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Corporate transactions and governance

Listed company AGMs

For listed UK PLCs with a calendar year end, this is AGM season. The Companies Act 2006 requires public companies to hold their AGM within six months of their financial year end. This means a company with a calendar year end has until 30 June 2020 to hold their AGM.

As COVID-19 spreads, companies which are planning their AGMs or which already have AGMs scheduled will need to consider making alternative arrangements for this year’s AGM. Options might include delaying giving notice of an AGM, postponing or adjourning an AGM which is already scheduled, considering alternative venues for an AGM or even holding a hybrid AGM (which combines a physical and electronic meeting).

On 17 March 2020, the Chartered Governance Institute published guidance about company AGMs and the impact of COVID-19, which it supplemented with further guidance on 27 March 2020. The guidance provides companies holding AGMs with practical suggestions for their AGMs during the COVID-19 outbreak.

We can advise public companies on their options, in light of the Chartered Governance Institute’s guidance, and ensure that any action taken is permitted by the articles of association.

The impact of COVID-19 on cash reserves

“Cash is king” and that is increasingly the case as COVID-19 spreads and its impact becomes more wide-reaching.  Preserving cash reserves should be high on every company’s agenda at this time. 

If satisfying major commitments, such as leases of property or major plant and equipment, might become difficult in the wake of COVID-19 as cash flow issues arise, we can help companies consider the terms of these arrangements to see if accommodations can be made.  If not, companies should open dialogue with the counterparty about payment options, being mindful not to leave it too late in case coming to an agreement takes some time.    

Companies with existing undrawn bank facilities and the capacity to service the debt should consider drawing down the facilities in full while they are still available and have not been withdrawn by the banks. 

For companies lucky enough to be sitting on significant cash reserves, now – or soon – might be a good opportunity to acquire businesses and/or assets at a good price or to invest in solid companies with short term cash flow problems.  Companies making investments may be able to benefit from tax reliefs available under the Enterprise Investment Scheme (EIS) or the Seed Enterprise Investment Scheme (SEIS).

Corporate transactions

Corporate transactions are undoubtedly being impacted by the COVID-19 outbreak.  For example, we have seen transactions being delayed or even aborted where the target company is an industry particularly affected by coronavirus – such as the travel industry. 

We are also advising on termination rights (including material adverse change and force majeure provisions) to confirm whether or not these can be invoked during the period between exchange and completion of a transaction.  For deals that are currently being negotiated, these provisions should be carefully drafted to ensure that they accurately reflect the agreement between the parties.

Risk allocation is also key to parties in the course of current transaction negotiations.  Bespoke warranties and indemnities may be appropriate to address specific risks associated with coronavirus and buyers should think about using an earn out mechanism to give them some protection in the event that revenues and profits are impacted post completion.

For historic acquisition transactions, sellers whose consideration included an earn-out may find that the financial impact of COVID-19 results in earn out targets being missed and earn out payments not becoming payable.  If that is the case, it may be worth having discussions with the buyer to see if any compromise can be reached.  Buyers with outstanding commitments to pay deferred and contingent consideration should prepare themselves to make those payments or to engage in discussions to agree a deferral of the payments and preserve cash.

Please click here for contact details for our Corporate team who are able to provide support with all of the issues above.    


These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice

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