During this age of COVID-19, some standard business practices that used to be easily dealt with have become difficult to execute including the holding of an Annual General Meeting (the “AGM”). In Hong Kong, companies have to make sure the AGM is in compliance not only with the Companies Ordinance (Cap. 622 of the Laws of Hong Kong) (“CO”) but also the public health regulations.
In light of the Prevention and Control of Disease (Prohibition on Group Gathering) Regulation (Cap. 599G of the Laws of Hong Kong) (the “Prevention Regulation”), which became effective on 29 March 2020, group gatherings in any “public place” in Hong Kong are prohibited. However, an exemption applies for “any group gatherings at a meeting of a body that must be held within a specified period in order to comply with any ordinance or other regulatory instrument that governs the operation of the body or its business”. This exemption covers company AGMs. In this article, we discuss how the AGM will be held in both listed companies and private companies in light of the Prevention Regulation and also the CO.
For the sake of public health, companies are encouraged to limit the physical attendance of shareholders at their AGMs as much as possible and to implement precautionary measures in order to achieve social distancing.
As stated in paragraph 11 of Schedule 1 of the Prevention Regulation, if there are more than 20 persons attending the AGM, companies must ensure that there are measures in place to separate the shareholders in different rooms or partitioned areas and each accommodating not more than 20 persons.
In order to better manage the number of shareholders who can attend the meeting, companies may consider requesting shareholders to pre-register if they wish to attend in person. Companies may also encourage shareholders to submit their questions to the management in writing before the meeting.
Virtual meeting/Hybrid meeting
With the advancement of technology, the CO has introduced a provision that allows the use of technology in shareholders’ meetings. Section 584(1) of the CO stipulates that “A company may hold a general meeting at two or more places using any technology that enables the shareholders of the company who are not together at the same place to listen, speak and vote at the meeting.” This can enable shareholders who are not at the same place to listen, speak and vote.
Pursuant to section 576 of the CO, if a meeting is to be held at two or more places, the principal place of the AGM and the other place or places of the meeting must be specified in the notice of the meeting.
Still, a quorum and other such requirements must be followed for the meeting to be properly convened and for the decisions arising out of the meeting to be valid.
In addition, the shareholders must be able to cast their vote in the virtual AGM. The company should set up a mechanism to allow shareholders to cast a vote. It could be something as simple as a show of hands via video conferencing or an oral response via a phone call. These will be sufficient to count as a vote.
Alternatively, some companies hold the AGM by way of a hybrid meeting i.e. the meeting is held both at a physical location and electronically. Shareholders have the option to attend the meeting either in person or virtually.
Please be aware that if the company intends to hold virtual meeting/hybrid meeting, the company should check with the company’s articles of association or any shareholders’ agreement to see if there are any provisions which require the physical presence of shareholders in the AGM.
Furthermore, instead of holding physical meetings, one could consider the use of written resolutions. Subject to the exceptions for removal of auditor or director(s) before the end of their term of office, section 548 of the CO provides that the company can circulate written resolutions for the shareholders. According to section 556 of the CO, the resolution is passed when all shareholders eligible to vote on the resolution have signed to it. The strategy of adopting written resolutions instead of physical meetings would only be possible if there are a limited number of shareholders or directors and it is foreseeable that there are no dissenting views.
On 1 April 2020, the Securities and Futures Commission (“SFC”) and The Stock Exchange of Hong Kong Limited (“HKEX”) issued the “Joint statement in relation to general meetings in light of the Prevention and Control of Disease (Prohibition on Group Gathering) Regulation” (“Joint Statement”) to clarify listed companies’ obligations to hold general meetings in light of the Prevention Regulation.
Under the Joint Statement, all shareholders’ meetings, including (i) the AGMs as required under the Companies Ordinance and/or the Main Board Listing Rules or the GEM Listing Rules; and (ii) extraordinary general meetings and special general meetings of Hong Kong-listed companies generally fall under the exception of the Prevention Regulation.
Practical tips in holding AGM online
(1) Communication with shareholders: The company should remind shareholders to check the arrangement of the AGM on the company’s website.
(2) Sufficient time for shareholders to return their proxy forms: If shareholders do not attend in person, the shareholders can vote by proxy forms prior to the meeting.
(3) Questions from shareholders: The company should provide channels for shareholders to raise questions to the management prior to the meeting, either in writing or electronically, so that shareholders who are not attending still have the opportunity to raise questions.
(4) Arrangements for physical meetings: If a company decides to hold a physical AGM, the company should shorten the presentations or publish them on the company website. In the event that an adjournment is required, a company should prepare a script for their meetings and plan in advance the period of their adjournment, as well serving a shareholders notice of adjournment or postponement if needed. In addition, refreshments should not be available. The company should ensure that sanitization and other arrangements are in place at the AGM venues.
(5) Prepare guidelines on virtual meetings: In order to facilitate a smooth virtual meeting, the company should prepare guidelines for the shareholders in relation to some practical problems they might face in a virtual meetings such as how shareholders can rejoin the meeting if they have lost connection or how votes can be cast e.g. by clicking a button or a physical show of hand etc. and prepare any contingency plans in case there are any technical difficulties.
Virtual meetings are predicted to remain in the post-COVID-19 era. It is recommended that companies should plan carefully as to what measures to be undertaken in relation to holding an AGM in order to comply with the Companies Ordinance and the Prevention Regulation.