Insights | March 20, 2020

COVID-19 related governance and disclosure considerations for Finnish listed companies – short guide

Our experts have compiled some legal guidelines and vital considerations for Finnish listed companies to consider regarding the COVID-19 outbreak.

General meetings

• The Finnish Government announced far-reaching limitations on 16 March including a ban on public meetings of more than 10 persons – AGM cancellations are currently widely seen on the market
• If a general meeting cannot be postponed e.g. due to the need for time-sensitive decisions or statutory deadlines, the meeting should be held in a manner where the limit of 10 persons is observed while ensuring equal treatment of shareholders
• Physical meetings are required but can be combined with streaming of the meeting or presentations by video-link
• Increased and encouraged use of proxy voting and advance voting can be an option; these should generally be described in the meeting notice

General: All companies must convene general meetings within 6 months from the end of their financial year and approve their annual report, unless a shorter period is required under the articles of association. Companies must, however, consider the implications of restrictions on public meetings and authority guidance.

The Finnish Regional State Administrative Agencies have on 17 March implemented measures to ban public meetings of more than 10 persons in line with the actions announced by the Finnish Government. The definition of “public meetings” is open to interpretation but the Finnish Ministry of Justice (MoJ) has issued guidance outlining as the MoJ view that AGMs would generally be subject to the 10 person restriction unless there are specific reasons to deviate from it.

The Finnish listed companies’ advisory board has encouraged companies to take a risk-based approach when evaluating whether to postpone the AGM and called for urgent legislative measures to facilitate remotely held general meetings. It is in our view possible but not certain that such legislative measures would be taken if the situation is prolonged.

If a general meeting needs to be held while the restrictions on public meetings remain in force, companies should seek to minimize physical participants in accordance with the 10 person limitation and to take additional measures to minimize infection risk at the meeting. However, equal treatment of shareholders needs to be observed and the meeting should not be held in a way which prevents the ability of shareholders to participate in decision making. Some alternative mitigating actions are presented below.

Form of meeting: The Finnish Companies Act does not permit meetings fully held by video link (i.e. a strict online meeting). However, what is called a hybrid meeting is possible. This means that a meeting is held with at least one shareholder physically present (in person or by proxy) and that other shareholders participate remotely e.g. through a video-link from other locations. Special consideration would need to be given e.g. to calculation of votes and identifying shareholders (i.e. how to determine that the remote participant is actually the shareholder/authorized representative). The use of advance or remote voting and participation would generally need to be described in the AGM notice along with the requirements and possible limitations for such means of participation. This limits the possibilities for arranging a hybrid meeting if the meeting has already been convened.

Advance and proxy voting: The Finnish Companies Act permits advance voting and Euroclear Finland has an online solution for this, meaning that shareholders can submit their votes to the meeting without participating. This possibility would need to be described in the AGM notice. It is also possible to collect proxies/powers of attorney for the company or a third party in order to limit the need for shareholders to be physically present. The collection of proxies by the company should be done in a neutral manner so that the shareholders have equal opportunity to vote against board- and other proposals if they choose to, and without emphasizing one voting alternative above the other. If a proxy template or general power of attorney is made available by the company, this too should be mentioned in the AGM notice under the Finnish Securities Market Act.

Cancellation and postponing: The board can decide to cancel an already published AGM notice and either delay the convening of the AGM or issue a new AGM notice with appropriate information. In such cases the statutory notice period for convening the new meeting needs to be observed. Cancellation of the AGM should be communicated in the same manner as convening the AGM under the articles of association, and through a stock exchange release.

Other measures already seen in the market include e.g. the following: (i) encourage people only to attend if they have to, (ii) live broadcast from website (without voting), (iii) only permit shareholders to participate and limit presentations and discussions at the meeting, and (iv) reducing or cancelling catering at the meeting. These measures can be announced either through a press release or on the company website ahead of the AGM.

Communication and profit warnings (Insider considerations)

• Be ready to communicate as soon as possible when past guidance and expectations change
• Do not wait with stock exchange releases until the next day/over the weekend
• Updates on new financial targets guidance are expected
• COVID-19 evaluation in annual report or quarterly report recommended

General: The market abuse regulation (MAR) and additional rules and regulations applicable to listed companies state that, as a main rule, all inside information shall be disclosed by public announcement (stock exchange release) as soon as possible. This means that where the company becomes aware of non-public information that may have a price impact, the company shall be ready to disclose such information without any delay.

There is also an obligation for listed companies to ensure that they have routines and are prepared to handle communications with extremely short notice. Waiting with disclosures until the next day/over the weekend/until the market opens is usually considered a breach of the disclosure rules. The FIN-FSA has on 18 March issued a statement reminding issuers that a profit warning must be issued as soon as possible also under exceptional circumstances.

Delaying disclosure: In order to be permitted to delay disclosure, listed companies must consider three conditions (and all of them must be fulfilled): (i) immediate disclosure would harm the company’s legitimate interest, (ii) it is unlikely that a delayed disclosure would mislead the public and (iii) the company can ensure that the information remains confidential.

Companies must place special consideration onto the second criteria, meaning that if the company has earlier indicated, or the public may have a legitimate expectation regarding e.g. the company’s performance or another matter, delaying disclosures entailing information in the opposite direction is seldom permitted. Delaying disclosure is not an option in connection with profit warnings.

Profit warnings: Where there is an expectation in the market, based on company guidance or not, as to financial performance or prospects of the company, and the company becomes aware that such expectation is no longer likely to be met, the company must communicate this to the market as soon as possible. Delaying disclosure is not permitted.

Financial reports: The European Securities and Markets Authority has issued a statement where listed companies are encouraged to closely monitor the effects of COVID-19 as well as to maintain transparent and relevant market reporting concerning the potential effects. In addition, specifically, companies are recommended to provide transparency on the actual and potential impacts of COVID-19, to the extent possible based on both a qualitative and quantitative assessment on their business activities, financial situation and economic performance in their 2019 year-end financial report if these have not yet been finalized or otherwise in their interim financial reporting disclosures (quarterly or half-yearly reports).

Where the prospects and their underlying fundamentals involve significant uncertainties, companies may refrain from issuing forward-looking prospects in order to avoid giving misleading information.

Trading: Companies should be extra careful and inform employees in relation to the prohibition of trading with inside information. Typically, employees will be close to where inside information originates and can be the first to realize the effects of certain circumstances. To the extent such information is price sensitive and not publicly disclosed, trading in the share of the company is forbidden and may be a criminal offense. Depending on the circumstances, companies may also consider recommending a general trading ban for their employees due to the rapidly developing information and situation.

Financial distress

• If financial situation becomes dire – monitor solidity and liquidity

General: Finnish public limited liability companies (Oyj) must at all times consider if they fulfil two tests:

• Solidity test: There must be at least enough equity (Fi. oma pääoma) to cover 50% of the share capital (Fi. osakepääoma).
• Liquidity test: Where a company cannot pay its debts as they fall due and such situation is not only temporary, the company is considered insolvent.

Typically, the company’s financing covenants will be breached before the above tests are triggered, but the board should nevertheless be mindful of these regulations, especially since a breach of financing covenants could result in circumstances where the company’s liquidity and availability of financing deteriorate quickly. Financial distress may also affect the assessment of otherwise lawful decisions. It is possible that e.g. certain decisions that imply short-term costs whereas the benefits arise later might be questioned if the company was to become insolvent.

Group accounts and cash pooling arrangements should be reviewed in circumstances where one or more group companies are threatened by financial distress, as these arrangements generally constitute intra-group lending and could have unforeseen consequences or become subject to scrutiny if one or more group companies would become insolvent.

The solidity test: When the board of directors notices that the solidity test (i) is no longer fulfilled and the situation cannot be immediately fixed, the board must without delay prepare a financial statement and annual report. If the balance sheet shows that the company’s equity is less than 50% of the share capital, the board must convene a general meeting to consider measures to remedy the financial position of the company.

Where the board fails to fulfil its obligations, personal liability of board members for losses suffered by the company’s creditors or contracting parties may become applicable.

The liquidity test: When the solvency of a company is found to be seriously threatened, the board shall (a) start to closely monitor the liquidity of the company, (b) not take any actions (typically payments) that can be considered discriminatory against creditors (such as paying debts before they fall due, paying with other means than cash, putting up (new) security for old debt or prioritizing certain creditors ahead of others) and (c) not incur any additional debt or liabilities if it becomes clear that the company will not be able to meet its payment obligations. The board does not have a general duty to declare the company bankrupt or commence other insolvency proceedings even if the company is insolvent but typically continuing the operations of the company entails incurring additional costs which will not be possible unless there is a credible plan to restore solvency.