Public companies in the UK have been grappling for some time now with whether to hold AGMs and other shareholder meetings virtually, for example, by using software such as Zoom or Lumi.
So-called “hybrid meetings” have been around for some time now. These involve a meeting that takes place in a physical location, but where some of the attendees participate remotely from a different location. This is different from a “virtual meeting”, which takes place purely online.
Although historically we have seen a smattering of virtual meetings, there has been ongoing legal uncertainty over whether these are valid and, in particular, where the “place” of the meeting is if there is no physical element. This uncertainty, among other things, has inhibited the majority of companies from embarking on virtual shareholder meetings.
And now a recent decision by the High Court in relation to meetings of local authorities suggests that this may well be the right approach.
Currently, by virtue of legislation made under the Coronavirus Act 2020, certain local authorities in England can hold meetings pure by electronic means. But that temporary power ends on 7 May 2021, and the Government has signalled it has no intention of legislating to extend it.
In response, Hertfordshire County Council and two representative bodies asked the High Court to confirm that virtual meetings can continue even without these temporary powers. The crux of their argument was that the existing Local Government Act 1972, which governs meetings of local authorities, should be interpreted in such a way as to permit virtual meetings. In particular, words such as “place” and “meeting” should be read as including interaction and participation online.
But no luck. The court said the 1972 Act does not permit virtual local authority meetings for various reasons. The court’s reasoning may well provide an indication of how it would approach virtual shareholder meetings should the matter ever come before it.
- By passing the Coronavirus Act, Parliament had actively intervened to allow virtual meetings. This suggested that virtual meetings were not possible before then and would not be permitted when that intervention expired.
- If legislation is unclear, the courts will interpret it in consistently with the consensus view. The consensus until recently was that local authority meetings must take place in a physical space.
- A requirement to give notice of the time and place of a meeting is inconsistent with the idea that a meeting can take place in multiple locations (such as people’s homes).
- Local authority meetings can have significant legal consequences for third parties and so it is important to have legal certainty about what constitutes presence at a meeting.
These points are problematic for UK companies wishing to hold virtual shareholder meetings. For example, Parliament specifically intervened to allow virtual shareholder meetings when it passed the Corporate Insolvency and Governance Act 2020, and the consensus view until that point was that, without that Act, purely virtual shareholder meetings are, on balance, unlikely to be permitted.
Moreover, like the 1972 Act, the Companies Act 2006 requires notice of the time, date and place of a shareholder meeting. And, although shareholder meetings normally deal with matters between a company and its shareholders, certain decisions (such as changing a company’s constitution, re-registering it or winding it up) can clearly impact third parties.
There are, therefore, obvious parallels.
Of course, a judgment of this kind often gives with one hand where it takes with the other. The High Court noted that local authority meetings have always been relatively small and there has never been reason to think that so many people would attend that in-person meetings would be impracticable. By contrast, shareholder meetings can involve very large numbers of attendees and so organising them to take place in a single physical space might prove impossible.
But we are not sure this is enough. It was precisely this logistical difficulty that paved the way for hybrid meetings, which the court blessed back in 1990. So long as a company can address this issue by holding a hybrid meeting, the ability to hold purely virtual meetings must remain in doubt.
Legal uncertainty is not the only reason companies are holding back on virtual meetings. The fear of technological failure, concerns about effective communication and reservations among some proxy advisers and investor associations are also relevant.
But, for those companies chomping at the bit, this judgment is not helpful. Virtual shareholder meetings are common in other parts of the world and are surely an important step forward if the UK is to remain an attractive place to list and seek capital.
All of this simply adds to need for the Government to look again at this issue and legislate for reform.