Due to the outbreak of the Coronavirus (Covid-19) pandemic, the UK’s capital markets have undoubtedly experienced a period of acute challenge, particularly in terms of adapting to rapidly changing circumstances.
In order to mitigate the impact of the crisis on companies and other market participants, the Government, regulators and other industry bodies have implemented a whole range of measures. These measures have been enacted in order to alleviate some of the regulatory burdens imposed on companies during what has been an exceptionally challenging time, as well as ensure that companies have the appropriate access to finance.
This article provides a list of the main regulatory and market-led alleviations of note for small and mid-size quoted companies offered by HM Government, the regulators and other market participants/industry bodies in response to the Coronavirus pandemic.
Please note that this article is only concerned with the regulatory/market-led initiatives relevant to small and mid-size quoted companies and also does not include any of the guidance offered in response to the pandemic nor any of the various loan schemes.
London Stock Exchange: Inside AIM
AIM regulation published an Inside AIM newsletter setting out temporary measures it proposes to implement during the coronavirus pandemic, including:
- The temporary suspension of trading where an AIM company needs more time to make a fully compliant notification;
- An extension of the suspension period from 6 to 12 months for AIM companies suspended between 30 September 2019 to 1 July 2020; and
- A temporary suspension of the requirement for Nomads to make a physical site visit to a new client’s material place of operation.
The FCA issued a moratorium requesting a delay to the announcement of preliminary financial accounts for all listed companies by at least two weeks. The statement did not apply to AIM.
FCA, FRC and PRA joint statement
The FCA, FRC and PRA issued a joint statement for companies and auditors which sets out a series of actions that included:
· A statement by the FCA granting listed companies an extra two months to publish their audited financial reports (this was a temporary measure, which has now ended).
· Guidance from the FRC for companies preparing financial statements.
· Guidance from the FRC for auditors seeking to overcome challenges in obtaining evidence.
Companies House: extension of the legal filing deadline
Companies House allowed companies to apply for a three-month extension of the legal filing deadline. AIM companies were also able to apply to AIM Regulation for a three-month extension.
Pre-Emption Group statement
The Pre-Emption Group issued a statement on their expectations for issuances during the coronavirus pandemic. As part of this, the PEG recommended that investors consider supporting issuances by companies of up to 20% of their issued share capital (applying until 30 September). Whilst this does not apply to AIM or Standard List companies, it was encouraged.
FCA Statement of Policy: recapitalisation
The FCA issued a Statement of Policy which included a series of measures aimed at assisting companies to raise new share capital in response to the Covid-19 pandemic. This included:
· Adopting a new approach to working capital statements (see here);
· Modifying the Listing Rules for general meeting requirements; and
· Reminding companies to utilise shorter form prospectuses.
BEIS: announcement on insolvency law and AGMs
The announcement included:
· The temporary suspension of wrongful trading liability;
· Temporary measures to give companies flexibility around AGMs; and
· Plans for the Government to amend insolvency law.
FCA: Primary Market Bulletin 28
Within the Bulletin, the FCA published a statement on temporary relief for companies on the timing of the publication of half yearly financial reports. This is a temporary relief aimed at supporting companies facing the challenges of corporate reporting during the coronavirus pandemic. The relief will give companies an additional month to publish their half yearly financial reports.
BEIS: Corporate Insolvency and Governance Act 2019-21
The Act included:
- Greater flexibility for general meetings taking place between 26 March and 30 September 2020;
- Giving companies the ability to postpone holding AGMs if they fall between 26 March and 30 September 2020;
- Permitting a temporary extension to the period in which a public company is required to file its annual accounts with Companies House;
- Granting the Secretary of State powers to make regulations to extend the deadlines for certain company filings; and
- Introducing measures to temporarily suspend parts of insolvency law to support directors through the crisis without the threat of personal liability.
London Stock Exchange: Inside AIM
The London Stock Exchange released an Inside AIM newsletter which set out the temporary changes to an AIM company’s obligation to notify half-yearly reports in accordance with the AIM Rules, granting them a one-month extension to issue their half-yearly report.
HMRC: Employment Related Securities Bulletin
HMRC issued an ERS Bulletin, which outlined the impact of the coronavirus on the tax-advantaged employee share schemes. This included several relaxations, such as where employees had been furloughed or on unpaid leave during the coronavirus pandemic. The bulletin covers the following schemes:
- Save as you Earn (SAYE) – HMRC have extended the payment holiday terms for participants who are unable to contribute because they’re furloughed or on unpaid leave. SAYE contributions can continue to be deducted from the Coronavirus Job Retention Scheme.
- Share Incentive Plan (SIP) – CJRS payments can constitute a salary for furloughed employees. SIP participants can stop deductions from their salary.
- Company Share Option Plans (CSOP) – options will remain qualifying for full-time directors and qualifying employees who have been furloughed.
HMRC: Employment Related Securities Bulletin
In a similar vein to the previous bulletin, this edition provides additional relaxations on certain employee share scheme rules. For instance, the bulletin covered:
- Enterprise Management Incentive (EMI) – HMRC have issued an exception to the working time requirement. HMRC will accept that, from19 March 2020, there is no disqualifying event if an individual being furloughed, taking leave, or working reduced hours as a result of the coronavirus pandemic, provided that individual otherwise remains an eligible employee.
- Save As You Earn (SAYE) – clarification on the 12-month extended payment holiday.
EU capital markets recovery package
The European Commission launched a capital markets recovery package to support Europe’s recovery. As part of the package, the Commission adopted legislative proposals to amend the Prospectus Regulation and MiFID II. The proposed amendments include:
- Prospectus Regulation – the introduction of a new short-form prospectus for secondary issuances of shares. The EU Recovery Prospectus must be a single document and not exceed 30 pages.
- MiFID II – the Commission amended the regime for research on small and mid-cap issuers so that, when research is exclusively on small and mid-cap issuers, investment firms will be able to choose not to apply the current requirement to set up a research payment account or pay for research with its own resources. This is available to small and mid-cap issuers who do not exceed a market capitalisation of €1 billion over a 12-month period.
o There is also an exemption from the current research unbundling requirement if execution services and the provision of research relate to small and mid-cap issuers. This exemption allows investment firms to pay jointly for the execution services and the provision of research.
o Finally, there were other amendments to the regime, which were concerned with information requirements, product governance and position limits.
FCA statement on accounting for lease modifications
The FCA announced temporary relief for issuers who choose to use the amended IFRS 16 during the current coronavirus pandemic. Despite the amendment not being formally adopted by the EU, the FCA have confirmed that they will permit issuers to use the modified IFRS 16.
This statement was reciprocated by the LSE and FRC.
Pre-Emption Group further statement
In September, the Pre-Emption Group (PEG) issued a further announcement which stated that it is extending, to 30 November 2020, its recommendation that investors, on a case-by-case basis, consider supporting placings by companies of up to 20 per cent of their issued share capital over a 12-month period.
The original recommendation on additional flexibility, announced on 1 April 2020, was due to end on 30 September 2020.
BEIS: Extension of the Corporate Insolvency and Governance Act
The Government announced measures from the Corporate Insolvency and Governance Act that have been extended to relieve pressure on businesses dealing with the Coronavirus. The temporary measures to protect businesses from insolvency were due to end on 30 September 2020, but have now been extended. The temporary measures include:
- Companies with obligations to hold AGMs will continue to have the flexibility to hold meetings virtually until 30 December 2020. This means that shareholders can continue to examine company papers and vote on important issues remotely.
- Statutory demands and winding-up petitions will continue to be restricted until 31 December 2020 to protect companies.
- Termination clauses are still prohibited, stopping suppliers from ceasing their supply or asking for additional payments while a company is going through a rescue process.
- The modifications to the new moratorium procedure will be extended until 30 March 2021. A company may enter into a moratorium if they have been subject to an insolvency procedure in the previous 12 months. Measures will also ease access for companies subject to a winding up petition. The temporary moratorium rules will also be extended to 30 March 2021.