Changes to the process for approving year end accounts

In light of COVID-19 we review the steps a company’s board of directors may now take to adapt the process for approving year end accounts.

Preparing and filing accounts are amongst the operational challenges facing companies as a result of the COVID-19 pandemic. Practical difficulties include physically preparing the accounts and conduct of the audit, as well as the accounts approval process and subsequent sign-off by directors.

These issues adversely affect companies’ ability to file their accounts on time, although some relaxation of filing deadlines had been granted by Companies House, the London Stock Exchange (for AIM companies) and the Financial Conduct Authority (for Main Market listed companies).

We look at the ways in which directors can adapt their accounts approval process, as well as the temporary changes to company law introduced by the Corporate Insolvency and Governance Act 2020 (the “Act”). The Act received royal assent on 25 June 2020 and came into force on 26 June 2020.

Here we highlight the potential issues and how boards might adapt:

1. The Board is required to approve company accounts but unable to meet in person.

The board can seek to hold a meeting by electronic means (e.g. by telephone or video conference). A company’s articles of association will often specifically provide that board meetings may be conducted electronically. Where this is not stated in the articles, it is generally accepted that board meetings may be conducted by electronic means, unless otherwise specifically prohibited by the articles.

If a board meeting is to be held electronically, the directors should ensure that:

• all directors entitled to receive notice have given their consent to the meeting being held electronically; and
• minutes of the meeting are sent to each director for approval following the meeting to ensure that they accurately reflect the matters discussed.

2. Public companies are required (but may find it difficult) to present their accounts before shareholders at a general meeting within six months of the end of the financial year.

The Act permits companies to hold AGMs and other general meetings electronically, even if the company’s articles of association do not allow for this). This applies to meetings which were, or are, held between 26 March and 30 September 2020 (the “Relevant Period”). The Relevant Period may be extended by regulation of the relevant national authority in three month increments, provided this period is not extended beyond 5 April 2021.

Of additional assistance, a company required to hold its AGM during the Relevant Period will be able to move the AGM back to 30 September 2020. The relevant national authority may, by regulation extend this period by up to eight weeks. 

3. Once accounts are approved, a director’s ‘sign-off’ is difficult to achieve in ‘wet ink’ for filing at Companies House.

To ease difficulties accessing printers and scanners in lockdown, we understand that Companies House has helpfully confirmed that the Registrar of Companies will accept annual accounts signed by a director using an electronic signature.

4. What if a company is unable to ‘file’ its accounts by the applicable deadline?

Pursuant to the powers given to the Secretary of State under the Act, the Companies etc. (Filing Requirements) (Temporary Modifications) Regulations 2020 (the “Regulations”) have been introduced and came into force on 27 June 2020.

The Act, together with these Regulations, make automatic and temporary changes (until 5 April 2021) to the periods for filing company accounts as set out below. These changes to the filing deadlines will be applied automatically.

Private companies will have their period for filing accounts extended from 9 months to 12 months after the end of the relevant accounting reference period.

Public companies will have their period for filing accounts extended from 6 months to 9 months after the end of the relevant accounting reference period. In addition to this, there is a separate extension for public companies that were, or are, due to file accounts during the Relevant Period which has retrospective effect.

Where this applies, the relevant company will be taken to have a filing period that ends on the earlier of 30 September 2020 and the last day of the period of 12 months immediately following the end of the relevant accounting reference period. By way of example, if a public company’s accounting reference period ends on 1 December 2019 (meaning its usual deadline to file the company’s accounts at Companies House would have been on or before 1 June 2020), the deadline will be extended to 30 September 2020.
Companies House have confirmed that the relevant filing deadlines will be updated automatically and companies do not need to therefore apply for an extension.