The UK Corporate Insolvency and Governance Bill - coming to the rescue of third sector bodies and beyond

In this time of significant interruption to life as we used to know it, we have been advising many of our third sector clients on issues of governance - including wrongful trading, the conduct of meetings (board meetings and AGMs) and filings with regulatory bodies.

The Corporate Insolvency and Governance Bill 2020 – which had its first reading before the House of Commons on Wednesday 20 May – proposes temporary changes to legislation affecting all of the above topics; and should it progress, it will provide a helping hand (at least in terms of governance issues) to a range of organisations, third sector bodies included.

Insolvency / Wrongful Trading

The Corporate Insolvency and Governance Bill proposes a temporary suspension of liability for wrongful trading (which applies to charitable companies but which does not currently apply to SCIOs; nor does it apply to unincorporated legal forms such as trusts or unincorporated associations). Courts would be required to assume that a director who would have been potentially liable for wrongful trading is not responsible for any worsening of the financial position of the company or its creditors during the period from 1 March 2020 to one month after the Act comes into force.

This would potentially mean that the board of a company in financial difficulty could allow the company to continue trading for longer than would normally be the case (availing themselves of all available support packages etc) without the fear of personal liability kicking-in under the wrongful trading provisions. Directors should however be aware that there are some companies to which this provision would not apply – such as banks and other regulated sectors.

The bill also proposes temporary restrictions on winding-up petitions and orders (in respect of companies). However, winding-up petitions may still be pursued if the creditor has reasonable grounds for believing that the coronavirus has not had a financial effect on the company – or that the grounds of the petition would apply even if it had not.

This is therefore not a blanket ban on such petitions, and directors should consider carefully whether any financial difficulties they are facing are genuinely as a result of the coronavirus and not a pre-existing problem. There is also material in the bill providing for moratoriums, which may also assist in providing companies in financial difficulties with more of an opportunity to find a solution.

Members’ Meetings

General meetings (including AGMs) have been affected by the lockdown in obvious ways. While some charities have turned to Zoom and other videoconferencing software, others have been reluctant to do so – particularly where governing documents do not specifically allow for meetings to be held in this way or where meetings are not deemed to be quorate without people attending in person.

Our general stance has been to encourage a pragmatic approach towards the holding of meetings by Zoom, Skype etc. In spite of earlier indications to the contrary, the bill thankfully affirms this approach.

The Corporate Insolvency and Governance Bill proposes that general meetings need not be held at any particular place, can be held by electronic means, and that voting can be dealt with by electronic means (or by any other means); to reinforce that general principle, no member has a right to attend in person or participate or vote by any particular means. The wording makes it clear that these principles will override any provisions with the organisation’s own constitution.

This is significant - as previously third sector organisations could have held meetings electronically but might have been concerned that this could have been challenged on the grounds of being inconsistent with the constitution and/or relevant legislation. It is also important to note that this provision will apply to SCIOs and registered societies, as well as to companies.

The bill also allows for the possibility of extending the period for holding AGMs – if your organisation was legally required to hold an AGM between 26 March and 30 September 2020 due to a requirement in its articles of association (for companies) or because it is a SCIO (all SCIOs must have a provision to this effect in the constitution), then it can validly hold its AGM at any time up until 30 September.

Filing annual accounts

The Corporate Insolvency and Governance Bill proposes relaxations to requirements for companies to submit accounts and other documents to Companies House.

Primarily it allows for the Secretary of State to extend the deadlines, rather than the bill itself actually effecting an extension to such deadlines. Further, charities should note that their requirements regarding OSCR will not be affected under the terms of this bill as currently worded.

OSCR have said separately that they will take a proportionate approach, but OSCR filing requirements for Scottish charities remain in place.

The bill is expected to become law by end June 2020 – and the relaxations afforded by the legislation will only last until end September 2020 (unless further extended).

If you have any queries on this or any related areas arising from the COVID-19 pandemic, please do not hesitate to be in touch.