Since the arrival of COVID-19 with many companies running their operations from home, companies are finding themselves having to make key business decisions, requiring formal board or shareholder consent, on virtual platforms. Given government imposed restrictions on gatherings, virtual meetings, whether by video or telephone conference, are becoming the new normal. But companies should be mindful to not fall foul of the law surrounding this area which may invalidate the meetings and the decisions taken at them.
Many companies will undoubtedly already be aware of the process of holding virtual board meetings by video or telephone conference. For many, this is not a new concept and often a company’s articles of association will already cater for this. Even where this is not the case, it is generally accepted that such meetings will be valid, provided certain formalities are complied with, including:
- obtaining prior express consent of each director to hold the meeting in this manner, if the articles of association do not specifically provide for virtual meetings
- the notice and quorum provisions set out in the company’s articles of association
- all participants can be clearly heard and vote in order to establish a clear consensus
- minutes of the meeting are taken and circulated for approval.
In any event, companies will still have the option to make decisions by formal written resolution. However, in an economic climate where decisions may need to be taken quickly or discussed at length, a written resolution of the board may not be the most practical of solutions.
Although most business decisions will be able to be taken by the board, there will be some decisions which require a shareholder approval under company law and other relevant regulations, such as the Listing Rules for Main Market listed public companies and the AIM Rules for AIM listed public companies. The process for holding a valid virtual shareholder meeting is less straightforward, particularly for publicly traded companies.
Company law allows the holding of a general meeting through the use of modern electronic communications, providing that nothing is to be taken as precluding the holding of meetings “in such a way that persons who are not present together at the same place may by electronic means attend and speak and vote at it” (section 360A Companies Act 2006). English case law dictates that there must be contemporaneous participation in the meeting (i.e. via telephone or video conference) rather than sequential communication (e.g. a series of e-mails).
In the case of private limited companies, the general view is that, subject to their articles of association, virtual meetings are effective. However, care should still be taken. In particular:
- Although there is no specific requirement for a company’s articles of association to provide for electronic meetings, best practice would be to have an express permissive provision. Those companies who have adopted private company Model Articles will already have the benefit of Regulation 37, which clearly recognises the use of virtual meetings.
- What is more crucial is to check that the articles do not contain any restrictions on the use of virtual meetings. An outright restriction would be unusual, but some articles may include provisions that may suggest the need for a physical meeting (for example requiring that the notice provide for the “place of the meeting”), and arguably thereby precluding wholly virtual meetings. However, even if this is the case, it would not be a bar to a physical meeting of shareholders constituting a quorum (at one shareholder’s address) with others attending remotely or by proxy.
- Notice of the meeting needs to contain all details necessary to access the meeting including dial in number, internet address, password, access code etc. The practicalities of voting ought also to be carefully considered to ensure that all members are able to speak and vote at the meeting.
As with board meetings, shareholders of private companies are generally able to pass written resolutions, save for those exceptions where it cannot be used (i.e. for the removal of directors or auditors). However, for companies with a large shareholder base, this may not be practical.
In the case of most publicly traded companies, institutional shareholder bodies have long expressed concerns around wholly virtual meetings from a broader governance perspective in that it may hinder real debate. The Investment Association, for example, issued a statement that its members will not support amendments to articles of association that would allow virtual-only AGMs, but would expect any proposed amendment to confirm the holding of a physical meeting alongside any electronic meeting element.
On 25 March 2020, Companies House announced that companies affected by COVID-19 may, subject to certain restrictions, apply for a three month extension on the filing of accounts to help minimise the need to hold AGMs whilst restrictions on gatherings are in place. In the event that an AGM is required, further guidance has been published by the Chartered Governance Institute on the impact of COVID-19 on publicly traded company AGMs. Companies planning their AGM should consider contingency measures and whether a hybrid AGM, being a combination of a physical (with limited number of attendees) and virtual meeting, is possible as an alternative to a virtual AGM.
If a virtual or hybrid AGM is not possible, publicly traded companies should consider:
- to ensure compliance with social distancing measures at AGM venues, ensuring that the meeting is quorate; encouraging proxy voting; establishing an online Q&A; considering alternative or supplemental venue options available to restrict numbers in any one location; and restricting non-shareholder attendance and asking shareholder to pre-register attendance
- whether it has specific consent to use electronic communications with shareholders. Where this has not been obtained, hard copy notices (and accompanying documents) of AGMs will need to be sent
- delaying convening the AGM or postponing or adjourning the AGM, if permissible under the company’s articles of association and internal policies, the Listing Rules, the Disclosure and Transparency Rules and the AIM Rules.
In case of any doubt on the right approach for your company, the Corporate Team at Birketts can advise you further on this.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at March 2020.