The New Corporate Insolvency and Governance Bill

The Government has introduced the Corporate Insolvency and Governance Bill into Parliament. This is quite an important piece of legislation for share investors and for property investors. Insolvency practitioners will also be interested as it makes substantial changes to that area. It’s had very little media coverage though as the news channels are swamped by coronavirus news, debate over Dominic Cummings breaking the lock-down (or not depending on your point of view) and Brexit news.

The Bill is being “fast tracked” through Parliament as it is considered urgent. Some of the measures in the Bill cover practical problems arising from the epidemic crisis. Some are temporary but others are permanent.

As regards insolvency, the Bill introduces greater flexibility into the insolvency regime. For example, it provides greater powers to ward off creditors and enable directors to escape personal responsibility if they continue trading. It provides a “moratorium” to facilitate a rescue of a business via a company voluntary arrangement (CVA), or a restructuring or fund raising as opposed to it going into administration. The directors can remain in charge of the business while a restructuring plan is put in place, or a scheme of arrangement decided upon. A “monitor” (a licensed insolvency practitioner) has to oversee the process however and give consent to various matters.

It will provide more flexibility for companies in difficulties, while complicating insolvency law, which is complicated enough already. It also includes provisions for companies to ward off winding up petitions during the epidemic crisis which have apparently been used lately by landlords to get rent paid after a “statutory demand” has been issued. In addition while in a moratorium, the company is protected from termination of supply agreements.

In summary this new “moratorium” facility should be a big advantage to companies that are in financial difficulties, and may better protect the interest of shareholders than the existing provisions in insolvency law. Companies in difficulties are too often forced into administration where ordinary shareholders typically receive nothing when a temporary “stay of execution” might enable them to survive and subsequently prosper.

General Meetings

Another aspect of the new Bill are provisions to allow companies to hold General Meetings electronically. Investors will already have seen companies only permitting two shareholders to attend their Annual General Meetings because of the restrictions imposed on public meetings by the Government. The Articles of most companies do not provide for electronic meetings at present.

The new Bill enables any company to use an electronic general meeting, or a hybrid meeting (i.e. some people physically present and some accessing it electronically). Companies can also delay their AGMs. These provisions are only temporary. Companies can also delay their account filings.

The Bill gives companies the right to run meetings as they see fit. For example it says: “The meeting need not be held at any particular place; The meeting may be held, and any votes may be permitted to be cast, by electronic means or any other means; The meeting may be held without any number of those participating in the meeting being together at the same place; A member of the qualifying body does not have a right— (a) to attend the meeting in person, (b) to participate in the meeting other than by voting, or (c) to vote by particular means.”.

This may be acceptable in the short term, during the epidemic crisis, but I have suggested to the ShareSoc directors that the organisation should draw up some recommendations for how “virtual” or “hybrid” meetings should be held in future. The experience to date of such meetings is very unsatisfactory, with answers to questions not being given at the meeting for example. Not having the interactivity of a physical meeting with at least some members present is also a severe disadvantage.

Some bigger companies have already updated their Articles to permit such meetings but a recommended set of Articles should also be published that do not simply give the directors the power to run such meetings as they see fit.

For more details of the Bill’s provisions, see https://services.parliament.uk/bills/2019-21/corporateinsolvencyandgovernance.html.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Hybrid AGMs and British Land

The British Land Plc (BLND) Annual General Meeting is coming up on the 17th July and I took the opportunity to review the agenda items as some are particularly interesting this year. One resolution refers to a change in the Articles which have been substantially revised. They include:

  • A new resolution to permit “hybrid” General Meetings where some members can participate electronically instead of attending in person. But “all electronic” meetings are still not permitted. This is surely a good initiative and would enable many more shareholders to “attend” such meetings. The disappointing aspect is that apparently the company has “no current intention” to use this capability.
  • A new provision is to allow the current directors to continue in office, with limited capabilities, if they are all voted off at an AGM. This is not very likely to happen, particularly when there are 13 directors on the board as in this company, although I have seen it threatened at smaller companies. Perhaps it is not an unreasonable provision. But why does any company need 13 directors? That surely makes board meetings either very long-winded or some directors are not likely to be saying much. It makes for dysfunctional board meetings. Looking at the backgrounds of some of the directors, where there is no obvious relevance to a property company, it would look like the board could be reduced in size without too much difficulty.
  • Another change is to up the limit on the total pay of non-executive directors from £600,000 to £900,000. Does that sound high? Perhaps not when the Chairman has a fee set at £385,000 per year and the non-executives get a base fee of £62,500 with other additions for sitting on various committees. Indeed the odd thing is that the total fees paid to non-executive directors were £986,000 last year. Surely that means the new limit it not enough and the limit was breached by a wide margin last year? Perhaps not because the limit excludes any additional fees for serving on committees or for acting as chairman which presumably can be set at whatever the board thinks are reasonable. In reality it’s a limit voted upon by shareholders that can be easily side-stepped. It’s surely worth asking for justification at the AGM! So I’ll be voting against the change to the Articles even though most of the revisions are sensible.

The registrar in this case is Equiniti. They sent me a paper proxy voting form but no paper Annual Report, which is somewhat annoying as reading a 186 page report on-line is not easy. I’ll have to request a paper one. But at least they provide an easy on-line voting system unlike some others I could mention – I am still on correspondence with Link Asset Services (Capita as was) on that subject.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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