Listed company AGMs: the COVID-19 factor
Published on 20th Mar 2020
March to May in any year is typically the period during which listed companies with financial years ending on 31 December hold their annual general meetings (AGMs). Many companies have already sent to shareholders the notice of their AGMs or are planning to do shortly.
As the government continues to impose a series of increasingly stringent social distancing policies in response to the coronavirus outbreak, and with specific travel restrictions in London in particular a realistic possibility in the coming weeks, many listed companies are actively planning for potential coronavirus impacts on shareholder meetings during the current reporting season.
This insight covers the requirements for holdings AGMs and the options open to listed companies (AIM and main market) who want to plan for the potential impact of coronavirus on their AGMs and other shareholder meetings. We also look at the particular issues around dividend resolutions as companies seek to balance maintaining investor confidence and protecting cash flow in light of the continuing uncertainty.
One thing any board should consider is whether it would make sense to hold the company’s AGM later in the year, when (it is hoped) the threat from coronavirus has reduced and restrictions have eased.
Under the Companies Act 2006, a public-limited company must hold its AGM within six months of the end of its financial year. This gives companies with a 31 December year end until 30 June 2020 to hold its AGM. At the time of writing, it appears as though even pushing out the AGM until June may not avoid coronavirus disruption.
Companies should bear in mind the time limits on any resolutions passed at the previous AGM – some resolutions will be limited to 15 months (such as disapplication of pre-emption rights) so if the 2020 AGM takes place more than 15 months after the 2019 AGM, then the authorities will cease to be available.
Postpone or adjourn?
It is conceivable that a company which has sent out a notice of its AGM may wish to postpone the meeting, for example, if the government announces restrictions on certain meetings or travel (or for some other reason).
In such a case it is generally possible for a board to decide to postpone a meeting, although this will depend on the terms of the articles of association of the company. If postponement is not possible, it is likely that a company’s articles will allow adjournment of a meeting – which will have the same practical effect although it will require the physical meeting to be held and immediately adjourned. Listed company articles usually allow meetings to be adjourned either by the chair with the consent of a quorate meeting or by the chair unilaterally if no quorum is present.
Listed companies typically have very modest quorum requirements for shareholder meetings (usually two members present in person or by proxy), which can usually be satisfied by the attendance of director shareholders, giving companies flexibility to adjourn should it prove necessary – for example in the event of a venue change as discussed below.
In any event, any adjourned or postponed meeting would need to be held within six months of the company's financial year end.
Companies should be prepared that venues may close or cease to be available for meetings, particularly if they have chosen to hold their meetings at the offices of financial or legal advisers. It would be sensible to think about a fall-back option in case the venue for a meeting has to change. If the chosen venue closes or otherwise becomes unavailable in the period between the issue of the AGM notice and the date of the meeting, then companies should:
- make an announcement as soon as the venue change becomes necessary, advising shareholders of the new location;
- at the appointed time for the meeting, if at all practicable, have the chair of the meeting present outside the closed venue to formally adjourn the meeting to reconvene at the new venue, and direct shareholders to the new location (giving shareholders a reasonable period to get there before the meeting is reconvened).
Even while there are no mandatory restrictions on travel and/or gatherings, companies should consider giving shareholders the ability to participate in meetings by electronic means (such as videoconferencing or via a web portal). The Companies Act 2006 allows for the holding of meetings by electronic means. In addition, the articles of association of many listed companies have been amended in recent years to expressly allow these meetings and provide further details on how such meetings can be run.
Under English law it is possible to hold entirely “virtual” meetings, where there is no physical meeting place. Some companies have already taken advantage of this option, although a number of institutional shareholder bodies have expressed concerns around wholly virtual meetings from a broader governance perspective. We would expect most investors to understand overriding safety concerns if a company did choose to adopt a wholly virtual AGM this year.
Whether holding a wholly virtual meeting (or a “hybrid” meeting where there is a physical meeting with the ability for shareholders to participate by electronic means) is possible will again depend on the company’s articles. If the articles have not already been amended to allow for electronic participation in general meetings, holding a wholly virtual AGM, in particular, may be problematic (for example, because the notice provisions will require a company to specify the “place” of a meeting). It is notable that one company (Jimmy Choo plc) that holds its AGMs entirely virtually decided to amend its articles of association before doing so.
Companies offering either an entirely virtual meeting or the ability for shareholders to participate electronically in a hybrid meeting will need to put in place shareholder voting and identification procedures. There have been very few "true" hybrid meetings where shareholders can participate and vote electronically in real time (only two FTSE350 companies held hybrid meetings during the 2019 reporting season) but this may increase this year in response to the coronavirus outbreak. Even where a true hybrid meeting is not held, consideration should be given to enabling shareholders to follow the meeting by webcast, telephone or videoconference facility and ask questions of the board.
Shareholders have always been able to register their vote without attending the meeting itself and by appointing a proxy. Shareholders should ensure that they vote in advance of the meeting by submitting their proxies even if they currently intend to attend, in case their personal circumstances change and they are not able to attend in person. Retail shareholders most commonly hold their shares through nominees and they should discuss with their nominees what arrangements are in place for voting (as normal). Companies should consider specifically urging shareholders to vote by proxy ahead of the meeting.
Listed companies typically propose a resolution to approve a "final" dividend as part of their standing AGM resolutions each year. Once approved by members, a final dividend becomes a debt due on the date specified for payment in the resolution – although in the past few days there has been at least one instance of a listed company seeking shareholder authority to cancel an approved final dividend.
For companies seeking to carefully manage cash flow, this raises a number of issues:
- For companies yet to issue their AGM notice: the board should carefully consider whether to include a resolution proposing a final dividend. If there is any prospect that they may wish to withhold payment of the dividend for cash flow management purposes, the better approach would be to not include a resolution for a final dividend. Instead, the board could give guidance around an intention to pay an "interim" dividend (a dividend declared by the board, which does not give rise to an enforceable debt unless and until it is actually paid) in due course, once the current uncertainty is cleared. The board will need to careful to ensure the market is not misled by any statement as to the likelihood of a future dividend payment.
- For companies that have included a final dividend resolution in an issued AGM notice: if cash flow concerns arise which mean that the payment of the dividend is no longer likely to be in the company's best interests, the board may elect to withdraw the resolution before the meeting, and the chair should explain the reasons for the withdrawal at the meeting. Any decision to withdraw a resolution should be made in conjunction with the company's financial advisers and an immediate announcement should be made. Again, the board will need to be careful to ensure that the market is not misled by any statement as to the likelihood of future dividend payments.