Although the world may be on pause to contain the spread of covid-19, annual general meetings (AGMs) season is upon us.
As social distancing rules coincide with the period during which AGMs may need to be held, companies are carefully consulting their bye-laws, statute and any applicable listing rules as well as coordinating with registrars and venue providers to assess their options:
- Opt out
- Postpone if permitted under the bye-laws
- Delay if notice has not yet been issued
- Hybrid meeting
- Virtual meeting
This article considers the legal and practical issues of each option to assist companies that are grappling with the thorny issue of how to effectively deal with 2020 AGM season.
Pursuant to section 71 of the Companies Act 1981 Act (Act), a meeting of shareholders must be convened at least once in every calendar year to consider and if thought fit:
- Approve the auditors report and audited financial statements
- Appoint auditors
- Determine the maximum number of directors
- Elect directors and alternate directors (if applicable)
- Authorise the directors to appoint additional directors to fill any vacancy and to appoint alternate directors.
The minutes of the AGM must be lodged in the corporate records maintained at the company's registered office in Bermuda.
Opt Out of AGM
Enshrined in Bermuda law is the ability to waive or opt out of holding AGMs. This provides important flexibility and many Bermuda companies have express bye-law provisions to allow them to take advantage of this regulatory flexibility.
A company may resolve in general meeting to dispense with the holding of AGMs, provided that its bye-laws allow for the same. The period for which the AGMs may be waived is at the discretion of the shareholders and can be for the year in which the resolution is made and for any subsequent year or years, for a specified number of years or indefinitely.
In conjunction with, or separately from, opting out of the holding of AGMs, the directors and shareholders of the company may unanimously agree to waive the laying of audited financial statements and the appointment of the auditor for a particular interval (e.g. one year or multiple years). This does not relieve the company of the requirement to keep records of account to enable the directors to ascertain with reasonable accuracy the financial position of the company at the end of each quarter.
Further, opting out does not relieve a company of the requirement to rectify any existing default in holding an AGM.
The Act contains a mechanism that allows a shareholder to require that an AGM be held to terminate the 'opt out' arrangement.
Whilst in the case of a closely held company, there may be little benefit in holding an AGM, in other circumstances, we strongly recommend that the AGM not be dispensed with. We consider it prudent that a company consider carefully the implications of dispensing with the AGM, as its purpose is to inform the shareholders of the company’s previous and future activities. It is an opportunity for the shareholders to receive copies of the company’s accounts, to review fiscal information for the past year and to ask any questions regarding the direction the business will take in the future.
Postponing an AGM
A company may want to consider whether it can postpone a previously announced AGM before it is actually held. In Bermuda, this is only possible if the bye-laws expressly so provide and such bye-law provision will govern the process.
A company’s bye-laws may give the board the power to postpone an AGM between the time notice of meeting is dispatched and the designated time of the meeting where it is unreasonable or impractical to hold it at the appointed time, date or place. This power gives the company an escape route where an AGM has to be postponed because of unforeseen circumstances brought about by covid-19 (e.g. travel restrictions, the venue has become unavailable, large gatherings have been banned).
The bye-laws typically mandate the terms of postponement and that fresh notice of the day, time and place of the postponed meeting be given to each shareholder in accordance with the provisions of the bye-laws.
A postponement provision can prove advantageous as it avoids the need to convene a meeting where the purpose of the meeting no longer exists or unforeseen circumstances have arisen. Absent an express provision in the bye-laws, however, it is not possible to postpone, abandon or cancel a meeting once it has been called (i.e. notice has been circulated).
Where the bye-laws are silent on postponement, the correct procedure once a general meeting has been convened upon due notice, is to hold the meeting at its scheduled time and formally adjourn it. To adjourn means to suspend a duly commenced meeting indefinitely or to be resumed at a future time and/or place (whether specified or not specified).
The bye-laws of a Bermuda company may contain a provision outlining the circumstances for adjournment. Typically, a meeting may be adjourned automatically for want of a quorum or, where a quorum is present, the power to adjourn is vested in the meeting or adjournment may be at the instance of the chairman.
When to Adjourn
The chairman's residual power to adjourn must be exercised reasonably for a legitimate purpose connected with the proper transaction of the business. The chairman must take into account, inter alia, whether the delay would benefit or prejudice the shareholders, the expense of the adjournment and likelihood of the vote at the adjourned meeting producing a different result.
The chairman must adjourn the meeting:
- in absence of a quorum (to this end, it may be appropriate for the chairman to encourage shareholders not to attend and then dissolve the meeting for lack of a quorum without putting any resolution(s) to shareholders if there would be significant health risks should shareholders seek to attend the AGM in person); or
- if requested to do so by the meeting.
The chairman may adjourn the meeting:
- in accordance with the provisions of the bye-laws;
- with the consent of the meeting by way of resolution; or
- on his own authority if, in the chairman’s opinion, it is not practical to get the consent of the meeting but it appears necessary to adjourn to facilitate transaction of the business of the meeting (e.g. the venue is not appropriate or unsafe or there is a failure in technology) or to facilitate orderly conduct of the meeting.
Date of Adjourned Meeting
Subject to the bye-laws, a meeting may be adjourned:
- to a date, time and place prescribed in the bye-laws of the company;
- to a date, time and place as fixed in the meeting;
- to a date, time and place to be determined by the board; or
- sine die or indefinitely
Notice of Adjourned Meeting
As a general rule, subject to any contrary provisions in the bye-laws of the company, where the notice of the original meeting has been properly given, there is no necessity for notice of its bona fide adjournment. An adjourned meeting is merely the continuance of the original meeting. Fresh notice of the adjourned meeting is not therefore necessary unless the bye-laws require such a notice (for instance, there is a long delay between the original meeting and the adjourned meeting or there is an adjournment sine die (i.e. without appointing a day for a further meeting). In such circumstances, clearly the date and time of the reconvened meeting will need to be communicated to shareholders and the notice provisions of the bye-laws must be followed.
Proceedings at Adjourned Meetings
All procedural requirements must be complied with at the adjourned meeting in order for it to be valid, (e.g. unless duly amended and/or revoked and, subject to any contrary provision in the proxy, proxies received with respect to the original meeting remain valid). Further, no business may be transacted at an adjourned meeting other than business which might properly have been transacted at the original meeting had the adjournment not taken place. If new business outside the scope of the original meeting is to be considered, fresh notice would be required.
Pursuant to section 72 of the Act, Bermuda companies currently have a 3 month grace period in which to convene and hold an AGM. A Bermuda company that has announced but not yet served formal notice of its upcoming AGM may delay the same. This leeway may allow for more visibility around when covid-19 restrictions will subside.
If an AGM is not held within 3 months of the date it should have been held, the company must make application to the Registrar of Companies to sanction the holding of an AGM to put the affairs of the company in order. Upon receipt of such application, the Registrar may in his discretion make an order allowing the application under such conditions as he thinks fit to impose including ordering the date by which the affairs of the company shall be put in order.
By virtue of section 73, if the AGM (or election of directors) does not take place at the proper time, it shall be lawful for the company to continue its business and for the existing directors to continue in office.
In sum, there is currently a grace period built into the Act. However, default fees are payable if companies do not hold their AGM within the 3 month statutory window.
The options to delay, postpone or adjourn may be of limited benefit if the delayed, postponed or reconvened AGM can not be held within the applicable statutory window provided for in the Act. It is unclear whether the Registrar will extend this statutory deadline to allow Bermuda companies an additional period within which to hold their AGM and approve financial results. Moreover, consideration will need to be given to updating the market, paying the costs of the already booked venue (can force majeure be claimed?), applicable listing rules, final dividend payments, whether any standing authorities approved at the last AGM will expire etc.
Some companies are deciding to hold hybrid meetings (namely, the AGM occurs at a physical location but also allows remote participation). Accordingly, the shareholders can elect whether or not to attend in person or virtually.
Whilst in person meetings are favoured by the vast majority of shareholders, covid-19 restrictions (including, travel bans, curfews, stay at home orders and a prohibition on large public gatherings) will limit the number of people who can physically attend the hybrid meeting. Against this backdrop, it would be incumbent on the company to:
- check that the venue provider is still able to host the meeting (given the covid-19 situation continues to evolve, a backup location may need to be secured) and/or consider supplemental venues connected by audio-visual links to restrict numbers at each location to take into account emerging limits on gatherings;
- subject to meeting minimum quorum requirements of the bye-laws, strongly encourage shareholders to participate remotely and/or submit a proxy electronically (given disruption to postal services) so that shareholders don't unwittingly breach any covid-19 restrictions;
- adhere to best practices at the meeting location in terms of respecting social distancing, non-essential contact and ensuring sanitary conditions. For instance, consideration would need to be given to instigating precautionary measures such as screening entrants for elevated temperatures and denying entry to anyone who has a fever or on, self-certification, has returned from a high risk zone within 14 days of the meeting, dispensing with refreshments and otherwise adopting measures pronounced by the applicable health authority;
- run an efficient meeting which should not last for longer than is optimal;
- make appropriate announcements and website updates to keep shareholders and the market informed.
By continuing with the physical meeting but adding an electronic element a company must have robust and agile plans in place to support the twin challenges of ensuring the physical meeting is conducted in line with government and public health guidance and that the right technology is in place to ensure the virtual component runs smoothly. The balance could be struck by recommending that shareholders return proxies and submit questions prior to the meeting. Accordingly, the meeting can take place with a minimum quorum and interested shareholders can stay informed by viewing the live streamed meeting (albeit this would not constitute presence at the meeting) and/or receiving a transcript or formal minutes promptly after the AGM.
The company must continue to carefully consider and heed advice from government, regulators, public health authorities, immigration officials and others. Guidance from these bodies is currently fluid and a significant factor in determining whether the physical meeting of the AGM can be held as planned.
As covid-19 persists and intensifies, some companies are following contingency plans and, subject to their bye-laws, moving to virtual meetings to mitigate all health risks. A virtual meeting is held exclusively through the use of technology without a corresponding physical meeting. In a virtual meeting, all the usual corporate governance requirements relating to quorum, notice periods, proxies, documents tabled and counting and announcing the results of the vote still apply and must be met.
Below are some key considerations for a well structured virtual meeting:
- Shareholders and the market should be put on notice as early as possible prior to the scheduled AGM as to any change in arrangements;
- Preparation is key. The company should consider all logistic, AGM facilitating technologies, security of electronic communications, and publish instructions on how to access the virtual meeting platform. The company may wish to use a virtual service provider to host the meeting (such as GoToMeetings, Skype, Microsoft Teams, Google Hangouts etc.);
- Shareholders must have clear advice on the technology and internet connectivity needed for full participation and the company may wish to offer a practice call to less technically savvy shareholders. The company should also have IT support on hand in advance of and throughout the meeting to help shareholders trouble shoot;
- The company should circulate the notice with the meeting link in advance of the meeting, send a reminder the day of the meeting, ensure the correct time zone and all access codes are included in the meeting invite, offer dial in numbers which include freephone or local call rate numbers etc.;
- All protocols/rules of procedure (e.g. poll voting) must be circulated in advance to all shareholders, published on the website and in the press and shareholders encouraged to submit electronic proxy votes as early as possible;
- The company should implement secure authentication measures to identify attendees (e.g. unique password) and verify that a quorum is present, maintained and voting throughout the meeting. The company should open the meeting 10–15 minutes prior to commencement to allow a prompt start as well as extra time to deal with any technology issues;
- Shareholders must have a reasonable opportunity to participate in the meeting and the company should consider the use of video conferencing which allows for a more organic conversational exchange than audio conferences but requires more sophisticated technology as well as a stable and reliable internet. That said, video links may impair connectivity, be unwieldy and otherwise impractical for large meetings.
- In order to ensure adequate debate, the company must consider how questions will be fielded (e.g. will questions be pre-submitted? will live questions be taken via text? will there be a time limit on responses?). AGMs provide an invaluable opportunity for shareholders to raise concerns with the board in a public forum. The virtual nature of the meeting can not be seen to muzzle shareholders, filter or exclude shareholder questions or otherwise jeopardise shareholders' ability to put proposals to management and thereby render management less accountable to investors.
- In order to ensure the meeting runs smoothly, the chairman should only ask for points of dissent for non-contentious matter, have a script, keep discussions focused, curtail the length of meeting, deal with important agenda items first to maintain participants attention and consider short comfort breaks for long meetings.
- The chairman should follow video conference etiquette including wear proper attire, frame the camera correctly, have the right lighting to ensure the video isn't grainy, avoid distractions/noise in the environment, ask all participants to mute their lines when not contributing, remember that clear communication and the experience of the shareholders is the heart of a meeting.
Whilst the Act generally facilitates e-communication it is silent on the issue of virtual meetings. Most bye-laws permit virtual AGMs conditional on the technology providing members as a whole a reasonable opportunity to participate (including functionality that allows members to hear, be heard, vote and ask questions of management).
Even for companies that have included provisions in their bye-laws permitting them to hold virtual meetings, there may be other statutory or regulatory hurdles (applicable listing rules or guidance from proxy advisors) which prevent them from doing so.
AGMs afford shareholders an opportunity to engage directly with management and get the barometer on the views of other shareholders. Whilst some shareholders may express concern about hybrid and virtual meetings from a governance perspective, there is a shift in consciousness during this pandemic and a universal focus on health and safety.
The emergence of covid-19 is rapidly changing life and the work patterns of people around the world including Bermuda. Travel bans, stringent social distancing policies and closures of conference spaces are causing boards to rethink their AGM strategy.
Companies must continue to follow emerging guidance on the covid-19 virus in order to safeguard public health and minimise the risk of further transmission. With that in mind, companies must now weigh up their options with respect to shareholder engagement and where necessary plan to defer, postpone or host their AGMs electronically.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.