Navigating the new normal

How can companies preserve business and incentivise employees during these uncertain times?

All content on this page is correct as of April 15, 2020

Bates Wells outlines some issues for consideration for companies planning for the future of their business, as well as the different forms of incentives available for your people.

A lot has been written about how to deal with human capital, especially around furloughing.  Below we look at some other considerations…

EMI Options

  • Can be used as a viable alternate remuneration strategy to compensate key employees for taking a temporary salary reduction or in lieu of a discretionary cash bonus.
  • There is also the possibility of agreeing low valuations and option exercise prices with HMRC as a result of the economic uncertainty.
  • If the business has already granted EMI share options, then now may be a good time to re-visit the share valuation especially if any option exercise in future is likely to give rise to income tax liabilities for the employees.

EIS/SEIS Investment

  • Companies in urgent need of finance may be able to take advantage of existing tax benefits and SEIS/EIS as a means of attracting investors. As well as the income tax relief and the CGT exemption on a sale there is loss relief which means if they don’t get their investment money back on a sale, the resulting loss (less the initial relief) can be set against income tax.
  • The EIS Association is lobbying for a relaxation of the EIS rules and also an increase in the rate of tax relief so as to further encourage investors to put in much needed cash to companies.

Addressing bad trading debts  

  • Companies should be considering whether any requirement to write off bad debts might give rise to losses that can be recognised for accounting and tax purposes.

Ring-fencing company property/assets

  • A company could move certain assets into a separate group company to ring fence it from the liabilities of their trading entities.
  • This should be possible to do on a tax neutral basis.
  • It will be necessary to consider the valuation of property/assets being transferred and company law requirements.

Deferral of tax (PAYE/VAT)

  • Discuss with the company’s accountants how the company might be able to defer tax or get VAT relief for bad debts.
  • VAT deferral requires the cancelation or suspension of any standing orders.

Debt restructuring

  • Companies may need to restructure debt which in turn may lead to loan write offs and capitalisations.

Organising a virtual board meeting

  • Check the articles of association for provisions relating to telephone / video conferencing; and details about what constitutes a quorate meeting.
  • Circulate board papers via email but also consider any data protection issues.
  • As attendees can join / drop off the meeting at any point, the Chair should take steps to ensure the meeting is quorate when decisions are taken.

Considering alternatives to meetings

  • Check the articles for further details about directors’ decision making and if decisions needs to be unanimous or by a particular majority.
  • Ensure written resolutions are recorded along with a copy of any email agreements from directors.
  • Can the issue be delegated to a committee of directors?
  • If the matter is urgent consider if it might be appropriate to take an informal decision and ratify this later using a formal written resolution.

Signing documents remotely

  • An electronic signature can be used to execute a document as long as:
    • The person signing intends to authenticate the document;  and
    • Any formalities relating to the execution of the document are satisfied. For example, if the signature requires a witness physically present, then even signing a document electronically requires a witness physically present.
  • If a witness is required, this person has to be present and cannot witness a signature virtually, for example, over video conferencing.
  • Although it is not always a legal requirement, consider if a witness needs to be independent.
  • Consider using any of the current software platforms for esigning.

Holding AGMs

  • Review the articles for any relevant explicit powers that the board may use and for provisions around quorum to hep with practicalities.
  • Consider how a valid AGM can be held while the Government’s Stay at Home Measures are in place. Can you hold a hybrid meeting or a fully-virtual meeting?
  • Encourage the use of proxy votes.
  • Consider using an informal notice and delaying sending formal notice until the situation becomes clearer (unless the board has the power to postpone the AGM).
  • Consider using your website to provide shareholders with information.
  • Consider live-streaming the AGM. Note that dialling-in might not constitute formal attendance.
  • Consider hosting a form of shareholder event later in the year.

How can we help

Bates Wells’ Corporate & Commercial team has wide ranging experience across corporate, commercial contracts, finance and tax matters and can assist you with the short and medium term impacts of the current crisis.

This information is necessarily of a general nature and doesn’t constitute legal advice. This is not a substitute for formal legal advice, given in the context of full information under an engagement with Bates Wells.

All content on this page is correct as of April 15, 2020.

How can we help?