For our first article of 2021 we have decided to focus on expectations and predictions for the year ahead. 2020 has forced the Government and its associated regulators to assess the efficiency of organisations in every aspect, from governance to financial reporting and accounting.
Below we have highlighted actual and anticipated changes that we believe will affect the day to day running of your business.
COVID-19 impacted almost every aspect of company governance. Crucially, it exposed the many flaws associated with the rigidity of the Annual General Meeting (AGM) process, as dictated by the Companies Act 2006 and, to a lesser extent as these can be modified, a company’s articles of association.
Safety concerns lead to a blanket ban of large gatherings, including shareholders meetings, and PLCs in particular struggled to defend the exclusion of members from its AGMs; this disruption could have long term effects on director/shareholder relationships. Emergency legislation did allow for meetings virtually however these measures are yet to be extended beyond 31 March 2020.
It has now been reported that the Financial Reporting Council (FRC) will convene a stakeholder group to consider any recommendations for introducing more flexibility to AGMs; we would expect both legislative change and guidance/alternative means. The UK has been slow to accept the benefits of remote working and meeting, however, these attitudes are likely to change in 2021.
Following the end of the transition period and the entering of the UK-EU Trade and Cooperation Agreement on 31 December 2020, the UK has now left the European Union. We anticipate a flurry of updated government guidance and new/amended legislation to follow in the coming months. The Department for Business, Energy and Industrial Services (BEIS) has already sought to further clarify and amend its guidance on accounting requirements for UK companies and EEA organisations. In particular:
o The guidance now states that any UK company, listed on a European Economic Area (EEA) regulated market, will need to check the reporting requirements in their jurisdiction; some will need to certify that their accounts comply with both UK accounting standards and those issued by the International Accounting Standards Board.
o Additionally, it should be noted that EEA companies with a UK subsidiary will no longer qualify for the exemption from producing non-financial information statements and alteration of accounting reference dates has been removed for financial periods beginning on or after 1 January 2021. View the updated guidance
National Security and Investment Bill
As previously discussed at the end of 2020, the government introduced the National Security and Investment Bill to the House of Commons for its first reading. The Bill’s purpose is to give the government further powers to scrutinise and potentially intervene in certain business transactions if it believes national security concerns are present; this will include mergers and acquisitions.
The government has just finished its consultation period (6th January 2021) on draft definitions of 17 sensitive sectors in which it will be mandatory to notify and gain approval for certain types of transactions. We therefore expect further announcements on the Bill’s parliamentary debate in due course; it should be noted that the Government anticipates a 5-year retrospective period for intervention.
The UK climate and eco-system looks to have been one of the only matters to benefit from the COVID-19 pandemic. However, the climate crisis is ongoing and its prevalence in the minds of governments and businesses leaders is set to continue. As such, the BEIS is expected to introduce new reforms to the Companies Act 2006, that will require UK registered entities, including private companies, to make disclosures aligned with those created by the Task Force on Climate-related Financial Disclosures (TCFD), in the strategic report of their annual report and accounts.
It is already mandatory for all premium listed companies to include a statement in their financial reports as to whether their disclosures are consistent with TCFD recommendations, and, importantly, those companies must be able to explain if they have not done so. Consultation on these measures is expected to take place this year with a view to draft regulations by the summer.
Finally, and as discussed previously in our article, we expect the government to push ahead with its reforms of the Companies House service, enhancing its role in the pursuit of better corporate transparency. The framework within which Companies House operates has remined largely unchanged for over 150 years, however we can expect changes and enhancements relating to authentications requirements, identification verification, registrar powers, PSC exemptions and name checks. Subject to the necessary funding, the Government hopes to have a finalised system design and to start user testing by the end of the 2020/2021 financial year.