The Corporate Insolvency and Governance Act - key points for sports organisations
Date: 10 July 2020
The Corporate Insolvency and Governance Act 2020 ("CIGA") came into force on 26 June 2020. The scope of the Act is extensive, introducing a series of temporary measures to assist organisations in navigating the challenges of the Covid-19 pandemic and implementing long-term measures that bring about fundamental change to corporate governance and insolvency law in the UK.
The following five areas will be particularly relevant to organisations involved in the sports industry:
- changes to the way in which company meetings may be held;
- extensions to company filing deadlines;
- restrictions on the use of termination clauses in supply contracts;
- restrictions on the issuance of statutory demands and winding-up petitions; and
- director liability for wrongful trading.
CIGA also provides additional tools for companies facing financial difficulties by means of a new restructuring plan and moratorium procedure. However, these specific reforms to the insolvency regime are outside the scope of this blog.
(1) Company meetings
As we discussed earlier in the pandemic in our Covid-19 has created an unprecedented set of challenges for organisations in effectively organising and administering company meetings while government restrictions on gatherings are in force. In particular, certain sports organisations with a diverse and large shareholder base (reflecting their membership body and stakeholder-driven governance structures) rely on approvals at general meetings in order to make key decisions which, in many cases, are urgently required in the current environment. While many organisations have had to navigate the current landscape in holding these meetings, CIGA provides welcome legal flexibility in relation to how and when these meetings may be held.
What are the changes?
- Meetings need not be held at a particular place and may be held without persons participating in the meeting being together in the same place. Votes may be cast, electronically.
CIGA temporarily overrides company law and any provision in an organisation’s constitution by providing that the notice of meetings need not specify the location that it is to take place, nor will the meeting have to take place at a physical location.
The meeting still requires a quorum to be present in order to proceed with business. However, the changes clarify that the quorum is not required to be physically present at the same location.
CIGA also permits electronic participation and voting at a company meeting, even if this is not provided for in a company’s articles.
- A member does not have the right to: (i) attend the meeting in person; (ii) participate in the meeting other than voting; and (iii) vote by particular means.
CIGA suspends the rights of members to participate fully in company meetings, including the right to attend meetings in person and to participate in meetings by any means other than by voting.
This represents a fundamental alteration of shareholders’ rights and the directors of sports organisations should carefully consider other ways of engaging with their members if it is deemed appropriate to take advantage of such provisions.
What is the effect of the changes?
The directors of sports organisations will have increased flexibility to determine the format of company meetings.
The options are:
- a physical meeting held behind closed doors (with only two natural persons being physically present (assuming that such persons can fulfil a quorum themselves or by holding the required number of proxies));
- a hybrid meeting where physical attendance is limited as set out above and the remainder of attendees participate electronically; or
- a virtual-only meeting convened with no physical location with the meeting being held purely electronically via on online meeting tool.
While a hybrid or virtual-only meeting represents an optimum solution from a shareholder engagement perspective, this will require many sports organisations to put in place facilities to enable electronic participation and voting which, depending on the size of the membership base, may be a significant administrati