Up Again: Governance

In the context of the COVID-19 outbreak and its aftermath, it is key that boards focus on the duty to act with due care and in the best interest of the company as well as the duty to treat shareholders equally. The main duties of directors are outlined in the Finnish Companies Act (624/2006, as amended).

As per the Finnish Companies Act, the management of a company shall act with due care and promote the interests of the company. The requirements for “due care” are assessed on a case-by-case basis based on information available to the management at the time a decision was made. In general, it is expected that management should be able to demonstrate an informed and rational basis for their decisions.

Further, the principle of equality among shareholders is one of the fundamental principles of the Finnish Companies Act. The board shall not make any decisions or take other measures that are conducive to conferring an undue benefit to a shareholder or another person at the expense of the company or another shareholder. As such, even during turbulent times such as the ongoing COVID-19 outbreak, boards should ensure that all decisions made are for the benefit of the shareholders as a whole.

In order for the boards to demonstrate their compliance with these duties during the current environment, it is advisable to consider taking the following practical steps:

• hold regular board meetings and ensure comprehensive minutes are produced in a timely manner which carefully document the matters discussed and the reasoning behind the decisions made so there is a clear decision-making trail;
• financial information - ensure that up-to-date, robust financial information is regularly prepared so that directors can make informed decisions in real time, and consider availability of existing facilities (including monitoring compliance with financial covenants) and alternative means of support (such as government assistance). Boards should also ensure that any necessary notifications are made to the relevant officials – for example the local Trade Register must be notified of negative equity;
• take into consideration the statutory time limitations for annual general meetings. A new temporary act came into force on 1 May 2020 that temporarily amends some provisions of, among others, the Companies Act (624/2006, as amended) in order to reduce the spread of COVID-19 epidemic (290/2020). According to the temporary act, general meetings and other similar meetings may be postponed until the end of September 2020, even if laws or articles of association of a respective company would require the meeting to be held already earlier. That possibility covers such companies which financial year has ended between 30 September 2019 and 31 March 2020. The new act shall remain in force until the end of September 2020;
• virtual general meetings: The outbreak of the COVID-19 has raised problems in respect of shareholder meetings. In Finland, all public gatherings and events are limited to no more than ten persons until 30 May 2020 and thereafter to no more than 50 persons. This guidance applies to shareholder meetings as well. In light of this, boards of the listed companies and companies, which shares are subject to trading at multilateral trading facility, should assess the possibilities of holding virtual general meetings. Other companies’ boards should consider measures including inter alia providing the shareholders the possibility to vote in advance, participate through electronic means or at least to follow the shareholders meeting through a webcast without being officially present at the shareholders’ meeting; and
• seek professional advice early and on a regular basis – e.g. on workforce issues, customer and supplier arrangements (including termination events), and directors’ duties, including those additional duties which apply when there are solvency concerns. It is also particularly recommendable to seek professional advice from occupational health care when preparing a safe plan for employees returning to work. Where appropriate, note the advice given in the relevant board minutes.

In light of the fast changing environment, boards should continually assess their practices and renew them when necessary. Boards should especially observe and take into account the fast-changing Government regulation, guidelines and recommendations and adopt them as appropriate for the business. It is thus recommendable that during the COVID-19 crisis, boards adopt more resilient governance practices. As businesses return to work following a lockdown, it is advisable to consider the following practices:

• Alternative ways to arrange board meetings: Considering the fast-paced current environment and the possible need to hold board meetings more frequently, it is important that companies take into use the possibility to hold board meetings by phone or other remote means. This is also important in the context of complying with the requirements that have arisen due to COVID-19, and for preventing further spread of the disease. In Finland, all public gatherings and events are limited to no more than ten persons until 30 May 2020 and thereafter to no more than 50 persons. This guidance applies also to board meetings. Meetings can be conducted by telephone or other remote means, unless specifically prohibited by a company's articles of association. It should also be ensured that the board can remain quorate by e.g. nominating deputy members to the extent deemed necessary;
• Plan to return to work: Corporations have started preparing plans for enabling their employees return to the office safely. It is advisable that boards conduct internal risk reviews of their plans to return to work and seek professional advice from the occupational health care. The plan should be prepared in compliance with Government regulation, guidelines and recommendations and by taking into account the well-being of the employees. After the plan has been reviewed and approved, it is essential that employees are informed thereof; and
• Electronic signatures: In Finland, the Government has continued the recommendation for remote working until further notice. Consequently, obtaining signatures may be burdensome and time-consuming. Thus, it is recommendable that boards adopt electronic signatures as part of their transaction practices. Electronic signatures are widely accepted in Finland and they provide meaningful effectiveness to transactions and signing agreements. Platforms providing means for signing electronically are widely used in Finland. Often, parties will also accept PDF-copies of signature pages. For general corporate matters, such as board or general meeting minutes, PDF copies of signatures are widely accepted for filing purposes with local authorities, although it is recommended that companies always retain original copies of signature pages.

With regard to listed companies and companies, which shares are subject to trading on multilateral trading facility attention should be paid to market communication. The Finnish Financial Supervisory Authority has clearly communicated that companies must continue to discharge their ongoing obligation to disclose inside information relating to the company under the Market Abuse Regulation (MAR). COVID-19 as such is not an exception, which would allow companies to depart from the requirement for disclosing announcements in a timely manner. Given the situation is changing rapidly, assessing whether inside information has arisen is particularly challenging. The board must keep this under regular review and ensure that the company is in a position to make disclosures to the market promptly as required (for example, that it is able to convene and hold board or committee meetings to consider regulatory disclosures and that its systems and controls for identifying inside information remain robust).

Boards are required to follow the duties outlined in the Finnish Companies Act (624/2006, as amended) and this includes that boards shall act with due care and promote the interests of the company. Boards should thus also be able to demonstrate that corporate purpose and values have been appropriately taken into account in their decisions. 

Pursuant to the Finnish Companies Act, the purpose of a company is to generate profits for the shareholders, unless otherwise provided in the Articles of Association. On the other hand, the values of a company are what support the vision, shape the culture and reflect what the company values.

For example, during the ongoing COVID-19 outbreak, it may be crucial to focus on maximising the amount of cash available to support the core business and to keep the company solvent. Consequently, we have seen a number of companies on the Finnish market defer or cancel e.g. dividend distribution in order to maximise the amount of cash available to support their core business.

Boards should also consider what steps they can take now to manage immediate and future incentive plan costs, in particular whether such steps fall within the discretion of the board or remuneration committee under the terms of the relevant plans. Transparent communication with directors and employees is of paramount importance. As a cash management measure, Finnish listed companies were increasingly turning to stock-based incentive programs before the COVID-19 outbreak.

If prudent measures are not taken, boards should be mindful of the reputational damage that could be caused and whether this is consistent with their duties and the company's corporate purpose.

According to the Limited Liability Companies Act, if the Board of Directors of the company notices that the company has negative equity, the Board shall at once make a register notification on the loss of share capital at the Trade Register in order to be exempted from the liability of the management under the aforementioned Act.

The consequences of continuing to operate an insolvent company are not explicitly provided in the Finnish laws.

It is not mandatory to file for insolvency for an insolvent company under the Finnish laws. Consequently, failure to file insolvency is not deemed wrongful trading.

The main rule of the Limited Liabilities Company Act is that the management of the company shall act with due care and promote the interests of the company and a Member of the Board of Directors, a Member of the Supervisory Board and the Managing Director shall be liable in damages for the loss that he or she, in violation of the duty of care referred above, has in office deliberately or negligently caused to the company.

There are not any specific steps provided under the Act except a rarely used provision regarding restricting the right of the company to damages by means of the Articles of Association, which is possible only on the consent of all shareholders.

Companies are not automatically wound up if payments are failed to make when due. The company needs to be separately applied to be placed in liquidation.