Delayed, but not cancelled – company responsibilities during lockdown

Leena Patel

Article by Leena Patel, Corporate and Commercial Solicitor

Company directors will be focused on the bottom line and corporate governance as they continue to navigate their way through the pandemic lockdown and the Government’s route map towards business as usual. Many will be worried at the risk of straying into territory where they cannot pay their bills, or in meeting reporting requirements, but Government concessions should relieve some of the stresses in the short term.

Compliance with the Companies Act 2006 requires directors to exercise reasonable care, which includes ensuring that the company does not trade while insolvent. This will arise where a company is unable to pay its debts as they fall due, or in situations where liabilities are greater than assets, and directors are under a duty to minimise potential losses to creditors. If no action is taken, a director may be wrongfully trading, which carries unlimited personal liability.

The UK Business Secretary announced a temporary three-month suspension of wrongful trading provisions early in the lockdown, so company directors could continue to trade and pay staff without the threat of personal liability. Other duties remain unchanged, and a director will be liable for any other breach, including the duty towards the company’s creditors if there is a question of insolvency.

Leena said “The challenge of balancing the books during the current crisis is stretching even the most robust companies.  Alongside, directors are justifiably concerned about fulfilling their responsibilities, acting diligently and in the best interests of the company.  One issue is where they stand if cash flow has been hit and company solvency is in question. The Government’s intervention may have allayed some immediate concerns about cash flow, but it is no substitute for professional insolvency advice and indeed this special relaxation of the rules on wrongful trading will currently expire at the end of May”. It’s important to be clear that these concessions are not about reframing corporate responsibility; it’s more about breathing space”.

Other responsibilities which can be deferred during the pandemic include some filings with Companies House, gender pay gap reporting and the publication of modern slavery statements.

Changes to filings with Companies House:

  • A three-month extension for filing year-end accounts. This extension must be applied for before the filing deadline, but is automatic and immediate on request.
  • Where late filing has already occurred and is due to the pandemic, there will be a sympathetic response and there may be a break before penalties must be paid, or payment plans agreed.
  • Temporary changes to strike-off policy. Where an application has been made for voluntary strike-off this will be published in the Gazette, but further action delayed to protect those who may have objections.  Where strike-off is due to failure to file, Companies House will continue to write to companies but will not publish a Gazette notice.  This does not apply to those who are being dissolved through insolvency or where the filing delay is reported as being due to the pandemic.
  • Emergency filing service. This will enable a number of paper-only registrar’s powers forms to be uploaded for submission. This will cover a small selection of forms which do not currently have an online option to allow requests for rectification and removal of information on the register. This will be extended to include more documents and payments in future.

Again, these policy changes are temporary and will be reviewed as the pandemic develops.

Gender Pay Gap:

The Government Equalities Office (GEO) and the Equality and Human Rights Commission (EHRC) has suspended gender pay gap reporting for 12 months.  The rules apply to businesses and organisations with over 250 employees and while no data will be required until 2020/21, businesses can voluntarily complete the reporting once the pressures of the lockdown are over.

Modern Slavery:

Under section 54 of the Modern Slavery Act 2015, larger companies with a turnover in excess of £36m and other criteria are required to publish an annual modern slavery statement.  This sets out what steps are being taken to identify and address potential risks around modern slavery.  During the pandemic, the Government has announced that businesses which need to delay the publication of their modern slavery statement by up to 6 months due to coronavirus-related pressures will not be penalised. When the statement is published, businesses should set out the reason for any such delay.

But even where a business needs to delay publication, the Government has emphasised that organisations must continue to tackle the risk of modern slavery in their operations and supply chains and recognise the increased potential for labour exploitation during the pandemic.

Leena adds “This is another example of a loosening on corporate reporting during the pandemic, but there is no scope to let things slide.  Businesses will need to use their next modern slavery statement to demonstrate how they monitored risks during any such delay and adapted their activities and priorities in response. And even though gender pay gap reporting has been fully suspended for the year, with no catch-up requirement for 2019/20, most companies will have compiled the data during the year.  Recognising that this is seen as an important measure of their approach to gender equality the expectation is that they will wish to catch up with reporting, if they have not already done so.”

To discuss this article further, please email lp@grantsaw.co.uk or contact Leena directly on 020 8305 3539.