The UK government has introduced proposed legislation that will give companies flexibility to hold their annual general meetings where lockdowns due to the coronavirus (COVID-19) pandemic would prevent such meetings in person.
In a prior publication of practical considerations for UK companies' annual general meetings (AGMs) in light of the COVID-19 pandemic and the UK government's lockdown measures, we highlighted that legislation would soon be introduced to provide companies and their directors much needed clarity and flexibility to plan their activities in the midst of AGM season.
On 20 May, almost two months since the lockdown measures began, the Corporate Insolvency and Governance Bill was published and had its first reading in Parliament. It is expected that the bill will proceed rapidly through the legislative process.
Key elements of the bill relating to the holding of AGMs and other meetings are set out as follows.
The bill defined a "Qualifying Body" to include (amongst others) the following:
The bill includes provisions relating to the holding of certain meetings of companies and other Qualifying Bodies taking place between 26 March 2020 and 30 September 2020 (Relevant Period).
The new rules would apply retrospectively from 26 March 2020. As such, any company or other Qualifying Body that has held an AGM since that date—in a manner that complied with the COVID-19 social distancing measures but not the requirements in its constitution (including articles of association)—will have done so legally.
Further extensions will be granted if appropriate. The Relevant Period may be extended (or shortened) in increments of up to three months at a time. The bill provides that the Relevant Period may not be extended beyond 5 April 2021.
The new rules would apply to the following meetings of a Qualifying Body (together, the Meetings):
Companies will have the ability to temporarily override certain requirements in their constitutional documents relating to the mode of meeting.
The bill provides that the Meetings would not need to be held in any particular place and that it would be possible to use (and permit any votes to be cast by) electronic means or any other means.
Further, a Meeting may be held without any number of those participating being together at the same location.
The government acknowledges concerns relating to the security and practicability of AGMs held by electronic means. As a result, the bill does not prescribe the alternative means by which an AGM (or other Meeting) must be held. It is left to companies and shareholders to develop a solution tailored to their specific needs.
The bill states that members will not have the right to attend Meetings in person nor will they be able to participate other than by voting. It will be for the company to decide how voting should be effected.
The explanatory notes to the bill acknowledge stakeholder concerns that alternative methods of holding an AGM could reduce scrutiny and restrict the ability of investors to put questions to boards. The government has stated its intent to publish further guidance to companies on how to ensure that investors remain engaged. In the interim, please refer to our considerations relating to communication with shareholders and shareholder engagement in our LawFlash published on 22 April.
The bill provides that a Qualifying Body may extend the period within which it must hold an AGM until 30 September 2020 (i.e., the end of the Relevant Period).
In relation to a public company, the references to a duty to hold a general meeting as its AGM are to be read as including a reference to a duty to hold a general meeting at which the company’s annual accounts and reports are presented (i.e., an accounts meeting).
The UK Department for Business, Energy and Industrial Strategy states that these temporary flexibilities are intended to be in place for so long as they are needed to enable companies to hold their Meetings in a manner that prevents the spread of COVID-19.
Given the uncertainty of the current circumstances, we recommend companies review their articles of association or other governing documents to consider whether these need to be updated to ensure that AGMs can be run flexibly and efficiently in the future.
Companies should also continue to review any authorities in place in order to determine if they are still valid. Companies will need to consider the specific requirements of their articles of association and the resolutions passed at their previous AGMs. It appears that the legislation, as currently envisaged, is unlikely to provide any flexibility in this regard.
The bill also includes provisions in relation to other areas, such as insolvency. Please see our separate LawFlash on this topic.
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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