by email, attaching scanned or electronically signed stock transfer forms. Payments must also be made electronically. Any paper-based applications should be re-submitted electronically.
Once an application is successful, a letter will be issued by HMRC confirming that the correct amount has been paid. That letter, together with the original stock transfer form can then be sent to the company for registration in the company’s statutory books.
It is inevitable that most, if not all, businesses will experience financial difficulties through this pandemic. On 28 March 2020, the Government announced measures that would help struggling companies through this time, including a temporary suspension of wrongful trading.
Wrongful trading refers to the personal liability of a director of a company which continues to trade at a time where there the director (should have) concluded that there is no reasonable prospect of that company avoiding liquidation or administration. If the company continues to trade without taking every step possible to minimise losses to its creditors, a director can be ordered by the court to personally contribute to the company’s assets.
The Government’s announcement that these provisions are temporarily suspended ensures that directors of companies which are struggling as a result of Coronavirus can continue to trade these companies with the aim of emerging through this difficult and unprecedented period, without having to worry whether at any time they ought to have concluded that their company would not survive and what steps ought to be taken to minimise losses to creditors. The relaxation will apply for a period of three months, retrospectively from 1 March 2020 (with the possibility of extending if necessary). The Government are yet to legislate on this announcement and we wait to see exactly how this will take effect. Other provisions concerning directors’ their statutory and fiduciary duties and their liability for misfeasance and misappropriation of assets remain in full force and effect.
This is a brief overview of the insolvency provisions. We have prepared a more in depth summary of the financial implications of COVID-19 and the changes to insolvency legislation in a separate article.
The above is a brief summary of just some of the issues facing businesses during this time. This article should not be considered as legal advice, but rather an indication of the areas that should be explored and upon which advice should be taken.
Should you require advice on any of the matters discussed, please contract John Spratt on 01295 204112 or firstname.lastname@example.org.
*Disclaimer: While everything has been done to ensure the accuracy of the contents of this article, it is a general guide only. It is not comprehensive and does not constitute legal advice. Specific legal advice should be sought in relation to the particular facts of a given situation.