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Coronavirus – UK Investment Trusts: How to handle AGMs during the COVID-19 pandemic – UK

  • United Kingdom
  • Coronavirus - Country overview
  • Financial services and markets regulation
  • Financial services - Asset managers and funds

24-03-2020

The restrictive measures on the movement of people to slow the spread of COVID-19 pose specific legal issues for UK Investment Trusts, which are just entering into the reporting and Annual General Meeting (AGM) season.  AGMs have traditionally been public meetings held at physical venues.  With this in mind and in light of the clear health concerns such gatherings might pose, many Investment Trusts are looking to postpone their 2020 AGM until the crisis has passed.

However, as public limited companies (PLCs), holding an AGM is a legal requirement for listed Investment Trusts and there are statutory limits on their ability to delay or re-schedule these gatherings.  These restrictions – and the individual contractual requirements that apply in each case – will need to be taken into account before deciding on the right course of action.

How can Investment Trusts balance these competing demands? In this briefing we consider whether the AGM can be delayed, whether it should be delayed and how Investment Trusts should proceed if an extended delay isn’t feasible.  For a look at how these issues might affect companies more generally see our UK-wide briefing, Coronavirus - Impact on AGMs and other matters for traded companies – UK

What issues face Investment Trusts seeking to re-schedule their 2020 AGM?

Under the Companies Act 2006 (CA 2006), a PLC must hold its AGM within six months of its financial year end.  Many Investment Trusts have a 31 December year end, which means that they may be forced to hold their AGM by 30 June 2020.  Directors of companies that fail to comply with this requirement may find themselves subject to fines.  This hard deadline leaves many with limited room for manoeuvre. 

It is also important to note the further requirement that a ‘quoted’ company (as defined by CA 2006) must pass a shareholder resolution to approve its remuneration report.  Many companies are set to table their remuneration policy at the 2020 AGM, which will further complicates any revised timetable.

It is common practice to pass resolutions at an AGM (e.g. allotment of shares and disapplication of pre-emption rights) which are limited in time to the earlier of 15 months from the date of the meeting or the next AGM. Consequently, current authorities may expire before their 2020 AGM if companies seek a long delay.  The loss of these authorities may severely hamstring attempts to continue operating effectively and Investment Trusts should carefully review the wording of any resolutions passed at the 2019 AGM to see how these changes might affect their day-to day business.  

Delaying, postponing or adjourning the AGM

With all these considerations in mind, it will not be possible or practicable to reschedule the AGM in all circumstances.  However, this approach may still be advisable if an Investment Trust needs more time to put appropriate contingency measures in place. If notice of the AGM has not yet been issued, Investment Trusts may wish to delay issuing notice to ensure their final communication to shareholders takes account of any upcoming developments. However, this will not be an option for everyone and Investment Trusts that have already issued notice will need to find other ways of pushing back the scheduled date. 

How the extra time is secured will depend on the specific provisions set out in an Investment Trust’s Articles of Association (the Articles”).  Generally the Articles will permit delay or postponement of the AGM under specific circumstances, but it may be necessary to adjourn the meeting if the Investment Trust has already issued notice of an AGM and does not have postponement provisions in its Articles.  Some Investment Trusts may be required to achieve a quorum before adjourning an opened meeting (we discuss quorum considerations below).  In such cases a physical venue will still be required, however, that venue could feasibly be very small and Investment Trusts may wish to cancel any larger venues that have already been hired where this can be cancelled without penalty on Force Majeure or other grounds.

If the AGM is re-scheduled, the final dividend payment to shareholders may be delayed.  Under the circumstances, it seems unlikely that shareholders will be able to insist on a final dividend resolution proposed before the outbreak of the crisis, provided the Directors are no longer recommending it.  However, if the Investment Trust wishes to proceed with regular dividend payments, the amount originally intended to be paid as a final dividend could be paid as a further interim dividend, provided the Investment Trust is in full compliance with all accounting requirements relating to availability of distributable profits.

If it is possible to adjourn, postpone or delay the AGM, close attention should be payed to the notice requirements listed in the Articles (if any).  The statement of the total number of shares and voting rights included in the Investment Trust’s report and accounts may need updating if a notice of adjournment is issued.  Whatever is decided, shareholders should be kept up to date with prompt and clear announcements.  The Investment Trust’s website should also be updated with current information as it becomes available.

Holding an AGM during a Pandemic

With the future uncertain, it may ultimately prove necessary for Investment Trusts to hold AGMs during the pandemic.  If this is the case, Investment Trusts might want to consider holding a virtual AGM but there is some doubt as to whether this would constitute a validly convened meeting under CA 2006. 

Rather than holding completely virtual AGMs, Investment Trusts may elect to hold so-called ‘hybrid AGMs’, where this is permitted under their Articles.  Under this hybrid approach a public meeting is held, but electric participation is encouraged where possible, and the proceedings of the meeting can be ‘streamed’ online.  A physical venue will still need to be secured however, and the ability of the venue to host the meeting will need to be continually re-assessed in light of changing circumstances.

Safety measures, such as restricting the number of non-shareholder attendees and dispensing with customary refreshments for the physical meeting should be considered.  With an eye to possible disruption of the postal service, it may also be prudent to move to electronic voting where possible.

Investment Trusts that wish to hold a ‘hybrid’ AGM will need to carefully check their Articles to ensure that they are permitted to do so.  Some encouragement may be taken from the market bulletin recently released by the Financial Conduct Authority (FCA), in which the FCA recognises that at this difficult time, the effective exercise of the rights of shareholders may need to involve the use of virtual methods.  

Achieving quorum

Achieving a quorum at an AGM may be a particular challenge against the backdrop of COVID-19-related travel and gathering restrictions.  To mitigate these concerns (and where it is possible to do so under their Articles) Investment Trusts should consider taking the following steps:

  • encouraging shareholders to appoint the Chair as their proxy (either electronically or by post);
  • arranging for members, proxies or representatives to attend and participate simultaneously in various locations – by fixing the level of attendance at each venue, the Investment Trust may be able to avoid any restrictions on large gatherings and will have alternative venues available should any one operator run into difficulties; and
  • if representatives of the company hold shares, their holdings and attendance may prove crucial to reaching quorum – it should be clarified whether representatives actually hold these share directly in their own names or whether they need to obtain voting authority (a form of proxy or appointment as a corporate representative) from the registered holder of the shares in question.

Together these measures should ensure quorum and allow the AGM to proceed despite inclement conditions.

Conclusion

Keeping businesses running smoothly during the COVID-19 outbreak is likely to prove challenging.  However, with proper contingency planning, flexibility and clear communication Investment Trusts should be able to hold their 2020 AGM without breaching statutory provisions contractual obligations, or endangering their employees and shareholders.  Of course, this is a fast moving situation and plans will need to adapt  quickly in response to Government advice and emergency legislation.  Reviewing the relevant provisions in their Articles should be a first priority for Investment Trusts, as these will determine how flexible Investment Trusts can be in the weeks and months ahead.

How Eversheds Sutherland can help

The Eversheds Sutherland Financial Services team is one of the largest international teams focusing on asset management and financial services product development and regulation in the sector. Our dedicated team provides strategic advice, structuring of investment products and product knowledge as well as general legal and tax advice. Our team has been at the forefront of regulatory interpretation and product development for the fund management industry since the 1980s. We advise on all types of fund structures and prepare all documentation necessary to achieve a successful fund launch.