Coronavirus: Implications for meetings of directors and shareholders
The impact of the Corporate Insolvency and Governance Act 2020
Given the current circumstances surrounding Covid-19 and the government guidance on social distancing and self-isolation, companies planning board or shareholder meetings may need to consider alternative arrangements other than face to face meetings.
Whilst board meetings are commonly held on an informal basis, if significant decisions need to be made in respect of the business, a more formal meeting between all of the directors may be required.
It is now widely accepted that directors’ meetings may be conducted by telephone or other electronic means, and the articles of association of most companies incorporated after the introduction of the Companies Act 2006 (“CA 2006”) explicitly permit this.
Companies with older articles of association may not have specific provision for online meetings or conference calls but recent decisions of the Courts have lowered the risk that a board meeting held in this manner would be considered invalid for these companies.
If a board meeting is held by telephone (or other electronic means), we would recommend that the following steps are taken:
- all directors give their express consent to the meeting being held in such a manner in advance of the meeting;
- the meeting is held in such a way that every director can hear all the other directors; and
- minutes of the meeting are circulated to each director present for their approval to reduce the likelihood of later disputes over the business carried out at the meeting.
Since the implementation of the CA 2006, most matters requiring approval of shareholders in private companies can be dealt with by way of written resolution, which reduces the need for physical meetings. This is the case irrespective of whether the company’s articles specifically include such a power, as a private company’s articles cannot override the statutory procedure for passing written resolutions (section 300, CA 2006).
However, there may be circumstances in which a Company still needs, or chooses, to hold a shareholder meeting. These may include:
- Companies whose articles still require them to hold an Annual General Meeting;
- Companies with unengaged or hard to reach shareholders who may struggle to obtain the necessary number of votes in favour of a resolution for it to pass if it is proposed as a written resolution;
- Companies that wish to pass resolutions to remove a director or auditor before the expiration of their period of office (for which the written resolution procedure is generally not available); and
- Public companies (for which again the written resolution procedure is not available).
Companies planning an AGM or General Meeting may need to consider contingency plans to ensure that these meetings can be held safely and in line with the changing government guidance. Many companies will undoubtedly consider a delay to such meetings (if notice has not yet been issued) or postponing the meeting (if permitted under the articles). However, if a shareholder meeting cannot be delayed, companies may wish to consider virtual/electronic meetings or hybrid meetings (i.e. there is both a physical place for the meeting and electronic access).
The Companies Act 2006 permits electronic meetings provided those persons who are not present together at the same place may by electronic means attend, speak and vote at the meeting. However, it is important that companies ensure that there is no explicit or implied prohibition on meetings being held electronically contained in the articles of association of the company. There is also still some uncertainty in respect of the legality of entirely virtual meetings and companies may therefore wish to consider holding a hybrid meeting rather than a purely electronic meeting (although see below for a temporary relaxation of the rules on this).
In addition to considering the use of hybrid meetings where possible, companies looking to hold a shareholder meeting should consider:
- using multiple venues linked by electronic means to limit the number of people in each location;
- encouraging the use of proxy voting;
- ensuring the venue for the meeting is suitable and consider additional steps to promote health and safety (such as hand sanitising, social distancing, temperature checks, not providing refreshments etc.); and
- ensuring the technology available is sufficient to enable participants to both speak and vote at the meeting.
However, in June the government introduced a temporary relaxation of the rules for shareholder meetings under the Corporate Insolvency and Governance Act 2020. Schedule 14 of that Act provides that during the “relevant period” a shareholder meeting:
- need not be held at any particular place;
- may be held, and any votes may be permitted to be cast, by electronic means or any other means; and
- may be held without any number of those participating in the meeting being together at the same place.
The “relevant period” for the purpose of this temporary relaxation currently runs until 30 December 2020 (although it is worth noting that date has already been extended once and so may be extended again).
The legislation goes on to provide that during the relevant period a shareholder does not have a right to attend the meeting in person, and does not have a right to participate in the meeting other than by voting, or to vote by any particular means.
These provisions override any contrary provisions of the Company’s articles and give directors a very wide discretion as to how any meetings are to be held, and how any voting will be conducted, albeit only on a temporary basis.
The unique circumstances of Covid-19 mean that all companies required to hold board or shareholder meetings in the coming weeks are having to review their arrangements and it is hoped that the government will legislate to extend the “relevant period” under the Corporate Insolvency and Governance Act 2020 to enable companies to continue to take advantage of the greater flexibility provided by that Act to make their own arrangements for how any shareholder meeting should be held. In the meantime, we would recommend keeping abreast of advice of government, regulators and public health bodies and to consider any of the steps set out above when considering holding a board or shareholder meeting in the weeks ahead.