In light of the UK government’s lockdown measures and the COVID-19 pandemic, there are key issues English public companies should consider for their annual general meetings (AGMs) while awaiting further legislation and flexibility.
The UK government’s lockdown measures present unprecedented challenges and uncertainty for companies and their directors who find themselves in the midst of AGM season, as shareholders are no longer permitted to attend in person. Guidance from the Chartered Governance Institute (CGI), reviewed by the Department for Business, Energy & Industrial Strategy (BEIS), stated that attendance at a general meeting by a shareholder (other than one required to form the quorum) is not deemed "essential for work purposes.”
On 28 March, the BEIS announced that legislation would be brought forward to give companies flexibility where the lockdown makes it difficult to meet statutory obligations, such as holding meetings. To date, no such action has been taken.
On 17 April, the BEIS and the Financial Reporting Council published a Q&A to provide companies with additional information upon which to plan their activities whilst they work on the details of the legislation.
Below is an overview of key issues for companies to consider.
A valid general meeting is partly determined by a company’s articles of association. A review must be conducted on a case-by-case basis, particularly those provisions relating to notice of the meeting, postponement (if any), adjournment, quorum, and chairman's powers.
The BEIS Q&A indicates that upcoming legislation may, in some cases, give companies the ability to override their articles for a short period.
English public companies must hold their AGM within six months of their year-end. Therefore, companies with a calendar year-end must hold their 2020 AGM by 30 June. The BEIS Q&A indicates that companies will be given an option to extend the deadline for when their AGM must be held. However, most companies will want to hold their meetings within the normal timeframe.
Companies must review any corporate authorities in place (including longstop dates, if relevant) to ascertain whether they would expire before any alternative meeting date.
Postponement of the AGM may be an option but only where the articles allow. Postponement provisions are not contained in the model articles for companies.
Postponement will not be an option for a company that needs to vote on urgent business.
Some companies have already given notice of their AGMs and are unable to wait for government action.
Currently, it is not possible to change the venue and time of an AGM once convened simply by giving notice to the shareholders unless the articles allow. Companies should adjourn the meeting from the planned venue to an alternate location and communicate the intended adjournment as soon as practicable.
In order to adjourn the meeting, the chairman or another person filling the role of meeting chairman should attend the meeting at the time and location originally scheduled and adjourn the meeting if a quorum is present. As indicated below, attendance for these purposes by a limited number of persons may be treated as "essential for work purposes." Where the meeting is adjourned and there was a quorum present at the original meeting, then the chairman will normally have some flexibility to set a new time subject to the consent of those present and the terms of the articles. It may be possible to have the adjourned meeting relatively soon after the first meeting, particularly where it has been possible to give advance notice of the intended adjournment. If no quorum was present, then the articles will provide for the relevant minimum period of notice for the adjourned meeting.
The quorum should be satisfied by the minimum number of people required. The CGI guidance gave the example of an executive director or company secretary who is either a member, a corporate representative, or appointed as proxy. Such presence for quorum purposes is deemed "essential for work purposes." However, social distancing measures should be observed at all times.
The CGI guidance also stated that if a quorum requires the physical presence of more than two individuals, which is rare, then additional members or proxies may have to attend in person. In the event a venue is inaccessible, a quorum may be formed close by outside the premises.
The BEIS Q&A indicates that upcoming legislation will allow a quorum to be formed by telephone or by electronic means, obviating the need for people to compromise their own safety.
Companies should explicitly ban physical attendance by shareholders. The notice of the meeting, including all related announcements, should make it clear that shareholders are unable to attend in person and will be refused entry. Communications should be unequivocal and reference the lockdown.
If shareholders attempt to attend, the chairman has common-law powers to ensure the safety of the attendees at the meeting. Similar powers are often contained in a company's articles as previously mentioned.
Companies must keep shareholders engaged throughout the process and should:
Policy guidance published by the Institutional Shareholder Services (ISS) on 8 April states that shareholders will expect companies to use their standard disclosure documents, announcements, and websites to keep all stakeholders up to date. Engagement through conference calls and other forms of electronic communications is encouraged.
The BEIS Q&A indicates that upcoming legislation will allow companies to restrict the communication of documents (including notices) to electronic forms.
Members do not need to be physically present in order to attend, speak, and vote at a meeting. A company is not precluded from holding a meeting in such a way that persons who are not physically present together may by electronic means attend, speak, and vote.
In the case of a "hybrid meeting" (i.e., a physical meeting that includes a facility for virtual participation), all of the usual requirements will still apply (quorum, providing the relevant documents, counting and announcing votes, etc.). Listed companies must abide by the relevant listing rules as they pertain to general meetings, with all directors available to answer questions from members. There may be personal reasons where this is not practicable. The ISS guidance indicated that while disclosures related to directors' attendance should be sensitive to privacy concerns regarding an individual's health, companies should provide adequate information to allow shareholders to make informed judgments about absences from meetings, including any absences from board and committee meetings.
In the United Kingdom, fully virtual meetings are rare compared with the United States. The BEIS Q&A states that mandating their use in the upcoming legislation is likely to create further issues, highlighting the limited number of service providers and high number of companies that will need to hold meetings within a short timeframe.
The ISS guidance stated that fully virtual meetings may be necessary given the current circumstances (a shift in its historic position). The ISS will not make adverse vote recommendations relating to companies holding fully virtual meetings until it is safe to hold in-person meetings. However, companies should disclose clearly their reasons and provide shareholders with a meaningful opportunity to participate as fully as possible. Boards are encouraged to commit to return to in-person or hybrid meetings (or to put it to shareholders to decide) as soon as practicable.
Shareholder engagement through AGMs is viewed as a key aspect of corporate governance processes within the United Kingdom. Companies are encouraged to find alternative ways to enable engagement during the current lockdown whilst recognising the practical limitations with restricting meetings. The use of special website areas and electronic communications will be a vital aspect for the coming weeks.
For our clients, we have formed a multidisciplinary Coronavirus COVID-19 Task Force to help guide you through the broad scope of legal issues brought on by this public health challenge. We also have launched a resource page to help keep you on top of developments as they unfold. If you would like to receive a daily digest of all new updates to the page, please subscribe now to receive our COVID-19 alerts.
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:
London
Mark Geday
Benjamin Davies