With social distancing likely to be required for several months to quell the spread of COVID-19, companies and regulators should be preparing for a disrupted AGM season.
Subsequent to the publication of this article ASIC has released guidelines for meeting upcoming AGM requirements.
The COVID-19 situation poses governance challenges for boards, including how to conduct AGMs in light of the public health consequences, travel restrictions and limits on large gatherings of people.
Public companies (both listed and unlisted) must hold an AGM at least once a calendar year and within 5 months of the end of their financial year. The Corporations Act allows hybrid AGMs (which have both a physical and virtual presence) but does not permit fully virtual AGMs. While ASIC has the power to defer AGMs on an individual application by a company, it cannot do this on a ‘class wide’ basis. It also does not currently have the power under the Corporations Act to enable fully on-line participation for any companies.
Some solutions to this issue include:
- Allowing blanket deferral of AGMs: As an interim step, ASIC could take a blanket ‘no action’ position for an initial period (for example, two months) to allow companies to defer their AGMs where they are due to be held shortly. However, while ASIC may issue "no action" letters, this will not necessarily remove the risk of legal action from third parties. Deferral is also unlikely to be a long-term solution given the COVID-19 situation is expected to last (at least) several more months;
- Allowing virtual meetings: Alternatively, ASIC could take a blanket ‘no action’ position for those entities that wish to conduct fully online meetings. Again, the issue with this approach is that third parties could bring an action, even if ASIC has taken the no action approach.
- Urgent Treasury reform: Treasury seeking urgent law reform to give ASIC the power to offer relief to facilitate blanket deferral of AGMs or move to fully online meetings, or alternatively amending the legislation to permit virtual meetings under the Corporations Act. At this stage, the former option seems a more likely avenue given a permanent move to virtual AGMs would warrant detailed public consultation.
For many companies with a 31 December financial year end, it may be too late to move to a hybrid or virtual AGM at this stage. Where companies proceed with a physical meeting, then they may consider taking a ‘bare bones’ approach to the meeting – for example, taking speeches as read and not serving refreshments, as well as encouraging shareholders to participate via proxy voting or through a livestream of the meeting. Overseas’ directors and executives may need to participate by video-link instead of attending in-person. This is the approach that Banco Santander SA has taken in Spain, for example. To provide additional comfort to Australian companies, ASIC could issue guidance to clarify that in current circumstances, a stripped-back approach to AGMs is sufficient to facilitate reasonable participation by shareholders in the current circumstances.
Relevantly, the Council of Financial Regulators (comprising Treasury, ASIC, APRA, RBA) released a statement on 16 March 2020 in which ASIC and APRA said that they will take a facilitative and constructive approach to compliance with the law, including relief or waivers from regulatory requirements, where warranted. This includes requirements on listed companies associated with secondary capital raisings, AGMs, and audits - the Council's announcement is available here.
For charities, the situation is slightly different as the ACNC does not require unincorporated associations or companies limited by guarantee to hold an AGM. Instead, they must comply with the requirements of ACNC Governance Standard 2, which requires the charity to be accountable to members. This is a flexible, principle-based standard that allows charities to consider how best to be accountable to their members in their particular circumstances. Many charities may hold meetings to comply with this standard, however this may need to be reconsidered in light of COVID-19.
We will continue to monitor developments and speak with the relevant authorities, and update members as the situation unfolds. We encourage organisations to engage with their regulator early to explain any constraints they are facing in organising their meetings.
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