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COVID-19: AGMs …. Further enlightenment?

On 14 May 2020, BEIS and the FRC published a further set of Q&As (Q&As) to enlighten us as to how the Government proposed to tackle the issues around the holding of AGMs during the pandemic.

Currently, while companies (private and public) have an extra three months to file their accounts, public companies (and some private companies if their articles of association require them to do so) still have to hold an AGM within the normal statutory timeframe (i.e. six months of their year end).  The Q&As note that some companies are holding off convening their AGMs until the Government brings in its legislation.  The Q&As do not provide any direct answers or guidance, instead there is vague talk around facilitating shareholder engagement and consulting with legal advisers without there being a guarantee that Government proposals will be voted through.   So, if this is meant to be enlightenment, the torch batteries probably need replacing.

The who

The measures that will be brought in will cover not only companies (private and public) but also mutual societies and Charitable Incorporated Organisations.

The what

The measures will cover not only AGMs but also other general meetings that companies are required to hold.  How this will work is not clear as the requirement to hold such meetings is not specifically a time requirement that can be extended. If a company undertakes a fundraising that requires shareholder approval then postponing the meeting does not help as it cannot issue the shares and collect the funding without obtaining that approval (see Share Authorities below).  It may be that what is referred to here are the timing requirements for shareholder or creditor meetings that have to be held in respect of company restructurings or insolvency procedures. 

Conclusion: The ability to postpone the holding of an AGM will help companies but it is not currently clear how this will affect general meetings. The Government is promising that the same flexibilities will apply to general meetings so we will wait to see if this happens.

The how

Firstly, it appears that AGMs (and general meetings) can be postponed until the end of September 2020 irrespective of what is in the Companies Act or an entity’s constitutional documents.

Confusingly, the Q&As say that while meetings can be postponed, if you need to hold a physical meeting then you need to encourage shareholder engagement.  This probably refers to non-AGMs, as AGMs can be postponed - see below for the mode of engagement. 

Although the Q&As do not cover this point, it would appear that any new measures could override articles of association etc and permit meetings to be held by phone or other electronic communication without the need for two persons physically present to be a quorum.  However, that is not explicit from the Q&As and, it would be odd for companies now (i.e. two months in) to be able to hold an AGM or general meeting without a physical quorum when companies have been holding general meetings over the same period with two people actually attending a location to hold the relevant meeting.  It may be that in order to allow the large number of AGMs to be held with minimal risk, the physical quorum requirement will be relaxed, meaning that no physical meeting needs to be held, thus removing the opportunity for any face to face engagement between shareholders and the board.

One of the fundamentals here it that the Government still requires companies to engage with their shareholders.  If a company makes use of the ability to postpone the AGM (and/or the quorum requirement does not need to be met and a physical meeting not held), shareholders should still have the opportunity to engage with the company and its board.   This also applies if the company decides to hold a physical meeting.  So, just because a physical meeting is convened does not allow the company NOT to engage with shareholders.  This means that, however the meeting is held or not held, the company should give shareholders the opportunity and time to ask questions, digest company feedback and exercise their voting rights.  Does this mean that the new measures will allow companies to hold virtual meetings but only if there is a dedicated period during the normal notice period in which shareholders can ask questions and the company has to reply (i.e. a period that has to be added on to the normal 21 clear days’ notice)? Again, the Q&As do not cover this.

The Q&As state that the postponement of AGMs will last until the end of September 2020.  In the longer term, companies are also encouraged to review their articles of association to see what amendments are required to ensure that their AGMs can be run more flexibly in the future. Whatever they do, companies should ensure that shareholders can engage with them and their management.  This suggests that disruption is going to continue beyond the end of September and the measures to be introduced are only a brief respite.  This means that companies will have to get their house in order before that date as regards the manner of holding meetings.  So, changes to articles need to be considered now in order not to be caught out.

If a company has to hold and cannot postpone its meeting, the Q&As require it to continue to engage with its shareholders and consider their rights.  At the same time, the safety and wellbeing of company directors, employees and shareholders is paramount.  Shareholders and employees must not be put at risk and the company should explore all ways of ensuring engagement by its shareholders.  This means holding virtual meetings where possible (if at all) and giving shareholders time to ask questions, provide feedback and assimilate the company’s responses whether by conference or video calls or email.

Conclusion:  Frankly confusing until we have greater clarity.

AGMs can be postponed until 30 September 2020.  After that there might be an extension, but companies should consider making appropriate amendments to their articles in any event to give them the power to hold hybrid meetings as virtual meetings are somewhat frowned upon (see below).  If you do hold a physical meeting, make sure there is plenty of opportunity for shareholder engagement.

The when

The measures, once brought in, will be retrospective (i.e. apply back to 26 March 2020) and will continue until the end of the AGM season (i.e. 30 September 2020) although, depending on circumstances, the Government will be able to extend this period. 

This extension covers not only the Companies Act requirement to hold an AGM but also any similar requirement contained in a company’s articles of association or other constitutional documents.

Timing requirements for other general meetings will also be relaxed but how this helps a general meeting required to approve a fundraising is not clear.

Conclusion: Companies should be able to postpone their AGMs until 30 September 2020. But watch out for “Share Authorities” and “Directors” below.

Share authorities

Share authorities (i.e. the right for directors to allot shares for cash or otherwise) are normally granted at the company’s AGM and last until the commencement of the next AGM or, if earlier, by a given date, often 15 months after the last AGM.  If a company is going to be undertaking a fundraising or otherwise alloting shares then it should consider whether the last AGM authority will have expired before it enters into any arrangement to allot such shares.  Share authorities normally permit the issue of shares after the expiry of such authority if the arrangement to do so was entered into before such expiry.

Conclusion:  Check your authorities are not going to expire at the wrong time.

Directors

Articles normally direct that at each AGM a certain proportion of the directors should retire.  Whilst it is unlikely, check that your articles or the relevant resolution appointing a director does not reference a particular date on which he or she will retire.  If it does and there is no intervening AGM then the director will have ceased to hold office and you would need the board to appoint him or her to hold office until the next AGM (assuming they have this power in the articles).

Conclusion:  Check your articles to ensure some of your directors are not about to cease being directors.

Virtual meetings

These are meetings where no one is actually present at a given location, so there is no need for a physical meeting.  All shareholders and directors would participate by telephone or other form of electronic communication.  These are different from hybrid meetings which are a mix of people physically present at a given location and others present by phone or video link.  Currently, institutions do not look favourably on virtual meetings but will live with a company taking powers to hold hybrid meetings.  Very recently, Standard Life Aberdeen plc attempted to change its articles to permit it to hold virtual meetings not just during the pandemic but also thereafter by way of a permanent change to its articles of association.  That was voted down.  The lesson here is that hybrid meetings would probably have been acceptable but the possibility of the company never holding a physical or hybrid meeting was not.

Conclusion: Check your articles to see if you can hold hybrid meetings.  If they do not then ask your legal adviser to draft some for you.  You will then need to hold a meeting to adopt the relevant changes.  Do not try to change your articles to permit virtual only meetings – it is not worth the aggravation and the Government might let you hold them in the short term in any event.

 

The Q&As are a bit of a curate’s egg however a quick review of your articles of association would be beneficial to see if you need to change them to permit hybrid general meetings;  those changes may be fiddly but not rocket science and BPE’s Corporate Team is here to assist you with it.

 

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.

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