27 Mar 2020

This article covers some of the questions that arose last week on the key M&A and company law considerations of COVID-19.

Holding an Annual General Meeting

  • With the Government guidance in relation to large gatherings, clients will be concerned as to how they hold their AGMs. This is only likely to be relevant to PLCs and private companies whose articles require them to hold an AGM
  • On 17 March 2020, the Chartered Governance Institute published some useful guidance on the potential impact of COVID-19 on AGMs due to be held this summer including advice on how (subject to the requirements of individual companies' articles) the holding of AGMs could perhaps be delayed and on how companies might take practical steps to discourage attendance and ensure the health and safety of those attending. The key issues covered in the guidance include the possibilities of:
    • delaying convening the AGM, if notice has not yet been issued
    • postponing the AGM, but only if permitted under the articles of association
    • adjourning the AGM
    • conducting a hybrid AGM, if permitted under the articles of association. A hybrid AGM is a combination of a physical and electronic meeting, and
    • generally encouraging proxy voting and limiting attendance.
  • A link to the full guidance is here.

Can we (or a counterparty to a contract) invoke a material adverse change (MAC) to terminate a contract a transaction or joint venture?

  • For this to be in question, the contract must include a MAC clause. Whether or not a party can then invoke the clause (and the consequences of doing so) will depend upon the specific wording of the provision. Care should be taken in seeking to exercise a MAC clause. The Courts have been reluctant to allow such rights unless the event very clearly comes within the scope of the wording.

Transaction completions: how do clients hold a completion meeting/arrange for documents to be signed?

  • We are well used to arranging "remote" completions, when the transaction parties and their lawyers aren't all in the same place. There are established protocols to be followed and the parties involved should agree the completion process in advance
  • With widespread working from home policies being adopted, signing agreements and evidencing that they have been properly signed may be more problematic, particularly if the signatories do not have ready access to a printer or scanner
  • WBD has a DocuSign licence, allowing us to facilitate eSignatures including on mobile devices
  • Some documents require "wet ink signatures", including documents that are filed at the Land Registry and usually a stock transfer form. On 25 March 2020, HMRC confirmed they will accept e-signatures for stock transfer forms while COVID-19 measures remain in place (see link). We are monitoring the position to see whether the Land Registry will follow suit and modify their current practices to recognise the current challenges of obtaining wet ink signatures. 

Breach of warranties – will the COVID-19 outbreak cause warranties that are to be repeated at completion to now be breached? If new transactions are entered into during the outbreak, are any specific warranties and/or disclosures required?

  • The position in relation to repeated warranties will depend upon the precise wording of the warranties. If disclosure is required, you should check the consequences of that – for example does it trigger a claim for damages (subject to any agreed warrantor limitations), or a termination right?
  • For new transactions, rather than relying on warranties, which if disclosed against may not provide any recourse to the buyer, it may be preferable to negotiate specific contractual provisions to deal with any extended period of business disruption. This may include a greater element of the purchase price being based upon an earn out. It may also be appropriate to focus the due diligence on aspects of the target company's business that will be effected by COVID-19
  • We consider it likely that COVID-19 and related matters will be a general exclusion to any warranty and indemnity insurance policies for future transactions.

How do we hold board meetings and pass resolutions?

  • Board members do not need to all be in the same place to hold a board meeting. Most companies articles will allow board meetings to be held by telephone. It may also be possible to pass written resolutions (all of the board members will need to sign these) or by the directors approving the text of the resolutions by email. It would be good practice for the company secretary or the chairman to circulate confirmation subsequently that consents to a proposed resolution have been received from all directors
  • You should also check the provisions of the company's articles in relation to the requirements for giving notice, and in particular that notice can be given by email.

What if we are unable to file our accounts on time or meet other filing deadlines due to the COVID-19 outbreak?

  • Businesses affected by the COVID-19 outbreak can apply to Companies House to request an extension to file their accounts, reports and confirmation statements – see link. You must apply for an extension before the filing deadline
  • The FCA has published a policy statement on delaying publication of annual accounts in relation to obligations under the Disclosure and Transparency Rules for listed companies on a temporary basis. AIM companies can apply for a three month extension to the reporting deadline for annual accounts under Rule 19 of the AIM Rules. This applies to companies with year ends between 30 September 2019 and 30 June 2020. The application has to be made by the NOMAD. See the links below for more.
  • Inside AIM: Coronavirus - Temporary Measures 
  • FCA press release: Questions and answers relating to delaying annual company accounts during the coronavirus crisis.

Should you have any queries or require assistance with these issues, please do not hesitate to contact your usual Corporate Team contact at Womble Bond Dickinson (UK) LLP, who will be happy to help.