Shareholder Meetings in Virtual Formats: From Crisis Response to Covid-19 to Permanent Feature of the Corporate Landscape

 

Philip Gavin, Trinity College Dublin

 

Introduction

The movement towards a digitalised world has significantly impacted virtually every facet of modern life. It is indeed unsurprising, that the agenda of corporate governance reform has also, in recent years, grappled with the movement towards digitalisation.  It is equally a trite point, that digitalisation efforts have been significantly hastened by the outbreak of the Covid-19 pandemic. One area where this digitalisation appears to have had a lasting legislative impact is the ability of companies to hold virtual shareholder meetings. The digitalisation of shareholder meetings became necessary during the pandemic and were permitted through temporary amendments enacted in August 2020. However, while the permitting of virtual shareholder meetings was initially conceived as an interim response to Covid-19, Minister Robert Troy recently announced the intention of the Government to draft a framework for permitting virtual meetings on a permanent basis through amendments of the Companies Act 2014. The objective of this post is to identify which aspects of the interim framework are likely to remain on a permanent basis and which will be terminated upon the conclusion of the temporary measures responding to Covid-19. 

 

Pre-Pandemic Status Quo

At the outset of Covid-19, the use of technological communication for shareholder meetings received only limited statutory recognition. A company holding a meeting outside of the state is under a duty, under s 176 (3), to provide technological means of participation to participants wishing to engage without leaving the State. Likewise, where a company holds the meeting over multiple venues then the company, under s 176 (4), is to use technology which provides members the opportunity to participate. In either instance, there is still an in-person meeting and physical venue and the aim of the technological access is simply to facilitate distanced engagement with that otherwise physical meeting. Therefore, the statute does not explicitly anticipate a scenario where the meeting is to occur in a wholly virtual setting, something which became an understandable necessity during Covid-19. These provisions are also of limited assistance because they apply to particular scenarios – meetings abroad or in multiple venues – rather than a singular domestic meeting. While there does appear to be a budding intention to digitalise corporate engagement in the Companies Act 2014, there are clearly shortcomings when faced with the challenges of the pandemic and lockdown.

 

Interim Measures During Covid-19

In response to the outbreak of Covid-19, several temporary amendments to the Companies Act 2014 were introduced in August 2020 through the Companies (Miscellaneous Provisions) (Covid-19) Act 2020 (hereafter the 2020 Act). The amendments made by the 2020 Act all sought to address particular concerns raised by the Covid-19 pandemic, either focusing on the impact Covid-19 as a shock to the economy or the particular concerns of Covid-19 as a virus and the need to facilitate corporate activity despite social distancing. Rather obviously, it is the second of these categories which is of relevance for the digitalisation of general meetings of shareholders. The 2020 Act goes beyond the Companies Act 2014 in facilitating virtual meetings in that it does not require a physical venue to anchor and legitimise the shareholder meeting. The 2020 Act instead states that ‘[a] company need not hold a general meeting at a physical venue but may conduct the meeting wholly or partly by the use of electronic communications technology as long as all attendees have a reasonable opportunity to participate.’ This reasonable opportunity of participation requires the technology to effectively facilitate engagement, ensure secure voting and ensure the identification of participants where necessary. The notice of the meeting must also note the platform being used and explain the means of accessing the virtual meeting and any procedures in place during said meeting. Furthermore, the Act states that temporary disruption will not invalidate the meeting and the company will not be liable provided the disruption is not attributable to a wilful act of the company. This would be of particular comfort to companies given that the adjustment to distanced meetings on virtual fora arose in the tumultuous context of Covid-19 which may have limited the time and resources available to the company to prevent such disruption arising.

 

The focus of the 2020 Act being squarely on Covid-19 is best evidenced by all of its substantive provisions applying solely for the ‘interim period’ included in the Act. This interim period is defined as ‘ending on 31 December 2020’ unless extended by Governmental order. Ultimately, the interim period had in fact been extended to June 9^th 2021 and then again to December 31^st 2021, reflecting the continuing threat of Covid-19 and imposition of social restrictions. Limiting the application of legislation to an interim period is of course understandable in the context of a pandemic given that the measures put in place may not be desirable outside of a crisis. Of further interest however is that interim measures can serve as a guinea pig for future legal reform. In the case of virtual shareholder meetings, the Government has indeed indicated its desire to permit such meetings on a permanent basis going forward, transforming an exceptional statutory instrument during Covid-19 into a permanent feature of the corporate landscape. This is perhaps unsurprising given that digitalisation has been an ongoing trend for years. While Covid-19 acted as an accelerant, it would be regressive to remove this option for companies who find the virtual format preferable going forward. The main question however lies in the extent to which the regime enacted by the 2020 Act will be replicated by the permanent framework.

 

Drafting a Permanent Framework for Virtual Meetings

While the temporary Covid-19 measures have served as an impetus for permanent reform, the future framework cannot be a direct transposition of the existing temporary measures. Most obviously, existing provisions directly addressing Covid-19 would be omitted. For instance, in order to comply with public health advice, directors may cancel the meeting, change the venue or move the meeting to an electronic format with only one day notice – or in exceptional circumstances, no notice at all. Such an inclusion would certainly have been an unusual addition to permanent legislation and as such it is unsurprising to see its removal from the newly proposed framework. Furthermore, given that the power is available to companies notwithstanding any limitation to the contrary in the company’s constitution, this might be seen as too great a power for management with too little accountability outside of the context of a global pandemic. Indeed, prior to the 2020 Act, abrogation from the constitution to facilitate virtual meetings during Covid-19 was something which required judicial approval per Xtrackers (IE) Plc v Companies Act 2014. It is understandable that directors require the flexibility to cancel, postpone or change the format of meetings during the pandemic and that the courts should avoid a flood of applications, but it would be a significant power were it preserved within the permanent framework, meaning the likely reversion is to judicial approval for such changes contrary to the company’s constitution. 

 

Now that the drafting period has commenced it is likely that the Government will respond to feedback from practitioners who experienced the virtual process under the temporary Covid-19 measures. The notice required to members as well as the obligation to provide technological means to access the meeting as far as practicable will likely remain in place. What will be of importance is whether there is any need to expand further on these obligations. For instance, the permanent regime may want to clarify whether the obligation to ensure that members can, as far as practicable, speak and submit questions should explicitly extend to both written and oral communication over the technological medium. Furthermore, while the protection for companies that temporary disruptions do not invalidate meetings is worthwhile preserving, guidance may be needed on what is meant by a temporary as where a disruption goes beyond that, then the meeting may become invalidated under the existing regime. One can also foresee the permanent regime providing a narrower protection for companies in this context. Given that companies have time to prepare outside of the pandemic and that virtual meetings will not be the only option once lockdown ends and in-person communication resumes, there may be less latitude for companies whose meetings are ultimately disrupted through negligent preparation by the company. Thus, while companies are now only liable for wilful disruption to the meeting, the standard may feasibly be lowered within the permanent framework to cover negligent preparation by the company.

 

Conclusion

Covid-19 has served as an impetus for the digitalisation of personal and commercial communication. This has clearly been the case also for corporate engage and shareholder meetings. Now that the Government has announced its intention to permanently allow virtual meetings to take place, the framework adopted the pandemic will need to be adjusted so that it is fit for purpose outside of a crisis scenario.

 

Philip Gavin is a PhD Candidate and Adjunct Assistant Professor in the School of Law, Trinity College Dublin.

 

Suggested citation: Philip Gavin, ‘Shareholder Meetings in Virtual Formats: From Crisis Response to Covid-19 to Permanent Feature of the Corporate Landscape’ COVID-19 Law and Human Rights Observatory (25 May 2021) https://tcdlaw.blogspot.com/2021/05/shareholder-meetings-in-virtual-formats.html