With governments imposing severe restrictions on travel and public gatherings as a result of the COVID-19 pandemic, Australian public companies with upcoming annual general meetings (AGM) will be required to consider whether they can either facilitate a hybrid or virtual AGM or whether they should defer the AGM. Whilst either option may result in the company not complying with its obligations under the Corporations Act 2001 (Cth) (Corporations Act), ASIC has confirmed it will take no action against companies for such non-compliance given the unprecedented COVID-19 situation.
Under the Corporations Act, public companies (both listed and unlisted) must hold an AGM at least once a calendar year and within five months of their financial year end. This means companies with a 31 December balance date must hold an AGM by no later than 31 May. ASIC has released its formal no action on AGMs for companies with a 31 December balance date which is summarised below.
It should be noted that ASIC’s no-action position does not restrict the ability for shareholders to challenge the validity of a meeting or the passing of resolutions, so it is important that companies consider their constitution to determine the most effective way to hold a meeting in the current circumstances.
Two month extension to hold AGM
If a company is unable to hold its AGM by 31 May 2020, ASIC will not take action against a company that fails to comply with this requirement, provided the company holds the AGM by 31 July 2020 or such later date as ASIC advises.
Hybrid or virtual AGM
Some companies may wish to proceed with holding their AGM by 31 May 2020 or during the extension period, using technology to comply with COVID-19 restrictions. This may include a ‘hybrid’ AGM (where there is a physical location and online facilities) or a ‘virtual’ AGM that is conducted solely online.
ASIC’s ‘no-action’ position on virtual AGMs is conditional on the technology providing members as a whole, a reasonable opportunity to participate. In ASIC’s view, this would include:
- members being able to ask questions of the auditor and Management
- voting occurring by a poll rather than a show of hands.
In preparation for holding a ‘hybrid’ or ‘virtual’ AGM, the company will need to consider the following key points
|Should the company hold a ‘hybrid’ or ‘virtual’ AGM?||ASIC considers that hybrid AGMs are permitted under the Corporations Act but there is some doubt as to whether the Corporations Act permits virtual AGMs and as to the validity of resolutions passed at a virtual AGM.
Companies may be more comfortable holding a ‘hybrid’ AGM rather than a ‘virtual’ AGM to mitigate the risk that a shareholder may apply to the Court seeking an order that the meeting was subject to irregularities and was invalid.
Companies will need to ensure their constitution does not restrict meetings being held by way of ‘hybrid’ or ‘virtual’ AGM.
|What AGM facilitating technologies should the Company adopt?||It is a matter for each company to determine what is appropriate in the circumstances, however, consideration will need to be given to whether the following ASIC no action conditions would be satisfied:
There are various technologies that may sufficiently satisfy these conditions either as stand-alone technology or as a combination of technologies e.g. webinar links, voting app and Board encouragement to submit proxies including via registry’s online voting portal.
If the company is in doubt as to the reliability and appropriateness of its technology, then ASIC’s preference is that the Company defer the AGM.
|Does the constitution permit direct voting?||Where the company elects to use technology that enables shareholders to directly submit votes rather than voting by proxy, the company should ensure that its constitution permits this.
Most recently established companies or companies that have recently adopted a new constitution, have provisions in their constitution that permit direct voting by its shareholders.
|For hybrid AGMs, where will the AGM venue be located?||A company is required under the Corporations Act to ensure any meeting of its members is held at a reasonable time and place.
Ordinarily, an Australian company with a register of members predominantly of Australian resident holders would be required to hold its AGM in the appropriate Australian state having regard to the information on its members register.
Given the COVID-19 restrictions and shareholders being hesitant or unable to attend a meeting in person, the company may have other factors to consider in determining the most reasonable place to have its physical venue to hold the AGM. For example, for a company whose business, operations, directors and even key shareholders may be based overseas, it may be reasonable in the circumstances for the Company to have its physical venue overseas.
|Will shareholders attending via technology be counted in quorum?||The company may seek to ensure that its quorum is constituted by persons attending the physical location of the AGM. If this is not possible, the company will need to ensure that its constitution permits (or does not restrict) a person attending by technology to be classified as present and able to be counted in constituting the quorum.
We think there would be a strong argument that shareholders are present (and count towards the quorum) who attend via technology that has proper mechanisms in place to record attendance.
ASIC’s recent release on its no action position for AGMs suggests that regulators are seeking to work with companies to ensure flexible and practical outcomes for companies and their shareholders in these uncertain times.
Maddocks has produced guides to a range of legal issues raised by the coronavirus (COVID-19). You can access these guides here.