1 April 2020

Everyday concerns and practical advice for company directors during Covid-19

At times like this, urban myths and conspiracy theories abound – here we aim to bust a few myths and set the record straight in relation to some of the questions on aspects of corporate law and practice that have come through in the law few days. As ever, none of what follows should be taken as specific advice but we’re here to help if you do have any questions or concerns.

I saw the announcement about a ‘relaxation of directors’ duties’ the other day, what does this mean?

In fact the announcement was referring to the planned relaxation of wrongful trading provisions – see here. Our advice to directors – assuming insolvency is not an immediate concern – is that directors should continue to act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members (shareholders) as a whole.

How careful do we need to be about documenting the decisions we come to as directors?

As things are changing so rapidly, we recommend that directors should take extra care to ensure that they hold meetings as required by terms of articles of association or shareholder agreements and that proper records (minutes) are taken and retained.

These should set out details of what has been discussed, what decisions were made and the reasons for those decisions. Particular care is needed where decisions are being made as to unusual requests for payment from suppliers, possible redundancies and cashflows. The Companies Act requires that copies of minutes should be kept for ten years – nothing has changed here.

How can we hold board meetings if we’re not allowed to travel to and from the office or to meet?

It may well be that your articles of association already allow for board meetings to be held by telephone or other electronic means whereby participants can all see and/or hear each other (e.g. Zoom or Skype). We can check these for you if this would help.

Even if your articles do not allow for virtual meetings, our view is that it is better to hold a board meeting via phone, Zoom or similar and to take minutes of that meeting, than to encourage or allow directors to make decisions without the involvement of the board and without ensuring that these decisions are properly minuted.

Can I continue to pay myself dividends?

If the company can afford to, do pay, and providing all of the relevant formalities set out in the Companies Act 2006 are followed, then it should be fine to continue paying dividends. In the current climate, however, it is essential to ensure that any dividends are justified by relevant accounts which show sufficient distributable reserves, and that minutes are taken which show, among other things, that the board looked ahead to the future cash requirements of the business.

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About the Author
Robert Rice, Partner

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Robert Rice is a Reading solicitor, specialising in corporate.

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