26 March 2020
The UK Financial Conduct Authority has today published a statement providing temporary relief for listed companies facing the challenges of corporate reporting during the ongoing COVID-19 crisis. The FCA has also published a related Q&A webpage. Those companies who do defer may also need to consider the impact on the timing of their upcoming grants and vesting of share awards.
- The requirement for companies to publish audited financial statements within four months from their financial year-end has temporarily been extended to six months. Companies may continue to publish within four months, if they wish, but the FCA is urging all companies who feel it appropriate to take the additional time offered.
- The COVID-19 crisis will lead to companies re-thinking their financial calendars to ensure that the information disclosed is accurate and carefully prepared, and the FCA encourages this.
- The temporary relief does not currently extend to half yearly financial reports (interims) which should be published within 3 months of the half year-end.
- The temporary relief is only relevant to companies that are subject to DTR 4.1 and does not include companies with securities admitted only to markets that are not regulated under MiFID, such as AIM.
- The EU Market Abuse Regulation remains in force and companies are still required to fulfil their obligations under the Regulation, including the timely disclosure of inside information and respecting the prohibition on insider dealing. The FCA acknowledges that companies will need to carefully assess what constitutes ‘inside information’ at this time - what is material to the business’s prospects may now have shifted.
- On 21 March, the FCA requested that all listed companies delay the publication of their preliminary financial statements for at least two weeks, in order to absorb recent events and be able to take them into account when preparing their statements. Whilst voluntary, the FCA has confirmed that the moratorium has been ‘well observed’ and that it will now end on 5 April 2020.
- The extension of the publication deadline is intended to be temporary while the UK faces the extreme disruption of the COVID-19 crisis and its aftermath. The FCA will keep this under review and, when the disruption abates, will announce how it will end.
For many companies, the ability to delay the publication of the annual results will be a welcome relief at this difficult time. There are, however, a few key share plan related issues that companies should consider, and that will need to be managed and communicated to employees and administrators. These are:
- The delayed deadline for audited annual results and the ongoing moratorium for preliminary results may impact when grants can be made. Normally, share plan rules operated by UK listed companies will permit grants to be made within 42 days following the announcement of preliminary or audited results (as expected under the Investment Association’s Principles of Remuneration). Awards that are typically granted during this period would need to be delayed in line with the delay of the relevant preliminary or annual results, impacting the company’s normal grant (and, as a consequence in future years, vesting) cycles.
- Under the EU Market Abuse Regulation, ‘closed periods’ of 30 days prior to the publication of preliminary or audited results, during which certain share plan related actions (such as the exercise of an award, or the sale of shares) by persons discharging managerial responsibilities cannot take place. These closed periods will move as a consequence of any delay of the preliminary or audited results, which may result in adverse consequences if they now fall within a ‘normal’ vesting cycle.
- Companies should also check their own Share Dealing Code for the terms of any wider closed periods that might apply. These Codes often implement closed periods from the end of a financial period until the publication of the preliminary / annual results. Delaying these results could see considerably extended closed periods during times of ‘normal’ vesting cycles, which again may have adverse consequences as mentioned above.
If you would like to discuss the implications of this statement, or of COVID-19 on your incentives more generally, please do let us know.
Janet Cooper OBE, Hannah Needle FGE and Matthew Hunter