Directors' Knowhow is a monthly article which highlights changes and updates of relevance to small and mid-size quoted companies.
Throughout July, there have been several additional regulatory/legislative changes in relation to the Covid-19 crisis. The first section of this month’s Directors’ Knowhow includes the relevant policy and market developments and updates relevant to the Coronavirus pandemic.
Chartered Governance Institute, together with the City of London Law Society Company Law Committee, has released new guidance on holding shareholder meetings following the Corporate Insolvency and Governance Act 2020. The new guidance, which has received the support of GC100, the Investment Association and the QCA, and endorsed by BEIS and the FRC, seeks to outline the temporary flexibilities available for companies contained within the Act.
The guidance answers the following questions:
- How are companies able to hold shareholder meetings under the Act?
- Are companies able to limit attendance at shareholder meetings?
- What if a company’s articles of association say something different to the Act?
- Can a company which has already issued its notice of meeting change the format of its meeting to one allowed under the Act?
- Companies have already been holding meetings on an adapted basis during the coronavirus lockdown. What difference does the Act make?
- Do companies that have already held their meetings on an adapted basis during the coronavirus lockdown need to do anything?
- Can companies hold a physical meeting to be attended by shareholders generally?
- Does the Act change a company’s AGM deadline?
QCA publications and policy updates
This section of the Directors’ Knowhow features all of the publications produced by the QCA and any relevant updates that have occurred over the last month.
Share Schemes note
In July, the QCA’s Share Schemes Expert Group issued an updated note in order to help you navigate the coronavirus pandemic in relation to all-employee share schemes, which explained the range of possibilities available to companies operating Company Share Option Plans (CSOP), Enterprise Management Incentive (EMI), Save As You Earn plans (SAYE) and Share Incentive Plans (SIP).
HMRC have since released an additional Employment Related Securities Bulletin (ERS Bulletin), which provides further updates on EMI and SAYE. The note has been amended to incorporate this additional information.
To view the note, please click here.
Reports, guides and regulation
This section features some of the key legislative/regulatory developments and changes, as well as any new reports or guidance issued by industry bodies or regulators, over the last month.
FRC operational separation of audit firms
On 6 July, the FRC announced its principles for operational separation of the audit practices of the Big Four firms. The objectives of the operational separation are to ensure that audit practices are focussed primarily on the delivery of high-quality audits in the public interest, as well as that the audit practices do not rely on cross subsidy from the rest of the firm.
The desired outcomes of the operational separation, include:
- Audit practice governance prioritises audit quality and protects auditors from influence from the rest of the firm.
- The total amount of profits distributed to the partners in the audit practice does not persistently exceed the contribution to profits in the audit practice.
- The culture of the audit practice prioritises high-quality audit by encouraging ethical behaviour, openness, teamwork, challenge and professional scepticism/judgement; and
- Auditors act in the public interest and work for the benefit of shareholders of audited entities and wider society.
There are 22 principles in total, which have come about as a result of extensive discussions with the audit firms. The FRC is asking the Big 4 firms to agree to the operational separation of their audit practices and to provide a transition timetable to complete implementation by 30 June 2024.
To view the principles, please click here.
FRC publishes annual report
On 17 July 2020, the FRC published its annual report, which sets out the progress it has made to implement the recommendations for the changes to the FRC and the activities it regulates. As part of this, the FRC has brought forward many of the recommendations of Sir John Kingman, the CMA and Sir Donald Brydon into a unified transformation programme.
In some instances, the FRC will bring forward reforms ahead of legislation, particularly when it is in the public interest to do so.
The FRC has begun by conducting a thorough review of its governance and structure and intends to make changes that will streamline operations, clarify accountabilities and improve the effectiveness of decision making.
If you wish to see the annual report, you may do so here.
FRC Lab newsletter
The FRC’s Financial Reporting Lab has released its second newsletter for 2020. This issue of the newsletter provides an update on the Lab’s recently released reports regarding the Reporting in times of uncertainty project, as well as its upcoming reports on Video, Virtual & Augmented Reality and on a range of other activities.
To view the newsletter, please click here.
Articles, news and speeches
This section features relevant news, articles and publications for small and mid-size quoted companies that has been published in the last month.
FRC Lab call for participants on section 172
The FRC’s Financial Reporting Lab has issued a call for participants for their new project: reporting on stakeholders and Section 172 disclosures. The Lab is inviting investors and companies to participate in the project on corporate disclosures. The project will consider the usefulness to investors of the disclosures about stakeholders across a range of reporting formats.
To read more about the project, please click here.
If you are interested in participating in the project, please email FinancialReportingLab@frc.org.uk.
This section provides an update of any recently submitted QCA consultation responses, as well as the consultation responses the QCA is currently drafting.
QCA policy consultation responses
On 15 July 2020, the QCA’s Primary Markets Expert Group and Secondary Markets Expert Group contributed to the response to ESMA’s consultation on the functioning of the regime for SME Growth Markets under the Markets in Financial Instruments Directive and on the amendments to the Market Abuse Regulation for the promotion of use of SME Growth Markets.
To view the response, please click here.
The QCA is seeking views on the below consultations:
- FCA: Proposals to improve climate-related disclosures by listed companies
- IASB: Exposure Draft: General Presentation and Disclosures (Primary Financial Statements)
- OTS: Capital Gains Tax review: Principles of CGT
- OTS: Capital Gains Tax review: Technical detail and practical operation of CGT
If you have any comments you wish to contribute on either of these consultations, please get in touch with Jack Marshall, Policy Adviser, email@example.com.