Posted on 9th April 2020
Provided by Caroline Buchan, Barrister & BHBPA member
There are lots of topics that might be relevant to a business right now and I’ve tried to pick the most pertinent ones. If there’s anything members want to know more about please drop Martyn a line – for forwarding to Caroline. NB: This article doesn’t focus on employment law matters as there is already lots of material out there from other members.
1. Online Board & other important meetings
Remember for board meetings, and their committees, minutes aren’t just a useful reminder – they’re a legal requirement. With organisations likely to be making difficult and unprecedented decisions in the current environment that could have long-term implications for the company and wider society. Therefore, it’s perhaps more important than ever that board minutes accurately evidence that the directors have carefully considered the impact on all the stakeholder groups, as set out in Section 172 of the Companies Act 2006, in their decision making.
As to AGMs and GMs – Companies required by law to hold Annual General Meetings (which can be where accounts are approved) will temporarily be extended greater flexibilities, including holding AGMs online or postponing meetings (this measure follows the announcement granting companies affected by COVID-19 an automatic 3-month extension to file accounts – see below.
Hybrid meetings and fully virtual online meetings will usually be valid where there are no restrictions under the Company’s Articles. You may need to review and revise your Articles of Association to allow for hybrid and/or fully virtual meetings. Updated Articles should be approved by special resolution of the members (possibly using a written resolution at this time) and filed at Companies House.
It is imperative that shareholder rights are not eroded by not being able to attend physical meetings. The chair must therefore be satisfied that adequate facilities are available throughout the meeting to ensure that members attending the meeting by all means (including the means of an electronic facility or facilities) are able to:
Care is needed with contracts so take advice as appropriate. Can anything be done to suspend performance for a period of time in order to allow the market to return to normal? If not, can the contract be terminated entirely? Many contracts will contain wide force majeure provisions or business continuity / disaster recovery obligations. Force majeure will only excuse non-performance of a contract if the contract contains a force majeure clause. It is not a free-standing common law concept and will not otherwise be implied into a contract.
Whether to trigger these, and the proper way to do so, requires careful advice. There is no one-size-fits-all analysis. All will turn on the specific terms of the force majeure clause, the effects of the relevant event on contractual performance, and whether there are alternative means of performance.
In the current context, key language to look for would be references to “epidemics,” “pandemics”, “infectious diseases,” “quarantines,” or the catchall phrase of “any event beyond the reasonable control of the parties.” These have characteristics of events outside the parties’ control. Whether the viral outbreak falls within a force majeure clause will turn on the proper construction of the wording of the clause. It is likely to be the knock-on effects of the pandemic which will be in issue, which gives rise to questions of causation, for example, the “lockdown”, “quarantine”, “embargo” or “government action”.
The party must prove the following:
Businesses relying on force majeure should also ensure that they comply with any notice or mitigation provisions – i.e. working around the problem.
It is necessary to show that performance of the contract is physically or legally impossible and not merely that performance has become more difficult or unprofitable. If performance is not possible by any alternative means after the original or intended means for performance becomes impossible, that is a classic force majeure case.
Claiming force majeure or frustration is a serious step, and may put an end to otherwise successful long-term partnerships. Given that COVID-19 is a global issue, it is likely that business partners, customers and competitors are facing similar issues. If parties wish to continue working together in the future, it may be that a collaborative rather than confrontational approach is preferable.
Where you consider that a contracting partner is about to breach their contract in some way, take preventative action. While the courts are operating a much reduced service at the moment, urgent court applications are still possible and if you need to obtain interim orders to prevent financial harm being caused to you or your business it is important to act quickly and decisively.
Complying with legal notice clauses at this time may be difficult. Review the relevant clause and, if necessary, seek agreement to modify it and permit notice to be sent electronically. Timing is also crucial. Some clauses require notice to be sent immediately and a delay in notifying your counterparty of force majeure may invalidate your attempt to rely on it. Clauses may also require evidence of the force majeure event to be included in the notice.
In the absence of a force majeure clause, the doctrine of “frustration” may be available. This applies if an event, for which neither party is culpable, occurs. The event must make it impossible (commercially or physically) for a party to fulfil a fundamental obligation of the contract. Alternatively, it must radically transform the obligation. Where frustration does apply, the contract is void, meaning neither party has to comply with future obligations. However, the standard for establishing frustration is high.
If the breakdown in your contractual relationship is caused by a breach of contract by the other contracting party then you may have a damages claim against them. In order to preserve that claim for when the courts re-open for all business, make sure to properly terminate the relationship. Remember that proving any case involves persuading the court that you are right on the basis of evidence. Correspondence with the party in breach needs to be carefully drafted so that there is a documentary record. Keep a careful record of events.
The legislation will apply retrospectively from the beginning of March. All other checks and balances that help to ensure directors fulfil their duties properly will remain in force. The more serious offence of fraudulent trading and other offences under the Insolvency Act 1986 appear to remain in force as do your director’s legal duties.
Given that lending below £250K ought to be made available by banks without the need for directors’ guarantees or security, taking on more debt now and restructuring that debt after the crisis has ended could be preferable to closing down, which brings with it the risk of directors guarantees being called up or, if you are a tenant, dilapidations liabilities.
Not all insolvency options mean the end of your business. Speaking to insolvency practitioners at an early stage can allow your business to continue. The administration procedure is business rescue. If your business goes into administration it gets offering almost complete protection from creditors as a result of a statutory moratorium allowing it, where possible, to trade through this difficult period and come out the other side.
4. Other Issues
Due to coronavirus restrictions, Companies House has suspended all of its same day services. It is now dealing with filing applications on a first come first served basis.
Caroline Buchan, 8th April 2020
The Board Support, at the Chambers of Miss C Buchan
Tel: 01444 482222
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