COVID-19 – Public Companies and Annual General Meetings
After Monday night’s announcement from the UK government imposing stricter measures to try to fight the spread of the Covid-19 outbreak, a ban on public gatherings of no more than two people was put into effect. This reflects what has been happening globally with mandatory restrictions on countries such as Spain, France, Italy and the Republic of Ireland already enacted in the past few weeks. What does this mean for public companies however who have planned to hold their annual general meetings (AGMs) over the next few months?
The key challenges
Under the Companies Act 2006, it is a requirement that a public company holds its AGM within six months of the end of its financial year. For many London listed public companies with their financial year end being 31 December, March through to May is usually the timeframe in which AGMs are held (with a deadline of 30 June). In light of travel restrictions, venue closures, and the recent ban on public gatherings as of Monday however, holding a physical AGM in the current climate will prove impossible for many companies.
Postponement, Adjournment or Delay?
If a company has already issued an AGM notice, a short-term option may be to postpone the AGM (as long as this does not breach the six-month deadline mentioned above) until social isolation measures are relaxed and the virus spread reduced. It is however difficult to predict what will happen over the next couple of months and there may be very little leeway for companies to move the AGM date. The articles of association will also need to be checked to ensure that the company has the power to postpone the meeting. Whilst there is no statutory minimum notice period for rearranged meetings, it is in the interests of the company’s shareholders to give them as much notice as possible and good practice is that 21 clear days’ notice is provided.
Companies generally only consider adjournments when there are no powers of postponement in the articles of association. A physical meeting will also be required (that is quorate) to adjourn the meeting. Similar comments to the above can be made, and again, time constraints may make this option unviable.
A company could also delay its AGM if no AGM notice has been sent out, however the six-month time limit will apply as mentioned above.
One of the main problems with postponement, adjournment or delay relates to the annual authorities made at the previous AGM. Usual resolutions passed at AGMs include share allotment and disapplication authorities and they tend to expire either at the following AGM or 15 months after the AGM at which they were given. Company directors will need to ensure they check these authorities carefully and establish when they are due to expire before making any decision to postpone, adjourn or delay a meeting. Another issue is the approval of dividend payments. Delaying an AGM may mean that the final dividend will not be paid on the expected date and so paying an interim dividend in lieu may need to be considered.
Virtual / Hybrid Meetings?
One possible solution for companies is to hold “virtual” meetings. In June 2016, Jimmy Choo conducted the first virtual AGM in the UK with shareholders using an app on their phones to log in securely. The app was linked to the tele-conferencing system to ensure that only genuine shareholders participated. Companies could follow suit and consider giving shareholders the option to use electronic means to participate in the AGM. Using virtual means will however depend on whether the company’s articles of association allow for this and company directors should check constitutional documents carefully before deciding whether to proceed in this manner. Some companies have over the last few years updated their articles of association to ensure that online meetings can take place but no other FTSE350 company has since followed in Jimmy Choo’s footsteps just yet.
The Institute of Chartered Secretaries and Administrators (ICSA) produced some guidance for public companies on 16th March and some of their recommendations (whilst slightly superseded by the recent UK lockdown) may prove useful for directors deciding how best to proceed. The ISCA guidance recommends holding a hybrid meeting which is a combination of an electronic and a physical meeting. Hybrid meetings have a meeting location and permit in-person attendance but also permit shareholders and proxies to participate electronically. Marks and Spencer, and Equiniti successfully held successful hybrid AGMs last year. Depending on government measures, this is another option that companies could try to follow in the interim period. Key benefits of holding hybrid meetings include increased shareholder participation as shareholders may find it easier to “attend” the meeting as well as cost advantages (i.e. there is no need to hire a venue or arrange security).
It will be a balancing act for companies over the next few weeks to decide whether to postpone, adjourn, delay or hold a virtual / hybrid AGM. The situation is fluid and some practical considerations going forward include:
- Communicating with shareholders – companies should keep their website as up to date as possible. Government advice can change on a daily basis and it will be important for shareholders to be able to find out about any changes to AGMs that are due to be held. If a venue changes or becomes unavailable then companies should make the announcement as soon as possible.
- Monitoring government advice – the Government may enact further emergency legislation and directors should keep themselves up to date with daily developments to see how they may impact planned AGMs and advice to shareholders. It is hoped that the UK government and advisory bodies will provide some assistance and direction to public companies who are concerned about meeting the statutory deadline. Whilst there is the possibility that the Government will extend the six-month deadline, companies should not rely on this without any firm confirmation being provided so a degree of caution should be taken in the interim period.
- Encouraging early proxy submissions – with the upheaval caused by further restrictions on Monday, shareholders should be encouraged to submit their proxy early so that they can vote on resolutions at the AGM.
- Encouraging questions from shareholders – the ICSA guidance suggests an online Q and A where shareholders can post questions related to the business of the AGM. Another suggestion is to make a dedicated area on the company website to include details of the arrangements of the AGM that can be updated to reflect any changes.
- Check the company’s constitutional documents – directors should become familiar with the articles of association, as these will ultimately govern what a company can and cannot do, and whether it can hold a virtual or hybrid meeting.
- Review the contract with the venue provider – check whether there are any force majeure provisions in the contract to see whether costs can be avoided due to any need to move or cancel the date of the AGM (and take a look at our recent article on force majeure if you have any further queries on contracts and force majeure provisions which can be found here.
If you have any questions on the above, please do not hesitate to contact Rachelle Sellek.