19 June 2020

Impact of the Corporate Insolvency and Governance Bill for UK charities

Chris Priestley
Partner | UK

The Government has introduced the Corporate Insolvency and Governance Bill to Parliament in order to relieve some of the pressures faced by organisations as they operate during the coronavirus pandemic. Depending on their legal structure, many charities (and their trading companies) will also benefit from the measures to be introduced by the emergency bill.

One measure will be to remove the threat of personal liability for wrongful trading faced by directors who try to keep a company afloat during the coronavirus emergency for a period between 1 March and 30 June (or one month after the Act comes into effect).

This will only be relevant to charities established as companies under the Companies Act 2006, as the wrongful trading rules do not apply to other charitable structures in any case. It is also relevant to charity trading companies. Under the normal provisions, a trustee/director may be liable to contribute personally to the charity/trading company if at some point before the commencement of winding up they knew, or ought to have known, that there was no reasonable prospect of the company avoiding balance sheet insolvency. The Bill has introduced the assumption that in the period between 1 March and 30 June a director, or trustee, is not responsible for worsening the financial position.

The Government aims to allow companies to continue to operate during these uncertain times and create more space for them to navigate current financial difficulties, by removing the prospect of personal liability.

The Bill also relaxes the rules on holding members’ meetings. ‘Relevant bodies’ to which the rules will apply include charitable companies and charitable incorporated organisations. Even if a governing document does not normally permit it, companies that are under a legal duty to hold an AGM will be allowed to do so with more flexibility using a range of technologies. The measures are intended to be retrospective from 26 March and the relaxation will provisionally be in place until 30 September 2020, but could be extended up to 5 April 2021. The provisions include that:

  • The meeting need not be held at any particular place.
  • The meeting may be held, and any votes may be permitted to be cast, by electronic or any other means.
  • The meeting may be held without any number of those participating in the meeting being together in the same place.
  • A member of the qualifying body does not have a right to attend the meeting in person, to participate in the meeting other than by voting, or to vote by particular means.

Up to this point, the Charity Commission have said that if a charity that does not have an appropriate enabling provision in its governing document allowing meetings to be held remotely but does so anyway in the circumstances, the Commission will understand. The Bill should provide greater clarity and reassurance to charitable companies and CIOs that have held AGMs since 26 March that they have been held in accordance with the law, and that decisions taken cannot be challenged on the basis that requirements for the meeting in the governing document were not met.

The Secretary of State will also have the power to extend deadlines for accounts, confirmation statements, registrations of charges and event driven filings such as changes to directors’ details. Companies House have been taking a proportionate approach to compliance during the pandemic and it has been automatically granting filing extensions to those that have applied, however the failure to meet statutory deadlines can still result in late filing penalties and have a broader impact on a company’s record. Companies House guidance currently states that has very limited discretion not to impose a fine. It is hoped that extensions will remove some pressure from companies that are struggling to file on time, however a recent update from Companies House has noted that nothing will change for customers until the legislation, which is currently making its way through the House of Lords, is introduced.

Chris Priestley Partner | London

Category: Article