On Thursday 26 June, the Corporate Insolvency and Governance Act received Royal Assent. It is a complex measure, making significant change to insolvency and corporate governance law to reflect the needs of companies and other organisations during the COVID-19 pandemic. That complexity explains why it has taken longer than some of us might have wished to progress through the Parliamentary system, but it remains a tribute to the speed with which Government can act when the need arises.
I still bear the scars of the Companies Act 2006, from its early consideration in the Green Paper Modern Company Law for a Competitive Economy, published in 1995, to the completion of the report of the Company Law Review in 2001 up to the implementation of the final sections in October 2009. Although that was a much bigger piece of legislation – the longest Act in British Parliamentary history when published – the difference between legislation going from initial thinking to implementation in something like 14 weeks rather than 14 years is striking.
And it is not as if the changes are trivial. Leaving aside the significant changes to insolvency regulation, we are talking here about nothing less than a significant erosion – albeit temporary and very necessary – of shareholder rights enshrined in the articles of association, always described by my company law tutors as the contract between the company and its shareholders.
Until 30 September (and the Government has the power to extend this date if necessary until 5 April 2021) company meetings do not need to be ‘held at any particular place’, may be held and votes cast ‘by electronic means or any other means’ and without members ‘being together at the same place’. Members do not ‘have a right to attend the meeting in person, to participate in the meeting other than by voting, or to vote by particular means’ regardless of any provision in the law, or regulation, or ‘the constitution or rules’ of the organisation. The period in which the meeting must be held is also extended to 30 September. Similar changes apply to the rules relating to the submission of filings to Companies House.
These are significant changes. We have been working with Government over the last few months to help them understand the issues and develop the legislation and are working with the City of London Law Society on an updated version of our guidance, which will be published shortly. We held a webinar with the accountancy and insolvency professional bodies earlier this week, and this week we have further webinars on the insolvency aspects of the Act and on investors’ expectations around executive pay during the pandemic.
One message that came through very clearly in our webinar with Sacha Sadan, Director of Investment Stewardship at Legal & General Investment Management, last Monday was that although investors believe that investee companies should put their stakeholders first during the COVID-19 crisis, they are watching keenly to see how companies behave.
And behaviours will have consequences. Investors will support companies during this difficult time, but also hold them to account. Issues such as tax transparency, capital management, diversity, over boarding, data security and climate change will remain important, and companies will, rightly, be judged on how they respond to the conflicting challenges facing them. Good governance and sustainability will be the building blocks of a better future.
This is a great opportunity for company secretaries and governance professionals of all kinds and in all sectors to demonstrate their commercial pragmatism and guide their boards through these difficult issues. Don’t let’s miss our chance.
Peter Swabey FCG, Policy and Research Director of The Chartered Governance Institute