Corporate Governance and Insolvency Act 2020
Meeting in uncertain times
The Corporate Governance and Insolvency Act 2020 (the Act) finally received Royal Assent on 25 June 2020, coming into effect on 26 June 2020, after a rather lengthy legislative process for an Act aimed at providing short-term emergency support.
It took effect retrospectively and provides (amongst other things) assistance to companies seeking to hold shareholder meetings during the pandemic. This assistance is in the form of relaxations to the requirements in legislation and companies’ own articles of association as to how meetings being held between 26 March 2020 and (following now two extensions to the initial period by Statutory Instruments laid in September and November) 30 March 2021 can be conducted. Notably, pursuant to the Act:
- Meetings can be held “virtually”, without the meeting having to take place at a physical location, via say an electronic platform or conference call: companies were struggling with how to hold meetings under lockdown and the majority of companies’ articles of association do not provide for virtual (where there is no physical location and the meeting is held through an electronic platform) or hybrid (where there is a physical meeting in addition to electronic participation) meetings, so this offers helpful flexibility as the Act overrides articles of association. More companies are now looking to amend their articles of association to provide for electronic participation in meetings, but whilst hybrid meetings are becoming more accepted there are still concerns around fully “virtual” meetings, both technical and from shareholders and shareholder bodies who value the forum offered by a physical meeting;
- Votes can be cast electronically: however, in practice voting in advance via proxies (whether posted or submitted electronically) makes voting less of an issue in any case; and
- Members do not have the right to attend or participate other than by voting: during the first lockdown it was clear that it was not possible to hold a public gathering and so chairmen had the power to exclude members from attending meetings in person. However, as lockdown restrictions have varied and continue to do so this offers helpful certainty for companies that they can exclude members from attending physically. This allows a pragmatic approach to be taken and avoids the logistical issues in having to provide a fall back physical venue meeting the requirements of the then current Government lockdown provisions and health and safety concerns.
The delay in the adoption of the legislation was largely due to the longer-term insolvency measures being introduced within the Act, which held up the short-term measures to assist with holding shareholder meetings. The same issue returned when the Government were first extending the period to which the provisions applied from the initial end date of 30 September. In the end the Government left it until 24 September to lay the extension regulations before Parliament; these extended the period to 30 December 2020. The legal community had since been pressing Government to avoid a similar situation towards the end of December waiting to confirm if the provisions would be extended. It is pleasing to see that certainty has been provided a lot earlier this time, with the extension to 30 March 2021 being confirmed in a Statutory Instrument laid before Parliament on 25 November 2020.
In the meantime, we are advising various clients on whether and how to update their articles of association to include appropriately updated meeting provisions, in respect of which there are numerous pitfalls and aspects to consider around for example the practicalities of running meetings and ensuring the provisions work for the company’s shareholder base and will be well received. There is certainly an opportunity now to take the time to consider and update constitutional provisions and related processes to be fully fit for purpose and perhaps increase and improve shareholder engagement for the future.
Note: this article was updated on 25 November 2020 following laying of the new statutory instrument before Parliament.