We have blogged previously about the announcement and progress of what is now the Corporate Insolvency and Governance Act 2020. The Act creates new flexibility in carrying out corporate decision-making and AGM requirements. But as the title suggests, governance is still key. Notwithstanding truncated processes being permitted, directors and charity trustees will still want to ensure high standards of governance. For membership organisations expectations of proper engagement with members will also not diminish during the period in which the Act’s relaxed procedures can be used.
What does the Act say on governance?
What legal entities are covered by the Act ?
The Act applies to companies, Scottish Charitable Incorporated Organisations (SCIO), Charitable Incorporated Organisations (CIO), Community Interest Companies (CIC), mutual societies (which brings in credit unions, community benefits societies (BenSoc) to building societies). It therefore covers a wide-range of corporate legal vehicles used across the private, charities and third sector.
The Act applies to all shareholder/member meetings.
What is not included?
The Act does not apply to trusts and unincorporated associations. These bodies should check their own trust deed/rules as a first port of call on conducting business. Organisations set up under an act of parliament should consult their governing legislation.
The Act does not set out amended rules for director/trustee meetings.
What time period is covered by the Act?
The governance aspects of the Act are designed to be retrospective and work from 26 March to 30 September (and now in part extended to 30 December and to be further extended to 31 March 2021 (Scottish regs specify 30 March 2021)). It will be possible that the measures are extended. An extension to the Act can go no further than 5 April 2021 without new primary legislation. The rules on SCIOs would be extended by Scottish secondary legislation whereas other entities will be governed by secondary legislation from Westminster. Therefore, the rules for e.g. SCIOs and companies potentially could be out of sync at times.
Extension to timeframe to hold AGMs
Notwithstanding the terms of an organisation’s constitution, the Act allowed AGMs to be postponed and validly held in any point during the period to 30 September (but unlike other provisions, this has not been extended beyond 30 September as of yet).
Holdings meetings
The Act applies to all member meeting… AGMs and other general meetings. It does not apply to director/trustee meetings.
Notwithstanding constitutional requirements of the organisation, it will be permissible to hold member meetings virtually/remotely. Constitutional requirements on the physical location / holding of a meeting fall away during this period.
The Act removes any need for any members to be in the same place during the meeting.
Removing the need to have any members in the same physical location will help organisations meet quorum requirements.
Participation and voting
The Act suspends member rights to attend the meeting in person and to participate except for voting.
Voting may be conducted electronically or via any means determined by the board. A member cannot demand to vote in a particular way.
Companies House filings
The Act also updates rules for filing information and submission of accounts at Companies House.
Governance and engagement never more important
The Act relaxes some processes and reduces member’s rights. The Act does not do away with basic principles of good governance and the need to engage properly with members. Whether shareholders of a private company or the membership of a charity, continued engagement between directors/trustees and shareholders/members is vital. Perhaps even more so at this time.
Proper engagement will also help members understand the pressures the board will be under in steering an organisation through these times. Now is not the time to inappropriately push business through under relaxed governance arrangements. And of course the rules are only relaxed until 30 September (and now 30 December and set for a further extension to 31 March 2021 (30 March 2021 specified in Scottish regs for SCIOs) for holding virtual meetings) at which time full members rights would be returned. Directors/trustees must always remember the powers and rights that members hold.
As well as being seen to adhere to the principles of good governance, anchoring to the principles will help maintain the quality of decision-making.
Zoom… and the meeting is done! Holding effective meetings
The Act deals with member meetings. This point applies equally to director/trustee meetings. Greater flexibility around holding meetings remotely should be treated with a little caution to help aid positive meetings and good contributions.
The apparent ease of a zoom or other platform for holding a meeting should not cloud the need for good preparation. Indeed, it is very possible, perhaps likely, that there will need to be greater preparation for meetings that are being held remotely.
Any papers will need to be issued in time and there should be the opportunity for any follow up and questions considered, asked and addressed to aid the quality of the meeting. The need for greater engagement with members and give opportunities for questions ahead of a meeting is something contained in Government guidance accompanying the Act. General good governance would encourage the same for director/trustee meetings.
Does a remote meeting make people feel more or less comfortable? No doubt the psychology of online meetings during lockdown will fill dissertation papers to come. Some people will love them. Some people will hate them. Some people will be more connected and confident speaking up than ever. Some people will feel distant without other humans around. Some people will use tech all the time. Some people will be new to it.
Proper engagement and good governance underpinning effective decision-making means those arranging and chairing remote meetings will need to do their best to make sure people are comfortable with the technology being used and are able to participate properly in the meeting. If there are guidelines about meeting formalities, let people know them. It could be as seemingly ‘basic’ as how to you raise your hand in an online meeting or the options for viewing the meeting!
Governance Act… Governance Code
With some new rules on governance and holding meetings in unusual circumstances, it is no harm to remember the Scottish Governance Code for Third Sector’s five leading principles:-
- organisational purpose
- leadership
- board behaviour
- control
- effectiveness
For guidance and help with governance matters, get in touch:- Alan Eccles alaneccles@bkf.co.uk / 07470808717
“Alan Eccles is recognised as one of the leading advisers in the Scottish charities sector.” Legal 500
Scottish charity and wealth law 