The novel coronavirus (COVID-19) is having a marked impact on business and the economy. In an effort to contain its spread, the Federal Government has been introducing significant restrictions on large gatherings and non-essential travel. On 18 March, the Government banned all non-essential indoor gatherings of more than 100 people. On 24 March this was tightened to a total ban on international travel (subject to limited exceptions), and encouraged all Australians to remain home “unless absolutely necessary to go out”.
As such, the ability of companies to hold a shareholder meeting will invariably be impacted.
In light of these difficulties, ASIC has announced that for entities with 31 December balance dates, ASIC will take a 2 month ‘no-action’ position to allow them to postpone their AGMs until the end of July. For those companies that wish to proceed with holding their AGMs during this period, ASIC supports the use of technology to comply with the COVID-19 restrictions and will take a ‘no-action’ position on virtual AGMs, so long as the technology provides shareholders as a whole a reasonable opportunity to participate. We have set out below some key considerations and practical tips for companies that wish to take this path, including the procedures and safeguards that should be put in place to ensure that these hybrid meetings and virtual meetings can proceed both safely and smoothly.
As part of the Government’s series of stimulus and help packages, Australian Treasurer Josh Frydenberg has announced that a temporary 6 month power would be granted to him to deal with situations where companies fail to comply with their obligations under the Corporations Act, as a result of health related restrictions implemented to reduce the impact of COVID-19. This includes temporary relief for directors of distressed businesses including relief around insolvent trading. These measures signal that there are likely to be more temporary relief for businesses in relation to their obligations under the Corporations Act, as the practical impacts of COVID-19 become more apparent.
ASIC’s two-month ‘no-action’ position on AGMs
On 20 March 2020, ASIC issued a media release (20-068MR) noting that COVID-19 may temporarily impact on companies’ ability to hold an AGM. ASIC noted that the issue is immediately relevant for public companies with 31 December balance dates that would otherwise by required to hold their AGMs by 31 May 2020, given the practical difficulties in holding these meetings in light of the restrictions on large gatherings and non-essential travel.
To address these difficulties, ASIC commissioner John Price stated that ‘a degree of flexible pragmatism was needed to deal with the issue’. As ASIC does not have the power to grant extensions of time to hold an AGM on a ‘class basis’ (i.e. to all entities with a financial year ended 31 December 2019), it has adopted a two-month ‘no-action’ position, i.e. it will not take action against an entity with a financial year end of 31 December 2019 that fails to comply with the regulatory requirement to hold an AGM within 5 months of that date.1 This ‘no-action’ position will be adopted for a period of two months to allow entities to hold their AGM by the end of July 2020, although is subject to continuous review in light of the unfolding situation.2
In relation to financial reporting obligations more generally, ASIC said that it is “closely monitoring developments that may affect financial reporting, talking to market participants and auditors, and considering possible impacts and responses. At present, there appear to be no widespread indications of any significant issues for entities in meeting their full-year and half-year financial reporting obligations at 31 December 2019.”
However, ASIC has flagged that for entities with 31 March or 30 June balance dates, ASIC will carefully monitor how market conditions and COVID-19 are affecting financial reporting and AGM obligations for these entities, and may update this guidance if needed.
ASIC ‘no-action’ position on virtual AGMs
In ASIC’s media release, it noted that some entities may wish to proceed with holding their AGMs by 31 May 2020 or during the 2 month extension period, using technology such as “hybrid” AGMs (where there is a physical location and online facilities) or “virtual” AGMs (where the meeting is conducted solely online).
In Australia, the participation by shareholders in a meeting via the use of technology is expressly permitted by section 249S of the Corporations Act. This section provides that a company may hold a meeting of its members at two or more venues using any technology that gives the members as a whole a reasonable opportunity to participate. As such, unless the entity’s constitution restricts meetings being held in this manner, hybrid shareholder meetings are permitted under the Corporations Act, and could be conducted in several venues by way of audio and visual link up.
However, there is doubt as to whether the current law in Australia permits a shareholders’ meeting to be held solely online, where there is no physical ‘venue’. It is arguable that the traditional concept of the word ‘venue’ does not encompass a virtual venue for this purpose.
In contrast, in the United States certain states have amended their corporations law to expressly permit shareholders’ meetings to be held exclusively online. For example, the Delaware Code authorises the board of directors of Delaware companies, at their sole discretion, to determine that a shareholders’ meeting may be held solely by means of ‘remote communication’. Virtual meetings are also expressly permitted by New Zealand’s Companies Act 1993 which provides that ‘a meeting of shareholders may be held by a quorum of the shareholders participating in the meeting by means of audio, audio and visual, or electronic communication’.
While ASIC does not have the power to modify the Corporations Act to facilitate virtual AGMs, ASIC announced that it intends to take a ‘no-action’ position on non-compliance with the Corporations Act that may restrict the holding of virtual AGMs where an entity elects to do so in view of complying with the statutory 31 May 2020 deadline, or during the two month extension period. However, the ‘no-action’ position is conditional on the technology providing members, as a whole, a reasonable opportunity to participate,3 including:
- Allowing members to ask questions of the auditor and about management; and
- Ensuring voting occurs by poll rather than on a show of hands.
For entities that have a constitution that restricts online participation in an AGM or that cannot otherwise provide effective online participation for logistical or technical reasons, ASIC has expressly stated that these entities can also rely on ASIC’s ‘no-action’ position for deferral of AGMs. ASIC observed that “[p]ostponing an AGM where an entity has made advanced preparation may cause significant cost and inconvenience, but holding an AGM where few members can participate either in person or online might not comply with the Corporations Act and produce an unsatisfactory outcome.”
Entities will need to make an assessment of their AGM-facilitating technology in advance of holding the meeting and consider whether it adequately addresses these conditions. If there are concerns, entities can instead postpone the AGM and hold it later in reliance on ASIC’s no-action position on deferred AGMs.
ASIC ‘no-action’ position on sending electronic supplementary notices
The ‘no-action’ position would also extend to cover any failure of supplementary instructions to comply with the notice provisions under the Corporations Act.4 Where an entity has already dispatched a notice for the AGM to be held on, or before, 31 May 2020 and at least two business days before that meeting, that entity sends supplementary instructions for online participation by:
- electronic message (if the member has provided the relevant details);
- a notice on the entity’s website; and
- a market announcement if the entity is listed on a market,
ASIC intends to take no action for contravention of the Corporations Act.
Mechanics and safeguards for conducting virtual meetings
Whilst ASIC did announce a conditional ‘no-action’ position in relation to holding virtual AGMs, it is important that companies assess whether they have the requisite technology to hold a hybrid/virtual meeting and adequate safeguards in place, so that members, as a whole, have a reasonable opportunity to participate.
Other than the obvious questions around technological capabilities (e.g. whether the company has conferencing facilities available to run the meeting), the following matters will also need to be taken into consideration:
- Is the form of the meeting clear in the Notice of Meeting? If the AGM is to be held via a particular technology, that information and all relevant details should be displayed clearly and prominently in the Notice of Meeting, and in any other public communication that the company provides to shareholders.
- How do you verify the identity of those attending virtually? A process will need to be adopted for authenticating the identity of shareholders and votes.
- Are there IT support and back-up measures in place? Companies should ensure that they have backup plans and measures, including any dedicated hotlines, in the event of technological difficulties.
- Who should appear in the broadcast? The audio-visual broadcast should show all of the directors, management and auditors who are present at the meeting. This would allow for greater transparency and opportunity for interaction between shareholders and the board and management. Although this does not replicate face-to-face interaction, it would give shareholders participating online the ability to observe the reaction of the board and management.
- Should pre-AGM forums be offered to shareholders? Companies should consider opening a forum prior to the date of the AGM to allow authenticated shareholders to post questions ahead of the AGM in addition to posting questions in real time during the AGM, and possibly even allow shareholders to interact with each other on the forum.
- How will questions be handled during the meeting? There should be an assurance made to shareholders that questions posted will not be edited or censored, so that shareholders can see which questions are not answered by the board and management at the AGM and make their assessment as to whether shareholders’ issues are being adequately addressed.
- Is direct voting permitted under your constitution? Some companies may also wish to offer shareholders the ability to cast a direct vote electronically before the AGM, without having to attend the meeting or appoint a proxy to vote on their behalf. This is particularly useful if the company wishes to discourage physical attendance at the AGM. However, before offering direct voting, companies will need to ensure that their constitutions permit this form of voting. This is a timely reminder for companies to check their constitution and consider whether any updates are required to allow electronic participation or direct voting in the future.
Other measures flagged by the Government
During a press conference on 22 March 2020, Australian Treasurer Josh Frydenberg announced that a temporary 6 month power would be granted to him to deal with situations where companies fail to comply with their obligations under the Corporations Act due to health related restrictions implemented to reduce the impact of the COVID-19.
In addition, the Federal Government also announced relief for directors of distressed businesses. Under insolvent trading provisions5 in the Corporations Act, a director can be held personally liable for debts incurred by the company if, when the debts where incurred, there were reasonable grounds to suspect that the company was insolvent or may become insolvent as a result of incurring the debt. The temporary relief includes protecting directors from personal liability in certain circumstances, for a period of six months. For more information about this relief, please refer to our recent Focus Paper “Federal Government Introduces Temporary Changes to Insolvency Laws in Wake of the Coronavirus” which can be found on our website here.
If you have any questions about, or require any assistance to conduct, a hybrid or virtual AGM, please contact us.
1. s 250N(2) of the Corporations Act 2001 (Cth) (Corporations Act)
2. Companies should note, though, that an ASIC ‘no-action’ letter does not necessarily preclude third parties from taking legal action in relation to the same conduct or conduct of that kind. Nor does it prevent a court from holding that particular conduct infringes the relevant legislation.
3. s 249S of the Corporations Act.
4. s 249J of the Corporations Act.
5. s 588G of the Corporations Act.
Liability limited by a scheme approved under Professional Standards Legislation.
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