Listed companies: holding shareholder meetings in 202112 April 2021
"The experiences of the past year, and the increasing internationalisation of ownership of UK-listed companies, have led to demands for a more modern and flexible approach to shareholder meetings."
A particular challenge faced by UK-listed companies in 2020 was how to hold their annual general meeting (“AGM”) (or other shareholder meetings) and yet comply with lockdown and social distancing restrictions. Temporary relaxations of the meeting requirements set out in the Companies Act 2006 (“CA 2006”) were introduced by the Corporate Insolvency and Governance Act 2020 (“CIGA”) in June 2020, providing much needed flexibility and making it easier to hold AGMs. These measures facilitated electronic participation at meetings and enabled companies to either hold closed meetings or virtual or hybrid meetings as an alternative to a traditional physical AGM. Importantly, the relaxations were stated to override anything in a company’s articles of association or other applicable legislation.
The temporary measures came to an end on 30 March 2021, meaning that the position for UK-listed companies planning to hold an AGM or other shareholder meeting after this date is more uncertain. However, both The Chartered Governance Institute (“CGI”) and the Financial Reporting Council (“FRC”) have published useful guidance to assist companies with their planning and to flag the issues they need to consider.
In view of this, we have set out below some guidance for UK-listed companies looking to hold a shareholder meeting in 2021. This is an update to our guidance from 2020 which can be found here.
How should companies approach general meetings in 2021?
English law requires public companies to hold their AGM within six months following their accounting reference date. Although a temporary extension for holding AGMS was introduced last year, this has now expired and so AGMs in 2021 will need to be held within the six-month timeframe.
Companies will need to adopt a flexible approach to planning AGMs or other general meetings as the options available will depend on any government restrictions in place both at the time the meeting notice is sent out and at the time of the meeting itself. In all cases, companies will need to make sure they comply with the provisions of their articles of association.
Will closed meetings be permitted after 30 March 2021?
The vast majority of AGMs held in 2020 were closed meetings where the quorum requirement was satisfied by a minimum number of people (usually directors or employees) being in attendance at a physical meeting place, with voting in advance via a proxy. However, with the relaxations introduced by CIGA falling away, closed meetings will only be possible after 30 March 2021 if government legislation and guidelines at the time preclude gatherings of more than a very limited number. Where that is the case, companies will be able to restrict attendance to a small number of attendees comprising the required quorum and anyone else whose attendance is necessary for the conduct of the meeting.
"Shareholders at a hybrid meeting must have the ability (whether attending the physical meeting or by electronic means) to participate in the meeting on the same basis as others attending by whatever means."
Based on the Prime Minister’s statement on 22 February 2021, it currently appears likely that general meetings will be required to be held on a closed basis until at least 17 May 2021 and possibly until at least 21 June 2021.
Can companies hold hybrid meetings?
Shareholders at a hybrid meeting must have the ability (whether attending the physical meeting or by electronic means) to participate in the meeting on the same basis as others attending by whatever means, including being able to hear the proceedings of the meeting, speak, be heard and vote. A hybrid meeting can legally be held even if a company’s articles of association do not expressly enable this, provided there is nothing in the articles of association which prevents a hybrid meeting being held. Companies will need to check this.
Unless there are restrictions on gatherings in place at the time of the meeting, holding a hybrid meeting will not, in itself, prevent shareholders from having the right to attend the physical meeting in person. This may create difficulties where social distancing measures are still in place or venue capacities are restricted. However, a company can strongly recommend that shareholders attend virtually, and either vote online or give the chairman a proxy, due to the unpredictable circumstances, even where public gatherings are permitted at the time of the meeting.
Can companies hold virtual meetings?
“Virtual-only” AGMs are currently thought to be permitted under English law, subject to any restrictions in a company’s articles of association, but this has not been tested in the courts. However, the CGI guidance suggests that companies must hold physical AGMs unless the articles of association of a company expressly provide for wholly virtual meetings. It also states that there remains some legal uncertainty as to whether a wholly virtual meeting constitutes a valid meeting and appropriate advice should be sought.
Given this, and the fact that virtual meetings are uncommon, and remain so even after the temporary relaxations permitted by CIGA, and that institutional investor bodies generally prefer companies to provide for a physical place of meeting, the cautious approach for 2021 is still to hold some form of physical meeting even if the articles of association do permit wholly virtual meetings.
"There is an expectation that shareholder engagement should improve in 2021. Closed meetings with no opportunity for virtual shareholder engagement whether before or at the meeting, are poor practice."
What if the situation changes prior to the meeting?
Companies should plan their meetings according to what rules are in place when they send the meeting notice out but should have contingency plans in place for if circumstances change (for example, the need for a larger venue if restrictions are relaxed). Companies will need to consider what provisions they have in their articles to adjourn, postpone and change the place or time of a meeting and also how any such changes should be communicated to shareholders. Generally, the meeting notice itself should only specify a single venue, date and time of meeting but accompanying documentation may warn shareholders that the arrangements may need to be changed and specify how this will be communicated.
What are the good practice recommendations for meetings?
It is clear from the FRC, CGI and institutional investor bodies that there is an expectation that shareholder engagement should improve in 2021 and that closed meetings, with no opportunity for virtual shareholder engagement whether before or at the meeting, are poor practice. An increase in the use of technology is seen as one way to provide greater access for all shareholders. Companies should consider what they can offer in terms of meeting arrangements to ensure that shareholder engagement is as effective as it can be, with as much transparency and sharing of information as possible, taking account of the company’s specific circumstances, the interests of its shareholders and stakeholders, the cost and the availability and reliability of the technology available. Good practice is for a company to choose an approach that is as far on the spectrum towards a hybrid meeting as is proportionate and reasonable in the circumstances – a well-run AGM with a “virtual” aspect will be a step in the right direction.
Companies should consider:
- the options for livestreaming the meeting using an effective communication system (whether via video link or telephone);
- how shareholders can submit questions before and/or during the meeting and how questions will be answered, ideally with some answers being provided before the proxy deadline so that shareholders can make an informed vote;
- how to communicate with shareholders including giving clear instructions for appointing a proxy to vote, joining the call and on-call conduct and electronic voting – it is good practice to have a dedicated page on the company website for this information; and
- measures for ensuring the safety of the physical meeting place, including encouraging shareholders to pre-register their intention to attend, requiring social distancing and the wearing of face coverings where appropriate, relevant Covid-19 checks and additional personnel to support from a technical and/or security perspective. The chair of a general meeting has broad common law powers to preserve order at a meeting and ensure the safety of attendees and so may refuse admission to the meeting if a shareholder is unable to meet reasonable health and safety requirements or if a meeting is already at capacity based on relevant rules governing public gatherings at the time.
"The chair of a general meeting has broad common law powers to preserve order at a meeting and ensure the safety of attendees and so may refuse admission to the meeting if a shareholder is unable to meet reasonable health and safety requirements."
Given the uncertainties posed by the pandemic, shareholders should continue to be encouraged to appoint the chair of the meeting as their proxy to ensure that their vote will be counted if they cannot attend the meeting on the day either physically or electronically.
Should companies adopt provisions that allow hybrid and virtual meetings in 2021?
Most UK-listed companies do not have provisions in their articles of association that expressly allow hybrid or virtual meetings. Even though hybrid meetings are possible without such provisions, we would still recommend that companies adopt specific provisions to ensure that all relevant procedural mechanics (such as notice requirements, quorum, voting, adjournment, postponement, arrangements for meetings including adequacy of facilities and platforms and security, as well as technological failures, including, if needed, changing the electronic platform) are addressed.
The Covid-19 pandemic has reinforced the need for companies to have flexible provisions in their articles as to meeting format. Even if companies do not intend to embrace full digital technology or virtual meetings yet, it is still a good idea to put these provisions in place now to provide flexibility for the future, particularly in the event of a shift of investor sentiment in favour of wholly virtual meetings.
Where changes to the articles of association are being considered, companies should consult their major shareholders in advance to seek their support and should be clear as to the circumstances in which they currently envisage using virtual meetings – such as, only when physical meetings are restricted by government regulations or guidance or otherwise in a manner that allows shareholder engagement of at least the same quality as in a physical meeting (and possibly better given shareholders would not need to travel to attend).
"Even if companies do not intend to embrace full digital technology or virtual meetings yet, it is still a good idea to put these provisions in place now to provide flexibility for the future, particularly in the event of a shift of investor sentiment in favour of wholly virtual meetings."
Other points to consider
There are a number of other points worth considering if/when updating a company’s articles of association for hybrid/virtual meetings. These include (to the extent not already implemented):
- Directors’ retirement provisions – as the 2018 UK Corporate Governance Code requires annual re-election of directors and the 2018 QCA Code also suggests that this is good practice, companies should consider replacing retirement by rotation with annual re-election of all directors;
- Dividend payment provisions – these can often be more flexible, e.g. permitting payments by different means and allowing for combinations of payment methods/elections by members and for different methods to apply to different holders or groups of holders;
- Untraced shareholder provisions – these can also provide more flexibility, in particular, to allow use of a tracing agent to find untraced shareholders, to remove the requirement to place notices in newspapers, and to allow the board to use share sale proceeds as it sees fit;
- Change of name – it is useful to allow a change of name by board (instead of shareholder) resolution; and
- Miscellaneous – companies may also wish to consider including a members’ reserve power, making the articles gender neutral and ensuring the notice provisions allow for use of websites.
The experiences of the past year, and the increasing internationalisation of ownership of UK-listed companies, have led to demands for a more modern and flexible approach to shareholder meetings. Historically there has been low attendance at physical AGMs but the events of 2020 have shown that virtual and hybrid meeting are possible, effective and can allow increased involvement and engagement with shareholders. There is consequently a call for the CA 2006 to be clarified to expressly permit virtual meetings, for development of a code of best practice for listed companies for electronic participation at shareholder meetings and for investor bodies to support a more flexible meeting regime. It will be interesting to see how things progress during 2021.
In the meantime, WFW can assist you with planning and implementing your 2021 AGM or shareholder meeting and adopting new provisions to future-proof your articles of association.