How to hold AGMs and other important meetings at a safe social distance to provide members as a whole a reasonable opportunity of participating – this is both the answer and the challenge of meeting compliance in a COVID-19 environment
In times of a health, as well as an economic crisis, it is even more essential for company members to be kept informed about the material information affecting their investments and have confidence in the management and the safety of their investments. How do you do that effectively with meeting restrictions and social distancing requirements? Heading into the AGM season this issue cannot be avoided.
While ASIC has released guidelines and temporary changes have been made to the Corporations Act 2001 (Cth) (Act) to accommodate companies as they arrange their AGMs for 2020, these changes may affect each company differently.
What should directors and company secretaries be doing?
What are the standard pre-COVID-19 requirements?
Before looking at any changes as a result of COVID-19, lets remind ourselves of some basic meeting requirements.
Public companies are required under the Act to hold an AGM at least once per year. It must be held within five months after the end of its financial year. For companies that have 30 June as their financial year end, 30 November will be the deadline for those companies to hold their AGM unless ASIC grants the company an extension. Should a company proceed to hold its AGM in the current environment or seek an extension?
An extension will only be granted if ASIC determines that it is necessary for circumstances out of the company’s control or is in the interests of the company’s members. Additionally, notice of any meeting (including an AGM or other general meetings) must be given:
at least 21 days before the meeting, if the company is unlisted; or
at least 28 days before the meeting, if the company is listed.
The notice may be sent by post or electronic means (if nominated by the member). The notice must include:
the place, date and time of the meeting
any technology that can be used give the members as a whole a reasonable opportunity to participate
the general nature of the meeting’s business
special resolutions to be proposed
the resolution on the directors’ remuneration report if the company is listed.
There may also be additional requirements under the constitution, which the company should be become familiar with.
A private company is not required under the Act to hold an AGM but may be required under the constitution to hold an AGM or set out a number of meetings for the board or members.
What has changed?
On 20 March 2020, ASIC adopted a ‘no-action’ position for public companies with a financial year end of 31 December 2019. This meant no action would be taken by ASIC against companies if they do not hold their AGM by 31 May 2020 but hold them instead by the end of July.
ASIC has subsequently announced on 13 May 2020 that it will extend their ‘no-action’ position to public companies with a financial year ending between 31 December 2019 and 7 July 2020. This allows public companies to hold their AGM within seven months after the end of their financial year, instead of within five months.
It is recommended that if companies decide to delay their AGM, they refrain from holding them during the peak holiday period in late December 2020 and early January 2021. ASIC additionally points out that their ‘no action’ stance will not preclude third parties from taking legal action or prevent a court from holding that particular conduct infringes the relevant legislation.
Hybrid and Virtual Meeting
On 6 May 2020, the Treasurer issued the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020. This determination amends the Act for six months from 6 May 2020 to facilitate meetings (including AGMs) being held using one or more technologies (virtual technology) that give all persons entitled to attend a reasonable opportunity to participate without being physically present in the same place. The amendments are scheduled to be repealed on 6 November 2020.
ASIC considers that hybrid AGMs are permitted under the Act but entities need to check whether their constitution restricts meetings being held in this way. There is some doubt as to whether the Act permits virtual AGMs and there may also be doubt as to the validity of resolutions passed at a virtual AGM.
ASIC has indicated that the “take no action position” on non-compliance with the Act may restrict the holding of virtual AGMs where an entity elects to hold a virtual AGM:
- in order to comply with the statutory 31 May 2020 deadline; or
- during the extension period,
if the technology does not provide members as a whole a reasonable opportunity to participate.
What should you do NOW to prepare and minimise the risk of non-compliance or disaffecting investors?
In brief, you need to be prepared and ensure notices address the issues that the new norm needs to be addressed.
Reviewing the constitution: Private and public company secretaries and /or directors need to review their constitution to check that their requirements for holding meetings. These requirements include when are they meant to hold meetings and how they may use technology to hold those meetings.
Using technology: Companies must consider, in advance, whether technology will provide members as a whole reasonable opportunity to participate in the meeting. In doing so, companies should:
communicate with members
determine whether the technology is reliable and available to members
consider how members can participate and cast votes
ensure effective security and privacy protection.
In relation to notices, if it is decided that a virtual or hybrid meeting is the most appropriate option, the company will need to ensure their notice to members includes:
how to use the technology to observe, vote, make comments and ask questions; and
how the reasonable opportunity to vote, comment and ask questions will be provided to those participating virtually.
Conduct rehearsals of the meetings and if there are technical issues on the day of the meeting, have a plan B.
- Postponing the AGM: While postponing the meeting may be inconvenient, it may be the most appropriate option if members cannot participate either in person or online and risk not complying with the Act. While ASIC has adopted a ‘no-action’ position, the company may still apply to ASIC for an extension. Such an application should be submitted as early as possible.
There is a lot to consider, plan and prepare for when arranging a meeting in the era of COVID-19 and social distancing. We can assist with this process. The earlier the planning and preparation begins the safer companies and their members will be from health, wealth and compliance perspectives.
Please contact us on (02) 8281 7863 or [email protected] if you would like to discuss any issues raised in this article or need help to get started.”
Authors: Norman Donato & Lucinda Borg