Coronavirus FAQs on Corporate Decision Making

 

Last updated 16:30, 08 October 2020

Company directors will undoubtedly be holding regular discussions to discuss the impact of, and their response to, the Coronavirus outbreak. Most of these discussions will not require formal decisions in the sense required by companies legislation, but will still take place in a board setting. There are some decisions that do need to be taken formally by the board, for example the approval of the company accounts.

The government's advice to help curb the spread of the Coronavirus is that people should avoid non-essential travel, and work from home where possible. The current restrictions on travel and meeting do not prevent decision making processes from being effectively and validly concluded, and there are a number of provisions, some legislative and some in a company's constitutional documents, which will facilitate remote decision making, and allow for circumstances where directors are not available. The following relates to private companies only. How do we ensure that board resolutions are validly passed? The manner in which directors may make decisions are detailed in the company's constitution, rather than legislation. Where a formal board decision is required, it can be passed either at a board meeting or, where the articles allow, by way of an informal unanimous decision. To pass a valid board resolution at a directors meeting, there must be a quorum, ie a sufficient number of eligible directors participating. The articles usually specify the quorum requirements for board meetings and the circumstances in which directors are not eligible to form part of the quorum (for example because of a conflict of interest).It is usually not necessary for directors to meet physically - they may attend, for example, by dialing in to conference calls or video calls or by using any other methods of real time communications. Check the company's articles to see what they say in this regard. The Model Articles are particularly flexible, providing that in determining whether directors are participating in a directors' meeting, it is irrelevant where any director is or how they communicate with each other. Directors participating in this manner will form part of the quorum, and therefore, assuming the requisite number of directors “attend”, valid decisions can be taken. Minutes should be taken and circulated in the normal manner. The articles may also allow directors to take decisions informally without a formal meeting, where all the eligible directors agree. Again the Model Articles are particularly flexible, allowing for a decision to be taken where all eligible directors indicate to each other “by any means” that they share a common view on a matter. Such decisions do not necessarily need to be in writing, and could for example be taken through telephone conversations. Where decisions are taken in this way, it would seem sensible to keep a record of what was agreed. Table A articles provide a more restrictive approach to informal decision making, in that such decisions must be in writing signed by all the directors who are entitled to notice of a meeting of directors. The resolution could be circulated to the directors by email, and signed by electronic means. Back to the top

What if our directors cannot perform their role as director?

 Given current estimates of the number of people who may be infected with COVID-19, it is quite likely that at some point individual directors will be affected and unable to exercise their management powers. Where possible, it may be a sensible precaution for directors to appoint an alternate to act instead of them. However, such an appointment can only be made if permitted by the company's articles, and for example the Model Articles do not permit this. The procedure for appointment set out in the articles will need to be complied with, often notice in writing, and following the appointment, the relevant company's registers must be updated and the appointment notified to Companies House within 14 days.The extent of the alternate's powers will also be set out in the articles, typically to exercise the appointor's powers and carry out responsibilities in relation to the taking of decisions. The appointment could be made for a specific period, and on the basis that the alternate will only act if the appointor is unavailable.An alternate director can be an existing director and so this could be an alternative method of limiting the number of physical signatures or attendees required in respect of corporate decision making. However, although an alternate will normally count in the quorum for a directors' meeting, no alternate may be counted as more than one director for these purposes. Back to the top

What about day to day management?

The board can usually delegate aspects of its functions to a committee, to an individual director, or to others, but the company's articles must expressly authorise such delegation. At this time, the board might wish to authorise a person, or a number of persons to carry out specific tasks or sign simple contracts on behalf of the company. This authorisation should be by board resolution. Where the company needs to enter into a deed, care must be taken that the appropriate execution formalities are complied with. If the deed is executed by one director in the presence of a witness, the witness must be physically present, potentially an issue where the director is self-isolating. Where the deed is executed by two directors, it must be signed on the same document. An individual director cannot appoint an attorney to sign a deed in their place. Although it is possible for a company to grant a power of attorney to a person to sign a deed as attorney on its behalf, such power of attorney must itself be executed by the company as a deed, so may not help in this scenario. Back to the top

What happens if we can't get our annual accounts ready in time for filing? 

Under normal circumstances, companies must submit and file accounts each year. Those that file accounts late are issued with an automatic penalty. As part of a joint initiative between the Government and Companies House, from 25 March 2020 businesses were able to apply for a 3-month extension for filing their accounts due to disruption caused by the Coronavirus outbreak. However, under new legislation which came into force on 25^th June 2020, an automatic extension has been granted for filing, such that private companies now have 12 rather than nine months from the end of the accounting reference period to file their accounts and public companies have nine months rather than six. Back to the top

If we can't hold meetings, how can shareholder decisions be made?

The current Coronavirus outbreak and restrictions may impact on shareholder decision making, but again there are a number of provisions which will help private companies. Back to the top

General meetings

Unless there is a requirement to do so in their articles (and this is often in the context of accounts), private companies do not need to hold an annual general meeting. If a company is required to hold an AGM, the Corporate Insolvency and Governance Act which was enacted on 25 June (the “CIG Act”), gives companies greater flexibility as to how AGMs and other meetings are held. Specifically the Act extends the period within which companies must hold an AGM to 30 December 2020, meaning companies could postpone their AGM beyond the current deadlines contained in legislation or their constitution and rules. There are also powers in the CIG Act which allow a further extension of the period within which the AGM may be held.The CIG Act also temporarily allows meetings to be held by others means (for example, a “virtual” meeting with proxy or electronic voting) even if the company's constitution or rules would not normally allow it. These temporary measures would apply from 26 March 2020 to 30 December 2020, with the power to extend that period by up to three months at a time (although the period cannot be extended beyond the end of the current 2020/21 financial year (5 April 2021).As regards general meetings, under the Companies Act 2006 (the “Act”), shareholder resolutions (other than resolutions to remove directors or auditors) may be passed by way of written resolution, instead of needing to hold a meeting. It seems likely therefore that few general meetings of private companies will currently be called although if they are, the normal provisions as regards notice, quorum and voting will need to be complied with. Shareholders have the ability to appoint a proxy to attend and vote on their behalf, (often the chairman of the board of directors), but in any event there is nothing in the Act that prevents a company from conducting a meeting by electronic means. Back to the top

Written resolutions

Certain formalities will need to be complied with to pass a valid written resolution, and in particular it will be necessary for the board to approve the circulation of the resolution. If this is not possible, for example there is not sufficient quorum for a board meetings, or it is not possible to get unanimous resolution of the directors, the Act does allow shareholders to requisition the circulation of a written resolution, or the convening of a general meeting. There is a strict procedure to be followed for either of these options. Back to the top

Unanimous resolutions

In some circumstances, the company's members may take decisions informally, under what is known as the Duomatic principle. This requires unanimous consent, and although there is no prescribed requirement as to the form of the consent (although it would be sensible for it to be in writing) the decision will only be effective if members are fully informed of the matter to which they are agreeing. A decision taken in this way cannot be challenged on the grounds that it does not comply with applicable formalities and requirements.

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