The proliferation of COVID-19 and the social distancing directives issued by provincial and federal governmental officials are causing Canadian public companies to look at alternatives to in-person annual general meetings of shareholders (AGMs) this proxy season, such as virtual or hybrid AGMs.
What are virtual and hybrid AGMs?
A virtual AGM is held entirely by electronic means, with no physical meeting location. A hybrid AGM has a physical location for the meeting, but shareholders can choose whether to participate in person or virtually. In both scenarios, shareholders can typically still cast their votes in real time and ask questions. In efforts to save costs, however, some companies have elected to conduct hybrid AGMs this year using a webcast in lieu of an interactive technology platform, which in some instances lacks the functionality necessary for voting at the AGM.
Are all companies able to hold a virtual or hybrid AGM?
In order for a company to hold a virtual or hybrid AGM, it must be permitted under its articles, by-laws and applicable corporate statute. It is important to establish whether it is possible for a company to establish quorum for the meeting electronically.
The Business Corporations Act (Ontario) (the OBCA) permits companies to hold virtual AGMs via telephonic or electronic means, and deems any shareholder who votes or establishes a communications link to the meeting through those means to be considered present at the meeting for purposes of establishing quorum, unless their articles or by-laws provide otherwise.
Other jurisdictions are not as certain or accommodating. The Canada Business Corporations Act (the CBCA), for example,permits companies to hold virtual AGMs only if: (i) their by-laws expressly permit it; and; (ii) the means used to conduct the meeting permit all participants to communicate adequately with each other during the meeting.
Current technology allows for communication between participants, the board of directors and management, however, when there are more than a few participants, meeting the requirement to have all participants communicate with each other “adequately” becomes challenging. Similar requirements exist under the Business Corporations Act (Québec) (the QBCA) and the Business Corporations Act (Alberta) (the ABCA).
The Business Corporations Act (British Columbia) (the BCBCA) permits participation in AGMs by telephonic or other means of communication, but does not specify whether AGMs may be held solely through electronic means. The BCBCA also requires that participants be able to “communicate with each other.”
A hybrid AGM can circumvent some of the challenges posed by proceeding with a virtual-only AGM. In most uncontested meetings, a company will be able to meet the quorum requirement by having the management nominees who serve as proxyholders physically in attendance, as these management nominees generally hold a sufficient number of proxies to satisfy quorum requirements. As a result, a company will not need to rely on the statutory provisions referenced above deeming shareholders who participate electronically to be “present,” while still discouraging in-person attendance and having shareholders participate electronically.
What if a virtual or hybrid AGM is not permitted?
When a company is unable to hold a virtual-only AGM as a result of its by-laws, its board of directors should generally be able to amend such by-laws in order to allow for a virtual-only AGM, and ask shareholders to ratify the amendment at the AGM.
If a company is not permitted to hold a virtual or hybrid AGM under its applicable corporate statute, it can apply for a court order allowing it do so. The OBCA, CBCA, ABCA, QBCA and BCBCA all allow a court to issue such an order, upon receiving an application by a director or shareholder entitled to vote at the AGM. A company may also apply to the court to obtain an order deferring the date of the AGM to one that is beyond the prescribed time requirements provided by the applicable corporate statute.
Other jurisdictions are also granting deferrals in the absence of court orders allowing corporations, non-profit companies and societies to postpone any upcoming AGMs until such time as provincial/local gathering restrictions have been lifted.
While court orders remain an option, courts in many jurisdictions are currently only hearing essential or urgent matters. Receiving an order may be difficult to obtain right now and, in our view, this approach should be reserved for circumstances where such an order is absolutely necessary.
On March 20, the Canadian Securities Administrators (the CSA) provided guidance on conducting AGMs during the COVID-19 pandemic. The guidance relates to all business conducted at AGMs, and notes that companies involved in proxy contests, holding special meetings for merger and acquisition transactions, or obtaining shareholder approval for transactions under Multilateral Instrument 61-101 - Protection of Minority Securityholders in Special Transactions should contact their principal regulator to discuss what steps would be appropriate in those circumstances.
The CSA also addressed the application of section 2.15 of National Instrument 54-101 - Communication with Beneficial Owners of Securities of a Reporting Issuer. Under section 2.15, a company that sends a notice of adjournment or other change related to an AGM to registered holders of its securities is required to concurrently send the notice to its beneficial owners. The CSA is of the view that no exemptive relief from section 2.15 is required by companies that are considering changes or alternatives to their AGMs, as long as their registered holders and beneficial owners are treated equally and receive the same information.
On March 23, the Toronto Stock Exchange (the TSX) issued a staff notice in response to the COVID-19 pandemic, providing temporary blanket relief from provisions in the TSX Company Manual that requires issuers to hold an AGM within six months from the end of its fiscal year.
The relief permits an issuer to hold its 2020 AGM at any time in 2020, regardless of the issuer’s fiscal year end. The TSX continues to expect issuers to comply with applicable corporate law regarding the timing of their AGM and, in order to defer the date of their AGM, an issuer must obtain a court order or look to guidance issued by their respective corporate registries. The TSX Venture Exchange also provided similar relief. See our recent CSA update here for more information.
Changing the date, time or location of an in-person AGM
The CSA is of the view that if a company has decided to change the date, time or location of its AGM due to COVID-19-related difficulties and has already sent and filed its proxy-related materials, it can notify shareholders of the change without sending additional soliciting materials or updating its proxy-related materials if the company:
- Issues a news release announcing the change in the date, time or location with clear directions on the logistical details of the virtual or hybrid AGM, including how shareholders can remotely access, participate in, and vote;
- Files the news release on SEDAR; and
- Takes all reasonable steps necessary to inform all parties involved in the proxy voting infrastructure (such as intermediaries, transfer agents, and proxy service providers) of the change.
The CSA expects companies to take the above actions promptly after making a decision to change the date, time or location of an AGM, and sufficiently in advance of the AGM to alert the market in a timely manner. If a company has not yet sent and filed its proxy-related materials, the CSA suggests that the company should consider including disclosures in its proxy-related materials regarding the possibility of such changes due to COVID-19.
Companies that decide to hold a virtual or hybrid AGM should:
- Contact legal counsel to discuss whether the company is permitted to hold a virtual or hybrid AGM and how to conduct the same within the applicable legal framework;
- Review corporate by-laws and, if required, consider amending the by-laws to allow for virtual meetings. Consideration should also be given to procedural matters found in the by-laws, including the chairperson’s powers and quorum requirements;
- Engage technology service providers and transfer agents to confirm procedure and ensure all necessary requirements can be met;
- Communicate the decision to shareholders and ensure that they are aware of why the decision has been made;
- Deliver robust disclosure in proxy-related materials on how shareholders can participate electronically in the AGM;
- Consider the business of the meeting: if the AGM may be contentious, the decision to hold a virtual or hybrid meeting may be scrutinized and accusations of supressing shareholder participation may surface;
- Establish rules of conduct and make them available before the AGM to ensure that there will be opportunity for shareholders to have their voices heard; and
- Review best practices in the Principles and Best Practices for Virtual Shareholder Meetings issued in 2018 by the Best Practices Committee for Shareowner Participation in Virtual Annual Meetings.
A decision to hold a virtual or hybrid AGM should be approached with caution and keeping best practices in mind. Accordingly, we would encourage you to contact one of the authors of this bulletin or your lawyer in BLG’s Capital Markets Group if you would like to discuss whether your company can hold a virtual or hybrid AGM and how such a meeting can be accomplished.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.