COVID-19: Countrywide lockdowns make AGM attendance tricky - but what are the rules?
“The availability of proxy voting and — subject to special rules in the articles — online attendance and online voting does not relieve public companies from holding physical shareholder meetings.” Boris Klasener, partner at global law firm K&L Gates.
· Lockdowns disrupt in-person attendance
· Postponed or adjourned meetings bring complications
· Video conferencing and other tech to be put to the test
· Firms urged to note differences between state and federal laws
Lockdowns will make things more complicated for leaders preparing for their AGMs, but there are a number of options, depending on which country you are in.
The rules around re/insurers being able to change the dates and attendance requirements of their annual general meeting (AGM) in response to COVID-19 is in the spotlight as a number of firms scramble to deal with widespread lockdowns.
SCOR initially brought its AGM forward to April 17, 2020, in the guise of a combined general shareholders’ meeting, drawing the ire of campaigning investor CIAM. CIAM’s complaint that the move was “unjustified” quickly became null and void as the French reinsurer moved the date again, now postponing it to June 30, 2020.
SCOR is not the only industry firm making changes to 2020 AGM arrangements.
Health and transport concerns has prompted AXA to hold its AGM without the physical attendance of shareholders. Commenting on the April 30 meeting plans, Thomas Buberl, chief executive of AXA, said: “Despite this constraint, I would encourage shareholders to vote massively by correspondence and to send any written questions they may have in advance of the meeting."
Swiss Re and Zurich Insurance Group have also asked shareholders not to attend their AGMs in person after the Swiss Federal Council imposed restrictions on public gatherings. Michel Liès, chairman at Zurich, said: “We regret not having the opportunity to interact with our shareholders directly, but extraordinary times require extraordinary measures and we will play our part to protect public health.”
While, shareholders in Italy’s major insurer Generali will also be unable to attend the company’s 20202 AGM on April 27, although video conferencing has been suggested as an alternative.
Financial regulations in Germany require companies to hold their shareholder meetings in person, prompting Munich Re to limit the number of AGM attendees on April 29 rather than putting a complete block on attendance. The reinsurer explained: "The most reasonable course of action would be to hold the AGM as a purely online event with no physical attendees. Unfortunately, this is not possible by law.”
Argo Group, based in Bermuda, will use virtual technology to communicate with shareholders during its AGM on April 16 AGM.
With a variety of solutions already in play, what are the rules on AGM date shifts and other changes to the usual routine in different jurisdictions?
UK
The UK government has imposed a nationwide lockdown to stem the spread of COVID-19, with implications for the AGM season, which runs from March to May.
International legal practice Osborne Clarke has said company boards should consider whether it would make sense to hold the company’s AGM later in the year, when, everyone hopes, the threat from coronavirus has reduced.
The firm said that under the Companies Act 2006, a public-limited company must hold its AGM within six months of the end of its financial year. This gives companies with a 31 December year end until 30 June 2020 to hold an AGM. However, this still may not be long enough as the deputy chief medical officer for England Dr Jenny Harries said it could be six months or longer before the country “can get back to normal", during a Downing Street press conference.
Osborne Clarke said it is generally possible for a board to decide to postpone a meeting, although this will depend on the terms of the articles of association of the company.
“If postponement is not possible, it is likely that a company’s articles will allow adjournment of a meeting – which will have the same practical effect although it will require the physical meeting to be held and immediately adjourned. Listed company articles usually allow meetings to be adjourned either by the chair with the consent of a quorate meeting or by the chair unilaterally if no quorum is present,” the law firm said.
It also advised that listed companies in the UK typically have “very modest quorum requirements” for shareholder meetings (usually two members present in person or by proxy), which can usually be satisfied by the attendance of director shareholders. This offers a degree of flexibility to adjourn an AGM.
Osborne Clarke advised companies to consider giving shareholders the ability to participate in meetings by digital means, video conferencing for example.
“The Companies Act 2006 allows for the holding of meetings by electronic means. In addition, the articles of association of many listed companies have been amended in recent years to expressly allow these meetings and provide further details on how such meetings can be run.
“Under English law it is 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.”
Osborne Clarke said that the ability to hold a wholly virtual meeting (or a ‘hybrid’ meeting where there is a physical meeting with the ability for shareholders to participate by electronic means) depends on the company’s articles.
Companies running an entirely virtual meeting or a hybrid meeting will need to put in place shareholder voting and identification procedures. Of course, shareholders have always been able to register their vote without attending the meeting itself and by appointing a proxy. Shareholders should ensure that they vote in advance of the meeting by submitting their proxies even if they currently intend to attend, in case their personal circumstances change and they are not able to attend in person.
France
The strict lockdown brought in by the French authorities has made AGM attendance all but impossible.
In response, regulator Autorité des Marchés Financiers (AMF) published COVID-19 guidance for general meetings of listed companies.
It reminded shareholders that they do not need to be physically present to vote at general meetings.
“Any shareholder may also submit written questions on subjects that fall within the scope of the general meeting in accordance with Article L. 225-108 of the French Commercial Code.”
It also recommended that listed issuers broadcast their general meetings on their websites and use all channels to inform shareholders to encourage remote voting.
Voting remotely can be done in writing using a voting form either on paper or electronically (if the company’s articles of association allow the latter case).
“Issuers must take remote voting forms into account if they receive them at least three days before the date of the general meeting, except where the articles of association provide for a shorter period. Electronic voting forms may be sent to the issuer up to the day before the general meeting. They must be received latest by 3 pm,” the AMF said.
Shareholders can still give a proxy to a person of their choice or to the issuer without indicating a proxyholder (blank proxy).
The regulator also said: “In companies with shares traded on a regulated market, postal voting and proxy voting forms may be downloaded from the company’s website at the latest on the 21st day prior to the general meeting, except in cases where the issuer sends these forms to all its shareholders.”
Votes can also be cast online using a secure voting platform, if the issuer’s articles of association allow this and if this voting procedure is provided for by the issuer concerned.
However, shareholders of companies whose shares are not admitted for trading on a regulated market “may be required to attend the general meeting in this way, if the articles of association allow this”.
Germany
Germany’s regulator, the Federal Financial Supervisory Authority, better known as BaFin, said it is working with the European Central Bank and the European Supervisory Authorities to monitor the coronavirus situation.
However, the ban on public gatherings at state and municipal levels in Germany will affect shareholder meetings of public and private companies. At the time of publication, the country was not expected to lift restrictions on meetings before April 20, 2020.
Boris Klasener, partner at global law firm K&L Gates, said: “German companies are required by law to hold their shareholder meetings in person. This statutory requirement may be waived by unanimous shareholder approval, which is an option only for closely held companies.
“The availability of proxy voting and — subject to special rules in the articles — online attendance and online voting does not relieve public companies from holding physical shareholder meetings. This will not be possible as long as severe restrictions on public gatherings are in place.”
Postponement of AGMs are expected to delay shareholder resolutions, which can have a significant impact, for example, if those resolutions are required to effect capital or structural measures or change the composition of the supervisory board.
Klasener added that because German companies pay annual dividends to shareholders “only after the annual general meeting has taken place, dividend payment dates will be postponed as well”.
United States
In the US, the Securities and Exchange Commission (SEC) has put out special guidance on conducting AGMs during the COVID-19 disruption.
For companies that wish to change the date, time or location, the SEC “will take the position that an issuer that has already mailed and filed its definitive proxy materials can notify shareholders of a change in the date, time, or location of its annual meeting without mailing additional soliciting materials or amending its proxy materials”.
But the company will be required to issue a press release announcing the change; file the announcement as definitive additional soliciting material on EDGAR; and take all reasonable steps necessary to inform other intermediaries in the proxy process (such as any proxy service provider) and other relevant market participants (such as the appropriate national securities exchanges).
“We expect issuers to take these actions promptly after making a decision to change the date, time, or location of the meeting and sufficiently in advance of the meeting so the market is alerted to the change in a timely manner.”
Firms that have not sent out and filed their definitive proxy materials, were told to consider whether to include disclosures regarding the possibility that the date, time, or location of the annual meeting will change due to COVID-19.
Virtual meetings are ”governed by state law, where permitted, and the issuer’s governing documents”, the guidance said.
“Robust disclosures that facilitate informed shareholder voting are just as important for a ‘virtual’ meeting or ‘hybrid’ meeting (an in-person meeting that also permits shareholder participation through electronic means) as they are for an in-person meeting.”
For virtual meetings the regulator said companies must notify shareholders, intermediaries in the proxy process, and other market participants of such plans in a timely manner and disclose clear directions about how the ‘virtual’ or ‘hybrid’ meeting will work. This includes how shareholders can remotely access, participate in, and vote at such meetings.
SEC said that issuers that have not filed and delivered definitive proxy materials yet should include this information in the definitive proxy statement and other soliciting materials. But issuers that have already filed and mailed their definitive proxy materials would not need to mail additional soliciting materials (including new proxy cards) solely for the purpose of switching to a ‘virtual’ or ‘hybrid’ meeting..
For meetings that are being held virtually, the SEC has outlined a workaround to ensure that shareholders or their representatives can “appear and present proposals” at an AGM, as per Exchange Act Rule 14a-8(h). It has encouraged companies, to the extent feasible under state law, to enable shareholders to present proposals through alternative means, for example by phone.
However, it added: “Furthermore, to the extent a shareholder proponent or representative is not able to attend the annual meeting and present the proposal due to the inability to travel or other hardships related to COVID-19, the staff [regulators] would consider this to be ‘good cause’ under Rule 14a-8(h) should issuers assert Rule 14a-8(h)(3) as a basis to exclude a proposal submitted by the shareholder proponent for any meetings held in the following two calendar years.”
The guidance stated: “We remind all parties to consider their own specific facts and circumstances in determining the need for any additional measures beyond the actions discussed below. We strongly encourage all parties and intermediaries involved in the proxy voting process – including broker-dealers, transfer agents, and proxy service providers – to be flexible and work collaboratively with one another.
“We expect all market participants to cooperate with one another to facilitate issuers’ obligations to hold annual meetings and disseminate timely, accurate, and clear proxy disclosures under the federal securities laws as well as to allow shareholders to exercise their voting rights under state law.”
