Directors' Knowhow is a monthly article which highlights changes and updates of relevance to small and mid-size quoted companies.
Throughout March, the Coronavirus (COVID-19) pandemic has dominated regulatory and market developments as a result of its continuing and significant impact. The first section of this month’s Directors’ Knowhow includes the relevant policy and market developments and updates relevant to the Coronavirus pandemic and seeks to provide a breakdown of the key information you need to know.
Business support available
In light of the Coronavirus pandemic, there are various business and other financial support mechanisms that may be available to your company.
Government business support
From Monday 23 March, businesses will have access to government support in order to help them keep operating. This includes the Business Interruption Loan Scheme, which will provide government-backed loans of up to £5 million to small and medium businesses (with a turnover of up to £45 million). For larger businesses, the Bank of England has launched the COVID Corporate Financing Facility, which will provide a quick and cost-effective way to raise working capital.
Interest payments and lender-levied fees will be covered by the Government for an initial 12-month period.
More information can be found here.
The Government has launched a webpage detailing all of the business support schemes available to individuals and businesses, which can be found here. The schemes include:
In addition to the above schemes, there is also a business support helpline you can contact on 0300 456 3565, which you can use to talk to someone about how the schemes may apply to your business.
Finally, HMRC have additional helpline set up to support businesses and self-employed people concerned about not being able to pay their tax, which you can contact on 0800 0159 559.
British Business Bank loan scheme
In conjunction with the Government, the British Business Bank has launched the Coronavirus Business Interruption Loan Scheme. The loan scheme supports a wide range of business finance products, such as term loans, overdrafts, invoice finance and asset finance.
If you are a smaller business, information on how to access the scheme is available here.
If you are an accredited or prospective lender, more information is available here.
Business support outside of Government
In addition to the Government-backed support listed above, many representative organisations have issued guidance to help businesses and individuals navigate the current pandemic. This includes:
In response to the outbreak of the coronavirus, several organisations have issued guidance to help companies and individuals navigate the pandemic.
ICSA on AGMs and impact of COVID-19
ICSA (The Chartered Governance Institute) recently issued guidance to support companies planning their AGM’s, who should be considering contingency plans as a result of COVID-19. The guidance was jointly produced with Slaughter and May and supported by the FRC, GC100, the Investment Association and the Quoted Companies Alliance.
The guidance offers suggestions reflecting UK company law, regulation and good practice issues associated with the different options a company will need to consider. The options companies can consider, include:
- Adapt the basis on which you hold the AGM;
- Delay convening the AGM, if notice has not yet been issued;
- Postpone the AGM, if permitted under the articles of association;
- Adjourn the AGM; and
- Conduct a hybrid of the AGM, if permitted under the Articles.
If you wish to view the guidance, please click here.
FRC guidance for auditors
The FRC has issued guidance for auditors arising from the COVID-19 pandemic, particularly in relation to the practical difficulties they may be encountering in carrying out audits. Given the restrictions in travel, social distancing limitations and the inability to attend meetings or access company sites, audit firms may need to consider developing alternative audit procedures to gather sufficient evidence.
In addition to the above, there is increased uncertainty about the immediate outlook for companies, which may produce consequences for companies proposing to report results in the coming months, as well as for their auditors. Auditors are encouraged to engage with the entities they audit to ensure they set clear expectations as to the level of disclosure they expect to see in annual reports to communicate the impact and risk of COVID-19 on the company.
ESMA guidance on COVID-19
The European Securities and Markets Authority has released a public statement providing recommendations for financial market participants for COVID-19 impacts. In the public statement, ESMA makes the following recommendations to financial market participants:
- Business Continuity Planning – all market participants should be ready to apply contingency plans to ensure operational continuity.
- Market disclosure – issuers should disclose any relevant significant information concerning the impacts of COVID-19.
- Financial reporting – issuers should provide transparency on actual and potential impacts of COVID-19 based on an assessment of business activities.
- Fund management – asset managers should continue to apply the requirements on risk management.
If you wish to view the statement, you may do so here.
Practical law COVID-19 toolkit
Practical Law has published a COVID-19 Toolkit that collates responses to queries received in relation to the coronavirus outbreak. The Toolkit covers a range of public health emergency and disaster preparedness topics applicable to lawyers in the UK.
To view the Toolkit, please click here.
As a result of the current circumstances, many regulatory developments have occurred in order to mitigate against the impact of the pandemic whilst ensuring regulatory standards are upheld.
Joint statement by the FCA, FRC and PRA
In response to the continuing Coronavirus pandemic, the Financial Conduct Authority (FCA), the Financial Reporting Council (FRC) and the Prudential Regulation Authority (PRA) have published a joint statement for companies and auditors. Details of the joint statement can be found on the FCA’s website and on the FRC’s website.
The announcement sets out a series of actions to ensure the continued and orderly functioning of the UK’s capital markets and to ensure that investors continue to receive information. This includes:
- A statement by the FCA allowing listed companies an extra 2 months to publish their audited annual financial reports.
The FCA has announced temporary relief for listed companies who are encountering difficulties in relation to corporate reporting due to the ongoing coronavirus crisis. The relief will permit listed companies which need additional time to complete their audited financial statements an additional 2 months to publish their statements. Currently, under the Transparency Directive, companies are required to publish their audited financial statements 4 months from their financial year end. From today (26 March 2020), the FCA will not suspend the listing of a company if they publish their financial statements within 6 months of their financial year-end.
The relief is only applicable to companies that are subject to the Disclosure and Transparency Rules (DTR 4.1), and as such, does not apply to AIM companies.
The FCA have published a Q&A where you will be able to find additional information on the delay to annual company accounts.
The Market Abuse Regulation (MAR) remains in force and companies are still required to fulfil their obligations in relation to inside information. Companies are urged to carefully assess what information constitutes inside information during the crisis as it may alter the nature of information that is material to a company’s prospects.
Regarding the moratorium on preliminary financial statements, the FCA has confirmed that the moratorium can end on 5 April 2020.
2. Guidance from the FRC for companies preparing financial statements.
The FRC has issued guidance for companies on corporate governance and reporting in response to the coronavirus pandemic. The guidance highlights the need to establish new working practices if usual forms of management and control are disrupted, as well as reminding boards of the consideration they need to give to capital maintenance. The guidance also addresses the difficulties companies face in making forward-looking judgements, such as in strategic reports and viability statements, with a focus on material uncertainties and going concern issues. The guidance includes:
- The need for narrative reporting to provide forward-looking information that provides insight into the board’s assessment of business viability;
- Going concern and any associated material uncertainties, the basis of significant judgements and the matters to consider when confirming the preparation of the financial statements;
- The increased importance of providing information on significant judgements, sources of estimation and other assumptions made; and
- Judgement required in determining the appropriate reporting response to events after the reporting date.
3.Guidance from the FRC for audit firms seeking to overcome challenges in obtaining audit evidence.
The FRC has issued a Bulletin that includes guidance for auditors, as well as matters to consider where engagements are affected by the coronavirus pandemic. The FRC has provided a list of factors that auditors should give consideration to when carrying out audit engagements during the ongoing crisis, coupled with guidance on how auditors might address these issues. This includes, amongst other things: new audit engagements; planned audit approach; materiality; compliance with laws and regulations; going concern; group audits; and quality control.
The Bulletin, and the guidance contained within, is intended to help auditors in the current situation and will be removed when circumstances return to normal.
In addition to the above, the London Stock Exchange have issued an update to the Inside AIM article they published the other day. Noting that Companies House has allowed companies to apply for a three-month extension of the legal filing deadline, AIM companies will also be able to apply to AIM Regulation for a three-month extension of the reporting deadline.
Primary Market Bulletin 27
The FCA published a Primary Market Bulletin for primary market participants. This is a special edition bulletin, which provides key commentary for issuers and market participants in relation to the outbreak of the coronavirus. The bulletin focusses on several topics aimed at ensuring that markets continue to function well while consumers are protected.
The key points in the bulletin relate to:
- Market Abuse Regulation (MAR) – issuers should continue to comply with their obligations under MAR, but the FCA recognises that there might be slight delays as new processes are put in place.
- Market volatility and suspension of trading – the FCA will continue to monitor requests from issuers to suspend trading in certain securities.
- Transaction notifications – persons discharging managerial responsibilities (PDMR’s) and persons closely associated (PCA’s) are expected to continue to meet their notification requirements under MAR in the prescribed timeframe.
- Corporate reporting – issuers are expected to put in contingency plans to minimise issues when producing accounts for upcoming reporting periods.
- Shareholder meetings – the FCA continues to support the exercise of rights of shareholders, while recognising this may need to involve the use of virtual methods.
- Corporate transactions and admissions – the FCA will continue to review corporate transaction documentation in line with the principles set out on their website.
Companies House extend filing deadline
If Coronavirus has affected your company and you need more time to file your accounts, you can make an application to extend the period allowed for filing.
Companies House advises that you must act before the filing deadline.
More information is available here.
FCA issues moratorium
The FCA has issued a request to companies that they delay the publication of their preliminary financial statements. The FCA have written to all listed companies intending to publish their preliminary financial statements over the next few days asking them to delay their publications for at least two weeks.
The request does not include any form of corporate reporting other than the preliminary financial statements and it is not compulsory for Main Market companies to follow.
AIM companies are not required under the AIM Rules to issue preliminary financial statements, meaning that this request will not apply to the vast majority of AIM companies. If, however, AIM companies have decided to voluntarily follow Main Market convention by publishing preliminary financial statements, they should give consideration to the FCA’s guidance.
The justification for the moratorium is in response to the rapidly changing basis on which companies are reporting. As such, the FCA are requesting a delay in order to ensure that due consideration is given by companies to these events in preparing disclosure for their preliminary financial statements.
The FCA is currently working in conjunction with the FRC and PRA with the intention of producing a package of measures aimed at ensuring companies prepare the appropriate disclosures and address the current challenges. The FRC has expressed its support for the FCA’s request for a moratorium.
As a result of the ongoing coronavirus pandemic, the market is adapting and many developments have taken place to continue to ensure the orderly functioning of the market.
London Stock Exchange
The Exchange continues to work to ensure the orderly functioning of the market. There are several measures in place to ensure the continuity of this. For instance, the Market Surveillance team employs mechanisms, such as circuit breakers and price monitoring extensions, that pause and delay auctions if certain price movement tolerances are breached, which are likely to occur frequently during periods of extreme market volatility.
The LSE are continuing to provide information for issuers on the Issuer Services website, which includes information on how issuers can address some of the practical challenges in holding shareholder and investor meetings.
AIM Notice on temporary measures
On Friday, the London Stock Exchange published an Inside AIM article setting out temporary measures to be implemented to support AIM companies and nominated advisers as they navigate the challenges arising from the current crisis.
The key measures relate to:
- The temporary suspension of trading – where an AIM company requires more time to issue a fully compliant notification, the Nomad should approach AIM Regulation to discuss whether a temporary suspension is required.
- Suspended AIM companies – the LSE will cancel the admission of AIM securities which have been suspended from trading for six months, to 12 months.
- Engagement responsibilities for Nomads – the Exchange will temporarily suspend the requirement for a Nomad to make a physical site visit to a new client where travel restrictions and social distancing measures are implemented, provided the Nomad uses alternative measures, such as a virtual meeting.
In addition to the above, and noting that Companies House has allowed companies to apply for a three month extension of the legal filing deadline, AIM companies will also be able to apply to AIM Regulation for a three month extension of the reporting 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.
QCA 2020 Employee Share Schemes Survey
In February 2020, the QCA’s Share Scheme Expert Group commissioned the QCA to poll its member companies on employee share schemes. The purpose of conducting the survey was to find out why smaller quoted companies offer employee share schemes to their workforce, the schemes they operate, their reasons for doing so and the difficulties they encounter.
Overall, 61 small and mid-size quoted companies completed the survey.
To view the survey, 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.
On 11 March, Rishi Sunak delivered his first Budget as Chancellor of the Exchequer, announcing the Government’s plans to reshape the UK economy, which you can view here.
The QCA have released a statement in response to the Budget, which you can view here.
PrimaryBid – Understanding retail investors
PrimaryBid, in conjunction with the Economist Intelligence Unit, recently published a white paper on the importance of retail investors in equity markets. The paper finds that retail investors hold an aggregated €1.35 trillion in listed shares across the UK and the EU’s 27 markets. Despite these significant figures, retail investors are often overlooked as potential shareholders as they are seen to be too fragmented to be involved in capital raisings.
However, the paper champions retail investors, stating that they represent a major source of potential capital for IPOs and follow-on share offerings. In addition to this, retail investors are often long-term shareholders and provide much needed liquidity for small and mid-cap companies.
To read the report, please click here.
FRC strategy 2020/21
On 23 March, the FRC published its strategy for 2020/21 following responses to its consultation. The FRC will prioritise promoting a more resilient audit market, developing its longer-term strategy and will look to take forward the recommendations produced in the three audit-related reviews.
Having responded to the consultation (which you can find here), the QCA is pleased to see that some of the QCA’s concerns have been taken into consideration. For instance, we welcome the change to the FRC’s core objectives stating that they will enforce standards proportionally where in the public interest.
AQSE Exchange (formerly NEX Exchange)
Following the renaming of NEX Exchange to Aquis Stock Exchange (AQSE), the new exchange reissued its Main Market Admission and Disclosure Standards, Corporate Adviser Handbook and the Growth Market Rules for Issuers. The references to NEX Exchange have been replaced with reference to AQSE throughout each set of rules, along with other minor amendments to the text.
To view the Admission and Disclosure Standards, please click here.
To view the Corporate Adviser Handbook, please click here.
To view the Growth Market Rules for Issuers, 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.
FCA speech on open-ended funds investing in less liquid assets
On 19 March, Edwin Schooling Latter, Director of Markets and Wholesale Policy at the FCA, delivered a speech on open-ended funds investing in less liquid assets.
Schooling Latter refers to recent examples of open-ended funds, such as Woodford, needing to suspend dealing in response to the number of redemption requests a fund receives. He notes that while the suspension can serve investors' best interests in difficult circumstances, these examples raise questions about the appropriateness of promising liquidity to investors when funds invest in less liquid/illiquid assets. In so doing, he highlights the risks of liquidity mismatch and explains that notice periods and swing pricing can help protect fund investors when there is pressure to meet redemption requests.
In the speech, he invites industry/stakeholder feedback on what the optimal policy response should be to ensure open-ended funds appropriately manage liquidity risks while enabling investments.
To view the speech, please click here.
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
The QCA's Accounting, Auditing and Financial Reporting Expert Group contributed to the response to the FRC's Draft Plan and Budget 2020/21.
To view the response, please click here.
The QCA's Secondary Markets Expert Group contributed to the response to ESMA's consultation paper on MiFID II/MiFIR review report on the transparency regime for equity and equity-like instruments, the DVC and trading obligations for shares.
To view the response, please click here.
Additionally, the QCA is currently seeking member input on the following consultation(s):
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.