Covid-19: Planning Your Annual General Meeting
By Maria Walsh and Marie Jennings
8 May 2020
The AGM is an important annual event for the shareholders of a company. It is their opportunity to, amongst other things, be presented with information on the financial performance of the company, to put questions to the directors in relation to same and, potentially, to appoint those who will act as directors of the company for the coming year. From the perspective of those charged with the management of the company, the convening of the AGM represents both a firm legal obligation with which the company must comply and an opportunity for meaningful engagement with the shareholders.
As AGM season approaches, companies should be mindful of the alternative options available to them where shareholder participation is restricted due to the current travel and social distancing measures in place to limit the spread of COVID-19. Given the public health advice being issued by the HSE and the Irish government, companies should avoid holding physical AGMs or, where possible, implement sufficient measures to ensure that physical distancing is possible.
Research carried out by the Institute of Directors Ireland shows that over one in five of businesses are postponing or rescheduling their AGMs in the hope that they can have a physical AGM within the 15-month timeline provided for under the Companies Act 2014. The Irish Law Society’s Business Law Committee have suggested that companies should consider holding their AGM by alternative means, rather than electing to adjourn or postpone them. This is prudent on the basis that companies cannot predict how long restrictions will remain in place.
In this insight, we look at the steps which can be taken by companies to fulfil their AGM requirements over the coming weeks and months, whilst also adhering to the HSE and Government guidelines. Of course, satisfying its obligations as regards the convening of its AGM is only one of the corporate governance challenges facing companies in these exceptional times. For guidance on the convening of board meetings, see our insight piece here.
Considerations for convening an AGM during COVID-19:
The Companies Act 2014 (the “Act”) sets out the default provisions in respect of convening and holding an AGM. However, a company may dis-apply or modify these provisions in its constitution. As such, the constitution should be reviewed as a first step. Practical matters relevant to holding an AGM such as the quorum, notice requirements and the methods of voting will be contained either in the default provisions of the Act or in the company’s constitution. These should also be reviewed as early as possible to ensure that the board understands what is involved in convening and running the AGM and the practical steps that will need to be taken to address them in the present circumstances.
Despite current uncertainties, companies must adhere to in the deadlines set out in the Act in respect of convening an AGM:
- Companies must call an AGM in each calendar year and no more than 15 months should elapse between the holding of one AGM and the next.
- Newly incorporated companies are not required to hold their first AGM in the year of incorporation or the following year, provided that they hold an AGM within 18 months of such incorporation.
- Each Irish company is required to present its annual financial statements to its members no later than nine months after its financial year end.
These statutory time limits continue to apply, notwithstanding that the Companies Registration Office has extended the deadline for the filing of annual returns to 30 June next.
Even in the current climate, companies must ensure that quorum requirements for an AGM are satisfied. Business cannot be transacted at an AGM, unless a quorum of members is present in person at the venue specified in the notice. While the default quorum for the AGM of a private company is two members present in person or by proxy, quorum is usually fixed by the constitution of a company and this should be reviewed to ensure that a valid meeting is held.
- Notice and Communication of the AGM
A valid AGM may only be convened on the provision of a minimum of 21 clear days’ notice to those entitled to receive it. Given the length of the required notice period and the evolving public health guidelines, company directors may have to react quickly to reduce the risk to those travelling or gathering to attend the company’s AGM. The Act provides that companies can avail of a shorter notice period subject to unanimous approval of all of the members entitled to attend and vote at the AGM and of the auditors. This may be useful if the current social distancing restrictions are eased in line with the Government issued ‘roadmap’ and the company has delayed convening its AGM to close to the deadlines referenced above.
When sending notice of an AGM to members, companies should consider alternative methods of issue in light of the current pandemic. They should be aware that the physical nature of sending notice by post might be deemed high-risk, particularly if the notice is issued from an affected area.
Section 218 of the Act provides for two circumstances in which it is possible to issue notice of an AGM to the members by electronic means. First, a company may serve notices on the members by electronic means where the company’s constitution permits it. Note that this is an “opt-in” provision, so that if the constitution of the company is silent as to whether electronic means of notification may be used, a company must rely on the second method provided for in Section 218 where it intends to use electronic means.
Secondly, a company may issue notice of the AGM by electronic means to a given member where:
- the member has consented in writing to the company, or the officer of it, using electronic means to serve or give notices in relation to him or her;
- no notice in writing has been received by the company or the officer concerned from the member stating he or she has withdrawn that consent; and
- the particular means used to serve or give the notice electronically are those to which the member has consented.
Even where notices are issued by AGM by post, it may be prudent for notices to also be issued by email. While the email notice will only constitute valid notice for the purposes of the Act in the circumstances outlined above, members who are concerned with opening their post may be more comfortable opening an email notice. We would recommend that companies provide members with details of all measures to be implemented to ensure compliance with HSE and Government guidelines such as the availability of sanitisation measures, seating arrangements and other prescribed precautionary measures being implemented to protect attendees of the AGM. The Business Law Committee also suggested that companies include a copy of the latest HSE COVID-19 public health guidelines with any notice.
Given the rapidly evolving nature of the COVID-19 response, we would also recommend that notice of an AGM should include a note outlining the manner in which the company will communicate any further updates in relation to the AGM and conduct company affairs in the current circumstances. This note should highlight the potential change of time, date or venue of the general meeting and could establish a preregistration procedure so that the number of attendees is known in advance.
Irish law requires an AGM notice to specify the location of the meeting. The venue should provide for sufficient space to minimise physical contact between the attendees in accordance with the current social distancing guidelines. It should be checked that the venue to host the AGM, specified in the notice, will still be accessible and available. In light of the current situation, members of the company should be aware that the AGM location may need to be changed. If this is the case, the company should ensure timely and sufficient communication of the changes of venue to all members and others entitled to receive notice.
Every member of a company who has the right to attend and vote a general meeting is entitled to appoint another person, known as a proxy, to attend an AGM and vote on their behalf. A form of proxy should be included with the AGM notice and this should include voting instructions to be completed by the appointing members in advance. We would also recommend that members be provided with guidance in the event that a proxy is not able to attend an AGM. A designated proxy holder may be given the ability to appoint a substitute.
Companies must prioritise the health and safety of shareholders, directors and employees. We will now discuss a number of alternative ways to safely adapt an AGM in accordance with the Government social distancing guidelines.
- Hybrid Meetings
A “hybrid” meeting refers to a meeting which is convened using a combination of physical and electronic means. A “hybrid” meeting may have the following elements:
- The AGM notice should communicate to members that physical attendance at the meeting is discouraged and outline the company intention to comply with any public health recommendations restricting attendance.
- To reduce the potential numbers in physical attendance at the AGM to the bare minimum needed to constitute a quorum, in the notice of the AGM, members are directed to appoint one of a list of designated proxies to attend and vote at the AGM on their behalf.
- The notice of the AGM also contains details of a means of collective electronic communication (e.g. teleconference, videoconference) by which members may listen to the proceedings of the meeting and, potentially contribute to them by asking questions. To facilitate a meaningful meeting by technological means, it may be useful for a company to circulate details of where shareholders can submit questions in advance of the meeting with the meeting notice. Conducting the meeting by video conference may encourage participation and in the event where proxies have been appointed, companies should consider livestreaming the AGM to all members and circulate a recording of the AGM following the meeting.
For the purposes of the Act, only those members present at the venue (for themselves and as proxies on behalf of other members) will be deemed present at the meeting and entitled to vote. The “hybrid” meeting may be seen as the best of both worlds; ensuring that the legally necessary business of the meeting is completed in a manner which respects social distancing rules and, at the same time, allowing for engagement with shareholders without the technical concerns that may attend the conduct of votes by electronic means. However, we caution that the status of “hybrid” meetings in Irish company law is ambiguous. Unlike the law in other jurisdictions, the Act does not expressly state that a company cannot direct members to not attend and vote at the AGM and to appoint a proxy to do so in their place. However, nor does the Act expressly authorise a company to do so.
A recent case
In a recent case, the High Court refused to grant an injunction to restrain the holding of a “hybrid”’ AGM by Grafton Group Plc. The company had issued notice of the meeting in March 2020 in which it had advised the large shareholder base not to attend the AGM and instead forward proxy votes to the chairperson. Shareholders were invited to listen to the business of the meeting live via telephone conference facility and were invited to submit questions prior to the commencement of the meeting. One of the shareholders sought a declaration that the “hybrid” AGM unlawfully breached his shareholder rights under the Act, including the right to participate in the meeting and orders quashing any resolution passed at the AGM.
In refusing the application, the court had regard to the lack of support from other shareholders for his bid to stay the meeting, a majority of whom had submitted their proxy forms in favour of the resolutions, in circumstances where they must have known that the shareholder had initiated the proceedings for the injunction. Keane J. held that the uncertainty in the marketplace if an injunction was granted outweighed the uncertainty created by the bringing of these proceedings. On the balance of convenience, the injunction was refused.
Although the decision of this case would seem to offer some support for “hybrid” meetings being permissible as a matter of Irish company law, that view is heavily qualified. First, the decision was given on an application for an interlocutory injunction. Such proceedings do not involve a complete analysis of, or the expression of definitive views on, the relevant law. The Court’s analysis of the law will be limited to whether the applicant has raised a serious question to be tried. Indeed, Keane J. noted that the shareholder had made out a serious question to be tried in the action concerning the lawfulness of the AGM procedure and the nature and extent of his entitlement to participate.
- Virtual Meetings
Section 176(4) of the Act provides that an AGM may “may be held in 2 or more venues (whether inside or outside of the State) at the same time using any technology that provides members, as a whole, with a reasonable opportunity to participate”. This is a mandatory provision which may not be overridden by the company’s constitution.
On its face, Section 176(4) suggests that it is possible to convene an AGM by means of technology. As noted above, the quorum for an AGM is typically two persons present in person or by proxy. Although, the Act does not state expressly that one is “present” at an AGM where one attends virtually, it is at least arguable that this is the case with the venue for the meeting being each location at which each member joins by technological means and each member being “present” at that venue. However, if a virtual AGM is theoretically possible, it presents numerous difficulties.
First, Section 181(5) of the Act provides that the notice of the meeting must specify the “place” of the AGM. Where a physical AGM is convened, the place of the meeting will be certain. Likewise, where a hybrid AGM is convened, the place of the meeting will be the location where those members meeting physically and constituting a quorum meet. However, what is the “place” of the virtual AGM? An ordinary understanding of the term “place” would not encompass a virtual location such as teleconferencing platform. As Section 176(4) provides for an AGM taking place in multiple venues by technological means, it may be that, in such circumstances, the meeting is taking place in several places, namely in each place from which a participant joins virtually. However, how could the company know all such places at the time at which it issues notice of the meeting?
Secondly, the Act is not prescriptive in terms of which technologies will meet the standard of providing “members, as a whole, with a reasonable opportunity to participate”. Teleconferencing platforms have become popular and are being used successfully by many organisations during this challenging period. If a meeting is to be conducted by technological means, notice of the meeting should contain clear instructions on how members can participate electronically and of the technological means necessary to attend. However, as many who have used teleconferencing platforms over the past few weeks will attest, they are not without difficulty. One would expect that, at a minimum, the standard provided for in Section 176(4) requires that the chairperson of the meeting be able to identify and hear the shareholders present and that members should have the ability to hear and, preferably see, all of the other participants, to vote and voice any questions which they may have. This may be difficult if a large number of members are logging in remotely. We would recommend that, even if a meeting is convened virtually, that at least the minimum quorum would be physically present in the same place to reduce the risk that connectivity issues would raise questions about the validity of any proceedings at an AGM. Companies should put in place shareholder identification and voting procedures. Such policies should be shared with shareholders in the notice of AGM and on the company’s website.
Thirdly, voting using electronic means may be problematic. The Act provides for two methods of voting on resolutions at an AGM, namely by show of hands or on a poll. To take a vote by means of a show of hands, the technological means used to convene the meeting could not be audio only. It is not immediately obvious how the chairperson would take a vote by poll using technological means.
By reason of the concerns outline above, we are of the view that the “hybrid” meeting is to be preferred to a virtual meeting. The location of the meeting should be the place where the chairperson of the meeting will be in attendance and a quorum should be present at that location.
- Dispense with the requirement to hold the AGM - Written Resolution
A private limited company (LTD) has the option to dispense with the requirement to hold a physical AGM in a given year where its members pass a unanimous written resolution dealing with the business of the AGM for that year. This may provide a useful solution for companies with a small number of shareholders, but the unanimity requirement might make the option impractical for companies with a larger shareholder base.
However, designated activity companies (DACs), companies limited by guarantee (CLGs) and public limited companies (PLCs) with more than one member may not avail of this option. Many of these company types will have large numbers of members.
It is important to note that the resolution must be signed before the latest date for the AGM and in accordance with the timing regulations for holding of an AGM. All members entitled, at the date of the written resolution, to attend and vote at such general meeting must sign the resolution. The resolution should;
- acknowledge receipt of the financial statements that would have been presented to members at the AGM;
- resolve matters that were required to be resolved at the AGM; and
- confirm that no change is proposed in the appointment of the person, who at the date of the resolution, stands appointed as statutory auditor of the company.
A unanimous written resolution is valid and effective for all purposes as if the resolution had been passed at a general meeting. Helpfully, given the current social distancing guidelines, the resolution can consist of separate counterparts, each signed by/on behalf of the voting members and the resolution is deemed to have been passed at a meeting held on the date which the last member signed the resolution.
While holding a physical AGM is considered to be best practice, this written resolution procedure may provide private limited companies with a useful alternative option where the current travel restrictions and social distancing guidelines which are in place prevent shareholders from being physically present at an AGM.
While the Government has laid out a roadmap for a phased lifting of the COVID-19 restrictions in Ireland, there is no definite timeframe for a return to business as usual. With the AGM season getting underway amidst this evolving situation of COVID-19, the Law Society’s Business Law Committee suggests that companies seek to adapt the way they carry out their AGMs. Companies should take a common sense approach and continue to monitor the advice issued by the HSE and the Irish Government when making the necessary arrangements to facilitate participation in upcoming AGMs.
Should you have any specific queries on the issues discussed above or require any further information, please contact:
Sean O’Reilly, Partner | E. email@example.com | T. +353 21 2332822
Maria Walsh, Solicitor | E. firstname.lastname@example.org | T. +353 1 6054236
or any member of the Corporate and Commercial team at Ronan Daly Jermyn.