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In these challenging times, welcome to our new Company Secretary Update! On top of the Covid-19 crisis, business continues for Registered Providers (RPs) – if not quite, as usual.
In this update, we have focussed on the headline governance and regulatory issues that are facing RPs at this time. The lockdown is having a significant impact on the day-to-day governance of RPs, including convening meetings (board, shareholder and Annual General Meetings (AGMs)), signing off accounts, executing documents and other governance documentation. Boards still need to “meet” to remain in charge of their strategy and operations in such a fast-changing environment. RPs will need to consider if their constitutions allow flexibility as to how they hold meetings and whether appropriate delegations are in place so that they can continue to operate efficiently and effectively.
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One of the many challenges social distancing measures presents is how to hold General Meetings particularly as AGM season looms. Unfortunately, most constitutions don’t allow for shareholder meetings to be held “virtually” in the same way that Board meetings can be. Furthermore, many Registered Society rule sets still require AGMs to be held unless bespoke rule amendments have been made allowing the board to dispense with holding the AGM. What is the solution? Whilst reduced quorum requirements may help, with modern rule sets often requiring a minimum of two shareholders to be present in person, holding General Meetings this way may still not be feasible or even palatable given social distancing measures.
Currently, holding a General Meeting “virtually” in the absence of or contrary to provisions allowing such, will be in breach of your constitution and would open up the risk of shareholder challenge. Whilst the risk of challenge is minimised if you have closed shareholding membership, some RPs still have open membership or may be seeking to make changes to their constitution and may be concerned regarding the validity of the same. However, help (albeit temporary) is on the way!
On 20 May 2020 the Government introduced the new Corporate Insolvency and Governance Bill 2019-21 (the Bill), which scopes out a number of measures that will allow organisations, including companies, Charitable Incorporated Organisations (CIOs) and Registered Societies, to hold virtual General Meetings, including AGMs. This will be allowed even where your Rules or Articles of Association (Articles) do not permit this and in some cases, explicitly require a minimum number of Members/Shareholders to be physically present. This will apply to any General Meetings held between 26 March-30 September 2020.
Once the Bill becomes law (we think maybe at some point in July 2020) these measures will apply retrospectively from 26 March 2020 to remedy any constitutional defects arising as a result of meetings held in breach of constitutions because of social distancing measures. As a result, Directors/Board Members will not be exposed to liability for measures that need shareholder endorsement, and shareholders rights are preserved.
In relation to shareholder rights, the measures will not prevent shareholders from exercising their right to vote on resolutions or other matters brought before the meeting, though they may be prevented from voting in person (rather than by post or by electronic means).
Whilst these measures will be welcomed by many, they are temporary and will not alleviate these issues in the long term. On that basis, you may want to consider adding provisions to your Rules or Articles by amending them to allow you to hold “virtual” General Meetings following the conclusion of the grace period afforded by the Bill.
The Regulator of Social Housing (the RSH) has released various communications on the impact of the Covid-19 outbreak and its expectations of RPs during this time.
The RSH wrote to all RPs in March this year, setting out the changes to its approach during the Covid-19 pandemic in an aim to relieve the regulatory burden. The letter also sets out the expectations of RPs during this time as they continue to deal with the current crisis. The suspension of In-Depth Assessments (IDAs) demonstrates that it appreciates the unprecedented challenges that the sector is facing. However, the RSH has emphasised that despite the current crisis, the key focus remains to be tenant safety and financial viability. RPs must continue to fulfil their obligations in relation to health and safety compliance, which includes addressing emergency and urgent repairs and statutory compliance with health and safety requirements.
A revised approach?
The RSH has advised that they will be proportionate in their approach and take full account of the current context. The RSH appreciates there may be some incidence of statutory non-compliance and repairs backlogs but has advised that any RP struggling to meet the challenges where there is a threat to tenant safety or financial viability should contact them as soon as possible.
Amongst the temporary measures introduced, the RSH has confirmed that it will:
- pause IDAs for the foreseeable future until there is a better understanding of the impact of COVID-19;
- extend the submission deadline for Statistical Data Returns and Local Authority Data Returns until 31 October 2020;
- allow the delay of submission of Financial Forecast Returns until later in the year;
- survey RPs on how they are delivering emergency and urgent repairs and compliance with health and safety requirements and maintaining care and support services. This is to understand the risks arising to tenant safety and the economic impact of the pandemic;
- ask RPs who face higher financial risks to share more of their own financial information; and
- seek returns from specific providers with fewer than 1,000 homes where considered necessary.
Financial Conduct Authority (FCA) – Mutuals update in light of Covid-19
The FCA has been issuing regular guidance and information for firms during the Covid-19 outbreak on its website. The FCA encourages firms to get in contact with them in the event of any difficulty and recommends that they should keep abreast of such updates and apply them as best as they are able to in the circumstances.
The FCA has provided a helpful update on its registration requirements in light of the current government guidance relating to Covid-19:
- online applications via the portal or by email will be processed significantly quicker than paper applications. The FCA strongly advises against submitting by post at this time;
- the FCA will accept electronic signatures on all applications including accounts;
- the FCA no longer requires statutory declaration forms to be fully completed so that they do not require them to be signed by a solicitor/commission for oaths/notary public etc;
- recording charges – the FCA will accept electronic certification that the charge instruments are a true copy;
- Annual Returns – Societies should continue to file annual returns as soon as possible (and use electronic signatures where needed), but the FCA will not take any action where returns due up until 30 June 2020 are delayed by up to three months. This position will be reviewed by the FCA in June; and
- General Meetings – some societies are considering a number of options, including postponing scheduled shareholding member meetings, such as AGMs and whether this could lead to them breaching their own rules or legislative requirements. See above for further information on the forthcoming legislation to temporarily tackle this during the pandemic and suggested approaches going forward.
Companies House statement on Covid-19
Companies House has also announced welcome measures to help ease the pressures on businesses during the Covid-19 pandemic, including:
- extensions to filing accounts – companies can apply online for an automatic and immediate three-month extension to file their accounts; and
- Companies House will take into consideration appeals based on Covid-19 for any late filing penalties it imposes.
National Housing Federation (NHF) consultation on its Code of Governance
The NHF’s review of its Code of Governance has been delayed due to the Covid-19 crisis. The review was undertaken with a view to publishing a new version, which reflects the issues affecting the housing sector, such as accountability to residents, health and safety, and equality and diversity in organisations. The first part of the three-phase review process; consultation with members, stakeholders and residents closed on 13 March 2020.
The NHF had originally anticipated that input on its redrafted Code would begin in May 2020. However, due to the coronavirus crisis, they are focusing their resources on supporting NHF members through the immediate challenges. On that basis, the NHF has taken the decision to postpone the third phase of the review, the final consultation on the new code, until later this year. Whilst there is no confirmed date for this yet, this work remains a priority for the NHF, and they aim to resume this as soon as it is appropriate to do so.
Senior Managers and Certification Regime (SM&CR)
The SM&CR was extended to solo-regulated firms in December 2019. The FCA should already have written to those affected firms confirming its opinion on which tier of the SM&CR regime will apply to them; limited, core or enhanced.
The introduction of this regime on Monday 9 December 2019 created some consternation amongst many FCA regulated RPs when this regulatory change crept upon them. This issue has highlighted the need for all organisations, including RPs, to monitor their activities on an ongoing basis and register with the FCA if they are undertaking ‘regulated activities’ in relation to consumer credit. At a headline level, these activities typically include debt advice, debt counselling and credit information services. However, obligations under the regulations can be more onerous if RPs undertake activities such as lending (except at low or no interest) or regulated hire of equipment or credit broking.
RPs should take advice on which tier of SM&CR applies to them and ensure they continue to meet the SM&CR requirements.
For those RPs that are subject to the SM&CR regime, the FCA has confirmed that it does not require firms to have a single senior manager responsible for their Covid-19 response. Firms should allocate these responsibilities in the way that best enables them to manage the risks they face. There are existing responsibilities specified in the SM&CR, for example, SMF24 for operational resilience and SMF2 for financial resilience.
In light of this complex regulation, we have developed a user-friendly template questionnaire for distribution to internal departments within RPs. If you would be interested in using this questionnaire to assess and verify your own status and compliance under the regulations, then please do contact either Peter Hubbard or Catherine Simpson.
Land Registry – execution of deeds
The Land Registry recently issued updated guidance in relation to the execution of deeds as part of its response to the ongoing Covid-19 crisis. This update states that until further notice the Land Registry will accept deeds using the “Mercury signing approach”. This means that, for land registration purposes, a signature page will still need to be “wet ink” signed in pen and witnessed in person (not by a video call). The signature will then need to be captured, with a scanner or a camera, to produce a PDF, JPEG or other suitable copy of the signed signature page. Each party sends a single email to their conveyancer to which is attached the final agreed copy of the document and the copy of the signed signature page. The Land Registry is continuing to have an inflexible stance on the acceptance of registrable deeds and using e-signatures, and strictly a copied and pasted handwritten signature would not pass their requirements. As a result, the Land Registry continue to only accept for registration, scanned copies of ‘wet ink’ signatures as set out above.
Execution of documents
The execution of legal documents has also posed significant challenges for a number of RPs, with staff and Board Members restricted from leaving their homes and travelling. Organisations are having to review their agreed methods of execution to ensure that documentation can continue to be executed during lockdown, including whether delegations can be authorised by the board and who the authorised signatories are. Many RPs are entering into Powers of Attorney to widen the pool of authorised signatories during the pandemic given the unavailability of signatories.
If you need any support in respect of any of the above and/or to implement any necessary changes, please contact Catherine Simpson.
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