Coronavirus for FDs – some things you might have missed…
Coronavirus – what companies need to know
Whether we like it or not, coronavirus is affecting everyone’s lives. Over the last couple of weeks, the UK government has announced wide ranging proposals to try and assist businesses and their employees. In addition to the headline issues, however, companies are having to cope with lots of other changes to their daily life, many of which have flown under the radar. They may not be ‘sexy’ enough to hit the headlines, but they’re important nonetheless…
- Directors’ legal duties. Thanks to modern technology, it’s very easy for directors to stay in contact with each other and even hold board meetings over the phone or by video conference (provided there’s nothing in the articles preventing this). In these extraordinary times, it’s worth increasing the frequency of these meetings as those informal catch-ups by the coffee machine have gone. Make sure you keep minutes of your discussions, which are likely to include company finances, employee status and engagement, and the latest government updates.
- Solvency of the company. With income dropping, many formerly successful and profitable companies may now find that they are struggling to pay their suppliers. Technically, this may mean that the company is insolvent (as it is unable to pay its debts as they fall due). Existing legislation imposes personal liability on directors who have negligently mismanaged their businesses in the lead up to insolvency. However, new legislation has been announced to temporarily suspend the wrongful trading rules to remove the threat of personal liability during this pandemic (all other rules and checks continue to remain in force). The objective here is to help companies to continue to trade during these times. Further detail of these changes is still awaited.
- Filing annual accounts. Companies House has announced that companies which have been affected by the pandemic can apply for a three-month extension for filing their annual accounts. Such applications can be made through a fast-tracked online system and the extension will be granted immediately and automatically where issues relating to coronavirus are identified as a basis for, or in support of, the application. Note, however, the application must still be made before the filing deadline.
- Other dealings with Companies House. Electronic filing of documents and forms continue without interruption. However, where hard copy documents would normally be filed (such as certain forms and copy resolutions), they must now be sent to the Cardiff office as the London office is closed and does not have an external letterbox! Same day services have also been suspended.
- HMRC – payment of stamp duty. HMRC has temporarily stopped stamping documents with stamp duty (this does not affect SDLT or SDRT however). Instead, copy stock transfer forms or forms SH03 etc (as the case may be) should be emailed to the new dedicated email address at HMRC, with payment submitted electronically. A letter of confirmation of the payment of stamp duty will be issued in response instead of stamped forms. This letter should, therefore, be kept safe with the original forms for future reference.
- Disruption to existing contracts. A contract may contain a ‘force majeure’ clause which, essentially, removes a party’s liability for failure to perform a contract, where that failure is as a result of matters outside of its control. The scope of what constitutes a force majeure event will depend on the specific drafting, so there is no guarantee that a pandemic, or the resulting government regulations, will be caught within the definition. As such, the clause may not give protection in the current circumstances. If you are having difficulties in relation to a contract which contains such a clause (whether you are a supplier or customer under that contract), we would be happy to review and advise on the terms.
Even without such a clause, a contract may have become impossible or incapable of performance as a result of the pandemic, meaning it has been ‘frustrated’. If it is simply a case that a contract has become more difficult or more expensive to perform, this is unlikely to result in the frustration of the contract. Further, frustration will not apply if the parties can, instead, rely on a force majeure clause.
- External funding. The government has announced the Corona Business Interruption Loan Scheme (CBILS) to help small and medium sized businesses to maintain liquidity through the duration of the coronavirus pandemic. Up to £330bn is to be made available, through loans, overdrafts and asset and invoice financing. There do seem to have been some initial problems with the CBILS as banks have been accused of imposing difficult eligibility criteria. However, this is being continually reviewed and further changes are expected to increase access for the businesses that really need it.
It is also important to check your existing finance and borrowing terms. In particular, check your financial covenants and material adverse effect clauses in your existing loan and finance documents. If it looks like the company is, or might soon become, in breach of these terms, it’s important to have early discussions with your bank so that the situation can be managed to all parties’ satisfaction.
- Employees and employers. There is also lots of other guidance on our website specific to both employers and employees and the impact that the coronavirus outbreak has had.
For further advice on any of the above, please contact our Head of Corporate, Liz Barton (firstname.lastname@example.org).
The articles published on this website, current at the date of publication, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your own circumstances should always be sought separately before taking any action.