Wednesday, April 15, 2020
As a result of the recent outbreak of Covid-19 the Irish Government has laid out strict rules in relation to social distancing and mass gatherings. There is a complete ban in both Ireland and the United Kingdom, amongst others, on gatherings with members outside of the immediate household. This in turn has led to companies facing difficulties in relation to holding board meetings and their Annual General Meeting (AGM).
AGMs and EGMs
Irish companies are required to hold their AGMs once every calendar year. No more than 15 months may elapse between one AGM and the following year’s AGM. There is a strict requirement that prior notice of a minimum of 21 ‘clear’ days must be given to all members entitled to attend.
As there is no definite timeframe for a return to business as usual, it is advised that companies monitor the advice issued by the Irish Government. The Law Society’s Business Law Committee suggests that companies seek to adapt the way they carry out their AGMs instead of adjourning them.
Companies need to reconcile the requirements of their constitution with public health policy. Despite the uncertainty of the times we are in, companies must still adhere to the regulations surrounding AGMs and general meetings, and more specifically they must adhere to those provisions of their constitution which regulate the holding of AGMs.
There are several options open to companies in relation to the running of AGMs:
AGMs are generally conducted in person. In light of the recent advice administered by the Irish Government it might be necessary to alter the way in which AGMs are held. A meeting is not required to be held in person but may be held over the phone or through a video conference. Companies Act 2014. S 176 (4), states that the meeting may be held in “two or more venues… at the same time using any technology that provides members, as a whole, with reasonable opportunity to participate.”
The Business Law Committee further notes that the method used when issuing notices of the AGM to members should be revised. The committee recommends that any “at-risk physical handling” should be avoided at all costs. It also recommends that an informative leaflet outlining the protocols taken by the company to combat the spread of Covid-19 be distributed.
Certain types of company – including single member companies or private companies limited by shares (LTDs) – may dispense with the need to hold physical AGMs in a given year. In such cases all members would need to sign a written resolution that acknowledges receipt of the financial statements and resolves all matters that would have been resolved at the AGM, including the re-appointment of the auditor.
Not all company types can avail of this option, in particular, designated activity companies (DACs); companies limited by guarantee (CLGs) and Public Limited Companies (PLCs) with more than one member may not do so.
The general rules when it comes to AGMs are set out in the Companies Act 2014. A company must hold an AGM once every calendar year, with not more than 15 months between each meeting, and for a newly incorporated company an AGM must be held within 18 months of its incorporation. A company may delay its AGM provided that it meets these requirements.
If notice of the AGM has not yet been sent, then the company can postpone the AGM to a later date.
In such a case where companies have already notified members of an upcoming AGM, and subject to the constitution of the company, it is possible to adjourn the meeting to a later date. Any adjournment must be notified to the members. Per Companies Act 2014, s.187(4), the chairperson of a general meeting, with the consent of the members, may arrange to have the meeting adjourned.
This allows AGMs to be conducted both in person and online, simultaneously. It gives the attendees the option to opt for whichever mode of contact they feel comfortable with. As mentioned above, the Companies Act 2014, Section 176 (4) suggests that a hybrid AGM may be carried out as the meeting may be held in 2 or more venues at the same time using any technology that provides members, as a whole, with reasonable opportunity to participate.
Companies Act 2014 s.183 allows a member to appoint another person to attend an AGM and vote on their behalf. This would allow the AGM to be carried out whilst ensuring the least number of members are physically present. This in turn reduces the number of people in attendance of the meetings and staying within the realm of the Government’s requirements.
Further, the Chartered Governance Institute recently published an article on the effect of the epidemic on AGMs. They encourage that shareholders should be involved in AGMs by way of proxy.
A quorum is the minimum number of members required in order for a general meeting to proceed. Companies Act 2014 s.182 states that a quorum consists of a minimum of two people, unless the company’s Constitution states otherwise. The meeting may not go ahead unless this minimum number of members is present in person or by proxy.
Board meetings are typically held weekly, monthly or quarterly depending on the company. They function as an opportunity for directors to discuss the company’s dealings and afford an opportunity to perform certain tasks.
As a result of Covid-19, the Business Law Committee encourages board meetings to be convened using electronic means or by way of unanimous written resolutions.
The Chartered Governance Institute also lays out a series of alternative methods for convening board meetings:
Directors generally (subject to the company’s Constitution) can participate in board meetings through the use of electronic communication. This includes via telephone or videoconferencing. Directors may take part in voting and their participation will satisfy the quorum requirement. If the quorum is not met, the meeting should be adjourned.
The Chartered Governance Institute has published a useful guidance note for companies who wish to conduct board meetings by electronic means here.
If option 1 above is not available to companies, board meetings may be conducted by way of written resolution. In this instance, a draft should be circulated to all directors and must be signed off by each one (or a majority) of the directors, as the company’s constitution may stipulate.
This method includes circulating resolutions via email and giving directors the opportunity to express their opinions. This option is useful for straightforward issues. For matters that require more discussion amongst the directors it is not an appropriate method of communication.
Meeting Minutes and Board Packs
The Chartered Governance Institute suggests that board meeting packs should be circulated (and password protected) electronically, and not by physical means.
Similarly, the UK have placed a complete ban on public gatherings of more than two people from different households. Companies in the UK are also restricted as they must comply with legislative barriers that require companies to hold their AGMs within a limited period of time. UK companies are governed by the UK Companies Act 2006, which sets out strict rules that must be followed.
UK companies have been encouraged to hold virtual AGMs, although we understand that some companies have been reluctant to do so.
At present it would appear that many UK companies have a preference for hybrid AGMs. The UK’s Institutional Shareholder Services has shown its support for running AGMs by way of a hybrid AGM. The rationale behind this is that it believes hybrid AGMs promote discussion and participation to a greater extent than AGMs held solely through other electronic means.
UK law also permits the use of proxies, allowing a member to vote in place of another member.
Given the recent news of the impact of Covid-19 in the UK it is likely many UK companies will have no option but to hold AGMs by way of electronic means.