The outbreak of the coronavirus (COVID-19) affects society and daily life. It disrupts ordinary business and causes significant challenges, also from a legal perspective. One issue that requires the attention of companies is how the coronavirus outbreak impacts their upcoming annual general meeting (AGM).
So how best to address likely disruption to your AGM? What are your options of limiting attendance to the AGM and of postponing the AGM? We explain our views below.
With most public venues closed, limitations imposed on social gatherings, and employees being encouraged to work from home, it has become certain that additional safety measures will need to be taken in respect of upcoming AGMs. The public health concerns surrounding the coronavirus outbreak are causing companies to re-evaluate how they approach their AGM. They will need to focus on preserving the health and safety of their shareholders, directors, employees and other stakeholders. The situation is changing quickly. We will update the information in this article when new circumstances require. The guiding principle, however, will remain the same: no rule of corporate law justifies putting people’s health at risk.
We see two main options for holding your AGM this year in compliance with Dutch measures and recommendations relating to the coronavirus.
First, companies could announce (at the time of convening the meeting or later) that the physical meeting will take place with core attendees only and that shareholders can follow the meeting via webcast and cast their votes by proxy (or virtually in the case of a hybrid meeting). Companies could consider allowing shareholders to ask questions by email ahead of the meeting. We already see examples of this approach internationally. Having the meeting take place in an adjusted form, conveys the message that the company is doing what is needed in view of the coronavirus outbreak, while limiting interruption to business as much as possible.
An entirely virtual AGM cannot be held, but the group of attendees can be limited. Attendance of the chairman, the secretary and the person casting the proxy votes should be sufficient to conduct the meeting. Contribution to the meeting by other directors and by the auditor could be broadcasted as part of the livestream (either via pre-recorded messages or by direct participation to the livestream).
Second, companies could delay their AGM by postponing the publication of the notice calling the meeting. Companies that have already convened their AGM may also arrive at the decision to cancel the meeting and reconvene it at a later date, once it becomes clear that holding the meeting would be too burdensome. Companies with a relatively high attendance rate at their AGM and with no time-sensitive agenda items, may prefer postponing. The difficulty here is to determine for how long the meeting should be postponed.
We believe that both alternatives are a feasible outcome of a diligent decision-making process by the board(s), where the health and safety of the company’s employees, shareholders and other stakeholders are balanced against legal and practical considerations.
There are several legal factors that play a role in evaluating these alternatives. We discuss some of these below. We also address issues concerning investor relations.
A Dutch listed company must hold an AGM in the first six months of the financial year, which is usually the same as the calendar year. For most companies, that means that the meeting must be held no later than on 30 June 2020. For companies listed in the EU, the notice deadline for a 30 June 2020 meeting is 19 May 2020.
Postponing the AGM until there is no longer a need for cautionary measures, may result in the AGM not taking place in the first half of 2020. We note there is no specific sanction for not having a timely AGM, and the prevailing view is that shareholders cannot enforce the six-month requirement against the company.
Under Dutch law, there are no shareholder resolutions that must be adopted before a certain date. This includes adoption of the annual accounts (although there are legal deadlines for publication). However, postponing decision-making may have undesirable consequences, such as no new board members being appointed or no dividend being declared. However, workarounds may be available. The annual dividend could potentially be replaced by an interim dividend declared by the board, and new board members could take up their position ahead of the official appointment.
No company will take the above measures lightly. However, the current circumstances could well justify that exceptional measures are taken. Dutch law explicitly recognises this principle. In general, legal procedure may be set aside if so required by the standards of reasonableness and fairness. Public interest plays a role in determining what these standards require.
Every company will make its own assessment of how to best address its stakeholders’ interests in these extraordinary circumstances. When such an assessment is made in a well-informed and diligent manner, companies should, in our view, feel comfortable taking the extraordinary measures as described above if they are needed to appropriately address the challenges caused by the coronavirus.
In normal times, shareholder-representative groups and proxy advisor firms would be critical of measures that could hinder shareholders exercising their rights at a regular AGM. Given the extent of the coronavirus outbreak and the drastic measures taken by governments, we do not foresee institutional shareholders penalising companies for changes made to the format of their AGM this year. Nevertheless, in order to minimise the risk of any adverse shareholder reaction, companies should provide clear information about the reasons for changing the format of the meeting or postponing the meeting to a later date, and they should enable all shareholders to cast their votes at all times. In their messaging, they should specifically mention the coronavirus outbreak and the logistics involved in casting votes and in following the meeting, and possibly mention the option for shareholders to ask questions ahead of the meeting.
We are closely monitoring national and international developments. Many of the issues mentioned in this update will become clearer in the coming months, with more information emerging about the extent of the coronavirus outbreak and how companies are responding. Please do not hesitate to reach out to any member of your De Brauw client team, or to one of our corporate advisory experts, to discuss your specific circumstances.
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