The Government’s introduction of the public safety measures in response to the COVID-19 pandemic (the Stay Alert Measures) has had a huge impact on how companies can run their annual general meetings (AGMs).
In order to ensure that companies required by law to hold AGMs will be able to do so safely and consistently with the restrictions on movement, and in order to prevent the spread of COVID-19, the Government enacted the Corporate Insolvency and Governance Act 2020 in law on 26 June 2020 (Act). The Act offers temporary flexibility to companies as to how and when they hold their AGMs regardless of what is mandated under their articles of association (Articles), or what their shareholders might expect based on the company’s past practice.
In this note, we discuss the implications of the Act in relation to AGMs and General Meetings (GMs), offer some alternative methods of holding meetings in the current circumstances, consider the implications of the guidance issued by The Chartered Governance Institute (The CGI) on 10 July 2020 and the Financial Reporting Council (FRC)’s best practice recommendations, as well as suggesting what companies might cover in their AGM notices. References throughout to AGMs include GMs unless otherwise stated.
What does the Act mean for our AGM?
The Act gives all companies (whether public or private) the benefit of additional flexibility in holding their AGMs between 26 March and 30 September 2020 (or, if the period in which the flexibility provided for in the Act is extended, until the end of the extension). During this period, companies will be permitted to override the obligations under statute and/or their constitutional documents in three key ways:
- Deadline for holding meetings. If the date by which a company must hold its AGM (whether under statute or the company’s constitution) falls between 26 March 2020 and 30 September 2020, this deadline will be automatically extended to 30 September This extension also applies to the deadline for public companies to hold their accounts meetings (as defined in the Companies Act 2006), and to the deadline by which public companies must file their accounts and reports at Companies House to the earlier of 30 September 2020 and the last day of the 12 month period immediately following the end of the relevant accounting reference period.
- Place of meetings. The Act allows (but does not require) companies to hold fully or partially virtual meetings (with attendance and voting occurring electronically), without any requirement for a physical location for the meeting or any participants being together at the same place. The CGI’s guidance confirms that companies can fulfil their quorum requirement by attendance via electronic means. As such, shareholders no longer have the right to attend the meeting in person.
- Conduct of meetings. Meetings are permitted to be held, and any votes will be permitted to cast, by electronic means or any other means. Although shareholders no longer have the right to attend the meeting, those with voting rights do of course retain their voting rights on resolutions put to the meeting. However, while these shareholders must still be able to vote, they will not have a right to vote by a particular means.
The Act also has retrospective effect with respect to AGMs held on or after 26 March 2020, such that any companies which have held their AGM since this date in a way that adhered to the Stay Alert Measures, but that, as a result, did not meet the relevant obligations under the law at the time, or their Articles, will have done so in accordance with the law by virtue of the Act.
Are we still required to hold AGMs under the Act? If so, by when?
In usual circumstances, a public company must hold an AGM within six months from the end of its financial accounting period (or such earlier date as may be specified in its Articles), following which, the company’s annual accounts (which must be laid before the meeting) must be filed within the same time period. Private companies are not required to hold AGMs under statute, but they may be required to do so by their Articles, so this note applies to those private companies as well.
The Act extends the deadline by which a company must hold its AGM to 30 September 2020, irrespective of whether the obligation is provided for under statute or the company’s Articles. This extension has retrospective effect, such that it applies to any AGMs required to be held between 26 March 2020 and 30 September 2020. Please note that the 30 September 2020 time period referred to above may, by regulations, be shortened, or extended by increments of up to three months at a time.
However, companies may not wish to rely on this extension to the deadline, either simply because the nature of the restrictions and the content of Government guidance might change over the period to the end of September, but also, for example, if corporate authorities approved at the previous AGM will expire unless an AGM is held by the usual deadline. Authorities to allot granted by shareholders at an AGM are often stated to expire on the earlier of the following year’s AGM, or a specified long-stop date (which typically pre-dates the usual deadline for holding the next AGM). Once these authorities expire, companies would not be able to raise cash quickly through share issues until the authorities are renewed at the postponed AGM. As noted in The CGI’s guidance, companies should consider carefully the consequences before taking advantage of any extension.
How do we conduct the AGM in light of the Act and the Stay Alert Measures?
How can we hold the meeting?
Since the government has begun to ease lockdown restrictions on public gatherings, a physical meeting that is attended by shareholders generally may now theoretically be possible, depending on the number of attendees and the venue’s size and safety measures. The CGI’s guidance states that companies holding physical meetings will need to assess what works best for them and ensure both that government guidance is followed and that the appropriate risk mitigation is implemented at the meeting venue.
However, it is likely that it remains undesirable (and, for companies with larger memberships, impossible), to plan and hold a meeting where shareholders physically attend, especially given the uncertain nature of the situation; it remains a possibility that local lockdowns will be implemented or that national restrictions will be tightened at some point in the future. Therefore, to safeguard the health and wellbeing of shareholders, companies may choose to hold meetings with only the minimum number of attendees required to constitute a meeting and form a quorum (whether such persons attend in person or by electronic means).
Following the implementation of the Act, the following methods of holding the meeting are alternatives to a full physical meeting that will allow companies to hold their AGMs in compliance with applicable law, the Stay Alert Measures and their Articles (including any quorum requirements):
- ‘Behind Closed Doors’ Meeting. Shareholders are not permitted to attend the meeting either physically or virtually. Instead, the shareholders complete proxy forms appointing the “Chair of the meeting” as their proxy (as opposed to the “Chair of the board” or any other third party) and instructing the Chair of the meeting how to vote on behalf of that shareholder on each resolution to be proposed at the meeting. Although not obliged to do so, companies may also choose to allow shareholders to vote at the meeting by means of an online facility or a dedicated app.
- Virtual Meeting. The meeting is held live, but with attendance only permitted via electronic means – physical attendance would not be possible. The Act does not stipulate what method of communication can be used for any virtual element of a meeting, so companies are free to choose. This could include a telephone call or a video conference; companies may wish to adopt new technology to allow for a robust and secure voting mechanism as well as live and thorough Q&A, as recommended by the FRC’s best practice (discussed below).
- The company could hold a virtual meeting but also permit shareholders to choose whether to submit a proxy in advance or vote through electronic means.
Whichever method is chosen, clear communication with shareholders before, during and after the meeting is required according to the FRC’s best practice.
What do we need to consider in deciding how to hold our AGM under the Act?
The CGI guidance referred to above strongly encourages companies intending to use the flexibility under the Act to consider the advice given by the FRC in two updates (on 17 April and 8 June 2020, reviewed by BEIS). These updates make it clear that shareholders and directors should prioritise people’s safety in any decisions that are made as to how AGMs are to be held and attended. This will likely preclude physical attendance by shareholders.
The FRC recommends that shareholders appoint proxies, rather than attend the AGM via electronic means. This is primarily because of the limited number of service providers and the sheer number of different companies (ranging from the smallest to the largest) that will need to hold meetings within a short timescale.
However, the FRC has also stressed that companies should do their best to ensure proper shareholder engagement and so – particularly where the meeting is to be held “behind closed doors” only – companies should give thought to providing alternative means of engaging with shareholders in advance of, during and following the meeting. This may include providing for pre-submission of questions to, and response via, the company’s website, which should be kept up-to-date up to the final deadline for submitting proxy forms. Responses could also be included in the minutes of the AGM.
However the meeting is held, if it is necessary to have some additional personnel at the location of the meeting (such as technicians, if there is to be a webcast, and/or security staff to prohibit shareholders from attending the meeting in person), the number of such additional personnel should be kept to a minimum and all social distancing measures should be observed.
The FRC’s best practice for conducting the meeting under the Act
The FRC’s updates include best practice considerations for companies who have decided that a full physical meeting cannot be safely held and are considering to what extent to take advantage of the legislative flexibility provided by the Act as to how AGMs may be held. This sets out some considerations for safely providing shareholders with the best level and quality of engagement, voting and feedback from as wide a range of shareholders as reasonably practicable that the company can reasonably offer, given the circumstances.
The FRC stresses that exemplary shareholder communication is the key element of good practice and advises that companies should clearly set out any deviation from the normal AGM process to shareholders before, during and after the meeting. This may include:
- issuing communications in a timely fashion to ensure shareholders can consider the matters to be voted on;
- ensuring that clarity is given on the procedure for the meeting, any communications prior to the meeting and the proxy voting mechanism (if applicable);
- giving all shareholders the opportunity to both ask questions and receive responses to those questions prior to voting either at a real time online meeting or via proxy;
- making answers to any questions raised available to all both in the meeting (in real time in the case of virtual meetings) and in written form following the meeting; and
- where shareholder engagement in the AGM has been limited, giving full consideration as to how shareholders may be accommodated later in the year, either online or physically (including offering a physical meeting to all shareholders once government restrictions are lifted to offer shareholders access to the board in a similar way to an AGM).
The FRC notes that companies may also wish to review their constitutional documents to determine whether additional flexibility would be helpful over the longer term, particularly regarding the hybrid AGM format. The FRC plans to work alongside representatives of both companies and shareholders to produce a fully considered assessment of best practice as to the conduct of AGMs over the longer term later this year. We would certainly recommend a review of AGM procedures the next time a company’s Articles come under review, but we anticipate many companies will also wish to take the initiative and make specific changes.
What does this mean for our AGM notices?
What do we need to include in our AGM notice?
The AGM notice should be provided in the usual way in compliance with the best practice set out by the FRC and the requirements of the Articles (save that, under the Act, there is no requirement to state that the meeting is held in a particular place). However, the notice should also:
- make it clear that the Stay Alert Measures mean that shareholders are not allowed to attend the meeting in person given the availability of alternative methods of attendance via proxy or electronic means;
- be unambiguous and clear that anyone seeking to attend the meeting will be refused entry to the meeting and that shareholders should vote by proxy, or if appropriate, attend electronically (i.e. stronger than merely recommending that shareholders not attend);
- offer information about how shareholders can remain engaged through voting and ask questions of directors; and
- note that the current situation is evolving and that shareholders should continue to monitor the company’s website for further announcements.
The Act notably does not give greater flexibility to companies with regard to the communication of notices and other meeting documentation via email, websites and other electronic media. As such, companies should continue to communicate with shareholders in accordance with statutory requirements and their constitutional documents. However, the FRC has accepted that, in the current circumstances, annual reports and other documentation that are usually designed professionally could be produced at a lower quality so they are quicker and easier to produce.
What if we have already sent out our AGM notices and want to change logistics of the AGM?
Companies require a specific permission in their Articles to allow them to change the details of the meeting once a notice has been sent. There is no explicit provision in the Act that reverses this requirement and so if companies wish to change the details of the meeting, such as its place and/or how shareholders may attend, participate in or vote at the meeting, they should seek specific advice on their ability to do so under the company’s Articles and with regard to the relevant notice. Articles typically grant the board discretion to resolve to change the place, time or means of holding the meeting if the board determines that holding the meeting as originally intended is impracticable or unreasonable.
Assuming changes to the logistics of the meeting are possible under the Articles, the board will need to inform shareholders of the change with sufficient notice, make any RIS announcements, and update the company website. The CGI notes that companies changing details of their meetings should consider practical steps to address the risk of shareholders not having understood the changed arrangements.
We will continue to update this article as further information becomes available.