The UK Government’s emergency legislation of 23 March 2020 requires all non-key personnel to ‘stay at home’. What does this imply for the holding of Annual General Meetings?
According to the new legislation, gatherings of more than two people are not allowed unless such gatherings involve co-habiting people or ‘essential workers’ - such as NHS and social care staff, or workers in the food production, delivery or transport sectors. I think that we can safely assume that shareholders gathering for an AGM do not fall into this category!
Many boards will choose to suspend or postpone their AGMs during these challenging times. Some may opt for a virtual or hybrid AGM - although this may not always be possible for both legal and logistical reasons. However, in a number of instances, a more conventional General Meeting will be essential in order to gain shareholder approval for some key decisions.
For example, board members may need to obtain an extension or renewal of their existing mandates or authorities. Or they may wish to seek shareholder approval for an emergency capital raising or other form of financing.
Having financial powder available could not only be essential in order to ensure solvency, but may also allow the company to take advantage of opportunities emerging in the wake of the crisis. As the Chinese say, a crisis is a mixture of danger and opportunity.
In order to hold a valid General Meeting, quorum requirements still need to be met. The Companies Act 2006 only requires that two shareholders are present, either in person or by proxy, in order to form a quorum.
This is a pretty low baseline legal threshold. It is also nicely aligned with the maximum gathering size allowed by the ‘stay at home’ legislation (two persons). However, the articles of association of an individual company may define a higher quorum level.
Assuming that the company is only subject to the minimum legal requirement, the AGM (or Extraordinary GM) can therefore be held behind closed doors with only two persons present.
Those shareholders not physically present can participate by proxy and send in any questions beforehand. Alternatively, they may appoint one of the two attending shareholders to act as their representative. Any board members not physically in attendance can dial-in to take questions or help run the meeting.
Occasionally, a company’s articles may demand that more than two shareholders are physically present at the AGM. This size of gathering obviously creates problems in the current circumstances. Meeting organisers will need to think carefully about whether a physical meeting involving more than two persons can viably proceed.
If an AGM venue has already been booked, companies should check with venue providers whether they are still available. Options for alternative venues might include the head office of the company or the home of a director shareholder.
Where a company’s articles do not allow for a meeting to be postponed, or for a meeting venue to be switched, the shareholders forming the minimum quorum could meet at the closest point to the original venue (e.g. outside the door) and adjourn the meeting to an alternative, more suitable venue.
When the AGM actually takes place, care should obviously be taken to ensure that social distancing measures are observed. The meeting should not go on for longer than necessary - a valuable principle that is applicable to all forms of meeting!
Roger Barker, Head of Corporate Governance
Roger previously served as the IoD’s Director of Corporate Governance and Professional Standards between 2008 and 2016. He is a UK Member of the European Economic and Social Committee (the EU advisory body), Honorary Associate at the Centre for Ethics and Law at University College London and a visiting lecturer at Saïd Business School, Oxford, and Cass Business School, London.
Roger is the holder of a doctorate from Oxford University and the author of numerous books and articles on corporate governance and board effectiveness, including: ‘Corporate Governance and Investment Management: The Promises and Limitations of the New Financial Economy’ (Edward Elgar, 2017), ‘The Effective Board: Building Individual and Board Success’ (Kogan Page, 2010), and ‘Corporate Governance, Competition, and Political Parties: Explaining Corporate Governance Change in Europe’ (Oxford University Press, 2010). A former investment banker, Dr. Barker spent almost 15 years in a variety of equity research and senior management roles at UBS and Bank Vontobel, both in the UK and Switzerland.