Australia’s corporate cop has cautioned companies switching to virtual and hybrid annual general meetings to get around COVID-19 social distancing requirements that resolutions and votes made using the technological fix are still stuck in a legal grey area.
The Australian Securities and Investments Commission on Friday issued notice to listed and unlisted companies that it would allow them to postpone AGMs until the end of July on the back of social gathering restrictions, with commissioner John Price also pressing the pause button on scheduled crackdowns.
Under normal circumstances companies would face stiff penalties and legal action in the event they failed to communicate details of AGMs to stakeholders or hold the meetings within a required period.
That’s now gone out the window.
At the same time, the outbreak of COVID-19 and its consequences have created a surge in demand for video conferencing and interactive meeting products and services as banks and businesses try to remain operational without coming into the office.
While the regulator doesn’t have an issue with electronic AGMs, it's cautioning companies and corporations to check whether they have already baked in the use of remote meetings technology into their constitutions because it may affect the legal standing of votes.
“ASIC considers that hybrid AGMs are permitted under the Corporations Act but entities need to check whether their constitution restricts meetings being held in this way. ASIC does not have the power to modify the Corporations Act to facilitate hybrid AGMs where they are not permitted under an entity’s constitution,” ASIC said in a bulletin.
“There is some doubt as to whether the Corporations Act permits virtual AGMs and there may also be doubt as to the validity of resolutions passed at a virtual AGM. ASIC does not have the power to modify the Corporations Act to facilitate virtual AGMs. However, we have provided a no-action position on virtual AGMs… Entities should also consider whether they can hold a virtual meeting under their constitution.”
While virtual AGMs might be increasingly popular with companies, they are not always popular with shareholders who increasingly relish the opportunity to roast directors face-to-face on an open microphone.
That’s especially the case when companies perform badly and older, long-term shareholders –frequently self-funded retirees – feel companies try to use technology to limit public criticism and stymie unpalatable questions for directors and office bearers.
ASIC is visibly wary of the potential for some companies trying to switch to virtual AGMs shutting out shareholders and members in the process, with the regulator saying it’s better to use its ‘no action’ penalty holiday on late meetings rather than trying to force them through online.
“Postponing an AGM where an entity has made advanced preparation may cause significant cost and inconvenience, but holding an AGM where few members can participate either in person or online might not comply with the Corporations Act and produce an unsatisfactory outcome,” ASIC said.
Entities that have a constitution that restricts on-line participation in an AGM or that cannot otherwise provide effective on-line participation for logistical or technical reasons can also rely on ASIC’s ‘no-action’ position for deferral of AGMs.