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Can a company hold an AGM whilst complying with social distancing rules?
The Government has introduced a suite of new restrictions to curb the spread of COVID-19, which includes a ban on gatherings of more than two people. The public are advised in the strongest possible terms to avoid all non-essential travel, and a number of venues have been ordered to closed.
With the arrival of the 2020 AGM season, we have received many queries from our Corporate clients about the COVID-19 virus and the holding of general meetings which, by their very nature, can involve people gathering in large numbers. This presents challenges for private and public limited companies which are required to hold an AGM in the months to come and will now need to review their arrangements.
Directors are tasked with balancing their statutory and corporate responsibilities with the emerging government guidance, whilst trying to operate as normally as possible. Whilst AGMs are important for shareholder engagement, Directors must be guided by the health, safety and wellbeing of their shareholders and employees, as well as legislation and the terms of their Articles of Association.
Companies may consider postponing the AGM. However, this may not be a viable option – at the time of writing there is no clear indication as to how long the restrictions will remain in place.
Is a company legally required to hold an AGM?
Public and/or traded companies are required to hold the AGM within six months of the end of the Company’s financial year. This is a statutory requirement under the Companies Act 2006 (CA 2006).
Private limited companies are not legally required to hold an AGM, unless the Articles of Association say otherwise. This is uncommon, and more likely to be found in the Articles of older companies incorporated prior to the Companies Act 2006.
If the Articles are silent on the requirement for a meeting, Directors should consider using the statutory written resolution procedure.
How can a Company hold a valid AGM and comply with the Government restrictions?
There are two exceptions to the ban on public gatherings of more than two people: if those people live in the same household or where this is ‘essential for work purposes’ (but workers should try to minimise all gatherings in the workplace).
According to guidance published by the Chartered Governance Institute, Shareholder attendance at an AGM is not ‘essential for work purposes’ unless it is required to satisfy quorum requirements. Without quorum a company cannot convene a valid meeting and pass resolutions, frustrating the intended business of the meeting and the operations of the company. Physical attendance of shareholders to meet the minimum quorum threshold is therefore ‘essential for work purposes’, and compliant with the Government restrictions.
A company’s quorum requirements can usually be found in the Articles. Where the Articles are silent, quorum for private and public companies is set by the CA 2006, being two members present in person (including proxies and representatives of corporate shareholders) or one for single member companies.
Guidance from the Chartered Governance Institute suggests that quorum requirements could be satisfied by an executive director and the company secretary, so long as they are a shareholder, proxy or corporate representative. Appropriate social distancing measures should still be observed by those in attendance.
Unusual quorum requirements
Whilst it’s uncommon, some articles require quorum of more than two people. This should be kept to the minimum necessary to meet the quorum threshold. If the quorum is ten or more, you should seek specialist legal advice.
Can the company hold a virtual AGM?
There is nothing in the Companies Act 2006 which prohibits virtual or hybrid AGMs, so long as members can see and hear proceedings, contribute to debate and be seen to vote for and against any motion in the same way as if they were in the same room.
However, quorum requirements still must be satisfied and Directors should consult the company’s articles of association to ensure that electronic AGMs are permitted.
On 28 March 2020, the Business Secretary announced that legislation will be introduced to ensure those companies “required by law” to hold AGMs will be able to do so “safely, consistent with the restrictions on movement and gatherings; Companies will temporarily be extended greater flexibilities, including holding AGMs online or postponing the meetings”.
It remains to be seen whether the new legislation will apply to private limited companies that are required to hold an AGM by their Articles, rather than by law. It’s hoped that the Government will provide clarification in the coming days – so watch this space.
The Chartered Governance Institute (ICSA) has published guidance on AGMs and the impact of Covid-19 (coronavirus) which we have referred to in this note. For more detailed guidance, please consult the full guidance which is available on the ICSA website.
Companies will need to consider their own individual circumstances, including their articles of association (Articles) and any other relevant matters. If you would like assistance with your AGM planning or any broader issues relating to the impact of coronavirus, please get in touch with us.