Coronavirus - Further guidance on holding AGMs - UK

• United Kingdom

• Coronavirus - Regulatory issues
• Corporate

20-05-2020

BEIS and the FRC issue further updated Q&A on AGMs

The Department for Business, Energy and Industrial Strategy (BEIS) and the Financial Reporting Council (FRC) have published an updated Q&A to provide further assistance to companies in holding their AGMs and other general meetings during the Coronavirus pandemic.

Whilst the UK Government announced on 28 March 2020 that legislation would be forthcoming to address difficulties with holding AGMs during the pandemic, such legislation has not, at the date of this update, been laid before Parliament, and the only commitment to date is that this will be done as soon as Parliamentary time allows.

Previous guidance on AGMs

The Q&A expands on the earlier Q&A jointly issued by BEIS and the FRC on 17 April 2020 to assist companies in planning for their AGMs in the current environment. There has also been guidance and supplemental guidance jointly prepared by ICSA and a number of law firms to help companies address some of the legal and practical challenges around holding AGMs during the pandemic.

However, in the absence of legislation being passed, UK public companies currently remain subject to the requirement to hold their AGM within six months of their accounting reference date (section 336(1), Companies Act 2006). The UK Government has maintained that an extension to the statutory deadline requires primary legislation.

How will the changes regarding AGMs be enacted?

The Q&A confirms that measures will be included in the upcoming Corporate Insolvency and Governance Bill, so are subject to the successful passing of that Bill through Parliament. This legislation will also enact all the amendments to insolvency law that have been announced by the UK Government, such as the temporary suspension of the wrongful trading regime. The Q&A reiterates the commitment to introduce legislation as soon as the Parliamentary timetable allows.

Given that some of the proposed amendments to insolvency law could be more contentious, the time taken for such legislation to be passed into law is uncertain. Whilst the Q&A sets out what the UK Government intends to deliver, any legislation will be subject to the approval of Parliament.

What do the measures say about timing of AGMs?

The Q&A confirms that the Government’s intention is that the measures relating to AGMs and other general meetings will apply retrospectively from 26 March 2020. As well as companies, they will also apply to mutual societies and charitable incorporated organisations.

Companies and other bodies which have postponed their AGMs since 26 March 2020 will be given until the end of September 2020 to hold those meetings. In doing so, companies can take advantage of the additional flexibilities that the proposed legislation will provide as to the manner in which meetings can be held.

The UK Government will have the power to make further extensions for a limited period beyond 30 September 2020 if necessary.

What else does the latest Q&A cover?

The Q&A gives further insight into what we can expect the legislation to cover with regards to AGMs and other general meetings once enacted. The headline points include:

Notice of AGM

Notice of the AGM will still need to be given to shareholders if the legislation has not been passed by the latest notice period date. Companies could then delay the meeting once legally possible to do so. Shareholders should be kept informed of the company’s plans in that regard.

Retrospective effect

Companies that hold their AGMs in line with the proposed measures before the legislation is passed are effectively on risk that it is not passed with retrospective effect and in the way that the Government intends. There is no guarantee, therefore, that votes on resolutions taken in accordance with the new legislation before it is passed would be valid.

Provisions of the Articles

The Q&A indicates that companies will temporarily be able to override the provisions of their Articles or other constitutional documents with regard to the holding of meetings. This suggests, for example, that it is likely that the holding of hybrid or even wholly virtual AGMs may be permitted in some form even where the Articles do not currently provide for this. In the longer term, it is suggested that companies should review their constitutional documents to determine whether additional flexibility is necessary.

For companies that have provisions in their Articles that require them to hold an AGM by a specified date, the Q&A states that they will benefit from the same grace period.

Shareholder engagement

The Q&A makes a number of suggestions as to how companies can engage with their shareholders in the absence of the AGM being held in the usual way. Companies should make reasonable efforts to provide shareholders with the opportunity to engage with, and challenge, the board where the articles of association require a physical meeting but where one cannot be held. Shareholders or members should be encouraged to send in their questions prior to the meeting. Where possible these should be dealt with at, or prior to the meeting or failing that, as soon as possible once the meeting has ended. Processes and timelines should be designed so that as wide a range of members as reasonably practicable can engage, exercise their voting rights, and their feedback can be taken into account.

The FRC and BEIS intend to publish further guidance on best practice for directors when balancing the safeguarding of shareholders and members with the need to provide them with the best level and quality of engagement they can reasonably expect in the current climate.

Other general meetings

The Q&A confirms it is the intention that the same flexibilities will apply to general meetings other than AGMs, for example, a general meeting required in connection with a fundraising, and that these flexibilities will be available for general meetings during the period until the end of September 2020. Presumably any extension to the AGM measures would therefore apply equally.

Consequential amendments

The Q&A suggests that, as expected, there will be no automatic renewal or extension of authorities taken at last year’s AGM.

It is common practice to pass resolutions at an AGM (eg allotment of shares, disapplication of pre-emption rights and share buy-back authorities) which are limited in time to the earlier of 15 months from the date of the meeting or the next AGM. Companies would therefore need to bear in mind that their current authorities may expire before their 2020 AGM if they were to consider delaying their AGM this year once these proposed measures are enacted. This may be important if the company is planning a fund raising and may need to raise funds at short notice.

What does this mean for companies?

The revised Q&A expands on the original Q&A published on 17 April, and is linked to the proposed legislation and illustrates the direction that the UK Government intends this to take. Whilst it seems likely that the new legislation will be published in Parliament in the near future, it cannot be said with certainty when this legislation will complete the Parliamentary process and become law. This may not be a quick process, given that it will also deal with changes to insolvency laws. There is therefore some remaining uncertainty for companies that have not yet issued their AGM notice or are considering postponing their AGM beyond the six month period following their year end.

Useful links 

FRC press release

FRC Q&A (14 May 2020)

UK Government press release (updated 14 May)