Public companies are rapidly having to deal with the difficulty of holding their annual general meeting (AGM) under the social distancing measures introduced in the wake of the Covid-19 pandemic.
Under the Companies Act, public companies must hold an AGM within six months of their financial year-end. Failure to do so is an offence. But this is now looking difficult for many companies. Venue closures, restrictions on non-essential travel, the ban on public gatherings, personnel shortages and the risk of infection are all coming together to make physical AGMs unattractive and difficult.
The Chartered Governance Institute has published guidance and supplementary guidance with a range of suggestions, including postponing or adjourning the AGM. But, to some degree, this merely delays the inevitable. The six-month deadline remains.
This has created three particular concerns:
- Companies invariably use their AGM to lay their annual reports and accounts (a statutory requirement). How will they do this now? The FCA, Companies House and AIM Regulation have announced extensions for publishing accounts, but that flexibility is not useful if a company has only six months to convene its AGM.
- Public companies generally seek shareholder authority at their AGM to allot shares (including non-pre-emptively) during the following year, normally within allowances set by the Investment Association and the Pre-emption Group. Unless renewed, these authorities will likely expire after financial year-end, potentially leaving issuers unable to access capital rapidly from the markets.
- Many companies will need to submit their directors’ remuneration policy to a shareholder vote. 2020 is a so-called “policy year”, when a large number of companies are approaching the three-yearly requirement for a vote. What happens if they can’t do this? Without a new policy, a company’s existing policy will continue to apply. But will that policy still be appropriate given the current economic circumstances? Our colleagues will be publishing more on this shortly.
The Government has said it intends to legislate to give companies more flexibility when holding an AGM, including by virtual means, but will this legislation come quickly enough for some?
So what to do? We see three main alternatives:
- Ride it out. One option is to postpone the AGM until the new legislation comes in. It seems highly unlikely in the circumstances that a company would face action for not holding its AGM within the six-month limit and, if the company is buoyant, the board may feel it can continue for a short period without quick access to equity financing. This would provide more time to finalise the accounts and (if necessary) draw up a more suitable remuneration policy.
- Business as usual. A company could hold its AGM as planned. This may require a hybrid AGM, with a very small physical meeting supported by electronic participation and shareholder proxies. This may work for companies in sectors less affected by the pandemic, such as groceries, which may not need to delay their financials.
- Split meetings? A company doesn’t have to lay its accounts at its AGM. It merely needs to do so before its filing deadline. One option might be to hold the AGM within the six months but lay the accounts at a separate meeting on a later date. AGM business might be kept “functional”, with shareholder authorities renewed for a short “bridging” period, within tighter limits than usual, to maintain access to capital in the meantime. This is unorthodox but would keep a company compliant.
Companies will also need to look at their provisions for director rotation and re-election and political expenditure to see whether they need to deal with this sooner rather than later.