While social distancing restrictions remain in place, private companies that need to hold shareholder meetings, whether annual general or simply general, will likely be looking for alternatives to "live" physical meetings.
New legislation has been introduced to make virtual versions temporarily possible, so let's look at what the new rules mean, plus the possible options and issues for companies when conducting meetings.
Temporary flexibility for companies
The new Corporate Insolvency and Governance Act 2020 (the Act) gives some much-needed flexibility to companies that are required or wish to hold shareholder meetings in the coming months. Our legal update on AGMs looks at the temporary relaxations in the Act on timing of AGMs.
The Act provides that a company meeting – whether an AGM or other shareholder meeting – does not need to be held at any particular place and may be held by electronic – or any other - means, regardless of the company's constitution.
It also allows for a meeting to be held without attendees, who are needed to form the quorum, having to be physically together in one place. The Act also enables votes to be cast at a meeting electronically, or by any other means.
Under the Act, shareholders temporarily have no right to attend a meeting in person or participate in the meeting – for example, to ask questions - other than to vote.
Shareholders will continue to have the right to vote by some means at the meeting but not by a particular means, such as, for example, a show of hands which may be how they usually vote.
In practice, for most companies this has meant strongly encouraging voting by proxy as a substitute to attending and voting in person.
The Act's provisions on meetings are time restricted, with the relaxations applying only until 30 September 2020, unless they are extended by the Government. Whatever the position with COVID-19, all the Act's provisions on meetings will fall away on 5 April 2021.
The meeting provisions apply retrospectively from 26 March, and should provide comfort to any company that has, since then, held an AGM in a way that complied with social distancing measures, but not, as a result, with its constitution.
Can a meeting be held virtually or as a 'hybrid'?
The Act provides reassurance to companies that virtual or 'hybrid' meetings, and resolutions passed at them, will be valid, regardless of anything to the contrary in their constitution or in the Companies Act 2006.
Prior to the Act being passed, there was a concern that a completely virtual meeting may not be valid and, consequentially, any business conducted at the meeting would be invalid.
There were also questions as to whether a company could hold a hybrid meeting – where some shareholders attend physically and some virtually – if its articles have not been amended specifically to provide for this. The Act has, temporarily, removed the doubt surrounding the validity of hybrid meetings.
Without the Act, it would depend on the provisions of the articles on shareholder meetings.
If a company had adopted the Model Articles, unmodified, then shareholders would be able to attend, speak and vote at meetings remotely and directors could make whatever arrangements they consider appropriate to enable those attending a general meeting to exercise their rights to speak or vote at it, including enabling virtual participation.
However, Table A articles are more problematic and are unlikely, in an unmodified form, to be interpreted as permitting shareholders to join meetings remotely.
While the meetings provisions of the Act are in force, there is no need to amend the articles to incorporate provisions specifically permitting hybrid meetings.
A key point to note is that if a hybrid meeting is to be held, with two people (where the quorum is two) attending a physical meeting, it is essential that those at the meeting do not breach the social distancing restrictions in force at the time, whether the physical meeting is in a shareholder's home or in the company’s business premises - if they are allowed to open.
The Act's temporary flexibility means that the persons forming the quorum do not all need to be present in the same location – those forming the quorum could be attending, for example, via a Zoom call.
Companies do not have to hold a virtual or hybrid meeting if they would prefer, and are able, to hold a quorate, physical meeting in compliance with social distancing requirements. In this case, shareholders would have the right to appoint a proxy and would still be able to exercise their right to vote.
Again, it must also be remembered that these relaxations will only apply until 30 September 2020, unless extended as noted above. Companies should consider changing their articles if they wish to be sure that virtual/hybrid meetings will be available to them in the longer term.
Practical considerations for virtual and hybrid meetings
Companies that opt to hold a virtual or hybrid meeting in the coming months, while the Act's meetings provisions are in force, should consider the practical issues set out below to help the meeting run smoothly.
- The ability of shareholders to use the technology and for that technology to work is key. Companies should consider if all its shareholders have access to WiFi/broadband and have the necessary computer or other equipment to join the meeting.
- There should be specific rules for how the meeting will proceed, particularly how shareholders can vote.
- It is important that the technology holds out for the entire meeting so that everyone who joins the meeting remotely is able to stay in the meeting as long as they want, so they can vote.
- If shareholders are going to be allowed to speak at the meeting, there should be a way for the chairman to ensure that people do not speak over each other and that everyone who wants to contribute is given an equal chance to do so, as they would at a physical meeting.
As well as the temporary relaxations provided by the Act, the common law Duomatic principle, under which shareholders can effectively 'cure' procedural irregularities by unanimous, informal consent may provide a useful safety net for companies that are struggling to hold a general meeting in the current circumstances.
If all shareholders support and vote in favour of a company resolution, even at a completely virtual, and not just hybrid, meeting it would be hard for a shareholder subsequently to challenge the decision on the grounds of procedural irregularities.
The Act means private companies that wish, or are obliged, to hold an AGM – or general meeting – before 30 September can do so with the assurance that virtual or hybrid meetings, and decisions taken at them, are valid, even if their constitution would not otherwise allow meetings to be conducted this way.
Companies should keep business at meetings held this way to the bare minimum, passing resolutions only.
If a company wants to engage with its shareholders while social distancing is in place - hosting a webinar, for instance, would be an opportunity to discuss matters, although it must be made clear that it is not a formal AGM.