COVID-19 social distancing measures have fast tracked the evolution of the virtual AGM. The new rules governing online member meetings, while temporary, provide a way for boardrooms to leverage technological efficiency for improved shareholder engagement. This new director tool offers practical guidance on the obligations and opportunities of virtual member meetings.
The COVID-19 pandemic, and its associated social distancing measures, has not only disrupted the traditional social interaction of member meetings but also emphasised the limits of physical meetings. On 6 May 2020 the Federal Government made temporary modifications to the Corporations Act 2001 (Cth) (Corporations Act) under the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 1, among which were changes designed to further facilitate the holding of online member meetings.
The AICD welcomes these temporary changes and is calling for wider reform, acknowledging the capacity for technology to improve accountability and efficiency and highlighting the advantage for a modernisation of outdated Corporations Act requirements post-COVID-19. 2
This director tool examines the principal steps to be followed in convening and conducting company meetings with an emphasis on a virtual format and provides practical guidance to ensure they are conducted effectively and support member engagement.
Implications of the pandemic and the e-revolution for meetings
The Treasurer’s temporary modifications have been designed to assist public companies (both listed and unlisted) hold an effective virtual member meeting 3 during the COVID-19 pandemic.
These arrangements, and recent technological developments that support a wide number of dispersed shareholders, are putting pressure on the traditional concept of company meetings and should provide a powerful incentive to explore online meetings in all their forms and look at ways to bring a key element of effective governance and shareholder participation into the 21st century. 4 These efficiency opportunities include the electronic delivery of notice of meetings and associated documentation, electronic lodgement of proxies, electronic voting and the stakeholder engagement at online meetings.
Suggestions for improving the voting process need to address both the mechanism for voting and the underlying incentives for shareholder participation. The new rules provide a way for corporate Australia to improve shareholder and retail member participation in the process of director accountability and engagement in the scrutiny of management.
Pressingly, s 249R of the Corporations Act requires meetings of members to be held at a reasonable time and place. However, in an environment where there are complex and evolving rules about physical proximity, there are serious issues about how to effectively organise member participation at company meetings. Compliance with those measures will make holding of physical meetings difficult, if not illegal. The Australian Securities and Investments Commission’s (ASIC) ‘no action’ position on AGMs 5 lends support to this view and was supported by the Australian Securities Exchange (ASX) 6 and the Business Law Section of the Law Council. 7
Corporations Act amendments to permit virtual general meetings
Under the temporary modifications 8, boards will be able to:
- provide notice of general meetings to members using email;
- satisfy quorum requirements with members attending online; and
- hold virtual general meetings.
The Treasurer has taken steps to place virtual meetings on a more secure legislative footing until 6 November 2020 by relying on powers granted to him (under the new s 1362A) to temporarily modify the operation of the Corporations Act and the Corporations Regulations provisions where it would not be reasonable to comply with the provisions because of the impact of COVID-19, or to facilitate continuation of business, or to mitigate the impact of COVID-19. 9
Subsequently, ASIC has released guidelines for investor meetings using virtual technology 10 to assist companies in meeting their legal requirements while holding ‘virtual’ or ‘hybrid’ meetings. These guidelines apply to all public company AGMs, as well as any other meeting of company or scheme members, such as meetings for member approvals required under the Corporations Act or ASX Listing Rules, or to consider a proposed scheme of arrangement.
The virtual meeting
A virtual meeting is one where all members attend electronically and no physical venue for the meeting is nominated. The new rules apply to any meeting required for the Corporations Act, the Insolvency Practice Rules and the Passport Rules.
The rules permitting a virtual meeting require that:
- you must include in your notice of meeting information about how those entitled to attend can participate in the meeting (including how they can participate in a vote taken at the meeting, and speak at the meeting);
- if the notice has already been sent at least seven days before the meeting is held you must give a fresh notice of the meeting that includes the information referred to above;
- you must treat a duly appointed proxy in the same way as the appointer for the purpose of conducting the meeting; and
- the technologies deployed must give all persons entitled to attend a reasonable opportunity to participate despite them not being physically present.
The provisions go on to specify that:
- everyone attending the meeting are taken for all purposes (for example, a quorum requirement) to be present at the meeting;
- a vote taken at the meeting must be taken on a poll using technologies that give each person the opportunity to participate in the vote in real time and, where practicable, by recording their vote in advance of the meeting;
- people attending the meeting may be permitted to speak (for example, by asking questions); and
- a proxy may be appointed using one or more technologies specified in the notice of the meeting.
The hybrid meeting alternative
Within the context of COVID-19 restrictions on large gatherings, there are essentially two options open to the board: a virtual meeting or, alternatively, a hybrid meeting. Under the hybrid approach in the current environment,11 the chair and other corporate representatives would be ‘live’ at one or more locations but all proceedings would be conducted online. There may be no opportunity for shareholders to be physically present at any of those locations however members would be able to virtually view proceedings, ask questions and vote (as discussed above).
Under the Corporations Act, a company may hold a meeting of shareholders at multiple physical venues linked by technology that gives members as a whole a reasonable opportunity to participate in the meeting. It is important to check whether a company’s constitution has any particular technical or notice requirements in relation to holding meetings at multiple physical venues.
Not all constitutions are permissive when it comes to modern technological approaches to convening and conducting meetings, especially older constitutions. The organisation’s constitution should be carefully reviewed to determine whether hybrid meetings are an option. The AICD has suggested a new replaceable rule in constitutions that give boards the temporary ability to amend their constitution to deal with issues, such as postponing an AGM, holding virtual meetings and similar matters.
As with a virtual meeting a hybrid meeting format will require, among other things, engaging a technology provider, adapting the meeting documentation sent to members and incurring additional associated costs. It is also critical that the technology used to support the hybrid meeting affords members as a whole a reasonable opportunity to participate.
If a hybrid meeting is being considered, the share registry should be contacted to discuss whether it can provide the necessary technical facility and support.
The Australian Shareholders’ Association (ASA) acknowledges that the annual general meeting is an important part of the governance process and cautions that restricting attendance disenfranchises shareholders and severely limits questioning of the board and management. In light of restrictions on large gatherings, the ASA strongly recommends that all companies move to a hybrid AGM that allows participation from all shareholders.12
How to hold a virtual meeting
Despite the fact that the meeting is being conducted using technology, it is still a meeting of members. It is important, therefore, that the meeting operates as an effective forum for member participation in the process of director accountability and engagement in the scrutiny of management and the actions that they propose. The meeting is and should remain a forum to facilitate effective corporate governance.
If a virtual or hybrid meeting is planned, members and intermediaries in the proxy process, and other market participants, should be notified and clear directions as to the logistical details of the meeting should be disclosed, including how members can remotely access, participate in and vote at such a meeting.
Notice and quorum requirements
The new rules deal with notice requirements for the virtual meetings beyond the more general content requirements. They provide that the notice of a meeting, and other information relating to the meeting, may be given electronically. This includes by providing details to an online site where the key notice matters can be viewed or downloaded. Key information will include how the virtual meeting will work for security holders and other key stakeholders such as employees, proxy holders, analysts and members of the press.
A listed entity that has email addresses for some of its members can send those members an email containing the notice and information, or URL. The remaining members, for which the entity does not have an email address, can be sent a letter setting out a URL for viewing the notice and other information.
Outside the formal requirements for electronic delivery, it is worth keeping in mind the general rules regarding what a notice of meeting should include. In general terms the notice should describe:
- the general nature of the meeting’s business and should be clear, concise, effective and not false or misleading;
- what is actually proposed to be done at the meeting in sufficient detail to enable shareholders to make a reasonably informed decision on whether or not to attend (for example, the purposes of any proposed resolution and the consequences of passing such a resolution);
- how to use the technology to observe, vote, make comments and ask questions;
- how the reasonable opportunity to vote, comment and ask questions will be provided to those participating virtually;
- an email address (or other online submission facility) for the service of proxy appointments and proxy appointment authorities;
- the business of the meeting in greater detail if it is unusual or complicated, or there is diversity in the interests of different groups of members;
- the business of the meeting in terms that are intelligible to ordinary members, who are not necessarily skilled in business matters and may scan the document quickly; and
- the nature and extent of any director’s personal interest in the business to be transacted at the meeting, including any consequential benefit to a director flowing from the passing of a proposed resolution.
It is important to communicate clearly with members to keep them informed of any changes to meetings already announced. Once the notice of meeting has been sent (via post or electronic means), additional materials must be sent at least seven days before that meeting date.
A quorum is usually two members, unless the constitution specifies a different requirement. This quorum must be present for the duration of the meeting.13 The new rules provide everyone attending the meeting is taken for all purposes including the quorum requirements, to be present at the meeting.14
The chair occupies a crucial role in the conduct of a meeting, it is the chair’s primary role to ensure that the meeting operates as an effective forum for member participation. The chair exercises procedural control over the meeting and ensures that the business of the meeting takes place efficiently and without undue disruption. Traditionally, the chair needs to be vigilant to ensure that the meeting operates effectively. This includes:
- ensuring compliance with the notice and quorum requirements of the meeting;
- preserving order at the meeting;
- putting to the meeting every matter for which proper notice has been given broadly in conformity to the agenda;
- conducting the proceedings fairly and in accordance with the constitution including making sure that there is clarity around how members can submit questions;
- enforce traditional standards of reasonable debate and discussion;
- act as an intermediary and moderator in allowing members a reasonable opportunity to ask questions and make comments about the management;
- ask and answer questions, including facilitating a Q&A process that is fair, balanced and reasonable and that promotes investor trust and that is transparent as to which questions were not answered;
- ensuring that there is a reasonable opportunity for members to ask questions about or make comments on the management 15 and to ask questions of the auditors or their representative.16
- putting in place internal processes and protocols around questions and transparency;
- demanding and manage the poll and declare the results of the poll when known;
- adjourning a meeting;
- declare the meeting closed, at the conclusion of business; and
- vouch for the correctness of the minutes by signing them.
It is important that items of business be discussed in a regulated way even when it needs to be managed using technology. In general, unless the constitution provides otherwise, members authorised to be present at the meeting have a right to speak. Debate provides an opportunity for members to state their views as a prelude to the meeting deciding by majority vote. This means the chair needs to understand how the virtual meeting operates. The chair should understand how questions are submitted and moderated and should be an active participant in the design phase of the meeting to ensure the process is fair. The technology provider should provide a verification service to confirm that members can ask questions and interact with management through the chair in a way that as nearly as possible replicates the process for a physical meeting.
In virtual and hybrid meetings, therefore, the chair’s procedural function should also consider:
- their role as an online host, the role of technical support and how clear platform participation instruction will be provided;
- a board briefing session to rework standard procedures, manage expectations and test scripts;
- how questions will be monitored, moderated and answered using the chosen technology;
- how online polls will be conducted, and final results shared;
- how presentation slides need to be framed and timed in order to keep a virtual audience engaged, noting some stakeholders may only dial-in for specific agenda items; and
- how to transfer the skill for ‘reading’ a physical room to a virtual environment that may not present the usual face-to-face interaction.
At the outset of the meeting, the chair should explain to members what will happen if common technical issues do arise. In general, if common technical issues result in a significant number of members being unable to reasonably participate, the chair should adjourn the meeting until the problem is remedied. What is significant will vary across organisations, but the general rule of thumb is that if there is a problem effecting five per cent or more of the members, then the chair should consider adjourning the meeting. Since an adjourned meeting is only a continuation of the original meeting, all valid proxies from the original meeting will continue to apply at the adjourned meeting.
If adjournment is scheduled to a date after the deadline for holding the AGM, ASIC relief or a Court extension may be required.
Voting and conducting a poll
Where practicable, voting via online or other means should also be available prior to the meeting. But this should not be the only option.
All voting at a virtual or hybrid meeting should be by a poll rather than a show of hands. Procedures for the taking of a poll (whether on the agenda or ad hoc) will differ depending upon whether the poll occurs immediately or at a later date. The procedure will be governed either by the constitution or by general law, which has a strong underpinning requirement of fairness. Most platforms will have capacity for online voting and this feature should be activated to ensure that members have a meaningful opportunity to hear the arguments being put and vote in response to the arguments made.
The chair should carefully explain the procedure to be followed in the poll and how the electronic voting process will operate. Some members will be unfamiliar with online voting processes and will need to clearly understand the procedure to be followed. As with the physical meeting process, the chair will appoint a person to be responsible for scrutineering and counting of votes.
Whether a physical or a virtual member meeting, the voting process will allow for the verification of the voter, designate the capacity in which the voter is voting (for example, member, proxy, representative or attorney) and the number of shares represented. As usual, a person who is proxy for a number of people may need to identify that it is voting separately for each separate proxy. The chair should check to ensure that all members entitled to vote have voted by asking any members who have been overlooked to identify themselves.
There are different processes for different organisations, sometimes the organisation will postpone the meeting and after completion of the count, the chair announces the result of the poll to the meeting, in other cases the chair may close the meeting and post the results of the poll on the ASX.
The temporary measures also allow for electronic signatures to be attached to relevant electronic versions of documents. Instead of signatories signing the same physical document, the entire process of executing a document can be carried out electronically (for example, using a platform such as DocuSign). This process does require the identification of the signatory and confirmation of their intent to execute the document.
The role of the courts
As a last resort, it is worth keeping in mind that the Corporations Act permits a court to ‘cure’ some defects in the convening and holding of shareholder meetings (s 1322). In particular, a court can also make an order declaring any act, matter or thing purportedly done as valid regardless of a contravention of the Corporations Act or of a relevant constituent document where:
- the act is essentially procedural;
- the people involved acted honestly;
- it is just and equitable to make the order; and
- no substantial injustice has been or is likely to be caused to any person (ss 1332(4)—(6)).
The court can extend the period for doing an act, such as holding a shareholder meeting.
1 J Frydenberg, 2020, Corporations (Coronavirus Economic Response) Determination (No. 1) 2020, 5 May, Federal Register of Legislation, https://www.legislation.gov.au/Details/F2020L00553, (accessed 20 May 2020) (Determination (No. 1)).
2 Australian Institute of Company Directors, 2020, Online AGMs to be allowed for six months to enable social distancing, 6 May, https://aicd.companydirectors.com.au/resources/covid-19/online-agms-to-be-allowed-for-six-months-to-enable-social-distancing, (accessed 20 May 2020).
3 There are two basic categories of members’ meetings: AGMs and extraordinary general meetings (EGMs). A ‘meeting’ traditionally means an assembly of two or more persons. The Corporations Act largely assumes that members attend a physical meeting or appoint a proxy to attend on their behalf.
4 Calls to implement electronic solutions have been made in varying degrees for a number of years and predate the COVID-19 pandemic. Refer to E Boros, 1999, The online corporation: Electronic corporate communications, December, Centre for Corporate Law & Securities Regulation (The University of Melbourne) and Australian Securities and Investments Commission, https://download.asic.gov.au/media/1341272/online.pdf, (accessed 20 May 2020).
5 Australian Securities and Investment Commission, 2020, 20-068MR Guidelines for meeting upcoming AGM and financial reporting requirements, 20 March, [media release], https://asic.gov.au/about-asic/news-centre/find-a-media-release/2020-releases/20-068mr-guidelines-for-meeting-upcoming-agm-and-financial-reporting-requirements/, (accessed 20 May 2020).
6 Australian Securities Exchange, 2020, Listed@ASX Compliance Update, 31 March, https://www.asx.com.au/regulation/compliance/listed-at-asx-compliance-updates.htm, (accessed 20 May 2020).
7 Governance Institute of Australia and the Australasian Investor Relations Association, with the Business Law Section of the Law Council of Australia, 2020, Guidance: Covid-19 and the impact on AGMs, 20 March, https://www.lawcouncil.asn.au/media/media-releases/time-to-think-about-contingency-plans-for-your-next-agm, (accessed 20 May 2020).
8 J Frydenberg, 2020, Making it easier for business to operate during Covid-19, 5 May, [media release], https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/making-it-easier-business-operate-during-covid-19, (accessed 20 May 2020).
9 J Frydenberg, 2020, Corporations (Coronavirus Economic Response) Determination (No. 1) 2020, 5 May, Federal Register of Legislation, https://www.legislation.gov.au/Details/F2020L00553, (accessed 20 May 2020). Some directors of listed entities that typically hold their AGMs after 5 November 2020 (the date that the new rules are automatically repealed) have been concerned that they may not be able to rely on the new rules. However, provided that the notice of meeting has been sent, then the rights and obligations pertaining to the holding of that meeting survive the repeal of the rules. In any event a court can make orders under s 1322 should a substantial injustice occur, and the court holds that the virtual meeting was not validly held.
10 Australian Securities and Investments Commission, 2020, ASIC guidelines for investor meetings using virtual technology, 20 March, https://asic.gov.au/about-asic/news-centre/news-items/asic-guidelines-for-investor-meetings-using-virtual-technology, (accessed 20 May 2020).
11 A hybrid meeting, in the ordinary sense, is held at both a physical and a virtual location with shareholders choosing to attend via either means. COVID-19 restrictions mean that the option for shareholders to attend physically cannot be provided – restricting them to a virtual platform – although the board, company secretary and management may choose to be present (‘live’) in the physical location.
12 Australian Shareholders’ Association, 2020, ASA's formal statement on company general meetings during COVID-19 pandemic, 25 March, [media release], https://www.australianshareholders.com.au/media-releases, (accessed 12 June 2020).
13 Section 249T
14 Determination (No. 1) provision 5(1)(b)
15 Section 250S
16 Section 250T
About the author
Andrew Lumsden MAICD is a partner at Corrs Chambers Westgarth. He specialises in M&A, securities transactions and corporate governance and advises corporate clients on contested and negotiated takeovers, fundraising and corporate and securities law matters. He is the Deputy Chair of the Professional Standards Council.
The Australian Institute of Company Directors is committed to strengthening society through world-class governance. We aim to be the independent and trusted voice of governance, building the capability of a community of leaders for the benefit of society. Our membership includes directors and senior leaders from business, government and the not-for-profit sectors.
For more information: 1300 739 119w: aicd.com.au
This document is part of a Director Tool series published by the Australian Institute of Company Directors. This series has been designed to provide general background information and as a starting point for undertaking a board-related activity. It is not designed to replace a detailed review of the subject matter. The material in this document does not constitute legal, accounting or other professional advice. While reasonable care has been taken in its preparation, the Australian Institute of Company Directors does not make any express or implied representations or warranties as to the completeness, currency, reliability or accuracy of the material in this document. This document should not be used or relied upon as a substitute for professional advice or as a basis for formulating business decisions. To the extent permitted by law, the Australian Institute of Company Directors excludes all liability for any loss or damage arising out of the use of the material in this document. Any links to third-party websites are provided for convenience only and do not represent endorsement, sponsorship or approval of those third parties, or any products and/or services offered by third parties, or any comment on the accuracy or currency of the information included in third party websites. The opinions of those quoted do not necessarily represent the view of the Australian Institute of Company Directors.
Already a member?
Login to view this content