Guidance for conducting virtual AGMs in response to COVID-19
By Jessica Brown, Lindsay Cox and Jeff Holloway
In response to the ongoing COVID-19 pandemic, Canadian issuers are exploring alternative options for conducting their annual general meetings (AGMs). With the Alberta Government and other governments across the country implementing travel bans, restrictions on social gatherings and social distancing measures, it has become necessary for some Canadian companies to explore whether they can hold their AGMs remotely rather than in person. Securities regulators and other regulatory authorities are aware that many issuers are considering virtual alternatives for their AGMs and have provided some relief and guidance on how these meetings can be conducted while remaining in compliance with applicable securities laws and regulations.
This article briefly identifies and summarizes some of the key considerations issuers existing under Alberta or federal corporate statutes should be aware of when exploring virtual-only AGM alternatives. The discussion below focuses on key considerations for AGMs only. Issuers conducting meetings involving non-routine special business, proxy contests, business combination transactions or obtaining securityholder approvals for a transaction for which Multilateral Instrument 61-101 – Protection of Minority Securityholders in Special Transactions applies, should contact a member of our Business Law Group to discuss appropriate considerations.
Is an issuer permitted to conduct a virtual-only AGM?
Whether an issuer is permitted to hold a virtual-only AGM will depend on its organizing statute and its constating documents. Generally, an issuer existing under the Business Corporations Act (Alberta) (the ABCA) or the Canada Business Corporations Act (the CBCA) will be entitled to hold a virtual-only AGM so long as (i) the issuer's by-laws specifically provide that a meeting of shareholders may be held entirely by electronic means, and (ii) shareholders are able to participate and vote electronically and can "communicate adequately with each other during the meeting". An issuer considering a virtual-only AGM should review their current articles and by-laws to confirm that there are no restrictions on where or how the meeting is conducted. If the issuer's constating documents do not permit meetings of shareholders to be held entirely by electronic means, or if the AGM is required to be held at a specified place, the issuer may need to consider amending or replacing its articles and/or by-laws before going forward with a virtual-only AGM.
Another key consideration for whether an issuer can hold a virtual-only AGM is whether quorum can be established if the meeting is held by virtual means only. For a virtual-only AGM, shareholders participating electronically need to be considered as "present" at the meeting for quorum purposes. Under both the ABCA and the CBCA, a shareholder participating at an AGM entirely by electronic means will, subject to the issuer's by-laws, be deemed to be present at the meeting. Issuers should review their by-laws to ensure their quorum requirements can be satisfied at a virtual-only AGM.
Can an AGM be postponed or adjourned?
Under Section 132 of the ABCA, an issuer is required to call and hold an AGM on a date that is no later than: (i) 18 months after the date of its incorporation or amalgamation; and (ii) subsequently, 15 months after its last preceding AGM. The CBCA similarly requires that an AGM be called on a date that is no later than: (i) 18 months after the date it came into existence; and (ii) subsequently, 15 months after its most recent AGM, but no later than six months after the end of the issuer's preceding financial year. Issuers listed on the Toronto Stock Exchange (TSX) are also typically required to hold their AGM within six months of their fiscal year end and the policies of the TSX Venture Exchange (TSXV) mirror those of the ABCA.
The TSX and the TSXV have each issued temporary relief for their listed issuers, providing that issuers may postpone and hold their AGM on any date in the 2020 calendar year. However, similar relief has not been provided from the provisions of the CBCA and, as such, the deadlines noted above will continue to apply. If an issuer organized under the CBCA wishes to postpone its AGM to a date that falls outside of the time frames noted above, it may need to obtain a court order to extend the deadline.
On April 9, 2020, the Government of Alberta issued a Ministerial Order (the Order) which included an order that suspended "any obligation to convene an in-person meeting" under Section 132 of the ABCA and further provides that nothing precludes an issuer from conducting a meeting through remote means, such as videoconference, teleconference or other means. Unfortunately, it is unclear what the intent of the Order is in relation to the required timing to hold a shareholder meeting, as Section 132 of the ABCA does not impose any obligations to hold an in-person shareholder meeting, nor does it speak to forms of remote meetings. As such, without further clarification or a new order from the Government of Alberta, the Order does not provide any relief to issuers organized under the ABCA who wish to postpone their AGM beyond the ABCA imposed deadlines without a court order nor any relief to those who wish to hold virtual-only AGMs without amending their constating documents.
It is noted that the Government of Ontario has explicitly temporarily suspended the provisions of the Business Corporations Act (Ontario) requiring AGMs to be held within a 15 month period, which more closely aligns with the relief provided by the TSX and TSXV, and has also temporarily amended the legislation to allow for forms of electronic meetings without requiring an issuer to amend their constating documents.
Shareholders must be adequately notified of a virtual-only AGM or a hybrid AGM
An issuer who has chosen to conduct a virtual-only AGM or a hybrid AGM (as discussed below) must adequately inform both registered and beneficial shareholders of the change. The Canadian Securities Administrators (CSA) has published guidance to assist issuers in adopting virtual-only or hybrid AGMs while still fulfilling their obligations under applicable securities legislation. The CSA expects issuers to notify shareholders in a timely manner of its plans to conduct a virtual-only AGM or hybrid AGM and to provide clear directions and logistical details about how the meeting will be conducted, including instructions on how they can access, participate in and vote at the virtual-only or hybrid AGM.
If the issuer has not yet distributed and filed its proxy materials, then the details of the virtual-only AGM or hybrid AGM must be included in its proxy materials for the AGM. If the issuer has not yet decided whether it will conduct its AGM entirely by electronic means, in person or as a hybrid AGM, language should be included in the proxy materials advising shareholders that a decision will be made at a later point and setting out how shareholders will be notified. Any such language included in the proxy materials should clearly explain the issuer's decision to adopt the virtual-only or hybrid meeting format, along with clear and detailed instructions on how to attend and vote at the AGM.
If the issuer has already distributed its proxy materials to shareholders, the CSA guidance provides that they do not need to prepare and re-distribute additional proxy materials to shareholders for the sole purposes of switching to a virtual-only or hybrid AGM. Instead, the CSA has indicated that to adequately notify shareholders of the change, an issuer will need to promptly:
- issue a news release announcing the change, including abundant detail on how to access and participate in the AGM electronically and any minimum technology requirements to do so;
- file the news release on SEDAR; and
- take all reasonable steps to inform all parties involved in the proxy voting infrastructure of the change, including the issuer's transfer agent and intermediaries.
The CSA guidance also provides that any issuers considering changes or alternatives to their AGMs must send the notices in a manner such that their registered holders and beneficial holders are treated equally and receive the same information.
Generally, regardless of whether shareholders are notified of the virtual-only AGM by way of language in the proxy materials or by way of an update news release, full and transparent disclosure in this regard should include the following, as recommended by Glass Lewis and current best practices followed for virtual-only meetings in the United States:
- addressing the ability of shareholders to ask questions during the virtual-only meeting, including time guidelines for shareholder questions, rules around what types of questions are allowed, and rules for how questions and comments will be recognized and disclosed to meeting participants;
- procedures, if any, for posting appropriate questions received during the virtual-only meeting, and the issuer's answers, on the investor page of their website as soon as is practical after the meeting;
- addressing technical and logistical issues related to accessing the virtual meeting platform; and
- procedures for accessing technical support to assist in the event of any difficulties accessing the virtual-only meeting.
Issuers should also consider any other notice requirements under its organizing statute when changing to a virtual-only or hybrid AGM. For example, under the ABCA, shareholders must be given at least 21 days' notice of the time and place of the AGM and, unless consent to electronic delivery has been obtained from shareholders, such notice is to be delivered by mail or personal delivery. The 21 day notice period would still apply where the issuer has already delivered proxy materials to shareholders and is advising shareholders that there has been a change from a physical location to a virtual-only or hybrid meeting. If the issuer is unable to provide at least 21 days' notice of the change, a court order may be required to allow a shorter notice period and/or a modified form of delivery of such notice to shareholders. Given the limited number of applications being heard as a result of court closures due to the COVID-19 pandemic, an issuer may be unable to obtain a court order in a timely manner or at all, in which case issuers must decide whether to proceed without a court order and/or discuss with their legal advisors whether steps may be taken at a later time to ratify and confirm any actions.
Technological considerations for virtual-only AGMs
An issuer choosing to conduct a virtual-only AGM needs to ensure the platform used is sufficient for shareholder participation. The platform should include, at a minimum, certain features to support electronic voting, balloting and quorum counting. The platform must also be capable of ensuring all shareholders are equally able to participate in the meeting. The issuer's transfer agent will need to be able to work with the platform provider in order to ensure the issuer's quorum requirements have been satisfied and to count and tally final voting results for all matters raised at the meeting. There are currently only a limited number of companies that are capable of providing platforms to facilitate virtual-only meetings in Canada and an issuer should contact them as soon as possible if they are interested in booking this type of meeting.
The issuer will also need to ensure that the platform used provides adequate means for shareholders and all participants to communicate adequately with each other during the meeting. While this is a statutory requirement under the ABCA and the CBCA, the interpretation of "communicate adequately" is vague and Canadian courts have not yet judicially addressed its meaning. As such, some shareholders or other market participants may have concerns over whether the chosen platform is suited to facilitate adequate communication amongst participants. However, given the steps being taken by governments and regulatory authorities across the country to afford relief to issuers in response to the COVID-19 pandemic, the risk of a participant successfully challenging an issuer holding a virtual-only AGM on the basis of inadequate communication appears to be very low so long as the issuer's constating documents permit a meeting entirely by electronic means, shareholders have received appropriate information with respect to how to attend and participate at the meeting, and the issuer has otherwise complied with the guidance provided by the CSA.
Alternatives to a virtual-only AGM
In addition to conducting an AGM entirely by electronic means, an issuer may also consider the following alternative meeting formats:
The issuer can choose to continue with an in-person meeting in the normal course, but restrict access to the AGM to only those persons legally entitled to attend the AGM in accordance with the issuer's by-laws and organizing statute, which typically include registered shareholders and duly appointed proxyholders, the Chair, members of the board of directors, the issuer's auditors and the secretary and scrutineers of the AGM. In this scenario, shareholders should be urged in the proxy materials and any other public disclosure to vote their shares via proxy in advance of the AGM. The issuer may also consider including a webcast or teleconference of the AGM so that shareholders, including beneficial shareholders, can view the meeting online or listen to the meeting if they are unable or prohibited from attending in person. However, shareholders viewing the webcast or participating by teleconference would not be deemed as present at the meeting and therefore would not be able to vote, other than by proxy, and would not be counted towards quorum requirements. Issuers choosing to continue with an in-person meeting will also need to comply with any government-mandated restrictions on social gatherings. The Alberta Government has currently restricted the size of group gatherings to no more than 15 people in one location and any such gatherings must also be held at a location that allows for at least two metres to be kept between attendees to comply with mandatory physical distancing requirements.
A hybrid meeting is a mix of an in-person meeting and a virtual meeting where the issuer conducts the AGM at a physical location, but also affords shareholders and duly appointed proxyholders the opportunity to participate and vote electronically—provided the chosen technology platform allows it—if they so choose. Having a physical location for the meeting can eliminate concerns about satisfying quorum requirements because, for an uncontested meeting, the management nominees who serve as designated proxy holders in the issuer's form of proxy will typically hold sufficient proxies to satisfy quorum. If the management nominees are physically in attendance, it will not be necessary to rely on statutory provisions that deem a shareholder participating electronically to be present at the meeting in order to properly constitute the meeting. Additionally, proxy advisory firms have historically favored hybrid meetings as an AGM format as shareholders are afforded the right to appear at the meeting in person if they so desire. However, as previously noted, participants will be required to adhere to the current restrictions on gathering sizes imposed by the government in the jurisdiction where the AGM is to be held and, as a result, the issuer may still be required to restrict attendance in-person at a hybrid AGM to those legally entitled to attend in accordance with the issuer's constating documents and organizing statue.
Proxy advisory firms' expectations
While proxy advisory firms have not typically been in favour of issuers holding their AGMs in a virtual-only format, Glass Lewis and Institutional Shareholder Services (ISS) have recently taken steps to provide updates to their guidelines in light of the risks and health concerns presented by the COVID-19 pandemic and the growing necessity of conducting virtual-only AGMs in the circumstances. Due to concerns that virtual-only AGMs limit shareholders' ability to meaningfully communicate with management, Glass Lewis would typically recommend voting against members of an issuer's governance committee where the issuer's proxy materials do not provide robust disclosure assuring shareholders that they will be afforded the same participation rights as they would have been afforded at an in-person meeting. This policy has been suspended for virtual-only AGMs slated to be held up until June 30, 2020, provided the issuer, at a minimum, cites the pandemic as its rationale for conducting a virtual-only AGM. While ISS does not currently have a formal voting policy and has not provided any commentary with respect to virtual-only meetings in Canada, in light of the COVID-19 pandemic, it has similarly encouraged issuers to disclose the rationale for their decision to go forward with a virtual-only AGM and to strive to provide shareholders with a meaningful opportunity to participate, including providing the ability for shareholders to ask questions of directors and senior management and to engage in a dialogue. ISS has also indicated that they encourage boards to indicate in their proxy materials a commitment to a return to in-person or hybrid meetings as soon as practicable.
Key go-forward considerations
In addition to the recommendations and discussion above, issuers considering adopting a virtual-only AGM or hybrid AGM should consider the following recommended best practices:
- Consult regularly with legal counsel to stay abreast of the latest recommendations and policies from regulatory authorities, public health bodies and other interested stakeholders. The legal and regulatory environment in light of the COVID-19 pandemic continues to be fluid and it is expected that additional updates and guidance applicable to AGMs will be periodically released.
- Consider the items to be voted on and business to be dealt with at the meeting when deciding on a meeting format. For example, an issuer should consider whether a meeting dealing with non-routine special business, controversial proposals or matters subject to significant shareholder dissent can appropriately dealt with at a virtual-only or hybrid meeting.
- Provide shareholders with proper notice and details on how to access and participate electronically at virtual-only or hybrid AGM, including what technology platform they will need to use and detailed instructions for their electronic participation. Also ensure that the technology platform selected is capable of accommodating adequate communication among shareholders and with senior management and test the platform in advance of the meeting.
- Ensure shareholders are provided with an opportunity for meaningful engagement with the issuer's directors and senior management. It is important for virtual participants to have the opportunity to see, hear and ask questions of board members and independent board leadership. Consider allowing shareholders to submit questions in advance of the meeting.
- Create formal rules of conduct and reasonable time guidelines with respect to shareholder participation. Any rules and guidelines should be communicated to shareholders before or at the commencement of the meeting.
- Consider recording the virtual meeting and archiving any questions received from shareholders in connection with the meeting, and keep such information publicly available on the issuer's website for at least a year. At a minimum, issuers should consider posting the recording and any questions and responses from the meeting on their website following the meeting.
- Consider having a technical support line available for shareholders before and during the meeting.
- If a virtual-only meeting is not practicable and the issuer must hold an in-person meeting, strongly encourage shareholders to vote by proxy ahead of the meeting and not to attend in person, if possible.
Government of Alberta Ministerial Order: https://open.alberta.ca/dataset/53370c8c-05bb-4edf-a533-6fcb1a2006cb/resource/2ec92c93-d2c7-4c11-8434-7472744a6218/download/sa-mo-2020-009-changes-to-requirements-re-time-location-distance.pdf
TSX Staff Notice providing COVID-19 relief: https://decisia.lexum.com/tsx/sn/en/item/466093/index.do
TSX-V bulletin providing COVID-19 relief: https://www.tsx.com/resource/en/2230
Glass Lewis policy guidelines: https://www.glasslewis.com/wp-content/uploads/2016/11/Guidelines_Canada.pdf
ISS guidance for impacts of COVID-19: https://www.issgovernance.com/file/policy/active/americas/ISS-Policy-Guidance-for-Impacts-of-the-Coronavirus-Pandemic.pdf
Broadridge principles and best practices for virtual annual shareowner meetings: https://www.broadridge.com/_assets/pdf/broadridge-vasm-guide.pdf