The coronavirus and the subsequent measures which are necessary to minimise the spread of the pandemic have already caused major disruption to the day-to-day running of companies. It is likely that this disturbance will continue.
This briefing provides an overview of some issues which we have seen arising as a result of the coronavirus crisis and how a company may be able to deal with them.
The Articles of the company should always be consulted. These may explicitly allow board meetings to take place virtually (by phone or video conference).
Companies incorporating Model Articles from the Companies Act 2006 (CA 2006) can rely on Model Article 10 which states expressly that it doesn't matter where the directors are or how they communicate with each other. A virtual or telephone board meeting is therefore permitted if Model Articles have been adopted.
Companies incorporating Table A (either 1948 or 1985) will not have this express provision unless they have amended Articles. There are some indications that a board meeting by phone would be valid and in current circumstances we think it is unlikely that a challenge to directors who hold a virtual meeting on the basis that they are trying their best in difficult circumstances would succeed. If a company does decide to hold a virtual board meeting, it would be good practice to:
- obtain consent from all the directors entitled to receive notice of the meeting
- ensure that arrangements are such that everyone can participate fully
- record and circulate accurate minutes
With respect to general meetings (GMs) the first point to note is that the CA 2006 does not require annual general meetings (AGMs) to be held for private companies. This is the case even where the company was incorporated under the Companies Act 1985. Therefore, a company will only need to hold an AGM if the Articles require it to do so.
With respect to AGMs that are scheduled for the upcoming months, there will likely be two key questions:
1. Can it be deferred?
- If notice has not been sent, it may be possible to delay convening the AGM. This will depend on how long the Articles will allow between AGMs.
- If permitted under the Articles, it may be possible to postpone the AGM.
- The company may be able to adjourn the AGM if notice has been issued and the Articles do not allow for postponement. It would be usual for a quorate meeting to begin before it can be postponed, but the Articles may state otherwise. An announcement should be made prior to the AGM if the company is aware that the intention is to postpone the meeting.
2. To what extent can participation be virtual?
Articles should be reviewed to check for any provisions allowing or prohibiting virtual means of communication or attendance at the AGM. Where the Articles are silent, it is likely that a "hybrid" AGM will be permissible. This is where the quorate number of members are present in one location, with the other members who wish to attend doing so virtually. It is key that members who are not physically present are able to fully participate; they must be able to ask questions and vote.
Other elements to consider in conjunction with the AGM are the rules regarding voting, the circulation, approval and filing of accounts and the appointment of auditors.
For GMs, s360A of the CA 2006 permits shareholder meetings to be held virtually as long as members are able to speak and vote.
Appointment of a new director
Many smaller companies have a sole director, who is also a sole shareholder (or who holds over 95% of the shares, in which case, the position remains the same). In the unfortunate circumstance where that individual has become incapacitated or has died, the company will need to appoint a new director.
Under the CA 2006 a private company must have at least one director. Articles may require a different number of directors and may also include provisions relating to the appointment of a new director following the death of a sole director/shareholder.
Notwithstanding anything contained within the Articles; there are three potential options for appointing new directors:
1. Power of Attorney (incapacitated shareholder/ director)
If a shareholder has become incapacitated and they have granted a power of attorney with respect to their shares in the company, then the person who holds the power (the attorney) will be entitled to appoint a new director by exercising votes in relation to the shares.
2. Personal representatives (deceased shareholder/ director)
When probate has been granted, the personal representatives (PRs) of deceased's estate will acquire the shares in the company by automatic operation of the law. The PRs may then become members, call a general meeting and vote at that general meeting to appoint a new director.
It is key to note that on becoming members of the company, PR's will take on full burdens of membership. This includes the obligation to meet any calls on shares. Such liability is not limited to the assets in deceased's estate and so can represent a financial risk.
3. Court application
It is also possible to make an application to the Court. There are two orders available; either for the Court to enter a name into the register as a new director in place of the deceased, or for the Court to empower the PRs to elect a new director at a board meeting.
There is a time and financial cost to a court application. In addition, such orders are at the court's discretion, meaning that the court can choose whether or not to make them, and in what form.
The coronavirus crisis is likely to throw up various challenges to existing routines and procedures under which companies have been operated. In most cases there will be an available solution or work-around and if officers and shareholders exercise some goodwill then there is unlikely to be an insurmountable issue.