Between ‘social distancing’ and the Government’s ban on non-essential gatherings, public companies are finding it increasingly difficult to comply with AGM requirements. This article considers the options available to companies needing to hold an AGM in the coronavirus climate.
Requirement to hold an AGM
Section 250N of the Corporations Act 2001 (Cth) outlines that a public company with more than one member must hold an annual general meeting (AGM):
- within 18 months following registration; and
- at least once each calendar year, and within five months after the end of its financial year.
The penalty for failure to comply with this requirement is $6,300 for individuals and $63,000 for bodies corporate. Public companies with a 31 December end of financial year need to hold an AGM by 31 May 2020. With this deadline approaching, companies should make alternative arrangements soon. We have compiled a list of options below for companies to consider.
1. Delay your meeting until 31 July 2020
On 20 March 2020, the Australian Securities and Investments Commission (ASIC) released guidance noting that COVID-19 may inhibit companies’ ability to hold AGMs. ASIC confirmed no action will be taken against companies with a financial year ending 31 December that postpone their AGM until 31 July 2020. ASIC has not yet provided guidance for companies with a 31 March or 30 June end of financial year.
2. Apply for an extension of time
Companies looking for a longer extension to their AGM deadline will need to apply to ASIC directly. Public companies can apply to ASIC for an extension of time within which to hold their AGMs. Applications must be lodged with ASIC before the date on which the AGM would normally be held. We advise making an application well in advance of this deadline to avoid penalties being imposed, particularly given the likely potential number of applications and ASIC’s own limitations on operations during this period.
ASIC’s Regulatory Guide 44 sheds some light on how ASIC will determine extension applications. ASIC has the power to deal with applications as it sees fit and will consider each case on its merits. Generally, an extension will only be granted where:
- the company is unable to hold its AGM on time due to factors beyond its control
- there has been a temporary or permanent loss of key personnel (i.e. an external auditor)
- it would be in the interests of shareholders to delay the AGM.
3. Hold your AGM electronically
Public companies should consult their constitutions to determine whether they allow for meetings to be conducted electronically. Alternatives to a traditional AGM include hybrid and virtual AGMs. A hybrid AGM is conducted both traditionally and electronically, meaning some members attend in person while others attend the meeting electronically using technology. Virtual AGMs are conducted entirely online with members participating as usual but through the use of polling and chat functionalities.
There is debate on the position under the Corporations Act in relation to virtual AGMs. The wording used in the Corporations Act implies that a physical location is required for an AGM. However, the Act does note that technology may be used to give members a reasonable opportunity to participate. Given the restrictions in place due to COVID-19, the use of technology to conduct an AGM will likely be seen to allow members as a whole a better opportunity to participate.
ASIC has assessed hybrid AGMs to be permissible under the Corporations Act but flagged that there is doubt regarding the position on holding virtual AGMs.
Despite the uncertainty under the Corporations Act, ASIC has confirmed it will support companies conducting hybrid and virtual AGMs. ASIC confirmed it will not take any action against companies conducting virtual AGMs during the extension period (i.e. until 31 July 2020). However, this does not prevent private action by disaffected shareholders.
Members must be given a reasonable opportunity to participate in an AGM held at two or more venues, as set out in section 1322 of the Corporations Act. To comply with this rule, ASIC has recommended that, where an electronic meeting is held, members must still be able to ask questions of the auditor and management, and to vote using a poll.
How can we help?
Companies should determine the most appropriate way to hold their AGM noting the above considerations. Quorum and meeting requirements will differ between companies so there is no ‘one size fits all’ solution. If a company’s constitution does not allow meetings to be held using technology, companies may need to seek an extension from ASIC or make amendments to its constitution.