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Coronavirus - Impact on AGMs and other matters for traded companies – UK

  • United Kingdom
  • Coronavirus
  • Corporate

19-03-2020

For listed and traded UK companies with a 31 December year end, the COVID-19 pandemic and the potential  for further tightening of restrictions on gatherings and travel in the UK raise particular issues as they enter into reporting and AGM season over the coming months.  

What is the legal position on holding an AGM?

Under the Companies Act 2006 (CA 2006), a public limited company must hold its AGM within six months from the end of its financial year. In practice, this will be an important factor in how companies deal with the current situation.  There is a specific requirement for a ‘quoted’ company to pass a shareholder resolution to approve the remuneration report, bearing in mind also that many companies will be in line to table the remuneration policy at the 2020 AGM.

It is also common practice to pass resolutions at an AGM (eg 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. Companies would therefore need to bear in mind that their current authorities may expire before their 2020 AGM if they were to consider delaying or postponing their AGM.

ICSA Guidance

ICSA, the Chartered Governance Institute, has, in conjunction with Slaughter and May and others, released some guidance for companies (ICSA Guidance), which is recommended reading in the circumstances. The matters considered in the ICSA Guidance are equally relevant to companies with forthcoming general meetings in connection with specific transactions.

The ICSA Guidance sets out a number of practical steps that companies should take as part of their contingency planning for the current AGM season. It also considers the other options companies can take if they believe there will be difficulties in holding their AGM. Essentially, these are delaying the AGM, postponing the AGM if permitted by the Articles of Association (Articles), adjourning the AGM, or holding the AGM as a hybrid meeting if permitted by the Articles.

What is the position on virtual or hybrid AGMS?

Given the limitations of some of the other options highlighted in the ICSA Guidance, a number of companies may be thinking about this.

There are differing practitioner views as to whether entirely virtual AGMs constitute a valid meeting at law in the UK in accordance with the CA 2006 requirements. This is due to concerns as to whether the ‘place’ of the meeting for the purposes of the notice (section.311(1) CA 2006) is satisfied by a virtual only meeting. However, there is limited precedent for listed companies holding a virtual AGM. In practice, as both Institutional Shareholder Services (one of the leading proxy advisers) and the Investment Association have expressed their dissent against companies that amend their Articles to permit virtual-only AGMs, wholly virtual meetings are not currently usual in the UK. It remains to be seen whether investor bodies will relax their position in the current environment.

A more likely option would be a hybrid meeting as suggested in the ICSA Guidance – ie a physical meeting which also provides for participation by electronic means.

For any general meeting at which the company is proposing to permit electronic participation, the Articles will need to be carefully checked for any provisions which prevent or restrict this approach. Best practice to date suggests that the Articles expressly allow electronic participation, and we expect that a number of traded companies will have previously amended their Articles to allow for this.

What else do listed and traded companies need to be aware of?

The FCA has issued (PMB 27) which provides commentary for companies in the light of the COVID-19 pandemic. PMB 27 reminds companies of the following:

  • The importance of ongoing disclosure under the Market Abuse Regulation (MAR). The FCA acknowledge that there may be challenges in the current environment, but it expects companies to make every effort to meet their disclosure requirements.
  • Persons discharging managerial responsibilities and their closely associated persons should also continue to meet their transaction notification requirements under MAR.
  • Any issuers considering submitting a request for suspension should ensure they have thoroughly examined the justification for this. The FCA will challenge the need for suspension where a situation can be more appropriately addressed by an announcement to the market.
  • Companies should put in place contingency plans to minimise the impact of the COVID-19 pandemic on the upcoming reporting season. Any issuers in doubt about meeting their continuing obligations (for example, making public their annual financial report within 4 months after the end of the financial year) should contact the FCA to discuss. Our briefing here discusses in more detail some of the current challenges around reporting and the steps companies should take.
  • Shareholder meetings: the FCA recognises that as a result of COVID-19, the effective exercise of the rights of shareholders may need to involve the use of virtual methods.
  • Corporate transactions and admissions: the FCA will continue reviewing documentation for corporate transactions in line with its established principles. Where issuers are looking to carry out urgent transactions they should, in the first instance, engage with their relevant sponsor firm or adviser.

Next steps

The forthcoming reporting and AGM season raises real challenges for traded companies. These are unusual times and we may see companies needing to be practical and flexible in holding their AGM. Companies do need to be thinking about contingency planning now for their AGMs, and will need to review the relevant provisions of their Articles in order to assess their options. Companies should not hesitate to discuss with their advisers at the earliest opportunity any issues they foresee around complying with their continuing obligations and/or holding their AGM in the current environment. This is a fast moving situation, and companies may need to react to Government advice and/or emergency legislation.

Useful links

AGMs and the impact of COVID-19

ICSA Press release

FCA Primary Market Bulletin Issue No. 27 – Coronavirus update

Eversheds Sutherland Coronavirus hub