The Bill is being fast-tracked through parliament, with the aim of becoming law as soon as 3 June 2020. The law will have retrospective effect however, meaning that AGMs and other meetings held from 26 March 2020 in accordance with the new measures will be treated as if they had been validly convened.
During the temporary period in which these measures are in force (currently until 30 September 2020), companies will be given greater flexibility as to the manner in which such meetings are held, regardless of what is stated in their articles of association:
- meetings can be quorate without attendees being physically in the same place;
- meetings may be held, and any votes may be cast, by electronic means or any other means; and
- meetings need not be held at any particular place.
The measures also extend the period within which companies must hold an AGM. Companies with a deadline for holding an AGM expiring between 26 March 2020 and 30 September 2020 will be given until 30 September to hold their AGM. This deadline can be extended by the Secretary of State, up to 30 April 2021.
Companies looking to take advantage of this extended period 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.
Finally, the Bill gives the Secretary of State powers to amend the means, form and period within which companies must give notice of meetings. As yet we've not seen any indication of how these powers may be used.
Protecting shareholders' rights
The Bill provides that shareholders will not have rights to attend meetings in person, participate in meetings other than by voting, or to vote by any particular means. Clearly this has a significant impact on a shareholder's rights.
We have already seen push-back against a perceived infringement of rights by companies moving to a virtual AGM model, most notably with 37% of Aberdeen Standard Life shareholders rejecting a proposal to permit the holding of entirely virtual shareholder meetings in the future. It would appear that the concern was that meetings will be held in a manner which excludes shareholders, and that some shareholders consider physical meetings vitally important to get some 'face time' with the board.
The government stresses that it is keen to ensure that retail investors in particular are not overlooked, and will work with them to provide guidance to companies about how they should accommodate investors’ expectations if meetings cannot be attended in person. Whether such guidance will be available before the Bill becomes law is not yet clear.
Some stakeholders have also raised concerns around the security of meetings held electronically. It is partially due to this that the Bill does not prescribe the alternative means by which an AGM or other meeting must be held. Rather it is up to companies and shareholders to develop a solution 'most suitable to their needs'.
The measures apply to a general meeting of a 'qualifying body', a meeting of any class of members of a qualifying body (which means the measures would apply to class meetings on a court sanctioned scheme of arrangement), and to a meeting of delegates appointed by members of a qualifying body.
Many organisations, including charities, are 'qualifying bodies', but the Bill will be most relevant for the UK's 6,300 public limited companies. Under the Companies Act 2006, a public limited company must hold its AGM within six months of the end of its financial year.
Meetings already announced
Companies that have already announced a meeting for the period between 26 March 2020 and 30 September 2020, and that wish to take advantage of these new measures, should announce any intended changes (such as an electronic meeting) via RNS as soon as they are able to.
The Companies Act 2006 already allows for the holding of meetings by electronic means. The articles of association of many public companies have also been amended in recent years to expressly allow these meetings and provide further details on how such meetings can be run. If the Bill becomes law, for the period 26 March 2020 to 30 September 2020, all public companies' articles will be deemed amended to allow for virtual meetings.
Under English law, it is already 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.
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 we expect this to increase this year in response to the COVID-19 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 video conference facility, and ask questions of the board.
Shareholders have always been able to register their vote without attending the meeting itself, by appointing a proxy. Shareholders may wish to vote in advance of the meeting by submitting their proxies even if they currently intend to attend (virtually or in person), in case their personal circumstances change and they are not able to attend. Retail shareholders most commonly hold their shares through nominees. If so, they should discuss with their nominees what arrangements are in place for voting. 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 recently we have seen 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.
Many listed companies have been waiting for this legislation as 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). Please contact us if you would like to discuss your listed company AGM options.