We are now in the annual general meeting (AGM) season for the majority of public companies (although references to AGMs should be read as referring to general meetings (GMs) also, unless otherwise stated). These AGMs will be affected by the Government’s introduction of the public safety measures in response to the COVID-19 pandemic which were passed into law in England and Wales on 26 March 2020 and partially relaxed in May 2020 (Stay Alert Measures).
The recent change from Stay at Home to the Stay Alert Measures has not reduced their impact on physical attendance of shareholders at AGMs. Such attendance will remain problematic under the current circumstances because the guidance released by The Chartered Governance Institute (The CGI) (reviewed by BEIS) is clear that physical attendance at an AGM is not “essential for work purposes” (unless in certain limited circumstances) and attendance at AGMs by other means may be possible, as discussed below. The Financial Reporting Council (FRC) has also made it clear in guidance set out in two updates (on 17 April and 8 June 2020, also reviewed by BEIS) 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 and this will likely preclude physical attendance by shareholders.
As expected, the Government has tabled the Corporate Insolvency and Governance Bill (Bill) which, if passed into law, will ensure that those 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 key points of the Bill are discussed below; however, it is currently timetabled for a third reading in the House of Lords on 23 June 2020, by which time companies with an AGM deadline of 30 June 2020 will have already circulated to members their notices of AGMs and accompanying accounts and reports.
Accordingly, and as reflected in the FRC’s latest guidance, until this legislation is actually in force, companies should comply with their current notice obligations and exercise their own judgement when deciding to what extent to comply with their existing AGM obligations under law and their respective constitutional documents.
Are companies still required to hold AGMs?
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 of association (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.
As discussed in more detail below, the Bill proposes to extend the deadline by which a company must hold its AGM to 30 September 2020, irrespective of whether that obligation is provided for under statute or the company’s constitution. Whilst this extension will have retrospective effect, such that it will apply to any AGMs required to be held from 26 March 2020 until the end of that period, the FRC has made it clear that, until the Bill is passed, companies should continue to hold AGMs in accordance with the current requirements set out in statute and / or their constitutions so as to ensure that an AGM is held within the current deadline for the company.
As such, notices of AGMs should still be circulated with sufficient notice to hold those AGMs and, given there may be other problems with postponing an AGM (as discussed further below), the practical impact of this extension may be somewhat limited.
How do we satisfy our quorum requirements and still conduct the AGM in light of the Stay Alert Measures?
Recommendations for companies with low quorum requirements
The statutory default position for quorum at AGMs is two persons present in person at the meeting, and this will likely be the position for the majority of public companies. However, a company’s Articles should be checked to ensure that no provisions override the default position.
Until the Bill is passed, and the legal requirements for holding an AGM are relaxed, best practice (as set out by The CGI) remains that if the required quorum is two, a physical meeting can take place between two shareholders (as permitted under the Stay Alert Measures). This could be satisfied by a director shareholder and employee shareholder each attending the AGM – The CGI (and BEIS) view attendance at an AGM by a director and an employee required for quorum purposes as “essential for work purposes” and therefore permissible. The Chair of the meeting will be determined by the Articles. Typically, the Chair of the board of directors will chair the meeting, or in their absence, another director, so ideally a director should attend as part of the quorum.
The AGM can then be held at the original venue if the notice has already been circulated and the venue is still open, or at some other venue under the control of the company (we discuss below how to deal with a change of venue).
The Chair of an AGM for public companies has broad powers to preserve order at the meeting and to ensure the safety of the attendees, which will likely be replicated in the company’s Articles. The Chair should use these powers to exclude any shareholders who wish to attend, but are not required to satisfy the quorum requirements, and insist that these shareholders vote by proxy in the normal way. The FRC recommends that these shareholders appoint proxies, rather than attend the AGM via electronic means (as discussed below). 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.
The company’s position on physical attendance should be stated plainly in the AGM notice or in any follow up announcement. Shareholders should be encouraged to appoint the “Chair of the meeting” as their proxy (as opposed to the “Chair of the board”) to help reduce the number of people required to be present, and in case the Chair of the board is unable to attend.
If the AGM will be held “behind closed doors” on the basis suggested above, companies should give thought to providing alternative means of engaging with shareholders in advance of, during and following the meeting, e.g. by 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. Companies should consider holding ‘shareholder days’ later in the year, which would offer shareholders access to the board in a similar way to an AGM.
If practical to do so at the chosen location of the meeting, the directors could choose to hold a “hybrid AGM” (if the company’s Articles do not prohibit holding AGMs in such a way), with additional shareholders who wish to attend, but are not required to satisfy the quorum requirements, attending by electronic means. Attendance in this format could also be an alternative to submitting a proxy if shareholders would like to see, hear and be involved in the proceedings. Hybrid AGMs are discussed further below.
Recommendations for companies with high quorum requirements
Although it remains best practice from a governance perspective for companies to meet the company’s “in person” quorum with the minimum number of shareholders physically attending (in the manner we discussed above), this will not be possible if the quorum is larger than would be safely compliant with the Stay Alert Measures. The view of The CGI is that a quorum above single figures will likely not be compliant, although any gathering above two may be deemed contrary to the Stay Alert Measures.
If physical attendance is not practically possible, a so-called “hybrid AGM” could be held, whereby the Chair (only) physically attends the meeting and all other shareholders attend via electronic means. This is similar to the position for all companies envisaged by the Bill, once it is passed (albeit that the Bill proposes to remove the requirement for any person to be present at a particular location to be counted as being in attendance at the meeting), but a “hybrid AGM” may already be possible if companies are able to comply with the requirements set out in the next paragraph.
Under statute, shareholders may attend an AGM by electronic means provided (i) they can attend and speak and vote at it, and (ii) there is no express restriction on such attendance in the Articles. Case law has indicated that a requirement in a company’s Articles for a shareholder to be “present in person” can be satisfied by attendance by electronic means, provided the meeting complies with the aforementioned requirements.
The FRC has stressed that companies should do their best to ensure proper shareholder engagement and so may well need to adopt new technology to permit live attendance by shareholders. This technology should also allow for live and thorough Q&A, which is an integral part of an AGM. Shareholders who are not required to satisfy the quorum requirements can (and may prefer to) appoint a proxy in the manner described above and we would note that appointing a proxy is advised by the FRC due to its concerns regarding electronic attendance at meetings en masse, mentioned above. Any deviation from the normal AGM process should be clearly communicated to members before, during and after the meeting, according to the FRC’s best practice, as discussed below.
Note that attendance via electronic means satisfies a requirement to be “present in person” for quorum purposes, whereas proxy appointments are not counted in these quorum requirements. Companies should therefore be careful to ensure that the correct number of electronic and proxy shareholders are attending for quorum. Other shareholders could still appoint a proxy to attend a hybrid AGM electronically on their behalf, should they so wish (which is the FRC’s recommendation, for the reasons mentioned above).
If it is also not possible for the Chair to attend the meeting physically, he/she could also attend the meeting electronically, but this should be a last resort until the Bill is passed, following which, any member can attend a meeting by any means (as discussed further below).
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 legislative changes proposed by the Bill
If passed, the Bill will give all companies (whether public or private) the benefit of additional flexibility in holding their AGMs between 26 March and 30 September 2020, during which they will be permitted to override the oblgiations under statute and/or their constitutional documents, in three key ways:
Place of meetings. Meetings will no longer need to be held at any particular place and may be held without any participants being together at the same place. Members will no longer have the right to attend the meeting in person.
Conduct of meetings. Meetings will be permitted to be held, and any votes will be permitted to cast, by electronic means or any other means. Members will no longer have the right to participate in the meeting other than by voting, and will not have a right to vote by a particular means.
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 2020. 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.
These measures would allow companies to postpone their AGMs to a later date, and for meetings to be held in a fully “closed” way, with all members attending and participating virtually, regardless of whether this is permitted in their constitutional documents. As such, the minimum number of members required for a company’s quorum could simply hold the meeting by tele- or video-conference, with all other members only permitted to vote by way of proxy, thereby avoiding any risk of non-compliance with the Stay Alert Measures. Alternatively, a company could decide to postpone its AGM to later in the year when the Stay Alert Measures may have been relaxed, enabling the company to hold the meeting in a more usual way to allow active shareholder engagement by members meeting with the directors and voting in person (of course, if so permitted at that time).
Please note, the 30 September 2020 time period referred to above may be shortened or extended by regulations by increments of up to three months at a time.
One notable area not covered in the Bill is that it does not give greater flexibility to companies to restrict the communication of notices and other meeting documentation to emails, websites and other electronic media. As such, companies should continue to communicate with members 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.
Considerations if postponing an AGM
As mentioned above, the FRC has made it clear that until the Bill has passed, companies should continue to comply with their statutory and constitutional notice obligations. The Bill is timetabled for its third reading in the House of Lords on 23 June 2020. However, as the deadline by which the majority of public companies’ AGMs must be held is 30 June 2020, notices for those AGMs will have already been circulated to members by the time the Bill is passed, given the requirement to give at least 21 clear days’ notice of the meeting.
Furthermore, companies may not wish to rely on the extension to the deadline, either simply because the nature of 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 authorites are renewed at the postponed AGM.
As such, whilst the extension of the deadline seems, on the face of it, a positive outcome for companies, it will be too late or too limited for many companies to rely on it.
Best practice for conducting the meeting under the relaxed requirements
The FRC has issued guidance as to best practice for companies who have decided that a full meeting cannot be safely held and are considering to what extent to take advantage of the legislative flexibility provided by the Bill as to how AGMs may be held. The guidance sets out some considerations for safely providing members with the best level and quality of engagement, voting and feedback from as wide a range of members as reasonably practicable that the company can reasonably offer, given the circumstances.
The FRC stresses that exemplary member communication is the key element of good practice and advises that companies should bear the following in mind in the run up to their AGMs:
- Issuing communications in a timely fashion to ensure members 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 members 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.
- Where member engagement in the AGM has been limited, giving full consideration as to how members may be accommodated later in the year, either online or physically (including offering a physical meeting to all shareholders once government restrictions are lifted).
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 constitution comes under review, but we anticipate many companies will also wish to take the initiative and make specific changes.
What should companies include in the notice of AGM?
The notice of AGM should be provided in the usual way in compliance with the best practice set out by the FRC and the Articles (including any requirement to specify the place of the meeting, even if a hybrid AGM is being held, unless the notice is circulated after the Bill is passed in which case there will be no requirement to state that the meeting is held in a particular place), save that it 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 further announcements may be required.
How should companies deal with notices of AGM that have already been sent to shareholders?
The FRC has advised that companies should still give proper notice of the meeting where an AGM is required to be held by a certain date and the Bill has not passed by the notice period date.
To the extent that the AGM is held after the time the Bill is passed, companies would be entitled to hold those meetings in accordance with the relaxed requirements set out in the Bill. If a company has issued its AGM notice and subsequently wishes to change details of how shareholders may attend, participate in and / or vote at the meeting, or, following enactment of the Bill, the meeting is no longer going to be held at any venue, the board must inform shareholders of the change, make any RIS announcements, and update the company website.
Prior to the Bill coming into force, if a company has already issued its AGM notice and subsequently needs to move the venue of the meeting stated in the notice (for example, because it is no longer available or is not suitable for a “closed doors” or hybrid AGM):
- provided that the Articles permit the directors to postpone or move AGM to an alternative location, the directors should exercise this power and notify shareholders of this and any changes to the format of the AGM, including by making any RIS announcements and updating the website. There is no statutory minimum notice required for postponements of meetings, but the company should try to provide at least 21 clear days’ notice for AGMs, and 14 clear days’ notice for GMs (or otherwise follow the time periods prescribed in the Articles), but this may not be possible given the tight timelines for holding the AGM; or
- if the Articles do not permit postponement, the meeting must be adjourned. The Articles must be checked for provisions dealing with adjournment. If there are no provisions for automatic adjournment, or which provide discretion for the Chair to adjourn the meeting, it is likely that the required quorum must attend the meeting (be it physically or electronically (if not prohibited)) to open it and then adjourn the meeting to another location in accordance with the Articles. If it is known that the meeting will be opened with the intention of adjourning it, shareholders must be informed and an announcement made to that effect, to ensure additional shareholders do not attend.
We will continue to update this article as further information becomes available.