The outbreak of coronavirus (COVID-19) is unprecedented and will have a significant impact on the ability of companies to run their AGMs this year. At the time of writing (24 March 2020), the UK Government has recently issued guidance on staying at home and away from others for a period of three weeks which includes closing non-essential shops and public spaces and stopping public gatherings. In line with the approach being adopted by other countries, more draconian restrictions could yet be imposed as part of further measures to manage the outbreak. Companies should closely monitor further government direction and guidance and, in any event, anticipate an extension to the period in which the current measures are in place beyond the stated three week period.
The Chartered Governance Institute (CGI) has published AGM guidance jointly with others in light of the issues created for companies by COVID-19, albeit that this was released prior to the latest government direction on social distancing.
The CGI Guidance covers various options such as:
- adapting the basis on which a company holds its AGM including considering alternative or fall-back venues and alternative methods of shareholder engagement (including Q&A methodologies), and ensuring that the meeting is quorate and that appropriate safety measures are in place;
- delaying convening an AGM and other issues to consider if this is contemplated;
- postponing or adjourning the AGM and the permissibility of doing so; and
- conducting a "virtual" or "hybrid" AGM and the feasibility of these alternatives.
The CGI Guidance is a useful starting point for secretariats when undertaking their contingency planning and when revisiting those plans as circumstances change and as the meeting itself approaches. From our discussions with various clients, issues from the guidance and other considerations we would draw out are set out below.
The legal and regulatory framework
The starting point for any contingency planning is to remember the relevant legal and regulatory requirements, including any deadlines, relevant to an AGM. This framework will be particularly relevant in the context of decisions as to when to send any notice of meeting, when to convene the meeting itself, and whether to postpone and/or adjourn the meeting. Relevant considerations include:
- public companies must hold an AGM within six months of the end of each financial year - s.336(1), Companies Act 2006 (2006 Act). Certain jurisdictions have relaxed similar requirements or are contemplating doing so and therefore the UK government's position should be closely monitored;
- premium listed companies must publish their annual report and accounts at the latest four months after the end of their financial year – 4.1.3R, Disclosure Guidance and Transparency Rules. The AIM Rules for Companies afford AIM-quoted companies six months from the end of their financial year – AIM Rule 19;
- public companies must file their annual report and accounts with Companies House within six months of their financial year-end – s.442, 2006 Act. Note, however, the recent announcement by Companies House on the possibility of extending that period;
- traded companies must provide shareholders with a minimum AGM notice period of 21 clear days – s.307A, 2006 Act – subject to any longer period and service of notice provisions in a company's articles of association. The Financial Reporting Council's Guidance on Board Effectiveness recommends that a notice is dispatched at least 20 working days before the meeting.
When planning the date of any meeting, or contemplating any postponement or adjournment of a meeting already called, companies should also consider the date on which standing share capital authorities (as granted at their 2019 AGM) will expire. For certain companies, the ability to raise working capital by utilising such authorities may be crucial in the coming months. This may determine, in part, whether a company takes advantage of any relaxation of the timeframe within which an AGM must be held, as it seems unlikely that any change to current legislation could extend the duration of shareholder-sanctioned share capital authorities.
Other issues to remember:
- those companies who need to approve a new remuneration policy on the three year cycle at their 2020 AGM have until the end of their current financial year to do so;
- while directors of public companies must lay their accounts in general meeting within the same time period within which they must be filed with Companies House (s.437, 2006 Act), there is nothing to prevent a company from filing those accounts at Companies House before the meeting takes place, subject to anything in the articles of association. While it is good governance and a matter of convention not to do so – i.e. so as to wait for the "approval" of those accounts by shareholders (albeit the relevant resolution is unlikely to be framed in this way) – a company may find itself in a position in which it cannot avoid holding its AGM outside of the permitted timeframe but is still in a position to file its accounts in accordance with its 2006 Act obligation; and
- articles of association should be checked as regards the need for directors to retire by rotation or submit themselves for re-election within a specified timeframe not set by reference to the company's AGM cycle.
It goes without saying that even basic logistical preparations should be tested and re-evaluated in light of the government's latest direction. Considerations should include:
- the ability to print and distribute notices of meeting and annual reports in accordance with a company's obligations;
- whether the AGM will constitute a public gathering within the meaning of the latest government guidance. The meeting will not be held in a public place, nor will the public be entitled to attend, but any published details of the proper interpretation of the latest statement should be monitored, since if the AGM were to be considered a public gathering for this purpose, attendance in excess of two would place it in breach;
- the availability of the venue, the means to get there on the day of the meeting and the ability to ensure "social distancing" at the meeting itself – i.e. ensuring that those who attend in person are able to be kept two metres apart (as to the message to shareholders on their attendance, see "Setting investor expectations" below). If a company has "control" of the venue, this should provide more certainty. What is the company's fall-back position, particularly if the venue is unavailable on short notice? The government's latest direction is for hotels to close which for many companies will necessitate moving a meeting to an alternative venue. Articles may contemplate such a change and set out the methodology for publicising it; and
- the availability of registrars and other advisers in the run up to and on the day of the meeting. If they cannot attend in person, consider whether they are able to do so remotely and how robust systems are to enable them to do so and the consequences if they cannot, including how the company will verify the identity of those attending the meeting.
Virtual, hybrid or physical?
Even with prior express provision in a company's constitution, there is doubt as to the legal validity of "virtual only" meetings and, in any event, considerable investor opposition to them.
Hybrid meetings - i.e. meetings which are held at a physical place as well as online - are possible but only to the extent that there is nothing in a company's constitution to prevent them. That said, the ability to run such a meeting without specific provision in a company's articles comes with considerable risk not only as regards basic practicalities, including the identification of shareholders attending remotely, but also in relation to the validity of a meeting (for instance, in terms of voting or the ability to interact). It is conceivable that some of these issues could be catered for in the notice of meeting but this would need very careful consideration.
Indeed, while some companies have made provision for hybrid meetings in their articles, very few have undertaken one. Company secretaries will know that hybrid meetings require a considerable amount of additional planning, with an attendant cost, particularly if a third party provider is engaged to run the virtual side of the meeting – all this at a time when companies are rightly conserving cash and resource is focused, as much as possible, on vital BAU activities. In addition, if a venue becomes unavailable at the last minute, that will also involve the virtual side of the meeting, with all of the attendant infrastructure, being disrupted as well, which will lead many to conclude hybrid meetings are a logistical bridge too far in the current climate.
Webcasting the meeting is another potential option, although any investor that joins the webcast would not be "in attendance" for legal purposes. Again, any decision as to whether to go down this route will involve balancing, on the one hand, the cost of any such arrangements and the logistics involved in a last minute change of plan, and, on the other hand, the number of members who would in normal circumstances have looked to attend the AGM in person. If a webcast is used, it should be made clear to shareholders that formal participation is through the appointment of a proxy in attendance to speak and vote on a shareholder's behalf.
Setting investor expectations
Almost all notices of meeting dispatched recently have made some reference to COVID-19 and, whether in the notice or in an accompanying announcement or shareholder letter, to adjusted arrangements for the AGM relative to their conduct in previous years. Those companies which have made no mention of COVID-19 in their notices are now opening those lines of communication with shareholders, using RNS announcements to convey additional information as well as referring them to dedicated pages in the investor relations section of the company's website where further information can be found and where updates will be provided in due course.
Advice to shareholders has progressed over time from relatively gentle encouragement to take part in a meeting through proxy voting to a message which, although not, in general, explicitly telling shareholders not to attend in person, strongly discourages physical attendance in line with the latest government guidance. Advice currently being given includes:
- to take account of public health advice before travelling, should a shareholder conclude that their attendance in person is "essential" (and in relation to which further government pronouncements should be closely monitored). While a case can be made for the meeting itself being "essential", thereby necessitating the attendance of any director(s) needed to run it, it is rather harder to make the case for shareholders who have the ability to participate in other ways;
- a change of AGM venue and to the timing of the meeting;
- requests to submit questions on the business of the meeting in advance either by email or by calling designated members of senior management which questions will, depending on the nature of the issue raised, be addressed with answers posted on the company's website, in personal correspondence or in a more detailed announcement on the day of the AGM;
- that the AGM will involve only the formal business set out in the notice of meeting;
- that certain directors will not be in physical attendance, although they may join the meeting by means of video- or audio-conferencing;
- that there will be no management presentation, and/or that any such presentation will either take place in a webcast at a later date or at a further meeting to be convened in due course;
- that no refreshments will be served at the meeting;
- that advisers and other guests have been asked not to attend or that their numbers otherwise be limited; and
- that the directors will not be available to shareholders in person either before or after the meeting.
Clearly the tone of such communications needs to strike the right balance between underscoring the importance of the AGM process and making it absolutely clear that shareholder and employee well-being is paramount in light of current public health considerations (and ensuring compliance with government guidance and direction).
Changes to the business of the meeting
Contingency planning should also contemplate the need to alter and, if the company is able to do so, withdraw certain items of business. Again, the starting point for such planning should be the company's articles.
For instance, companies' stated dividend policies are being revisited by many boards seeking to conserve cash. In such circumstances, there are various issues to consider including:
- whether the company does, in fact, have sufficient distributable reserves to pay a dividend. Whilst a company's latest annual accounts may evidence the existence of sufficient reserves, trading in the intervening period – i.e. between year-end and the date of the AGM - may lead directors to a different conclusion or, at the very least, necessitate the preparation of further accounts to verify the position;
- whether, instead of declaring a final dividend, the directors might declare an interim dividend at a future date should that seem appropriate at the time, subject to anything to the contrary in the company's articles;
- the procedure to deal with the withdrawal of a final dividend already recommended and contained in a notice of meeting. Ordinarily, this would involve the chair seeking the permission of the meeting to withdraw the relevant resolution; and
- the nature and timing of announcements to the market to the extent any dividend is withdrawn.
On a related note, public company directors should remember their obligation to call a general meeting within 28 days of becoming aware of a serious loss of capital – i.e. where net assets fall to half or less of its called-up share capital - in order to discuss the issue (s.656, CA 2006).
To postpone or adjourn?
A critical part of contingency planning should involve considering the issues of postponement and adjournment of the meeting. The potential reasons for the need to do so are likely to centre on the unavailability of venues, directors, shareholders or a combination of all three. These issues are considered, at a high level, in the CGI Guidance.
To the extent that there are no directors available, companies may need to look to appoint alternates in accordance with the provisions of their articles. Company secretaries should, in the usual way, also ensure that they have enough shareholders to constitute a quorum and, in doing so, double check that those who will be present are in fact the legal owners – i.e. registered holders - of their shares (as opposed to simply being beneficially entitled to them, for example because they are held through a nominee).
The ability and requirements for postponement of a meeting of which notice has already been dispatched will be dictated by a company's articles. While company articles may include such a power, and set out detailed requirements as to the manner of publicising any new arrangements, absent such a power, postponement will not be possible. Whether postponement is a feasible option in practice will also be dictated by the need for the company to hold its AGM within the statutory timeframe – i.e. within six months of its financial year-end.
Once a notice of meeting has been dispatched, and if postponement is not possible, a company could contemplate an adjournment of the meeting. A company's articles will need to be checked to understand the powers of the chair of the meeting to adjourn, including whether a quorum needs to be present and a motion carried to do so.
COVID-19 presents an unprecedented challenge for companies looking to hold their AGMs over the coming months. Even in times of relative stability, AGMs have proven to be an inflexible, and perhaps rather dated, means of shareholder engagement – and that is now more apparent than ever. Contingency planning is crucial and we will issue further updates to help with that planning as circumstances change.
Managing Associate, Governance and Compliance London, UKView profile