Virtual AGMs for third sector organisations – technical tips for legal compliance part 2
For those of you who read my blog on virtual AGMS for third sector organisations, published on 6 April, the Department for Business, Energy & Industrial Strategy have subsequently published a Q&A document covering company AGMs, filings etc during the coronavirus pandemic.
The Q&A has been issued, prior to legislation being passed at Westminster, to assist companies who have difficulties in meeting the statutory obligations vis-à-vis the holding of meetings. We would stress that the legislation will apply to companies only, and not to SCIOs, BenComs or unincorporated associations.
The focus on my blog was on flexibility, and it drew upon the relevant provision of the Companies Act 2006 (s360A - which states that “nothing in this Part is to be taken to preclude the holding and conducting of a meeting in such a way that persons who are not present together at the same place may by electronic means attend and speak and vote at it”) and case law.
The case of Byng v London Life Association  1 All ER 560 involved a hybrid meeting rather than a fully virtual meeting, that is to say there was a physical meeting but due to a lack of space some could only attend by a video link to another room.
The decision was that it is not necessary for participants to be in the same place face-to-face in order for a meeting to be properly constituted – the key is that members who are participating in the meeting must be able to both “see” and “hear” one another.
I expressed the view in my previous blog (making it clear that this was not a certainty) that, given the time that has passed and the technological advances since 1989, it was reasonable to assume that this case would serve as precedent for a fully virtual meeting today.
The Q&A document, however, seems to cast some doubt on that conclusion. Specifically, the Q&A document does not advocate virtual AGMs in the full sense of that expression – the document envisages companies holding “closed” meetings, with a minimum number of people “attending”, by way of conference telephone or other means of two-way communication, and with attendance being limited to those needed to meet the quorum requirements under the articles of association.
The idea is that the votes of other members would be cast by way of proxy, and on the understanding that that would involve appointing the chairperson of the meeting (or one of the others participating directly in the virtual meeting), as proxy; and most likely on the basis that the proxy form in each case would direct the proxy how to vote on each resolution.
This, of course, does not take account of the fact that the articles for many third sector companies have a high quorum requirement, with the deliberate intention of ensuring that major changes are not made through member resolutions where an AGM or other members’ meeting is attended only by a small and potentially unrepresentative sample of the overall membership.
For a community development trust, by way of example, the quorum is quite commonly set at 10% of the total membership, which could typically amount to 30 people.
Having said that – and depending upon how the quorum provision is drafted – the quorum requirement might be satisfied if a significant number of members send in proxy forms – sometimes the quorum is worded as 10% of the membership “present in person or represented by proxy”.
Leaving aside quorum requirements, of course, the use of proxy voting is never going to be ideal as compared with live participation in person, or via audio or video link – where (at least in theory) there is the opportunity for the members to hear candidates for election as directors put forward their credentials before the votes are cast, to raise questions with the treasurer regarding points arising from the accounts, and to highlight with the board any key concerns on strategic issues.
These are all important elements underpinning the principle of accountability to the membership. While a “tick-box” exercise with proxy votes may be seen as the norm in a private sector context (and accepting that proxy voting can be a useful fallback for those unable to participate by other means), it does jar to some extent with what most people in the third sector would regard as best practice in a membership-led organisation.
The Q&A document specifically states that virtual meetings are “uncommon and largely untested in the UK, and mandating their use is likely to create further significant issues. This is for a number of reasons, including the limited number of service providers and the sheer number of different companies (ranging from the smallest to the largest) that will need to hold meetings within a short timescale.”
The Q&A document does not elaborate further on what these “significant issues” might be. We will issue a further blog once the legislation has been drafted - but in the meantime, our view remains that flexibility is key, but that an approach to the AGM arrangements which maximises participation via audio or video links (with the option of proxy voting where people have difficulty with that) is likely to be the best solution in most third sector settings.
As regards the new legislation, the devil will be in the detail – watch this space.
2nd July 2020
Insight into how the Act will affect third sector organisations.
22nd May 2020
The Corporate Insolvency & Governance Bill 2020 will provide a helping hand to third sector bodies.
7th May 2020
New regulations which came into force on 26 April 2020 have expanded the existing rights.