13 March 2020

Shareholder meetings and COVID-19: unhappy bed-fellows

This article was written by Joseph Muraca, Will Heath and Miriam Kleiner.

The impact of COVID-19 has reverberated around the globe and has already had a significant impact on capital markets and business activity generally.  It is also hitting BAU activities, one of which might be faced by companies needing to hold their AGMs before the end of May. In particular, what impact will COVID-19 have on complying with statutory requirements to hold AGMs or EGMs within required timeframes? As expected, the answer is not necessarily straightforward.

Key takeaways

  • Don’t panic!  Voting by proxy remains a reliable and effective way for members’ votes to be cast and counted where members are unable to attend a general meeting.
  • Some modern constitutions allow companies to offer direct voting at general meetings.  This, in connection with the ability to conduct a livestream of a general meeting with a question facility, may enable the AGM or EGM to proceed as required if large physical gatherings are prohibited and the company’s technology/logistics provider can appropriately accommodate these facilities in a safe, reliable and appropriate way. 
  • ASIC also has the power to extend the time by which a company must hold its AGM.
  • The Court has the power under section 1322(4) of the Corporations Act to postpone, adjourn or cancel a meeting provided that no substantial injustice has been or is likely to be caused to any person.

AGMs

The Corporations Act requires public companies to hold an AGM at least once every calendar year and within 5 months of the end of their financial year.  What would happen if a large number of people were required to self-isolate due to COVID-19 or there was a ban on large gatherings of people?  How would companies comply with the requirement to hold an AGM? The answer largely depends upon the terms of the company’s constitution.

A key reason not to panic is the availability of proxy voting.  Members who are unable to attend a general meeting can appoint a proxy to vote for the member in accordance with the company’s constitution.  Practically speaking, a meeting cannot go ahead without a quorum and a Chairman present (see below), and so it should be open for members to appoint the Chairman as their proxy and direct the Chair how they wish to vote. 

Additionally, the most up-to-date constitutions allow companies to offer direct voting.  Direct voting allows shareholders to cast their votes directly before the AGM. Direct voting is different to submitting a proxy because it allows the shareholders to cast their vote themselves rather than through another person.  Direct voting facilities are often available online as well as via paper forms.  Many companies also now provide a facility to livestream AGMs.  The combination of direct voting facilities and a livestream enabling shareholders to participate in the AGM and ask questions may enable an AGM to proceed as planned so long as the company’s technology/logistics provider can appropriately accommodate these facilities in a safe, reliable and appropriate way. This assumes that the Chairman is able to attend the AGM venue and that a quorum is present at that venue.

If the Chairman cannot be present, the Chairman (or Board) may be able to postpone, adjourn or cancel the AGM if that power is granted in the company’s constitution.  Otherwise, an application would need to be made to the Court to postpone, adjourn or cancel the AGM (see below) and an application to ASIC may also need to be made to extend the time period for holding the AGM (see below).  If a quorum was not present, the AGM would be dealt with under the ‘inquorate’ provisions of the company’s constitution, which usually require an adjournment to a different date and again an application to ASIC may also need to be made (see below).

What if your constitution doesn’t allow for direct voting or the technology isn’t up to scratch and you’d already planned to hold the AGM on the last possible date within the mandatory 5 month window? 

You would then need ASIC to come to the party and allow an extension. ASIC has power under the Corporations Act to grant an extension to the 5 month window.  ASIC’s policy on granting applications for extension of time is set out in RG 44: Annual General Meeting — Extension of Time. It’s a relatively old Regulatory Guide but helpfully it spells out the grounds on which ASIC will consider granting an extension of time which includes where the AGM cannot be held due to factors beyond the company’s control and where the extension would be in the interests of the shareholders.  ASIC has used this power in the past. In the same way that ASIC used its discretionary powers to address the unique and unforeseen circumstances of the GFC, we would expect that any application made in the current climate would be handled quickly and, hopefully, reasonably. 

However, ASIC’s powers only go so far.  It doesn’t have the power to absolve a company form needing to hold an AGM at all.

EGMs

For EGMs, the position can be more nuanced and will depend on the reason for the meeting.  Again, assuming direct voting isn’t an option and you need to postpone the meeting:

  • For Court ordered meetings such as scheme meetings, an application would need to be made to the Court to postpone the scheme meeting.
  • For meetings held for the purposes of the ASX Listing Rules, a discussion would need to be had with the ASX.
  • For shareholder requisitioned meetings (either in the case of a company convened requisitioned meeting or a meeting convened directly by relevant shareholders):
    • A meeting convened and arranged to be held by shareholders may be postponed by the directors provided a power of postponement is conferred by the company’s constitution and the power is exercised in the interests of the company as a whole.  The Courts have noted that the circumstances where it will be proper for the Board to postpone a meeting are limited and such powers must be exercised extremely sparingly so as not to frustrate the right conferred on shareholders by section 249F.
    • If there is no constitutional power to postpone or the meeting is requisitioned by shareholders under section 249D (which requires the directors to convene the requisitioned meeting within prescribed timeframes):
      • The Court has the power under section 1322(4) to postpone or adjourn a meeting. Usually the power will not be used to postpone a requisitioned meeting, since that would not maintain  the status quo, but rather, would disturb the existing right of shareholders to vote at a lawfully convened general meeting.  However, the power given to the Court under this statutory regime is broad and, provided that no substantial injustice was likely to be caused to any person, it may well be that a Court would use this power to allow for postponement in these kinds of exceptional circumstances.
      • The Court is empowered to cancel a requisitioned meeting.  The Court has previously exercised this power where the calling of the meeting and the passing of the resolutions would be contrary to the interests of the shareholders as a whole or where the calling of the meeting (in light of the changed circumstances) was oppressive to, unfairly prejudicial to, or unfairly discriminatory against, the shareholders of the company.

For AGMs, the court process could replicate the above if required.

Statutory change required?

While the COVID-19 situation is rare, it may be time for the Government to consider amending the Corporations Act to permit “virtual only meetings” as is the case in 30 states in America (including Delaware).  This would allow every person attending the meeting (including the Chairman) to do so virtually and would allow shareholders online to be counted for quorum requirements. In addition to this, the Government could also consider amending the Corporations Act to enable the Court to order that a shareholder meeting be called in the manner the Court directs. This is the case in some Canadian provinces and has recently been used by TELUS Corporation to convene a virtual only shareholder meeting.


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