Conducting General Meetings by Hong Kong–Listed Issuers Amid COVID-19

Despite a strict prohibition on gatherings of more than two persons in any public place in Hong Kong through at least February 17, there is an exemption for shareholders’ meetings of companies listed on the Stock Exchange of Hong Kong, with certain conditions.

Earlier in the COVID-19 pandemic, the Hong Kong Special Administrative Region of the People’s Republic of China (HKSAR) government introduced a new Prevention and Control of Disease (Prohibition on Group Gathering) Regulation (the Group Gathering Regulation), which became effective on March 29, 2020. The Group Gathering Regulation has since gone through a number of iterations, and as of the present, it prohibits gatherings of more than two persons in any public place from February 4, 2021, until at least February 17, 2021 (the Specified Period). Violations are punishable by a fine of up to $25,000 Hong Kong dollars (about $3,225) and imprisonment for six months, subject to certain exemptions. The Specified Period may be further extended by notice published in the HKSAR Government Gazette; given that the pandemic has yet to subside, it is anticipated that the Group Gathering Regulation will continue to remain in force for the foreseeable future.

GENERAL MEETING EXEMPTION

One exemption under the Group Gathering Regulation is for any shareholders’ meeting of a company listed on the Stock Exchange of Hong Kong (HKEX) (whether incorporated in Hong Kong or a jurisdiction outside Hong Kong, as with most issuers) that is held in accordance with any laws or other regulatory instrument that governs the operation of the company or its business.

For such meetings, no food or drink are to be served and, if there are more than 20 attendees, measures should be put in place for separating the participants in the meeting in different rooms or partitioned areas, each such area accommodating not more than 20 persons.

ADJOURNMENT OR DELAY

On April 1, 2020, the Hong Kong Securities and Futures Commission (SFC) and the HKEX released a joint statement, after consultation with the HKSAR government, providing guidance on the conduct of corporate general meetings. While such guidance was issued in the early period of the global pandemic, it nevertheless still remains relevant as considerable volatility and disruption caused by the global pandemic have ensued since the guidance’s publication.

In the joint statement, the SFC and the HKEX stated that listed issuers should consider whether it is possible to adjourn or delay their general meetings for a reasonable period. Listed issuers should consider the following:

• Whether the general meeting is subject to any mandatory legal or regulatory requirement on timing.
• Whether any such requirement is capable of extension, waiver, or other variation by way of application or otherwise.
• Whether any business to be considered at the meeting is of such urgency and importance that an adjournment or delay would, taking into account all facts and circumstances, materially harm the interests of the listed issuer and its shareholders considered as a whole.

Longer adjournment or delay is encouraged by the SFC and the HKEX to allow the listed issuers more time to

• monitor how the current situation develops in order to better decide how to manage the potential health risks of a physical meeting, if one is needed; and
• explore and assess measures permissible under the laws of their jurisdictions of incorporation and their constitutional documents to reduce the need for physical attendance, including
  • the use of technology (e.g., webcast, video conference, virtual meetings) to enable nonphysical attendance and voting;
  • to encourage more shareholders to vote either by proxy or by giving instructions to their brokers and custodians; and
  • to encourage shareholders to submit their questions to management in writing in advance of the meeting.

MEASURES TO REDUCE PHYSICAL ATTENDANCE

Since the guidance’s publication, measures adopted by listed issuers to reduce physical attendance include the following:

• Holding “hybrid” general meetings, whereby shareholders can attend and vote either by electronic means or in person.
• Encouraging shareholders to appoint the chairman of the general meeting as their proxy and to submit any questions regarding the relevant resolutions in advance of the general meeting.

Any listed issuers that wish to adopt similar measures should consider whether it is necessary to revise their constitutional documents; it should be noted that there has been an uptick of listed issuers doing so, and it is likely that this trend will continue. This is especially pertinent for listed issuers whose constitutional documents only permit the holding of physical general meetings.

MANAGEMENT OF PHYSICAL MEETINGS

For listed issuers that decide to proceed with a physical general meeting, the guidance is to

• take all practicable precautions to ensure the safety of attendees, including mandatory screening of body temperatures, use of face masks, physical distancing, no food and beverage service, and no handing out of corporate gifts; and
• where possible, adopt other appropriate measures to manage the number of physical attendees, including the use of multiple meeting rooms or venues linked by telecommunication facilities to reduce the headcount at a single venue, and restricting the number of nonshareholder attendees.

Although the Hong Kong listing rules do not impose a requirement on the format of general meetings, listed issuers are reminded to comply with applicable laws of their jurisdictions of incorporation and their constitutional documents. In this connection, it is important to note that an overwhelming majority of listed issuers in Hong Kong—an international financial center—are incorporated in a jurisdiction outside of Hong Kong.

SHAREHOLDER COMMUNICATIONS

To keep investors and other stakeholders informed, listed issuers that have called a general meeting should, as soon as practicable, publish an announcement to

• confirm whether their general meeting will proceed as scheduled;
• if applicable, explain the necessity for holding the meeting; and
• where applicable, outline the meeting arrangements and precautionary measures to be adopted to ensure compliance with the Group Gathering Regulation.

Further, since the onset of the pandemic, it is worth noting that many listed issuers now include prominent health and safety-related disclosures on the front page of their shareholders’ circulars calling for general meetings. Such disclosures may state the following:

• Precautionary measures, such as compulsory body temperature checks, submission of health declaration forms, and wearing of surgical face masks, will be implemented at the general meeting.
• Any person who does not comply with such measures may be denied entry to the general meeting venue or be requested to leave.
• Physical attendance in person at the general meeting is not necessary for the purpose of exercising voting rights (unless stated otherwise in the constitutional documents of the listed issuer in question).

Listed issuers should also communicate their plans to share registrars and the HKEX as soon as practicable.

Our lawyers have experience advising Hong Kong–listed issuers in a wide range of legal and compliance issues. We are closely monitoring new developments that might impact Hong Kong–listed issuers and are able to guide you quickly as needed.

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CONTACTS

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Boston
Laurie Cerveny
Michael Conza
Bryan Keighery
Carl Valenstein
Julio Vega

Frankfurt
Torsten Schwarze

Hong Kong
Edwin Luk
Billy Wong
June Chan
Keith Cheung

London
Timothy J. Corbett
Iain Wright

Moscow/London
Carter Brod

New York
Thomas P. Giblin, Jr.
Howard A. Kenny
Christina Melendi
Kimberly M. Reisler

Palo Alto
Albert Lung

Philadelphia
Justin W. Chairman
James W. McKenzie
Joanne R. Soslow

Pittsburgh
Celia Soehner

Princeton
David C. Schwartz

Singapore
Bernard Lui
Joo Khin Ng