3: Charities and COVID-19 – The Corporate Insolvency and Governance Act 2020
The Corporate Insolvency and Governance Act 2020 (the Act) received Royal Assent on 25 June 2020, having been raced through parliament in less than six weeks as part of the government’s emergency response to COVID-19. Being an emergency measure, more detail will be following now or shortly in secondary legislation, but now the Act is passed we know more of the detail of the new measures and how they will impact charities.
In this respect, the Charity Commission has updated its Coronavirus (COVID-19) guidance for the charity sector both in respect of the insolvency provisions of the Act and for those parts relating to AGMs and other meetings (including holding certain general meetings online or by telephone).
As the Commission guidance summarises, the insolvency provisions in the Act apply to charitable companies and CIOs, as well as to companies in general, and cover:
- ‘moratoriums, offering companies and CIOs breathing space from debt enforcement action so they have the chance to explore options for rescue or restructure;
- limiting termination clauses in supply contracts, to provide for continuity of supplies so companies and CIOs can carry on operating;
- temporary suspension of wrongful trading provisions, allowing company directors and trustees of CIOs to continue operating a charity through the emergency without the threat of personal liability;
- temporary suspension of the use of statutory demands and a restriction on winding up petitions, where a company or CIO cannot pay its bills due to the coronavirus emergency; and
- support for viable companies struggling with debt to restructure under a new procedure – these provisions do not apply to CIOs’.
In the rest of this blog, we concentrate on the new temporary provisions on members’ meetings and company filings.
Members’ meetings – how can the Act help charities?
As highlighted in our blog of 21 May, the Act contains provisions aimed at helping certain corporate bodies to hold general meetings and AGMs during the pandemic by relaxing, on a temporary basis, the usual rules on how members’ meetings must be held, even if the body’s constitution requires something different.
For charities, these provisions extend to charitable companies, CIOs, SCIOs and mutual societies (such as a Community Benefit Society), as well as the trading subsidiary companies of any charity.
For those bodies covered by the Act, a general meeting (or a meeting of any class of members or of delegates appointed by members) held during the period 26 March to 30 September 2020 inclusive:
- need not be held at a particular place;
- may be held and votes may be cast by electronic or other means; and
- may be held without a quorum of participants having to be together in one place.
In addition, members’ rights in relation to such meetings are limited so that, while members will continue to have a right to vote by some means, they do not have the right to:
- attend in person;
- participate other than by voting; or
- to vote by particular means.
Note that the legislation is back-dated to cover such meetings held from 26 March.
These provisions should provide comfort where trustees have already held general meetings under such conditions during lockdown, as well as providing significant flexibility to hold members’ meetings in the remaining period until 30 September (which could be extended). As such, the Act may provide a useful opportunity to make any constitutional changes needed now to facilitate operations for so long as the effects of pandemic continue.
The Commission’s updated COVID-19 guidance notes that, if charities rely on these provisions, they ‘must ensure that this decision is recorded in the minutes and that all other meeting requirements are met. You should ensure that you have a robust system to ensure only those eligible to vote can do so and that you record who has voted and the percentages of votes cast’.
Bodies covered by the Act can also postpone their AGM until 30 September 2020 where the period during which they would otherwise have been bound to hold it expires some time between 26 March 2020 and 30 September 2020 inclusive. (Again, it is possible that the end date of 30 September 2020 may be extended, should the government consider it necessary to do so).
What about charities which cannot benefit from these temporary rules on meetings?
As noted above, the Act does not apply to all charities. In particular, unincorporated charities, such as charitable trusts and unincorporated associations, and other forms of corporate charity, such as those established by Royal Charter or statute, are excluded from the helpful provisions on members’ meetings and AGMs.
The point was raised a number of times during the Bill’s passage through parliament. The response from government was that, in the limited time allowed to put together the emergency legislation, they aimed to cover the main corporate forms of charities (notably companies limited by guarantee and CIOs) and it was not proportionate to try to extend to more complex corporate forms, such as Royal Charter or statutory bodies.
In response to the various concerns raised in parliament, Baroness Bloomfield of Hinton Waldrist wrote a letter setting out how the measures in the Bill (as it was then) applied to different forms of charity. In the letter, she writes that, for charities governed by statute or by Royal Charter (and by implication any other charities not catered for in the Act), they may take some comfort from the Charity Commission’s COVID-19 Guidance ‘that it will take a pragmatic and proportionate approach where members’ meetings need to be postponed or held virtually in order to comply with social distancing, even where this may appear to be contrary to the rules of the charity’s governing document. The Scottish and Northern Irish charity regulators have published similar guidance’.
For charities not covered by the helpful provisions in the Act, we suggest in our blog of 21 May other options which may be open to them.
Automatic extension on certain company filing deadlines
The Act also provides for regulations to be made to allow for temporary automatic extensions on certain company filing deadlines at Companies House. A statutory instrument to effect this was made on 26 June 2020, coming into force the next day.
The extensions include the deadlines for notifications to the companies registrar of changes to directors and secretaries and of the registered office (extended from 14 to 42 days), delivery of confirmation statements (also extended to 42 days) and an extension of 10 days for registration of charges (except where the period has been extended by the court). The deadline for submission of accounts is also extended by three months for most companies, although this may not apply if a company has already extended its accounts filing deadline. Companies should also be aware that a deadline will not be extended next year if it falls on or after 6 April 2021.
More information is available here and Companies House has today (1 July) produced guidance on these provisions here. If in doubt, companies should get in touch with Companies House, rather than risk missing a deadline.