The outbreak and spread of a novel coronavirus (COVID-19), declared a pandemic by the World Health Organisation, has already had significant human, political, and economic consequences around the world. The COVID-19 still evolving, and its full impact remains to be determined. However, the UK Government has now advised that further measures to reduce the rate and extent of its spread are recommended, including population distancing strategies (such as school closures, encouraging greater home working, reducing the number of large-scale gatherings).
This poses a challenge for many public companies who are due to hold their annual general meetings (AGMs) or are in the process of sending out or planning to send out notices of their AGMs.
The requirement to hold an AGM
Under the Companies Act 2006, a public-limited company must hold its AGM within six months from the end of its financial year, and it is this requirement which dictates when a company holds its AGM. Although the Companies Act 2006 does not require shareholders to pass a resolution to approve the company's annual accounts, the implied meaning of the Companies Act 2006 is that shareholders must be given the opportunity to discuss the accounts, and most companies elect to lay the accounts at the AGM and the resolution is drafted such that the shareholders '… receive the annual accounts and reports…' rather than "adopt" them (although, note that quoted companies will need to pass a shareholder resolution to approve the remuneration report).
It is also worth bearing in mind that public companies usually pass resolutions at their AGMs which are limited to 'the earlier of [15] months from the date of the meeting or the next AGM' so these time limits also need to be considered for the longstop date of any forthcoming AGM, particularly in relation to resolutions relating to the issue of securities and dis-application of pre-emption rights.
Sufficient quorum?
An AGM must satisfy the relevant quorum requirements (be quorate) for business to be validly transacted at the meeting.
In England most quorum requirements are set out in a company's articles of association and are likely to be relatively low and, therefore, should be able to be satisfied. Where the articles are silent, then the provisions of the Companies Act 2006 will apply and quorum will be (save for single member companies) two 'qualifying persons' present in person at the relevant meeting.
It is customary for the company's directors to attend the AGM - best practice is for all directors attend, but in reality it is usually the chairman and the directors who chair the company's committees. Given social distancing efforts, a company may elect to show minimal board representation whilst ensuring an AGM can be properly chaired and managed. Companies should determine which directors/employees and shareholders are prepared to travel to the designated meeting to ensure the meeting is quorate.
Postpone or adjourn?
As more countries implement travel bans and/or travel restrictions, or social distancing, companies may wish to consider postponing or adjourning their AGM.
Under common law, it is possible to adjourn, but not postpone, a meeting of a company once notice has been given. However a company's articles may give the board the power to postpone a general meeting between the time of sending out the notice of meeting and the meeting itself where it is unreasonable or impractical to hold it at the appointed time, date or place.
The chairman may adjourn a meeting for the following reasons:
- In accordance with the company's articles;
- With consent of the meeting by way of an ordinary resolution;
- If it appears to the Chairman that an adjournment is necessary to protect the safety of any person attending or to ensure that the meeting is conducted in an orderly manner.
Hybrid and Virtual Meetings
Experts have warned that COVID-19 might last for many months to come and, as such, it may not be advisable in many cases to adjourn or postpone a general meeting (unless it is impossible to hold the meeting) and instead shareholders should be strongly encouraged to register their vote through appointing proxies, ideally earlier than usual if possible in case there are postal delays (although the Chairman is likely to have discretion over accepting late proxies). This may require corporations who normally send a corporate representative in person to the meeting to change their approach.
Companies may also need to consider other alternatives such as electronic/virtual meetings. There is nothing in the Companies Act 2006 which prevents electronic meetings, provided that the attendees of such a meeting can attend and speak and vote at it. However, a company's articles of association must be checked to ensure that the articles do not restrict the holding of electronic meetings. In light of COVID-19 concerns, very few shareholders may turn up at the AGM, but if more than the Government recommended maximum number for a social gathering did attend, then it should be possible to hold the meeting in separate rooms using a video link, provided all shareholders can hear and speak.
For traded companies, the only restrictions and requirements permitted in respect of virtual meetings are to ensure that the identification of participants in the meeting can be checked and the security of the electronic communication. These restrictions must be proportionate to the achievement of the objective.
Wholly virtual meetings are not market practice in the UK because investors have traditionally resisted them, airing concerns that they do not allow shareholders to participate meaningfully in the meeting and have the opportunity to address the board. However, under English law they are possible and Jimmy Choo plc has led the way, becoming the first London listed company in 2016, together with its registrar, to hold its AGM entirely virtually. Many companies have subsequently made changes to their articles of association to allow for such meetings. However Jimmy Choo is the only FTSE350 company to have conducted its AGM this way.
Following Jimmy Choo's AGM, Institutional Shareholder Services (ISS) published an update to its proxy voting policies which included a new policy on virtual-only meetings. For meetings held after 1 February 2020, ISS generally recommend any vote in favour of proposals allowing a company to hold "hybrid" meetings but will recommend a vote against proposals allowing a company to hold virtual-only meetings. ISS define "hybrid" as being an in-person or physical meeting at which shareholders are permitted to participate online and a "virtual-only" shareholder meeting is one that is held exclusively by the use of online technology (i.e. there no physical, in-person meeting held at the same time). Following ISS's update, the Investment Association (IA) stated that its members will also not support amendments to articles of association which would allow virtual-only AGMs but would expect any amendment to in fact propose hybrid AGMs.
It is possible that companies will now seek to amend their articles to allow for hybrid or virtual-only AGMs to be held. However, that amendment would require the passing of a resolution at a general meeting itself so it is unlikely that companies will seek to pass this as a standalone resolution and rather will likely include it in their AGM resolutions this year.
In light of COVID-19, and any similar situations arising subsequent to this, such hybrid and virtual-only meetings are likely to become attractive to many more public companies, despite the ISS or IA statements. Until such time that companies are permitted to hold such meetings, companies should continue to encourage shareholders to exercise their rights to appoint a proxy (usually the chairman) and submit questions to the board in advance of the meeting.
In response to the outbreak of COVID-19, Gowling WLG has assembled a global task force to help our clients manage this increasingly difficult situation. The efforts to contain the spread of the outbreak present various challenges to people, businesses and communities around the world. If you need assistance please see our COVID-19 resource page.