Legislation was enacted last week allowing companies considerable freedom to hold shareholder meetings electronically and by any means. The provisions, which have some retrospective as well as prospective effect, are a temporary measure only, designed to protect companies which put personal safety first during the COVID-19 pandemic. Since the Government confirmed the proposed measures on 28 March, few publicly quoted companies have enabled shareholders to participate in or vote at shareholder meetings virtually. Most, in the short time available, where they held their AGM during lock down, have taken a more cautious approach such as by excluding shareholders from their AGMs and allowing them to vote only by proxy. This is likely to have been for a number of reasons, including that their articles lacked sufficient flexibility; that the proposed legislation was not yet been passed; and the fact that virtual meetings have not traditionally been accepted best practice in the UK.
Now, as lock down eases, it will be interesting to see whether, with increased expectations around use of meeting technology and the benefit of new guidance published by BEIS and the Financial Reporting Council (FRC) alongside the legislation, there will be an increased move towards enabling shareholder virtual participation in company meetings. We explain this further below and contrast the (far more flexible) position for private company shareholder decision- making and for holding company board meetings...
What are the temporary relaxations to shareholder meeting requirements?
Under the Corporate Insolvency and Governance Act, which took effect on 26 June, meetings (including class meetings and whether of public or private companies):
- need not be held in a particular place;
- may be held (and votes cast) by electronic (or other) means; and
- may be held without any number of those participating in the meeting being in the same place.
Shareholders also do not have the right to attend in person nor participate in the meeting other than by voting. They also have no right to vote by any particular means. These provisions override any contrary provision in other legislation and in the company's constitution. So in essence, while they allow electronic meetings, they do not require them – indeed they allow a meeting with only enough attendees to fulfil a quorum virtually and allow voting to be only by proxy. Shareholders, while able to vote, need not be given the right to attend (virtually or otherwise).
For how long will the relaxations last?
The provisions apply retrospectively and prospectively to meetings held in the 'relevant period' from 26 March 2020 to 30 Sept 2020, although the Secretary of State can shorten or extend this period (though not beyond 5 April 2021).
How are shareholder rights protected?
While they are intended to give maximum flexibility to companies in this time of crisis, BEIS and the FRC gave guidance on holding company meetings during COVID-19 on 17 April and 14 May (updated on 8 June) respectively. These explain that while public health and safety comes first, boards should nevertheless 'explore all options available' to 'provide shareholders with the best level and quality of engagement they can reasonably expect, setting arrangements so that they achieve this in a way appropriate under the current restricted circumstances'.
The guidance continues to explain that 'processes and timelines should be designed so that as wide a range of shareholders or members as reasonably practicable can engage, exercise their voting rights and their feedback can be taken into account'. The Annex gives further guidance including suggesting that companies could hold 'hybrid meetings' (those where there is a combination of a physical and virtual meetings); provide live streaming; and follow up with either online or physical meetings later in the year. 'Best practice essentials' include that shareholders should be given the opportunity to ask questions and receive responses before voting.
What about the timing for holding AGMs?
The act also extends the period for holding an AGM where an AGM was to be held during the 'relevant period' (see above), so that it is to be read as though it were always a duty to hold the AGM on or before the end of 30 September (although this may be extended by regulations).
How have companies and shareholder bodies responded?
Many AGMs were already planned before the full scale of the pandemic became apparent. Perhaps unsurprisingly, given the short amount of time available and the fact that in the UK there is limited track-record with holding virtual meetings, relatively few arranged virtual or hybrid meetings. Meetings held during lock down were mostly held with a minimum quorum present and with shareholders voting by proxy but not able to attend (in person or virtually) in accordance with early guidance published by the Chartered Governance Institute and others available here and here.
As lock down has eased, at least one company, RSA Insurance Group plc, held a hybrid meeting on 7 May, allowing shareholders to attend in person or virtually by telephone and to vote using a voting app. In the UK, although they temporarily relaxed their position during the crisis, the Institutional Shareholder Service (ISS) 2020 UKI Proxy Voting Guidance Benchmark Policy Recommendations) recommend a vote against any proposals allowing a company to hold virtual-only meeting although in favour of proposals allowing a company to hold "hybrid" shareholder meetings.
What will the position be when the temporary provisions in the act lapse?
It will be interesting to see how practice develops. Given the ISS position and some technical argument that current company legislation does not allow virtual only meetings (the notice of meeting must specify the 'place of the meeting'), hybrid meetings may become more common. Indeed, the FRC and BEIS guidance mentioned above states that companies and their members may benefit from a move to a 'hybrid' AGM format and that the FRC is planning to work with companies and shareholder representatives to produce an assessment of best practice later this year. In the meantime, companies should review their articles to determine whether additional flexibility is necessary.
How does this apply to private company meetings?
Unlike public companies, private companies have the flexibility of being able to pass resolutions in writing and this can be by electronic means. They also need not hold an AGM (unless the articles require it). However, some decisions such as statutory resolutions to remove a director or auditor require a meeting to be held. The company should check its articles allow virtual meetings, where appropriate.
Can board meetings be held remotely?
The method of holding board meetings will be set out in the company's articles and should be checked. However, most modern company articles will now contain at least provisions allowing meetings by telephone or, for more recently adopted articles, also by other virtual means. For further guidance, see the Chartered Governance Institute guidance on good practice for virtual board and committee meetings published on 28 March 2020.