Shareholder Meetings in an age of Social Distancing

POSTED BY Michael Busch
Joshua Woo
14 April 2020

VIEWED 278 TIMES

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(Photo by André Ravazzi on Unsplash)

For as long as there have been companies, holding annual shareholder meetings in the form of a physical gathering has been a key part of a company’s annual functions and shareholder engagement. The impact of Covid-19, however, may be changing perspectives and accelerating the trend toward holding of meetings via electronic means. In particular, recently announced Covid-19 related measures from the Companies Office (link), which are yet to be formalised, will help facilitate a shift away from physical meetings. Also, companies may benefit from waiving the need for an annual meeting of shareholders completely, which is permitted in certain circumstances. Waiving the need for an annual shareholders’ meeting can also be an effective cost-saving initiative at a time when budgets and cash flows are under close scrutiny.

This update discusses:

    • the broad requirements of the Companies Act 1993 (Act) to call shareholder meetings;
    • the two instances provided for in the Act when a company needn’t call an annual meeting of shareholders; and
    • the ability of a board to facilitate shareholder meetings electronically.

Annual and special shareholders meetings

The board of a company must (except in limited circumstances discussed below) call an annual meeting of shareholders (AGM). An AGM must be held not later than 6 months after the balance date of the company and not later than 15 months after the previous AGM. The Covid-19 relief measures recently announced will include temporary exemption powers for the Companies Office to relax certain statutory deadlines provided for in the Act (e.g. timing for the holding of AGMs) so board members can expect some leeway in this regard.

The Act provides for default rules governing proceedings at meetings of shareholders (including how to serve a notice of the meeting, facilitating proxy/corporate representative voting, accepting shareholder proposals and postal votes etc). These default rules may be varied by the company’s constitution to the extent that the default provisions are expressed to be subject to the constitution.

In addition to an AGM, a special meeting (often referred to as an extraordinary general meeting) of shareholders (EGM) may be called at any time by the board or another person authorised to do so by the company’s constitution. The board must also call an EGM if requested by shareholders holding shares that carry at least 5% of the voting rights entitled to be exercised on the subject matter of the EGM.

Two exemptions from the need for an AGM

The Act provides for two instances where a board needn’t call, and a company needn’t hold, an AGM:

    • Section 122 (written resolutions in lieu): If everything required to be done at that meeting (by resolution or otherwise) is done by written resolution in accordance with section 122 of the Act. Normally, at an AGM, an ordinary resolution is passed by a simple majority of votes of those shareholders entitled to vote and voting on the question (i.e. 50%). If the company wishes to pass written resolutions in lieu of an AGM pursuant to section 122, the threshold for passing an ordinary resolution increases to 75% of entitled shareholders (by number) who together hold not less than 75% of entitled votes (or a higher threshold set out in the company’s constitution). If the written resolution is to opt out of certain financial reporting obligations as provided for in the Act, the resolution would need to be approved by shareholders who together hold not less than 95% of the votes entitled to be cast on the resolution.
    • Section 120(5) (nothing required to be done): If the following conditions are met:
      • there is nothing required to be done at that meeting; and
      • the board has resolved that it is in the interests of the company to rely on section 120(5) of the Act (having regard to whether there is any particular issue that the shareholders should be given an opportunity to discuss, comment on, or ask questions about); and
      • the constitution of the company does not require the meeting to be called or held.

Companies should seek professional advice regarding what, if anything, is required to be done at an AGM. For example, for companies with limited financial reporting obligations, there may be nothing that is required to be done at the AGM.

The above exemptions apply only in relation to AGMs, not EGMs. In both instances, however, there are ways to facilitate a meeting without calling for a physical meeting.

Electronic or other hybrid meetings

If a meeting needs to be called, a company has flexibility under the default provisions of the Act to hold an AGM by:

    • hosting a physical meeting; or
    • having shareholders participate by means of audio, audio-visual or electronic communication; or
    • a combination of the above methods.

There are third-party providers who can assist with hosting audio-visual/electronic meetings and assist with obtaining questions at the meeting and counting votes etc. These can be run at the same time as hosting a physical meeting. For more cost savings, a company could hold a meeting over Zoom (or the like) but, among other things, they’ll have to think about the logistics of verifying the identity of the shareholder (or their proxy or representative), accepting questions, counting their votes and the security and confidentiality issues that have been raised with regard to Zoom and other online platforms. The default rules also permit postal votes to be cast electronically.

Companies’ constitutions may vary from the default provisions of the Act. In this regard, the Covid-19 related measures announced by the Companies Office will permit companies to use electronic communications (including electronic meetings) even if their constitutions do not expressly allow them to.

Summary

Board members considering a company’s next AGM should ascertain what, if anything, is required to be done at the AGM, whether anything required to be done could be done by written resolution in accordance with section 122 of the Act, or whether a meeting could alternatively be held via electronic means. It may well be the case that no AGM needs to be called or, if one is needed, it could be held electronically so as to maintain social distancing and save costs associated with the holding of physical meetings.

Important: This document does not constitute legal advice to any person. Companies should seek specific advice on their circumstances and how the COVID-19 epidemic could influence decisions made around their holding of AGMs and EGMs.

POSTED BY Michael Busch
Joshua Woo
14 April 2020

VIEWED 278 TIMES

PERMALINK