By Thandiwe Nhlapho and Dimitri Cavvadas

On 15 March 2020 the President of South Africa, Cyril Ramaphosa declared a state of National Disaster as a result of the COVID-19 pandemic commonly known as the ‘coronavirus’ which saw many companies taking precautionary measures such as scaling down operations.

A week later he subsequently announced the enforcement of a nationwide lockdown for a period of 21 days with effect from 26 March 2020. Most companies not providing essential services suspended operations and/or implemented remote working. The JSE Limited (JSE) and its market has been identified as an essential service required to enable the smooth functioning of markets during the unprecedented lockdown period. 

As COVID-19 continues to spread across the world, the widespread impact has inevitably imposed some challenges for listed companies in complying with regulatory and reporting requirements. These challenges include issuers not being in a position to:

1. meet the reporting requirements of listed companies such as submitting annual financial statements (AFS) timeously and

2. convening in-person annual general meetings (AGM).

The global market infrastructures and regulators have provided some guidance and temporary relief or exemptions for issuers as they prioritise managing the impact of COVID-19 and navigating the current volatile market conditions. 

On 19 March 2020 the Financial Sector Conduct Authority (FSCA) announced that it is working closely with the sector to ensure that markets continue to operate with minimal disruptions to customers during the disaster period. The JSE’s response of 18 March and 25 March 2020 focused on keeping markets open to enable the conclusion of transactions. The continuity of trading is aligned with the President’s address to the nation on 23 March 2020 mentioning that the JSE is an essential service providing critical market infrastructure and maintaining economic momentum. 

JSE listed issuers are currently required, within four months after the end of each financial year and at least fifteen business days before the date of the AGM, to distribute to all holders of securities and submit to the JSE as part of complying with their ongoing obligations: 

1. (a) a notice of the AGM; and

2. (b) the AFS for the relevant financial year, which financial statements will have been reported on by the issuer’s auditor.

Where the AFS have not been distributed to holders of securities within three months of an issuers financial year end, the issuer must publish a provisional report. Non-compliance may lead to the JSE, among other things, releasing an announcement on SENS informing holders of securities that the issuer has not submitted its annual financial statements and cautioning holders of securities that the listing of the issuer’s securities is under threat of suspension and possible removal. In contrast, under the Companies Act, a company must prepare its AFS within six months of its financial yearend.

The JSE has the discretion to waive the requirement for suspension of an issuer’s listing where it has not submitted its AFS timeously and it remains to be seen whether COVID-19 could constitute a ground for the JSE to use its discretion to grant a waiver. This approach has been taken by the Financial Conduct Authority (FCA) in the UK as part of providing relief to listed companies.

On 30 March 2020, following postponements by several issuers of their AGMs due to the COVID-19 crisis, the JSE announced that it has partnered with The Meeting Specialist to launch the first virtual AGMs to enable issuers to engage with shareholders during the pandemic. The platform will cater for virtual AGMs and electronic voting, and also allows participants to connect from any location. This adheres to government’s advice to restrict in-person gatherings and encouraging ‘social distancing’.

Should listed companies incorporated in South Africa consider convening a virtual general meeting, section 63 of the Companies Act No. 71 of 2008 (Companies Act) will apply and issuers must carefully consider if this section is varied by their Memoranda of Incorporation and if so, to what extent. The section provides that unless prohibited by its Memorandum of Incorporation, a company may provide for:

(a) a shareholders meeting to be conducted entirely by electronic communication; or

(b) one or more shareholders, or proxies for shareholders, to participate by electronic communication in all or part of a shareholders meeting that is being held in-person.

This is on the condition that the electronic communication employed ordinarily enables all persons participating in that meeting to communicate concurrently with each other without an intermediary and to participate reasonably effectively in the meeting.

We continue to monitor the JSE’s communication to issuers to see whether any further relief will be granted to JSE listed issuers, particularly in the context of the time period to hold AGM’s and to comply with financial reporting obligations. The JSE may, for example, consider extending the period for issuers to submit AFS on a case by case basis based on the specific circumstances of issuers, subject to the six month period prescribed in the Companies Act for South African issuers. Yet what relief has been granted to issuers in other markets against the background of COVID-19?

In the US, the U.S Securities and Exchange Commission (SEC) issued conditional relief in a number of areas affecting funds, advisers and public companies. The relief includes deferring in-person director meetings and filling reports. In order to qualify for the relief under the SEC, entities must satisfy certain conditions, such as being unable to comply with requirements due to the impact of COVID-19. 

The Canadian Securities Administrators (CSA) announced that they have published local blanket orders for market participants that provide a 45-day extension for periodic filings normally required to be made by market participants on or before 1 June 2020. Market participants need to comply with the conditions set out in the blanket orders to use the 45-day extension. 

The Toronto Stock Exchange (TSX) has provided notice on further measures it is undertaking in response to COVID-19. Given the current extraordinary ongoing situation, the TSX will provide temporary blanket relief from the provisions of the TSX company manual without imposing conditions to take advantage of this relief. The relief includes an extension of time to file certain financial statements and interim financial statements in 2020. In addition, the TSX is permitting an issuer that must hold an annual meeting of security holders during 2020 to hold its annual meeting on any date in 2020 up to and including 31 December  2020, regardless of the issuer’s fiscal year end. The TSX Venture Exchange will also be providing a similar temporary blanket relief in respect of annual meetings.

The Ontario Securities Commission (OSC) announced that it will provide temporary blanket relief for a period of 45 days from some regular filings due to be made on or before 1 June 2020. This relief will apply to issuers who have not yet filed the AFS.

Further exemption has come from the Canadian Depository for Securities (CDS) which indicated that it will accept PDF copies of global notes and debentures on settlement in lieu of an originally signed physical note.  

In the UK market, a company listed on the Alternative Investment Market (AIM) will be able to apply to the AIM regulation for a three month extension to the reporting deadline for the publication of its annual audited accounts pursuant to the AIM rules for companies. This extension will be available for AIM companies with financial years ending between 30 September 2019 to 30 June 2020. The request for extension must be made to the AIM regulation by the nominated adviser, prior to the reporting deadline.

As part of this wider initiative, the FCA announced temporary relief for UK listed companies facing the challenges of corporate reporting during the coronavirus crisis. This temporary relief will permit listed companies which need additional time to complete their audited financial statements an additional two months in which to publish them. Under the temporary relief, the FCA will, among other things, refrain from suspending the listing of companies if they publish financial statements within six months of their year-end.

The London Stock Exchange (LSE) has provided additional support to LSE and AIM listed issuers by granting a three month waiver on registration fees for market makers until the end of June 2020.

It is possible that the COVID-19 pandemic will have a lagging economic impact globally and the extent to which the pandemic will have a lasting effect on capital markets cannot be predicted. Against this background, it is hoped the regulators of capital markets activity, including the JSE and international stock exchanges, will continue to demonstrate leniency in the application of certain of their rules so as to grant issuers appropriate relief as they seek to maintain their listing and raise capital during unprecedented times. 

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