It is AGM season for many organisations, whether they be companies, charities or societies. AGMs provide an important forum for many such entities (which we will call ‘companies’ throughout the rest of this note for ease of reference), as they provide a platform for reporting to members, an opportunity to address governance issues and also in many cases the arena in which to formalise decisions so as to comply with applicable legal requirements.
With the emphasis on social responsibility and the welfare of staff, and indeed society as a whole, many will find it challenging to hold meetings in the ‘Stay Alert’ environment that is currently operating in England under The Health Protection (Coronavirus, Restrictions) (England) Regulations 2020 (the Regulations).
The law currently prohibits most gatherings in public and private places unless, for example, they are essential for work purposes. Even if not prohibited outright, any such gathering will be subject to social distancing measures. This presents an inherent difficulty for those entities required to hold AGMs and general meetings in the coming weeks. Similar issues will also be faced in planning and holding board meetings for the foreseeable future.
On 20 May 2020, the government introduced draft legislative provisions in the form of the Corporate Insolvency and Governance Bill (the Bill) to address the challenges faced by companies. Parliament has not passed the Bill at the time of writing, but it is expected to do so in the coming weeks.
As drafted, the Bill is designed to provide flexibility for companies faced with COVID logistical hurdles, and if the provisions are brought into force, general meetings:
1. may be held and votes cast by electronicor ‘any other means’ which would includetelephone meetings;
2. do not need to be held in a particularplace, enabling electronic and other formsof meeting which do not have a singlevenue;
3. may dispense with any requirement that aquorum is physically present;
4. may exclude shareholders from physicalattendance;
5. can preclude shareholders fromparticipating except by voting (they wouldnot have the right to speak); and
6. can prescribe how voting happens.
The provisions as drafted will apply retrospectively from 26 March 2020. This means that meetings that may not previously have met constitutional rules because they were held virtually, could be deemed lawful once the provisions are in force.
The provisions as drafted also extend the deadline for company AGMs to 30 September 2020 if a company is required to hold one at an earlier date (but no earlier than 26 March 2020).
There is no guarantee that the Bill will be enacted in its current form by the time a company is required to hold its AGM. However, there is a good chance that it will, given that it seems unlikely to be opposed, and it is clearly urgent. Some companies may not face imminent deadlines for holding AGMs or meetings, in which case they may be able to wait until they know when the Bill will be in force, and then convene the AGM or meeting to take place by electronic means.
Companies that cannot wait, or those that are not confident that the Bill will be in force by the time of their AGM, should do all they can to avoid breaching existing constitutional and legislative requirements. The Chartered Governance Institute has published what is perhaps the most definitive guidance to date for these companies (which has been reviewed by the Department for Business, Energy and Industrial Strategy (BEIS)) and which we agree with1, and the Financial Reporting Council (FRC) has recently published Q&As addressing some of the points that arise.
We advise companies that are at risk of breaching their existing obligations to consider the points below in respect of AGMs and general meetings. Our comments in respect of board meetings can be applied to all companies.
Companies can still hold a valid AGM or general meeting. We advise that they should continue to prepare in accordance with constitutional documents, existing legislation and regulatory requirements so far as possible.
Subject to any specific constitutional constraints, the government’s latest ‘Stay Alert’ message does not mean that companies cannot hold a valid AGM or general meeting.
In most cases, there are ways of overcoming the difficulties presented by the ‘Stay Alert’ environment, however, many of the methods hinge on a company’s constitutional documents which should be the first port of call. Various approaches are considered in further detail below.
It is important to note that, unlike private companies, public companies are required to hold AGMs by statute. This imposes an additional legislative burden on public companies which is addressed in the Bill. In respect of constitutional documents, the principles below apply to public and private companies alike, as they do to other corporate bodies such as registered societies.
Members should not physically attend an AGM or other general meeting unless they are required to form the quorum.
As stated above, the law currently places restrictions on public and private gatherings unless, for example, they are essential for work purposes. Any such gathering will be subject to social distancing measures.
It is unlikely that a member’s attendance at a company’s AGM is essential for work purposes, unless that particular member’s attendance is specifically required for the purposes of establishing a quorum for that meeting. In the majority of cases, the necessary quorum will fall far below the total number of members.
If it is essential for a member (or member’s representative) to attend an AGM in person (perhaps alongside the chair), it is important that the company has clear processes in place to select that particular member and communicate selection to all members, so as to keep attendees to a minimum. Selection could be a contentious issue in itself if a number of members try to attend but are refused entry at the AGM, so it would be as well to head off such issues through advanced planning and communication. As a matter of law, the chair of the meeting has wide powers in relation to the preservation of order, the transaction of business, and the safety of attendees, and we consider that those powers may be mobilised to exclude people to the extent that it is reasonable to do so. In our opinion, compliance with the Regulations and ensuring the health and safety of individuals are both good reasons.
Trustees and board members should bear in mind that the Charity Commission and FCA may in due course issue their own guidance on whether attendance at AGMs is essential for work purposes.
It is important to ensure the quorum is met for an AGM or general meeting.
If a company’s constitutional documents do not state that the quorum can be met by electronic attendance, then it is usually best practice to physically satisfy the quorum.
However, the statutory provisions of the Companies Act 2006 (governing meetings and resolutions) in relation to companies will not operate to ‘preclude the holding and conducting of a meeting in such a way that persons who are not present together at the same place may by electronic means attend and speak and vote at it’. It is important to check the constitutional documents for any express or implied wording that could contradict the statutory position. Many companies will continue to favour a physical quorum where they can lawfully convene one notwithstanding COVID restrictions.
Companies should also check their constitutional documents before holding a meeting to ensure that a sufficient number of members can attend in order to meet the quorum. There is a risk that the meeting and any resolutions will be invalidated if an entity fails to do so.
The quorum provisions may require that two or more qualifying members physically attend the meeting in person. Alternatively, the constitution could provide that a quorum may be achieved if one or more persons physically present have also been appointed as proxies, or corporate representatives, to represent other members. In this scenario, it is possible a meeting could fulfil a company’s quorum requirements if a member holds the meeting in their home acting as a representative or proxy for one or more other members of the company However, this depends on the company’s constitution, so again it would be prudent to check your constitutional documents at the planning stage to establish any constraints specific to your own organisation.
The meeting notice and covering explanatory notes should make provision for companies to dispense with a physical quorum if the Bill has been enacted before the meeting takes place.
Companies may be able to hold a valid AGM or other general meeting by electronic methods if their constitutional documents allow it.
Meetings that are held exclusively via electronic methods without any physical meeting taking place are known as ‘virtual-only’ meetings. Virtual-only meetings are not currently available for most public companies, as they are required by their articles to hold a physical meeting, and the constitutions of many other organisations also require a physical meeting.
Meetings that are held physically, but also allow members and other stakeholders to take part online are known as ‘hybrid meetings’.
Once quorum requirements have been satisfied, it should be possible to hold a hybrid meeting for the conduct of business, and where proposed, consideration should be given to the best means by which virtual participants contribute to proceedings and also vote. In many cases, it will be necessary to adopt proxy voting mechanics for a member who attends virtually, so as to ensure that member’s vote on matters is recorded and can be legally taken into account, and also to address the technical challenges associated with virtual attendance (such as broadband failure). A hybrid approach provides a pragmatic solution for addressing legal formalities, while also permitting full member presence and interaction with management. With suitable technology in place, it should be possible for members to link in from home for the purposes of speaking and asking questions of the board. Ideally, the company’s constitution will expressly allow hybrid meetings to take place.
If the constitutional documents are silent on this issue, the statutory provisions of the Companies Act 2006 (governing meetings and resolutions) will not preclude companies from holding meetings at which members can attend and vote by electronic means. Again, it is important to check the constitutional documents for any express or implied wording that could contradict the statutory position.
For registered charities, the Charity Commission has stated that it will ‘understand’ if charities hold virtual AGMs where the constitution does not expressly permit them to do so. In this scenario, the Charity Commission recommends that trustees record the decision-making process to show proficient governance.
The FCA has left it up to societies to decide whether or not to proceed with a planned meeting, commenting that they should take into account relevant government guidance, their own individual circumstances and, where appropriate, legal advice. The FCA has also said that societies should take reasonable steps to ensure they meet any obligations they are under as soon as reasonably practicable. Importantly, they do not consider it to be in the public interest to take action as the registering authority in this context where they can see that a society is taking such steps. However, they have not issued definitive guidance on the issue of virtual meetings. The NHF model rules require a physical AGM.
Clearly communicate with members and other stakeholders who would usually attend meetings to ensure participation.
In the case of virtual meetings, members may not be able to participate in their usual capacity or at all if they have connection problems during the meeting. There is also a risk that members and other stakeholders will become disgruntled if they are prevented from setting out their questions and concerns at meetings.
With this in mind, the FRC expects companies to increasingly communicate, listen and respond to members who would otherwise have a chance to do so. There is no reason why charities and societies should not approach their members in a similar way. Companies, charities and societies alike can all benefit from having a better idea of how members might react to unusual meeting proposals in light of COVID-19 restrictions. An advance appreciation of the issues that are likely to be raised at an AGM or meeting, gives those organising it a better opportunity to optimise the way it is structured, and to manage the personalities and interests involved. For example, by soliciting questions in advance, and encouraging proxy appointments to address the logistical points we have discussed in this note.
Board meetings are unaffected by the proposed Bill. It is likely that board meetings can be conducted on a virtual-only basis, subject to constitutional requirements.
If the constitutional documents are silent on this issue, it is commonly thought that boards can conduct board meetings virtually. Case law does not establish a definitive position, but it does provide that directors do not need to physically attend board meetings to make a valid board decision, so long as it is possible for matters to be properly discussed, debated and voted upon. It is possible that the ‘place’ for the purposes of a virtual meeting could be the chair’s house, with other board members present via electronic methods to ensure compliance with COVID-19 laws. A virtual approach will not be available where the requirements of the constitutional documents expressly prevent such an approach being adopted.
It is important that companies, charities and societies take into account all existing legislative and regulatory constraints when considering whether to hold an AGM, general meeting or board meeting, and the manner in which they go about it, noting that the concessions to be introduced by the Bill have yet to become law. At the outset, such entities should also consider their own constitutional documents so as to establish the flexibility that they provide. There is no guarantee that the proposed legislative measures will relieve these entities from liability to members and regulators, so they should do all they can to comply with existing meeting requirements in the ‘Stay Alert’ environment.