On 26 March 2020 the Government’s compulsory measures prohibiting public gatherings of more than two people were passed into law (Stay at Home Measures). This briefing considers how public and private companies can continue to convene and hold general meetings of their shareholders whilst ensuring compliance with the Stay at Home Measures.
The Business Secretary announced on 28 March 2020 that legislation will be introduced to ensure that those companies required by law to hold annual general meetings (AGMs) (ie public companies and private companies that are traded companies) will be able to do so safely and in a manner consistent with the Stay at Home Measures.
While the requirements of a valid general meeting are in part determined by a company’s articles of association, and will need to be checked on a case-by-case basis, the majority of companies should still be able to hold a general meeting (if they do not wish or are unable to postpone the meeting, or to take decisions by other methods) by making the following adjustments recommended by The Chartered Governance Institute:
1. Forming a quorum
Provided a quorum can be established and maintained, and provided the other requirements of the general meeting are observed, a company can hold its general meeting “behind closed doors”. Whilst such a decision would usually be viewed with great suspicion by shareholders, in these exceptional circumstances doing so can allow companies to carry out essential business that they cannot afford to delay.
The quorum for a general meeting is typically set out in a company’s articles of association, or is otherwise determined by the Companies Act 2006 to be two shareholders present in person or by proxy. Where the articles require more than two shareholders to be present for a meeting to be quorate, these members can typically be represented by proxy instead of being physically present.
In this case, only two people will need to be present in order to constitute a “meeting”, with one of them appointed as proxy for other shareholders in order to fulfil the quorum requirement and keep attendees to a minimum. The fact that their presence is necessary in order for a quorum to be formed means that their presence is “essential for work purposes” and therefore permitted by the Stay at Home Measures.
If, unusually, the quorum requirements in the articles state that the physical presence of more than two persons, then additional members or proxies may be required to attend the meeting in person. Where this is the case, it will be especially important that social distancing measures are followed at the meeting, and that the number of attendees is kept to the absolute minimum required to satisfy the quorum requirements so that the Stay at Home Measures are not breached.
2. Voting at the general meeting
Resolutions can be passed by the proxy votes of those who do not attend the meeting in person, together with the votes of those in attendance. Subject to quorum requirements, all shareholders should therefore be strongly encouraged to vote by proxy.
The proxy form sent to shareholders should appoint the chair of the general meeting (and not the chair of the board or a specific director who may on the day be unable to attend the meeting) as proxy, to ensure that the chair of the general meeting can exercise all proxy votes submitted.
Where shareholders have already appointed someone other than the chair of the general meeting as their proxy, they should be encouraged to submit a new proxy form appointing the chair of the general meeting instead.
3. Holding the general meeting
Companies that have already convened a general meeting for a venue that has since become unavailable will need to find an alternative venue. BP plc (BP) had planned to hold its AGM at the ExCeL exhibition centre in London at the end of May. However, the venue’s recent conversion into the NHS Nightingale Hospital, the temporary hospital for COVID-19 patients, means it is almost certain the AGM will not go ahead as planned, although BP is yet to confirm.
If the company’s articles allow the board to move the location to an alternative venue, they should consider moving the meeting to a more “controlled” venue, such as the company’s head office or, in extreme situations, the home of a director or employee of the company. That director or employee and a member of their household (if not shareholders themselves) can then be appointed as proxies or corporate representatives for shareholders, which is permitted under the Stay at Home Measures.
Companies that do not have provisions in their articles that enable them to switch to an alternative venue should adjourn the meeting from the planned venue to an alternative venue. If practicable, this could be achieved by the small number of attendees required to form a quorum attending the planned venue (or close to it) and adjourning the meeting to another time and suitable venue, where the meeting would then be held. To avoid shareholders attending, other than the bare minimum, a notice should be sent out notifying shareholders that this is being proposed as the only business to be considered at the meeting.
4. Controlling the general meeting
The chair of a general meeting has broad common law powers to preserve order at that meeting, ensure the safety of attendees and allow the business of the meeting to be transacted. These powers are likely to be backed up by express powers to do the same in the company’s articles.
As the attendance of more than two people at a general meeting (other than where this is “essential for work purposes”) is not permitted under the Stay at Home Measures, the chair of a general meeting should exercise those powers to exclude excess attendees, although hopefully such action would not be necessary if shareholders are properly informed in advance.
Companies should make it clear in the notice of the general meeting, and on their website, that shareholders are not allowed to attend the meeting in person, that anyone seeking to attend the meeting (other than those required to attend to satisfy quorum) will be refused entry, and that shareholders should vote by proxy. To help explain these restrictions, companies might consider emphasising the health risks involved in attending a meeting in person, referencing the latest Government guidelines, and clarifying that usual procedures will be re-introduced once it is safe to do so.
All appropriate social distancing measures should be observed by the small number of attendees at the meeting, and the meeting should be kept as short as possible.
5. Keeping shareholders engaged
Companies should ensure that shareholders are kept regularly updated and are given as much information as possible in good time to enable them to participate in the decision-making process. Where permitted by their articles and if technologically possible, companies could also consider conducting a hybrid general meeting (a combination of a physical and electronic meeting), although arranging the necessary technology at short notice may be difficult.
The submission in writing of questions for the board, with the answers to be published on the company website or by other means, is a useful way of ensuring that shareholders remain engaged with the business in these uncertain times, and companies may also wish to offer shareholders the opportunity to engage with the board face-to-face at a later date in the year.
By taking care to communicate as clearly as possible in the circumstances, and highlighting that all measures are being taken with the safety of their staff and shareholders in mind, companies should be able to retain the trust of their shareholders throughout this crisis, which can then be built on when normal business eventually resumes.
6. Other options
The legislation is being introduced for registered companies. Directors should review their company’s articles to determine whether decisions that need shareholder approval can also take place by alternative means, by the circulation of written resolutions or in accordance with the procedure set out in a company’s articles. If directors are anticipating decisions will need to be taken by shareholders such as the adoption of new articles, the granting of authority to directors to allot further shares or the disapplication of pre-emption rights, then you should consult your articles and any shareholders agreement that may be in place to work through (i) the relevant approval thresholds, (ii) the identity of the shareholders and the signatories who will need to sign, and (iii) the means by which the approvals can be given (including the review of notice periods).
A link to our COVID-19 web page is here where you can find further advice notes and which is being updated on a daily basis.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, April 2020