Running their business in the midst of a pandemic is an unprecedented challenge for business leaders worldwide. The restrictions imposed by many governments all over the world in handling the COVID-19 outbreak raise significant challenges as regards corporate governance.
We have set out below a number of issues and risks our clients are currently facing in the day-to-day running of their businesses. Their extent and impact will naturally vary with the nature and size of a business, but the approach taken in respect of these issues could be crucial for the particular business to thrive or at least survive this new reality.
In such a unique and rapidly changing business environment, it becomes increasingly important to secure effective communication to ensure that business decisions are taken efficiently.
Is your board of directors technologically equipped to have virtual meetings and do they need guidance and support to ensure virtual meetings run as smoothly and efficiently as possible? If not, or should such meetings not be possible, are your directors empowered to take resolutions in writing or appoint proxies if needs be and are relevant arrangements in place (electronic signature arrangements etc.)? Could any tax issues arise as a result of such courses of action?
Was your Annual General Meeting (‘AGM’) scheduled to take place in the midst of this crisis? One could consider holding these virtually in order to avoid undue disruption and the risk of missing regulatory deadlines and incurring default penalties. With the exception of listed entities, which are enabled by the Listing Rules to allow their shareholders to participate in general meetings by electronic means, Maltese law is silent on this matter.
In this respect, changes in a company’s constitutional instruments might be needed to specifically cater for the above-mentioned scenarios. Alternatively, the postponement of general meetings in light of the circumstances could be another possible alternative, should statutory time limits permit and unless otherwise required for business reasons.
Undoubtedly, day-to-day administration will see a marked change. With many businesses implementing remote working arrangements, companies should consider how administrative tasks are to be completed going forward.
For instance, how is original documentation to be received and processed as may be required at law or in terms of company policy? Is there a contingency plan to cater for this? How will filing deadlines be respected? Is your business equipped with the necessary technological solutions to submit documentation electronically, where possible? Does your business provide for the electronic signing of documentation?
Also, does the company rely on a specific individual as the sole signatory to its bank accounts or to prepare payroll for its employees? And if so, should the board consider appointing other individuals in such posts in case that single individual becomes unavailable to attend to his/her responsibilities due to confinement?
These concerns need to be addressed as soon as possible in order to secure the proper day-to-day functioning of the particular business.
As the MFSA has highlighted in its recent Stakeholder Consultation on Corporate Governance, business continuity management is integral to good corporate governance.
The current scenario should thus act as a stark reminder on the importance of having adequate strategic management processes capable of identifying potential threats, advance planning and the safeguarding of critical business functions in the event of disruption.
Many businesses nowadays have continuity and contingency plans in place, the efficacy of which is now being put to the test. Adequate contingency planning should also provide for remote working, clear channels of communication and the protection of business relationships.
By way of example, what if the company’s main suppliers are unable to supply components which are crucial to the company’s manufacturing or provision of services? As far as possible, these concerns should be proactively addressed, especially in light of the duty that directors have to exercise reasonable care, diligence and skill, and this involves assessing and minimising the risks in similar extreme situations.
Has your company recently declared dividends which have still not been distributed or are you currently deciding about dividend distributions? Bearing the current uncertainty and adverse market conditions in mind, it might be prudent to take a step back and gauge market, public and stakeholder reaction.
In this sense it is also important to act in a manner which is in sync with both internal (management, employees etc.) and external sentiment. Liquidity and working capital requirements may naturally come under strain at such time and consideration will need to be given to cashflow management, banking arrangements and refinancing as well as available assistance/incentives including moratoria.
With respect to regulated entities and companies listed on a regulated market which are subject to various laws and regulations aimed at securing investor protection, adequate disclosure without delay of information which should be made known to the public should remain a top priority. It is good to see that a number of listed companies have already seen to such announcements.
Going forward boards of such companies should thus continue assessing the situation, communicating with regulators and providing public disclosure where it is needed or warranted as new information constantly emerges. Prudent assessments should be made to analyse the extent of the negative impact of COVID-19 related developments and to determine any corrective action that might be needed to mitigate such impact as far as possible, with constant disclosure of significant developments to the general public.
The above are merely some examples of what many businesses are dealing with at the moment. We all acknowledge that we are currently venturing in uncharted territory, so consulting and obtaining the right advice is more crucial than ever.
We may assist you in addressing any considerations and concerns that you may be facing from a corporate governance perspective.
Tax Partner, PwC Malta
Tel: +356 2564 6744
Senior Manager, Tax, PwC Malta
Tel: +356 2564 6733
Manager, PwC Malta
Tel: +356 2564 4037