Company directors will be focused on the bottom line and corporate governance as they navigate their way through the pandemic lockdown and the Government’s route map towards business as usual. Many will be worried about being able to pay their bills or meet reporting requirement and Government measures should relieve some pressures in the short term.
Compliance with the Companies Act 2006 requires directors to exercise reasonable care, which includes ensuring that the company does not trade while insolvent. When a company is unable to pay its debts as they fall due, or in situations where liabilities are greater than assets, its directors are under a duty to minimise potential losses to creditors. If no action is taken, a director may be wrongfully trading and this carries unlimited personal liability.
The Business Secretary announced a temporary three-month suspension of wrongful trading provisions early in the lockdown, allowing company directors to continue trading and paying staff without the threat of personal liability. Other duties remain unchanged and a director will be liable for any other breach, including the duty towards the company’s creditors if there is a question of insolvency. Corporate responsibility has not been reframed but, rather, more breathing space has been provided to fulfil those obligations.
The challenge of balancing the books during the current crisis is stretching even the most robust companies. Whilst the Government’s intervention has allayed some immediate concerns about cash flow, professional insolvency advice may be required once this special relaxation of the rules on wrongful trading expires at the end of May.
Other responsibilities which can be deferred during the pandemic include some filings with Companies House, gender pay gap reporting and the publication of modern slavery statements.
Changes to filings with Companies House
- A three-month extension for filing year-end accounts. This extension must be applied for before the filing deadline, but is automatic and immediate on request.
- Where late filing has already occurred and is due to the pandemic, there will be a sympathetic response and there may be a break before penalties must be paid, or payment plans agreed.
- Temporary changes to strike-off policy. Where an application has been made for voluntary strike-off this will be published in the Gazette, but further action delayed to protect those who may have objections. Where strike-off is due to failure to file, Companies House will continue to write to companies but will not publish a Gazette notice. This does not apply to those who are being dissolved through insolvency or where the filing delay is reported as being due to the pandemic.
- Emergency filing service. This will enable a number of paper-only registrar’s powers forms to be uploaded for submission. This covers a small selection of forms which do not currently have an online option to allow requests for rectification and removal of information on the register. This will be extended to include more documents and payments in future.
Again, these policy changes are temporary and will be reviewed as the situation develops.
Gender Pay Gap
The Government Equalities Office (GEO) and the Equality and Human Rights Commission (EHRC) has suspended gender pay gap reporting for 12 months. The rules apply to businesses and organisations with more than 250 employees. Whilst no data is required until 2020/21, businesses can voluntarily complete the reporting once the pressures of the lockdown are over.
Modern Slavery
Under section 54 of the Modern Slavery Act 2015, larger companies with a turnover in excess of £36m and other criteria are required to publish an annual modern slavery statement. This sets out the steps being taken to identify and address potential risks around modern slavery. During the pandemic, the Government has announced that businesses which need to delay the publication of their modern slavery statement by up to six months due to coronavirus-related pressures will not be penalised. When the statement is published, businesses should set out the reason for any such delay.
Where a business needs to delay publication, the Government has emphasised that organisations must continue to tackle the risk of modern slavery in their operations and supply chains and recognise the increased potential for labour exploitation during the pandemic. This is another example of a loosening on corporate reporting during the pandemic. However, businesses will need to use their next modern slavery statement to demonstrate how they monitored risks during any such delay and adapted their activities and priorities in response.
Even though gender pay gap reporting has been fully suspended for the year, with no catch-up requirement for 2019/20, most companies will have compiled the data during the year. Recognising that this is an important measure of their approach to gender equality, the expectation is that they will wish to catch up with reporting, if they have not already done so.
Our Company Commercial and Employment teams are ready to assist with any questions you may have on the issues highlighted here.
