FRC issues information on new legislation to enable companies to fulfil their AGM requirements in compliance with the current Covid-19 restrictions

Following the Government’s announcement on 28 March 2020, that it would bring forward legislation to assist companies that may find it difficult to fulfil their statutory filing requirements and hold meetings (AGMs or other general meetings) as a result of the Covid-19 restrictions, the Financial Reporting Council has issued information about the measures which will be introduced to allow companies to plan their activities over the next few months.

The guidance focuses on a company’s ability to hold AGMs and other general meetings (guidance on some of the changes to statutory filing requirements can be found in our Article ‘Companies House to change its strike off policy and approach to late filing penalties’) and while the detail of how the Government envisages this will work in practice is yet to be released, the principal is that companies will have the ability to hold “closed” general meetings by way of telephone or other equivalent means of communication. A closed meeting is essentially a meeting which is attended only by the minimum number of attendees required to fulfil a company’s quorum requirements.

Generally a company’s Articles of Association (Articles) will prescribe the quorum requirements for a meeting and most companies’ Articles also stipulate that a quorum is achieved by attendance of the minimum number of attendees in person or by proxy. Under the new legislation, the Government will temporarily allow companies to form a quorum by telephone or by other electronic means thereby enabling the meeting to be conducted without breaching the current safeguards which are in place to protect people.

In practice this is likely to mean that those individuals who attend the closed meeting will be appointed as a proxy to vote on behalf of other shareholders of the company.

As AGMs are intended to provide shareholders with a forum to ask questions about the company, the new legislation envisages that shareholders will be able to ask questions before, during and after a meeting and companies are expected to respond to shareholders’ questions by electronic or other means. Responses to questions will also need to be included in the minutes of the AGM, a copy of which should be circulated to the shareholders following the meeting.

Companies are also encouraged to hold shareholder days later in the year to give shareholders access to the Board to enable them to ask questions.

The timescale of when the proposed legislation will be ready and come into force is as yet unclear. Companies that are preparing to hold their AGMs imminently have the following options:

1. Adapt the basis on which the AGM is held

The compulsory measures published by the Government prohibit public gatherings of more than two people. These measures impact how a company’s AGM can be held. As mentioned earlier, a company’s Articles determine the requirements of a valid general meeting and companies will need to carefully consider their Articles and whether they are able to hold a valid general meeting without breaching the Government’s safety measures.

If a company’s quorum requires two attendees, in person or by proxy, companies may be able to hold a valid AGM by having two shareholders attend the meeting in person or having a director and the Chairman (or two directors where there is no requirement for a meeting to have a Chairman), who are appointed to act as a proxy on behalf of shareholders. Shareholders should be encouraged to appoint a proxy to vote on their behalf and not to attend in person as this will contravene the current restrictions on public gatherings.

If a company’s Articles require more than two people to attend a meeting to achieve a quorum, a meeting may still be held if attendance is allowed by proxy. In these circumstances, the attendees (being either two shareholders or two members of the Board) can be appointed as a proxy for other shareholders and the meeting can be held validly as long as the minimum number of shareholders required to form a quorum are represented.

Where possible the remaining shareholders could view or listen to the general meeting by live stream, video conferencing or phone link. These would not constitute formal attendance at the meeting or fulfil quorum requirements therefore companies should engage with their shareholders before and after the meeting (by electronic means, use of the website and circulating minutes of the AGM) to deal with any questions shareholders may wish to raise at the AGM.

2. Delay convening the AGM if notice has not been issued

A company which has not issued its notice to hold a general meeting can delay sending out the notice to call the AGM. Companies have a six month period after the end of their financial year within which to hold their AGM and companies should consider convening a meeting towards the end of the six month period.

Subject to the provisions of a company’s Articles which may provide a different notice period requirement, a general meeting can be convened by giving 21 clear days’ notice and companies would be able to convene the general meeting at relatively short notice before the end of the six month period.

3. Postpone the AGM

If a company has issued an AGM notice, it can postpone the meeting if its Articles enable the company to do so. If a company’s Articles allow a general meeting to be postponed, the company can choose to issue its AGM notice as normal and postpone the meeting based on the circumstances at the time of the meeting. Any postponed meeting will need to be held within the six month period from the end of the financial year.

4. Adjourn the AGM

If a company’s Articles do not contain postponement provisions, it should consider adjourning the general meeting if it has issued its notice to convene an AGM. If a company’s Articles contain provisions on adjourning a meeting these should be followed. If the Articles are silent, a company will only be able to adjourn its AGM if the initial meeting is quorate.

The adjourned meeting must be held within the six month period following the end of the company’s financial year.

5. Conducting a hybrid AGM

Companies can conduct hybrid AGMs (being a combination of a physical and a virtual meeting) if their Articles allow the meeting to be held in this way. If a company has already issued its AGM notice for a physical meeting, it can change to a hybrid meeting and shareholders should be given notice of the change by electronic means and via the company’s website. Virtual meetings should be avoided as they may not constitute valid meetings.

If a company’s Articles do not allow hybrid meetings to be conducted, companies should consider amending their Articles before the AGM. It is possible for private companies to amend their Articles by passing a written resolution which would allow the company and its shareholders to adhere to the Government’s compulsory measures.

For further information on this topic please contact any member of our Corporate & Commercial team.

For an update on all the legal implications relating to Coronavirus please see here.

If you aren’t receiving our legal updates directly to your mailbox, please sign up now