The COVID-19 public health situation presents a broad range of challenges for public companies. The outbreak will have a negative impact on the global economies, potentially leading to the lowest GDP growth in Australia since 1991-92. On Wednesday, 18 March 2020 the Prime Minister, Mr Scott Morrison, announced that non-essential gatherings of more than 500 people outdoors, and 100 people indoors, have been banned effective immediately.
An immediate governance issue for public companies is what to do in relation to forthcoming general meetings. In this context, some points to consider are:
Requirement for AGMs: There is an immediate issue for companies with a 31 December 2020 balance date, as they are required under the Corporations Act to hold their AGMs within 5 months after the end of their financial years (i.e., by the end of May 2020). ASIC has power to extend this period on a case by-case basis only. We understand that ASIC is considering whether to make a general policy pronouncement to the effect that it will not take any action in relation to companies currently facing the problem of having to hold an AGM, but strictly speaking this will not fix the problem for companies, and it will not fix any breach of the company's constitution that may result from not holding the AGM in accordance with the Corporations Act.
Extending the 5 month period: Consequently, a company must apply for an extension before the expiry of the 5 month period. Not unexpectedly, ASIC's existing published policy on when it may grant extensions (Regulatory Guide 44) does not deal specifically with extensions for public health reasons. However, it does say that ASIC may exercise its discretion where it is persuaded that the inability of the company to hold its AGM on time is due to factors beyond its control, or that it is in the interests of the shareholders to do so. We understand that ASIC has already received a number of applications. One would hope ASIC will readily grant extensions in the current environment.
Bans on large gatherings: The rules banning large gatherings are evolving, and there remains the possibility of further tightening. The details of the bans vary as between the States. Although there will undoubtedly be sensible reluctance to hold physical shareholder meetings, it remains an open question as to whether the bans prohibit shareholder meetings. There is legal uncertainty, and it would be helpful if ASIC and the Federal Government were to clarify the position (one way or the other) as a priority.
Postponing general meetings: Companies who have called general meetings for coming weeks, may wish to examine their constitutions to ascertain whether the Board has power to extend or postpone the AGM. Generally, once a general meeting is called, the meeting cannot be postponed or cancelled, unless the constitution of the company allows. Some companies have constitutional provisions which permit postponement or cancellation, but as noted, there are legal requirements in relation to the timing of AGMs.
Adjournment: Companies who have called general meetings may also wish to consider whether it is appropriate to open the meeting and then immediately adjourn it. Some constitutions allow the Chairman of the meeting to make this decision unilaterally, but otherwise the consent of the meeting would be required.
"Hybrid meetings": Companies should also examine their constitutions to ascertain whether they may hold "hybrid meetings", instead of physical meetings. In a hybrid meeting, shareholders would have the ability to attend the meeting through an online platform using their own unique shareholder identifier, allowing them to be present, vote and ask questions. If they can do so, companies may then wish to explore the practicalities with their share registrars – we understand a number of the registrars offer facilities for hybrid meetings (although take up has been low to date).
Urgent law reform: However, even for a hybrid meeting, it is still necessary for a physical place to be specified in the notice of meeting and for shareholders to attend and vote if they wish, so fully online "virtual" meetings (i.e., without a place of meeting) are not possible. We understand that Treasury is considering urgent law reform to permit "virtual" meetings. While there would no doubt be challenges for a Chair in conducting a "virtual" meeting, permitting companies to have fully online "virtual" general meetings would seem to be sensible in the current environment.
Multiple venues: Companies could use multiple venues (or, subject to the large gathering bans, multiple rooms at the one venue) to limit numbers in any one venue (or room). The Corporations Act permits companies to hold general meetings at two or more venues using any technology that gives shareholders as a whole a reasonable opportunity to participate. However, the places for the meeting must be specified in the notice of meeting, and having multiple venues (or rooms) would presumably increase costs associated with holding the general meeting.
Webcast: Companies may also wish to webcast their meetings. Although webcasting does not enable shareholders who do not attend the venue to participate in the meeting (i.e., speak and vote), shareholders have the option to vote by proxy. This would then enable shareholders to view the proceedings online. Many larger companies have webcast their meetings.
Encourage proxy voting and non attendance: In communications to shareholders, companies may wish to encourage shareholders not to attend for public health reasons and instead to vote by proxy (or electronically, if that is an available option). Shareholders are generally entitled to attend the place at which the general meeting is to be held and cannot be excluded (except for disruption, etc.) without risking the validity of the meeting, and of course the meeting must be quorate to be a valid meeting.
Authors: John Sartori, Partner; Sarah Dulhunty, Partner; and Bruce Macdonald, Partner.
